<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)
(AMENDMENT NO. ___)*
INLAND RESOURCES INC.
- -------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $0.001 per share
- -------------------------------------------------------------------------------
(Title of Class of Securities)
457469-20-3
----------------
(CUSIP Number)
Michael E. Cahill, Esq.
Managing Director & General Counsel
The TCW Group, Inc.
865 South Figueroa Street, Ste. 1800
Los Angeles, California 90017
(213) 244-0000
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
September 21, 1999
- -------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box. / /
NOTE: schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 18 Pages)
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
<TABLE>
CUSIP NO. 457469-20-3 PAGE 2 OF 18 PAGES
------------ --- ----
<S> <C>
===============================================================================
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The TCW Group, Inc.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/ /
(b)/X/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not applicable.
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) / /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Nevada
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
0
------------------------------------------------------------
SHARES
8 SHARED VOTING POWER
BY
17,525,850
------------------------------------------------------------
EACH
9 SOLE DISPOSITIVE POWER
REPORTING
0
------------------------------------------------------------
PERSON WITH
10 SHARED DISPOSITIVE POWER
17,525,850
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,525,850
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
60.48%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
HC, CO
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
</TABLE>
-1-
<PAGE>
SCHEDULE 13D
- ---------------------- ---------------------------
CUSIP NO. 457469-20-3 PAGE 3 OF 18 PAGES
- ---------------------- ---------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Robert A. Day
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/ /
(b)/X/
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not applicable.
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) / /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
----------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BY 17,525,850
----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
----------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
17,525,850
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,525,850
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
60.48%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN, HC
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
-2-
<PAGE>
SCHEDULE 13D
- ---------------------- ---------------------------
CUSIP NO. 457469-20-3 PAGE 4 OF 18 PAGES
- ---------------------- ---------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Trust Company of the West
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/X/
(b)/ /
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) / /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
----------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BY 17,525,850
----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
----------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
17,525,850
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,525,850
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
60.48%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO, HC
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
-3-
<PAGE>
SCHEDULE 13D
- ------------------------ -------------------------------
CUSIP NO. 457469-20-3 PAGE 5 OF 18 PAGES
- ------------------------ -------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
TCW Asset Management Company
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/ /
(b)/X/
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not applicable.
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED / /
PURSUANT TO ITEMS 2(d) OR 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
0
--------------------------------------------------------------
SHARES
8 SHARED VOTING POWER
BY
17,525,850
--------------------------------------------------------------
EACH
9 SOLE DISPOSITIVE POWER
REPORTING
0
--------------------------------------------------------------
PERSON WITH
10 SHARED DISPOSITIVE POWER
17,525,850
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,525,850
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES / /
CERTAIN SHARES*
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
60.48%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO, IA
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
-4-
<PAGE>
SCHEDULE 13D
- --------------------------- -------------------------------
CUSIP NO. 457469-20-3 PAGE 6 OF 18 PAGES
- --------------------------- -------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
TCW Royalty Company V
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/ /
(b)/X/
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not applicable.
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED / /
PURSUANT TO ITEMS 2(d) OR 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
0
--------------------------------------------------------------
SHARES
8 SHARED VOTING POWER
BY
17,525,850
--------------------------------------------------------------
EACH
9 SOLE DISPOSITIVE POWER
REPORTING
0
--------------------------------------------------------------
PERSON WITH
10 SHARED DISPOSITIVE POWER
17,525,850
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,525,850
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES / /
CERTAIN SHARES*
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
60.48%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO, HC
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
-5-
<PAGE>
SCHEDULE 13D
- ----------------------------- --------------------------------
CUSIP NO. 457469-20-3 PAGE 7 OF 18 PAGES
----------- ----- -----
- ----------------------------- --------------------------------
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P.
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/X/
(b)/ /
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) / /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
----------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BY 17,525,850
----------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
----------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
17,525,850
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,525,850
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
60.48%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
-6-
<PAGE>
SCHEDULE 13D
- ------------------------------ -----------------------------------
CUSIP NO. 457469-20-3 PAGE 8 OF 18 PAGES
----------- ---- -----
- ------------------------------ -----------------------------------
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Inland Holdings LLC
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)/X/
(b)/ /
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO, AF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e) / /
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
- -------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
--------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BY 17,525,850
--------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
--------------------------------------------------------
PERSON WITH 10 SHARED DISPOSITIVE POWER
17,525,850
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,525,850
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* / /
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
60.48%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- -------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
-7-
<PAGE>
ITEM 1. SECURITY AND ISSUER
This Statement relates to the Common Stock, par value $0.001 per share
("Common Stock"), of Inland Resources Inc., a Washington corporation (the
"Issuer"). The address of the principal executive office of the Issuer is
410 17th Street, Suite 700, Denver, Colorado 80202.
ITEM 2. IDENTITY AND BACKGROUND
This Statement is filed on behalf of
(1) The TCW Group, Inc., a Nevada corporation ("TCWG");
(2) Robert A. Day, an individual;
(3) Trust Company of the West, a California trust company and wholly-owned
subsidiary of TCWG ("TCW");
(4) TCW Asset Management Company, a California corporation and
wholly-owned subsidiary of TCWG ("TAMCO");
(5) TCW Royalty Company V, a California corporation and wholly-owned
subsidiary of TAMCO ("TCW Royalty");
(6) TCW Portfolio No. 1555 DR V Sub-Custody Partners, L.P., a California
limited partnership, (hereinafter referred to as "Portfolio") of which
TCW Royalty is the managing general partner;
(7) Inland Holdings LLC, a California limited liability company
("Holdings"), of which Portfolio and TCW, as Sub-Custodian for Mellon
Bank for the benefit of Account No. CPFF 873-3032 ("TCW as
Sub-Custodian") are the members;
TCW Royalty, Portfolio, TCW as Sub-Custodian, and Holdings are hereinafter
collectively referred to as the "Royalty Entities." TCWG, TCW (except TCW as
Sub-Custodian), TAMCO, Robert Day and the Royalty Entities are hereinafter
collectively referred to as the "TCW Related Entities."
Mr. Day acts as Chairman of the Board and Chief Executive Officer of TCWG.
Additionally, Mr. Day may be deemed to control TCWG, although he disclaims
control and disclaims beneficial ownership of any securities owned by the TCW
Related Entities.
TCWG is a holding company of entities involved in the principal business of
providing investment advice and management services. TCW is a trust company
which provides investment management services, including investment
management services to the Royalty Entities. TAMCO is an investment adviser
and provides investment advice and management services to institutional and
individual investors. The TCW Royalty is an investment company which invests
in securities and other obligations of entities. Portfolio is an investment
partnership which invests in securities and other obligations of entities.
Holdings is a limited liability company which holds
-8-
<PAGE>
the Royalty Entities' interests in the Issuer. The address of the principal
business and principal office for the TCW Related Entities is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017.
(a)-(c) & (f)
(i) The executive officers of TCWG are listed below. The principal business
address for each executive officer is 865 South Figueroa Street, Suite 1800,
Los Angeles, California 90017. Each executive officer is a citizen of the
United States of America unless otherwise specified below:
<TABLE>
<CAPTION>
Executive Officers
- ------------------
<S> <C>
Robert A. Day Chairman of the Board & Chief Executive Officer
Ernest O. Ellison Vice Chairman of the Board
Marc I. Stern President
Alvin R. Albe, Jr. Executive Vice President, Finance & Administration
Thomas E. Larkin, Jr. Executive Vice President & Group Managing Director
Michael E. Cahill Managing Director, General Counsel & Secretary
William C. Sonneborn Managing Director, Chief Financial Officer &
Assistant Secretary
</TABLE>
Schedule I attached hereto and incorporated herein sets forth with respect to
each director of TCWG his name, residence or business address, citizenship,
present principal occupation or employment and the name, principal business
and address of any corporation or other organization in which such employment
is conducted.
(ii) The executive officers and directors of TCW are listed below. The
principal business address for each executive officer and director is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017. Each executive
officer is a citizen of the United States of America unless otherwise
specified below:
<TABLE>
<CAPTION>
Executive Officers & Directors
- ------------------------------
<S> <C>
Robert A. Day Chairman of the Board & Chief Executive Officer
Ernest O. Ellison Director, Vice Chairman & Chairman, Investment
Policy Committee
Thomas E. Larkin, Jr. Director & President
Alvin R. Albe, Jr. Director & Executive Vice President, Finance &
Administration
Marc I. Stern Director, Executive Vice President, Group Managing
Director
Michael E. Cahill Managing Director, General Counsel & Secretary
William C. Sonneborn Managing Director, Chief Financial Officer &
Assistant Secretary
</TABLE>
(iii) The executive officers and directors of TAMCO are listed below. The
principal business address for each executive officer, director and portfolio
manager is 865 South Figueroa Street, Suite 1800, Los Angeles, California,
90017. Each executive officer and director is a citizen of the United States
of America unless otherwise specified below:
<TABLE>
<CAPTION>
Executive Officers & Directors
- ------------------------------
<S> <C>
Robert A. Day Chairman of the Board & Chief Executive Officer
Thomas E. Larkin, Jr. Director & Vice Chairman of the Board
Marc I. Stern Director, Vice Chairman of the Board and President
Alvin R. Albe, Jr. Director, Executive Vice President, Finance &
Administration
-9-
<PAGE>
Michael E. Cahill Director, Managing Director, General Counsel &
Secretary
William C. Sonneborn Director, Managing Director, Chief Financial Officer
& Assistant Secretary
Mark L. Attanasio Director, Group Managing Director & Chief Investment
Officer -
Below Investment Grade Fixed Income
Philip A. Barach Director, Group Managing Director & Chief Investment
Officer - Investment Grade Fixed Income
Javier Baz Director, Managing Director & Chief Investment
Officer - International
Robert D. Beyer Director & Group Managing Director
Glen E. Bickerstaff Director & Managing Director
Nicola F. Galluccio Director & Managing Director
Arthur R. Carlson Director & Managing Director
Gerard B. Finneran Director & Managing Director
Douglas S. Foreman Director, Group Managing Director & Chief Investment
Officer - U.S. Equities
Mark W. Gibello Director & Managing Director
Jeffrey E. Gundlach Director & Group Managing Director
Raymond F. Henze III Director & Group Managing Director
Stephen McDonald Director & Managing Director
Jeffrey V. Peterson Director & Managing Director
Komal S. Sri-Kumar Director & Managing Director
</TABLE>
(iv) The executive officers and directors of TCW Royalty are listed below.
The principal business address for each executive officer, director and
portfolio manager is 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. Each executive officer and director is a citizen of the
United States of America unless otherwise specified below:
<TABLE>
<CAPTION>
Executive Officers & Directors
- ------------------------------
<S> <C>
Alvin R. Albe, Jr. Director and President
Robert A. Day Chairman of the Board
Arthur R. Carlson Director & Vice President
Peter A. Brown Vice President
David S. DeVito Vice President
George R. Hutchinson Vice President
Thomas F. Mehlberg Vice President
William C. Sonneborn Vice President, Chief Financial Officer & Treasurer
Michael E. Cahill Secretary
</TABLE>
(v) TCW Royalty is the managing general partner of Portfolio. All other
partners of Portfolio are TCW Related Entities. See information in
paragraph (iv) above regarding the officers and directors of TCW Royalty.
(vi) Portfolio and TCW as Sub-Custodian are the only members of Holdings.
See information in paragraphs (ii) and (v) above regarding officers,
directors and managing general partners, as the case may be of each of TCW
and Portfolio.
-10-
<PAGE>
(d)-(e)
During the last five years, neither TCWG, TCW, TAMCO, the Royalty Entities,
nor, to the best of their knowledge, any of their respective executive
officers, directors and general partners (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors); or (ii) has
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceedings was or is subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities
laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
On August 23, 1999, the Issuer announced its intention to consummate a
recapitalization. By the terms of the restructuring, the Issuer issued
redeemable preferred stock having an initial liquidation preference of
approximately $92 million and Common Stock of the Issuer to Holdings and
Joint Energy Development Investments II Limited Partnership, a Delaware
limited partnership ("JEDI") in exchange for cancellation of certain
indebtedness of Inland Production Company, a Texas corporation and a
wholly-owned subsidiary of the Issuer ("IPC") and cancellation of the
Issuer's Series C Preferred Stock. In addition, holders of the new redeemable
preferred stock are entitled to elect five of six members of the Issuer's
board of directors.
In connection with such recapitalization, on September 21, 1999, the Issuer,
IPC, and Inland Refining, Inc., a Utah corporation and a wholly-owned
subsidiary of the Issuer ("Refining") entered into an Exchange Agreement (the
"Exchange Agreement") with TCW as Sub-Custodian Portfolio, Holdings and JEDI.
Pursuant to the Exchange Agreement, TCW as Sub-Custodian, holder of an
aggregate of $75 million in principal amount of junior secured debt of IPC
(the "TCW Debt"), and Portfolio, holder of warrants to purchase 158,512
shares of the Issuer's Common Stock (the "Portfolio Warrants"), exchanged the
TCW Debt (plus accrued and unpaid interest thereon) and the Portfolio
Warrants for (a) 11,642,949 shares of the Issuer's Common Stock, (b) 5,882,901
shares of the Issuer's Series Z Convertible Preferred Stock (the "Series Z
Preferred Stock") and (c) 10,757,747 shares of the Issuer's Series D
Redeemable Preferred Stock (the "Series D Preferred Stock"). The Series Z
Preferred Stock votes with the Issuer's Common Stock in all cases (except as
provided under Washington law with respect to the Series Z Preferred Stock
voting as a separate class), has a liquidation preference of $.002 per share
and is convertible into the Issuer's Common Stock on a one-for-one basis
automatically upon filing of an amendment with the Washington Secretary of
State increasing the authorized number of shares of Common Stock of the
Issuer.
ITEM 4. PURPOSE OF TRANSACTION
The shares of the Issuer's Common Stock, the Series Z Preferred Stock and the
Series D Preferred Stock were acquired in consideration for the cancellation
of the TCW Debt, the Portfolio Warrants and the Royalty Entities' secured
interest in the assets and properties of the Issuer. Based on continuing
evaluation of the Issuer's businesses and prospects, alternative investment
opportunities and all other factors deemed relevant in determining whether
additional shares of the Issuer's Common Stock will be acquired, additional
shares of Common Stock may be acquired in the open market or in privately
negotiated transactions, or some or all of the shares of the Issuer's
-11-
<PAGE>
Common Stock may be sold. Because the Royalty Entities beneficially own
60.48% of the Issuer's Common Stock, they may be deemed, either individually
or in the aggregate, to have control of the Issuer. Except as set forth
elsewhere in this Schedule 13D, Holdings and the other TCW Related Entities
have made no proposals and have entered into no agreements which would be
related to or would result in any of the matters described in Items 4(a)-(j)
of Schedule 13D; however, as part of their ongoing review of investment
alternatives, the TCW Related Entities may consider such matters in the
future and, subject to applicable laws, may formulate a plan with respect to
such matters subject to applicable law, and, from time to time, the TCW
Related Entities may hold discussions with or make formal proposals to
management or the Board of Directors of the Issuer, other stockholders of the
Issuer or other third parties regarding such matters.
ITEM 5. INTEREST AND SECURITIES OF THE ISSUER
(a) As of the date of this Schedule 13D, Holdings holds 11,642,949 shares
of the Issuer's Common Stock and 5,882,901 shares of the Issuer's Series Z
Preferred Stock (which preferred stock votes on a one-for-one basis with the
Common Stock and is automatically convertible into Common Stock on a
one-for-one basis upon filing of an amendment to the Issuer's Articles of
Incorporation increasing the authorized number of Common Stock of the Issuer,
which may occur within 60 days following the date hereof). The shares of
Common Stock and Series Z Preferred Stock of the Issuer held by Holdings
represent approximately 60% of the Common Stock of the Issuer on a
fully-diluted basis.
Each of the TCW Related Entities other than Holdings, as a parent corporation
or partnership or as a managing partner or member of Holdings, may be deemed
to beneficially own the shares of the Issuer held by Holdings. Each of TCWG,
Robert Day, TAMCO and TCW (other than in its capacity as TCW as Sub-Custodian)
disclaims beneficial ownership of the Issuer's Common Stock (or Common Stock
equivalents) reported herein and the filing of this Statement shall not be
construed as an admission that such entities and individuals are the
beneficial owners of any securities covered by this Statement.
(b) TCW as Sub-Custodian and Portfolio, as the members of Holdings, have
discretionary authority and control over all of the assets of Holdings
pursuant to the Operating Agreement of Holdings, including the power to vote
and dispose of the Issuer's Common Stock and Series Z Preferred Stock held by
Holdings. Therefore, TCW, as Sub-Custodian, and Portfolio collectively have
the power to vote and dispose of 11,642,949 shares of the Issuer's Common
Stock and 5,882,901 shares of the Issuer's Series Z Preferred Stock.
In addition, TCW Royalty, as the managing general partner of Portfolio, has
the discretionary authority and control, together with TCW as Sub-Custodian,
over all of the Royalty Entities including the power to vote and dispose of
the Issuer's Common Stock and Series Z Preferred Stock held in the name of
the Holdings. Therefore, TCW Royalty has the power, together with TCW as
Sub-Custodian, to vote and dispose of 11,642,949 shares of the Issuer's
Common Stock and 5,882,901 shares of the Issuer's Series Z Preferred Stock.
TAMCO, as the parent corporation of TCW Royalty and as the investment manager
of the Royalty Entities also has the power, together with TCW as
Sub-Custodian, to vote and dispose of the shares of the Issuer's Common Stock
and Series Z Preferred Stock held by Holdings referenced
-12-
<PAGE>
above. Therefore, TAMCO has the power, together with TCW as Sub-Custodian, to
vote and dispose of 11,642,949 shares of the Issuer's Common Stock and
5,882,901 shares of the Issuer's Series Z Preferred Stock.
TCWG, as the parent corporation of TCW and TAMCO, and Robert Day, the
Chairman of the Board of TCWG, may be deemed to beneficially own shares of
the Issuer's Common Stock and Series Z Preferred Stock held by the other TCW
Related Entities (which holdings constitute 11,642,949 shares of the Issuer's
Common Stock and 5,882,901 shares of the Issuer's Series Z Preferred Stock
(or approximately 60.48% of the Issuer's Common Stock on a fully-diluted
basis)). TCWG, TCW, TAMCO and Mr. Day each disclaims beneficially ownership
of the shares of the Issuer's Common Stock (and Common Stock equivalents)
reported herein and the filing of this Statement shall not be construed as an
admission that any such entity is the beneficial owner of any securities
covered by this statement.
(c) Except for the purchases by the Royalty Entities described herein, none
of the TCW Related Entities, and to the best of their knowledge, none of
their respective executive officers, directors, or general partners has
effected transactions involving the Issuer's Common Stock (or Common Stock
equivalents) during the last 60 days. The TCW Related Entities, and each of
the individuals listed in Item 2 disclaim beneficial ownership of the shares
of the Issuer's Common Stock (or Common Stock equivalents) reported herein
(except for the shares owned directly by such entities or individuals) and
the filing of this Statement shall not be construed as an admission that any
such person is the beneficial owner of any securities covered by this
Statement.
(d) None
(e) Not applicable
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
The Issuer, TCW as Sub-Custodian, Holdings, JEDI and certain other existing
shareholders of the Issuer entered into a Shareholders Agreement dated
September 21, 1999 (the "Shareholders Agreement") in connection with the
above-described recapitalization of the Issuer and IPC. The Shareholders
Agreement provides that each of the parties thereto may freely transfer their
respective securities of the Issuer; provided, however, that parties to the
Shareholders Agreement other than the Issuer and any TCW Related Entities may
tag-along their shares of Common Stock with certain sales by Holdings and its
affiliates and that the TCW Related Entities and their affiliates may drag
along shares of Common Stock held by JEDI and the other shareholders party to
such agreement under certain circumstances. The Shareholders Agreement also
provides that each shareholder-party will take all necessary actions to keep
the Issuer's Board of Directors fixed at six members and that one member of
the Board of Directors of the Issuer will be elected by the holders of the
Common Stock and the Series Z Preferred Stock voting together. Under certain
circumstances, including the ability to appoint a minimum number of directors
through its Series D Preferred Stock and the exercise of certain Common Stock
holders of their right to vote for the election of directors, Holdings and
its affiliates have agreed not to vote their shares of Common Stock and
Series Z Preferred Stock in the election of directors by the holders of the
Common Stock.
-13-
<PAGE>
Additionally, if TCW as Sub-Custodian, Holdings or Portfolio, desires to
purchase additional shares of the Issuer's Common Stock, such entities have
agreed to first offer to purchase such shares from the other parties to the
Shareholders Agreement, including JEDI.
The Issuer, Portfolio, Holdings, JEDI and certain other shareholders of the
Issuer entered into a Registration Rights Agreement dated as of September 21,
1999 (the "Registration Rights Agreement") with respect to shares of Common
Stock of the Issuer held by the parties thereto after the recapitalization
transaction. The Registration Rights Agreement provides that each of the
parties to such agreement shall have demand and piggyback registration rights.
Pursuant to the Exchange Agreement, Holdings and JEDI may be entitled to
receive options to purchase additional shares of the Issuer's Common Stock
upon exercise by management of certain of their outstanding options or
warrants to purchase the Issuer's Common Stock. The amount of additional
shares of the Issuer's Common Stock for which such options may be exercisable
will be equal to (i) two times the number of shares underlying such an
exercised management warrant or option in the case of Holdings, and
(ii) one-third of the number of shares underlying such an exercised
management warrant or option in the case of JEDI. The exercise price of the
contingent options, if any, that are to be issued to Holdings or JEDI upon
exercise of certain management options and warrants shall be the same as the
exercise price of the exercised management options and warrants.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The following are filed herewith as Exhibits to this Schedule 13D:
Exhibit 1 -- Exchange Agreement dated as of September 21, 1999 by and between
the Issuer, TCW as Sub-Custodian, Portfolio, Holdings and JEDI
Exhibit 2 -- Registration Rights Agreement dated as of September 21, 1999 by
and between the Issuer, Portfolio, Holdings, JEDI and certain
other shareholders
Exhibit 3 -- Shareholders Agreement dated as of September 21, 1999 by and
between the Issuer, TCW as Sub-Custodian, Holdings, JEDI and
certain other shareholders
Exhibit 4 -- Form of Contingent Option
-14-
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certify that the information set forth in this Statement is true,
complete and correct.
Dated as of this 1st day of October, 1999.
THE TCW GROUP, INC.
By: /s/ Susan Marsch
--------------------------------
Name: Susan Marsch
Title: Authorized Signatory
TRUST COMPANY OF THE WEST
By: /s/ Susan Marsch
--------------------------------
Name: Susan Marsch
Title: Authorized Signatory
TCW ASSET MANAGEMENT COMPANY
By: /s/ Susan Marsch
--------------------------------
Name: Susan Marsch
Title: Authorized Signatory
ROBERT A. DAY
By: /s/ Susan Marsch
--------------------------------
Name: Susan Marsch
Title: Under Power of Attorney dated March 31, 1999, on file with
Schedule 13G for Hibbett Sporting Goods, Inc., dated April 9, 1999
TCW ROYALTY COMPANY V
By: /s/ Susan Marsch
--------------------------------
Name: Susan Marsch
Title: Authorized Signatory
-15-
<PAGE>
TCW PORTFOLIO NO. 1555 DR V
SUB-CUSTODY PARTNERSHIP, L.P.
By: TCW ROYALTY COMPANY V, its
managing general partner
By: /s/ Susan Marsch
--------------------------------
Name: Susan Marsch
Title: Authorized Signatory
INLAND HOLDINGS LLC
By: TRUST COMPANY OF THE WEST, as Sub-Custodian for Mellon Bank for
the benefit of Account No. CPFF 873-3032, as member
By: /s/ Susan Marsch
--------------------------------
Name: Susan Marsch
Title: Authorized Signatory
By: TCW PORTFOLIO NO. 1555 DR V
SUB-CUSTODY PARTNERSHIP, L.P., as member
By: TCW ROYALTY COMPANY V, as managing general partner
By: /s/ Susan Marsch
--------------------------------
Name: Susan Marsch
Title: Authorized Signatory
-16-
<PAGE>
SCHEDULE I
BOARD OF DIRECTORS
OF
TCW GROUP, INC.
All of the following individuals are directors of TCW Group, Inc. Each
director is a citizen of the United States of America unless otherwise
specified below:
JOHN M. BRYAN
Partner
Bryan & Edwards
600 Montgomery St., 35th Floor
San Francisco, California 94111
ROBERT A. DAY
Chairman of the Board,
Chairman and Chief Executive Officer
Trust Company of the West
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
DAMON P. DE LASZLO, ESQ.
Managing Director of Harwin
Engineers S.A., Chairman & D.P.
Advisers Holdings Limited
Byron's Chambers
A2 Albany, Piccadilly
London W1V 9RD - England
(Citizen of United Kingdom)
WILLIAM C. EDWARDS
Partner - Bryan & Edwards
3000 Sand Hill Road, Suite 190
Menlo Park, California 94025
ERNEST O. ELLISON
Vice Chairman
Trust Company of the West
865 South Figueroa St., Suite 1800
Los Angeles, California 90017
HAROLD R. FRANK
Chairman of the Board
Applied Magnetics Corporation
75 Robin Hill Rd.
Goleta, California 93017
CARLA A. HILLS
1200 19th Street, N.W.
5th Floor
Washington, DC 20036
-17-
<PAGE>
DR. HENRY A. KISSINGER
Chairman
Kissinger Associates, Inc.
350 Park Ave., 26th Floor
New York, New York 10022
THOMAS E. LARKIN, JR.
President
Trust Company of the West
865 South Figueroa St., Suite 1800
Los Angeles, California 90017
KENNETH L. LAY
Enron Corp.
1400 Smith Street
Houston, Texas 77002-7369
MICHAEL T. MASIN, ESQ.
Vice Chairman
GTE Corporation
One Stamford Forum
Stamford, Connecticut 06904
EDFRED L. SHANNON, JR.
Investor/Rancher
1000 S. Fremont Ave.
Alhambra, California 91804
ROBERT G. SIMS
Private Investor
11828 Rancho Bernardo, Box 1236
San Diego, California 92128
MARC I. STERN
President
The TCW Group, Inc.
865 South Figueroa St., Suite 1800
Los Angeles, California 90017
-18-
<PAGE>
EXHIBIT 1
EXCHANGE AGREEMENT
Among
INLAND RESOURCES INC.
INLAND PRODUCTION COMPANY
INLAND REFINING, INC.
and
TRUST COMPANY OF THE WEST,
a California trust company,
as Sub-Custodian for Mellon Bank
for the benefit of Account No. CPFF 873-3032
INLAND HOLDINGS LLC,
a California limited liability company
TCW PORTFOLIO NO. 1555 DR V
SUB-CUSTODY PARTNERSHIP, L.P.,
a California limited partnership
and
JOINT ENERGY DEVELOPMENT INVESTMENTS II LIMITED PARTNERSHIP
Dated as of September 21, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. EXCHANGE OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . .6
2.1 Authorization and Issuance of the Preferred Stock and Common
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.2 Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.3 The Closing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
2.4 Consent to Exchange.. . . . . . . . . . . . . . . . . . . . . . . . .7
2.5 Simultaneous Transactions . . . . . . . . . . . . . . . . . . . . . .8
SECTION 3. WARRANTIES, REPRESENTATIONS AND COVENANTS OF THE COMPANIES. . . . . .8
3.1 Organization and Authorization of the Issuer. . . . . . . . . . . . .8
3.2 Capital Stock.. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.3 Information Regarding the Issuer. . . . . . . . . . . . . . . . . . 10
3.4 Independent Engineering Report. . . . . . . . . . . . . . . . . . . 10
3.5 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.6 Absence of Undisclosed Liability. . . . . . . . . . . . . . . . . . 11
3.7 Governmental Consent. . . . . . . . . . . . . . . . . . . . . . . . 11
3.8 Compliance with Laws and Other Instruments of the Companies . . . . 11
3.9 No Affiliate Ownership. . . . . . . . . . . . . . . . . . . . . . . 11
3.10 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . 12
3.11 Hedging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.12 Absence of Certain Changes or Events. . . . . . . . . . . . . . . . 12
3.13 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . . . 12
3.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.15 ERISA Plans and Liabilities . . . . . . . . . . . . . . . . . . . . 13
3.16 Private Offering. . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.17 Investment Companies Act and Public Utility Holding
Companies Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.18 Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . . . 14
3.19 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.20 No Broker's or other Fees . . . . . . . . . . . . . . . . . . . . . 15
3.21 Bona Fide Debt Work-out . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4. WARRANTIES, REPRESENTATIONS AND COVENANTS OF PURCHASERS and
TCW.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1 Acquisition for Purchaser's Account . . . . . . . . . . . . . . . . 15
4.2 Investment Experience . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 Securities not Registered . . . . . . . . . . . . . . . . . . . . . 15
4.4 Qualified Institutional Buyer; Accredited Investor. . . . . . . . . 15
4.5 Acknowledgement of Risk . . . . . . . . . . . . . . . . . . . . . . 15
4.6 No Public Market. . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 Reliance by the Issuer. . . . . . . . . . . . . . . . . . . . . . . 16
4.8 No Public Solicitation. . . . . . . . . . . . . . . . . . . . . . . 16
4.9 Legal Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.10 Consent to Farmout. . . . . . . . . . . . . . . . . . . . . . . . . 16
4.11 Bona Fide Debt Work-out . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.12 Value of JEDI New Securities. . . . . . . . . . . . . . . . . . . . 16
SECTION 5. PURCHASER AND TCW CONDITIONS TO CLOSING.. . . . . . . . . . . . . . 16
5.1 TCW's and Holdings' Conditions to Closing . . . . . . . . . . . . . 16
5.2 JEDI's Conditions to Closing. . . . . . . . . . . . . . . . . . . . 18
5.3 Closing Deliveries of the Companies . . . . . . . . . . . . . . . . 20
SECTION 6. ISSUER'S CONDITIONS TO CLOSING; REQUIRED DELIVERIES . . . . . . . . 21
SECTION 7. TRANSFERABILITY OF NEW SECURITIES.. . . . . . . . . . . . . . . . . 21
7.1 Restrictive Legend. . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Rule 144 and 144A . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8. AFFIRMATIVE COVENANTS OF THE COMPANIES. . . . . . . . . . . . . . . 22
8.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 22
8.2 Management's Discussion and Results of Operations . . . . . . . . . 23
8.3 Certificates; Other Information . . . . . . . . . . . . . . . . . . 23
8.4 Independent Engineering Report. . . . . . . . . . . . . . . . . . . 23
8.5 Inspection of Property; Books and Records; Discussions. . . . . . . 23
8.6 Conduct of Business and Maintenance of Existence. . . . . . . . . . 23
8.7 Maintenance of Property; Insurance. . . . . . . . . . . . . . . . . 23
8.8 Directors' and Officers' Insurance. . . . . . . . . . . . . . . . . 24
8.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.10 Replacement of Instruments. . . . . . . . . . . . . . . . . . . . . 24
8.11 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 24
8.12 Contingent Issuance of Options to Holdings and JEDI . . . . . . . . 24
8.13 Bank Compliance Certificates. . . . . . . . . . . . . . . . . . . . 25
8.14 Management Controls . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 9. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.2 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.3 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 28
10.4 Amendment and Waiver, etc . . . . . . . . . . . . . . . . . . . . . 28
10.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.6 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.8 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.9 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . 29
10.10 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
ii
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
[Intentionally omitted. Copies on file with the Issuer]
Schedule 3.1 - Subsidiaries and Liens thereon
Schedule 3.2(b) - Convertible Securities and Options
Schedule 3.2(c) - Registration Rights
Schedule 3.4 - Initial Independent Engineering Report
Schedule 3.5 - Litigation
Schedule 3.6 - Liabilities
Schedule 3.7 - Governmental Consents
Schedule 3.8 - Required Consents
Schedule 3.10 - Compliance with Oil and Gas Laws
Schedule 3.12 - Hedging
Schedule 3.15 - ERISA
Schedule 3.18 - Environmental Laws
Schedule 5.1 - Deferred Trade Payables
Schedule 8.12 - Contingent Issuance of Options
Exhibit A - Preferred Stock Designation
Exhibit B - Form of Shareholders Agreement
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Opinion of Washington counsel to the Issuer
Exhibit E - Form of Opinion of New York counsel to the Companies
Exhibit F - Amendment to Farmout Agreement
Exhibit G - Form of Opinion of Utah counsel to the Companies
Exhibit H - [Intentionally Omitted]
Exhibit I - Form of Purchaser Adjustment Option
Exhibit J - Form of JEDI Release Agreement
Exhibit K - Form of TCW Release Agreement
iii
<PAGE>
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this "AGREEMENT") is dated as of September
21, 1999 among INLAND RESOURCES INC., a Washington corporation (the
"ISSUER"), INLAND PRODUCTION COMPANY, a Texas corporation ("IPC"), INLAND
REFINING, INC., a Utah corporation ("REFINING" and together with Issuer and
IPC, the "COMPANIES"), TRUST COMPANY OF THE WEST, a California trust company,
as Sub-Custodian for Mellon Bank for the benefit of Account No. CPFF 873-3032
("FUND V"), TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY PARTNERSHIP, L.P., a
California limited partnership ("PORTFOLIO," and collectively with Fund V,
"TCW"), INLAND HOLDINGS LLC, a California limited liability company
("HOLDINGS") and Joint Energy Development Investments II Limited Partnership,
a Delaware limited partnership ("JEDI", and together with Holdings, the
"PURCHASERS").
WHEREAS, Fund V is presently the holder of $75 million in principal
amount of junior secured debt of IPC (plus accrued and unpaid interest to the
Closing Date, the "FUND V DEBT") and Portfolio is the holder of warrants (the
"PORTFOLIO WARRANTS," and together with the Fund V Debt, the "TCW
SECURITIES") to purchase 158,512 shares of the Issuer's common stock, $.001
par value per share (the "COMMON STOCK");
WHEREAS, JEDI is presently the holder of 100,000 shares of Series C
Preferred Stock (as defined below), plus accumulated dividends to the Closing
Date;
WHEREAS, Fund V and Portfolio are members of Holdings;
WHEREAS, the Companies, TCW, Holdings and JEDI desire to consummate
a transaction (the "EXCHANGE") whereby (i) TCW will exchange its entire
interest in the TCW Securities for the issuance to Holdings of (a) 10,757,747
shares (the "D PREFERRED SHARES NUMBER") of Series D Redeemable Preferred
Stock of the Issuer, (b) 5,882,901 shares (the "Z PREFERRED SHARES NUMBER")
of Series Z Preferred Stock of the Issuer and (c) 11,642,949 shares of the
Issuer's Common Stock and (ii) JEDI will exchange its entire interest in
100,000 shares of the Series C Preferred Stock (and any accumulated dividends
thereon, if any) for (a) 121,973 shares (the "E PREFERRED SHARES NUMBER") of
the Series E Redeemable Preferred Stock of the Issuer and (b) 2,920,975
shares of the Issuer's Common Stock, all subject to the terms and conditions
set forth below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, conditions and agreements contained
herein, the parties hereto, intending to be legally bound by the terms
hereof, agree as follows:
SECTION 1. DEFINITIONS
As used herein, the following terms shall have the following meanings.
"10-Q FILING DATE" shall have the meaning set forth in Section 3.3(a)
hereof.
"1935 ACT" shall have the meaning set forth in Section 3.17 hereof.
1
<PAGE>
"AGREEMENT" shall have the meaning set forth in the preamble hereto.
"ANNUAL BUDGET PLAN" shall have the meaning ascribed to such term
in SECTION 8.14 hereof.
"APPROVED ANNUAL BUDGET" shall have the meaning ascribed to such
term in SECTION 8.14 hereof.
"APPROVED BUDGETS" shall have the meaning ascribed to such term in
SECTION 8.14 hereof.
"APPROVED UPDATED BUDGET" shall have the meaning ascribed to such
term in SECTION 8.14 hereof.
"AKIN OPINION" shall have the meaning set forth in Section 5.1(m)
hereof.
"ARTICLES OF INCORPORATION" shall mean the Articles of
Incorporation of the Issuer, as amended from time to time.
"BOARD OF DIRECTORS" shall mean, with respect to a party, the board
of directors of such party.
"CLOSING" shall have the meaning ascribed to such term in Section
2.3 hereof.
"CLOSING DATE" shall have the meaning ascribed to such term in
Section 2.3(c) hereof.
"COMMISSION" shall mean the United States Securities and Exchange
Commission or any other similar or successor agency of the federal government
administering the Securities Act.
"COMMON STOCK" shall have the meaning set forth in the recitals
hereto.
"COMPANIES" shall have the meaning set forth in the preamble hereto.
"CREDIT AGREEMENT" shall mean the Second Amended and Restated
Credit Agreement, among IPC, the Issuer, ING, as agent, and U.S. Bank
National Association and MeesPierson Capital Corp., as lenders party thereto,
dated as of the date hereof.
"D PREFERRED SHARES NUMBER" shall have the meaning set forth in the
recitals hereto.
"E PREFERRED SHARES NUMBER" shall have the meaning set forth in the
recitals hereto.
"ENVIRONMENTAL LAWS" shall mean 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.
2
<PAGE>
"ERISA" shall mean 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" shall mean each of the Companies and all members
of a controlled group of corporations and all trades or businesses (whether
or not incorporated) under common control that, together with each of the
Companies, 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
of the Companies or the Subsidiaries has a fixed or contingent liability.
"EVALUATED PROPERTIES" shall have the meaning set forth in Section
3.4 hereof.
"EXCHANGE" shall have the meaning set forth in the recitals hereto.
"EXCHANGE ACT" shall have the meaning set forth in Section 3.3(a)
hereof.
"FARMOUT AGREEMENT" shall mean that certain Farmout Agreement dated
as of June 1, 1998 between IPC, the Issuer and Smith Management, LLC, as
assigned to Smith Energy Partnership effective October 1, 1998 and as amended
by Amendment No. One dated as of November 25, 1998.
"FARMOUT RESTRUCTURINGS" shall have the meaning set forth in
Section 5.1(f) hereof.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
3.3(a) hereof.
"FUND V" shall have the meaning set forth in the preamble hereto.
"FUND V DEBT" shall have the meaning set forth in the recitals
hereto.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time consistent with those
utilized in preparing the audited Financial Statements.
"GOVERNMENTAL BODY" shall mean any Federal, state, municipal or
other governmental department, commission, court, tribunal, board, bureau,
agency or instrumentality, domestic or foreign (including, without
limitation, any bank regulatory authority).
"HAZARDOUS MATERIALS" shall mean any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"HOLDINGS NEW SECURITIES" shall have the meaning set forth in
Section 2.2(a) hereof.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 9.
3
<PAGE>
"INDEPENDENT ENGINEER" shall mean Ryder Scott Company or such other
independent engineering consultant firm acceptable to the Purchasers.
"INDEPENDENT ENGINEERING REPORT" shall mean each engineering report
prepared by an Independent Engineer, which shall be (i) effective as of
January 1st of each year, (ii) in a form satisfactory to the Purchasers and
(iii) prepared in accordance with the then existing standards of the Society
of Petroleum Engineers.
"ING" shall mean ING (U.S.) Capital Corporation.
"INITIAL INDEPENDENT ENGINEERING REPORT" shall mean the engineering
report prepared by Ryder Scott Company dated as of January 1, 1999 acceptable
to the Purchasers and prepared in accordance with the then existing standards
of the Society of Petroleum Engineers.
"IPC" shall have the meaning set forth in the preamble hereto.
"ISSUER" shall have the meaning set forth in the preamble hereto.
"JEDI" shall have the meaning set forth in the preamble hereto.
"JEDI NEW SECURITIES" shall have the meaning set forth in Section
2.2(b) hereof.
"JEDI RELEASE" shall mean a release of the Companies' obligations
with respect to JEDI's 100,000 shares of Series C Preferred Stock, plus
accumulated dividends thereon to the Closing Date, and any documents related
thereto, including without limitation, that certain Securities Purchase
Agreement dated July 21, 1997 between JEDI and Issuer, that certain
Registration Rights Agreement dated July 21, 1997 between JEDI and Issuer and
that certain Tagalong Agreement dated July 21, 1997 between JEDI and Pengo,
pursuant to the Release Agreement in the form attached hereto as Exhibit J.
"LAW" shall mean any applicable statute, law, regulation,
ordinance, rule, treaty, judgment, order, decree, permit, concession, license
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.
"LIABILITY" shall have the meaning set forth in Section 3.6 hereof.
"LIEN" shall mean, with respect to any Person, any mortgage, lien,
pledge, adverse claim, charge, security interest or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured party to or
of such Person under any conditional sale or other title retention agreement
or capital lease, upon or with respect to any property or asset of such
Person, or the signing or filing by or with the consent of such Person of a
financing statement that names such Person as debtor, or the signing of any
security agreement authorizing any other Person as the secured party to file
any financing statement.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, a
material adverse effect on the business, properties, financial condition or
operations of such Person.
"NEW SECURITIES" shall have the meaning set forth in Section 2.2(b)
hereof.
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"ORDER" means any order, writ, injunction, decree, judgment, award,
determination, direction or demand.
"PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"PORTFOLIO WARRANTS" shall have the meaning set forth in the
recitals hereto.
"PREFERRED STOCK DESIGNATION" shall mean the amendment to the
Articles of Incorporation of the Issuer, setting forth the terms of the
Series D Preferred Stock, Series E Preferred Stock and Series Z Preferred
Stock, in the form attached hereto as Exhibit A or with such changes thereto
as approved by the Purchasers and the Issuer.
"PURCHASER ADJUSTMENT OPTIONS" shall have the meaning set forth in
SECTION 8.12 hereof.
"PURCHASERS" shall have the meaning set forth in the preamble
hereto.
"RANDALL OPINION" shall have the meaning set forth in SECTION
5.1(1) hereof.
"REFINING" shall have the meaning set forth in the preamble hereto.
"REGISTRATION RIGHTS AGREEMENT" shall have the meaning set forth in
SECTION 5.1(h) hereof.
"RELATED PERSON" shall mean any of the Companies, their
subsidiaries or affiliates, whether now existing or hereafter formed or
acquired.
"REQUISITE OWNERSHIP" shall have the meaning set forth in SECTION 8
hereof.
"RESPONSIBLE OFFICER" shall mean all officers of the Companies.
"RESTRICTED SECURITIES" shall have the meaning set forth under Rule
144 of the Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SENIOR CREDITORS" shall mean the lenders under the Credit
Agreement.
"SERIES C PREFERRED STOCK" shall mean the Issuer's Series C
Cumulative Convertible Preferred Stock, par value $.001 per share, all of the
issued and outstanding shares of which are owned by JEDI.
"SERIES D PREFERRED STOCK" shall mean the Series D Redeemable
Preferred Stock of the Issuer, par value $.001 per share, with the terms
described in Exhibit A hereto.
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"SERIES E PREFERRED STOCK" shall mean the Series E Redeemable
Preferred Stock of the Issuer, par value $.001 per share, with the terms
described in Exhibit A hereto.
"SERIES Z PREFERRED STOCK" shall mean the Series Z Convertible
Preferred Stock of the Issuer, par value $.001 per share, with the terms
described in Exhibit A hereto.
"SHAREHOLDERS AGREEMENT" shall have the meaning set forth in
SECTION 5.1(g) hereof.
"SMITH GROUP" shall mean Pengo Securities Corp., Smith Energy
Partnership, Randall D. Smith, Barbara Stovall Smith, Jeffrey A. Smith, John
W. Adams, Arthur J. Pasmas, and their respective affiliates.
"SUBSIDIARY" shall mean any entity in which any of the Companies
has a 50% or greater direct or indirect equity interest.
"TCW" shall have the meaning set forth in the preamble hereto.
"TCW RELEASE" shall mean a release of the Companies' obligations
under or with respect to the outstanding principal of and accrued interest on
the Fund V Debt and any obligation with respect to the Portfolio Warrants
pursuant to the Release Agreement in the form attached hereto as Exhibit K.
"TCW SECURITIES" shall have the meaning set forth in the recitals
hereto.
"TERMINATION EVENT" shall mean (a) the occurrence with respect to
any ERISA Plan of (i) a reportable event described in Sections 4043(c)(5) or
(6) of ERISA or (ii) any other reportable event described in Section 4043(c)
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 the Pension Benefit Guaranty 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.
"UPDATED BUDGET" shall have the meaning set forth in SECTION 8.14
hereof.
"UTAH OPINION" shall have the meaning set forth in SECTION 5.1(n)
hereof.
"Z PREFERRED SHARES NUMBER" shall have the meaning set forth in the
recitals hereto.
SECTION 2. EXCHANGE OF SECURITIES
2.1 AUTHORIZATION AND ISSUANCE OF THE PREFERRED STOCK AND COMMON
STOCK. The Issuer has duly authorized the issuance of (a) a number of shares
of the Series D Preferred Stock
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equal to the D Preferred Shares Number, (b) a number of shares of the Series
E Preferred Stock equal to the E Preferred Shares Number, (c) shares of
Series Z Preferred Stock equal to the Z Preferred Shares Number and (d)
14,563,924 shares of Common Stock, pursuant to the terms of this Agreement.
2.2 EXCHANGE.
(a) HOLDINGS. Upon the terms and conditions set forth herein, the
Issuer agrees to issue to Holdings, and Holdings agrees to accept, (i) the D
Preferred Shares Number of Series D Preferred Stock, (ii) the Z Preferred
Shares Number of Series Z Preferred Stock and (iii) 11,642,949 shares of
Common Stock (collectively, the "HOLDINGS NEW SECURITIES") upon delivery to
the Issuer of the TCW Release and the notes and certificates evidencing the
TCW Securities; TCW agrees to deliver and the Issuer agrees to accept the TCW
Release and the notes and certificates evidencing the TCW Securities upon
delivery to Holdings of the Holdings New Securities.
(b) JEDI. Upon the terms and conditions set forth herein, the
Issuer agrees to issue to JEDI, and JEDI agrees to accept, (i) the E
Preferred Shares Number of Series E Preferred Stock and (ii) 2,920,975 shares
of Common Stock (collectively, the "JEDI NEW SECURITIES" and, together with
the Holdings New Securities, the "NEW SECURITIES") upon delivery to the
Issuer of the JEDI Release and certificates evidencing JEDI's entire interest
in 100,000 shares of the Series C Preferred Stock plus accumulated and unpaid
dividends through the Closing Date; JEDI agrees to deliver and the Issuer
agrees to accept the JEDI Release and the certificates evidencing JEDI's
entire interest in 100,000 shares of Series C Preferred Stock, plus
accumulated and unpaid dividends through the Closing Date, upon delivery to
JEDI of the JEDI New Securities.
2.3 THE CLOSING. At the closing of the transactions described
herein (the "CLOSING"),
(a) (i) TCW shall deliver to the Issuer the notes and certificates
evidencing the TCW Securities, (ii) the Issuer shall accept and cancel the
notes representing the Fund V Debt (including accrued and unpaid interest
through the Closing Date) and the certificates representing the Portfolio
Warrants, (iii) TCW shall deliver to the Issuer the TCW Release and (iv) the
Issuer shall deliver to Holdings certificates representing the Holdings New
Securities, registered in the denominations and names specified by Holdings.
(b) (i) JEDI shall deliver to the Issuer the certificate(s)
evidencing JEDI's entire interest in 100,000 shares of Series C Preferred
Stock and accrued and unpaid dividends through the Closing Date, (ii) the
Issuer shall accept and cancel such certificate(s), (iii) JEDI shall deliver
to the Issuer the JEDI Release and (iv) the Issuer shall deliver to JEDI
certificates representing the JEDI New Securities, registered in the
denominations and names specified by JEDI.
(c) The Closing shall be held at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., Houston, Texas, on the business day following
satisfaction of the conditions set forth herein or at such other time and
place as all parties to this Agreement may mutually agree (the "CLOSING
DATE").
2.4 CONSENT TO EXCHANGE.
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(a) Prior to giving effect to the Exchange, JEDI is the record
holder of 100,000 shares of Series C Preferred Stock, representing all of the
issued and outstanding Series C Preferred Stock of the Issuer. By entering
into this Agreement, JEDI hereby consents and agrees to the transactions
constituting the Exchange as the sole holder of the Issuer's Series C
Preferred Stock. Upon consummation of the transactions constituting the
Exchange, no shares of the Issuer's Series C Preferred Stock will be
outstanding.
(b) Prior to giving effect to the Exchange, Fund V is the holder
of the Fund V Debt and Portfolio is the holder of the Portfolio V Warrants.
By entering into this Agreement, Fund V and Portfolio hereby consent and
agree to the transactions constituting the Exchange. Upon consummation of
such transactions, neither the Fund V Debt nor the Portfolio Warrants will be
outstanding.
2.5 SIMULTANEOUS TRANSACTIONS. All transactions set forth as part
of the Exchange and the transactions contemplated by SECTIONS 5.1(d) AND
5.2(e) hereof shall be deemed to take place simultaneously and each
transaction shall be contingent upon the consummation of all such
transactions.
SECTION 3. WARRANTIES, REPRESENTATIONS AND COVENANTS OF THE
COMPANIES.
Each of the Companies hereby represent, warrant and covenant to
each of the Purchasers that, as of the date hereof;
3.1 ORGANIZATION AND AUTHORIZATION OF THE ISSUER.
(a) Each of the Companies, and their respective Subsidiaries (i)
is a duly organized and validly existing corporation in good standing under
the laws of its jurisdiction of organization, (ii) has all requisite power
and authority to own or hold under lease the property it purports to own or
hold under lease and to transact the business in which it is presently
engaged or presently proposes to engage and (iii) is duly qualified as a
foreign corporation and is in good standing in each jurisdiction in which the
character of the properties owned or held under lease by it or the nature of
the business transacted by it requires such qualification except where
failure to so qualify could not reasonably be expected to have a Material
Adverse Effect on the Companies taken as a whole.
(b) Each of the Companies has all requisite power and authority to
execute and deliver this Agreement, and any other documents or agreements
contemplated hereby and thereby to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereunder and thereunder. The Issuer has all requisite power
and authority to issue the New Securities. The execution and delivery of
this Agreement and the issuance of New Securities, the performance of this
Agreement, and the execution, delivery and performance of any other documents
or agreements to which any of the Companies is a party contemplated hereby
and thereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized and approved by the Board of Directors of
the respective Companies. Each of this Agreement, and any other document or
agreement to which any of the Companies is a party contemplated hereby or
thereby has been (or on the Closing Date will have been) duly authorized,
executed and delivered by, and each is (or, when duly executed and delivered
on the Closing Date, will be) the valid and
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binding obligation of, such Company, enforceable in accordance with its
terms, except as may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws or by legal or equitable
principles relating to or limiting creditors' rights generally.
(c) SCHEDULE 3.1 hereof contains a true and correct list of the
Subsidiaries and their respective partnership interests. Neither the
Companies nor the Subsidiaries own, directly or indirectly, any capital
stock, joint venture or partnership interests in or other equity interest in
any other Person other than those Subsidiaries set forth on SCHEDULE 3.1
hereof. Except as set forth on SCHEDULE 3.1, each of the Companies has good
and valid title to all the outstanding stock of each of its respective
Subsidiaries, in each case, free and clear of all liens and encumbrances.
3.2 CAPITAL STOCK.
(a) Upon the issuance of the New Securities under this Agreement
and after the filing of the Preferred Stock Designation, the total number of
shares of capital stock which the Issuer will have authority to issue under
the Articles of Incorporation is a maximum of (i) 25,000,000 shares of Common
Stock, of which 23,093,689 will be issued and outstanding, all of which
outstanding shares will have been duly and validly issued and will be fully
paid and nonassessable, and (ii) 20,000,000 shares of Class A preferred
stock, of which the D Preferred Shares Number will be designated as Series D
Preferred Stock, the E Preferred Shares Number will be designated as Series E
Preferred Stock and the Z Preferred Shares Number will be designated as
Series Z Preferred Stock and all of which shares will be issued and
outstanding, duly and validly issued and fully paid and nonassessable.
Immediately prior to the issuance of the New Securities under this Agreement,
25,000,000 shares of Common Stock were authorized, of which 8,529,765 shares
were issued and outstanding, and 20,000,000 shares of Class A preferred stock
were authorized, of which 100,000 shares, designated as Series C Preferred
Stock, were issued and outstanding.
(b) As of the date hereof, the Issuer does not, and as of the
Closing Date, each without giving effect to the Exchange, the Issuer will
not, have outstanding any capital stock or other securities convertible into
or exchangeable for any of its capital stock or any rights to subscribe for
or to purchase, or any options for the purchase of, or any agreements
(contingent or otherwise) providing for the issuance of, or any calls,
commitments or claims of any character relating to, any of its capital stock
or any securities convertible into or exchangeable for any of its capital
stock, other than as set forth on SCHEDULE 3.2(b) hereto (which schedule
shall include the exercise price (except for the warrants of ING, US Bank and
MeesPierson post-Closing) and number of shares on a pre-Closing and
post-Closing basis).
(c) As of the date hereof, the Issuer does not have any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any of
its capital stock or obligation evidencing the right of the holder thereof to
purchase any of its capital stock. There is not in effect on the date hereof
any agreement by the Issuer (other than this Agreement) or any of its
Subsidiaries pursuant to which any holders of securities of the Issuer or any
of its Subsidiaries have a right to cause the Issuer to register such
securities under the Securities Act other than as set forth on SCHEDULE
3.2(c) hereto.
(d) The New Securities will, when issued in accordance with this
Agreement, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges.
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3.3 INFORMATION REGARDING THE ISSUER.
(a) The audited consolidated financial statements of the Issuer
and its Subsidiaries as filed with the Commission in accordance with the
reporting requirements of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), for the three most recent fiscal years (and the
unaudited interim periods reported therein and through the date hereof)
(collectively, the "FINANCIAL STATEMENTS") fairly present in all material
respects the financial position of the Issuer and its Subsidiaries as of the
respective dates of such balance sheets and the results of the Issuer and its
Subsidiaries operations for the respective periods covered by such statements
of operations, stockholders' equity and cash flows, and have been prepared in
accordance with GAAP consistently applied throughout the periods involved.
There are no material liabilities, contingent or otherwise, of the Issuer and
its Subsidiaries as of the date hereof and as of the Closing Date required to
be reflected in a balance sheet prepared in accordance with GAAP which are
not reflected in such balance sheets. Since the date of the Issuer's most
recent quarterly report on form 10-Q (the "10-Q FILING DATE"), there have
been no changes in the assets, liabilities or financial position of the
Issuer and its Subsidiaries from that set forth in the balance sheet as of
such date, other than changes in the ordinary course of business which have
not, either individually or in the aggregate, had a Material Adverse Effect
on the Companies taken as a whole.
(b) As of their respective dates, the Financial Statements did not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Since the 10-Q Filing Date,
there has been no change in the business, properties, financial condition or
operations which has had a Material Adverse Effect on the Companies taken as
a whole.
3.4 INDEPENDENT ENGINEERING REPORT. The Companies have delivered
to the Purchasers, in form satisfactory to the Purchasers, results of the
Initial Independent Engineering Report on the fields and properties listed
therein or attached thereto (the "EVALUATED PROPERTIES") in which the
Companies will have interests as of the Closing Date. The Initial
Independent Engineering Report is the latest engineering report available to
the Companies relating to the Evaluated Properties. To the knowledge of the
Responsible Officers, the Companies have provided no materially false or
misleading information to and have not withheld from the engineer preparing
or who prepared the Initial Independent Engineering Report any material
information with respect to the preparation of the Independent Engineering
Report. The Responsible Officers and the officers of Refining are not aware
of any facts or circumstances that should reasonably cause the Companies to
conclude that (i) any of the information that was supplied by the Companies
to the Independent Engineer in connection with its preparation of the
Independent Engineering Report was not correct or (ii) the Independent
Engineering Report is incorrect in any material respect.
3.5 LITIGATION. Except as set forth in SCHEDULE 3.5, (i) there
are no actions, suits, investigations or legal, equitable, arbitrative or
administrative proceedings pending or, to the knowledge of any Responsible
Officer of the Companies, currently threatened against the Companies or the
Subsidiaries before any Governmental Body which could cause a Material
Adverse Effect on the Companies , either individually or in the aggregate;
and (ii) there are no outstanding judgments, injunctions, writs, rulings or
orders by any Governmental Body against
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any of the Companies, the Subsidiaries or their respective directors or
officers which could have a Material Adverse Effect on the Companies, either
individually or in the aggregate.
3.6 ABSENCE OF UNDISCLOSED LIABILITY. None of the Companies nor
any of the Subsidiaries has any material direct or indirect liability,
indebtedness, obligation, expense, claim, deficiency, guarantee or
endorsement of or by any person (other than endorsements of notes, bills and
checks presented to banks for collection deposit in the ordinary course of
business) of any type, whether accrued, absolute, contingent, matured,
unmatured or otherwise (a "LIABILITY"), other than the Liabilities (i) that
are reflected, accrued or reserved for in the most recent quarterly balance
sheet of the Issuer filed pursuant to the Exchange Act with the Commission,
or (ii) arising in the ordinary course of the Companies' or the Subsidiaries'
businesses consistent with past practice which would not result in a Material
Adverse Effect on the Companies taken as a whole or (iii) that are disclosed
in SCHEDULE 3.6. Except as shown in the notes to the Issuer's most recent
annual and quarterly financial statements filed pursuant to the Exchange Act
with the Commission or disclosed on SCHEDULE 3.6 hereof, none of the
Companies nor any of the Subsidiaries is subject to or restricted by any
franchise, contract, deed, charter restriction or other instrument or
restriction which could reasonably be expected to have a Material Adverse
Effect on the Companies taken as a whole.
3.7 GOVERNMENTAL CONSENT. Other than the filing of the Preferred
Stock Designation and filings required by applicable state securities laws
and any other consents or approvals listed in SCHEDULE 3.7 hereof, which
shall be made or obtained prior to Closing by the Companies, neither the
nature of the Companies, the Subsidiaries, their respective businesses or
properties, nor any relationship between the Companies or any Subsidiary 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 New
Securities, is such as to require consent, approval or authorization of, or
filing, registration or qualification with, any Governmental Body on the part
of the Companies as a condition to the execution, delivery and performance of
this Agreement and any other documents or agreements contemplated hereby.
3.8 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS OF THE COMPANIES.
The consummation of the transactions contemplated by this Agreement and the
execution, delivery and performance of the terms and provisions of this
Agreement, the New Securities, or any other document or agreement
contemplated hereby or thereby will not (i) contravene, result in any breach
of, or constitute a default under, or result in the creation of any Lien in
respect of any property of the Companies or the Subsidiaries under, any
corporate charter or bylaws, or material indenture, mortgage, deed of trust,
bank loan or credit agreement, or other material agreement or instrument to
which the Companies or the Subsidiaries are a party or by which the Companies
or the Subsidiaries or any of their properties may be bound or affected
(taking into consideration the required consents set forth on SCHEDULE 3.8
hereof), (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any Order of any court, arbitrator or
Governmental Body applicable to the Companies, or (iii) violate any provision
of any statute or other rule or regulation of any Governmental Body
applicable to the Companies or the Subsidiaries.
3.9 NO AFFILIATE OWNERSHIP. Except as set forth in the Issuer's
most recent Annual Report on Form 10-K, as amended, its most recent proxy
statement, or its Quarterly Reports filed on Form 10-Q after such Annual
Report on file with the Commission, no Person controlled by, controlling or
under common control with any of the Companies (other than the Subsidiaries)
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owns any interest in any of the Evaluated Properties or any other material
asset of the Companies or the Subsidiaries.
3.10 COMPLIANCE WITH LAWS. Except as set forth in SCHEDULE 3.10,
to the knowledge of the Companies, the Companies and the Subsidiaries have
complied with all applicable laws relating to the production of oil and gas
from their properties, leases or assets and any of their assets, rights or
interests relating thereto, the conduct of drilling and production operations
with respect to their oil and gas properties, leases, or assets and any of
their assets, rights or interests relating thereto and the regulation
thereof, except where the failure to comply could not reasonably be expected
to have a Material Adverse Effect on the Companies taken as a whole.
3.11 HEDGING. Except as set forth in SCHEDULE 3.11, as of the date
of this Agreement, neither the Companies nor any of the Subsidiaries is bound
by futures, hedge, swap, collar, put, call, floor, cap, option or other
contracts that are intended to benefit from or reduce or eliminate the risk
or fluctuations in the price of commodities, including hydrocarbons, or
securities.
3.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for events
contemplated by this Agreement or disclosed in any schedule hereto, since the
filing date of the Issuer's most recent quarterly report on Form 10-Q with
the Commission no event has occurred with respect to the Companies or the
Subsidiaries, or the condition of their material assets or the Evaluated
Properties, that has resulted in or could reasonably be expected to result in
a Material Adverse Effect on the Companies taken as a whole, except as has
been publicly disclosed in the Issuer's filings with the Commission. The
Issuer has reported on the appropriate form all events or happenings with
respect to the Companies or the Subsidiaries or the condition of their
material assets or the Evaluated Properties that are required to be disclosed
under the Exchange Act.
3.13 LICENSES AND PERMITS. The Companies and the Subsidiaries have
obtained and hold in full force and effect all licenses, permits, franchises,
certificates, authorizations, qualifications, accreditations, easements,
rights of way and other rights, patents, copyrights, trademarks and trade
names, or rights thereto, consents and approvals required to conduct their
business substantially as it is now conducted and as it is currently proposed
to be conducted, without known conflict with the rights of others, except as
has been disclosed in the Issuer's filings with the Commission or except for
such failures to obtain or hold or such conflicts as would not have a
Material Adverse Effect on the Companies taken as a whole.
3.14 TAXES. The Companies and the Subsidiaries have (i) filed all
tax returns with all appropriate Federal, state, local and foreign taxing
authorities that are required to have been filed by or with respect to the
Companies and the Subsidiaries as of the date of this Agreement, and such tax
returns are true, correct and complete in all material respects; and (ii)
paid all taxes shown to be due and payable on such returns and all other
taxes and assessments payable by the Companies and the Subsidiaries to the
extent the same have become due and payable and before they have become
delinquent, except for any taxes and assessments the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Companies have set aside on its
books reserves (segregated to the extent required by GAAP) deemed by it to be
adequate. The Companies know of no proposed material tax assessment against
the Companies or the
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Subsidiaries and in the opinion of the Companies all tax liabilities are
adequately provided for on the books of the Companies.
3.15 ERISA PLANS AND LIABILITIES. All currently existing ERISA
Plans are listed on Schedule 3.15 hereof. Except as disclosed in the
Issuer's most recent annual and quarterly financial statements filed under
the Exchange Act with the Commission or on SCHEDULE 3.15 hereof, no
Termination Event has occurred with respect to any ERISA Plan and all ERISA
Plans 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 SCHEDULE 3.15: (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 benefit obligations does not
exceed the current value of such ERISA Plan's assets available for the
payment of such benefits by more than $500,000.
3.16 PRIVATE OFFERING. During the six months prior to the Closing
Date, neither the Companies nor any other Person acting on behalf of the
Companies has offered any of the New Securities or any other securities of
the Companies (excluding options or warrants to employees and shares issuable
upon exercise or conversion of securities outstanding prior to the date
hereof) for sale to, or solicited offers to buy any thereof from, or
otherwise approached or negotiated with respect thereto with, any Person
other than prospective purchasers who are "accredited investors", as defined
in Rule 501 of Regulation D promulgated under the Securities Act. The
Companies agree that neither the Companies nor anyone acting on their behalf
has offered or will offer the New Securities 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 bring the issuance and
sale of the New Securities under Section 5 of the Securities Act. Based in
part on the representations of the Purchasers set forth herein and on the
Preferred Stock Designation, the offer, sale and issuance of the New
Securities in conformity with the terms of this Agreement are exempt from the
registration requirements of the Securities Act and any applicable state
securities laws.
3.17 INVESTMENT COMPANIES ACT AND PUBLIC UTILITY HOLDING COMPANIES
ACT. None of the Companies or the Subsidiaries is considered an "investment
company" or a person directly or indirectly controlled by or acting on behalf
of an "investment company" within the meaning of the Investment Company Act
of 1940, as amended. None of the Companies or the Subsidiaries owns or
operates any facility used for the generation, transmission or distribution
for sale of electrical energy or any facility used for the retail
distribution of natural or manufactured gas, each within the meaning of the
Public Utility Holding Company Act of 1935, as amended (the "1935 ACT").
None of the Companies or the Subsidiaries is an "electrical utility company"
within the meaning of the 1935 Act. None of the Companies or the
Subsidiaries is (i) a "holding company," (ii) a "subsidiary company," an
"affiliate" or "associate company" of a "holding company" or (iii) an
"affiliate" of a "subsidiary company" of a "holding company," each within the
meaning of the 1935 Act. None of the Companies or the Subsidiaries is
subject to regulation as a public utility or public service company (or
similar designation) by any state in the United States, by the United States,
by any foreign country or by any agency or instrumentality of any of the
foregoing.
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3.18 ENVIRONMENTAL LAWS. The sole representations of the Companies
with respect to environmental matters are set forth in this SECTION 3.18. To
the extent representations in other sections of this Agreement also could
apply to environmental matters, including, but not limited to Environmental
Laws, such representations shall be construed to exclude environmental
matters and to apply only to matters other than environmental matters.
Except (a) as to matters not within the Companies' knowledge, (b) as could
not reasonably be expected to have a Material Adverse Effect on the Companies
taken as a whole, or (c) as set forth on SCHEDULE 3.18 hereto,
(a) The Companies and the Subsidiaries are conducting their
businesses in compliance in all material respects with all applicable
Environmental Laws, and have all permits, licenses and authorizations
required under Environmental Laws in connection with the conduct of their
businesses, and each of the Companies and the Subsidiaries is in compliance
in all material respects with the terms and conditions of all such permits,
licenses and authorizations, and with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in any applicable Environmental Law.
(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 to
the knowledge of any of the Companies threatened, by any Governmental Body or
any other Person with respect to (i) any actual or alleged treatment,
storage, transportation, disposal, or release of any Hazardous Materials,
either by any of the Companies or the Subsidiaries or on any property owned
by any of the Companies or the Subsidiaries, (ii) any material remedial
action which might be needed to respond to any such alleged treatment,
storage, transportation, disposal, or release, or (iii) any alleged failure
by any of the Companies or the Subsidiaries to have any permit, license or
authorization required in connection with the conduct of its business or with
respect to any such treatment, storage, transportation, disposal, or release.
(c) No Hazardous Materials have been released or disposed of, in a
quantity or manner required to be reported under or otherwise in violation of
applicable law, by any of the Companies or the Subsidiaries at, on or under
any properties owned or leased by any of the Companies or the Subsidiaries.
(d) There are no Liens existing under or pursuant to any
Environmental Laws on any of the real properties or properties owned or
leased by any of the Companies or the Subsidiaries, and to the knowledge of
the Companies no government actions have been taken or are in process which
could subject any of such properties to such Liens.
3.19 LABOR RELATIONS. No material unfair labor practice complaint
or sex, age, race or other discrimination claim has been brought during the
five years prior to the Closing Date against the Companies or any of the
Subsidiaries before the National Labor Relations Board, the Equal Employment
Opportunity Commission or any other Governmental Body. During that period,
each of the Companies and the Subsidiaries has complied in all material
respects with all applicable laws, ordinances, regulations, statutes, rules
and restrictions relating to the employment of labor, including, without
limitation, those relating to hiring, promotion, employment and pay
practices, terms and conditions of employment, federal and state wages and
hours laws, immigration, and collective bargaining. During the five years
prior to the Closing Date, no strike, slowdown, picketing or work stoppage by
any union or other group of employees
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against the Companies, any Subsidiary or any of their properties wherever
located, and no secondary boycott with respect to their products, lockout by
them of any of their employees or any other labor trouble or other
occurrence, event or condition of a similar character, has occurred or, to
the knowledge of the Responsible Officers, been threatened which has had or
could be expected to have a Material Adverse Effect on the Companies taken as
a whole.
3.20 NO BROKER'S OR OTHER FEES. Other than with respect to the
fairness opinion required pursuant to SECTION 5.1(i), no broker, finder or
investment banker is entitled to any fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf
of the Companies.
3.21 BONA FIDE DEBT WORK-OUT. Within the meaning of 16 C.F.R. sec
802.63(a), the acquisition by Holdings of the voting securities of the Issuer
pursuant to the Exchange will be an acquisition of voting securities in
connection with a bona fide debt work-out by a creditor of the Companies.
SECTION 4. WARRANTIES, REPRESENTATIONS AND COVENANTS OF PURCHASERS
AND TCW.
Other than with respect to Sections 4.10, 4.11 and 4.12 (which
provisions apply only to the parties specified), each of the Purchasers and TCW,
severally and not jointly, hereby represents, warrants and covenants to the
Issuer with respect to such party, as follows:
4.1 ACQUISITION FOR PURCHASER'S ACCOUNT Each Purchaser, severally
and not jointly, represents and warrants to the Issuer that it is acquiring
and will acquire its New Securities for its own account, with no present
intention of distributing or reselling such securities or any part thereof in
violation of applicable securities laws.
4.2 INVESTMENT EXPERIENCE. Each Purchaser and TCW has such
knowledge and experience in financial and business matters, including
investing in securities of new and speculative companies, as to be able to
evaluate the merits and risks of an investment in its New Securities.
4.3 SECURITIES NOT REGISTERED. Each Purchaser acknowledges that
its New Securities have not been registered under the Securities Act or the
securities laws of any state in the United States or any other jurisdiction
and may not be offered or sold by such Purchaser unless subsequently
registered under the Securities Act (if applicable to the transaction) and
any other securities laws or unless exemptions from the registration or other
requirements thereof are available for the transaction.
4.4 QUALIFIED INSTITUTIONAL BUYER; ACCREDITED INVESTOR. Each
Purchaser represents that it is a Qualified Institutional Buyer (as defined
in Rule 144A promulgated under the Securities Act) and/or an Accredited
Investor within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act, as presently in effect.
4.5 ACKNOWLEDGEMENT OF RISK. Each Purchaser acknowledges that an
investment in its New Securities involves a high degree of risk and
represents that it understands the economic risk of such investment. Each
Purchaser is prepared to bear the economic risk of retaining its New
Securities for an indefinite period, all without prejudice, however, to the
rights
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of such Purchaser, in accordance with this Agreement, lawfully to sell or
otherwise dispose of all or any part of any New Securities held by it.
4.6 NO PUBLIC MARKET. Each Purchaser understands that no public
market now exists for its New Securities and that the Issuer has made no
assurances with respect to any secondary market for such securities.
4.7 RELIANCE BY THE ISSUER. Each Purchaser understands and
acknowledges that the Issuer will be relying upon its respective
representations and warranties set forth in this Agreement in issuing
Purchaser's New Securities to such Purchaser.
4.8 NO PUBLIC SOLICITATION. The issuing of each Purchaser's New
Securities to such Purchaser was made through direct, personal communication
between such Purchaser and a representative of the Issuer and not through
public solicitation and advertising.
4.9 LEGAL HOLDER. Each of JEDI and TCW is the sole legal and
beneficial holder of its Securities to be exchanged by such party hereunder
and is conveying its Securities to the Issuer, free and clear of any liens,
claims, interests, charges and encumbrances. Each of JEDI and TCW has
neither previously sold, assigned, conveyed, transferred or otherwise
disposed of, in whole or in part, its securities to be exchanged hereunder,
nor entered into any agreement to sell, assign, convey, transfer or otherwise
dispose of, in whole or in part, its securities to be exchanged hereunder.
4.10 CONSENT TO FARMOUT. TCW and each Purchaser consents to the
terms of the restructuring or amendment to the terms of the existing Farmout
Agreement described in Sections 5.1(f) and 5.2(g) below.
4.11 BONA FIDE DEBT WORK-OUT. TCW and Holdings each warrant and
represent that, within the meaning of 16 C.F.R. sec 802.63(a), Holding's
acquisition of voting securities pursuant to the Exchange will be an
acquisition in connection with a bona fide debt work-out by a creditor in a
bona fide credit transaction entered into in the ordinary course of the
creditor's business.
4.12 VALUE OF JEDI NEW SECURITIES. JEDI represents and warrants
that it has determined that the fair market value of the JEDI New Securities
is less than $15,000,000.
SECTION 5. PURCHASER AND TCW CONDITIONS TO CLOSING.
5.1 TCW 'S AND HOLDINGS' CONDITIONS TO CLOSING. As a condition to
the obligations of TCW and Holdings hereunder and prior to the issuance of
the New Securities, the following conditions precedent shall be satisfied (in
form and substance reasonably satisfactory to TCW, Holdings and their
counsel):
(a) Each of the representations and warranties of the Companies
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date, as though made on
and as of the Closing. TCW and Holdings shall have received one or more
certificates of the Companies signed by the Chief Executive Officer or President
and the Chief Financial Officer or Secretary of such Company to that effect.
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(b) The internal Investment Committee of TCW shall have approved
the terms of this Agreement, the Exchange, the New Securities and any other
transactions related hereto or thereto.
(c) Since the date of this Agreement, there shall not have
occurred any event or events which, individually or in the aggregate, would
have, or could be reasonably expected to have a Material Adverse Effect on
the financial condition, business or prospects of the Companies, the
Subsidiaries, or any of them or their properties.
(d) The Senior Creditors shall have agreed to a restructuring
and commitment with respect to the outstanding indebtedness of the Companies
under the Credit Agreement on terms acceptable to TCW and Holdings including,
but not limited to, a restructuring of the amortization of such debt and a
provision for additional borrowing capacity under the Credit Agreement.
(e) Creditors of the Companies listed on SCHEDULE 5.1 hereto
shall either (i) if such debt is evidenced by a promissory note, deferral
agreement, or other similar document providing for extended payment terms,
not be in default under such promissory note, deferral agreement, or other
similar document or (ii) if such debt is not evidenced by such a document,
the holder of such debt has not commenced any action for the collection of
such debt or in respect of any lien or encumbrance securing such debt.
(f) The Companies and Smith Management LLC (and its affiliates
party thereto) shall have agreed to a restructuring or amendment to the terms
of the existing Farmout Agreement (the "FARMOUT RESTRUCTURINGS"), such
amendment substantially in the form attached hereto as Exhibit F.
(g) The Smith Group and the Purchasers shall have executed a
shareholders agreement (the "SHAREHOLDERS AGREEMENT") substantially in the
form attached hereto as Exhibit B.
(h) The Issuer, the Smith Group and the Purchasers shall have
executed a registration rights agreement (the "REGISTRATION RIGHTS
AGREEMENT"), in the form attached hereto as Exhibit C.
(i) The Board of Directors of the Issuer and each of IPC's and
Refining's Boards of Directors shall have approved, as applicable, the terms
of this Agreement, the Exchange, the New Securities and any other
transactions related thereto, and the Board of Directors of the Issuer shall
have received an opinion of an investment bank that the Exchange is fair,
from a financial point of view, to the existing public holders of the
Issuer's Common Stock.
(j) All consents, approvals and authorizations, including
shareholder, regulatory and other approvals shall have been obtained in form
and in substance reasonably satisfactory to TCW and Holdings.
(k) All other documents required by this Agreement, relating to
the Exchange, the New Securities or any transaction related thereto or as may
be requested by TCW and Holdings, shall have been prepared and shall contain
representations, warranties, and indemnities in form and in substance
reasonably satisfactory to TCW, Holdings and their counsel.
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(l) TCW and Holdings shall have received the opinion of Randall
& Danskin P.S., counsel to the Issuer, substantially in the form attached
hereto as Exhibit D (the "RANDALL OPINION") as to matters of Washington law.
(m) TCW and Holdings shall have received the opinion of Akin,
Gump, Strauss, Hauer & Feld, L.L.P., counsel to the Companies, substantially
in the form attached hereto as Exhibit E (the "AKIN OPINION").
(n) TCW and Holdings shall have received the opinion of Van
Cott, Bagley, Cornwall & McCarthy, counsel to Refining, substantially in the
form attached hereto as Exhibit G (the "UTAH OPINION") as to matters of Utah
law.
(o) Each of the Closing Conditions of JEDI set forth in SECTION
5.2 hereof shall have been satisfied or waived by JEDI.
(p) Each of the Companies, at Closing, shall have executed the
TCW Release.
(q) Holdings shall have received certificates representing the
Holdings New Securities.
5.2 JEDI'S CONDITIONS TO CLOSING. As a condition to the
obligations of JEDI hereunder and prior to the issuance of the New
Securities, the following conditions precedent shall be satisfied (in form
and substance reasonably satisfactory to JEDI and its counsel):
(a) Each of the representations and warranties of the Companies
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date, as
though made on and as of the Closing. JEDI shall have received one or more
certificates of the Companies signed by the President or Chief Executive
Officer and the Chief Financial Officer or Secretary of such Company to that
effect.
(b) JEDI shall have completed a satisfactory due diligence
review of the Companies including, but not limited to, a review of the
engineering, economics and projections of all properties owned or leased by
the Companies, including the refinery, all environmental documents, financial
projections and accounting and control systems of the Companies.
(c) The general partner of JEDI shall have approved the terms of
this Agreement, the Exchange, the New Securities and any other transactions
related hereto or thereto.
(d) Since the date of this Agreement, there shall not have
occurred any event or events which, individually or in the aggregate, would
have, or could be reasonably expected to have a Material Adverse Effect on
the financial condition, business or prospects of the Companies, the
Subsidiaries or any of them or their properties.
(e) The Senior Creditors shall have agreed to a restructuring
and commitment with respect to the outstanding indebtedness of the Companies
under the Credit Agreement on terms acceptable to JEDI including, but not
limited to, a restructuring of the amortization of such debt and a provision
for additional borrowing capacity under the Credit Agreement.
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(f) Creditors of the Companies listed on SCHEDULE 5.1 hereto
shall either (i) if such debt is evidenced by a promissory note, deferral
agreement, or other similar document providing for extended payment terms,
not be in default under such promissory note, deferral agreement, or other
similar document or (ii) if such debt is not evidenced by such a document,
the holder of such debt has not commenced any action for the collection of
such debt or in respect of any lien or encumbrance securing such debt.
(g) The Companies and Smith Management LLC (and its affiliates
party thereto) shall have agreed to a restructuring or amendment to the terms
of the Farmout Agreement, such amendment substantially in the form attached
hereto as Exhibit F.
(h) The Smith Group and the Purchasers shall have executed the
Shareholders Agreement.
(i) The Issuer, the Smith Group and the Purchasers shall have
executed the Registration Rights Agreement.
(j) The Board of Directors of the Issuer and each of IPC's and
Refining's Boards of Directors shall approve, as applicable, the terms of
this Agreement, the Exchange, the New Securities and any other transactions
related thereto, and the Board of Directors of the Issuer shall receive an
opinion of an investment bank that the Exchange is fair, from a financial
point of view, to the existing public holders of the Issuer's Common Stock.
(k) All consents, approvals and authorizations, including
shareholder, regulatory and other approvals shall have been obtained in form
and in substance reasonably satisfactory to JEDI.
(l) All other documents required by this Agreement, relating to
the Exchange, the New Securities or any transaction related thereto or as may
be requested by JEDI, shall have been prepared and shall contain
representations, warranties, and indemnities in form and in substance
reasonably satisfactory to JEDI and its counsel.
(m) JEDI shall have received the Randall Opinion.
(n) JEDI shall have received the Akin Opinion.
(o) JEDI shall have received the Utah Opinion.
(p) Each of the Closing Conditions of TCW and Holdings under
SECTION 5.1 hereof shall have been satisfied or waived by TCW and Holdings
and the closing of the TCW and Holdings transactions in the Exchange shall
occur simultaneously with the closing of the JEDI transactions.
(q) Each of the Companies, at Closing, shall have executed the
JEDI Release.
(r) JEDI shall have received certificates representing the JEDI
New Securities.
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5.3 CLOSING DELIVERIES OF THE COMPANIES. As a condition to the
obligations of TCW and the Purchasers hereunder and prior to the issuance of
the New Securities, the Companies shall have delivered to the Purchasers (in
form and substance satisfactory to TCW, the Purchasers and their counsel):
(a) A certificate, dated as of the Closing Date, of the
Secretary or an Assistant Secretary of each of IPC and Refining,
(i) attaching a true and complete copy of the resolutions of
the Boards of Directors of each of IPC and Refining, and of all
documents evidencing other necessary corporate or shareholder action
taken by each of IPC and Refining in connection with the matters
contemplated by this Agreement;
(ii) attaching a true and complete copy of the bylaws of each
of IPC and Refining; and
(iii) setting forth the incumbency of the officer or officers
of IPC and Refining who sign this Agreement or any other documents
related hereto, including therein a signature specimen of such
officer or officers.
(b) A certificate, dated as of the Closing Date, of the
Secretary or an Assistant Secretary of the Issuer,
(i) attaching a true and complete copy of the resolutions of
the Board of Directors of the Issuer, and of all documents evidencing
other necessary corporate or shareholder action (in form and
substance reasonably satisfactory to the Purchasers and to their
counsel) taken by the Issuer in connection with the matters
contemplated by this Agreement;
(ii) attaching a true and complete copy of the Preferred Stock
Designation;
(iii) attaching a true and complete copy of the bylaws of the
Issuer; and
(iv) setting forth the incumbency of the officer or officers
of IPC and Refining who sign this Agreement, the New Securities or any
other document related hereto or thereto, including therein a
signature specimen of such officer or officers.
(c) Certificates of good standing (including tax status, if
applicable) of the each of the Companies under the laws of their respective
states of incorporation and as foreign corporations in every state in which
their ownership of property or their conduct of business requires
qualification or registration as a foreign corporation, except for
jurisdictions wherein the failure to be so qualified would not have a
Material Adverse Effect on the Companies and the Subsidiaries, taken as a
whole.
(d) A copy of the Initial Independent Engineering Report,
certified or otherwise approved by the engineer preparing such report.
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(e) Such other documents, agreements, instruments, certificates
and evidence relating to the matters necessary to undertake the Exchange as
contemplated by this Agreement as the Purchasers or their counsel shall
reasonably require.
SECTION 6. ISSUER'S CONDITIONS TO CLOSING; REQUIRED DELIVERIES.
As a condition to the obligations of the Companies hereunder and prior to the
issuance of the New Securities, the following conditions precedent shall be
satisfied (in form and substance reasonably satisfactory to the Companies and
their counsel):
(a) Each of the representations and warranties of TCW, Holdings
and JEDI contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing
Date, as though made on and as of the Closing. The Companies shall have
received a certificate from each of TCW, Holdings, Portfolio and JEDI to that
effect.
(b) All consents, approvals and authorizations, including
shareholder, regulatory and other approvals shall have been obtained in form
and in substance reasonably satisfactory to the Companies.
(c) TCW shall, at Closing, execute and deliver the TCW Release
and JEDI shall, at Closing, execute and deliver the JEDI Release.
(d) The Senior Creditors shall have released all security
interests or similar interests with respect to the property or assets under
or related to the Farmout Agreement.
(e) The Board of Directors of the Issuer shall have received an
opinion of an investment bank that the Exchange is fair, from a financial
point of view, to the existing public holders of the Issuer's Common Stock.
(f) The Issuer shall have received from Fund V cancelled notes
representing the Fund V Debt.
(g) The Issuer shall have received from Portfolio cancelled
certificates representing the Portfolio Warrants.
(h) The Issuer shall have received from JEDI cancelled
certificates evidencing JEDI's entire interest in 100,000 shares of Series C
Preferred Stock.
(i) The Senior Creditors shall have agreed to a restructuring
and commitment with respect to the outstanding indebtedness of the Companies
under the Credit Agreement on terms acceptable to the Issuer and IPC
including, but not limited to, a restructuring of the amortization of such
debt and a provision for additional borrowing capacity under the Credit
Agreement.
SECTION 7. TRANSFERABILITY OF NEW SECURITIES.
7.1 RESTRICTIVE LEGEND. Each certificate for Series D Preferred
Stock, Series E Preferred Stock, Series Z Preferred Stock and Common Stock
issued under this Agreement shall be stamped or otherwise imprinted with a
legend in substantially the following form:
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"The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may be transferred only if registered pursuant to the
provisions of such Securities Act or if an exemption from
registration is available."
PROVIDED, that such restrictive legend shall not be required after the date
on which the securities evidenced by a certificate bearing such restrictive
legend no longer constitute Restricted Securities, and upon the request of
the holder of such certificate, the Issuer, without expense to the holder,
shall issue a new certificate not bearing the restrictive legend otherwise
required to be borne thereby. In addition, each New Security shall bear the
legends required under the Shareholders Agreement.
7.2 RULE 144 AND 144A. At all times, in order to permit the
holders of Series D Preferred Stock, Series E Preferred Stock, Series Z
Preferred Stock and Common Stock, to transfer if they so desire, pursuant to
Rule 144 or 144A promulgated by the Commission (or any successor to such
rule), the Issuer will comply with all rules and regulations of the
Commission applicable in connection with use of Rule 144 and 144A (or any
successor rules thereto), including the provision of information concerning
the Issuer to such holders and the timely filing of all reports with the
Commission in order to enable such holders, if they so elect, to utilize Rule
144 or 144A, and the Issuer will cause any restrictive legends to be removed
and any transfer restrictions to be rescinded with respect to any sale of
Series D Preferred Stock, Series E Preferred Stock, Series Z Preferred Stock
or Common Stock which is exempt from registration under the Securities Act
pursuant to Rule 144 or 144A.
SECTION 8. AFFIRMATIVE COVENANTS OF THE COMPANIES
The Companies hereby warrant, covenant and agree that, so long as a
Purchaser beneficially owns either (i) five percent (5%) of the outstanding
Common Stock and Series Z Preferred Stock or (ii) 10% of the outstanding
shares of Series D Preferred Stock or Series E Preferred Stock, as
applicable, acquired under this Agreement (except with respect to SECTIONS
8.9, 8.10, 8.11, 8.12 and 8.14 below for which no threshold or different
ownership thresholds as specified therein shall apply) (the "REQUISITE
OWNERSHIP"):
8.1 FINANCIAL STATEMENTS. The Companies shall furnish and
deliver to the Purchasers, at the Companies' expense:
(a) as soon as available, but in any event within one hundred
twenty (120) days after the end of each fiscal year, a copy of the
consolidated balance sheet of the Companies and its consolidated Subsidiaries
as at the end of such year and the related consolidated statements of income
and retained earnings and of cash flows for such year, audited by Arthur
Anderson LLP or another independent certified public accountants of
nationally recognized standing reasonably acceptable to the Purchasers; and
(b) as soon as available, but in any event within fifty (50)
days after the end of each of the first three quarterly periods of each
fiscal year, the unaudited consolidated balance sheet of the Companies and
their consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and retained earnings and of cash
flows for such quarter and the portion of the fiscal year through the end of
such quarter, certified by the chief financial officer of the Issuer as being
fairly stated in all material respects when considered
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in relation to the consolidated financial statements of the Companies and
their consolidated Subsidiaries (subject to normal year-end adjustments).
(c) The requirements of this SECTION 8.1 shall be satisfied
without further action on the part of the Companies if the Issuer is timely
filing all reports with the Commission under the Exchange Act.
8.2 MANAGEMENT'S DISCUSSION AND RESULTS OF OPERATIONS. The
Companies shall furnish and deliver to the Purchasers, at the Companies'
expense, as soon as available, but in any event within fifty (50) days after
the end of each calendar quarter, a quarterly management's discussion and
results of operations as compared to the budget for such quarter. The
requirements of this SECTION 8.2 shall be satisfied without further action on
the part of the Companies if the Issuer is timely filing all reports with the
Commission under the Exchange Act.
8.3 CERTIFICATES; OTHER INFORMATION. The Issuer shall deliver,
not more than thirty (30) days prior to the end of each fiscal year of the
Companies, a copy of the projections by the Companies of the monthly
operating budget and cash flow budget of the Companies and the Subsidiaries
for the succeeding fiscal year, such projections to be accompanied by a
certificate of the chief financial officer to the effect that such
projections have been prepared on the basis of sound financial planning
practice and that such officer has no reason to believe they are incorrect or
misleading in any material respect.
8.4 INDEPENDENT ENGINEERING REPORT. As soon as available after
the end of each calendar year, but in any event no later than March 1 of each
such year, the Companies, at their expense, shall promptly furnish, or cause to
be promptly furnished, to the Purchasers, an annual Independent Engineering
Report.
8.5 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. The
Companies shall keep proper books of records and account in which full, true
and correct entries in conformity with GAAP and all requirements of law shall
be made of all dealings and transactions in relation to their business and
activities; and permit representatives of the Purchasers to visit and inspect
any of its properties and examine and make abstracts from any of their books
and records at any reasonable time and as often as may reasonably be desired
and to discuss the business, operations, properties and financial and other
condition of the Companies and the Subsidiaries with officers and employees
of the Companies and the Subsidiaries and with their independent certified
public accountants and attorneys.
8.6 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Companies shall continue to engage in business of the same general type as
now conducted by it and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business. Each of the Companies shall 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.
8.7 MAINTENANCE OF PROPERTY; INSURANCE. The Companies shall
keep all property useful and necessary in its business in good working order
and condition; maintain with financially sound and reputable insurance
companies insurance on all their property in at least
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such amounts and against at least such risks (but including in any event
public liability, product liability and business interruption) as are usually
insured against in the same general area by companies engaged in the same or
a similar business; and furnish to the Purchasers, upon written request, full
information as to the insurance carried.
8.8 DIRECTORS' AND OFFICERS' INSURANCE. The Companies shall
maintain, with financially sound and reputable insurance companies, insurance
on all their directors and officers in at least such amounts and against at
least such risks as are in effect as of the date hereof and on or before
October 1, 1999, the Companies shall have increased the amount of such policy
to an amount not less than $10 million and furnish to the Purchasers, upon
written request, full information as to the insurance carried.
8.9 TAXES. The Companies 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
New Securities hereunder or in connection with any modification of the New
Securities and will save the Purchasers 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. The obligations of the
Companies under this Section 8.9 shall survive any redemption, repurchase or
acquisition of the New Securities by the Companies and the termination of
this Agreement.
8.10 REPLACEMENT OF INSTRUMENTS. Upon receipt by the Issuer of
evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any certificate or instrument evidencing
any of the New Securities, and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that, if the owner of the same is a
commercial bank or an institutional lender or investor, its own agreement of
indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof, the Issuer, at its expense, will execute, register and deliver, in
lieu thereof, a new certificate or instrument for (or covering the purchase
of) an equal number of shares of the New Securities.
8.11 COSTS AND EXPENSES. So long as Holdings holds any shares of
Series D Preferred Stock, the Companies shall pay the reasonable legal,
engineering and other out-of-pocket costs and expenses of Holdings and its
affiliates relating to their dealings with, for or on behalf of the
Companies. So long as JEDI holds any shares of Series E Preferred Stock, the
Companies shall pay the reasonable legal costs and expenses of JEDI and its
affiliates relating to their dealings with, for or on behalf of the Companies
8.12 CONTINGENT ISSUANCE OF OPTIONS TO HOLDINGS AND JEDI. The
parties hereto acknowledge and agree that the numbers of shares of Series Z
Preferred Stock and Common Stock of Issuer to be issued to Holdings and JEDI
in the Exchange have been agreed to by Holdings and JEDI based upon certain
understandings and agreements that such shares would represent certain
percentages of the fully diluted ownership of the Series Z Preferred Stock
and Common Stock of the Issuer which percentages would change if any of the
options or warrants listed on Schedule 8.12 (individually, a "SCHEDULE 8.12
OPTION" and collectively, the "SCHEDULE 8.12 OPTIONS") are exercised. In
consideration of the agreement of Holdings and JEDI not to require an
increase in the number of shares of Series Z Preferred Stock and Common Stock
to be
24
<PAGE>
issued in the Exchange, the parties hereto agree that if at any time any
Schedule 8.12 Option is exercised by the holder thereof (an "EXERCISED 8.12
OPTION"), then within twenty (20) days after the date notice of such exercise
is received by the Issuer, the Issuer shall issue to Holdings and JEDI
options to purchase shares of Common Stock in the form attached hereto as
Exhibit I (the "PURCHASER ADJUSTMENT OPTIONS") having the same per share
exercise price and termination date as the Exercised 8.12 Option, except that
(a) the Purchaser Adjustment Option issued to Holdings shall be for a number
of shares equal to 200% of the number of shares issued with respect to the
Exercised 8.12 Option, (b) the Purchaser Adjustment Option issued to JEDI
shall be for a number of shares equal to 33.33% (rounding to the nearest
whole number of shares) of the number of shares issued with respect to the
Exercised 8.12 Option, and (c) the Purchaser Adjustment Options shall have a
minimum term of not less than sixty (60) days. In the event that any Schedule
8.12 Option is hereafter amended or otherwise modified, then the Purchaser
Adjustment Options issuable upon the exercise thereof shall be similarly
amended or modified; provided, that no amendments to the Schedule 8.12
Options or the Purchaser Adjustment Options may be made as to per share
exercise price or shares issuable upon conversion thereof. In addition, the
voluntary cancellation or termination of any Schedule 8.12 Option either
concurrently with or substantially contemporaneously with the issuance to the
holders of such cancelled or terminated Schedule 8.12 Options of new options
or rights to purchase securities of Issuer hereafter approved by the Issuer's
Board shall not be deemed or construed to be an amendment or modification of
the Schedule 8.12 Options for purposes of this section.
8.13 BANK COMPLIANCE CERTIFICATES. The Companies shall deliver
to Purchasers at the same time as the Companies deliver to the agent under
the Credit Agreement or the agent under any replacement credit agreement all
compliance certificates pursuant to Section 6.13 of the Credit Agreement
delivered to the agent under the Credit Agreement and any other similar
notices or reports pursuant to the Credit Agreement or a replacement credit
agreement.
8.14 MANAGEMENT CONTROLS. The failure by the Issuer to comply
with any of the covenants set forth below, unless specifically waived in
writing by Holdings, shall entitle Holdings to a right to specific
performance, other equitable remedies or damages available under applicable
law. The holders of the Series E Preferred Stock shall have no rights or
remedies under this SECTION 8.14 other than the right to receive copies of
the Annual Budget Plan, Approved Annual Budget, Updated Budget and Approved
Updated Budget pursuant to subsections (a) and (b) hereof.
(a) The Issuer hereby agrees that, so long as Holdings controls
or holds Series D Preferred Stock with a liquidation preference of $25
million or more, the Issuer shall within thirty (30) days prior to the fiscal
year end deliver to Holdings, a proposed detailed budget plan (the "ANNUAL
BUDGET PLAN"), on both a consolidated and consolidating basis, for the
operations of the Companies and the Subsidiaries for the next fiscal year,
prepared by the Issuer's officers and employees and certified by the chief
financial officer of the Issuer, which Holdings shall have the right, in its
sole discretion to approve, modify or disapprove in whole or in part,
including on a "line item" basis. Any Annual Budget Plan (or any portion
thereof) approved in writing by Holdings is herein referred to as an
"APPROVED ANNUAL BUDGET". A copy of the Annual Budget Plan and the Approved
Annual Budget shall be provided to holders of the Series E Preferred Stock
holding in excess of 49% of the outstanding Series E Preferred Stock, unless
such holders request not to receive copies of such budgets.
25
<PAGE>
(b) The Issuer hereby agrees that, so long as Holdings controls
or holds Series D Preferred Stock with a liquidation preference of $25
million or more, the Issuer shall deliver on or immediately prior to June 10
of each year to Holdings, an update of the Approved Annual Budget for that
year (the "UPDATED BUDGET"), on both a consolidated and consolidating basis,
for the operations of the Companies and the Subsidiaries for that year,
prepared by the Issuer's officers and employees and certified by the chief
financial officer of the Issuer, which Holdings shall have the right, in its
sole discretion to approve, modify or disapprove in whole or in part,
including on a "line item" basis. Any Updated Budget (or any items therein
or portion thereof) approved in writing by Holdings is herein referred to as
an "APPROVED UPDATED BUDGET" and together with the Approved Annual Budget,
the "APPROVED BUDGETS." A copy of the Updated Budget and the Approved
Updated Budget shall be provided to the holders of the Series E Preferred
Stock holding in excess of 49% of the outstanding Series E Preferred Stock,
unless such holders request not to receive copies of such budgets. No
actions on the part of the Issuer's Board or its officers or employees shall
be permitted without prior approval of Holdings after June 30 of each year
for which an Updated Budget for such year has not been approved (until such
time as an Updated Budget for such year has been approved in accordance
herewith).
(c) The Issuer hereby agrees that, so long as Holdings controls
or holds Series D Preferred Stock with a liquidation preference of $25
million, without the prior written approval of Holdings, the Issuer shall
not, and shall not permit any of its subsidiaries to, directly or indirectly:
(i) Make or commit to make any individual expenditures over
$25,000 for any purpose that is not set forth or otherwise expressly
contemplated in the latest Approved Budget;
(ii) Convey, sell, lease, assign, transfer or otherwise
dispose of any property, business or assets (including, without
limitation, receivables and leasehold interests) with a value that
exceeds $25,000 individually whether now owned or hereafter acquired;
(iii) Approve the annual or other compensation for any officer
or director, or any salary increases or bonus payments, benefit
packages, form of employment agreements, expense reimbursement
guidelines (and exceptions thereto) or any other adjustment to the
compensation for any officer or director;
(iv) Change any of its accounting practices or procedures;
(v) Create, incur, assume or suffer to exist any
indebtedness for borrowed money or any other indebtedness in an
individual amount in excess of $25,000, except indebtedness under
hedging contracts approved by the Board in compliance with the
senior debt of the Issuer;
(vi) Assume any liabilities or issue any guarantees for any
amount, except in the case of any liabilities or guarantees in an
individual amount that does not exceed $25,000;
(vii) Commence or settle any litigation where the amount in
controversy exceeds $25,000 or injunctive relief is sought;
26
<PAGE>
(viii) Transfer, loan, assign or otherwise convey any assets
or monies to subsidiaries of the Companies;
(ix) Amend or alter the Credit Agreement or any documents
relating to other indebtedness in an individual amount in excess of
$25,000;
(x) Approve any reimbursements to the senior officers of
the Companies for expense accounts, travel expenses or any other
reimbursable out-of-pocket expenses in excess of $3,000 in any
calendar month with respect to any officer; and
(xi) Approve the hiring or termination of management
employees.
PROVIDED, HOWEVER, that nothing in this SECTION 8.14 shall be
construed to require the approval of Holdings for, or otherwise render
invalid, any action by any Company, taken or directed by an officer or
other employee of any Company in good faith in or in response to
explosion, fire, flood or other emergency or exigent circumstances to
prevent loss of life or injury to persons or property or to comply
with applicable governmental or regulatory requirements including
without limitation Environmental Laws, but the Companies shall, as
promptly as possible, report such emergency or exigent circumstances
and the actions taken with respect thereto to Holdings.
SECTION 9. INDEMNITY. The Companies jointly and severally agree
to indemnify each Indemnified Party, 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 Indemnified Party growing
out of, resulting from or in any other way associated with this Agreement,
the Exchange or any of 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
Indemnified Party with respect to Hazardous Materials found in or released
into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART,
UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR ARE IN ANY EXTENT CAUSED, IN
WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY
INDEMNIFIED PARTY,
provided only that no Indemnified Party 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. As used in this section the term
"INDEMNIFIED PARTY" refers to each of Fund V, Portfolio, TCW Asset Management
Company, a California corporation, Trust Company of the West, a California trust
company, Holdings, JEDI (and each of their affiliates) and each director,
officer, agent,
27
<PAGE>
trustee, manager, member, partner, shareholder, principal, attorney,
employee, representative and affiliate of any such Person.
SECTION 10. MISCELLANEOUS
10.1 NOTICES.
(a) All communications under this Agreement shall be in writing
and shall be effective (a) upon hand delivery or delivery by telecopy or
facsimile, if delivered on a business day during normal business hours where
such notice is to be received or the first business day following such delivery
if delivered other than on a business day during normal business hours where
such notice is to be received or (b) on the second business day following the
date of mailing by first class mail, postage prepaid or by express courier
service, fully prepaid or upon actual receipt of such mailing, whichever shall
first occur:
(i) if to any party hereto, at its address for notices
specified beneath its name on the signature page hereof, or at such
other address as it may have furnished in writing to the Issuer, or
(ii) if to any other Person who is the registered holder of
any New Securities, to the address for the purpose of such holder as
it appears in the stock ledger of the Issuer.
10.2 SURVIVAL. All representations and warranties and covenants
made by the Companies herein or in any certificate or other instrument delivered
by them or on their behalf under this Agreement shall be considered to have been
relied upon by TCW and the Purchasers and shall survive the issuance of the New
Securities regardless of any investigation made by or on behalf of TCW and/or
the Purchasers.
10.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties whether so expressed or
not; PROVIDED, that the benefits of SECTION 8 shall inure to the benefit of
affiliates of the Purchasers or their transferees holding the Requisite
Ownership.
10.4 AMENDMENT AND WAIVER, ETC. This Agreement may be amended, but
only with the written consent of each of the Companies, TCW and the Purchasers.
No failure or delay on the part of any of TCW, the Purchasers or the Companies
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to TCW and/or the
Purchasers at law or in equity or otherwise. No waiver of or consent to any
departure by the Companies from any provision of this Agreement shall be
effective unless signed in writing by each of the Purchasers who then holds
either five percent (5%) of the outstanding Common Stock and Series Z Preferred
Stock or any Series D Preferred Stock or Series E Preferred Stock.
28
<PAGE>
10.5 COUNTERPARTS. Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument.
10.6 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
10.7 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of New York as applicable
to contracts.
10.8 EXPENSES. Whether or not the transactions contemplated by this
Agreement close, the Companies will pay all costs and expenses incurred by the
Purchasers (a) relating to the negotiation, execution and delivery of this
Agreement and the issuance of the New Securities (including, without limitation,
reasonable fees, office charges and expenses of counsel to TCW, Milbank, Tweed,
Hadley & McCloy LLP, and counsel to JEDI, Vinson & Elkins), (b) relating to
printing the instruments evidencing the New Securities, (c) relating to any
amendments, waivers or consents under this Agreement to the same extent as set
forth in clause (a) and (b) above incident to the enforcement by the Purchasers
of, or the protection or preservation of any right or remedy of the Purchasers
under, this Agreement, or any other document or agreement furnished pursuant
hereto or thereto or in connection herewith or therewith (including, without
limitation, reasonable fees and expenses of counsel), (d) relating to third
party engineering and outside accounting costs, and (e) relating to any future
dealings associated with the transactions relating to this Agreement and the
Exchange (including any engineering, legal, and outside accounting costs). The
Companies shall pay such costs and expenses, to the extent then payable, on the
date of issuance of the New Securities or, with respect to those matters
described in clauses (b), (c), (d) and (e) above thereafter from time to time
upon demand by the Purchasers upon presentation, in each such case, of a
statement thereof. Additionally, the Companies shall pay an additional $25,000
to each of TCW and JEDI (in addition to any payments made for each party's costs
and expenses as set forth herein) at Closing.
10.9 SPECIFIC PERFORMANCE. The Companies recognize that money
damages may be inadequate to compensate the Purchasers for a breach by the
Companies of their obligations hereunder, and the Companies irrevocably agree
that the Purchasers shall be entitled to the remedy of specific performance or
the granting of such other equitable remedies as may be awarded pursuant to the
arbitration described in Section 10.10 below or by a court of competent
jurisdiction after the arbitration in Section 10.10 below in order to afford the
Purchasers the benefits of this Agreement and that the Companies shall not
object and hereby waive any right to object to such remedy or such granting of
other equitable remedies on the grounds that money damages will not be
sufficient to compensate the Purchasers.
10.10 ARBITRATION. THE PARTIES AGREE THAT IF ANY DISPUTE SHOULD
ARISE UNDER THE TERMS AND PROVISIONS OF THIS AGREEMENT, EACH PARTY WAIVES ANY
RIGHT TO COMMENCE LEGAL ACTION OR ARBITRATION OTHER THAN AS PROVIDED UNDER THE
TERMS OF THIS AGREEMENT, AND THIS AGREEMENT SHALL PROVIDE THE SOLE AND EXCLUSIVE
REMEDY FOR RESOLUTION OF DISPUTES.
29
<PAGE>
(a) THE DETERMINATION OF THE ARBITRATOR WILL BE FINAL AND BINDING
UPON EACH PARTY AND EACH PARTY SPECIFICALLY WAIVES ANY RIGHT TO CLAIM THAT THE
ARBITRATOR HAS EXCEEDED THE SCOPE OF THE ARBITRATION, HAS DISREGARDED EVIDENCE
OR PRINCIPLES OF LAW, AND FURTHER WAIVES ANY RIGHT TO DISCLAIM THE QUALIFICATION
OR FUNCTION OF THE ARBITRATOR IN ANY MANNER OR FASHION.
(b) IF SUCH A DISPUTE HAS ONLY TWO PARTIES, EACH PARTY SHALL
SELECT ONE ARBITRATOR, AND THOSE ARBITRATORS SHALL SELECT A THIRD ARBITRATOR.
IF THE PARTIES DISPUTE THE SELECTION OF THE ARBITRATOR(S) AND CANNOT AGREE UPON
THE IDENTIFICATION OF THE ARBITRATOR(S) WITHIN THIRTY (30) DAYS FROM THE MAILING
OF THE OBJECTION, A PETITION FOR APPOINTMENT OF ARBITRATOR SHALL BE FILED WITH
THE SUPERIOR COURT OF THE COUNTY OF LOS ANGELES, CALIFORNIA. IF SUCH A DISPUTE
HAS MORE THAN TWO PARTIES, ALL SUCH PARTIES SHALL WITHIN THIRTY (30) DAYS
(i) APPOINT TWO ARBITRATORS UPON AGREEMENT OF ALL SUCH PARTIES OR IF SUCH
PARTIES CANNOT SO AGREE (ii) APPROVE TWO ARBITRATOR'S SELECTED BY THE AMERICAN
ARBITRATION ASSOCIATION. THE TWO ARBITRATORS SELECTED SHALL THEN SELECT A THIRD
ARBITRATOR. THE ARBITRATION SHALL BE HELD IN LOS ANGELES, CALIFORNIA PURSUANT
TO THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION AND
THE NEW YORK CODE OF CIVIL PROCEDURE.
(c) THE ARBITRATOR'S FEES AND FEES AND COSTS OF PETITIONING FOR
THE APPOINTMENT OF THE ARBITRATOR SHALL BE PAID BY THE COMPANIES. THE
ARBITRATOR, UPON RENDERING ITS AWARD, SHALL DETERMINE THE PARTY THAT PREVAILED
BASED UPON WRITTEN STATEMENTS MADE BY EACH PARTY AT THE COMMENCEMENT OF THE
ARBITRATION AS TO THE POSITION OF THE PARTIES AND THEIR ALTERNATIVES FOR
SETTLING THE MATTER AND THEREAFTER IN ACCORDANCE WITH THE RULES FOR THE FURTHER
PRESENTATION OF EVIDENCE AS SET FORTH BY THE ARBITRATOR. A STATEMENT OF A
PROPOSED SETTLEMENT SHALL NOT BE BINDING UPON ANY PARTY AND SHALL NOT BE
CONSIDERED AS EVIDENCE BY THE ARBITRATOR EXCEPT TO THE EXTENT THAT THE
ARBITRATOR UPON MAKING ITS SOLE AND INDEPENDENT DETERMINATION SHALL DETERMINE
THE PARTY WHICH PREVAILED BASED UPON THE PROPOSALS FOR SETTLEMENT OF THE MATTER
MADE BY EACH PARTY AND SHALL DETERMINE THAT THE NON-PREVAILING PARTY SHALL PAY
SOME OR ALL OF THE COSTS OF ARBITRATION INCLUDING ANY COSTS INCURRED BY THE
ARBITRATOR IN EMPLOYING EXPERTS TO ADVISE THE ARBITRATOR IN REGARD TO SPECIFIC
SUBJECTS OR QUESTIONS. THE ARBITRATOR MAY FURTHER AWARD THE COST OF ATTORNEYS'
FEES OR EXPERT WITNESSES CONSULTED OR EMPLOYED IN THE PREPARATION OR
PRESENTATION OF EVIDENCE TO THE ARBITRATOR BY THE PREVAILING PARTY IF, IN THE
ARBITRATOR'S DETERMINATION, THE POSITION OF THE NONPREVAILING PARTY WAS NOT
REASONABLY TAKEN OR MAINTAINED OR WAS BASED UPON A FAILURE TO PROPERLY EXCHANGE
OR COMMUNICATE INFORMATION WITH THE PREVAILING PARTY IN REGARD TO THE SUBJECT
SUBMITTED TO ARBITRATION.
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<PAGE>
(d) THE ARBITRATOR'S DETERMINATION MAY FURTHER PROVIDE FOR
PROSPECTIVE ENFORCEMENT AND DIRECTIONS FOR THE PARTIES TO COMPLY WITH INCLUDING
WITHOUT LIMITATION PERMANENT INJUNCTIVE RELIEF. UNDER SUCH CIRCUMSTANCES, THE
ARBITRATOR'S AWARD SHALL BE BINDING UPON THE PARTIES AND SHALL BE UNDERTAKEN AND
PERFORMED BY EACH OF THE PARTIES UNTIL SUCH TIME AS THE ARBITRATOR'S DIRECTIONS
TO THE PARTY SHALL LAPSE BY THEIR TERM, OR THE ARBITRATOR SHALL NOTIFY THE
PARTIES THAT THOSE TERMS ARE NO LONGER IN FORCE OR EFFECT OR SHALL MODIFY THOSE
TERMS.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Exchange Agreement as of the date first above written.
INLAND RESOURCES INC.,
a Washington corporation
By: __________________________________
Kyle R. Miller
Co-Chief Executive Officer
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
INLAND PRODUCTION COMPANY,
a Texas corporation
By: __________________________________
Kyle R. Miller
Chief Executive Officer
Address for Notices:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
<PAGE>
INLAND REFINING, INC.,
a Utah corporation
By: __________________________________
Name:
Title:
Address for Notices:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
<PAGE>
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: __________________________________
Thomas F. Mehlberg
Managing Director
By: __________________________________
Marc MacAluso
Senior Vice President
Address for Notices:
865 S. Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Facsimile: (213) 244-0604
With copies to:
TCW Asset Management Company
1000 Louisana
Suite 2175
Houston, Texas 77002
Attention: Marc MacAluso
Telephone: (713) 615-7415
Facsimile: (713) 615-7460
Milbank, Tweed, Hadley & McCloy LLP
601 S. Figueroa Street
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
<PAGE>
INLAND HOLDINGS LLC, a California limited
liability company,
By: TRUST COMPANY OF THE WEST, a
California trust company, as Sub-Custodian for
Mellon Bank for the benefit of Account No. CPFF
873-3032, Member
By: ________________________
Thomas F. Mehlberg
Managing Director
By: ________________________
Marc MacAluso
Senior Vice President
By: TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P., a California limited
partnership, Member
By: TCW ROYALTY COMPANY V, a California
corporation, Managing General Partner
By: ________________________________
Thomas F. Mehlberg
Vice President
Address for Notices:
865 S. Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Facsimile: (213) 244-0604
With copies to:
TCW Asset Management Company
1000 Louisana
Suite 2175
Houston, Texas 77002
Attention: Marc MacAluso
Telephone: (713) 615-7415
Facsimile: (713) 615-7460
Milbank, Tweed, Hadley & McCloy LLP
601 S. Figueroa Street
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
<PAGE>
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corp., its General Partner
By: __________________________________
Name:
Title:
Address for Notices:
Enron North America Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telephone: (713) 853-6161
Facsimile: (713) 646-4039/4946
<PAGE>
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
Address for Notices:
865 S. Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Facsimile: (213) 244-0604
With copies to:
TCW Asset Management Company
1000 Louisana
Suite 2175
Houston, Texas 77002
Attention: Marc MacAluso
Telephone: (713) 615-7415
Facsimile: (713) 615-7460
Milbank, Tweed, Hadley & McCloy LLP
601 S. Figueroa Street
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
<PAGE>
EXHIBIT 2
REGISTRATION RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 21, 1999
BY AND AMONG
INLAND HOLDINGS LLC,
TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY PARTNERSHIP, L.P.
AND
INLAND RESOURCES INC.,
JOINT ENERGY DEVELOPMENT INVESTMENTS II
LIMITED PARTNERSHIP,
AND
SMITH MANAGEMENT LLC
PENGO SECURITIES CORPORATION
SMITH ENERGY PARTNERSHIP
and their affiliates
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2. Demand Registration Rights. . . . . . . . . . . . . . . . . . .2
Section 3. Shelf Registration. . . . . . . . . . . . . . . . . . . . . . .3
Section 4. Piggy-back Registration . . . . . . . . . . . . . . . . . . . .3
Section 5. Restrictions on Dispositions and Demand Registrations . . . . .5
Section 6. Registration Procedures.. . . . . . . . . . . . . . . . . . . .5
Section 7. Registration Expenses . . . . . . . . . . . . . . . . . . . . .9
Section 8. Indemnification; Contribution . . . . . . . . . . . . . . . . .9
Section 9. Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 10. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 11. Binding Effect; Transferees; Termination. . . . . . . . . . . 11
Section 12. Amendments and Waivers. . . . . . . . . . . . . . . . . . . . 12
Section 13. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 14. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 15. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 16. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 17. Severability. . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made and
entered into as of the 21st day of September, 1999, by and between Inland
Resources Inc., a Washington corporation (the "Company"), Inland Holdings
LLC, a California limited liability company ("HOLDINGS"), TCW Portfolio No.
1555 DR V Sub-Custody Partnership, L.P., a California limited partnership
("Portfolio"), Joint Energy Development Investments II Limited Partnership, a
Delaware limited partnership ("JEDI" together with HOLDINGS, the
"PURCHASERS") and Pengo Securities Corporation ("PENGO"), Smith Energy
Partnership ("SEP"), Randall D. Smith, Jeffrey A. Smith, Barbara Stovall
Smith, John W. Adams and Arthur J. Pasmas (collectively, the "SMITH
INDIVIDUALS") (Pengo, SEP, and the Smith Individuals, together with any of
their respective affiliates, the "SMITH GROUP").
This Agreement is being entered into in connection with the
Exchange Agreement dated as of September 21, 1999 (the "EXCHANGE AGREEMENT"),
between the Company, the Purchasers and certain other parties (such
transaction being the "EXCHANGE TRANSACTION"). To induce either of the
Purchasers to enter into the Exchange Agreement and the Smith Group to
participate in the Exchange Transaction, the Company has agreed to provide
the registration and other rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the closing under the
Exchange Agreement.
The parties hereby agree as follows:
Section 1. Definitions. As used in this Agreement, the
following terms have the meanings indicated:
"COMMISSION" means the Securities and Exchange Commission or any
similar agency having jurisdiction to enforce the Securities Act.
"COMMON STOCK" means the common stock, par value $.001 per share,
of the Company.
"DEMAND REGISTRATION" has the meaning ascribed to such term in
Section 2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or governmental or political subdivision, agency or instrumentality thereof
or other entity or organization of any kind.
"PIGGY-BACK REGISTRATION" has the meaning ascribed to such term in
Section 4.
"PURCHASER ADJUSTMENT OPTIONS" has the meaning ascribed to such
term in the Exchange Agreement.
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<PAGE>
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act and the declaration or ordering of effectiveness of such
registration statement.
"REGISTRABLE COMMON STOCK" means, collectively, (a) the shares of
Common Stock issued to JEDI and Holdings pursuant to the Exchange Agreement,
(b) the shares of Common Stock acquirable upon the conversion of the Series Z
Preferred Stock issued to Holdings pursuant to the Exchange Agreement, (c)
the shares of Common Stock issuable upon exercise of any of the Purchaser
Adjustment Options, (d) the shares of Common Stock held by the Smith Group as
of the date hereof and (e) any shares of Common Stock or other securities
issued with respect to the Common Stock described in clauses (a), (b), (c)
and (d) of this definition whether by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation, share exchange, reorganization or otherwise held by Holdings,
JEDI or the Smith Group; provided, however, such Common Stock or other
securities shall cease to be Registrable Common Stock when (i) a registration
statement with respect to the disposition of such Common Stock or other
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with the plan of
distribution set forth in such registration statement, (ii) such Common
Stock or other securities shall have been sold pursuant to Rule 144 (or any
successor provision) under the Securities Act, (iii) such Common Stock or
other securities shall have ceased to be outstanding or (vi) such Common
Stock or other securities may be sold pursuant to Rule 144 (or a successor
provision) under the Securities Act without being restricted by the volume
limitations or method of sale restrictions thereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SERIES Z PREFERRED STOCK" means the Series Z Convertible Preferred
Stock of the Company, par value $.001 per share.
"SHELF REGISTRATION STATEMENT" has the meaning ascribed to such
term in Section 2(a).
Section 2. Demand Registration Rights.
(a) RIGHT TO DEMAND REGISTRATION. Subject to Section 2(b) and
Section 5 hereof, any holder of Registrable Common Stock may make a written
request to the Company for registration with the Commission under and in
accordance with the provisions of the Securities Act of the disposition of
all or part of the Registrable Common Stock (a "DEMAND REGISTRATION"). All
requests made pursuant to this Section 2(a) will specify the aggregate amount
of Registrable Common Stock to be registered, will specify the intended
methods of disposition thereof and will specify whether the registration
statement to be filed is a "shelf" registration statement ("'SHELF
REGISTRATION STATEMENT") pursuant to Rule 415 under the Securities Act (or
any similar rule that may be adopted by the Commission). If any holder
intends to dispose of any of the Registrable Common Stock pursuant to an
underwritten offering, the holder will have the right to select the
underwriter. No securities other than Registrable Common Stock may be
registered in connection with a Demand Registration without the consent of
the holders of a majority of the outstanding Registrable Common Stock whose
shares are subject to such Demand Registration.
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(b) NUMBER OF DEMAND REGISTRATIONS; EFFECTIVE REGISTRATION;
EXPENSES. So long as (i) Holdings holds Registrable Common Stock, it (and its
transferees), shall be entitled to initiate and have effected an aggregate of
three (3) Demand Registrations; (ii) JEDI holds Registrable Common Stock, it
(and its transferees) shall be entitled to initiate and have effected two (2)
Demand Registrations; and (iii) the Smith Group holds Registrable Common
Stock, it (and its transferees) shall be entitled to initiate and have
effected one (1) Demand Registration. The Company shall pay all Registration
Expenses of all such Demand Registrations in accordance with Section 7
hereof. The Company shall not be deemed to have effected a Demand
Registration unless and until (i) the Company has filed a registration
statement with the Commission and (ii) the registration statement has been
declared effective by the Commission.
(c) GRANT OF NEW REGISTRATION RIGHTS. From and after the date of
this Agreement and until this Agreement is terminated, the Company shall not
grant any registration rights to any person that could adversely affect the
rights of either of the Purchasers hereunder or are inconsistent with the
rights of either of the Purchasers hereunder without the prior written
consent of such Purchasers; provided, however, that the granting of
piggy-back registration rights that are not superior to the registration
rights granted under SECTION 4 hereof with respect to cut-backs or reductions
required by underwriters shall not, in and of itself, be deemed to adversely
affect the rights of either of the Purchasers or be inconsistent with such
rights.
(d) TERMINATION OF PRIOR REGISTRATION RIGHTS. By entering into
this Agreement JEDI, Portfolio and each of the members of the Smith Group, on
behalf of themselves and their affiliates, expressly consents to and
acknowledges that any registration right(s) related to any securities of the
Company held prior to the date hereof by it is/are terminated as of the date
hereof.
Section 3. SHELF REGISTRATION. The Company will, as soon as
possible following a written request pursuant to Section 2(a) for the
registration of Registrable Common Stock by means of a Shelf Registration
Statement, file a shelf registration statement on Form S-3 covering the
Registrable Common Stock and thereafter shall use its best efforts to cause
the Shelf Registration Statement to be declared effective as soon as
practicable following such filing and to take any and all reasonable action
within the Company's control, subject to and in accordance with Section 5, as
may be necessary or appropriate to maintain such effectiveness until such
time as neither any holder nor any of their assignees own any Registrable
Common Stock; provided however that the Company shall not be required to
maintain the effectiveness of any such Shelf Registration Statement for
longer than (a) one hundred and twenty days (120) from the effective date of
such registration statement for a Demand Registration initiated by the Smith
Group; and (b) two years from the effective date of such registration
statement for a Demand Registration initiated by either of the Purchasers.
Section 4. PIGGY-BACK REGISTRATION. (a) If the Company
proposes to file a registration statement under the Securities Act with
respect to an offering by the Company for its own account or for the account
of others (the "INITIATING SHAREHOLDERS") of any class of security (other
than pursuant to a registration statement on Forms S-4 or S-8 (or successor
forms) or in connection with an exchange offer or an offering of securities
solely to the Company's existing stockholders), including a Demand
Registration Statement or a Shelf Registration Statement, then the Company
shall in each case give written notice of such proposed filing to the holders
of Registrable Common Stock (which notice shall indicate, to the extent then
known, the proposed
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managing underwriter or underwriters, if such offering is to be underwritten,
and such other terms of the proposed offering that the Company reasonably
believes to be material to the holders of Registrable Common Stock) and shall
include in such registration statement all or a portion of the Registrable
Common Stock owned by such holders which such holders shall request to be so
included by written notice given by such holders to the Company within 10
business days after such holder's receipt of such notice from the Company (a
"PIGGY-BACK REGISTRATION"). The Company shall use its best efforts to effect
the registration of all Registrable Common Stock requested to be so
registered in such offering on the same terms and conditions as any similar
securities of the Company included therein. If the managing underwriter or
underwriters of an underwritten offering, if any, advise the holders of
Registrable Common Stock in writing that in its or their reasonable opinion
or, in the case of a Piggyback Registration not being underwritten, the
Company shall reasonably determine (and notify the holders of Registrable
Common Stock of such determination), after consultation with an investment
banker of nationally recognized standing, that the number of shares of Common
Stock or other securities proposed to be sold in such registration will
adversely affect the success of such offering, the Company will include in
such registration the number of securities, if any, which, in the opinion of
such underwriter or underwriters, or the Company, as the case may be, can be
sold as follows: (A) if such registration was initiated by the Company, (i)
FIRST, the shares the Company proposed to sell, (ii) SECOND, the Registrable
Common Stock and other shares of Common Stock requested to be included in
such registration by the holders thereof entitled to participate in such
registration under this Agreement or under any registration rights agreement
in effect on the date hereof and (iii) THIRD, the Common Stock requested to
be included in such registration by the holders thereof entitled to
participate in such registration under a registration rights agreement
effective after the date hereof and (B) if such registration was initiated as
the result of the exercise of a demand registration right of holders of
Common Stock (i) FIRST, the shares of Common Stock requested to be included
in such registration by the demanding holders pro rata among those requesting
such registration on the basis of the number of shares of Common Stock
requested to be included), (ii) SECOND, shares to be issued and sold by the
Company and shares held by Persons other than the demanding holders and
requested to be included in such registration either pursuant to this
Agreement or pursuant to any registration rights agreement in effect on the
date hereof and (iii) THIRD, the Common Stock requested to be included in
such registration by the holders thereof entitled to participate in such
registration under registration rights agreements effective after the date
hereof. To the extent that the privilege of including Registrable Common
Stock or other shares of Common Stock in any Piggyback Registration must be
allocated among the holders thereof pursuant to clause (A)(ii) or (B)(ii)
above, the allocation shall be made pro rata based on the number of shares of
Common Stock that each such participant shall have requested to include
therein and to the extent that the privilege of including Common Stock in any
Piggyback Registration must be allocated among the holders thereof pursuant
to clause (A)(iii) or (B)(iii) above, the allocation shall be made pro rata
based on the number of shares of Common Stock that each shall such
participant shall have requested to include therein.
(b) The holders of Registrable Common Stock to be distributed by
such underwriters shall be parties to the underwriting agreement between the
Company and such underwriters. The representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of the holders of
Registrable Common Stock to be distributed by such underwriters, and the
conditions precedent to the obligations of such holders of Registrable Common
Stock under such underwriting
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agreement shall be reasonably satisfactory to such holders. Such holders
shall not be required to make any representations or warranties to the
Company or its underwriters other than representations or warranties
regarding such holder, such holder's interest in the shares to be distributed
and such holder's intended method of distribution. The Company shall have
the right to discontinue any piggy-back registration under this Section 4 at
any time prior to the effective date of such registration if the registration
of the securities giving rise to such registration under this Section 4 is
discontinued by the Company, but no such discontinuation shall preclude an
immediate or subsequent request by the holders of Registrable Common Stock
for registration pursuant to Section 2 hereof if otherwise permitted.
Section 5. RESTRICTIONS ON DISPOSITIONS AND DEMAND
REGISTRATIONS. Notwithstanding anything to the contrary contained herein, the
Company shall not be obligated to prepare and file any registration statement
pursuant to a Demand Registration or prepare or file any amendment or
supplement thereto and may suspend, by giving written notice to the holders
of Registrable Common Stock, such holders' rights to make dispositions of
Registrable Common Stock pursuant to a Shelf Registration Statement, at any
time when the Company reasonably believes that the filing thereof at the time
requested, or the offering or sale of securities pursuant thereto, would
materially adversely affect a pending or proposed public offering of the
Company's securities, or an acquisition, merger, recapitalization,
consolidation, reorganization or similar transaction or negotiations,
discussions or pending proposals with respect thereto. The rights of holders
of Registrable Common Stock to make dispositions thereof pursuant to a Shelf
Registration Statement may similarly be suspended by the Company upon written
notice to the holders of Registrable Common Stock that the Shelf Registration
Statement is unusable as a result of an event requiring a post-effective
amendment or supplement, which has not yet been filed, and will remain
unusable until the supplement is filed or post-effective amendment is filed
and declared effective. The filing of a registration statement, or any
amendment or supplement thereto, by the Company cannot be deferred, and the
holders' rights to dispose of Registrable Common Stock pursuant to a Shelf
Registration Statement cannot be suspended for more than 90 days, may not be
so deferred or suspended more than 180 days during any twelve month period
unless such deferral or suspension is agreed to in writing by the holders of
Registrable Common Stock subject to such suspension or deferral and, with
respect to suspended dispositions, the Company shall be obligated to maintain
the effectiveness of the applicable registration statement for an additional
period of time equal to the period of suspension(s).
Section 6. REGISTRATION PROCEDURES.
(a) CERTAIN COMPANY OBLIGATIONS. Whenever Registrable Common Stock
is to be registered pursuant to Sections 2 or 3 of this Agreement, the
Company will use reasonable diligence to effect the registration of such
Registrable Common Stock in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any
such request and with the Piggy-back Registration or Demand Registration, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement which includes the Registrable Common Stock and use its best
efforts to cause such registration statement to become effective (which
registration statement, in the case of a Demand Registration, shall in all
events be filed with the Commission within 60
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days after the Company's receipt of the Demand Registration, subject to
the limitations set forth in Section 5); provided that before filing a
registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to the holders of the Registrable Common
Stock covered by such registration statement and the underwriters, if any,
draft copies of all such documents proposed to be filed at least five (5)
business days prior thereto, which documents will be subject to the
reasonable review of such holders and underwriters, and provided further
that if such registration statement refers to any holder of Registrable
Common Stock by name or otherwise as the holder of any securities of the
Company, then such holder shall have the right to require (i) the insertion
therein of language, in form and substance satisfactory to such holder, to
the effect that the holding by such holder of such securities does not
necessarily make such holder a "controlling person" of the Company within
the meaning of the Securities Act and is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such
holder will assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any rules and
regulations promulgated thereunder, the deletion of the reference to such
holder;
(ii) prepare and file as soon as reasonably practicable with the
Commission such amendments and post-effective amendments to the
registration statement as may be necessary to keep the registration
statement effective for the period of time specified in Section 3 with
respect to the Shelf Registration Statement and otherwise for 90 days (or
such shorter period which will terminate when all Registrable Common Stock
covered by such registration statement has been sold or withdrawn); cause
the prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act
applicable to it with respect to the disposition of all securities covered
by such registration statement during the applicable period in accordance
with the intended methods of disposition by the holders thereof set forth
in such registration statement or supplement to the prospectus;
(iii) furnish to any holder of Registrable Common Stock included
in such registration statement and to the managing underwriter or
underwriters, if any, without charge, at least one signed copy of the
registration statement and any post-effective amendment thereto, upon
request, and such number of conformed copies thereof and such number of
copies of the prospectus (including each preliminary prospectus) and any
amendments or supplements thereto, and any documents incorporated by
reference therein, as such holder or underwriter may reasonably request in
order to facilitate the disposition of the Registrable Common Stock being
sold by such holder;
(iv) notify in writing each holder of Registrable Common Stock
included in such registration statement, at any time when a prospectus
relating-thereto is required to be delivered under the Securities Act, when
the Company
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becomes aware of the happening of any event as a result of which the
prospectus included in such registration statement (as then in effect)
contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements therein (in the case of
the prospectus or any preliminary prospectus, in light of the circumstances
under which they were made) not misleading and, as promptly as practicable
thereafter, prepare and file with the Commission and furnish a supplement
or amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Common Stock, such prospectus will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(v) use reasonable diligence to cause all Registrable Common
Stock included in such registration statement to be listed, by the date of
the first sale of Registrable Common Stock pursuant to such registration
statement, on each securities exchange on which the Common Stock of the
Company is then listed or proposed to be listed, if any, and use reasonable
diligence to cause all Registrable Common Stock included in such
Registration Statement to be quoted on The Nasdaq Stock Market (or other
national or small-cap market), if the Common Stock of the Company is then
quoted thereon;
(vi) make generally available to its security holders an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act
as soon as practicable, which earnings statement shall cover the requisite
12-month period, which requirements will be deemed to be satisfied if the
Company timely files complete and accurate information on Forms 10-Q, 10-K
and 8-K under the Exchange Act and otherwise complies with Rule 158 under
the Act as soon as feasible;
(vii) if requested by the managing underwriter or underwriters or
any holder of Registrable Common Stock covered by the registration
statement, promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or
underwriters or such holder reasonably requests to be included therein,
including, without limitation, with respect to the Registrable Common Stock
being sold by such holder to such underwriter or underwriters, the purchase
price being paid therefor by such underwriter or underwriters and with
respect to any other terms of the underwritten offering of the Registrable
Common Stock to be sold in such offering, and promptly make all required
filings of such prospectus supplement or post-effective amendment;
(viii) on or prior to the date on which the registration statement
is declared effective, use reasonable diligence to register or qualify, and
cooperate with the holders of Registrable Common Stock included in such
registration statement, the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification of the
Registrable Common Stock covered by the registration statement for offer
and sale under the securities or blue sky laws of each state and other
jurisdiction of the United States as any such holder or underwriter
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reasonably requests in writing, to use reasonable diligence to keep each
such registration or qualification effective, including through new
filings, or amendments or renewals, during the period such registration
statement is required to be kept effective and to do any and all other acts
or things necessary or advisable to enable the disposition in all such
jurisdictions of the Registrable Common Stock covered by the applicable
registration statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it is not then
so qualified or to take any action which would subject it to general
service of process in any such jurisdiction where it is not then so
subject;
(ix) cooperate with the holders of Registrable Common Stock
covered by the registration statement and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing securities
to be sold under the registration statement, and enable such securities to
be in such denominations and registered in such names as the managing
underwriter or underwriters, if any, or such holders may request;
(x) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions
as the holders of the Registrable Common Stock being sold or the
underwriters retained by holders participating in an underwritten public
offering, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Common Stock;
(xi) make available for inspection by the holders, by any
underwriter participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other agent
retained by the holders or any such underwriter, all pertinent financial
and other records, pertinent corporate documents and properties of the
Company, and cause all of the Company's officers, directors and employees
to supply all information, reasonably requested by the holders or any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement. In that connection, the Company may require the
holders, such underwriter and such other persons to conduct their
investigation in a manner which does not disrupt the operations of the
Company and to execute such confidentiality agreements as the Company may
reasonably determine to be advisable; and
(xii) notify each holder of Registrable Common Stock of any stop
order issued or threatened by the Commission in connection with any
registration statement covering Registrable Common Stock and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered.
(b) CERTAIN OBLIGATIONS OF HOLDERS OF REGISTRABLE COMMON STOCK.
Each holder of Registrable Common Stock shall provide the Company in writing
such information as the Company reasonably requests in order to effectuate the
registration and disposition of such holder's Registrable Common Stock pursuant
to this Agreement and such holder shall execute all consents, powers of
attorney, registration statements and other documents reasonably required to be
signed
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by such holder in order to effectuate the registration or disposition of
Registrable Common Stock by such holder.
Section 7. REGISTRATION EXPENSES. The Company shall pay all
expenses incident to the Company's performance of or compliance with its
obligations hereunder, including, without limitation, all registration,
filing and National Association of Securities Dealers, Inc. fees, all fees
and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery
expenses, and the reasonable fees and disbursements of the Company's
independent public accountants, of the Company's counsel and of one law firm
acting as counsel to the holders requesting registration of all or a portion
of their Registrable Common Stock . Holders of Registrable Common Stock
requesting registration will be responsible for any other expenses incurred
by them, including for their own accountants and representatives, as well as
any underwriting discounts and commissions on the sale of the Registrable
Common Stock.
Section 8. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each holder of Registrable Common Stock, its
officers, directors, partners and members (and officers and directors of such
partners and members) and each person who controls such holder (within the
meaning of the Securities Act) against all losses, claims, damages or
liabilities arising out of or based upon any untrue or alleged untrue
statement of material fact contained in any registration statement
registering the disposition of Registrable Common Stock, any amendment or
supplement thereto, any prospectus or preliminary prospectus or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same arise out of or are based upon, any such untrue statement
or omission based upon information furnished in writing to the Company by
such indemnified person expressly for use therein and will reimburse, as
incurred, such holder, officer, director, partner or controlling person for
any legal or other expenses incurred by such holder, officer, director,
partner or controlling person in connection with investigating, defending or
appearing as a third party witness in connection with any such loss, claim,
damage, or liability. In connection with an underwritten offering, the
Company will indemnify, and reimburse for expenses, the underwriters thereof,
their officers and directors and each person who controls such underwriters
(within the meaning of the Securities Act) to the same extent as provided
above with respect to holders of Registrable Common Stock.
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE COMMON STOCK.
In connection with any registration statement in which a holder of
Registrable Common Stock is participating, such holder will furnish to the
Company in writing such information with respect to the name and address of
such holder and the amount of Registrable Common Stock held by such holder
and such other information as the Company shall reasonably request, for use
in connection with any such registration statement or prospectus and agrees
to indemnify the Company, its directors and officers, any underwriter (within
the meaning of the Securities Act) for the Company or other persons selling
securities pursuant to such registration statement, and each person who
controls the Company, against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement of a material fact or any
omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto or
necessary
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to make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is contained in any
information with respect to such holder so furnished in writing by such
holder expressly for inclusion in any prospectus or registration statement.
In no event shall the liability of any selling holder of Registrable Common
Stock hereunder be greater in amount than the dollar amount of the proceeds
received by such holder upon the sale of the Registrable Common Stock giving
rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification hereunder agrees to give prompt written notice to
the indemnifying party after the receipt by such person of any written notice
of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing as to which such person will claim
indemnification or contribution pursuant to this Agreement and, unless in the
reasonable judgment of such indemnified party a conflict of interest may
exist between such indemnified party and the indemnifying party with respect
to such claim, permit the indemnifying party to assume the defense of such
claim with counsel reasonably satisfactory to such indemnified party. The
failure to notify the indemnifying party promptly of such commencement or
threat shall not relieve the indemnifying party of its obligation to
indemnify the indemnified party, except to the extent that the indemnifying
party is actually prejudiced by such failure. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be subject
to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld). No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in
respect of such claim or litigation. If the indemnifying party is not
entitled to, or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel for the
indemnified party or parties with respect to such claim, unless in the
reasonable judgment of any indemnified party an actual conflict of interest
exists between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnified party
shall be obligated to pay the fees and expenses of such additional counsel or
counsels.
(d) CONTRIBUTION. If the indemnification provided for in
this Section 8 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified parties
in connection with the actions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact, has been made by, or related to information
supplied by, such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such action. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above shall
be deemed to include, subject to the limitations set forth in Section 8(b),
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
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The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 8(d), no
underwriter shall be required to contribute any amount in excess of the
amount by which the underwriting discount applicable to the Registrable
Common Stock purchased by it and distributed to the public exceeds the amount
of any damages which such underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, and no selling holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable Common
Stock of such selling holder was offered to the public exceeds the amount of
any damages which such selling holder has otherwise been required to pay by
reason of such untrue statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The obligations of the Company pursuant to this Section 8 shall be
further subject to such additional express agreements of the Company as may
be required to facilitate an underwritten offering, provided that no such
agreement shall in any way limit the rights of the holders of Registrable
Common Stock under this Agreement, or create additional obligations of such
holders not set forth herein, except as otherwise expressly agreed in writing
by any such holders. The obligations of the Company pursuant to this Section
8 shall be in addition to any liability or obligation the Company may have at
common law or otherwise.
Section 9. RULE 144. The Company covenants that for so long as
any Holder owns any Registrable Common Stock that it will file, in a timely
manner, the reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the Commission
thereunder, and it will take such further action as any holder of Registrable
Common Stock may reasonably request, all to the extent required from time to
time to enable such holder to sell Registrable Common Stock without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Common Stock, the Company will deliver to such holder a written statement as
to whether it has complied with such requirements.
Section 10. REMEDIES. Each holder of Registrable Common Stock
in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive
the defense in any action for specific performance that a remedy at law would
be adequate.
Section 11. BINDING EFFECT; TRANSFEREES; TERMINATION. Except to
the extent otherwise provided herein, the provisions of this Agreement shall
be binding upon and accrue to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns. A
transferee of Registrable Common Stock, which acquires such securities from a
holder of Registrable Common Stock in a transfer, whether in a public
distribution or otherwise, which results in such transferred securities not
being Registrable Common Stock in the hands of such
11
<PAGE>
transferee, shall not be a holder of Registrable Common Stock hereunder and
shall not have any rights or obligations hereunder as a result of such
transfer of Registrable Common Stock. Except as provided in the preceding
sentence, a transferee of a holder of Registrable Common Stock, whether
becoming such by sale, transfer, assignment, operation of law or otherwise,
shall be deemed to be a holder of Registrable Common Stock hereunder and such
transferee shall be entitled to the rights, and subject to the obligations,
of such a holder hereunder. This Agreement shall terminate at such time as
there are no outstanding shares of Registrable Common Stock.
Section 12. AMENDMENTS AND WAIVERS. Except as otherwise
provided herein, the provisions of this Agreement may not be amended,
modified or supplemented without the written agreement of each of the
Company, Holdings, JEDI and the Smith Group; provided, however, at such time
as any of Holdings, JEDI or any member of the Smith Group no longer holds
Registrable Common Stock, this Agreement (other than Section 8) may be
amended, modified or supplemented without consent of the party no longer
holding Registrable Common Stock.
Section 13. NOTICES. All communications under this Agreement
shall be in writing and shall be effective (a) upon hand delivery or delivery
by telecopy or facsimile, if delivered on a business day during normal
business hours where such notice is to be received or the first business day
following such delivery if delivered other than on a business day during
normal business hours where such notice is to be received or (b) on the
second business day following the date of mailing by first class mail,
postage prepaid or by express courier service, fully prepaid, or upon actual
receipt of such mailing, whichever shall first occur:
(i) if to a holder of Registrable Common Stock at the most
current address given by such holder to the Company in writing;
(ii) if to the Company at its address set forth in the Exchange
Agreement.
Section 14. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
Section 15. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 16. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Section 17. SEVERABILITY. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions contained herein shall
not be in any way impaired thereby, it being intended that all of the rights
and privileges of the parties hereto shall be enforceable to the fullest
extent permitted by law.
[REMAINDER OF PAGE LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
INLAND RESOURCES INC.,
a Washington corporation
By:
--------------------------------------
Kyle R. Miller
Co-Chief Executive Officer
INLAND HOLDINGS LLC, a California limited
liability company,
By: TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for
the benefit of Account No. CPFF 873-3032,
Member
By:
----------------------------------
Thomas F. Mehlberg
Managing Director
By:
----------------------------------
Marc MacAluso
Senior Vice President
By: TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P., a California limited
partnership, Member
By: TCW ROYALTY COMPANY V, a California
corporation, Managing General Partner
By:
--------------------------------------
Thomas F. Mehlberg
Vice President
<PAGE>
TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P.,
a California limited partnership
By: TCW ROYALTY COMPANY V,
a California corporation,
as Managing General Partner
By:
----------------------------------
Thomas F. Mehlberg
Vice President
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corp., its General Partner
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
PENGO SECURITIES CORP., a Delaware corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
<PAGE>
SMITH ENERGY PARTNERSHIP, a New York general
partnership
By: Smith Management LLC,
a New York limited liability company,
its General Partner
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
------------------------------------------
RANDALL D. SMITH, an individual
------------------------------------------
JEFFREY A. SMITH, an individual
------------------------------------------
BARBARA STOVALL SMITH, an individual
------------------------------------------
JOHN W. ADAMS, an individual
------------------------------------------
ARTHUR J. PASMAS, an individual
<PAGE>
EXHIBIT 3
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (the "AGREEMENT") is made and entered into
as of September 21, 1999, by and among Inland Resources Inc. a Washington
corporation (the "ISSUER"), Inland Holdings LLC, a California limited liability
company ("HOLDINGS"), Trust Company of the West, a California trust company, as
Sub-Custodian for Mellon Bank for the benefit of Account No. CPFF 873-3032
("FUND V"), Joint Energy Development Investments II Limited Partnership, a
Delaware limited partnership ("JEDI" and together with Holdings, the
"PURCHASERS"), Pengo Securities Corp., a Delaware corporation ("PENGO"), Smith
Energy Partnership, a New York general partnership ("SEP"), Randall D. Smith,
Jeffrey A. Smith, Barbara Stovall Smith, John W. Adams and Arthur J. Pasmas
(collectively, the "SMITH INDIVIDUALS") (Pengo, SEP, and the Smith Individuals,
together with any of their respective affiliates, the "SMITH GROUP").
W I T N E S S E T H
WHEREAS, Fund V is presently the holder of $75 million in principal
amount of junior secured debt of Inland Production Company, a Texas corporation
("IPC"), plus accrued interest to the date hereof (principal and interest
collectively, the "FUND V DEBT"), and TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P., a California limited partnership ("PORTFOLIO," and
collectively with Fund V, "TCW") is presently the holder of warrants (the
"PORTFOLIO WARRANTS") to purchase 158,512 shares of the common stock, par value
$.001 per share of Issuer. The Portfolio Warrants together with the Fund V Debt
shall be referred to collectively herein as the "TCW SECURITIES;"
WHEREAS, JEDI is presently the holder of 100,000 shares of the
Issuer's Series C Preferred Stock, plus accumulated dividends to the date hereof
(the "JEDI SECURITIES");
WHEREAS, Fund V and Portfolio are members of Holdings;
WHEREAS, the Issuer, IPC, Inland Refining, Inc., a Utah corporation
("REFINING," and together with Issuer and IPC, the "COMPANIES"), TCW and
Purchasers have entered into an exchange agreement dated as of even date
herewith (the "EXCHANGE AGREEMENT") whereby (i) TCW will exchange its entire
interest in the TCW Securities for the issuance to Holdings of (a) 10,757,747
shares of the Issuers' Series D Preferred Stock, (b) 5,882,901 shares of the
Issuer's Series Z Preferred Stock and (c) 11,642,949 shares of the Issuer's
Common Stock (such Series D Preferred Stock, Series Z Preferred Stock and Common
Stock of the Issuer issued to Holdings, the "HOLDINGS NEW SECURITIES"); and (ii)
JEDI will exchange its entire interest in the JEDI Securities for (a) 121,973
shares of the Issuer's Series E Preferred Stock and (b) 2,920,975 shares of the
Issuer's Common Stock (such Series E Preferred Stock and Common Stock issued to
JEDI, the "JEDI NEW SECURITIES")(such transactions hereinafter referred to as
the "EXCHANGE");
WHEREAS, the Smith Group presently owns 5,712,071 shares (the "SMITH
SECURITIES") of the Issuer's Common Stock, as more specifically set forth on
Schedule A hereto (such schedule setting forth the record holder and number of
such shares held by each member of the Smith Group);
<PAGE>
WHEREAS, the execution of this Agreement is a condition to closing of
the Exchange Agreement;
WHEREAS, the Purchasers and the Smith Group desire to make certain
provisions regarding, among other things, the election of directors of the
Issuer and the transfer of shares of capital stock of the Issuer:
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, conditions and agreements contained
herein, the parties hereto, intending to be legally bound by the terms hereof,
agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following terms have the following
meanings, and capitalized terms not otherwise defined herein have the meaning
assigned to them in the Exchange Agreement as in effect on the date hereof.
"Affiliate" or "affiliate" shall mean, with respect to any Person, any
other Person directly or indirectly controlling, controlled by or under direct
or indirect common control with such Person and, with respect to Fund V or
Holdings, any Person which is a participant in or beneficiary of Fund V or
Holdings, respectively. For purposes of this definition, "control" shall mean
the 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); the terms "controlling" and "controlled" shall have
meanings correlative to the foregoing. Notwithstanding the foregoing, 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.
"AUTHORIZATION" shall have the meaning ascribed to such term in
SECTION 5.2.
"BOARD" or "BOARD OF DIRECTORS" shall mean the board of directors of
the Issuer.
"COMMISSION" shall mean the United States Securities and Exchange
Commission or any other similar or successor agency of the federal government
administering the Securities Act.
"COMMON STOCK" shall mean the common stock of the Issuer, par value
$.001 per share.
"DRAG-ALONG PARTY" or "DRAG-ALONG PARTIES" shall have the meaning
ascribed to such terms in SECTION 4.
"DRAG-ALONG SHARES" shall have the meaning ascribed to such term in
SECTION 4.
"DRAG-ALONG TRANSACTION" shall have the meaning ascribed to such term
in SECTION 4.
"HOLDER" or "HOLDERS" shall mean the Persons holding any of the
Securities, either individually or collectively as the context so requires.
2
<PAGE>
"MERGER TRANSACTION" shall mean any merger, reorganization or other
business combination with any Person other than an affiliate where the Issuer is
not the surviving entity.
"PERSON" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof.
"PREFERRED STOCK" shall mean the authorized preferred stock of the
Issuer, par value $.001 per share.
"PREFERRED STOCK DESIGNATION" shall mean the amendment to the Articles
of Incorporation of the Issuer, setting forth the terms of the Series D
Preferred Stock, Series E Preferred Stock and Series Z Preferred Stock.
"PRIOR AGREEMENTS" means those certain registration rights agreements
set forth on Schedule 3.2(c) to the Exchange Agreement and that certain Tagalong
Agreement dated July 21, 1997 by and among JEDI and Pengo.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any successor Federal statute and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
"SECURITIES" shall mean the Smith Securities, the JEDI New Securities,
the Holdings New Securities and any shares of Common Stock issued upon
conversion of the Series Z Preferred Stock.
"SERIES C PREFERRED STOCK" shall mean the Series C Cumulative
Convertible Preferred Stock of the Issuer, par value $.001 per share.
"SERIES D PREFERRED STOCK" shall mean the Series D Redeemable
Preferred Stock of the Issuer, par value $.001 per share.
"SERIES E PREFERRED STOCK" shall mean the Series E Redeemable
Preferred Stock of the Issuer, par value $.001 per share.
"SERIES Z PREFERRED STOCK" shall mean the Series Z Convertible
Preferred Stock of the Issuer, par value $.001 per share.
"TAG TRANSACTION" shall have the meaning ascribed to such term in
SECTION 3.1.
"TAGALONG PARTY" or "TAGALONG PARTIES" shall have the meaning ascribed
to such terms in SECTION 3.1.
"TRANSFER" shall have the meaning ascribed to such term in SECTION 2.
"TRANSFEROR" shall have the meaning ascribed to such term in SECTION
3.1.
"TRANSFEREE" shall have the meaning ascribed to such term in SECTION
3.1.
3
<PAGE>
"VOTING STOCK" shall mean the capital stock of any class or classes of
the Issuer, including, without limitation, the Common Stock, the Series D
Preferred Stock, the Series E Preferred Stock and the Series Z Preferred Stock,
the holders of which are entitled to participate generally in the election of
the members of the Issuer's Board, and any securities of the Issuer convertible
into, or exercisable or exchangeable for, any such capital stock of the Issuer.
SECTION 2. RIGHT TO TRANSFER
Except as provided in SECTION 3 OR 4 herein, Purchasers shall have the
right to freely sell, assign, transfer, give away or dispose of (any of the
foregoing being hereinafter referred to as a "TRANSFER") their respective
interests in the Securities, whether in whole or in part, to any Person without
restriction other than as set forth in SECTION 7.1 of the Exchange Agreement.
Subject to applicable securities laws, any restrictive legends on certificates
evidencing the Smith Securities and any agreements governing or restricting
transfer of the Smith Securities, the members of the Smith Group may transfer
their respective interests in the Securities, whether in whole or in part, to
any Person without restriction.
SECTION 3. TAGALONG RIGHTS
3.1 If Holdings or any affiliate thereof ("TRANSFEROR") transfers,
other than in an offering pursuant to a registration statement or pursuant to
Rule 144 (or any successor provision) under the Securities Act, any shares of
Common Stock or Series Z Preferred Stock held by such Transferor to any Person
other than an affiliate of Holdings (a "TRANSFEREE") in one transaction or a
series of related transactions, which transfer or transfers constitute the
Transfer of a majority of the shares of Common Stock and Series Z Preferred
Stock held by Holdings and its affiliates as of the date hereof (a "TAG
TRANSACTION"), then each of the Smith Group and JEDI (each a "TAGALONG PARTY,"
and collectively, the "TAGALONG PARTIES") shall have the right to sell to the
Transferee, on the same terms and conditions as provided with respect to the
sale by the Transferor to the Transferee, up to the number of shares of Common
Stock (rounded to the nearest whole share) equal to the product of (i) the total
number of shares of Common Stock which such Tagalong Party then owns and (ii) a
fraction with a numerator equal to the number of shares of Common Stock and
Series Z Preferred Stock then being sold by the Transferor and a denominator
equal to the total number of shares of Common Stock and Series Z Preferred Stock
owned by the Transferor. The right of the Transferor to sell shall be subject
to the condition that the Transferor shall cause the Transferee that proposes to
purchase the shares of the Transferor to offer to purchase, on such terms, such
number of shares from the Tagalong Parties; provided, however, that if the
Transferee is for any reason unwilling or unable to purchase the aggregate
number of shares from the Transferor together with the Tagalong Parties desiring
to Transfer shares in such transaction, then the number of shares to be sold by
each shall be proportionally reduced (based on the total number of shares
originally proposed to tag along or be sold) to such number as, when taken with
the number of shares to be sold by each other such party, shall be equal to the
number of shares which such Transferee is willing or able to purchase (provided
that such Transfer shall comply with the first sentence of this SECTION 3.1).
Each Tagalong Party shall only be entitled to sell shares of Common Stock under
this SECTION 3 that it owns as of the date hereof; securities acquired after the
date hereof in any manner shall not be subject to the tagalong rights provided
in this SECTION 3.
4
<PAGE>
3.2 The Transferor shall give written notice to the Tagalong Parties
at least fifteen (15) business days prior to any proposed Transfer(s) of Common
Stock or Series Z Preferred Stock constituting a Tag Transaction. The notice
shall specify the proposed Transferee, the number of shares of Common Stock
and/or Series Z Preferred Stock to be sold, the amount and type of consideration
to be received therefor, and the place and date on which the sale is to be
consummated. If either, or both, of the Tagalong Parties desire to include
shares of Common Stock in such sale pursuant to SECTION 3.1, such Tagalong Party
shall notify the Transferor not more than ten (10) business days after its
receipt of the notice from Transferor.
3.3 The tagalong rights set forth in this SECTION 3 shall not be
transferable or assignable by JEDI or by members of the Smith Group, other than,
in each case, to their respective affiliates.
SECTION 4. DRAG-ALONG.
4.1 If Transferor sells, other than in a public offering pursuant to
a registration statement or pursuant to Rule 144 (or any successor provision)
under the Securities Act, shares of Common Stock and/or Series Z Preferred Stock
held by such Transferor to a Transferee in one transaction or a series of
related transactions which constitute the transfer of a majority of the then
outstanding shares of Common Stock and Series Z Preferred Stock of the Issuer,
Holdings and/or its affiliates may, at their option, cause each of the members
of the Smith Group and JEDI (either party, and any affiliate thereof, being a
"DRAG-ALONG PARTY" and collectively, the "DRAG-ALONG PARTIES") to sell to the
Transferee, on the same terms and conditions as provided with respect to the
sale by Transferor to such Transferee, up to the number of shares of Common
Stock (rounded to the nearest whole share) equal to the product of (i) the total
number of shares of Common Stock which such Drag-Along Party then owns and (ii)
a fraction with a numerator equal to the number of shares of Common Stock and
Series Z Preferred Stock then being sold by the Transferor and a denominator
equal to the total number of shares of Common Stock and Series Z Preferred Stock
owned by the Transferor (such shares being "DRAG-ALONG SHARES" and such
transaction being a "DRAG-ALONG TRANSACTION"); provided however, that: (v)
Transferor shall only be entitled to drag along shares of Common Stock under
this SECTION 4 that the Drag-Along Party or Parties own as of the date hereof
(securities acquired after the date hereof in any manner shall not be subject to
the drag-along rights provided in this SECTION 4); (w) Transferor may not
receive more than the liquidation preference, plus accrued dividends thereon,
for the Series D Preferred Stock sold in a Drag-Along Transaction; (x) the price
for the Drag-Along Shares may not be lower than the price paid to other common
stockholders in the same or related transaction; (y) the consideration for the
Drag-Along Shares shall be paid in cash unless the relevant Drag-Along Party
consents to payment in a form other than cash; and (z) if the Drag-Along
Transaction is a Merger Transaction, the provisions of this Section 4.1 shall
not apply to the Common Stock held by JEDI unless the Series E Preferred Stock
then held by JEDI is redeemed in cash as of or prior to the effective date of
the Merger Transaction.
4.2 If any of the Drag-Along Parties proposes to Transfer to any of
its affiliates any of the Common Stock held by such Drag-Along Party, then such
Drag-Along Party, as a condition to the exercise of such right of Transfer,
shall cause such Transferee to agree to be bound by this SECTION 4. The
drag-along rights set forth in this SECTION 4 shall not be applicable to
transferees of the Drag-Along Parties other than to their respective affiliates.
5
<PAGE>
4.3 To exercise a drag-along right, Transferor shall give written
notice to the Drag-Along Party or Parties against whom the right is to be
enforced at least fifteen (15) business days prior to any proposed Transfer of
Common Stock and/or Series Z Preferred Stock. The notice shall specify the
terms of such Transfer and certify as to the facts supporting exercise of the
drag-along right. The Drag-Along Parties shall have ten (10) business days
after receipt of such notice (the "DRAG-ALONG NOTICE PERIOD") before such
parties shall be required to Transfer their shares to the Transferee. During
the Drag-Along Notice Period the Drag-Along Party or Parties in receipt of such
notice may not Transfer any Securities subject to Transferor's drag-along rights
under this SECTION 4 to any Person other than Transferor.
SECTION 5. BOARD OF DIRECTORS REPRESENTATION; AUTHORIZATION AND
CONVERSION.
5.1 BOARD OF DIRECTORS REPRESENTATION. From and after the date
hereof, each of Holdings, JEDI, the members of the Smith Group and any of their
respective affiliates who hold Voting Stock shall vote their respective shares
of voting stock (including any shares of Voting Stock hereafter acquired, owned
or controlled by such Holder), at any regular or special meeting of shareholders
of the Issuer called for the purpose of filling positions on the Board, or in
any written consent executed in lieu of such a meeting of shareholders, and
shall otherwise take all actions necessary to ensure that (i) the Board consists
of six (6) members, and (ii) that one (1) individual shall be designated for
election to the board by the holders of Common Stock and Series Z Preferred
Stock. Each of JEDI and Holdings agrees that neither it nor its respective
affiliates shall vote their respective shares of Common Stock and Series Z
Preferred Stock then owned by such parties in the election of the individual to
be elected to the Board by the holders of the Common Stock and the Series Z
Preferred Stock pursuant to clause 5.1(ii) above so long as such respective
party or its affiliates hold Series D Preferred Stock or Series E Preferred
Stock AND the Smith Group continues to hold 10% or more of the combined
outstanding shares of Common Stock and Series Z Preferred Stock; provided,
however, that if Holdings and its affiliates shall not at such time hold Series
D Preferred Stock entitling it and its affiliates to elect four (4) members to
the Board, then Holdings may vote an amount of its Common Stock in the election
of directors in proportion to its reduction in number of directors it (and its
affiliates) are then entitled to appoint pursuant to the terms of the Series D
Preferred Stock. By way of example only, if Holdings (and its affiliates) may
at the time of an election elect only one (1) member to the Board pursuant to
the terms of their Series D Preferred Stock, then Holdings (and its affiliates)
shall be entitled to vote seventy-five percent (75%) of their Common Stock in
the election of directors by holders of the Common Stock. Each member of the
Smith Group agrees that it will not vote its respective shares of Common Stock
for the election of directors so long as the Smith Group continues to hold 10%
or more of the combined outstanding shares of Common Stock and Series Z
Preferred Stock; provided, further, that, notwithstanding the foregoing, if the
Smith Group does not for any reason vote its respective shares of Common Stock
for the election of directors, then both Holdings and JEDI and their affiliates
may vote their Common Stock and Series Z Preferred Stock for the election of any
director elected by holders of Common Stock, in addition to directors that may
be elected by holders of the Series D Preferred Stock or the Series E Preferred
Stock.
5.2 AUTHORIZATION AND CONVERSION. Until such time as all shares of
Series Z Preferred Stock is converted into Common Stock, each of Holdings, each
of the members of the
6
<PAGE>
Smith Group and JEDI, and each of their respective affiliates and
transferees, agree to vote their shares of Voting Stock at the Issuer's next
meeting of shareholders in favor of and otherwise cause the Issuer to
increase the number of shares of Common Stock authorized for issuance such
that the total number of authorized shares of Common Stock of the Issuer is
greater than or equal to the sum of (a) the number of outstanding shares of
Common Stock, (b) the number of shares required to convert to Common Stock
all outstanding shares of the Series Z Preferred Stock as provided in the
Preferred Stock Designation after giving effect to the Exchange, and (c) the
number of shares of Common Stock reserved for issuance pursuant to warrants
and options authorized for issuance under the Issuer's existing stock option
plans or agreements (the "AUTHORIZATION") so that the Issuer can thereupon
automatically convert the Series Z Preferred Stock to Common Stock as
provided in the Preferred Stock Designation. As soon as reasonably possible
after obtaining the Authorization, the Issuer shall cause the prompt filing
of an amendment to the Issuer's Articles of Incorporation with the Secretary
of State of Washington to give effect to the Authorization.
SECTION 6. WAIVER OF ANTI-TAKEOVER RIGHTS
To the extent permitted by law, each of JEDI and its affiliates and each of
the members of the Smith Group and their affiliates, expressly waive all rights
and claims against Fund V, Holdings or the Issuer or otherwise with respect to
the transactions contemplated by the Exchange Agreement or any future or
subsequent transactions under any anti-takeover statutes of applicable law
including, but not limited to, Chapter 19 of the Washington Business Corporation
Act (RCW 23B.19.010 - 19.050).
SECTION 7. REPRESENTATIONS AND WARRANTIES; CONSENT TO EXCHANGE
Each member of the Smith Group, respectively, hereby represents,
warrants and covenants as follows:
7.1 Pengo is the legal and beneficial holders of the Smith
Securities as set forth on Schedule A hereto next to its name. Pengo has
neither previously sold, assigned, conveyed, transferred or otherwise disposed
of, in whole or in part, its securities constituting all or a portion of the
Smith Securities, nor, as of the date hereof, has entered into any agreement to
sell, assign, convey, transfer or otherwise dispose of, in whole or in part,
such securities.
7.2 SEP is the legal and beneficial holder of the Smith Securities
as set forth on Schedule A hereto next to its name. SEP has neither previously
sold, assigned, conveyed, transferred or otherwise disposed of, in whole or in
part, its securities constituting all or a portion of the Smith Securities, nor,
as of the date hereof, has entered into any agreement to sell, assign, convey,
transfer or otherwise dispose of, in whole or in part, such securities.
7.3 Randall D. Smith is the legal and beneficial holder of the Smith
Securities as set forth on Schedule A hereto next to his name. Randall D. Smith
has neither previously sold, assigned, conveyed, transferred or otherwise
disposed of, in whole or in part, his securities constituting all or a portion
of the Smith Securities, nor, as of the date hereof, has entered into
7
<PAGE>
any agreement to sell, assign, convey, transfer or otherwise dispose of, in
whole or in part, such securities.
7.4 Jeffrey A. Smith is the legal and beneficial holder of the Smith
Securities as set forth on Schedule A hereto next to his name. Jeffrey A. Smith
has neither previously sold, assigned, conveyed, transferred or otherwise
disposed of, in whole or in part, his securities constituting all or a portion
of the Smith Securities, nor, as of the date hereof, has entered into any
agreement to sell, assign, convey, transfer or otherwise dispose of, in whole or
in part, such securities.
7.5 Barbara Stovall Smith is the legal and beneficial holder of the
Smith Securities as set forth on Schedule A hereto next to her name. Barbara
Stovall Smith has neither previously sold, assigned, conveyed, transferred or
otherwise disposed of, in whole or in part, her securities constituting all or a
portion of the Smith Securities, nor, as of the date hereof, has entered into
any agreement to sell, assign, convey, transfer or otherwise dispose of, in
whole or in part, such securities.
7.6 John W. Adams is the legal and beneficial holder of the Smith
Securities as set forth on Schedule A hereto next to his name. John W. Adams has
neither previously sold, assigned, conveyed, transferred or otherwise disposed
of, in whole or in part, his securities constituting all or a portion of the
Smith Securities, nor, as of the date hereof, has entered into any agreement to
sell, assign, convey, transfer or otherwise dispose of, in whole or in part,
such securities.
7.7 Arthur A. Pasmas is the legal and beneficial holder of the Smith
Securities as set forth on Schedule A hereto next to his name. Arthur A. Pasmas
has neither previously sold, assigned, conveyed, transferred or otherwise
disposed of, in whole or in part, his securities constituting all or a portion
of the Smith Securities, nor, as of the date hereof, has entered into any
agreement to sell, assign, convey, transfer or otherwise dispose of, in whole or
in part, such securities.
7.8 Each of Pengo, SEP, Randall D. Smith, Jeffrey A. Smith, Barbara
Stovall Smith, John W. Adams and Arthur J. Pasmas, by signing this Agreement,
hereby consent, individually, and collectively as holders of a majority of the
Common Stock of the Issuer, to the transactions constituting, or entered into in
connection with, the Exchange.
SECTION 8. SPECIAL PURCHASE RIGHTS
Each time Holdings, Fund V or Portfolio (or any of their affiliate
transferees of Holdings' securities acquired under the Exchange Agreement)
endeavor to purchase shares of Common Stock from any Person not a party hereto
other than from an affiliate, Holdings shall offer to buy, for the same price
and on the same terms and conditions, a proportionate number (based on the
percentages set forth in Schedule A hereto or such other percentages as
specified in any subsequent notice) of shares of Common Stock from each member
of the Smith Group and JEDI equal in aggregate amount to the amount Holdings,
Fund V or Portfolio endeavor to purchase or the total number of shares of Common
Stock then held by members of the Smith Group and JEDI, whichever is less, based
on the number of shares of Common Stock to be
8
<PAGE>
purchased by Holdings, Fund V or Portfolio (or their affiliate transferees).
If any offer pursuant to this SECTION 8 is not accepted, in writing, within
five (5) business days by any member of the Smith Group or JEDI, such offer
shall be deemed rejected and Holdings shall have no further obligations
pursuant to this SECTION 8 with respect to such member of the Smith Group or
JEDI and that particular purchase of Common Stock by Holdings, Portfolio
and/or Fund V (and/or their affiliate transferees).
SECTION 9. MISCELLANEOUS
9.1 SUCCESSORS AND ASSIGNS; TERMINATION Except as otherwise
expressly provided herein, this Agreement shall inure to the benefit of and be
binding upon the permitted successors and assigns of the parties hereto;
provided, however, as to any particular securities, this Agreement shall
terminate and not apply when such securities are no longer held by any members
of the smith group, the purchasers or their respective affiliates; provided
further that the provisions of SECTION 5.2 shall apply to Securities until all
outstanding Series Z Preferred Stock is converted to Common Stock; and provided
further, that the provisions of SECTION 8 shall apply to Holdings, Fund V and
Portfolio regardless of their holdings of Securities. Nothing herein shall be
construed to prohibit any future holder of the Securities from assuming the
rights and obligations under this Agreement.
9.2 AMENDMENT AND WAIVER, ETC. This Agreement may be amended, and
the observance of any term of this Agreement may be waived only with the written
consent of all parties adversely effected or impacted by such waiver or
amendment. No failure or delay on the part of any of the parties in exercising
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies provided for herein are cumulative and are not
exclusive of any remedies that may be available to the parties at law or in
equity or otherwise.
9.3 COUNTERPARTS. Two or more duplicate originals of this Agreement
may be signed by the parties, each of which shall be an original but all of
which together shall constitute one and the same instrument.
9.4 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
9.5 SPECIFIC PERFORMANCE. The parties recognize that money damages
may be inadequate to compensate for a breach of the obligations hereunder, and
irrevocably agree that the remedy of specific performance or the granting of
such other equitable remedies as may be appropriate may be granted in order to
afford the parties the benefits of this agreement and the parties shall not
object and waive any right to object to such remedies on the grounds that money
damages will not be sufficient to compensate for a breach hereof.
9.6 NOTICES. All communications under this Agreement shall be in
writing and shall be effective (a) upon hand delivery or delivery by telecopy or
facsimile, if delivered on a
9
<PAGE>
business day during normal business hours where such notice is to be received
or (b) on the second business day following the date of mailing by first
class mail, postage prepaid or by express or courier service, fully prepaid
or upon actual receipt of such mailing, whichever shall first occur:
(i) if to any party hereto at its address for notice specified beneath its
name on the signature page hereof, or at such other address as it may
have furnished in writing to the Issuer; or
(ii) if to any other Person who is the registered holder of any Preferred
Stock, to the address for the purpose of such holder as it appears in
the stock ledger of the Issuer.
9.7 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the law of the State of Washington.
9.8 PRIOR AGREEMENT. Upon execution of this Agreement by the parties
hereto, the Prior Agreements shall be automatically terminated as of the date
hereof.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Shareholders
Agreement as of the day and year first above written.
INLAND RESOURCES INC.,
a Washington corporation
By: _____________________________________
Name:
Title:
Address for Notices:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Chief Executive Officer
Telephone: (303) 893-0102
Facsimile: (303) 893-0113
<PAGE>
INLAND HOLDINGS LLC, a California limited
liability company,
By: TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for the
benefit of Account No. CPFF 873-3032, Member
By: ________________________
Thomas F. Mehlberg
Managing Director
By: ________________________
Marc MacAluso
Senior Vice President
By: TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P., a California limited
partnership, Member
By: TCW ROYALTY COMPANY V, a California
corporation, Managing General Partner
By: ________________________________
Thomas F. Mehlberg
Vice President
Address for Notices:
865 South Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0000
Facsimile: (213) 244-0604
With Copies To:
TCW Asset Management Company
1000 Louisiana, Suite 2175
Houston, Texas 77002
Attention: Marc MacAluso
Telephone: (713) 615-7415
Facsimile: (713) 615-7460
Milbank, Tweed, Hadley & McCloy LLP
601 South Figueroa Street, 30th Floor
Los Angeles, CA 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
12
<PAGE>
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: __________________________________
Thomas F. Mehlberg
Managing Director
By: __________________________________
Marc MacAluso
Senior Vice President
Address for Notices:
865 South Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0000
Facsimile: (213) 244-0604
With Copies To:
TCW Asset Management Company
1000 Louisiana, Suite 2175
Houston, Texas 77002
Attention: Marc MacAluso
Telephone: (713) 615-7415
Facsimile: (713) 615-7460
Milbank, Tweed, Hadley & McCloy LLP
601 South Figueroa Street, 30th Floor
Los Angeles, CA 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
13
<PAGE>
JOINT ENERGY DEVELOPMENT
INVESTMENTS II LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corp., its General Partner
By: _____________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
Address for Notices:
Enron North America Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telephone: (713) 853-6161
Facsimile: (713) 646-4039/4946
14
<PAGE>
PENGO SECURITIES CORP., a Delaware corporation
By: _____________________________________
Name:
Title:
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
15
<PAGE>
SMITH ENERGY PARTNERSHIP, a New York general
partnership
By: Smith Management LLC,
a New York limited liability company,
its General Partner
By: _____________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
16
<PAGE>
---------------------------------
RANDALL D. SMITH, an individual
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
---------------------------------
JEFFREY A. SMITH, an individual
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
---------------------------------
BARBARA STOVALL SMITH, an individual
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
17
<PAGE>
---------------------------------
JOHN W. ADAMS, an individual
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
---------------------------------
ARTHUR J. PASMAS, an individual
Address for Notices:
5858 Westheimer, Suite 400
Houston, Texas 77057
Attention: Arthur J. Pasmas
Telephone: (713) 782-5215
Facsimile: (713) 782-0916
18
<PAGE>
SCHEDULE A
Shares of Common Stock of the Issuer Held By Members of the Smith Group and JEDI
after giving effect to the Exchange
HOLDER SHARES OF COMMON STOCK SMITH GROUP SHARE PERCENTAGE
Pengo Securities 4,029,269 46.67%
Corp.*
Smith Energy 152,220 1.76
Partnership*
Randall D. Smith* 874,410 10.13
Jeffrey A. Smith* 163,735 1.90
Barbara Stovall 108,000 1.25
Smith*
John W. Adams* 163,735 1.90
Arthur A. Pasmas* 220,702 2.56
JEDI 2,920,975 33.83
TOTAL 8,633,046 100%
* members of the Smith Group
19
<PAGE>
EXHIBIT 4
EXHIBIT I
FORM OF PURCHASER ADJUSTMENT OPTION
OPTION
TO PURCHASE COMMON STOCK OF
INLAND RESOURCES INC.
A WASHINGTON CORPORATION
ISSUED ON ____________ ________
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, TO THE EFFECT
THAT THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR
QUALIFICATION UNDER FEDERAL OR STATE SECURITIES LAWS.
THIS IS TO CERTIFY THAT:
[___________________], a ___________________ ("HOLDER"), or its registered
assigns, is entitled to purchase from Inland Resources Inc., a Washington
corporation (the "Company") at any time on and after ____________, but in no
event later than 5:00 p.m., Los Angeles Time, on the [___________] (the
"EXPIRATION DATE") [_____________ (_______)] 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.
1. CERTAIN DEFINITIONS. As used in this Option:
"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.
"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
<PAGE>
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 Options, (ii) 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
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 Z Cumulative
Convertible Preferred Stock outstanding as of the date hereof; (v) 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 __ of the Exchange Agreement, or (vi) the shares of Common Stock
issued in a public offering of Common Stock.
"AGGREGATE PURCHASE PRICE" shall have the meaning given in Section 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 Options exercisable for a
majority of the Option 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 one hundred percent (100%) of the equity capital of the Company.
In the event that the Company and said Holders 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.
2
<PAGE>
"COMMON STOCK" shall mean the Company's authorized common stock, $0.001
par value, irrespective of class unless otherwise specified, as constituted
on the date of original issuance of this Option, 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 Option 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 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 Options exercisable for a majority of the Option
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 OPTION PRICE" per share of Common Stock, for the purpose of any
provision of this Option 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.
"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.
"OPTIONS" shall mean the Options evidenced by this certificate setting
forth the rights to purchase shares of Common Stock, and all Options issued
upon transfer, division or combination of, or in substitution for, any
thereof. All Options 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.
3
<PAGE>
"OPTION STOCK" shall mean the shares of Common Stock purchasable by the
holder of a Option upon the exercise of such Option.
"PURCHASE PRICE" initially shall be $_______, as adjusted from time to
time pursuant to SECTION 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 Option and thereafter
shall mean such number of shares (including any fractional shares) of Common
Stock as shall result from the adjustments specified in SECTION 4.
2. EXERCISE OF OPTION. The holder of this Option may, at any time on
or after the date hereof but not later than the Expiration Date, exercise
this Option 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
Option, in whole or in part, the holder hereof shall deliver to the Company
at its office maintained for such purpose pursuant to SECTION 16 (i) a
written notice of such holder's election to exercise this Option, (ii) this
Option, and (iii) the total purchase price for the shares being purchased
upon such exercise (a) by delivery of immediately 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") or (b) to the extent permitted by applicable law, the delivery of a
notice to the Company that the Holder is exercising the Option without
payment of the Purchase Price by authorizing the Company to deliver the
number of shares of Option Stock issuable upon exercise of the Option to be
determined based upon the following formula:
((MP - OP) x OS)/MP = the number of shares of Option Stock issuable
upon exercise of this Option without payment of
the Purchase Price
WHERE: MP = Current Market Price
OP = Current Option Price
OS = The number of shares of Option Stock issuable upon exercise
of this Option (in whole or in part).
Such notice may be in the form of the Subscription set out at the end of
this Option. 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 holder a certificate or certificates
representing the aggregate number of fully paid and nonassessable shares of
Option Stock issuable upon such exercise.
4
<PAGE>
The stock certificate or certificates for Option Stock so delivered (a)
shall be endorsed with a legend as to the effect that the holder thereof
acquired the Option Stock solely for its own account with no intention to
resell or distribute such Option Stock or any portion thereof, until
transferred pursuant to an effective registration statement under or
applicable exemption from registration under the Securities Act and (b) 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 SECTION 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 SECTION 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 Option, 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 Option Stock issuable upon the exercise of this Option
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 Option
or of any share of Option Stock in any manner which interferes with the
timely exercise of this Option. With the consent of the holder of this
Option, 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 Option is at all times equal to or less than
the Current Option Price per share of Common Stock then in effect.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Option. If the exercise of this Option
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 Option in cash by the Company.
3. TRANSFER, DIVISION AND COMBINATION. Subject to SECTION 11, this
Option 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 Option at the office of the Company maintained for such purpose pursuant
to SECTION 16, together with a written assignment of this Option 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
SECTION 11, execute and deliver a new Option or Options in the name of the
assignee or assignees and in the denominations specified in
5
<PAGE>
such instrument of assignment, and this Option shall promptly be cancelled.
If and when this Option is assigned in blank (in case the restrictions on
transferability in SECTION 11 shall have been terminated), the Company may
(but shall not be obliged to) treat the bearer hereof as the absolute owner
of this Option for all purposes and the Company shall not be affected by any
notice to the contrary. This Option, if properly assigned in compliance with
this SECTION 3 and SECTION 11, may be exercised by an assignee for the
purchase of shares of Common Stock without having a new Option issued.
This Option may, subject to SECTION 11, be divided or combined with
other Options upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in
which new Options are to be issued, signed by the holder hereof or its agent
or attorney. Subject to compliance with the preceding paragraph and with
SECTION 11, as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Option or Options in
exchange for the Option or Options to be divided or combined in accordance
with such notice.
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 Options under this SECTION 3.
The Company agrees to maintain at its aforesaid office books for the
registration and transfer of the Options.
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 SECTION 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 SECTION 4(a), SECTION 4(b), SECTION 4(h)
below 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 SECTION 4 notwithstanding, any adjustment
made pursuant to any provision of this SECTION 4 shall be made without
duplication of an adjustment otherwise required by and made pursuant to
another provision of this SECTION 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:
(i) 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
6
<PAGE>
(ii) subdivide its outstanding shares of Nonpreferred Stock
into a larger number of shares of Nonpreferred Stock, or
(iii) 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 (i) THROUGH (iii) 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 (i)
THROUGH (iii) 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:
(i) 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
(ii) 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
(iii) 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
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 Options 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
7
<PAGE>
class of stock within the meaning of this SECTION 4(b) 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
SECTION 4(a) above.
(c) [INTENTIONALLY OMITTED]
(d) [INTENTIONALLY OMITTED]
(e) [INTENTIONALLY OMITTED]
(f) [INTENTIONALLY OMITTED]
(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 SECTION 4:
(i) 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 SECTION 4.
(ii) [INTENTIONALLY OMITTED]
(iii) WHEN ADJUSTMENTS TO BE MADE. The adjustments required
by this SECTION 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 SECTION 4(a) above)
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 Option
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 SECTION 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.
(iv) FRACTIONAL INTERESTS. In computing adjustments under
this Section, fractional interests in Nonpreferred Stock shall be taken into
account to the nearest 1/100th of a share.
8
<PAGE>
(v) 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.
(h) [INTENTIONALLY OMITTED]
(i) [INTENTIONALLY OMITTED]
(j) NO ADJUSTMENTS FOR CERTAIN TRANSACTIONS. Anything contained
in this Option 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.
5. NOTICE TO OPTION HOLDERS.
(a) NOTICE OF ADJUSTMENT OF STOCK UNIT OR PURCHASE PRICE.
Whenever the number of shares of Option Stock comprising a Stock Unit or the
Purchase Price per Stock Unit shall be adjusted pursuant to Section 4, the
Company shall forthwith obtain a certificate signed by the president of the
Company, the principal 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 Options, 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
SECTION 4(b), and specifying the number of shares of Common 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 an Option in accordance
with SECTION 17. The Company shall keep at its office or agency, maintained
for the purpose pursuant to SECTION 17, 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 an Option or any prospective purchaser of an
Option 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
9
<PAGE>
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 shall give to each
holder of an Option, in accordance with SECTION 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.
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 Options such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Options. All
shares of Common Stock which shall be so issuable, when issued upon exercise
of any Option 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 Option Price per share of Common Stock below the then par value, if
any, of the shares of Common Stock issuable upon exercise of the Options, the
Company shall take any corporate action which may, in the opinion of its
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
Option 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
Option 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
10
<PAGE>
thereof (except that nothing contained in this Option certificate shall
require the Company to register the Options under the Securities Act or any
similar federal or state equivalent).
7. TAKING OF RECORD; STOCK AND OPTION 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 SECTION 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 Option transfer books so as to result in
preventing or delaying the exercise or transfer of any Option.
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 Option. 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 Option 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.
9. [INTENTIONALLY OMITTED]
10. VOTING RIGHTS. This Option shall not entitle the holder hereof to
voting rights with respect to the underlying Option Stock or to any rights as
a stockholder of the Company with respect to such underlying Option Stock
until this Option has been exercised in accordance with its terms.
11. RESTRICTIONS ON TRANSFERABILITY. The Options and the Option Stock
shall be transferable only upon compliance with the conditions specified in
this Option and in compliance with the provisions of the Securities Act and
applicable state securities laws in respect of the transfer of any Option or
any Option Stock, and any holder of this Option shall be bound by the
provisions of (and entitled to the benefits of) SECTION 3.
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.
11
<PAGE>
13. LOSS, DESTRUCTION OF OPTION CERTIFICATES. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Option 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 Option owned by
such institutional holder), or, in the case of any such mutilation, upon
surrender and cancellation of such Option, the Company will make and deliver,
in lieu of such lost, stolen, destroyed or mutilated Option, a new Option of
like tenor and representing the right to purchase the same aggregate number
of shares of Common Stock.
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.
15. AMENDMENTS. The terms of this Option may be amended, and the
observance of any term therein may be waived, but only with the written
consent of the holder of this Option and the Company.
16. OFFICE OF THE COMPANY. So long as any of the Options remains
outstanding, the Company shall maintain an office in Denver, Colorado where
the Options may be presented for exercise, transfer, division or combination
as in this Option provided. Such office shall be at 410 17th Street, Suite
700, 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 Options.
17. 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 410 17th Street, Suite 700, Denver, Colorado 80202 and to
Holder 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 17, 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.
18. GOVERNING LAW. THIS OPTION SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF WASHINGTON, 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
12
<PAGE>
THE STATE OF WASHINGTON AND THE COUNTY OF KING 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 WASHINGTON 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.
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option 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:
----------- -----------
[SEAL] INLAND RESOURCES INC.,
a Washington corporation
By:
------------------------
Attested to by:
- ------------------------------
Secretary
14
<PAGE>
SUBSCRIPTION FORM
(to be executed only upon exercise of Option)
The undersigned registered owner of this Option irrevocably exercises this
Option for and purchases ___________ Stock Units of Inland Resources Inc., a
Washington corporation, purchasable with this Option, herewith makes payment
therefor on the terms and conditions specified in this Option 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)
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Option
hereby sells, assigns and transfers unto the assignee named below all of the
rights of the undersigned under this Option, 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 Option in every particular,
without alteration or enlargement or any change whatever.
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.
2
