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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported): September 21, 1999
Inland Resources Inc.
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(Exact name of registrant as specified in its charter)
Washington 0-16487 91-1307042
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(State of incorporation) (Commission File No.) (IRS Employer
Identification No.)
410 17th Street, Suite 700, Denver, Colorado 80202
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(Address of principal executive offices, including zip code)
(303) 893-0102
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(Registrant's telephone number, including area code)
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Item 1. Changes in Control of Registrant
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On September 21, 1999, Inland Resources Inc. ("Inland"), and its
subsidiaries, Inland Production Company ("IPC") and Inland Refining, Inc.
("Refining"), entered into an Exchange Agreement (the "Exchange Agreement") with
Trust Company of the West, 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. ("Portfolio") (Portfolio and Fund V collectively being
referred to as "TCW"), Inland Holdings LLC ("Holdings") and Joint Energy
Development Investments II Limited Partnership ("JEDI"), pursuant to which Fund
V and Portfolio agreed to exchange certain indebtedness and warrants to purchase
shares of Inland's common stock, $.001 par value per share ("Common Stock"), for
shares of Common Stock and two new series of Preferred Stock of Inland, and JEDI
agreed to exchange 100,000 shares of Series C Preferred Stock of Inland for
shares of Common Stock and a third new series of Preferred Stock of Inland (the
"Recapitalization").
Pursuant to the Exchange Agreement, Fund V agreed to exchange $75 million
in principal amount of subordinated indebtedness of IPC plus accrued interest of
$5.7 million and Portfolio agreed to exchange warrants to purchase 158,512
shares of Common Stock for the following securities of Inland issued to
Holdings, whose members are Fund V and Portfolio: (i) 10,757,747 shares of newly
designated Series D Redeemable Preferred Stock of Inland ("Series D Preferred
Stock"), (ii) 5,882,901 shares of newly designated Series Z Convertible
Preferred Stock of Inland ("Series Z Preferred Stock") and (iii) 11,642,949
shares of Common Stock; and JEDI agreed to exchange the 100,000 shares of
Inland's Series C Cumulative Convertible Preferred Stock ("Series C Preferred
Stock") owned by JEDI, together with all accumulated dividends thereon, for (i)
121,973 shares of newly designated Series E Redeemable Preferred Stock of Inland
("Series E Preferred Stock") and (ii) 2,920,975 shares of Common Stock. The
Series C Preferred Stock had a liquidation preference of $100 per share and was
required to be redeemed at a price of $100 per share not later than January 21,
2008. The Series C Preferred Stock also bore dividends at a rate of $10 per
share, and there were $2.2 million of accumulated dividends as of the date of
the Exchange Agreement.
Inland, Holdings, Fund V and JEDI also entered into a Shareholders
Agreement (the "Shareholders Agreement") and a Registration Rights Agreement
(the "Registration Agreement") on September 21, 1999 with Pengo Securities
Corp., Smith Energy Partnership, Randall D. Smith, Jeffrey A. Smith, Barbara
Stovall Smith, John W. Adams and Arthur J. Pasmas (collectively the "Smith
Group"). The Shareholders Agreement sets forth certain rights among Holdings,
JEDI and the Smith Group relating to transfers of shares and certain voting
rights. The Registration Agreement provides Holdings, JEDI and the Smith Group
certain demand and piggy-back registration rights for the registration of their
respective shares under the Securities Act of 1933 (the "1933 Act"), at the
expense of Inland.
Following closing of the Exchange Agreement, Holdings owns 11,642,949
shares of Common Stock, representing approximately 50.4% of the outstanding
shares of Common Stock, and JEDI owns 2,920,975 shares of Common Stock,
representing approximately 12.6% of the outstanding shares of Common Stock. In
connection with the Exchange Agreement, the Articles of Incorporation
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(the "Articles") of Inland were amended to designate the Series D Preferred
Stock, Series E Preferred Stock and Series Z Preferred Stock. The Articles, as
so amended, provide that the Common Stock, Series D Preferred Stock, Series E
Preferred Stock and Series Z Preferred Stock shall vote together as a single
class and not as a separate voting group or class, except as mandated by law or
as expressly set forth in the Articles. The Series D Preferred Stock and the
Series E Preferred Stock vote with the Common Stock on a share-for-share basis
and the Series Z Preferred Stock votes with the Common Stock on a share-for-
share basis, but is entitled to the number of votes which would be equal to the
total number of shares of Common Stock into which the Series Z Preferred Stock
would be convertible, which is presently one share of Common Stock for each
share of Series Z Preferred Stock. Pursuant to the Articles, as amended, the
total number of votes of the combined class of Common Stock, Series D Preferred
Stock, Series E Preferred Stock and Series Z Preferred Stock presently
outstanding is 39,856,310 votes, of which 28,283,597 votes (representing
approximately 71% of the total) are owned by Holdings, and 3,042,948 votes
(representing approximately 7.6% of the total) are owned by JEDI. TCW Asset
Management Company has the power, together with Trust Company of the West (as
sub-custodian for Mellon Bank), to vote and dispose of the securities owned by
Holdings.
Under the Exchange Agreement, if any of the outstanding options and
warrants granted to Inland's management, which are exercisable for 1,291,651
shares of Common Stock, are exercised, Holdings will be granted an option at the
same exercise price to acquire 200% of the shares issued pursuant to such
exercised option or warrant, and JEDI will be granted an option at the same
exercise price to acquire one-third of the shares issued pursuant to such
exercised option or warrant.
Inland has agreed that so long as Holdings controls or holds Series D
Preferred Stock with a liquidation preference of at least $25 million, Inland
will not engage in various activities without the prior written approval of
Holdings unless such activity had been contemplated by the latest budget
approved by Holdings, including making individual expenditures over $25,000,
conveying assets with a value exceeding $25,000, approving compensation and
benefit packages for officers and directors, borrowing money in excess of
$25,000, approving the hiring or termination of management employees and
commencing or settling any litigation in amounts in excess of $25,000. Inland
paid all of the expenses of Holdings and JEDI in connection with the Exchange
Agreement, and $25,000 collectively to Portfolio and Fund V and $25,000 to JEDI
as restructuring fees.
One of the conditions to closing of the Exchange Agreement was that Inland
receive an opinion of an investment banking firm that the Series D Preferred
Stock, Series E Preferred Stock, Series Z Preferred Stock and Common Stock
issued to Holdings and JEDI (the "Restructuring Consideration") in exchange for
indebtedness, warrants and Series C Preferred Stock was fair, from a financial
point of view, to the existing public holders of Inland's Common Stock. McDonald
Investments Inc. delivered a fairness opinion to Inland's Board of Directors
dated September 14, 1999 stating that based on the assumptions and conditions
set forth in their opinion, it was McDonald's opinion as of that date that the
Restructuring Consideration was fair, from a financial point of view, to the
unaffiliated holders of Inland's Common Stock. McDonald's opinion was expressly
conditioned, among other things, upon consummation of an amendment to IPC's and
Inland's existing Amended and Restated Credit Agreement to, among
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other things, increase IPC's and Inland's borrowing base from $70 million to
$83.5 million and to provide that no redetermination of the borrowing base would
be made prior to October 1, 2000. Such amendment to the Amended and Restated
Credit Agreement occurred September 21, 1999, concurrently with the closing of
the Recapitalization.
Under the amended Articles, the Series D Preferred Stock accrues dividends
at a rate of $0.16875 per share per quarter if paid in cash on a current basis
or $0.2109375 per share per quarter if accumulated and not paid on a current
basis. Dividends are required to be paid on each December 30, March 30, June 29
and September 29, commencing December 30, 1999. Dividends also accrue and will
be payable on any unpaid dividends at a rate of 11.25% per annum. No dividends
may be declared or paid on Common Stock or any other series of preferred stock
while there are any accrued and unpaid dividends on the Series D Preferred
Stock. The Series D Preferred Stock also has liquidation preference over all
other classes and series of stock, in an amount equal to $7.50 per share. The
Series D Preferred Stock may be redeemed at any time by Inland for a redemption
price of $7.50 per share and must be redeemed upon the earlier of September 21,
2004 or the repayment in full of Inland's existing senior credit facility. In
addition to voting as a class with the Common Stock, Series E Preferred Stock
and Series Z Preferred Stock, as discussed above, holders of 75% of the
outstanding shares of Series D Preferred Stock, voting as a separate voting
group, must approve any modification to the dividend rates, liquidation
preferences or other privileges of the Series D Preferred Stock, any merger or
consolidation of Inland in which Inland is not the surviving entity, any
transaction which will result in the holders of voting stock of Inland
immediately prior to such transaction owning less than 50% of the outstanding
voting stock of Inland after the transaction or the sale or other transfer of
substantially all of the assets of Inland. Further, a majority of the
outstanding shares of Series D Preferred Stock, voting as a separate voting
group, have the right to (i) elect four members of the Board for as long as at
least 37.5% of the original shares of Series D Preferred Stock remain
outstanding; (ii) three members of the Board for as long as at least 25%, but
less than 37.5% remain outstanding; (iii) two members of the Board for as long
as at least 12.5%, but less than 25% remain outstanding; and (iv) one member of
the Board for as long as any shares of Series D Preferred Stock remain
outstanding even though they are less than 12.5% of the original shares issued.
As the number of members that may be elected by holders of Series D Preferred
Stock decline, the holders of Common Stock are entitled to elect those members
to the Board. Cumulative voting and preemptive rights are expressly denied to
the holders of Series D Preferred Stock.
Under the amended Articles, the Series E Preferred Stock accrues dividends
at a rate of $2.3125 per share per quarter if paid in cash on a current basis or
$2.875 per share per quarter if accumulated and not paid on a current basis.
Dividends are required to be paid on each December 30, March 30, June 29 and
September 29, commencing December 30, 1999. Dividends also accrue and will be
payable on any unpaid dividends at a rate of 11.50% per annum. No dividends may
be declared or paid on Common Stock or the Series Z Preferred Stock while there
are any accrued and unpaid dividends on the Series E Preferred Stock. The
Series E Preferred Stock also has liquidation preference over all other classes
and series of stock, except the Series D Preferred Stock, in an amount equal to
$100.00 per share. The Series E Preferred Stock may be redeemed at any time by
Inland for a redemption price of $100.00 per share and must be redeemed upon the
earlier of
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September 21, 2006 or the redemption of all outstanding shares of Series D
Preferred Stock. In addition to voting as a class with Common Stock, Series D
Preferred Stock and Series Z Preferred Stock, as discussed above, holders of 75%
of the outstanding shares of Series E Preferred Stock, voting as a separate
voting group, must approve any modification to the dividend rates, liquidation
preferences or other privileges of the Series E Preferred Stock; any merger or
consolidation of Inland in which Inland is not the surviving entity or any
transaction which will result in the holders of voting stock of Inland
immediately prior to such transaction owning less than 50% of the outstanding
voting stock of Inland after the transaction, unless, in either case, the
holders of Series E Preferred Stock receives shares with substantially the same
rights and preferences as correspond to the Series E Preferred Stock; any merger
in which the holders of Common Stock receive consideration in exchange for their
Common Stock other than Common Stock of the surviving corporation junior to the
securities issued to the holders of Series E Preferred Stock; or the sale or
other transfer of substantially all of the assets of Inland unless, so long as
the Series D Preferred Stock is outstanding, at least 60% of the Series E
Preferred Stock is redeemed or the holders of Series E Preferred Stock receive
an amount equal to 60% of 10/85ths of the total consideration received by the
holders of Series D Preferred Stock and Series E Preferred Stock in the same
form of consideration as that received by the holders of Series D Preferred
Stock. Further, a majority of the outstanding shares of Series E Preferred
Stock, voting as a separate voting group, have the right to elect one member of
the Board. Cumulative voting and preemptive rights are expressly denied to the
holders of Series E Preferred Stock.
The Series Z Preferred Stock ranks on an equivalent basis with the Common
Stock with respect to all matters, except the Series Z Preferred Stock has a
liquidation preference of $.002 per share which ranks ahead of the Common Stock,
and after receiving this liquidation preference, the Series Z Preferred Stock
will share in any remaining assets on liquidation pro rata on an as-converted
basis with the holders of Common Stock. Currently, the Series Z Preferred Stock
is convertible at a rate of one share of Common Stock for each share of Series Z
Preferred Stock and shall be deemed automatically converted into that number of
shares immediately upon the Articles being further amended to increase the
number of authorized shares of Common Stock to such a number that will permit
such conversion. It is anticipated that Inland will call a meeting of
stockholders prior to the end of 1999 to vote on such amendment.
Under the Shareholders Agreement, Holdings agreed to provide JEDI and the
Smith Group with certain rights to sell their shares if Holdings desires to sell
shares owned by it, and each of JEDI and the Smith Group granted Holdings the
right to require JEDI and the Smith Group to sell an equivalent number of their
shares on the same terms and conditions to any purchaser to whom Holdings
desires to sell a portion of its shares. Holdings, Fund V and Portfolio also
agreed with JEDI and the Smith Group that if Holdings, Fund V or Portfolio
endeavored to purchase any shares of Common Stock from a person not a party to
the Shareholders Agreement, Holdings, Fund V and Portfolio will offer to
purchase on a pro rata basis from JEDI and the Smith Group an equal number of
shares which are being purchased from the person not a party to the Shareholders
Agreement. Holdings, JEDI and the Smith Group also agreed with each other to
vote their respective shares to ensure that the Board of Inland would consist of
six members and that one member would be
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designated for election to the Board by the holders of Common Stock and Series Z
Preferred Stock. Each of JEDI and Holdings further agreed not to vote their
respective shares of Common Stock and Series Z Preferred Stock in the election
of such one designated Board member for as long as they owned Series D Preferred
Stock or Series E Preferred Stock and the Smith Group continued to hold 10% or
more of the combined outstanding shares of Common Stock and Series Z Preferred
Stock, provided, that if Holdings does not at such time hold enough Series D
Preferred Stock to entitle it to elect four members to the Board, Holdings will
be entitled to vote an amount of its common Stock proportionate to the reduction
in number of directors it is entitled to designate as a holder of Series D
Preferred Stock. Each member of the Smith Group agreed not to vote their shares
of Common Stock for the election of the one board member to be designated for
election by the holders of Common Stock and Series Z Preferred Stock as long as
it continued to hold 10% or more of the combined outstanding shares of Common
Stock and Series Z Preferred Stock.
The current members of the Board are John D. Lomax (Chairman), Bill I.
Pennington (Chief Executive Officer and Chief Financial Officer of Inland), John
E. Dyer (President and Chief Operating Officer of Inland), Kyle R. Miller and T
Brooke Farnsworth. Messrs. Lomax, Miller and Farnsworth were existing members
of the Board, and Messrs. Pennington and Dyer were appointed to the Board on
September 23, 1999 to fill two vacancies resulting from resignations from the
Board.
In connection with the Exchange Agreement, Inland entered into the
Registration Agreement with Holdings, Portfolio, JEDI and the Smith Group
pursuant to which Inland granted Holdings, JEDI and the Smith Group piggy-back
registration rights to include their shares on any registration statement filed
by Inland under the 1933 Act, subject to standard underwriters' kick-out clauses
and other conditions. Inland also granted to Holdings, JEDI and the Smith Group
demand registration rights which entitle Holdings to require Inland to file up
to three registration statements to register its shares, entitle JEDI to require
Inland to file up to two registration statements to register its shares and
entitle the Smith Group to require Inland to file one registration statement to
register its shares. Inland will be responsible for paying the costs and
expenses associated with all registration statements, including the fees of one
law firm acting as counsel to the holders requesting registration, but excluding
underwriting discounts and commissions and any other expenses of the party
requesting registration.
Item 5. Other Events.
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One of the conditions to the closing of the Exchange Agreement was that
Inland's senior lenders would enter into a restructuring of the senior credit
facility acceptable to Holdings, JEDI and Inland. As a result, effective as of
September 21, 1999, Inland and IPC entered into the Second Amended and Restated
Credit Agreement (the "ING Credit Agreement") with ING (U.S.) Capital
Corporation, U.S. Bank National Association and Meespierson Capital Corporation
(the "Senior Lenders") pursuant to which the Senior Lenders agreed to increase
the borrowing base under the ING Credit Agreement from $73.25 million to $83.5
million, and remove the amortization schedule and provide that the outstanding
principal balance shall be due and payable in full on October 1, 2001. Upon the
closing of the ING Credit Agreement, IPC borrowed $3.0 million, bringing the
total
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outstanding principal balance to $73,915,000 at September 21, 1999. IPC has $4.0
million available for letters of credit within the $83.5 million borrowing base,
of which $2.34 million were outstanding at September 21, 1999. Interest accrues,
at IPC's option, at either (i) 2% (instead of 0.5%) above the prime rate or (ii)
3% (instead of 1.75%) above the LIBOR rate. At September 27, 1999, all
$73,915,000 outstanding principal was under the LIBOR option at an effective
rate of 8.52% through December 27, 1999. The borrowing base will be redetermined
on October 1, 2000 and April 1, 2001 and may be redetermined at the option of
the Senior Lenders one additional time after October 1, 2000. Upon
redetermination, if the borrowing base is lower than the outstanding principal
balance then drawn, IPC must immediately pay the difference. Within 30 days
after closing, IPC is required to enter into a hedge for at least 50% of its
projected oil and gas production through December 31, 2001 and 25% for the year
ended December 31, 2002. IPC paid a facility fee of $150,000 and an additional
fee of $208,000 to the Senior Lenders at closing. IPC must also pay a facility
fee equal to 0.50% of the borrowing base on April 1, 2001 and again on September
30, 2001. The Senior Lenders will also receive a fee equal to 1% of the
borrowing base on October 1, 2000 if ING (U.S.) Capital Corporation continues to
be a member of the Senior Lenders at September 30, 2000. The ING Credit
Agreement continues to contain standard affirmative, negative and financial
covenants.
Item 7. Financial Statements and Exhibits
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(c) Exhibits - The following exhibits are filed herewith:
3.1 Amended and Restated Articles of Incorporation, as amended through
September 21, 1999.
4.1 Second Amended and Restated Credit Agreement dated September 15, 1999,
but effective as of September 21, 1999, between Inland Resources Inc.
("Inland"), Inland Production Company ("IPC"), ING (U.S.) Capital
Corporation, U.S. Bank National Association and Meespierson Capital
Corporation (without exhibits or schedules).
10.1 Exchange Agreement dated as of September 21, 1999 by and between
Inland, IPC Inland Refining, Inc., 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, TCW
Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. and Joint Energy
Development Investments II Limited Partnership (without exhibits or
schedules).
10.2 Shareholders Agreement dated as of September 21, 1999 between Inland,
Holdings, Fund V, JEDI and Pengo Securities Corp., Smith Energy
Partnership, Randall D. Smith, Jeffrey A. Smith, Barbara Stovall
Smith, John W. Adams and Arthur J. Pasmas (collectively, the "Smith
Group").
10.3 Registration Rights Agreement dated as of September 21, 1999 between
Inland, Holdings, Portfolio, JEDI and the Smith Group.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
October 4, 1999
INLAND RESOURCES INC.
By: \s\ Bill I. Pennington
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Bill I. Pennington, Chief Executive
Officer
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EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INLAND RESOURCES INC.
I, the undersigned person of the age of twenty-one (21) years or more,
acting as incorporator of a Corporation under the Washington Business
Corporation Act, adopt the following Articles of Incorporation for such
Corporation:
ARTICLE I - NAME
The name of this Corporation shall be Inland Resources Inc.
ARTICLE II - DURATION
The duration of this Corporation is perpetual.
ARTICLE III - PURPOSES
The purposes for which this Corporation is organized are as follows:
1. To carry on the business of mining, milling, concentrating,
converting, smelting, treating, preparing for market, manufacturing, buying,
selling, exchanging, and otherwise producing and dealing in gold, silver,
copper, lead, zinc, brass, iron, steel and all kinds of ores, metals and
minerals, and the products and by-products thereof every kind and description
and by whatsoever process the same can be or may hereafter be produced, and
generally and without limit as to amount, to buy, sell, exchange, lease, acquire
and deal in lands, mines, and mineral rights and claims, and to conduct all
business appertaining thereto; to purchase, lease or otherwise acquire, mining
rights, timber rights, oil and gas rights, mines, buildings, dwellings, plants,
machinery, tools and other properties whatsoever which this Corporation may from
time to time find to be for its advantage and purposes; to mine and market any
mineral or other product that may be found in or on such lands, and to explore,
work exercise, develop or turn to account the same; and to conduct all other
business appertaining to any of the aforesaid.
2. To carry on and to engage in any lawful business and related activity
through the powers now or hereafter conferred by the laws of the State of
Washington upon corporations organized pursuant to the laws under which the
Corporation is organized and any and all acts amendatory thereof and
supplemental thereto.
ARTICLE IV - CAPITAL STOCK
1. The aggregate number of shares which this Corporation shall have
authority to issue is 25,000,000 shares of common stock having a par value of
$0.001 per share, and 20,000,000 shares of Class A preferred stock having a par
value of $0.001 per share. Fully paid stock of this Corporation shall not be
liable to any further call or assessment.
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10,757,747 shares of Class A preferred stock, par value $.001 per share,
shall be designated as the Series D Redeemable Preferred Stock (the "Series
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D Preferred Stock"). The Series D Preferred Stock shall have the following
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voting powers, preferences and relative, participating, optional and other
special rights, qualifications, limitations and restrictions:
(i) DIVIDENDS. Dividends on the Series D Preferred Stock shall
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accrue on a daily basis from the later of the date of first
issuance or October 1, 1999. At the option of the Corporation,
dividends on the Series D Preferred Stock shall accrue and be
paid (a) at the rate of $0.16875 per share per quarter if paid
in cash on a current basis in arrears on the Dividend Payment
Date (as defined below) for such quarter or (b) at a rate of
$0.2109375 per share per quarter if accumulated and not paid on
the Dividend Payment Date of the quarter in which accrued
("Series D Accumulated Dividends"). Each of December 30, March
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30, June 29 and September 29; or if such date shall not be a
business day, then the next preceding business day, shall be a
"Dividend Payment Date"; provided however, that the first
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Dividend Payment Date shall be December 30, 1999. Dividends
also shall accrue and be payable on any unpaid Series D
Accumulated Dividends, whether or not declared, at a rate of
11.25% per annum, compounding quarterly on each Dividend
Payment Date. Dividends paid shall only be payable out of funds
legally available therefor, to the record holders of Series D
Preferred Stock as of the record date established by the
Corporation for payment of such dividends or, if there is no
such record date, as of the date of payment thereof.
No dividends shall be paid or declared, and no distribution of
securities of the Corporation or any other property shall be
made, on any Series E Preferred Stock or Series E Junior Stock
(as defined below) while there exists any accrued and unpaid
dividends of any kind on the Series D Preferred Stock (other
than dividends paid in the form of or distributions of Series E
Junior Stock on shares of Series E Junior Stock). "Series E
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Junior Stock" means any of the Corporation's capital stock,
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other than the Series D Preferred Stock and the Series E
Preferred Stock (as defined below). No monies shall be made
available for the purchase or redemption of any Series E
Preferred Stock or Series E Junior Stock while any shares of
Series D Preferred Stock remain outstanding.
(ii) LIQUIDATION RIGHTS.
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(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the
holder of each share of Series D Preferred Stock then
outstanding shall be entitled to be paid out of the assets of
the Corporation available for distribution to its shareholders,
whether such assets are capital, surplus or earnings, before
any payment or declaration and setting apart for payment of any
amount shall be made in respect of any Series E Preferred Stock
or Series E Junior Stock, an amount in cash equal to seven
dollars and fifty cents ($7.50) for each share of such Series D
Preferred Stock, together with any accrued and unpaid dividends
thereon.
(b) After the payment or distribution to the holders of Series
D Preferred Stock
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of the full preferential amounts aforesaid, the holders of
Series E Preferred Stock or Series E Junior Stock then
outstanding shall together be entitled to receive all the
remaining assets of the Corporation in accordance with the
terms of such junior securities.
(c) A consolidation or merger of the Corporation with or into
any other entity or entities shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation for
purposes of this paragraph (ii).
(d) If upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be
distributed among the holders of Series D Preferred Stock
pursuant to subparagraph (ii)(a) hereof shall be insufficient
to permit the payment to such shareholders of the full
preferential amounts required by such subparagraph, then all of
the assets of the Corporation to be distributed shall be
distributed ratably to the holders of outstanding Series D
Preferred Stock based on the number of shares held by each
holder, and the holders of Series E Preferred Stock or Series E
Junior Stock shall receive no distribution upon such
liquidation, dissolution or winding up of the Corporation.
(iii) REDEMPTION OF SERIES D PREFERRED STOCK.
(a) Optional Redemption. The Series D Preferred Stock may be
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redeemed, in whole or in part, out of funds legally available
therefor, at any time by the Corporation at its option, prior
to the liquidation, dissolution or winding up of the
Corporation, upon thirty (30) days advance written notice by
the Corporation to the record holders of the Series D Preferred
Stock on the books of the Corporation, by paying to the record
holders of such Series D Preferred Stock an amount in cash
equal to seven dollars and fifty cents ($7.50) for each share
of such Series D Preferred Stock, together with any accrued and
unpaid dividends thereon (the "Series D Redemption Price") owed
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to the holders of such Series D Preferred Stock. The holders of
Series D Preferred Stock shall be deemed to have received
written notice of such redemption five (5) days after the
Corporation's mailing of the notice of redemption by certified
or registered mail, return receipt requested, postage prepaid,
and addressed to each holder of record at such holder's address
appearing on the books of the Corporation. Upon redemption of
the Series D Preferred Stock, each holder shall be entitled to
a cash payment equal to the Series D Redemption Price for each
share of its shares so redeemed.
(b) Mandatory Redemption. On the earlier of (i) the fifth
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anniversary of the date of the first issuance of the Series D
Preferred Stock, or (ii) the repayment in full of the
Corporation's outstanding indebtedness under its credit
facility with its senior lender (the "Senior Debt") in effect
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from time to time (except repayments in full of such Senior
Debt related to the refinancing of such Senior Debt if
undertaken solely to change the identity or identities of the
Corporation's senior lenders) (such earlier date of (i) or (ii)
above being the "Mandatory Redemption Date"), the Corporation
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shall redeem for cash out of funds legally available therefor,
that number of shares of Series D Preferred Stock equal to one-
third of the original
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number of shares of Series D Preferred Stock issued (the
"Original Amount") at the Series D Redemption Price. On the
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first anniversary of the Mandatory Redemption Date, the
Corporation shall redeem for cash out of funds legally
available therefor, that number of shares of Series D Preferred
Stock equal to one-third of the Original Amount (or all of the
remaining outstanding shares of Series D Preferred Stock,
whichever is greater) at the Series D Redemption Price. On the
second anniversary of the Mandatory Redemption Date, the
Corporation shall redeem for cash out of funds legally
available therefor, all of the remaining outstanding Series D
Preferred Stock at the Series D Redemption Price. The
Corporation shall provide at least ten (10) days advance
written notice to the record holders of Series D Preferred
Stock on the books of the Corporation of the redemptions. The
holders of Series D Preferred Stock shall be deemed to have
received written notice five (5) days after the Corporation's
mailing of such notice by certified or registered mail, return
receipt requested, postage prepaid and addressed to each holder
of record at such holder's address appearing on the books of
the Corporation.
If on a date that any redemption is required to be made by the
Corporation pursuant to this paragraph (iii) (each a "Series D
--------
Redemption Date"), funds legally available for such redemption
---------------
shall be insufficient to redeem the amount of Series D
Preferred Stock required to be redeemed on such date, funds, to
the extend legally available, shall be used for such purpose
and the Corporation shall effect such redemption pro rata
according to the number of shares of Series D Preferred Stock
then outstanding. The redemption requirements provided hereby
shall be continuous, so that if on any Series D Redemption Date
such requirements can not be fully discharged, without further
action by any holder of the Series D Preferred Stock, funds
legally available for the payment of dividends shall be applied
in respect thereof until such redemption requirements have been
satisfied in full, prior to the Corporation's payment of any
other dividends or redemption of any of its Series E Preferred
Stock or Series E Junior Stock.
(iv) VOTING RIGHTS.
-------------
(a) Each holder of any share of Series D Preferred Stock shall
be entitled to vote with the Common Stock (as defined below) on
a share-for-share basis on all matters submitted to the
shareholders of the Corporation for approval. Holders of the
Series D Preferred Stock initially shall be entitled to one
vote for each share of Series D Preferred Stock held, subject
to adjustment from time to time as set forth in subparagraph
(iv)(b) below. Except as otherwise expressly provided herein or
as mandated by law, the holders of shares of Common Stock, the
Series D Preferred Stock, the Series E Preferred Stock and the
Series Z Preferred Stock (as defined below) shall vote together
as a class and not as separate voting groups or classes. In the
event voting as a separate voting group by the holders of
Series D Preferred Stock is required herein or by Washington
law, any vote by the holders of Series D Preferred Stock as a
separate voting group shall be effective if approved by a
majority of the outstanding shares of Series D Preferred Stock,
subject to subparagraph (c) below. The authorization of the
issuance by the Board of any additional shares of Series D
Preferred Stock or the designation by the Board of one
-4-
<PAGE>
or more additional series of Class A preferred stock or any
other class of stock of the Corporation with dividend,
liquidation or redemption rights pari passu with or having
priority over or having greater or more beneficial rights per
share than the Series D Preferred Stock shall be deemed to
constitute an amendment to the Articles of Incorporation of the
Corporation for which the holders of shares of Series D
Preferred Stock are entitled to vote hereunder as a separate
voting group.
(b) So long as any Series D Preferred Stock is outstanding, if
at any time or from time to time the Corporation shall effect
or pay, as the case may be, on any class or series of
securities of the Corporation entitled to vote with the Common
Stock on matters submitted to the holders of Common Stock for
approval (the "Voting Securities") a stock dividend, stock
-----------------
distribution, subdivision, share split, reclassification, or
shall combine or consolidate any shares of a class or series of
Voting Securities by reclassification, reverse split or
otherwise, then the voting rights with respect to each share of
Series D Preferred Stock on the date of such event shall be
automatically adjusted, such that the holders of the Series D
Preferred Stock on such date will maintain their percentage of
voting power as existed immediately prior to such dividend,
distribution, subdivision, share split, reclassification,
combination or consolidation (taking into consideration all
issued and outstanding Voting Securities of the Corporation at
such times).
(c) Notwithstanding anything to the contrary contained herein,
and in addition to any special or super-majority voting
provisions set forth in any applicable law, the approval of the
holders of seventy-five percent (75%) of the outstanding shares
of Series D Preferred Stock, voting as a separate voting class
or group, shall be required for the Corporation to (a) make any
modification to the dividend rates set forth in subparagraph
(i) of this paragraph 2, (b) make any modification to the
liquidation preferences set forth in subparagraph (ii) of this
paragraph 2, (c) consummate any merger or consolidation where
the Corporation is not the surviving entity (other than with a
wholly-owned subsidiary of the Corporation), or any transaction
where the holders of voting stock of the Corporation
immediately prior to such transaction own less than fifty
percent (50%) of the outstanding voting stock of the
Corporation after such transaction, (d) sell or otherwise
transfer substantially all of the assets of the Corporation,
and (e) modify any other rights, preferences or privileges of
the Series D Preferred Stock in any way adverse to any holder
of Series D Preferred Stock.
(d) (i) So long as at least thirty-seven and one-half percent
(37.5%) of the shares of Series D Preferred Stock
outstanding as of the date of first issuance of such
shares remain outstanding, the holders of outstanding
shares of Series D Preferred Stock shall have the right,
exercisable at any time and acting separately as a voting
group or class, to elect four (4) of the members of the
Corporation's Board. So long as at least twenty-five
percent (25%) but less than thirty-seven and one-half
percent (37.5%) of the shares of Series D Preferred Stock
outstanding on the date of first issuance of such shares
remain outstanding, the holders of outstanding shares of
Series D Preferred Stock shall have the right, exercisable
at any
-5-
<PAGE>
time and acting separately as a voting group or class, to
elect three (3) of the members of the Corporation's Board.
So long as at least twelve and one-half percent (12.5%),
but less than twenty-five percent (25%) of the shares of
Series D Preferred Stock outstanding on the date of first
issuance of such shares remain outstanding, the holders of
outstanding shares of Series D Preferred Stock shall have
the right, exercisable at any time and acting separately
as a voting group or class, to elect two (2) of the
members of the Corporation's Board. So long as any shares
but less than twelve and one-half percent (12.5%) of the
shares of Series D Preferred Stock outstanding on the date
of first issuance of such shares of Series D Preferred
Stock remain outstanding, the holders of outstanding
shares of Series D Preferred Stock shall have the right,
exercisable at any time and acting separately as a voting
group or class, to elect one (1) of the members of the
Corporation's Board. At such time as less than thirty-
seven and one-half percent (37.5%) of the shares of Series
D Preferred Stock outstanding on the date of first
issuance of shares remain outstanding and the holders of
the Series D Preferred Stock are entitled to elect less
than four (4) members of the Corporation's Board, the
holders of the Corporation's Common Stock shall be
entitled to elect the member(s) of the Corporation's Board
theretofore elected by the holders of the Series D
Preferred Stock, subject to the right of any other class
or series of capital stock of the Corporation to elect one
or more members of the Corporation's Board. If the number
of members of the Board increases to a number greater than
six (6) at any time or from time to time by action of the
Corporation or its shareholders while any shares of Series
D Preferred Stock are outstanding, the holders of the
Series D Preferred Stock shall have the right to elect
that number of directors equal to a proportionate number
of the directors comprising the Board (or, if such
proportionate number of directors comprising the Board is
not an integer, the next higher integer). A director
elected by the holders of Series D Preferred Stock
pursuant to this paragraph (d) shall serve until his
successor is duly elected or until his removal by the
holders of Series D Preferred Stock. The holders of the
Series D Preferred Stock shall be entitled at any time or
from time to time to remove any director who was appointed
by such holders for any reason or no reason whatsoever.
Any such removal or election shall be effective upon
written notice to the Corporation. Except as otherwise
provided by law, vacancies and newly created directorships
resulting from any increase in the authorized number of
directors may be filled by election by the holders of the
Series D Preferred Stock or by a majority of the directors
elected by the holders of the Series D Preferred Stock
pursuant to this subparagraph (iv)(d).
(ii) The holders of the Series D Preferred Stock shall be
entitled to have two (2) observers to the Corporation's
Board, approved by the holders of a majority of the shares
of Series D Preferred Stock outstanding from time to time,
who shall have the right to attend and receive all
materials distributed for or at all meetings (telephonic
and otherwise) of directors
-6-
<PAGE>
(including committees thereof) and shall be entitled to
the same rights and privileges as directors of the
Corporation, except that such observers shall not be
entitled to vote on matters presented to or discussed by
the Board. Such observers will receive no compensation
from the Corporation for their services as observers, but
shall be entitled to be reimbursed by the Corporation for
all reasonable costs and expenses incurred in connection
with their participation in meetings or other activities
of the Board.
Cumulative voting by holders of Series D Preferred Stock is
expressly denied.
(v) PREEMPTIVE RIGHTS. No holder of any shares of Series D
-----------------
Preferred Stock shall be entitled as a matter of right to
subscribe or receive additional shares of any class of stock of
the Corporation, whether now or hereafter authorized, or any
bonds, debentures or other securities convertible into such
stock, but such additional shares of stock or other securities
convertible into stock may be issued or disposed of to such
persons and on such terms as in the Board's discretion the
Board shall deem advisable.
(vi) NO REISSUANCE OF SERIES D PREFERRED STOCK. No share or shares
-----------------------------------------
of Series D Preferred Stock acquired by the Corporation by
reason of redemption, purchase or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated
from the shares of Series D Preferred Stock which the
Corporation shall be authorized to issue and all such shares
shall be returned to authorized but unissued shares of Class A
preferred stock, par value $.001 per share, of the Corporation
and may be issued or further designated, as determined by the
Board in accordance with the Articles of Incorporation and
applicable law.
(vii) COMMON STOCK. The term "Common Stock", as used herein, means
------------ ------------
the Corporation's Common Stock, par value $.001 per share.
3. 121,973 shares of Class A preferred stock, par value $.001 per share,
shall be designated as the Series E Redeemable Preferred Stock (the
"Series E Preferred Stock"). The Series E Preferred Stock shall have
------------------------
the following voting powers, preferences and relative, participating,
optional and other special rights, qualifications, limitations and
restrictions:
(i) DIVIDENDS. Dividends on the Series E Preferred Stock shall
---------
accrue on a daily basis from the later of the date of first
issuance or October 1, 1999. At the option of the Corporation,
dividends on the Series E Preferred Stock shall accrue and be
paid (a) at the rate of $2.3125 per share per quarter if paid
in cash on a current basis in arrears on the Dividend Payment
Date (as defined below) for such quarter or (b) at a rate of
$2.875 per share per quarter if accumulated and not paid on the
Dividend Payment Date of the quarter in which accrued ("Series
------
E Accumulated Dividends"). Each of December 30, March 30, June
-----------------------
29 and September 29; or if such date shall not be a business
day, then the next preceding business day, shall be a "Dividend
--------
Payment Date"; provided, however, that the first Dividend
------------ --------
Payment Date shall be December 30, 1999. Dividends also shall
accrue and be payable on any unpaid Series E Accumulated
Dividends, whether or not declared, at a rate of
-7-
<PAGE>
11.50% per annum, compounding quarterly on each Dividend
Payment Date. Dividends paid shall only be payable out of funds
legally available therefor, to the record holders of Series E
Preferred Stock as of the record date established by the
Corporation for payment of such dividends or, if there is no
such record date, as of the date of payment thereof.
No dividends shall be paid or declared, and no distribution of
securities of the Corporation or any other property shall be
made, on any Series E Junior Stock (as defined below) while
there exists any accrued and unpaid dividends of any kind on
the Series E Preferred Stock (other than dividends paid in the
form of or distributions of Series E Junior Stock on shares of
Series E Junior Stock). "Series E Junior Stock" means any of
---------------------
the Corporation's capital stock other than the Series D
Preferred Stock and the Series E Preferred Stock. No monies
shall be made available for the purchase or redemption of any
Series E Junior Stock while any shares of Series E Preferred
Stock remain outstanding
(ii) LIQUIDATION RIGHTS.
------------------
(a) In the event of any liquidation, dissolution
or winding up of the Corporation, whether
voluntary or involuntary, and after the payment or
distribution to the holders of the Series D
Preferred Stock of their full preferential
amounts, the holder of each share of Series E
Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation
available for distribution to its shareholders,
whether such assets are capital, surplus or
earnings, before any payment or declaration and
setting apart for payment of any amount shall be
made in respect of any Series E Junior Stock, an
amount in cash equal to one hundred dollars
($100.00) for each share of such Series E
Preferred Stock, together with any accrued and
unpaid dividends thereon.
(b) After the payment or distribution to the
holders of the Series D Preferred Stock and the
Series E Preferred Stock of their full
preferential amounts, the holders of Series E
Junior Stock then outstanding shall together be
entitled to receive all the remaining assets of
the Corporation in accordance with the terms of
such junior securities.
(c) A consolidation or merger of the Corporation
with or into any other entity or entities shall
not be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this
paragraph (ii).
(d) If upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary
or involuntary, after the payment to the holders
of the Series D Preferred Stock of the full
preferential amounts required by such stock, the
remaining assets
-8-
<PAGE>
to be distributed among the holders of Series E
Preferred Stock pursuant to subparagraph (a)
hereof shall be insufficient to permit the payment
to such shareholders of the full preferential
amounts required by such subparagraph, then all of
the assets of the Corporation to be distributed
shall be distributed ratably to the holders of
outstanding Series E Preferred Stock based on the
number of shares held by each holder, and the
holders of Series E Junior Stock shall receive no
distribution upon such liquidation, dissolution or
winding up of the Corporation.
(iii) REDEMPTION OF SERIES E PREFERRED STOCK.
--------------------------------------
(a) Optional Redemption. The Series E Preferred
-------------------
Stock may be redeemed, in whole or in part, out of
funds legally available therefor, at any time by
the Corporation at its option, prior to the
liquidation, dissolution or winding up of the
Corporation, upon thirty (30) days advance written
notice by the Corporation to the record holders of
the Series E Preferred Stock on the books of the
Corporation, by paying to the record holders of
such Series E Preferred Stock an amount in cash
equal to one hundred dollars ($100.00) for each
share of such Series E Preferred Stock, together
with any accrued and unpaid dividends thereon (the
"Series E Redemption Price") owed to the holders
-------------------------
of such Series E Preferred Stock. The holders of
Series E Preferred Stock shall be deemed to have
received written notice of such redemption five
(5) days after the Corporation's mailing of the
notice of redemption by certified or registered
mail, return receipt requested, postage prepaid,
and addressed to each holder of record at such
holder's address appearing on the books of the
Corporation. Upon redemption of the Series E
Preferred Stock, each holder shall be entitled to
a cash payment equal to the Series E Redemption
Price for each of its shares so redeemed.
(b) Mandatory Redemption. On the earlier of (i)
--------------------
the seventh anniversary of the date of the first
issuance of the Series E Preferred Stock, or (ii)
the redemption of all outstanding shares of Series
D Preferred Stock, the Corporation shall redeem
for cash out of funds legally available therefor,
all of the outstanding Series E Preferred Stock at
the Series E Redemption Price. The Corporation
shall provide at least ten (10) days advance
written notice to the record holders of Series E
Preferred Stock on the books of the Corporation of
the redemptions. The holders of Series E Preferred
Stock shall be deemed to have received written
notice five (5) days after the Corporation's
mailing of such notice by certified or registered
mail, return receipt requested, postage prepaid
and addressed to each holder of record at such
holder's address appearing on the books of the
Corporation.
-9-
<PAGE>
If on a date that any redemption is required to be
made by the Corporation pursuant to this paragraph
(iii) (each a "Series E Redemption Date"), funds
------------------------
legally available for such redemption shall be
insufficient to redeem the amount of Series E
Preferred Stock required to be redeemed on such
date, funds, to the extend legally available,
shall be used for such purpose and the Corporation
shall effect such redemption pro rata according to
the number of shares of Series E Preferred Stock
then outstanding. The redemption requirements
provided hereby shall be continuous, so that if on
any Series E Redemption Date such requirements can
not be fully discharged, without further action by
any holder of the Series E Preferred Stock funds
legally available for the payment of dividends
shall be applied in respect thereof until such
redemption requirements have been satisfied in
full, prior to the Corporation's payment of any
other dividend or redemption of any of its Series
E Junior Stock.
(iv) VOTING RIGHTS.
-------------
(a) Each holder of any share of Series E
Preferred Stock shall be entitled to vote with the
Common Stock on a share-for-share basis on all
matters submitted to the shareholders of the
Corporation for approval. Holders of the Series E
Preferred Stock initially shall be entitled to one
vote for each share of Series E Preferred Stock
held, subject to adjustment from time to time as
set forth in subparagraph (iv)(b) below. Except as
otherwise expressly provided herein or as mandated
by law, the holders of shares of Common Stock, the
Series D Preferred Stock, the Series E Preferred
Stock and the Series Z Preferred Stock shall vote
together as a class and not as separate voting
groups or classes. In the event voting as a
separate voting group by the holders of Series E
Preferred Stock is required herein or by
Washington law, any vote by the holders of Series
E Preferred Stock as a separate voting group shall
be effective if approved by a majority of the
outstanding shares of Series E Preferred Stock,
subject to subparagraph (c) below. The
authorization or the issuance by the Board of any
additional shares of Series D Preferred Stock or
Series E Preferred Stock or the designation by the
Board of one or more additional series of Class A
preferred stock or any other class of stock of the
Corporation with dividend, liquidation or
redemption rights pari passu with or having
priority over or having greater or more beneficial
rights per share than the Series E Preferred Stock
shall be deemed to constitute an amendment to the
Articles of Incorporation of the Corporation for
which the holders of shares of Series E Preferred
Stock are entitled to vote hereunder as a separate
voting group.
(b) So long as any Series E Preferred Stock is
outstanding, if
-10-
<PAGE>
at any time or from time to time the Corporation
shall effect or pay, as the case may be, on any
class or series of securities of the Corporation
entitled to vote with the Common Stock on matters
submitted to the holders of Common Stock for
approval ("Voting Securities") a stock dividend,
-----------------
stock distribution, subdivision, share split,
reclassification, or shall combine or consolidate
any shares of a class or series of Voting
Securities by reclassification, reverse split or
otherwise, then the voting rights with respect to
each share of Series E Preferred Stock on the date
of such event shall be automatically adjusted,
such that the holders of the Series E Preferred
Stock on such date will maintain their percentage
of voting power as existed immediately prior to
such dividend, distribution, subdivision, share
split, reclassification, combination or
consolidation (taking into consideration all
issued and outstanding Voting Securities of the
Corporation at such times).
(c) Notwithstanding anything to the contrary
contained herein and in addition to any special
voting provisions set forth in any applicable law,
the approval of seventy-five percent (75%) of the
outstanding shares of the Series E Preferred
Stock, voting as a separate voting group, is
required for the Corporation to:
(i) consummate any merger where the
Corporation is not the surviving entity
(other than with a wholly-owned subsidiary of
the Corporation) or any transaction where the
holders of voting stock of the Corporation
prior to such transaction own less than fifty
percent (50%) of the outstanding voting stock
of the Corporation after such transaction
unless, in either case, the holders of the
Series E Preferred Stock shall receive shares
with substantially the same rights and
preferences as correspond to the shares of
Series E Preferred;
(ii) consummate or effectuate any merger in
which the holders of Common Stock receive any
consideration in exchange for their Common
Stock other than common stock of the
surviving corporation or securities of the
surviving corporation (which may be
convertible into common stock of the
surviving corporation) junior to the
securities issued to the holders of the
Series E Preferred Stock, provided that such
junior securities shall not be redeemable by
the surviving corporation while the
securities issued to the holders of the
Series E Preferred Stock are outstanding;
(iii) sell or transfer substantially all of
Corporation's assets unless, so long as the
Series D Preferred Stock is
-11-
<PAGE>
outstanding, (A) at least sixty percent (60%) of the
outstanding shares of Series E Preferred Stock is redeemed
or (B) holders of the Series E Preferred Stock receive an
amount equal to sixty percent (60%) of 10/85/th/s of the
total consideration received by the holders of the Series D
Preferred Stock and the Series E Preferred Stock in the same
form of consideration as that received by the holders of the
Series D Preferred Stock; provided that the consideration
received by holders of the Series E Preferred Stock under
this clause (iii)(B) shall not have a value less than the
amount holders of the Series E Preferred Stock would receive
upon the redemption of twenty percent (20%) of the
outstanding shares of Series E Preferred Stock; or
(iv) modify any rights of the Series E Preferred Stock in
any way adverse to the holders of Series E Preferred Stock,
including, without limitation, modifications as to dividend
payments or rates, or as to the liquidation preference, of
the Series E Preferred Stock.
(d) (i) So long as any shares of Series E Preferred Stock are
outstanding, the holders of outstanding shares of Series E
Preferred Stock (whether or not the Corporation redeems or
has redeemed any shares of Series E Preferred Stock) shall
have the right, exercisable at any time and acting
separately as a voting group or class, to elect one of the
members of the Corporation's Board. At such time as no
shares of Series E Preferred Stock remain outstanding, the
holders of the Corporation's Common Stock shall be entitled
to elect one (1) of the members of the Corporation's Board
theretofore elected by the holders of the Series E Preferred
Stock, subject to the right of any other class or series of
capital stock of the Corporation to elect one or more
members of the Corporation's Board. If the number of
members of the Board increases to a number greater than six
(6) at any time or from time to time by action of the
Corporation or its shareholders while any shares of Series E
Preferred Stock are outstanding, the holders of the Series E
Preferred Stock shall have the right to elect that number of
directors equal to one-sixth of the directors comprising the
Board (or, if one-sixth of the number of directors
comprising the Board is not an integer, the next higher
integer). A director elected by the holders of Series E
Preferred Stock pursuant to this paragraph (d) shall serve
until his successor is duly elected or until his removal by
the holders of Series E Preferred
-12-
<PAGE>
Stock; provided, however, his term shall terminate at such
--------
time as no shares of Series E Preferred Stock remain
outstanding, immediately upon the election of his successor
by the holders of stock other than Series E Preferred Stock.
The holders of the Series E Preferred Stock shall be
entitled at any time or from time to time to remove any
director who was appointed by such holders for any reason or
no reason whatsoever. Any such removal or election shall be
effective upon written notice thereof to the Corporation.
Except as otherwise provided by law, vacancies and newly
created directorships resulting from any increase in the
authorized number of directors may be filled by election by
the holders of the Series E Preferred Stock or by a majority
of the directors elected by the holders of the Series E
Preferred Stock pursuant to this subparagraph (iv)(d).
(ii) The holders of the Series E Preferred Stock, in lieu of
appointing a director to the Corporation's Board, shall have
the right to (A) receive prior notice of any proposed action
by the Corporation's Board or a committee thereof, and to
receive reasonable notice of and to attend and receive all
materials distributed for or at any meeting (including
telephonic meetings) of the Board and (B) receive promptly
after they are produced, all management reports and
management accounts relating to the Corporation. A Board
observer appointed by holders of the Series E Preferred
Stock shall receive no compensation from the Corporation for
services as an observer, but shall be entitled to be
reimbursed by the Corporation for all reasonable costs and
expenses incurred in connection with his or her
participation in meetings or other activities of the Board.
(e) Cumulative voting by holders of Series E Preferred Stock is
expressly denied.
(v) PREEMPTIVE RIGHTS. No holder of any shares of Series E Preferred
-----------------
Stock shall be entitled as a matter of right to subscribe or receive
additional shares of any class of stock of the Corporation, whether
now or hereafter authorized, or any bonds, debentures or other
securities convertible into such stock, but such additional shares of
stock or other securities convertible into stock may be issued or
disposed of to such persons and on such terms as in the Board's
discretion the Board shall deem advisable.
(vi) NO REISSUANCE OF SERIES E PREFERRED STOCK. No share or shares of
-----------------------------------------
Series E Preferred Stock acquired by the Corporation by reason of
redemption,
-13-
<PAGE>
purchase, or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares of Series E
Preferred Stock which the Corporation shall be authorized to issue
and all such shares shall be returned to authorized but unissued
shares of Class A preferred stock, par value $.001 per share, of the
Corporation and may be issued or further designated, as determined
by the Board in accordance with the Articles of Incorporation and
applicable law.
(vii) COMMON STOCK. The term "Common Stock," as used herein, means the
------------ ------------
Corporation's Common Stock, par value $.001 per share.
(viii) SERIES D PREFERRED STOCK. The term "Series D Preferred Stock," as
------------------------ ------------------------
used herein, means the Corporation's Series D Redeemable Preferred
Stock, par value $.001 per share.
4. 5,882,901 shares of Class A preferred stock, par value $.001 per share,
shall be designated as the Series Z Convertible Preferred Stock (the
"Series Z Preferred Stock"). The Series Z Preferred Stock shall have the
------------------------
following voting powers, preferences and relative, participating, optional
and other special rights, qualifications, limitations and restrictions:
(i) DIVIDENDS. The holders of the Series Z Preferred Stock shall be
---------
entitled to receive dividends (other than dividends paid in
additional shares of capital stock for which an adjustment is
made pursuant to paragraph (iv) hereof) in the same form and at
the same rate as dividends are paid with respect to the Common
Stock (treating each share of Series Z Preferred Stock as being
equal to the number of shares of Common Stock into which each
such share of Series Z Preferred Stock could be converted
pursuant to the provisions of paragraph (iv) hereof, with such
number determined as of the record date for the determination of
holders of Common Stock entitled to receive such dividend).
(ii) LIQUIDATION RIGHTS.
------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, and after the
payment or distribution to the holders of the Series D Preferred
Stock and the Series E Preferred Stock of their full preferential
amounts, the holder of each share of Series Z Preferred Stock
then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its
shareholders, whether such assets are capital, surplus or
earnings, before any payment or declaration and setting apart for
payment of any amount shall be made in respect of the Common
Stock, an amount in cash equal to $.002 for each share of such
Series Z Preferred Stock (the "Liquidation Value"). Such
-----------------
Liquidation Value shall be in addition to, and not in lieu of,
any amount which such holder shall be entitled to receive under
subparagraph (ii)(b) below.
(b) After the payment or distribution to the holders of the
Series D Preferred Stock, the Series E Preferred Stock and the
Series Z Preferred Stock of their full preferential amounts, the
holders of Series Z Preferred Stock and Common Stock
-14-
<PAGE>
then outstanding shall together be entitled to receive ratably,
based on the number of shares of Common Stock into which the
Series Z Preferred Stock is then convertible, all the remaining
assets of the Corporation.
(c) A consolidation or merger of the Corporation with or into any
other corporation or corporations shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation as
those terms are used in this paragraph (ii).
(d) If upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the payment
or distribution to the holders of the Series D Preferred Stock
and the Series E Preferred Stock and any other preferred stock
senior to the Series Z Preferred Stock of their full preferential
amounts, the remaining assets to be distributed among the holders
of Series Z Preferred Stock pursuant to subparagraph (a) shall be
insufficient to permit the payment to such shareholders of the
full preferential amounts required by such subparagraph, then all
of the assets of the Corporation to be distributed shall be
distributed ratably to the holders of outstanding Series Z
Preferred Stock based on the number of shares held by each
holder, and the holders of Common Stock shall receive no
distribution upon such liquidation, dissolution or winding up of
the Corporation.
(iii) NO REDEMPTION. The Series Z Preferred Stock is not redeemable by
-------------
the Corporation.
(iv) CONVERSION. Shares of Series Z Preferred Stock shall be
----------
converted into shares of Common Stock, on the terms and
conditions set forth below:
(a) Automatic Conversion. At such time as the Articles of
--------------------
Incorporation of the Corporation are amended to increase the
authorized shares of Common Stock to permit the conversion of all
of the Series Z Preferred Stock (the "Authorization Date"), each
------------------
share of Series Z Preferred Stock shall be automatically
converted into the number of shares of Common Stock which result
from dividing the Liquidation Value by the Conversion Price per
share (as defined herein) in effect at the time of such
conversion. The initial Conversion Price per share shall be
$.002, and such initial Conversion Price shall be subject to
adjustment from time to time as provided herein (the "Conversion
----------
Price"). Upon conversion of the Series Z Preferred Stock, each
-----
holder thereof shall be entitled to receive that number of shares
of Common Stock into which such holder's shares of Series Z
Preferred Stock has been converted.
(b) Mechanics of Conversion. Promptly following the
-----------------------
Authorization Date, the Corporation shall mail to record holders
of the Series Z Preferred Stock at the address for such holders
on the books of the Corporation, notice of conversion of the
Series Z Preferred Stock. After notification of conversion by
the Corporation, a holder of Series Z Preferred Stock shall
surrender all such holder's certificates therefor, duly endorsed,
at the office of the Corporation or at the offices of any
transfer agent for the Series Z Preferred Stock or Common Stock
(or at such other
-15-
<PAGE>
place designated by the Corporation in the notice of conversion).
Upon receipt by the Corporation of a holder's Series Z Preferred
Stock, the Corporation shall promptly issue and deliver to such
holder of Series Z Preferred Stock a certificate or certificates
for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of business on
the Authorization Date, and the person or persons whom the
Corporation's records indicate are entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares
of Common Stock on the day immediately following such date. The
certificate or certificates representing the shares of Common
Stock issued upon such conversion shall contain the same
restrictive legends, if any, included on the certificate or
certificates of Series Z Preferred Stock surrendered, unless the
shares of Common Stock issuable upon such conversion have been
registered under the Securities Act of 1933, as amended, and
qualified or registered under applicable state securities laws.
(c) Adjustment for Stock Splits, Distributions or Subdivisions.
----------------------------------------------------------
If the Corporation shall at any time or from time to time after
the first issuance of the Series Z Preferred Stock (the "Issuance
--------
Date") issue additional shares of Common Stock to holders of
----
Common Stock pursuant to a share dividend, share distribution,
subdivision, share split or reclassification, then concurrently
with the effectiveness of such event, the Conversion Price in
effect immediately prior to such event shall be proportionately
decreased and the number of shares issuable on conversion of a
share of Series Z Preferred Stock (the "Series Z Conversion
-------------------
Shares") immediately prior to such event shall be proportionately
------
increased.
(d) Adjustments for Combinations or Consolidations. If the
----------------------------------------------
Corporation shall at any time or from time to time after the
Issuance Date, combine or consolidate, by reclassification,
reverse split or otherwise, into a lesser number of shares of
Common Stock, then concurrently with the effectiveness of such
event, the Conversion Price in effect immediately prior to such
event shall be proportionately increased and the number of
Conversion Shares issuable upon conversion of the Series Z
Preferred Stock immediately prior to such event shall be
proportionately decreased.
(e) Reorganization, Mergers, Consolidations or Sales of Assets.
----------------------------------------------------------
If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for
elsewhere in this paragraph (iv)) or a merger or consolidation of
the Corporation with or into another corporation, or the sale of
all or substantially all of the Corporation's properties and
assets to any other person, or a compulsory share exchange, then,
as a part of such reorganization, merger, consolidation, sale or
share exchange, provision shall be made so that the holders of a
share of Series Z Preferred Stock shall thereafter be entitled to
receive, upon conversion of Series Z Preferred Stock, the number
of shares of stock or other securities or property receivable
upon such reorganization, merger, consolidation, sale or share
exchange by holders of the number of shares of Common Stock into
which such share of
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Series Z Preferred Stock might have been converted immediately
prior to such reorganization, merger, consolidation, sale or
share exchange.
(f) Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price or the number of shares of
Common Stock or other securities issuable upon conversion of
Series Z Preferred Stock, the Corporation, at its expense, shall
cause independent public accountants of recognized standing
selected by the Corporation (who may be the independent public
accountants then auditing the books of the Corporation) or the
chief financial officer of the Corporation, at the Board's
option, to compute such adjustment or readjustment in accordance
with the Corporation's Articles of Incorporation and prepare a
certificate showing such adjustment or readjustments to be
mailed, by first class mail, postage prepaid, to each registered
holder of Series Z Preferred Stock at the holder's address as
shown in the Corporation's books. The certificates shall set
forth such adjustment or readjustment, showing in detail the
facts upon which such adjustment or readjustment is based.
(g) Notices of Record Date. In the event (i) any taking by the
----------------------
Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or (ii)
any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation or any compulsory share exchange or any transfer of
all or substantially all of the assets of the Corporation to, or
any merger or consolidation with, any other any other entity or
person, or any voluntary or involuntary dissolution, liquidation
or winding up of the Corporation, the Corporation shall mail to
each holder of Series Z Preferred stock at least thirty (30) days
prior to the record date specified therein, a notice specifying
(A) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of
such dividend or distribution, (B) the date on which any such
reorganization, reclassification or recapitalization, compulsory
share exchange, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective and a
description of such transaction, and (C) the time, if any, that
is to be fixed as to when the holders of record of Common Stock
(or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification
or recapitalization, compulsory share exchange, transfer,
consolidation, merger, dissolution, liquidation or winding up.
(h) No Fractional Shares. No fractional shares of Common Stock
--------------------
shall be issued upon the happening of any event as set forth in
this subparagraph (b) above. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation
shall pay cash equal to (i) the product of such fraction
multiplied by the fair market value of one share of the
Corporation's Common Stock on the date of conversion, as
determined by the closing price (or "last trade" price, if
applicable) on the day prior to the date of conversion, if such
shares are listed and trading primarily on one or more national
securities exchange or (ii) the product of such fraction
multiplied by a value of one share of the Corporation's Common
Stock
-17-
<PAGE>
on the date of conversion, as determined by the Board in good
faith using methods it considers appropriate.
(i) Reservation of Stock Issuable Upon Conversion or for
----------------------------------------------------
Dividends. From and after the Authorization Date, the
---------
Corporation shall at all times reserve and keep available out of
the authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of shares of Series Z
Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of
all outstanding shares of Series Z Preferred Stock; and if at any
time thereafter the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of
all then outstanding shares of Series Z Preferred Stock, the
Corporation will take such reasonable corporate action as may, in
the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(j) Notices Deemed Given. Any notice required by the provisions
--------------------
of this paragraph (iv) to be given to the holders of shares of
Series Z Preferred Stock shall be deemed given five (5) business
days after the same has been deposited in the United States mail,
certified or registered mail, return receipt requested, postage
prepaid, and addressed to each holder of record at such holder's
address appearing on the books of the Corporation.
(v) VOTING RIGHTS. Each holder of a share of Series Z Preferred
-------------
Stock shall be entitled to vote with the Common Stock on a share-
for-share basis on all matters submitted to the shareholders of
the Corporation for approval. Holders of the Series Z Preferred
Stock shall be entitled to such number of votes with respect to
their Series Z Preferred Stock as shall equal the total number of
shares of Common Stock into which their shares of Series Z
Preferred Stock are then convertible (regardless of whether the
holder thereof is then permitted to effect such conversion),
rounded up to the nearest whole share. Except as otherwise
expressly provided herein or as mandated by law, the holders of
shares of Common Stock, the Series D Preferred Stock, the Series
E Preferred Stock and the Series Z Preferred Stock shall vote
together and not as separate voting groups or classes. In the
event voting as a separate voting group by the holders of Series
Z Preferred Stock is expressly required by Washington law, any
vote by the holders of Series Z Preferred Stock as a separate
voting group shall be effective if approved by a majority of the
outstanding shares of Series Z Preferred Stock.
(vi) PREEMPTIVE RIGHTS. Except as provided in paragraph (iv), no
-----------------
holder of any shares of Series Z Preferred Stock shall be
entitled as a matter of right to subscribe or receive additional
shares of any class of stock of the Corporation, whether now or
hereafter authorized, or any bonds, debentures or other
securities convertible into such stock, but such additional
shares of stock or other securities convertible into stock may be
issued or disposed of by the Board to such persons and on such
terms as in the Board's discretion the Board shall deem
advisable.
-18-
<PAGE>
(vii) NO REISSUANCE OF SERIES Z PREFERRED STOCK. No share or shares of
-----------------------------------------
Series Z Preferred Stock acquired by the Corporation by reason of
purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares
of Series Z Preferred Stock which the Corporation shall be
authorized to issue and all such shares shall be returned to
authorized but unissued shares of Class A preferred stock, par
value $.001 per share, of the Corporation and may be issued or
further designated, as determined by the Board in accordance with
the Articles of Incorporation and applicable law.
(viii) COMMON STOCK. The term "Common Stock", as used herein, means the
------------ ------------
Corporation's Common Stock, par value $.001 per share.
(ix) SERIES D PREFERRED STOCK. The term "Series D Preferred Stock,"
------------------------ ------------------------
as used herein, means the Corporation's Series D Redeemable
Preferred Stock, par value $.001 per share.
(viii) SERIES E PREFERRED STOCK. The term "Series E Preferred Stock," as
------------------------ ------------------------
used herein, means the Corporation's Series E Redeemable
Preferred Stock, par value $.001 per share.
AMENDMENTS. There shall be no amendment, modification or waiver of the
----------
terms of this paragraph 4 of Article IV without the prior written
consent of holders of at least a majority of the Series Z
Preferred Stock and a majority of the Series D Preferred Stock
and a majority of the Series E Preferred Stock, each voting as a
separate class, outstanding at such time.
ARTICLE V - REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's initial registered office is:
Suite 241
First Interstate Bank Building
North 9 Post Street
Spokane, WA 99201
The name of its initial registered agent at such address is: Janice E.
Duval
ARTICLE VI - DIRECTORS
1. The number of directors of the Corporation shall be fixed as provided
by the Bylaws and may be changed from time to time by amending the Bylaws, as
then provided, but the number of directors shall be not less than three (3).
2. If the office of any director becomes vacant by reason of death,
resignation, removal, disqualification, or otherwise, the directors may, by the
affirmative vote of the majority of the remaining directors, though less than a
quorum, choose a successor or successors who shall hold office for the unexpired
term.
-19-
<PAGE>
The Board of Directors are authorized to increase the number of persons to
comprise the Board of Directors in any period between annual shareholders'
meetings by the affirmative vote of a majority of the directors; provided,
however, that without the unanimous consent of all directors, the number of
directors who comprise the Board of Directors shall not be increased by more
than two (2) persons within any twelve (12) month period.
If the Board of Directors is divided into classes and in the event of any
increase or decrease in the authorized number of directors, (1) each director
then serving as such shall nevertheless continue as a director of the class of
which he is a member until the expiration of his term, or upon his earlier
resignation, removal from office, or death, (2) the newly created or eliminated
directorships resulting from such increase or decrease shall be allocated by the
Board of Directors among the three classes of directors so as to maintain equal
classes to the extent possible, and (3) in the event such decrease in the
authorized number of directors makes the total number of directors less than
nine (9), then the Board of Directors shall become declassified and the
directors remaining in office shall continue their terms until the next annual
meeting of shareholders, at which time all of said remaining directors shall be
re-elected to one year terms or until their successors are duly elected and
qualified.
3. When the Board of Directors shall consist of nine (9) or more members,
in lieu of electing the entire number of directors annually, the Board of
Directors of the Corporation shall be divided into three classes. The method of
classification shall be to assign the longest terms to those directors with the
most seniority as directors. In the event there are more directors with
identical seniority than there are class positions to be filled, choices shall
be made by drawing of lots. The classes shall be as follows: Class 1, Class 2,
and Class 3, which classifications shall be effective on the 1st day of the
month following the shareholders' meeting during which the number of members of
the Board of Directors is increased to nine (9) or more. In such an event, the
term of office of directors in Class I shall expire at the first annual meeting
of shareholders after their election, that of Class 2 shall expire at the second
annual meeting after their election, and that of Class 3 shall expire at the
third annual meeting after their election. At each annual meeting of
shareholders after such classification, the number of directors equal to the
number of the class whose term expires at the time of such meeting shall be
elected to hold office until the third succeeding annual meeting. No
classification of directors shall be effective in the event the number of
members of the Board is reduced to fewer than nine (9).
4. In furtherance of and not in limitation of the powers conferred by the
laws of the State of Washington, the Board of Directors is expressly authorized
to make, alter, and repeal the Bylaws of the Corporation, subject to the power
of the shareholders of the Corporation to change or repeal such Bylaws.
5. The Corporation may enter into, contract, and otherwise transact
business as vendor, purchaser, or otherwise with its directors, officers, and
shareholders, and with the Corporation's association with firms and entities of
which they are or may become interested as directors, officers, shareholders,
members, or otherwise, as freely as if those such adverse interests did not
exist, even though the vote, action, or presence of such directors, officers, or
shareholders may be necessary to obligate the Corporation under such contracts
or transactions; and in the absence of fraud, no such contracts or transactions
shall be avoided and no such director, officer, or shareholder shall be held
liable to account to the Corporation, by reason of such adverse interests or by
reason of any fiduciary relationship to the Corporation arising out of such
office or stock ownership, for any profit or benefit realized by him through any
such contract or transaction; provided that in the case of directors and
officers of the Corporation (but not in the case of shareholders who are not
directors or officers), the nature of the interest of such directors or officers
be disclosed or known
-20-
<PAGE>
to the Board of Directors of the Corporation at the meeting thereof at which
such contract or transaction was authorized or confirmed. A general notice that
a director or officer of the Corporation is interested in any Corporation,
association, firm, or entity, shall be sufficient disclosure as to such director
or officer with respect to all contracts and transactions with the Corporation,
association, fin-n, or entity.
6. Except as otherwise expressly set forth in these Articles, any
contract, transaction, or act of the Corporation or of the directors or of any
officers of the Corporation which shall be ratified by a quorum of the
shareholders of the Corporation at any annual meeting or any special meeting
called for such purpose, shall be as valid and binding as though ratified by
every shareholder of the Corporation.
7. A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages arising from any conduct as
a director, except this limitation on liability shall not apply to (i) acts or
omissions involving intentional misconduct by the director or a knowing
violation of law by the director, (ii) conduct violating Section 23A.08.450 of
the Washington Business Corporation Act, or (iii) any transaction from which the
director will personally receive a benefit in money, property, or services to
which the director is not legally entitled. If the Washington Business
Corporation Act is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Washington Business Corporation Act, as so amended. Any repeal
or modification of the foregoing paragraph by the shareholders of the
corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
The Corporation has the power to indemnify, and to purchase and maintain
insurance for, its directors, officers, trustees, employees, and other persons
and agents. Without limiting the generality of the foregoing, the Corporation
shall indemnify its directors against all liability, damages, and costs or
expenses (including attorney's fees) arising from or in connection with service
for employment by, or other affiliation with this Corporation to the maximum
extent and under all circumstances permitted by law.
8. The number of directors constituting the initial Board of Directors of
this Corporation is three (3). The names and addresses of persons who are to
serve as directors until the first annual meeting of stockholders, or until
their successors are elected and qualified are:
Name Address
---- -------
Hobart Tenet East 214 High Drive
Spokane, Washington 99203
John C. Crabb P.O. Box 207
Gonzales Road
Maderia Park British Columbia VON 2HO
James F. Etter South 2811 Needham Drive
Veradale, Washington 99037
9. The Board of Directors shall have authority to divide any or all
classes of shares into series and to fix and determine the relative rights and
preferences of the shares of any series so established or established hereby.
All shares of the same class shall be identical except as to the following
relative rights
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and preferences as to which there may be variations between different series:
a. The rate of dividend.
b. Whether shares may be redeemed and, if so, the redemption price
and the terms and conditions of redemption.
c. The amount payable upon shares in event of voluntary and
involuntary liquidation.
d. Sinking fund provision, if any, for the redemption or purchase of
shares.
e. The terms and conditions, if any, on which shares may be
converted.
f. Voting rights, if any.
The name and address of the Incorporator is:
Name Address
---- -------
Janice E. Duval Suite 241
North 9 Post Street
Spokane, Washington 99201
ARTICLES VII - PREEMPTIVE RIGHTS
The shareholders of the Corporation shall be denied preemptive rights.
ARTICLE VIII - CUMULATIVE VOTING
Shareholders of the Corporation shall be denied the right to cumulate their
votes at the election of directors of the Corporation.
ARTICLE IX
The provisions of Section 6 of Substitute Senate Bill 3580 as enacted by
the 49th Legislature of the State of Washington in the 1985 regular session
shall not apply to this Corporation.
IN WITNESS WHEREOF, these Articles of Incorporation have been executed in
duplicate.
Janice E. Duvall
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<PAGE>
EXHIBIT 4.1
================================================================================
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
_______________________________________________________
INLAND PRODUCTION COMPANY,
as Borrower,
INLAND RESOURCES INC.,
as Guarantor,
and
ING (U.S.) CAPITAL LLC,
as Agent,
and CERTAIN FINANCIAL INSTITUTIONS,
as Lenders
_______________________________________________________
$83,500,000
Dated as of September 15, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
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AMENDED AND RESTATED CREDIT AGREEMENT.......................................................... 1
ARTICLE I - Definitions and References......................................................... 1
Section 1.1. Defined Terms............................................................... 1
Section 1.2. Exhibits and Schedules; Additional Definitions.............................. 14
Section 1.3. Amendment of Defined Instruments............................................ 14
Section 1.4. References and Titles....................................................... 14
Section 1.5. Calculations and Determinations............................................. 14
ARTICLE II - The Loans......................................................................... 14
Section 2.1. Commitments to Lend; Notes.................................................. 14
Section 2.2. Requests for New Loans...................................................... 15
Section 2.3. Continuations and Conversions of Existing Loans............................. 16
Section 2.4. Use of Proceeds............................................................. 17
Section 2.5. Interest Rates and Fees..................................................... 17
Section 2.6. Optional Prepayments........................................................ 18
Section 2.7. Mandatory Prepayments....................................................... 18
Section 2.8. Initial Borrowing Base...................................................... 19
Section 2.9. Subsequent Determinations of Borrowing Base; Reduction of Borrowing
Base................................................................................. 19
Section 2.10. Letters of Credit.......................................................... 20
Section 2.11. Requesting Letters of Credit............................................... 21
Section 2.12. Reimbursement and Participations........................................... 21
Section 2.13. Letter of Credit Fees...................................................... 22
Section 2.14. No Duty to Inquire......................................................... 22
Section 2.15. LC Collateral.............................................................. 23
ARTICLE III - Payments to Lenders.............................................................. 25
Section 3.1. General Procedures.......................................................... 25
Section 3.2. Capital Reimbursement....................................................... 25
Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit..................... 26
Section 3.4. Availability................................................................ 26
Section 3.5. Funding Losses.............................................................. 27
Section 3.6. Reimbursable Taxes.......................................................... 27
Section 3.7. Change of Applicable Lending Office......................................... 28
Section 3.8. Replacement of Lenders...................................................... 28
ARTICLE IV - Conditions Precedent to Lending................................................... 29
Section 4.1. Documents to be Delivered................................................... 29
Section 4.2. Closing of Exchange and Additional Conditions Precedent to Effectiveness.... 30
Section 4.3. Additional Conditions Precedent............................................. 30
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ARTICLE V - Representations and Warranties..................................................... 31
Section 5.1. No Default.................................................................. 31
Section 5.2. Organization and Good Standing.............................................. 31
Section 5.3. Authorization............................................................... 31
Section 5.4. No Conflicts or Consents.................................................... 31
Section 5.5. Enforceable Obligations..................................................... 32
Section 5.6. Initial Financial Statements................................................ 32
Section 5.7. Other Obligations and Restrictions.......................................... 32
Section 5.8. Full Disclosure............................................................. 32
Section 5.9. Litigation.................................................................. 33
Section 5.10. Labor Disputes and Acts of God............................................. 33
Section 5.11. ERISA Plans and Liabilities................................................ 33
Section 5.12. Environmental and Other Laws............................................... 33
Section 5.13. Names and Places of Business............................................... 35
Section 5.14. Subsidiaries............................................................... 35
Section 5.15. Licenses................................................................... 35
Section 5.16. Government Regulation...................................................... 35
Section 5.17. Ownership of Borrower and Inland Refining.................................. 35
Section 5.18. Solvency................................................................... 35
Section 5.19. Taxes...................................................................... 36
Section 5.20. Exchange Transactions...................................................... 36
ARTICLE VI - Affirmative Covenants of Borrower and Parent...................................... 36
Section 6.1. Payment and Performance..................................................... 36
Section 6.2. Books, Financial Statements and Reports..................................... 36
Section 6.3. Other Information and Inspections........................................... 39
Section 6.4. Notice of Material Events and Change of Address............................. 39
Section 6.5. Maintenance of Properties................................................... 40
Section 6.6. Maintenance of Existence and Qualifications................................. 40
Section 6.7. Payment of Trade, Taxes, etc................................................ 40
Section 6.8. Bonding and Insurance....................................................... 40
Section 6.9. Performance on Borrower's Behalf............................................ 41
Section 6.10. Interest................................................................... 41
Section 6.11. Compliance with Agreements and Law......................................... 41
Section 6.12. Environmental Matters; Environmental Reviews............................... 41
Section 6.13. Evidence of Compliance..................................................... 42
Section 6.14. Agreement to Deliver Security Documents.................................... 42
Section 6.15. Perfection and Protection of Security Interests and Liens.................. 42
Section 6.16. Bank Accounts; Offset...................................................... 42
Section 6.17. Guaranties of Parent's Subsidiaries........................................ 43
Section 6.18. Production Proceeds........................................................ 43
Section 6.19. Completion of Activities................................................... 43
Section 6.20. Reviews.................................................................... 43
Section 6.21. Hedging Contracts.......................................................... 44
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ARTICLE VII - Negative Covenants of Borrower and Parent........................................ 44
Section 7.1. Restricted Debt............................................................. 44
Section 7.2. Limitation on Liens......................................................... 45
Section 7.3. Hedging Contracts........................................................... 45
Section 7.4. No Mergers.................................................................. 46
Section 7.5. Limitation on Sales of Property............................................. 46
Section 7.6. Limitation on Dividends and Redemptions..................................... 47
Section 7.7. Limitation on Investments................................................... 47
Section 7.8. Transactions with Affiliates................................................ 47
Section 7.9. Certain Contracts; Amendments; Multiemployer ERISA Plans.................... 47
Section 7.10. Working Capital............................................................ 48
Section 7.11. Tangible Net Worth......................................................... 48
Section 7.12. EBITDA..................................................................... 48
Section 7.13. Refinery Acquisitions...................................................... 48
Section 7.14. Inland Refining............................................................ 48
Section 7.15. Parent's and other Restricted Persons' Actions Regarding Inland Refining... 49
Section 7.16. Production/Refining Loan................................................... 49
Section 7.17. Inland Refining Contract................................................... 49
Section 7.18. Capital Expenditures....................................................... 49
Section 7.19. Farmout Transactions....................................................... 49
ARTICLE VIII - Events of Default and Remedies.................................................. 50
Section 8.1. Events of Default........................................................... 50
Section 8.2. Acceleration................................................................ 51
Section 8.3. Remedies.................................................................... 52
ARTICLE IX - Agent............................................................................. 52
Section 9.1. Appointment and Authority................................................... 52
Section 9.2. Exculpation, Agent's Reliance, Etc.......................................... 52
Section 9.3. Credit Decisions............................................................ 53
Section 9.4. Indemnification............................................................. 53
Section 9.5. Rights as Lender............................................................ 53
Section 9.6. Sharing of Set-Offs and Other Payments...................................... 54
Section 9.7. Investments................................................................. 54
Section 9.8. Benefit of Article IX....................................................... 54
Section 9.9. Resignation................................................................. 54
ARTICLE X - Miscellaneous...................................................................... 55
Section 10.1. Waivers and Amendments; Acknowledgements................................... 55
Section 10.2. Survival of Agreements; Cumulative Nature.................................. 56
Section 10.3. Notices.................................................................... 57
Section 10.4. Payment of Expenses; Indemnity............................................. 57
Section 10.5. Joint and Several Liability; Parties in Interest; Assignments.............. 58
Section 10.6. Confidentiality............................................................ 60
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Section 10.7. Governing Law; Submission to Process....................................... 60
Section 10.8. Limitation on Interest..................................................... 61
Section 10.9. Termination; Limited Survival.............................................. 61
Section 10.10. Severability.............................................................. 62
Section 10.11. Counterparts.............................................................. 62
Section 10.12. Waiver of Jury Trial, Punitive Damages, etc............................... 62
Section 10.13. Amendment and Restatement................................................. 62
Section 10.14. Release................................................................... 63
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Schedules and Exhibits:
- ----------------------
Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 3 - Insurance Schedule
Schedule 4 - Lender Schedule
Schedule 5 - Exchange Documents
Schedule 6 - Deferred Trade Payables
Schedule 7 - Liens
Exhibit A - Promissory Note
Exhibit B - Borrowing Notice
Exhibit C - Continuation/Conversion Notice
Exhibit D - Certificate Accompanying Financial Statements
Exhibit E - Environmental Compliance Certificate
Exhibit F - Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P
Exhibit G - Assignment and Assumption Agreement
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SECOND AMENDED AND RESTATED CREDIT AGREEMENT
---------------------------------------------
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is
made as of September 15, 1999, by and among Inland Production Company, a Texas
corporation (herein called "Borrower"), Inland Resources Inc., a Washington
corporation (herein called "Parent"), ING (U.S.) Capital LLC (herein called
"Agent"), and the Lenders referred to below. In consideration of the mutual
covenants and agreements contained herein the parties hereto agree as follows:
ARTICLE I - Definitions and References
--------------------------
Section 1.1 Defined Terms. As used in this Agreement, each of the
-------------
following terms has the meaning given to such term in this Section 1.1 or in the
sections and subsections referred to below:
"Adjusted Base Rate" means the Base Rate plus the Base Rate Margin,
------------------
provided that the Adjusted Base Rate charged by any Person shall never exceed
the Highest Lawful Rate.
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest
------------------------
Period therefor, the per annum rate equal to the sum of (a) the Eurodollar
Margin plus (b) the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined by Agent to be equal to the quotient obtained by
dividing (i) the Eurodollar Rate for such Eurodollar Loan for such Interest
Period by (ii) 1 minus the Reserve Requirement for such Eurodollar Loan for such
Interest Period. The Adjusted Eurodollar Rate for any Eurodollar Loan shall
change whenever the Eurodollar Margin or the Reserve Requirement changes. No
Adjusted Eurodollar Rate charged by any Person shall ever exceed the Highest
Lawful Rate.
"Affiliate" means, as to any Person, (a) any Person directly or indirectly
---------
owning, controlling or holding with power to vote 10% or more of the outstanding
voting securities of such Person, (b) any Person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by such Person, (c) any Person directly or indirectly
controlling, controlled by or under common control with such Person, and (d) any
officer, director, partner or sanguinal or affinal kin of such Person or any
Person described above in clause (c) of this paragraph.
"Agent" means ING (U.S.) Capital LLC, as Agent hereunder, and its
-----
successors in such capacity.
"Agreement" means this Second Amended and Restated Credit Agreement.
---------
"Applicable Lending Office" means, with respect to each Lender, such
-------------------------
Lender's Domestic Lending Office in the case of Base Rate Loans and such
Lender's Eurodollar Lending Office in the case of Eurodollar Loans.
<PAGE>
"Base Rate" means the higher of (a) the Reference Rate and (b) the Federal
---------
Funds Rate plus one-half percent (0.5%) per annum. For purposes of this
definition, "Reference Rate" means the arithmetic average of the rates of
interest publicly announced by The Chase Manhattan Bank, Citibank, N.A. and J.P.
Morgan and Company, Inc. (or their respective successors) as their respective
prime commercial lending rates (or, as to any such bank that does not announce
such a rate, such bank's 'base' or other rate determined by Agent to be the
equivalent rate announced by such bank), except that, if any such bank shall,
for any period, cease to announce publicly its prime commercial lending (or
equivalent) rate, Agent shall, during such period, determine the "Reference
Rate" based upon the prime commercial lending (or equivalent) rates announced
publicly by the other such banks. The Base Rate shall in no event, however,
exceed the Highest Lawful Rate.
"Base Rate Loan" means a Loan which does not bear interest at the
--------------
Eurodollar Rate.
"Base Rate Margin" means, on each day, one and one-half percent (1.50%) per
----------------
annum.
"Borrower" means Inland Production Company, a Texas corporation.
--------
"Borrowing" means a borrowing of new Loans of a single Type pursuant to
---------
Section 2.2 or a Continuation or Conversion of existing Loans into a single Type
(and, in the case of Eurodollar Loans, with the same Interest Period) pursuant
to Section 2.3.
"Borrowing Base" means, at the particular time in question, either the
--------------
amount provided for in Section 2.8 or the amount determined by Agent or
otherwise determined in accordance with the provisions of Section 2.9, but in no
event shall the Borrowing Base exceed the Maximum Credit Amount.
"Borrowing Base Deficiency" has the meaning given to such term in Section
-------------------------
2.7(b).
"Borrowing Notice" means a written or telephonic request, or a written
----------------
confirmation, made by Borrower which meets the requirements of Section 2.2.
"Business Day" means a day, other than a Saturday or Sunday, on which
------------
commercial banks are open for business with the public in New York, New York.
Any Business Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Agent, significant transactions in dollars are carried out in the
interbank eurocurrency market.
"Change of Control" means the occurrence of either of the following events:
-----------------
(a) any Person or two or more Persons acting as a group other than a TCW Party
shall acquire beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Act of 1934, as amended,
and including holding proxies to vote for the election of directors other than
proxies held by Parent's management or their designees to be voted in favor of
Persons nominated by Parent's Board of Directors) of 35% or more of the
outstanding voting securities of Parent, measured by voting power (including
both common stock and any preferred
2
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stock or other equity securities entitling the holders thereof to vote with the
holders of common stock in elections for directors of Parent) or (b) one-half or
more of the directors of Parent shall consist of Persons not nominated by
Parent's Board of Directors (including as Board nominees any directors which the
Board is obligated to nominate pursuant to shareholders agreements, voting trust
arrangements or similar arrangements which are in place as of the date hereof,
but not those which arise after the date hereof unless they deal with the same
parties or their Affiliates and no one else) or a TCW Party.
"Collateral" means all property of any kind which is subject to a Lien in
----------
favor of Lenders (or in favor of Agent for the benefit of Lenders) or which,
under the terms of any Security Document, is purported to be subject to such a
Lien.
"Consolidated" refers to the consolidation of Parent, Borrower or any other
------------
Restricted Person, in accordance with GAAP, with its properly consolidated
subsidiaries. References herein to a Person's Consolidated financial
statements, financial position, financial condition, liabilities, etc. refer to
the consolidated financial statements, financial position, financial condition,
liabilities, etc. of such Person and its properly consolidated subsidiaries.
"Consolidating," when used with reference to the financial statements of
-------------
Parent, means the financial statements of Parent and its properly consolidated
subsidiaries, presented in a manner acceptable to Agent which (a) shows the net
intercompany transactions between each of Parent and such subsidiaries and (b)
presents substantially the same information with respect to Borrower which would
be presented on individual financial statements of Borrower.
"Consolidated Net Income" means, as to any Person or Persons for any
-----------------------
period, the gross revenues of such Person or Persons for such period, plus any
cash dividends or distributions actually received by such Person or Persons from
any other business entity, minus all expenses and other proper charges
(including taxes on income, to the extent imposed upon such Person or Persons
but excluding charges for accrued unpaid dividends on preferred stock of such
Person or Persons for such period), determined on a Consolidated basis after
eliminating earnings or losses attributable to outstanding minority interests,
but excluding the net earnings of any other business entity in which such Person
or Persons has an ownership interest.
"Consolidated Tangible Net Worth" means the remainder of all Consolidated
-------------------------------
assets of Parent, other than intangible assets (including as intangible assets
such assets as patents, copyrights, licenses, franchises, goodwill, trade
names, trade secrets and leases other than oil, gas or mineral leases or leases
required to be capitalized under GAAP), minus Parent's Consolidated liabilities,
provided that for purposes of this definition Series D Preferred Stock, Series E
Preferred Stock and Series Z Preferred Stock issued at the closing under the
Exchange Documents and accrued unpaid dividends on such preferred stock accruing
after the closing under the Exchange Documents shall not be included as
liabilities in the calculation of Parent's Consolidated liabilities.
"Continuation" shall refer to the continuation pursuant to Section 2.3
------------
hereof of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the
next Interest Period.
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<PAGE>
"Continuation/Conversion Notice" means a written or telephonic request, or
------------------------------
a written confirmation, made by Borrower which meets the requirements of Section
2.3.
"Conversion" shall refer to a conversion pursuant to Section 2.3 or Article
----------
III of one Type of Loan into another Type of Loan.
"Crysen Refinery" means that certain refinery located in Woods Cross, Utah.
---------------
"Debt" means, as to any Person, all indebtedness, liabilities and
----
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Default" means any Event of Default and any default, event or condition
-------
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"Default Rate" means, at the time in question (a) with respect to any Base
------------
Rate Loan, the rate two percent (2.00%) above the Adjusted Base Rate then in
effect and (b) with respect to any Eurodollar Loan, the rate two percent (2.00%)
above the Adjusted Eurodollar Rate then in effect for such Loan. No Default
Rate charged by any Person shall ever exceed the Highest Lawful Rate.
"Deferred Trade Payables" means, collectively, the Debt of a Restricted
-----------------------
Person incurred prior to the date of this Agreement to vendors, suppliers, and
other Persons providing goods and services listed on Schedule 6 not exceeding
the aggregate amount of $3,474,865.40 provided that such Debt is not secured by
a Lien (other than inchoate Liens and Liens listed on Schedule 7), and either
(i) if such Debt is evidenced by a promissory note, deferral agreement, or other
similar document providing for extended payment terms, such Restricted Person is
not 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 securing such Debt.
"Determination Date" has the meaning given to such term in Section 2.9.
------------------
"Direct Taxes" means any severance, ad valorem, or other direct taxes on
------------
properties owned by Restricted Persons or the production therefrom or the
proceeds of such production; provided that federal, state, or local income or
franchise taxes shall in no event be considered Direct Taxes.
"Disclosure Report" means either a notice given by Borrower under Section
-----------------
6.4 or a certificate given by Borrower's chief financial officer under Section
6.2(b).
"Disclosure Schedule" means Schedule 1 hereto.
-------------------
4
<PAGE>
"Distribution" means (a) any dividend or other distribution made by a
------------
Restricted Person on or in respect of any stock, partnership interest, or other
equity interest in such Restricted Person (including any option or warrant to
buy such an equity interest), or (b) any payment made by a Restricted Person to
purchase, redeem, acquire or retire any stock, partnership interest, or other
equity interest in such Restricted Person (including any such option or
warrant).
"Domestic Lending Office" means, with respect to any Lender, the office of
-----------------------
such Lender specified as its "Domestic Lending Office" below its name on its
signature page hereto, or such other office as such Lender may from time to time
specify to Borrower and Agent; with respect to LC Issuer, the office, branch, or
agency through which it issues Letters of Credit; and, with respect to Agent,
the office, branch, or agency through which it administers this Agreement.
"EBITDA" means, for any four-Fiscal Quarter period, the sum of (1) the
------
Consolidated Net Income of Parent during such period, plus (2) all cash interest
paid during such period on Restricted Debt (including amortization of original
issue discount and the interest component of any deferred payment obligations
and capital lease obligations) which was deducted in determining such
Consolidated Net Income, plus (3) all income taxes which were deducted in
determining such Consolidated Net Income, plus (4) all depreciation,
amortization (including amortization of good will and debt issuance costs) and
other non-cash charges (including any provision for the reduction in the
carrying value of assets recorded in accordance with GAAP) which were deducted
in determining such Consolidated Net Income, minus (5) all non-cash items of
income which were included in determining such Consolidated Net Income.
"Effective Date" means the date this Agreement has been executed by each
--------------
party hereto and each condition precedent in Article IV hereof has been
satisfied.
"Eligible Mortgaged Properties" means, collectively, those Properties which
-----------------------------
(a) are owned by Borrower and mortgaged to secure the Obligations, and (b) for
which Agent has received title opinions and other title information concerning
such Properties in form, substance and authorship satisfactory to Agent, and (c)
are free and clear of all Liens other than Permitted Liens.
"Eligible Transferee" means a Person which either (a) is a Lender or an
-------------------
Affiliate of a Lender, or (b) is consented to as an Eligible Transferee by Agent
and, so long as no Event of Default is continuing by Borrower, which consents in
each case will not be unreasonably withheld (provided that no Person organized
outside the United States may be an Eligible Transferee if Borrower would be
required to pay withholding taxes on interest or principal owed to such Person).
"Engineering Report" means the Initial Engineering Report and each
------------------
engineering report delivered pursuant to Section 6.2.
"Environmental Laws" means any and all Laws relating to the environment or
------------------
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air,
5
<PAGE>
surface water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Affiliate" means Borrower and all members of a controlled group of
---------------
corporations and all trades or businesses (whether or not incorporated) under
common control that, together with Borrower, are treated as a single employer
under Section 414 of the Internal Revenue Code.
"ERISA Plan" means any employee pension benefit plan subject to Title IV of
----------
ERISA maintained by any ERISA Affiliate with respect to which any Restricted
Person has a fixed or contingent liability.
"Eurodollar Lending Office" means, with respect to any Lender, the office
-------------------------
of such Lender specified as its "Eurodollar Lending Office" below its name on
its signature page hereto (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Lender as such Lender may from
time to time specify to Borrower and Agent.
"Eurodollar Loan" means a Loan which is properly designated as a Eurodollar
---------------
Loan pursuant to Section 2.2 or 2.3.
"Eurodollar Margin" means, on each day, three percent (3.00%) per annum.
-----------------
"Eurodollar Rate" means, with respect to each particular Eurodollar Loan
---------------
and the related Interest Period, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) reported, on the date two Business Days
prior to the first day of such Interest Period, on Telerate Access Service Page
3750 (British Bankers Association Settlement Rate) as the London Interbank
Offered Rate for dollar deposits having a term comparable to such Interest
Period and in an amount of $1,000,000 or more (or, if such Page shall cease to
be publicly available or if the information contained on such Page, in Agent's
sole judgment, shall cease to accurately reflect such London Interbank Offered
Rate, as reported by any publicly available source of similar market data
selected by Agent that, in Agent's sole judgment, accurately reflects such
London Interbank Offered Rate).
"Event of Default" has the meaning given to such term in Section 8.1.
----------------
"Excepted Liens" means (i) Liens for taxes, assessments or other
--------------
governmental charges or levies not yet delinquent or which are being contested
as provided in Section 6.7 by appropriate proceedings; (ii) Liens arising in
connection with workmen's compensation, unemployment insurance or other social
security, old age pension or public liability obligations not yet due or which
are; (iii) Liens under operating agreements, pooling orders and unitization
agreements, and mechanics' and materialmen's Liens, with respect to obligations
which are not yet due or which
6
<PAGE>
are being contested as provided in Section 6.7; (iv) deposits securing the
performance of bids, tenders, statutory or regulatory obligations, and other
Liens of like nature, in each case made in the ordinary course of business; (v)
minor defects and irregularities in title to any Property, so long as such
defects and irregularities neither (A) are Liens which secure Restricted Debt or
obligations nor (B) materially impair the value of such Property or the use
thereof for the purposes for which such Property is held; (vi) inchoate Liens on
pipelines or pipeline facilities that arise by operation of law which have not
attached to the Property subject of such Lien, (vii) rights of collecting banks
having rights of setoff, revocation, refund or chargeback with respect to money
or instruments of any Restricted Person or on deposit with or in the possession
of such banks, and (viii) judgment and attachment Liens not giving rise to an
Event of Default or inchoate Liens created by or existing from any litigation or
legal proceedings that are currently being contested in good faith by
appropriate proceedings, promptly utilized and diligently conducted, and for
which adequate reserves have been made to the extent required by GAAP.
"Exchange Documents" means those documents listed on Schedule 5.
------------------
"Existing Credit Agreement" means that certain Amended and Restated Credit
-------------------------
Agreement dated as of September 11, 1998 among Borrower, Parent, Agent, and
Lenders.
"Facility Usage" means, at the time in question, the aggregate principal
--------------
amount of outstanding Loans plus the amount of existing LC Obligations at such
time.
"Farmout Agreement" means that certain Farmout Agreement by Inland
-----------------
Production Company and Inland Resources Inc. as Farmor, Smith Management LLC as
Farmee, and Inland Production Company as Operator dated as of June 1, 1998.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100th of one percent) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate quoted to Agent on such day on such transactions as determined by Agent.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
--------------
September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
-----------
year.
"GAAP" means those generally accepted accounting principles and practices
----
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Parent and its
Consolidated Subsidiaries, are applied for all
7
<PAGE>
periods after the date hereof in a manner consistent with the manner in which
such principles and practices were applied to the audited Initial Financial
Statements. If any change in any accounting principle or practice is required by
the Financial Accounting Standards Board (or any such successor) in order for
such principle or practice to continue as a generally accepted accounting
principle or practice, all reports and financial statements required hereunder
with respect to Parent or with respect to Parent and its Consolidated
Subsidiaries may be prepared in accordance with such change, but all
calculations and determinations to be made hereunder may be made in accordance
with such change only after notice of such change is given to each Lender and
Required Lenders agree to such change insofar as it affects the accounting of
Parent or of Parent and its Consolidated Subsidiaries.
"Guarantor" means any Person who has guaranteed some or all of the
---------
Obligations pursuant to a guaranty listed on the Security Schedule or any other
Person who has guaranteed some or all of the Obligations and who has been
accepted by Agent as a Guarantor or any Subsidiary of Parent which now or
hereafter executes and delivers a guaranty to Agent pursuant to Section 6.17.
"Hazardous Materials" means any substances regulated under any
-------------------
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Hedging Contract" means (a) any agreement providing for options, swaps,
----------------
floors, caps, collars, forward sales or forward purchases involving interest
rates, commodities or commodity prices, equities, currencies, bonds, or indexes
based on any of the foregoing, (b) any option, futures or forward contract
traded on an exchange, and (c) any other derivative agreement or other similar
agreement or arrangement.
"Highest Lawful Rate" means, with respect to each Lender Party to whom
-------------------
Obligations are owed, the maximum nonusurious rate of interest that such Lender
Party is permitted under applicable Law to contract for, take, charge, or
receive with respect to such Obligations. All determinations herein of the
Highest Lawful Rate, or of any interest rate determined by reference to the
Highest Lawful Rate, shall be made separately for each Lender Party as
appropriate to assure that the Loan Documents are not construed to obligate any
Person to pay interest to any Lender Party at a rate in excess of the Highest
Lawful Rate applicable to such Lender Party.
"Hydrocarbons" means crude oil, natural gas or other liquid or gaseous
------------
hydrocarbons.
"Initial Engineering Report" means the engineering report concerning oil
--------------------------
and gas properties of Restricted Persons dated March 1, 1999 prepared as of
December 31, 1998 by Ryder Scott Company.
"Initial Financial Statements" means (i) the audited annual Consolidated
----------------------------
financial statements of Parent dated as of December 31, 1998, (ii) the unaudited
quarterly Consolidated financial statements of Parent dated as of June 30, 1999,
and (iii) the unaudited financial statements of Inland Refining as of June 30,
1999.
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<PAGE>
"Inland Refining" means Inland Refining, Inc. a Utah corporation.
---------------
"Inland Refining Contract" means any contract between Borrower and Inland
------------------------
Refining for the sale of hydrocarbons by Borrower to Inland Refining, which has
been approved by Required Lenders in their sole and absolute discretion.
"Insurance Schedule" means Schedule 3 hereto.
------------------
"Interest Payment Date" means (a) with respect to each Base Rate Loan, the
---------------------
last Business Day of each March, June, September and December, and (b) with
respect to each Eurodollar Loan, the last day of the Interest Period that is
applicable thereto and, if such Interest Period is six months in length, the
date specified by Agent which is approximately three months after such Interest
Period begins; provided that the last Business Day of each calendar month shall
also be an Interest Payment Date for each such Loan so long as any Event of
Default exists under Section 8.1 (a) or (b).
"Internal Revenue Code" means the United States Internal Revenue Code of
---------------------
1986, as amended from time to time and any successor statute or statutes,
together with all rules and regulations promulgated with respect thereto.
"Interest Period" means, with respect to each particular Eurodollar Loan in
---------------
a Borrowing, a period of 1, 2, 3 or 6 months, as specified in the Borrowing
Notice or Continuation/Conversion Notice applicable thereto, beginning on and
including the date specified in such Borrowing Notice (which must be a Business
Day), and ending on but not including the same day of the month as the day on
which it began (e.g., a period beginning on the third day of one month shall end
on but not include the third day of another month), provided that each Interest
Period which would otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day (unless such next succeeding Business Day is
the first Business Day of a calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day). No Interest Period may be
elected which would extend past the date on which the associated Note is due and
payable in full.
"Investment" means, with respect to any Person, any direct or indirect
----------
advance, loan, guarantee of Debt or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition by such Person of any capital stock, bonds, notes,
debentures or other securities or evidences of Debt issued by, any other Person.
"Law" means any statute, law, regulation, ordinance, rule, treaty,
---
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"LC Application" means any application for a Letter of Credit hereafter
--------------
made by Borrower to LC Issuer.
9
<PAGE>
"LC Collateral" has the meaning given to such term in Section 2.15(a).
-------------
"LC Issuer" means, collectively, ING (U.S.) Capital LLC and U.S. Bank
---------
National Association, or either of them, in their capacity as the issuer or
issuers of Letters of Credit hereunder, and their successors in such capacity.
Agent may, with the consent of Borrower and the Lender in question, appoint any
Lender hereunder as an LC Issuer in place of or in addition to either such LC
Issuer.
"LC Obligations" means, at the time in question, the sum of all Matured LC
--------------
Obligations plus the Maximum Drawing Amount.
"Lender Parties" means Agent, LC Issuer, and all Lenders.
--------------
"Lender Schedule" means Schedule 4 hereto.
---------------
"Lenders" means each signatory hereto (other than Borrower and Restricted
-------
Persons a party hereto), including ING (U.S.) Capital LLC in its capacity as a
Lender hereunder rather than as Agent or LC Issuer, and the successors of each
such party as holder of a Note.
"Letter of Credit" means any letter of credit issued by LC Issuer hereunder
----------------
at the application of Borrower.
"Lien" means, with respect to any property or assets, any right or interest
----
therein of a creditor to secure Debt owed to it or any other arrangement with
such creditor which provides for the payment of such Debt out of such property
or assets or which allows such creditor to have such Debt satisfied out of such
property or assets prior to the general creditors of any owner thereof,
including any lien, mortgage, security interest, pledge, deposit, production
payment, rights of a vendor under any title retention or conditional sale
agreement or lease substantially equivalent thereto, tax lien, mechanic's or
materialman's lien, or any other charge or encumbrance for security purposes,
whether arising by Law or agreement or otherwise, but excluding any right of
offset which arises without agreement in the ordinary course of business. "Lien"
also means any filed financing statement, any registration of a pledge (such as
with an issuer of uncertificated securities), or any other arrangement or action
which would serve to perfect a Lien described in the preceding sentence,
regardless of whether such financing statement is filed, such registration is
made, or such arrangement or action is undertaken before or after such Lien
exists.
"Loan Documents" means this Agreement, the Notes, the Security Documents,
--------------
the Letters of Credit, the LC Applications, and all other agreements,
certificates, documents, instruments and writings at any time delivered in
connection herewith or therewith (exclusive of term sheets, commitment letters,
correspondence and similar documents used in the negotiation hereof, except to
the extent the same contain information about Borrower or its Affiliates,
properties, business or prospects).
"Loans" has the meaning given to such term in Section 2.1.
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"Material Adverse Change" means a material and adverse change, from the
-----------------------
state of affairs presented in the Initial Financial Statements or in this
Agreement (including the Disclosure Schedule), to (a) Parent's and its
Subsidiaries' Consolidated financial condition, (b) the operations or properties
of Parent and its Subsidiaries, considered as a whole, (c) Borrower's ability to
timely pay the Obligations and perform its other obligations under the Loan
Documents, or (d) the validity and enforceability of the material terms of any
Loan Documents.
"Matured LC Obligations" means all amounts paid by LC Issuer on drafts or
----------------------
demands for payment drawn or made under or purported to be under any Letter of
Credit and all other amounts due and owing to LC Issuer under any LC Application
for any Letter of Credit, to the extent the same have not been repaid to LC
Issuer (with the proceeds of Loans or otherwise).
"Maturity Date" means October 1, 2001.
-------------
"Maximum Credit Amount" means the amount of $83,500,000.
---------------------
"Maximum Drawing Amount" means at the time in question the sum of the
----------------------
maximum amounts which LC Issuer might then or thereafter be called upon to
advance under all Letters of Credit which are then outstanding.
"Moody's"means Moody's Investors Service, Inc., or its successor.
-------
"Note" has the meaning given to such term in Section 2.1.
----
"Obligations" means all Debt from time to time owing by any Restricted
-----------
Person to any Lender under or pursuant to any of the Loan Documents, including
all LC Obligations. "Obligation" means any part of the Obligations.
----------
"Optional Redetermination Date" means a date that Required Lenders, at
-----------------------------
their option, specify as a date as of which the Borrowing Base is to be
redetermined; provided that such date must be the first or last date of a
current calendar month and that Required Lenders shall be entitled to specify
only one Optional Redetermination Date before the Maturity Date, which specified
date shall not be before October 1, 2000.
"Parent" means Inland Resources Inc., a Washington corporation.
------
"Parent Guaranty" means that certain Amended and Restated Guaranty of even
---------------
date herewith made by Parent in favor of Agent.
"Pennzoil Refinery" means that certain refinery in Roosevelt, Utah, owned
-----------------
by Inland Refining.
"Percentage Share" means, with respect to any Lender (a) when used in
----------------
Sections 2.1 or 2.5, in any Borrowing Notice or when no Loans are outstanding
hereunder, the percentage set forth opposite such Lender's name on the Lender
Schedule (as modified from time to time as a
11
<PAGE>
result of assignments pursuant to Section 10.5), and (b) when used otherwise,
the percentage obtained by dividing (i) the sum of the unpaid principal balance
of such Lender's Loans at the time in question plus the Matured LC Obligations
which such Lender has funded pursuant to Section 2.12(c) plus the portion of the
Maximum Drawing Amount which such Lender might be obligated to fund under
Section 2.12(c), by (ii) the sum of the aggregate unpaid principal balance of
all Loans at such time plus the aggregate amount of LC Obligations outstanding
at such time.
"Permitted Investments" means Investments:
---------------------
(a) in open market commercial paper, maturing within 270 days after
acquisition thereof, which is rated at least A-1 by S&P or P-1 by Moody's.
(b) in marketable obligations, maturing within 12 months after
acquisition thereof, issued or unconditionally guaranteed by the United
States of America or an instrumentality or agency thereof and entitled to
the full faith and credit of the United States of America.
(c) in demand deposits, and time deposits (including certificates of
deposit) maturing within 12 months from the date of deposit thereof, with
any office of any national or state bank or trust company which is
organized under the Laws of the United States of America or any state
therein, which has capital, surplus and undivided profits of at least
$500,000,000, and whose certificates of deposit are rated at least Aa3 by
S&P or AA- by Moody's.
"Permitted Lien" has the meaning given to such term in Section 7.2.
--------------
"Person" means an individual, corporation, partnership, limited liability
------
company, association, joint stock company, trust or trustee thereof, estate or
executor thereof, unincorporated organization or joint venture, Tribunal, or any
other legally recognizable entity.
"Production/Refining Credit Agreement" means that certain Credit Agreement
------------------------------------
by and between Borrower and Inland Refining dated as of May 29, 1998.
"Production/Refining Loan" means those loans to be extended to Inland
------------------------
Refining by Borrower pursuant to the Production/Refining Credit Agreement.
"Projected Oil and Gas Production" has the meaning given such term in
--------------------------------
Section 7.3.
"Properties" means, collectively, those undivided interests in oil and gas
----------
properties and interests in other real and personal property which are, at the
time in question, owned by any Restricted Person.
"Proved Reserves" means "Proved Reserves" as defined in the Definitions for
---------------
Oil and Gas Reserves (in this paragraph, the "Definitions") promulgated by the
Society of Petroleum Engineers (or any generally recognized successor) as in
effect at the time in question. "Proved
------
12
<PAGE>
Developed Producing Reserves" means Proved Reserves which are categorized as
- ----------------------------
both "Developed" and "Producing" in the Definitions, "Proved Developed
----------------
Nonproducing Reserves" means Proved Reserves which are categorized as both
- ---------------------
"Developed" and "Nonproducing" in the Definitions,and "Proved Undeveloped
------------------
Reserves" means Proved Reserves which are categorized as "Undeveloped" in the
- --------
Definitions.
"Rating Agency" means either S & P or Moody's, or their respective
-------------
successors.
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect.
"Required Lenders" means Agent and the Lenders whose aggregate Percentage
----------------
Shares (including the Percentage Share of Agent) equal or exceed seventy five
percent (75%).
"Reserve Requirement" means, on any day with respect to each particular
-------------------
Eurodollar Loan, the maximum reserve requirement, as determined by Agent
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the next higher
0.01%, which would then apply under Regulation D with respect to "Eurocurrency
liabilities," as such term is defined in Regulation D, of $1,000,000 or more.
If such reserve requirement shall change after the date hereof, the Reserve
Requirement shall be automatically increased or decreased, as the case may be,
from time to time as of the effective time of each such change in such reserve
requirement.
"Restricted Debt" of any Person means Debt in any of the following
---------------
categories:
(a) Debt for borrowed money,
(b) Debt constituting an obligation to pay the deferred purchase price
of property or services,
(c) Debt evidenced by a bond, debenture, note or similar instrument,
(d) Debt which (i) would under GAAP be shown on such Person's balance
sheet as a liability, and (ii) is payable more than one year from the date
of creation thereof (other than reserves for taxes and reserves for
contingent obligations),
(e) Debt arising under Hedging Contracts,
(f) Debt constituting principal under leases capitalized in accordance
with GAAP,
(g) Debt arising under conditional sales or other title retention
agreements,
(h) Debt owing under direct or indirect guaranties of Debt of any
other Person or otherwise constituting obligations to purchase or acquire
or to otherwise protect or
13
<PAGE>
insure a creditor against loss in respect of Debt of any other Person (such
as obligations under working capital maintenance agreements, agreements to
keep-well, or agreements to purchase Debt, assets, goods, securities or
services), but excluding endorsements in the ordinary course of business of
negotiable instruments in the course of collection,
(i) Debt (for example, repurchase agreements, mandatorily redeemable
preferred stock and sale/leaseback agreements) consisting of an obligation
to purchase or redeem securities or other property, if such Debt arises out
of or in connection with the sale or issuance of the same or similar
securities or property,
(j) Debt with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Debt with respect to payments received in consideration of oil,
gas, or other minerals yet to be acquired or produced at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas
in return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment), or
--
(l) Debt with respect to other obligations to deliver goods or
services in consideration of advance payments therefor;
provided, however, that the "Restricted Debt" of any Person shall not include
Debt that was incurred by such Person on ordinary trade terms to vendors,
suppliers, or other Persons providing goods and services for use by such Person
in the ordinary course of its business, unless and until such Debt is
outstanding more than 90 days past the incurrence thereof, or if earlier, when
due in accordance with its terms.
"Restricted Person" means any of Borrower, Parent, Inland Refining, and
-----------------
each Guarantor.
"S & P" means Standard & Poor's Ratings Group (a division of McGraw Hill
-----
Companies, Inc.), or its successor.
"Security Documents" means the instruments listed in the Security Schedule
------------------
and all other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by any Restricted Person to Agent in connection with this Agreement or
any transaction contemplated hereby to secure or guarantee the payment of any
part of the Obligations or the performance of any Restricted Person's other
duties and obligations under the Loan Documents.
"Security Schedule" means Schedule 2 hereto.
-----------------
"Series D Preferred Stock" means Parent's Series D Preferred Stock, as
-------------------------
defined in the Exchange Documents.
14
<PAGE>
"Series E Preferred Stock" means Parent's Series E Preferred Stock, as
-------------------------
defined in the Exchange Documents.
"Series Z Preferred Stock" means Parent's Series Z Preferred Stock, as
-------------------------
defined in the Exchange Documents.
"SJCC" means San Jacinto Carbon Company, a Texas corporation.
----
"Subsidiary" means, with respect to any Person, any corporation,
----------
association, partnership, limited liability company, joint venture, or other
business or corporate entity, enterprise or organization which is directly or
indirectly (through one or more intermediaries) controlled by or owned fifty
percent or more by such Person, provided that associations, joint ventures or
other relationships (a) which are established pursuant to a standard form
operating agreement or similar agreement or which are partnerships for purposes
of federal income taxation only, (b) which are not corporations or partnerships
(or subject to the Uniform Partnership Act) under applicable state Law, and (c)
---
whose businesses are limited to the exploration, development and operation of
oil, gas or mineral properties and interests owned directly by the parties in
such associations, joint ventures or relationships, shall not be deemed to be
"Subsidiaries" of such Person.
"TCW Party" means any of Trust Company of the West, TCW Asset Management
---------
Company, or any of their Affiliates (including but not limited to Inland
Holdings, LLC, a California limited liability company) or any member, fund
participant, holder of a beneficial interest, as of the date hereof, in any of
the foregoing, or party to an investment management or similar agreement with
any of the foregoing, as of the date hereof.
"Termination Event" means (a) the occurrence with respect to any ERISA Plan
-----------------
of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA or
(ii) any other reportable event described in Section 4043(b) of ERISA other than
a reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation pursuant to a waiver by such corporation under
Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an
ERISA Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent
to terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under
Section 4042 of ERISA, or (e) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any ERISA Plan.
"Tribunal" means any government, any arbitration panel, any court or any
--------
governmental department, commission, board, bureau, agency or instrumentality of
the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or municipality,
whether now or hereafter constituted or existing.
15
<PAGE>
"Type" means, with respect to any Loans, the characterization of such Loans
----
as either Base Rate Loans or Eurodollar Loans.
Section 1.2. Exhibits and Schedules; Additional Definitions. All Exhibits
----------------------------------------------
and Schedules attached to this Agreement are a part hereof for all purposes.
Reference is hereby made to the Security Schedule for the meaning of certain
terms defined therein and used but not defined herein, which definitions are
incorporated herein by reference.
Section 1.3. Amendment of Defined Instruments. Unless the context
--------------------------------
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement to
---------------------
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation." Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. Calculations and Determinations. All calculations under the
-------------------------------
Loan Documents of interest chargeable with respect to Eurodollar Loans and of
fees shall be made on the basis of actual days elapsed (including the first day
but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 365 or
366 days, as appropriate. Each determination by a Lender Party of amounts to be
paid under Sections 3.2 through 3.6 or any other matters which are to be
determined hereunder by a Lender Party (such as any Eurodollar Rate, Adjusted
Eurodollar Rate, Default Rate, Business Day, Interest Period, or Reserve
Requirement) shall, in the absence of manifest error, be conclusive and binding.
Unless otherwise expressly provided herein or unless Required Lenders otherwise
consent all financial statements and reports furnished to any Lender hereunder
shall be prepared and all financial computations and determinations pursuant
hereto shall be made in accordance with GAAP.
16
<PAGE>
ARTICLE II - The Loans
---------
Section 2.1. Commitments to Lend; Notes. Subject to the terms and
--------------------------
conditions hereof, each Lender agrees to make loans to Borrower (herein called
such Lender's 'Loans') upon Borrower's request from time to time until the
Maturity Date, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all
Lenders are requested to make Loans of the same Type in accordance with their
respective Percentage Shares and as part of the same Borrowing, (b) the sum of
(i) the aggregate amount of such Lender's Loans outstanding at any time plus
(ii) the Maximum Drawing Amount for which such Lender has purchased or is liable
to purchase participations under Section 2.12, plus (iii) the Matured LC
Obligations which have been funded by such Lender under such section, does not
exceed such Lender's Percentage Share of the Borrowing Base determined as of the
date on which the requested Loan is to be made, and (c) after giving effect to
such Loans, the aggregate amount of all Loans plus all LC Obligations does not
exceed the Borrowing Base determined as of the date on which the requested Loans
are to be made. The aggregate amount of all Loans in any Borrowing must be
greater than or equal to $1,000,000 or must equal the remaining availability
under the Borrowing Base. Borrower may have no more than six Borrowings of
Eurodollar Loans outstanding at any time. The obligation of Borrower to repay to
each Lender the aggregate amount of all Loans made by such Lender, together with
interest accruing in connection therewith, shall be evidenced by a single
promissory note (herein called such Lender's "Note") made by Borrower payable to
the order of such Lender in the form of Exhibit A with appropriate insertions.
The amount of principal owing on any Lender's Note at any given time shall be
the aggregate amount of all Loans theretofore made by such Lender minus all
payments of principal theretofore received by such Lender on such Note. Interest
on each Note shall accrue and be due and payable as provided herein and therein,
with Eurodollar Loans bearing interest at the Adjusted Eurodollar Rate and Base
Rate Loans bearing interest at the Adjusted Base Rate (subject to the
applicability of the Default Rate and limited by the provisions of Section
10.8). Subject to the terms and conditions hereof, Borrower may borrow, repay,
and reborrow hereunder. It is expressly understood that Lenders' commitment to
make Loans is determined only by reference to the Borrowing Base from time to
time in effect, and the aggregate amount of the Notes and the amount specified
in the Security Documents are specified at a greater amount only for the
convenience of the parties to avoid the necessity of preparing and recording
supplements to the Security Documents.
Section 2.2. Requests for New Loans. Borrower must give to Agent written
----------------------
notice (or telephonic notice promptly confirmed in writing) of any requested
Borrowing of new Loans to be advanced by Lenders. Each such notice constitutes a
"Borrowing Notice" hereunder and must:
(a) specify (i) the aggregate amount of any such Borrowing of new
Base Rate Loans and the date on which such Base Rate Loans are to be
advanced, or (ii) the aggregate amount of any such Borrowing of new
Eurodollar Loans, the date on which such Eurodollar Loans are to be
advanced (which shall be the first day of the Interest Period which is to
apply thereto), and the length of the applicable Interest Period; and
17
<PAGE>
(b) be received by Agent not later than 1:00 p.m., New York, New
York time, on (i) the day on which any such Base Rate Loans are to be made,
or (ii) the third Business Day preceding the day on which any such
Eurodollar Loans are to be made.
Each such written request or confirmation must be made in the form and substance
of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each
such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required to
be set out in such written confirmation. Upon receipt of any such Borrowing
Notice, Agent shall give each Lender prompt notice of the terms thereof. If all
conditions precedent to such new Loans have been met, each Lender will on the
date requested promptly remit to Agent at Agent's office in New York, New York
the amount of such Lender's new Loan in immediately available funds, and upon
receipt of such funds, unless to its actual knowledge any conditions precedent
to such Loans have been neither met nor waived as provided herein, Agent shall
promptly make such Loans available to Borrower. Unless Agent shall have received
prompt notice from a Lender that such Lender will not make available to Agent
such Lender's new Loan, Agent may in its discretion assume that such Lender has
made such Loan available to Agent in accordance with this section and Agent may
if it chooses, in reliance upon such assumption, make such Loan available to
Borrower. If and to the extent such Lender shall not so make its new Loan
available to Agent, such Lender and Borrower severally agree to pay or repay to
Agent within three days after demand the amount of such Loan together with
interest thereon, for each day from the date such amount was made available to
Borrower until the date such amount is paid or repaid to Agent, with interest at
(i) the Federal Funds Rate, if such Lender is making such payment and (ii) the
interest rate applicable at the time to the other new Loans made on such date,
if Borrower is making such repayment. If neither such Lender nor Borrower pay or
repay to Agent such amount within such three-day period, Agent shall in addition
to such amount be entitled to recover from such Lender and from Borrower, on
demand, interest thereon at the Default Rate applicable to Base Rate Loans,
calculated from the date such amount was made available to Borrower. The failure
of any Lender to make any new Loan to be made by it hereunder shall not relieve
any other Lender of its obligation hereunder, if any, to make its new Loan, but
no Lender shall be responsible for the failure of any other Lender to make any
new Loan to be made by such other Lender.
Section 2.3. Continuations and Conversions of Existing Loans. Borrower
-----------------------------------------------
may make the following elections with respect to Loans already outstanding: to
convert Base Rate Loans to Eurodollar Loans, to convert Eurodollar Loans to Base
Rate Loans on the last day of the Interest Period applicable thereto, and to
continue Eurodollar Loans beyond the expiration of such Interest Period by
designating a new Interest Period to take effect at the time of such expiration.
In making such elections, Borrower may combine existing Loans made pursuant to
separate Borrowings into one new Borrowing or divide existing Loans made
pursuant to one Borrowing into separate new Borrowings, provided that Borrower
may have no more than six Borrowings of Eurodollar Loans outstanding at any
time. To make any such election, Borrower must give to Agent written notice (or
telephonic notice promptly confirmed in writing) of any such Conversion or
Continuation of existing Loans, with a separate notice given for each new
Borrowing. Each such notice constitutes a "Continuation/Conversion Notice"
hereunder and must:
18
<PAGE>
(a) specify the existing Loans which are to be Continued or
Converted;
(b) specify (i) the aggregate amount of any Borrowing of Base Rate
Loans into which such existing Loans are to be continued or converted and
the date on which such Continuation or Conversion is to occur, or (ii) the
aggregate amount of any Borrowing of Eurodollar Loans into which such
existing Loans are to be continued or converted, the date on which such
Continuation or Conversion is to occur (which shall be the first day of the
Interest Period which is to apply to such Eurodollar Loans), and the length
of the applicable Interest Period; and
(c) be received by Agent not later than 1:00 p.m., New York, New
York time, on (i) the day on which any such Continuation or Conversion to
Base Rate Loans is to occur, or (ii) the third Business Day preceding the
day on which any such Continuation or Conversion to Eurodollar Loans is to
occur.
Each such written request or confirmation must be made in the form and substance
of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Continuation/Conversion Notice, Agent shall give each Lender prompt notice of
the terms thereof. Each Continuation/Conversion Notice shall be irrevocable and
binding on Borrower. During the continuance of any Default, Borrower may not
make any election to convert existing Loans into Eurodollar Loans or continue
existing Loans as Eurodollar Loans. If (due to the existence of a Default or for
any other reason) Borrower fails to timely and properly give any
Continuation/Conversion Notice with respect to a Borrowing of existing
Eurodollar Loans at least three days prior to the end of the Interest Period
applicable thereto, such Eurodollar Loans shall automatically be converted into
Base Rate Loans at the end of such Interest Period. No new funds shall be repaid
by Borrower or advanced by any Lender in connection with any Continuation or
Conversion of existing Loans pursuant to this section, and no such Continuation
or Conversion shall be deemed to be a new advance of funds for any purpose; such
Continuations and Conversions merely constitute a change in the interest rate
applicable to already outstanding Loans.
Section 2.4. Use of Proceeds. Borrower shall use the proceeds of all Loans
---------------
to (i) continue the loans and letters of credit outstanding under the Existing
Credit Agreement, (ii) finance development and drilling activities with respect
to Proved Reserves of Borrower, (iii) provide working capital for Borrower's and
Inland Refining's operations, provided that the advances to Inland Refining,
plus Letters of Credit issued for the benefit of Inland Refining, plus any
amounts that have been advanced pursuant to any such Letter of Credit which have
not been reimbursed by Inland Refining to Borrower, shall not in the aggregate
(but without duplication) exceed the amount of $20,000,000 outstanding at any
one time, and (iv) refinance its Matured LC Obligations; provided, however, that
Borrower shall not use any Loans to make advances to Inland Refining, except as
specifically set forth in this Section 2.4. Borrower shall use all Letters of
Credit for its general corporate purposes and to support agreements for the
purchase by Inland Refining of refining feed stocks in the ordinary course of
business. In no event shall the funds
19
<PAGE>
from any Loan or any Letter of Credit be used directly or indirectly by any
Person for personal, family, household or agricultural purposes or for the
purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or
carrying any "margin stock" or any "margin securities" (as such terms are
defined in Regulation U promulgated by the Board of Governors of the Federal
Reserve System) or to extend credit to others directly or indirectly for the
purpose of purchasing or carrying any such margin stock or margin securities.
Borrower represents and warrants that Borrower is not engaged principally, or as
one of Borrower's important activities, in the business of extending credit to
others for the purpose of purchasing or carrying such margin stock or margin
securities.
Section 2.5. Interest Rates and Fees.
-----------------------
(a) Interest Rates. Each Base Rate Loan shall bear interest on each day
-------------
outstanding at the Adjusted Base Rate in effect on such day. Each Eurodollar
loan shall bear interest on each day during the related Interest Period at the
related Adjusted Eurodollar Rate in effect on such day. Anything to the contrary
herein notwithstanding, if an Event of Default has occurred and is continuing,
all Loans shall bear interest on each day outstanding at the applicable Default
Rate. Past due payments of principal and interest shall bear interest at the
rates and in the manner set forth in the Notes.
(b) Commitment Fees. In consideration of each Lender's commitment to make
---------------
Loans, Borrower will pay to Agent for the account of each Lender a commitment
fee determined on a daily basis by applying a rate of one-half of one percent
(0.5%) per annum to such Lender's Percentage Share of the unused portion of the
Borrowing Base on each day until the Maturity Date, determined for each such day
by deducting from the amount of the Borrowing Base at the end of such day the
sum of (i) the Facility Usage and (ii) the amount of all LC Obligations
outstanding at the end of such day. This commitment fee shall be due and payable
in arrears on the last Business Day after the end of each Fiscal Quarter and on
the Maturity Date.
(c) Facility Fees. In consideration of each Lender's commitment to make
-------------
Loans, Borrower will pay to Agent for the pro rata distribution to each Lender
in accordance with such Lender's Percentage Share, a facility fee in the
aggregate amount of $150,000, due and payable on the Effective Date. In addition
to the facility fee described in the immediately preceding sentence of this
Section 2.5(c), Borrower shall pay to Agent for the pro rata distribution to
each Lender in accordance with such Lender's Percentage Share (i) a facility fee
equal to one-half of the percent (0.50%) of such Lender's Percentage Share of
the Borrowing Base on March 31, 2001 due and payable on April 1, 2001, and (ii)
a facility fee equal to one-half of one percent (0.50%) of such Lender's
Percentage Share of the Borrowing Base on September 30, 2001 due and payable on
October 1, 2001. In addition to the foregoing, on the date hereof, Borrower will
pay to Agent for the distribution to each Lender based upon its outstanding
loans to Borrower from July 1, 1999 to the Effective Date a fee in the amount of
$208,322.92. In addition to the fees described above, Borrower will pay to Agent
for the pro rata distribution to each Lender in accordance with such Lender's
Percentage Share, a fee equal to one percent (1.00%) of such Lender's Percentage
Share of the Borrowing Base on September 30, 2000 due and payable on October 1,
2000; provided, however, the fee provided for in this sentence shall not be
payable to
20
<PAGE>
any Lender if prior to September 30, 2000 Borrower has caused one or more
substitute financial institutions reasonably acceptable to the Lenders, to
purchase the full amount of the Loans made by ING (U.S.) Capital Corporation
("ING"), at par, plus all accrued unpaid interest, fees, and all other accrued
Obligations owing to ING, and assume all obligations and commitments of ING
hereunder.
(d) Agent's Fee. In addition to all other amounts due to Agent under the
-----------
Loan Documents, Borrower will pay fees to Agent, for its own account, as
described in that certain letter agreement executed in connection with the
Existing Credit Agreement between Agent and Borrower.
Section 2.6. Optional Prepayments. Borrower may, upon five Business Days'
--------------------
notice to each Lender, from time to time and without premium or penalty prepay
the Notes, in whole or in part, so long as the aggregate amounts of all partial
prepayments of principal on the Notes equals $1,000,000 or any higher integral
multiple of $1,000,000, so long as Borrower does not prepay any Eurodollar Loan,
and so long as Borrower does not make any prepayments which would reduce the
unpaid principal balance of any Loan to less than $100,000 without first either
(a) terminating this Agreement or (b) providing assurance satisfactory to Agent
in its discretion that Lenders' legal rights under the Loan Documents are in no
way affected by such reduction. Each prepayment of principal under this section
shall be accompanied by all interest then accrued and unpaid on the principal so
prepaid. Any principal or interest prepaid pursuant to this section shall be in
addition to, and not in lieu of, all payments otherwise required to be paid
under the Loan Documents at the time of such prepayment.
Section 2.7. Mandatory Prepayments.
---------------------
(a) If at any time the Facility Usage exceeds the Maximum Credit Amount,
Borrower shall immediately upon demand prepay the principal of the Loans in an
amount equal to such excess.
(b) If at any time the Facility Usage is less than the Maximum Credit
Amount but is in excess of the Borrowing Base (such excess being herein called a
"Borrowing Base Deficiency"), Borrower shall, within five Business Days after
Agent gives notice of such fact to Borrower, either:
(i) prepay the principal of the Loans in an aggregate amount at
least equal to such Borrowing Base Deficiency, or
(ii) give notice to Agent electing to prepay the principal of the
Loans in up to three monthly installments in an aggregate amount at least
equal to such Borrowing Base Deficiency, with each such installment equal
to or in excess of one-third of such Borrowing Base Deficiency, and with
the first such installment to be paid one month after the giving of such
notice and the subsequent installments to be due and payable at one month
intervals thereafter until such Borrowing Base Deficiency has been
eliminated, or
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(iii) give notice to Agent that Borrower desires to provide Agent
with deeds of trust, mortgages, chattel mortgages, security agreements,
financing statements and other security documents in form and substance
satisfactory to Agent, granting, confirming, and perfecting first and prior
liens or security interests in collateral acceptable to all Lenders, to the
extent needed to allow all Lenders to increase the Borrowing Base (as they
in their reasonable discretion deem consistent with prudent oil and gas
banking industry lending standards at the time) to an amount which
eliminates such Borrowing Base Deficiency, and then provide such security
documents within thirty days after Agent specifies such collateral to
Borrower. If, prior to any such specification by Agent, Required Lenders
determine that the giving of such security documents will not serve to
eliminate such Borrowing Base Deficiency, then, within five Business Days
after receiving notice of such determination, Borrower will elect to make,
and thereafter make, the prepayments specified in either of the preceding
subsections (i) or (ii) of this subsection (b).
(c) Each prepayment of principal under this section shall be accompanied
by all interest then accrued and unpaid on the principal so prepaid. Any
principal or interest prepaid pursuant to this section shall be in addition to,
and not in lieu of, all payments otherwise required to be paid under the Loan
Documents at the time of such prepayment.
Section 2.8. Initial Borrowing Base. During the period from the Effective
----------------------
Date to the first Determination Date the Borrowing Base shall be $83,500,000.
Section 2.9. Subsequent Determinations of Borrowing Base; Reduction of
---------------------------------------------------------
Borrowing Base.
- --------------
(a) By October 1 and April 1 of each year, beginning October 1, 2000,
dated no earlier than the preceding August 1 and February 1, respectively,
Borrower shall furnish to each Lender all information, reports and data which
Agent has then requested concerning Restricted Persons' businesses and
properties (including their oil and gas properties and interests and the
reserves and production relating thereto), together with the Engineering Report
described in Section 6.2(d). By the Optional Redetermination Date prepared as of
the sixtieth day before such Optional Redetermination Date, Borrower shall
furnish to each Lender all information, reports and data which Agent has then
requested concerning Restricted Persons' businesses and properties (including
their oil and gas properties and interests and the reserves and production
relating thereto), together with the Engineering Report described in Section
6.2(e). Within thirty days after receiving such information, reports and data,
Required Lenders shall agree upon an amount for the Borrowing Base (provided
that all Lenders must agree to any increase in the Borrowing Base) and Agent
shall by notice to Borrower designate such amount as the new Borrowing Base
available to
Borrower hereunder, which designation shall take effect immediately on the date
such notice is sent (herein called a "Determination Date") and shall remain in
------------------
effect until but not including the next date as of which the Borrowing Base is
redetermined. If Borrower does not furnish all such information, reports and
data by the date specified in the first sentence of this section, Agent may
nonetheless designate the Borrowing Base at any amount which Required Lenders
determine and may redesignate the Borrowing Base
22
<PAGE>
from time to time thereafter until each Lender receives all such information,
reports and data, whereupon Required Lenders shall designate a new Borrowing
Base as described above. Required Lenders shall determine the amount of the
Borrowing Base based upon the loan collateral value which they in their
discretion assign to the various proved oil and gas properties of Restricted
Persons at the time in question and based upon such other credit factors
(including without limitation the assets, liabilities, cash flow, hedged and
unhedged exposure to price, foreign exchange rate, and interest rate changes,
business, properties, prospects, management and ownership of Borrower and its
Affiliates) as they in their discretion deem significant. It is expressly
understood that Lenders and Agent have no obligation to agree upon or designate
the Borrowing Base at any particular amount, whether in relation to the
aggregate face amount of the Notes or otherwise, and that Lenders' commitments
to advance funds hereunder is determined by reference to the Borrowing Base from
time to time in effect, which Borrowing Base shall be used for calculating
commitment fees under Section 2.5 and, to the extent permitted by Law and
regulatory authorities, for the purposes of capital adequacy determination and
reimbursements under Section 3.2.
(b) Until the Maturity Date, Borrower may at any time by notice to Agent
reduce the Borrowing Base then in effect to any lesser amount. Each such notice
shall take effect on the date specified therein, which may not be earlier than
the date on which such notice is received by Agent, and shall continue in effect
until the next date as of which the Borrowing Base is redetermined.
(c) The Borrowing Base shall be reduced in an amount equal to any
prepayment on the Loans made in accordance with Section 7.4. Each such reduction
shall take effect on the date of such prepayment, and shall continue in effect
until the next date as of which the Borrowing Base is redetermined.
Section 2.10. Letters of Credit. Subject to the terms and conditions
-----------------
hereof, Borrower may until the Maturity Date request either LC Issuer to issue
one or more Letters of Credit, provided that, after taking such Letter of Credit
into account:
(a) the Facility Usage does not exceed the Borrowing Base at such
time; and
(b) the aggregate amount of LC Obligations at such time does not
exceed $4,000,000; and
(c) the expiration date of such Letter of Credit is prior to the
Maturity Date.
and further provided that:
(d) such Letter of Credit is to be used to support either (i)
agreements for the purchase by Inland Refining of refinery feed stocks in
the ordinary course of business and has an expiration date not more than
seventy (70) days from the date of issuance or (ii) up to the aggregate
amount of $400,000, the payment of diesel fuel and motor fuel taxes
23
<PAGE>
payable to the State of Utah and has an expiration date not more than three
hundred sixty-five (365) days from the date of issuance;
(e) such Letter of Credit is not directly or indirectly used to
assure payment of or otherwise support any Restricted Debt of any Person;
(f) the issuance of such Letter of Credit will be in compliance with
all applicable governmental restrictions, policies, and guidelines and will
not subject LC Issuer to any cost which is not reimbursable under Article
III;
(g) the form and terms of such Letter of Credit are acceptable to
such LC Issuer in its sole and absolute discretion; and
(h) all other conditions in this Agreement to the issuance of such
Letter of Credit have been satisfied.
LC Issuer will honor any such request if the foregoing conditions (a)
through (h) (in the following Section 2.11 called the "LC Conditions") have
-------------
been met as of the date of issuance of such Letter of Credit. LC Issuer
may choose to honor any such request for any other Letter of Credit but has
no obligation to do so and may refuse to issue any other requested Letter
of Credit for any reason which such LC Issuer in its sole discretion deems
relevant.
Section 2.11. Requesting Letters of Credit. Borrower must make written
----------------------------
application for any Letter of Credit at least three Business Days before the
date on which Borrower desires such Letter of Credit to be issued, by delivering
such application to Agent. Agent shall promptly deliver such application to LC
Issuer. By making any such written application Borrower shall be deemed to have
represented and warranted to each Lender or LC Issuer that the LC Conditions
described in Section 2.10 will be met as of the date of issuance of such Letter
of Credit. Each such written application for a Letter of Credit must be made in
writing in the form and substance of Exhibit G, the terms and provisions of
which are hereby incorporated herein by reference (or in such other form as may
mutually be agreed upon by Agent, LC Issuer and Borrower). Two Business Days
after the LC Conditions for a Letter of Credit have been met as described in
Section 2.10 (or if an LC Issuer otherwise desires to issue such Letter of
Credit), LC Issuer will issue such Letter of Credit at LC Issuer's office, and
will provide Agent with a specimen copy of the Letter of Credit so issued. If
any provisions of any LC Application conflict with any provisions of this
Agreement, the provisions of this Agreement shall govern and control.
Section 2.12. Reimbursement and Participations.
--------------------------------
(a) Reimbursement by Borrower. Each Matured LC Obligation shall
-------------------------
constitute a loan by LC Issuer to Borrower. Borrower promises to pay to LC
Issuer, or to LC Issuer's order, on demand, the full amount of each Matured
LC Obligation, together with interest thereon at the Default Rate
applicable to Base Rate Loans.
24
<PAGE>
(b) Letter of Credit Advances. If the beneficiary of any Letter of
-------------------------
Credit makes a draft or other demand for payment thereunder then Borrower
may, during the interval between the making thereof and the honoring
thereof by LC Issuer, request Lenders to make Loans to Borrower in the
amount of such draft or demand, which Loans shall be made concurrently with
LC Issuer's payment of such draft or demand and shall be immediately used
by LC Issuer to repay the amount of the resulting Matured LC Obligation.
Such a request by Borrower shall be made in compliance with all of the
provisions hereof, provided that for the purposes of the first sentence of
Section 2.1 the amount of such Loans shall be considered but the amount of
the Matured LC Obligation to be concurrently paid by such Loans shall not
be considered.
(c) Participation by Lenders. Each LC Issuer irrevocably agrees to
------------------------
grant and hereby grants to each Lender, and -- to induce each LC Issuer to
issue Letters of Credit hereunder -- each Lender irrevocably agrees to
accept and purchase and hereby accepts and purchases from such LC Issuer,
on the terms and conditions hereinafter stated and for such Lender's own
account and risk, an undivided interest equal to such Lender's Percentage
Share of such LC Issuer's obligations and rights under each Letter of
Credit issued hereunder by such LC Issuer and the amount of each Matured LC
Obligation paid by such LC Issuer thereunder. Each Lender unconditionally
and irrevocably agrees with LC Issuer that, if a Matured LC Obligation is
paid under any Letter of Credit for which such LC Issuer is not reimbursed
in full by Borrower in accordance with the terms of this Agreement and the
related LC Application (including any reimbursement by means of concurrent
Loans or by the application of LC Collateral), such Lender shall (in all
circumstances and without set-off or counterclaim) pay to such LC Issuer on
demand, in immediately available funds at such LC Issuer's address for
notices hereunder, such Lender's Percentage Share of such Matured LC
Obligation (or any portion thereof which has not been reimbursed by
Borrower). Each Lender's obligation to pay an LC Issuer pursuant to the
terms of this subsection is irrevocable and unconditional. If any amount
required to be paid by any Lender to an LC Issuer pursuant to this
subsection is paid by such Lender to an LC Issuer within three Business
Days after the date such payment is due, LC Issuer shall in addition to
such amount be entitled to recover from such Lender, on demand, interest
thereon calculated from such due date at the Federal Funds Rate. If any
amount required to be paid by any Lender to LC Issuer pursuant to this
subsection is not paid by such Lender to LC Issuer within three Business
Days after the date such payment is due, LC Issuer shall in addition to
such amount be entitled to recover from such Lender, on demand, interest
thereon calculated from such due date at the Default Rate applicable to
Base Rate Loans.
(d) Distributions to Participants. Whenever an LC Issuer has in
-----------------------------
accordance with this section received from any Lender payment of such
Lender's Percentage Share of any Matured LC Obligation, if such LC Issuer
thereafter receives any payment of such Matured LC Obligation or any
payment of interest thereon (whether directly from Borrower or by
application of LC Collateral or otherwise, and excluding only interest for
any period prior to such LC Issuer's demand that such Lender make such
payment of its Percentage Share), such LC Issuer will distribute to such
Lender its Percentage Share of
25
<PAGE>
the amounts so received by such LC Issuer; provided, however, that if any
-------- -------
such payment received by an LC Issuer must thereafter be returned by such
LC Issuer, such Lender shall return to such LC Issuer the portion thereof
which such LC Issuer has previously distributed to it.
(e) Calculations. A written advice setting forth in reasonable
------------
detail the amounts owing under this section, submitted by an LC Issuer to
Borrower or any Lender from time to time, shall be conclusive, absent
manifest error, as to the amounts thereof.
Section 2.13. Letter of Credit Fees. In consideration of LC Issuer's
---------------------
issuance of any Letter of Credit, Borrower agrees to pay (a) to Agent, for the
account of all Lenders in accordance with their respective Percentage Shares, a
letter of credit fee at a rate equal to two percent (2.00%) per annum of the
amount of all Letters of Credit, and (b) to a LC Issuer for its own account, a
letter of credit fronting fee at a rate equal to fifteen one-hundredths of one
percent (0.15%) per annum of each Letter of Credit issued by such LC Issuer.
Each such fee will be calculated on a daily basis, on the face amount of Letters
of Credit outstanding on each day at the above applicable rate and will be
payable quarterly in arrears. In addition, Borrower will pay to an LC Issuer a
minimum administrative issuance fee of $200 for each Letter of Credit issued by
such LC Issuer and an amendment fee of $65 for each Letter of Credit, each such
fee to be payable upon issuance or amendment, respectively, of a Letter of
Credit.
Section 2.14. No Duty to Inquire.
------------------
(a) Drafts and Demands. LC Issuer is authorized and instructed to
------------------
accept and pay drafts and demands for payment under any Letter of Credit
without requiring, and without responsibility for, any determination as to
the existence of any event giving rise to said draft, either at the time of
acceptance or payment or thereafter. LC Issuer is under no duty to
determine the proper identity of anyone presenting such a draft or making
such a demand (whether by tested telex or otherwise) as the officer,
representative or agent of any beneficiary under any Letter of Credit, and
payment by LC Issuer to any such beneficiary when requested by any such
purported officer, representative or agent is hereby authorized and
approved. Borrower agrees to hold LC Issuer and each other Lender Party
harmless and indemnified against any liability or claim in connection with
or arising out of the subject matter of this section, WHICH INDEMNITY SHALL
APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY
EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY
KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be
entitled to indemnification for that portion, if any, of any liability or
claim which is proximately caused by its own individual gross negligence or
willful misconduct, as determined in a final judgment.
(b) Extension of Maturity. If the maturity of any Letter of Credit
---------------------
is extended by its terms or by Law or governmental action, if any extension
of the maturity or time for presentation of drafts or any other
modification of the terms of any Letter of Credit is
26
<PAGE>
made at the request of any Restricted Person, or if the amount of any
Letter of Credit is increased at the request of any Restricted Person, this
Agreement shall be binding upon all Restricted Persons with respect to such
Letter of Credit as so extended, increased or otherwise modified, with
respect to drafts and property covered thereby, and with respect to any
action taken by LC Issuer, LC Issuer's correspondents, or any Lender Party
in accordance with such extension, increase or other modification.
(c) Transferees of Letters of Credit. If any Letter of Credit
--------------------------------
provides that it is transferable, LC Issuer shall have no duty to determine
the proper identity of anyone appearing as transferee of such Letter of
Credit, nor shall LC Issuer be charged with responsibility of any nature or
character for the validity or correctness of any transfer or successive
transfers, and payment by LC Issuer to any purported transferee or
transferees as determined by LC Issuer is hereby authorized and approved,
and Borrower further agrees to hold LC Issuer and each other Lender Party
harmless and indemnified against any liability or claim in connection with
or arising out of the foregoing, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT
ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE
OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER
PARTY, provided only that no Lender Party shall be entitled to
indemnification for that portion, if any, of any liability or claim which
is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment.
Section 2.15. LC Collateral.
-------------
(a) LC Obligations in Excess of Borrowing Base. If, after the making
------------------------------------------
of all mandatory prepayments required under Section 2.7, the outstanding LC
Obligations will exceed the Borrowing Base, then in addition to prepayment
of the Borrowing Base Deficiency Borrower will immediately pay to LC Issuer
an amount equal to such excess. LC Issuer will hold such amount as security
for the remaining LC Obligations (all such amounts held as security for LC
Obligations being herein collectively called "LC Collateral") until such LC
-------------
Obligations become Matured LC Obligations, at which time such LC Collateral
may be applied to such Matured LC Obligations. Neither this subsection nor
the following subsection shall, however, limit or impair any rights which
LC Issuer may have under any other document or agreement relating to any
Letter of Credit or LC Obligation, including any LC Application, or any
rights which any Lender Party may have to otherwise apply any payments by
Borrower and any LC Collateral under Section 3.1.
(b) Acceleration of LC Obligations. If the Obligations or any part
------------------------------
thereof become immediately due and payable pursuant to Section 8.2 then,
unless Required Lenders otherwise specifically elect to the contrary (which
election may thereafter be retracted by Required Lenders at any time), all
LC Obligations shall become immediately due and payable without regard to
whether or not actual drawings or payments on the
27
<PAGE>
Letters of Credit have occurred, and Borrower shall be obligated to pay to
LC Issuer immediately an amount equal to the aggregate LC Obligations which
are then outstanding. All amounts so paid shall first be applied to Matured
LC Obligations and then held by LC Issuer as LC Collateral until such LC
Obligations become Matured LC Obligations, at which time such LC Collateral
shall be applied to such Matured LC Obligations.
(c) Investment of LC Collateral. Pending application thereof, all LC
---------------------------
Collateral shall be invested by LC Issuer in such investments as LC Issuer
may choose in its sole discretion. All interest on such investments shall
be reinvested or applied to Matured LC Obligations. When all Obligations
have been satisfied in full, including all LC Obligations, all Letters of
Credit have expired or been terminated, and all of Borrower's reimbursement
obligations in connection therewith have been satisfied in full, LC Issuer
shall release any remaining LC Collateral. Borrower hereby assigns and
grants to LC Issuer a continuing security interest in all LC Collateral
paid by it to LC Issuer, all investments purchased with such LC Collateral,
and all proceeds thereof to secure its Matured LC Obligations and its
Obligations under this Agreement, each Note, and the other Loan Documents,
and Borrower agrees that such LC Collateral and investments and proceeds
shall be subject to all of the terms and conditions of the Security
Documents. Borrower further agrees that LC Issuer shall have all of the
rights and remedies of a secured party under the Uniform Commercial Code as
adopted in the State of New York with respect to such security interest and
that an Event of Default under this Agreement shall constitute a default
for purposes of such security interest.
(d) Payment of LC Collateral. When Borrower is required to provide
------------------------
LC Collateral for any reason and fails to do so on the day when required,
LC Issuer may without notice to Borrower or any other Restricted Person
provide such LC Collateral (whether by application of proceeds of other
Collateral, by transfers from other accounts maintained with LC Issuer, or
otherwise) using any available funds of Borrower or any other Person also
liable to make such payments. Any such amounts which are required to be
provided as LC Collateral and which are not provided on the date required
shall, for purposes of each Security Document, be considered past due
Obligations owing hereunder, and LC Issuer is hereby authorized to exercise
its respective rights under each Security Document to obtain such amounts.
ARTICLE III - Payments to Lenders
-------------------
Section 3.1. General Procedures. Borrower will make each payment which it
------------------
owes under the Loan Documents to Agent for the account of the Lender Party to
whom such payment is owed, in lawful money of the United States of America,
without set-off, deduction or counterclaim, and in immediately available funds.
Each such payment must be received by Agent not later than 11:00 a.m., New York,
New York time, on the date such payment becomes due and payable. Any payment
received by Agent after such time will be deemed to have been made on the next
following Business Day. Should any such payment become due and payable
28
<PAGE>
on a day other than a Business Day, the maturity of such payment shall be
extended to the next succeeding Business Day, and, in the case of a payment of
principal or past due interest, interest shall accrue and be payable thereon for
the period of such extension as provided in the Loan Document under which such
payment is due. Each payment under a Loan Document shall be due and payable at
the place provided therein and, if no specific place of payment is provided,
shall be due and payable at the place of payment of Agent's Note. When Agent
collects or receives money on account of the Obligations, Agent shall distribute
all money so collected or received, and each Lender Party shall apply all such
money so distributed, as follows:
(a) first, for the payment of all Obligations which are then due (and
if such money is insufficient to pay all such Obligations, first to any
reimbursements due Agent under Section 6.9 or 10.4 and then to the partial
payment of all other Obligations then due in proportion to the amounts
thereof, or as Lender Parties shall otherwise agree);
(b) then for the prepayment of amounts owing under the Loan Documents
(other than principal on the Notes) if so specified by Borrower;
(c) then for the prepayment of principal on the Notes, together with
accrued and unpaid interest on the principal so prepaid; and
(d) last, for the payment or prepayment of any other Obligations.
All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest in compliance with Sections
2.6 and 2.7. All distributions of amounts described in any of subsections (b),
(c), or (d) above shall be made by Agent pro rata to Agent and each Lender Party
then owed Obligations described in such subsection in proportion to all amounts
owed all Lender Parties which are described in such subsection; provided that if
any Lender then owes payments to Agent for the purchase of a participation under
Section 2.12(c) hereof, any amounts otherwise distributable under this section
to such Lender shall be deemed to belong to LC Issuer, or Agent, respectively,
to the extent of such unpaid payments, and Agent shall apply such amounts to
make such unpaid payments rather than distribute such amounts to such Lender.
Section 3.2. Capital Reimbursement. If either (a) the introduction or
---------------------
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any central bank or
other governmental authority (whether or not having the force of Law) affects or
would affect the amount of capital required or expected to be maintained by any
Lender Party or any corporation controlling any Lender Party, then, upon demand
by such Lender Party, Borrower will pay to Agent for the benefit of such Lender
Party, from time to time as specified by such Lender Party, such additional
amount or amounts which such Lender Party shall determine to be appropriate to
compensate such Lender Party or any corporation controlling such Lender Party in
light of such circumstances, to the extent that such Lender Party reasonably
determines that the amount of any such capital would be increased or the rate of
return on any
29
<PAGE>
such capital would be reduced by or in whole or in part based on the existence
of the face amount of such Lender's Loans, commitments, or the provisions
concerning the issuance of Letters of Credit under this Agreement.
Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit. If
-------------------------------------------------------
any applicable Law (whether now in effect or hereinafter enacted or promulgated,
including Regulation D) or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of Law):
(a) shall change the basis of taxation of payments to any Lender Party
of any principal, interest, or other amounts attributable to any Eurodollar
Loan or otherwise due under this Agreement in respect of any Eurodollar
Loan or Letter of Credit (other than taxes imposed on the overall net
income of such Lender Party or any lending office of such Lender Party by
any jurisdiction in which such Lender Party or any such lending office is
located); or
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Eurodollar Loan or Letter of Credit (excluding those for which such Lender
Party is fully compensated pursuant to adjustments made in the definition
of Eurodollar Rate) or against assets of, deposits with or for the account
of, or credit extended by, such Lender Party; or
(c) shall impose on any Lender Party or the interbank eurocurrency
deposit market any other condition affecting any Eurodollar Loan or Letter
of Credit, the result of which is to increase the cost to any Lender Party
of funding or maintaining any Eurodollar Loan or of issuing any Letter of
Credit or to reduce the amount of any sum receivable by any Lender Party in
respect of any Eurodollar Loan or Letter of Credit by an amount deemed by
such Lender Party to be material,
then such Lender Party shall promptly notify Agent and Borrower in writing
of the happening of such event and of the amount required to compensate
such Lender Party for such event (on an after-tax basis, taking into
account any taxes on such compensation), whereupon (i) Borrower shall pay
such amount to Agent for the account of such Lender Party and (ii) Borrower
may elect, by giving to Agent and such Lender Party not less than three
Business Days' notice, to convert all (but not less than all) of any such
Eurodollar Loans into Base Rate Loans.
Section 3.4. Availability. If (a) any change in applicable Laws, or in the
------------
interpretation or administration thereof of or in any jurisdiction whatsoever,
domestic or foreign, shall make it unlawful or impracticable for any Lender
Party to fund or maintain Eurodollar Loans, or shall materially restrict the
authority of any Lender Party to purchase or take offshore deposits of dollars
(i.e., "eurodollars") or to issue Letters of Credit, (b) any Lender Party
determines that matching deposits appropriate to fund or maintain any Eurodollar
Loan are not available to it, or (c) any Lender Party determines that the
formula for calculating the Eurodollar Rate does not fairly reflect the cost to
such Lender Party of making or maintaining loans based on such rate,
30
<PAGE>
then, upon notice by such Lender Party to Borrower and Agent, Borrower's right
to elect Eurodollar Loans or to apply for Letters of Credit from such Lender
Party shall be suspended to the extent and for the duration of such illegality,
impracticability or restriction and all Eurodollar Loans of such Lender Party
which are then outstanding or are then the subject of any Borrowing Notice and
which cannot lawfully or practicably be maintained or funded shall immediately
become or remain, or shall be funded as, Base Rate Loans of such Lender Party.
Borrower agrees to indemnify each Lender Party and hold it harmless against all
costs, expenses, claims, penalties, liabilities and damages which may result
from any such change in Law, interpretation or administration (other than taxes
imposed on the overall net income of such Lender Party or any lending office of
such Lender Party). Such indemnification shall be on an after-tax basis, taking
into account any taxes imposed on the amounts paid as indemnity.
Section 3.5. Funding Losses. In addition to its other obligations
--------------
hereunder, Borrower will indemnify each Lender Party against, and reimburse each
Lender Party on demand for, any loss or expense incurred or sustained by such
Lender Party (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by a Lender
Party to fund or maintain Eurodollar Loans), as a result of (a) any payment or
prepayment (whether authorized or required hereunder or otherwise) of all or a
portion of a Eurodollar Loan on a day other than the day on which the applicable
Interest Period ends, (b) any payment or prepayment, whether required hereunder
or otherwise, of a Loan made after the delivery, but before the effective date,
of a Continuation/Conversion Notice, if such payment or prepayment prevents such
Continuation/Conversion Notice from becoming fully effective, (c) the failure of
any Loan to be made or of any Continuation/Conversion Notice to become effective
due to any condition precedent not being satisfied or due to any other action or
inaction of any Restricted Person, or (d) any Conversion (whether authorized or
required hereunder or otherwise) of all or any portion of any Eurodollar Loan
into a Base Rate Loan or into a different Eurodollar Loan on a day other than
the day on which the applicable Interest Period ends. Such indemnification
shall be on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.
Section 3.6. Reimbursable Taxes. Borrower covenants and agrees that:
------------------
(a) Borrower will indemnify each Lender Party against and reimburse
each Lender Party for all present and future income, stamp and other taxes,
levies, costs and charges whatsoever imposed, assessed, levied or collected
on or in respect of this Agreement or any Eurodollar Loans or Letters of
Credit (whether or not legally or correctly imposed, assessed, levied or
collected), excluding, however, any taxes imposed on or measured by the
overall net income of Agent or such Lender Party or any lending office of
such Lender Party by any jurisdiction in which such Lender Party or any
such lending office is located (all such non-excluded taxes, levies, costs
and charges being collectively called 'Reimbursable Taxes' in this
section). Such indemnification shall be on an after-tax basis, taking into
account any taxes imposed on the amounts paid as indemnity.
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(b) All payments on account of the principal of, and interest on,
each Lender Party's Loans and Note, and all other amounts payable by
Borrower to any Lender Party hereunder, shall be made in full without
set-off or counterclaim and shall be made free and clear of and without
deductions or withholdings of any nature by reason of any Reimbursable
Taxes, all of which will be for the account of Borrower. In the event of
Borrower being compelled by Law to make any such deduction or withholding
from any payment to any Lender Party, Borrower shall pay on the due date of
such payment, by way of additional interest, such additional amounts as are
needed to cause the amount receivable by such Lender Party after such
deduction or withholding to equal the amount which would have been
receivable in the absence of such deduction or withholding. If Borrower
should make any deduction or withholding as aforesaid, Borrower shall
within 60 days thereafter forward to such Lender Party an official receipt
or other official document evidencing payment of such deduction or
withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax with
respect to any Eurodollar Loan, Borrower may elect, by giving to Agent and
such Lender Party not less than three Business Days' notice, to convert all
(but not less than all) of any such Eurodollar Loan into a Base Rate Loan,
but such election shall not diminish Borrower's obligation to pay all
Reimbursable Taxes.
(d) Notwithstanding the foregoing provisions of this section,
Borrower shall be entitled, to the extent it is required to do so by Law,
to deduct or withhold (and not to make any indemnification or reimbursement
for) income or other similar taxes imposed by the United States of America
(other than any portion thereof attributable to a change in federal income
tax Laws effected after the date hereof) from interest, fees or other
amounts payable hereunder for the account of any Lender Party, other than a
Lender Party (i) who is a U.S. person for Federal income tax purposes or
(ii) who has the Prescribed Forms on file with Agent (with copies provided
to Borrower) for the applicable year to the extent deduction or withholding
of such taxes is not required as a result of the filing of such Prescribed
Forms, provided that if Borrower shall so deduct or withhold any such
taxes, it shall provide a statement to Agent and such Lender Party, setting
forth the amount of such taxes so deducted or withheld, the applicable rate
and any other information or documentation which such Lender Party may
reasonably request for assisting such Lender Party to obtain any allowable
credits or deductions for the taxes so deducted or withheld in the
jurisdiction or jurisdictions in which such Lender Party is subject to tax.
As used in this section, "Prescribed Forms" means such duly executed forms
or statements, and in such number of copies, which may, from time to time,
be prescribed by Law and which, pursuant to applicable provisions of (x) an
income tax treaty between the United States and the country of residence of
the Lender Party providing the forms or statements, or (y) the Internal
Revenue Code, permit Borrower to make payments hereunder for the account of
such Lender Party free of such deduction or withholding of income or
similar taxes.
Section 3.7. Change of Applicable Lending Office. Each Lender Party
-----------------------------------
agrees that, upon the occurrence of any event giving rise to the operation of
Sections 3.2 through 3.6 with respect
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to such Lender Party, it will, if requested by Borrower, use reasonable efforts
(subject to overall policy considerations of such Lender Party) to designate
another Applicable Lending Office, provided that such designation is made on
such terms that such Lender Party and its Lending Office suffer no economic,
legal or regulatory disadvantage, with the object of avoiding the consequence of
the event giving rise to the operation of any such section. Nothing in this
section shall affect or postpone any of the obligations of Borrower or the
rights of any Lender Party provided in Sections 3.2 through 3.6.
Section 3.8. Replacement of Lenders. If any Lender Party seeks
----------------------
reimbursement for increased costs under Sections 3.2 through 3.6, then within
ninety days thereafter -- provided no Event of Default then exists -- Borrower
shall have the right (unless such Lender Party withdraws its request for
additional compensation) to replace such Lender Party by requiring such Lender
Party to assign its Loans and Notes and its commitments hereunder to an Eligible
Transferee reasonably acceptable to Agent and to Borrower, provided that: (a)
all Obligations of Borrower owing to such Lender Party being replaced (including
such increased costs, but excluding principal and accrued interest on the Notes
being assigned) shall be paid in full to such Lender Party concurrently with
such assignment, and (b) the replacement Eligible Transferee shall purchase the
Note being assigned by paying to such Lender Party a price equal to the
principal amount thereof plus accrued and unpaid interest thereon. In connection
with any such assignment Borrower, Agent, such Lender Party and the replacement
Eligible Transferee shall otherwise comply with Section 10.5. Notwithstanding
the foregoing rights of Borrower under this section, however, Borrower may not
replace any Lender Party which seeks reimbursement for increased costs under
Section 3.2 through 3.6 unless Borrower is at the same time replacing all Lender
Parties which are then seeking such compensation.
ARTICLE IV - Conditions Precedent to Lending
-------------------------------
Section 4.1. Documents to be Delivered. This Agreement shall not become
-------------------------
effective until Agent shall have received all of the following, at Agent's
office in New York, New York, duly executed and delivered and in form, substance
and date satisfactory to Agent:
(a) This Agreement and any other documents that Lenders are to
execute in connection herewith.
(b) Each Note.
(c) Each Security Document listed in the Security Schedule.
(d) Certain certificates of Borrower including:
(i) An "Omnibus Certificate" of the Secretary and of the
Chairman of the Board or President of Borrower, which shall contain
the names and signatures of the officers of Borrower authorized to
execute Loan Documents and which shall certify to the truth,
correctness and completeness of the following exhibits attached
thereto: (1) a copy of resolutions duly adopted by the Board of
Directors
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of Borrower and in full force and effect at the time this Agreement is
entered into, authorizing the execution of this Agreement and the
other Loan Documents delivered or to be delivered in connection
herewith and the consummation of the transactions contemplated herein
and therein, (2) a copy of the charter documents of Borrower and all
amendments thereto, certified by the appropriate official of
Borrower's state of organization, and (3) a copy of any bylaws of
Borrower; and
(ii) A "Compliance Certificate" of the Chairman of the Board or
President and of the chief financial officer of Borrower, of even date
with such Loan, in which such officers certify to the satisfaction of
the conditions set out in subsections (a), (b), (c) and (d) of Section
4.3.
(e) A certificate (or certificates) of the due formation, valid
existence and good standing of Borrower in its state of organization,
issued by the appropriate authorities of such jurisdiction, and
certificates of Borrower's good standing and due qualification to do
business, issued by appropriate officials in any states in which Borrower
owns property subject to Security Documents.
(f) Documents similar to those specified in subsections (d)(i) and (e)
of this section with respect to each Guarantor and the execution by it of
the Loan Documents to which it is a party.
(g) (i) A favorable opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. counsel for Restricted Persons, substantially in the form set forth
in Exhibit F and (ii) letters of reliance with respect to the opinions of
special Washington counsel to Restricted Persons and special Utah counsel
to Restricted Persons delivered in connection with the Exchange Documents
in form and substance acceptable to Agent.
(h) The Initial Financial Statements.
(i) An amendment to the Production/Refining Credit Agreement, in form
and substance acceptable to Agent.
(j) Payment of all commitment, facility, agency and other fees
required to be paid to any Lender pursuant to any Loan Documents or any
commitment agreement heretofore entered into.
Section 4.2. Closing of Exchange and Additional Conditions Precedent to
----------------------------------------------------------
Effectiveness.
- -------------
(a) This Agreement shall not become effective until Borrower and Parent
shall have consummated the transactions contemplated under the Exchange
Documents, in form and substance satisfactory to Agent. Each of Borrower and
Parent, for itself and on behalf of any other Restricted Person, hereby
acknowledges and agrees that (i) the consummation of the transactions
contemplated under this Agreement and the Exchange Documents are intended to be
simultaneous for all intents and purposes, and (ii) each Restricted Person shall
be deemed to have
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executed and delivered each Loan Document as set forth in Section 4.1 above,
including without limitation each Security Document, immediately prior to or
simultaneously with the making of the Loans hereunder.
(b) This Agreement shall not become effective until Borrower, Parent, and
Smith Management, LLC shall have agreed to a restructuring or amendment to the
terms of the Farmout Agreement acceptable to Required Lenders in their sole and
absolute discretion.
Section 4.3. Additional Conditions Precedent. No Lender has any
-------------------------------
obligation to make any Loan (including its first) or issue any Letter of Credit,
unless the following conditions precedent have been satisfied on the date of
such Loan or the date of issuance of such Letter of Credit:
(a) All representations and warranties made by any Restricted Person
in any Loan Document shall be true on and as of the date of such Loan or
such Letter of Credit (except to the extent that the facts upon which such
representations are based have been changed by the extension of credit
hereunder or to the extent that such representations and warranties are
expressly limited to an earlier date) as if such representations and
warranties had been made as of the date of such Loan or Letter of Credit.
(b) No Default shall exist at the date of such Loan or Letter of
Credit.
(c) No Material Adverse Change shall have occurred to, and no event
or circumstance shall have occurred that could reasonably be expected to
cause a Material Adverse Change to, Borrower's Consolidated financial
condition or businesses since the date of this Agreement.
(d) Each Restricted Person shall have performed and complied with all
agreements and conditions required in the Loan Documents to be performed or
complied with by it on or prior to the date of such Loan or Letter of
Credit.
(e) The making of such Loan or the issuance of such Letter of Credit
shall not be prohibited by any Law and shall not subject any Lender or LC
Issuer to any penalty or other onerous condition under or pursuant to any
such Law.
(f) Agent shall have received all documents and instruments which
Agent has then requested, in addition to those described in Section 4.1
(including opinions of legal counsel for Restricted Persons and Agent;
corporate documents and records; documents evidencing governmental
authorizations, consents, approvals, licenses and exemptions; and
certificates of public officials and of officers and representatives of
Borrower and other Persons), as to (i) the accuracy and validity of or
compliance with all representations, warranties and covenants made by any
Restricted Person in this Agreement and the other Loan Documents, (ii) the
satisfaction of all conditions contained herein or therein, and (iii) all
other matters pertaining hereto and thereto. All such
35
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additional documents and instruments shall be satisfactory to Agent in
form, substance and date.
ARTICLE V - Representations and Warranties
------------------------------
To confirm each Lender's understanding concerning Restricted Persons and
Restricted Persons' businesses, properties and obligations and to induce each
Lender to enter into this Agreement and to extend credit hereunder, Borrower and
Parent each represent and warrant to each Lender that each of the following
statements is true and correct in all respects.
Section 5.1. No Default. No Restricted Person is in default in the
----------
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section 5.2. Organization and Good Standing. Each Restricted Person is
------------------------------
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby. Each
Restricted Person is duly qualified, in good standing, and authorized to do
business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary. Each Restricted Person has
taken all actions and procedures customarily taken in order to enter, for the
purpose of conducting business or owning property, each jurisdiction outside the
United States, if any, wherein the character of the properties owned or held by
it or the nature of the business transacted by it makes such actions and
procedures desirable.
Section 5.3. Authorization. Each Restricted Person has duly taken all
-------------
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.
Section 5.4. No Conflicts or Consents. The execution and delivery by the
------------------------
various Restricted Persons of the Loan Documents to which each is a party, the
performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (a) conflict with any provision of (i) any Law, (ii) the
organizational documents of any Restricted Person, or (iii) any agreement,
judgment, license, order or permit applicable to or binding upon any Restricted
Person, (b) result in the acceleration of any Restricted Debt owed by any
Restricted Person, or (c) result in or require the creation of any Lien upon any
assets or properties of any Restricted Person except as expressly contemplated
in the Loan Documents. Except as expressly contemplated in the Loan Documents no
consent, approval, authorization or order of, and no notice to or filing with,
any Tribunal or third party is required in connection with the execution,
delivery or performance by any Restricted Person of any Loan Document or to
consummate any transactions contemplated by the Loan Documents.
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Section 5.5. Enforceable Obligations. This Agreement is, and the other
-----------------------
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Restricted Person which is a party hereto or
thereto, enforceable in accordance with their terms except as such enforcement
may be limited by bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights.
Section 5.6. Initial Financial Statements. Borrower has heretofore
----------------------------
delivered to each Lender true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present each of
Inland Refining's and Parent's Consolidated financial position at the respective
dates thereof, the results of Inland Refining's operations and Inland Refining's
cash flows for the respective periods thereof, and the Consolidated results of
Parent's operations and Parent's Consolidated cash flows for the respective
periods thereof. Since the date of the annual Initial Financial Statements no
Material Adverse Change has occurred, except as reflected in the Disclosure
Schedule or a Disclosure Report. All Initial Financial Statements were prepared
in accordance with GAAP.
Section 5.7. Other Obligations and Restrictions. As of the date hereof,
----------------------------------
other than the Deferred Trade Payables, no Restricted Person has any outstanding
Debt of any kind (including obligations under farm-in agreements, other
obligations to make capital expenditures, contingent obligations, tax
assessments, and unusual forward or long-term commitments) which is, in the
aggregate, material to Borrower or material with respect to Parent's
Consolidated financial condition and not shown in the Initial Financial
Statements or disclosed in the Disclosure Schedule or a Disclosure Report. All
obligations of any Restricted Person to make capital expenditures to drill or
otherwise develop any oil, gas or mineral properties are specified in a
Disclosure Schedule or Disclosure Report (by well or project, describing the
dollar amount of each such obligation). Except as shown in the Initial Financial
Statements or disclosed in the Disclosure Schedule or a Disclosure Report, no
Restricted Person is subject to or restricted by any franchise, contract, deed,
charter restriction, or other instrument or restriction which is materially
likely to cause a Material Adverse Change. The Deferred Trade payables are in
the amounts set forth on Schedule 6 hereto as of the date hereof.
Section 5.8. Full Disclosure. As of the date of delivery, no certificate,
---------------
statement or other information delivered herewith or heretofore by any
Restricted Person to any Lender in connection with the negotiation of this
Agreement or in connection with any transaction contemplated hereby contains any
untrue statement of a material fact or omits to state any material fact known to
any Restricted Person (other than industry-wide risks normally associated with
the types of businesses conducted by Restricted Persons) necessary to make the
statements contained herein or therein not misleading as of the date made or
deemed made. There is no fact known to any Restricted Person (other than
industry-wide risks normally associated with the types of businesses conducted
by Restricted Persons) that has not been disclosed to each Lender in writing
which is materially likely to cause a Material Adverse Change. There are no
statements or conclusions in any Engineering Report which are based upon or
include misleading information or fail to take into account material information
regarding the matters reported therein, it being understood that each
Engineering Report is necessarily based upon professional opinions, estimates
and projections and that Borrower does not warrant that such opinions,
37
<PAGE>
estimates and projections will ultimately prove to have been accurate. Borrower
has heretofore delivered to each Lender true, correct and complete copies of the
Initial Engineering Report.
Section 5.9. Litigation. Except as disclosed in the Initial Financial
----------
Statements or in the Disclosure Schedule: (a) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Restricted Person threatened, against any Restricted Person
before any Tribunal which could cause a Material Adverse Change, and (b) there
are no outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Restricted Person or any Restricted Person's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
Section 5.10. Labor Disputes and Acts of God. Except as disclosed in the
------------------------------
Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Restricted Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.
Section 5.11. ERISA Plans and Liabilities. All currently existing ERISA
---------------------------
Plans are listed in the Disclosure Schedule or a Disclosure Report. Except as
disclosed in the Initial Financial Statements or in the Disclosure Schedule or a
Disclosure Report, no Termination Event has occurred with respect to any ERISA
Plan and all ERISA Affiliates are in compliance with ERISA in all material
respects. No ERISA Affiliate is required to contribute to, or has any other
absolute or contingent liability in respect of, any "multiemployer plan" as
defined in Section 4001 of ERISA. Except as set forth in the Disclosure Schedule
or a Disclosure Report: (a) no "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code) exists with respect to any ERISA
Plan, whether or not waived by the Secretary of the Treasury or his delegate,
and (b) the current value of each ERISA Plan's benefits does not exceed the
current value of such ERISA Plan's assets available for the payment of such
benefits by more than $500,000.
Section 5.12. Environmental and Other Laws. As used in this section:
----------------------------
"CERCLA" means the Comprehensive Environmental Response, Compensation and
------
Liability Act of 1980, as amended, "CERCLIS" means the Comprehensive
-------
Environmental Response, Compensation and Liability Information System List of
the Environmental Protection Agency, and "Release" has the meaning given such
-------
term in 42 U.S.C. (S) 9601(22). Except as set forth in the Disclosure Schedule
or a Disclosure Report:
(a) Restricted Persons are conducting their businesses in compliance
with all applicable Laws, including Environmental Laws, and have all
permits, licenses and authorizations required in connection with the
conduct of their businesses, except to the extent failure to have any such
permit, license or authorization could not cause a Material Adverse Change.
Each Restricted Person is in compliance with the terms and conditions of
all such permits, licenses and authorizations, and is also in compliance
with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained
in any applicable Environmental Law or in any
38
<PAGE>
regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except
to the extent failure to comply could not cause a Material Adverse Change.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed, and no investigation or review is pending or
threatened by any Tribunal or any other Person with respect to (i) any
alleged generation, treatment, storage, recycling, transportation,
disposal, or Release of any Hazardous Materials, either by any Restricted
Person or on any property owned by any Restricted Person, (ii) any material
remedial action which might be needed to respond to any such alleged
generation, treatment, storage, recycling, transportation, disposal, or
Release, or (iii) any alleged failure by any Restricted Person to have any
permit, license or authorization required in connection with the conduct of
its business or with respect to any such generation, treatment, storage,
recycling, transportation, disposal, or Release.
(c) No Restricted Person otherwise has any known material contingent
liability in connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials.
(d) No Restricted Person has handled any Hazardous Materials, other
than as a generator, on any properties now or previously owned or leased by
any Restricted Person to an extent that such handling has caused, or could
cause, a Material Adverse Change; and
(i) no PCBs are or have been present at any properties now
or previously owned or leased by any Restricted Person;
(ii) no asbestos is or has been present at any properties now
or previously owned or leased by any Restricted Person;
(iii) there are no underground storage tanks for Hazardous
Materials, active or abandoned, at any properties now or
previously owned or leased by any Restricted Person;
(iv) no Hazardous Materials have been Released, in a
reportable quantity, where such a quantity has been
established by statute, ordinance, rule, regulation or
order, at, on or under any properties now or previously
owned or leased by any Restricted Person;
(v) no Hazardous Materials have been otherwise Released at,
on or under any properties now or previously owned or
leased by any Restricted Person to an extent that such
release has caused, or could cause, a Material Adverse
Change.
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<PAGE>
(e) No Restricted Person has transported or arranged for the
transportation of any Hazardous Material to any location which is listed on
the National Priorities List under CERCLA, listed for possible inclusion on
the National Priorities List by the Environmental Protection Agency in
CERCLIS, or listed on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations which
may lead to claims against any Restricted Person for clean-up costs,
remedial work, damages to natural resources or for personal injury claims,
including, but not limited to, claims under CERCLA.
(f) No Hazardous Material generated by any Restricted Person has been
recycled, treated, stored, disposed of or released by any Restricted Person
at any location other than those listed in Disclosure Schedule.
(g) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of any Restricted Person (and to
the best knowledge of Borrower, no such notification has been filed with
respect to any Restricted Person by any other Person), and no property now
or previously owned or leased by any Restricted Person is listed or
proposed for listing on the National Priority list promulgated pursuant to
CERCLA, in CERCLIS, or on any similar state list of sites requiring
investigation or clean-up.
(h) There are no Liens arising under or pursuant to any Environmental
Laws on any of the real properties or properties owned or leased by any
Restricted Person, and no government actions have been taken or are in
process which could subject any of such properties to such Liens; nor would
any Restricted Person be required to place any notice or restriction
relating to the presence of Hazardous Materials at any properties owned by
it in any deed to such properties.
(i) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the
possession of any Restricted Person in relation to any properties or
facility now or previously owned or leased by any Restricted Person which
have not been made available to Agent.
Section 5.13. Names and Places of Business. No Restricted Person has,
----------------------------
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule or a Disclosure Report, the chief
executive office and principal place of business of each Restricted Person are
(and for the preceding five years have been) located at the address of Borrower
set out on the signature pages hereto. Except as indicated in the Disclosure
Schedule or a Disclosure Report, no Restricted Person has any other office or
place of business.
Section 5.14. Subsidiaries. Neither Borrower nor Parent presently has any
------------
Subsidiary or owns any stock in any corporation or association except those
listed in the Disclosure Schedule or a Disclosure Report. Neither Borrower nor
any Restricted Person is a member of any general or limited partnership, joint
venture or association of any type whatsoever except those listed in
40
<PAGE>
the Disclosure Schedule or a Disclosure Report. Except as otherwise revealed in
a Disclosure Report, Parent owns, directly or indirectly, the equity interest in
each of its Subsidiaries which is indicated in the Disclosure Schedule.
Section 5.15. Licenses. Each Restricted Person possesses all licenses,
--------
permits, franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person) which are
necessary to carry out its business as presently conducted and as presently
proposed to be conducted hereafter, and no Restricted Person is in violation in
any material respect of the terms under which it possesses such intellectual
property or the right to use such intellectual property.
Section 5.16. Government Regulation. Neither Borrower nor any other
---------------------
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Restricted Debt,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
Section 5.17. Ownership of Borrower and Inland Refining. All of the
-----------------------------------------
outstanding shares of Borrower and Inland Refining are owned and shall at all
times be owned by Parent.
Section 5.18. Solvency. Upon giving effect to the issuance of the Notes,
--------
the execution of the Loan Documents by Borrower and the Exchange Documents by
the parties thereto and the consummation of the transactions contemplated hereby
and thereby, Borrower will be solvent (as such term is used in applicable
bankruptcy, liquidation, receivership, insolvency or similar Laws).
Section 5.19. Taxes. Each Restricted Person has filed all United States
-----
Federal income tax returns and all other material tax returns that are required
to be filed by it and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by any Restricted Person and all other
penalties or charges. The charges, accruals and revenues on the books of each
Restricted Person in respect of taxes and other governmental charges are, in the
opinion of Parent, adequate. No Restricted Person has not given or been
requested to give a waiver of the statute of limitations relating to the payment
of any federal or other taxes, except as listed in the Disclosure Schedule or a
Disclosure Report.
Section 5.20. Exchange Transactions. Contemporaneously with the
---------------------
consummation of this Agreement, Borrower has delivered to Agent a complete and
correct copy of the Exchange Documents, and each such Exchange Document is in
full force and effect and no material term or condition thereof has been amended
or otherwise waived except for such amendments and waivers approved by Agent
(which Agent may give without the consent of the Lenders), none of the parties
thereto has failed to perform any material obligation thereunder, and each of
the representations and warranties given therein is true and correct as of the
effective date of the Exchange Documents.
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ARTICLE VI - Affirmative Covenants of Borrower and Parent
--------------------------------------------
To conform with the terms and conditions under which each Lender is willing
to have credit outstanding to Borrower, and to induce each Lender to enter into
this Agreement and extend credit hereunder, Parent and Borrower each warrant,
covenant and agree that until the full and final payment of the Obligations and
the termination of this Agreement, unless Required Lenders have previously
agreed otherwise:
Section 6.1. Payment and Performance. Borrower will pay all amounts due
-----------------------
under the Loan Documents in accordance with the terms thereof and will observe,
perform and comply with every covenant, term and condition expressed or implied
in the Loan Documents. Borrower and Parent will cause each other Restricted
Person to observe, perform and comply with every such term, covenant and
condition in any Loan Document.
Section 6.2. Books, Financial Statements and Reports. Parent, acting
---------------------------------------
through or on behalf of the Restricted Persons, will at all times maintain full
and accurate books of account and records and a standard system of accounting,
will maintain its Fiscal Year, and will furnish the following statements and
reports to each Lender Party at Parent's expense:
(a) As soon as available, and in any event within ninety (90) days
after the end of each Fiscal Year, complete Consolidated and Consolidating
financial statements of Parent together with all notes thereto, prepared in
reasonable detail in accordance with GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards, by
Arthur Anderson, L.L.P., or other independent certified public accountants
selected by Parent and acceptable to Required Lenders, stating that such
Consolidated financial statements have been so prepared. These financial
statements shall contain a Consolidated and Consolidating balance sheet as
of the end of such Fiscal Year and Consolidated and Consolidating
statements of earnings, of cash flows, and of changes in owners' equity for
such Fiscal Year, each setting forth in comparative form the corresponding
figures for the preceding Fiscal Year. In addition, within ninety (90) days
after the end of each Fiscal Year Parent will furnish a report signed by
such accountants (i) stating that they have read this Agreement, (ii)
containing calculations showing compliance (or non-compliance) at the end
of such Fiscal Year with the requirements of Sections 7.10 - 7.12,
inclusive, and (iii) further stating that in making their examination and
reporting on the Consolidated financial statements described above they did
not conclude that any Default existed at the end of such Fiscal Year or at
the time of their report, or, if they did conclude that a Default existed,
specifying its nature and period of existence.
(b) As soon as available, and in any event within fifty (50) days
after the end of each Fiscal Quarter, Parent's Consolidated and
Consolidating balance sheet as of the end of such Fiscal Quarter and
Consolidated and Consolidating statements of earnings and cash flows for
the period from the beginning of the then current Fiscal Year to the end of
such Fiscal Quarter, all in reasonable detail and prepared in accordance
with GAAP,
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subject to changes resulting from normal year-end adjustments. In addition,
Parent will, together with each such set of financial statements and each
set of financial statements furnished under subsection (a) of this section,
furnish a certificate in the form of Exhibit D signed by the chief
financial officer of Parent stating that such financial statements are
accurate and complete (subject to normal year-end adjustments), stating
that he has reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with the
requirements of Sections 7.10 - 7.12, inclusive, and stating that no
Default exists at the end of such Fiscal Quarter or at the time of such
certificate or specifying the nature and period of existence of any such
Default.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by any Restricted
Person to its stockholders and all registration statements, periodic
reports and other statements and schedules filed by any Restricted Person
with any securities exchange, the Securities and Exchange Commission or any
similar governmental authority.
(d) By October 1 and April 1 of each year, beginning October 1, 2000,
an engineering report prepared as of the preceding August 1 and February 1,
respectively by Ryder Scott Company or other independent petroleum
engineers chosen by Borrower and acceptable to Required Lenders, concerning
the Properties. The report (1) shall separately report on Proved Producing
Reserves, Proved Developed Nonproducing Reserves, Proved Undeveloped
Reserves and probable reserves and separately calculate the present value
of future net reserves of each such category of Proved Reserves (and the
similar net present value of such probable reserves), (2) shall contain
sufficient information to meet the reporting requirements concerning oil
and gas reserves contained in Regulations S-K and S-X promulgated by the
Securities and Exchange Commission, (3) shall take into account Borrower's
actual experiences with leasehold operating expenses and other costs in
determining projected leasehold operating expenses and other costs, (4)
shall identify and take into account any "over-produced" or "under-
produced" status under gas balancing arrangements, (5) shall contain
information and analysis comparable in scope to that contained in the
Initial Engineering Reports, and (6) shall otherwise be in form and
substance satisfactory to Required Lenders. The report shall distinguish
(or shall be delivered together with a certificate from an appropriate
officer of Borrower which distinguishes) those Properties treated in the
report which are Eligible Mortgaged Properties from those properties
treated in the report which are not Eligible Mortgaged Properties.
(e) Within 60 days following a request by Required Lenders (but only
in connection with an Optional Redetermination Date and otherwise only once
during any twelve month period beginning with October 1), an engineering
report prepared by in-house petroleum engineers employed by Borrower,
concerning all oil and gas properties and interests owned by any Restricted
Person which are located in or offshore of the United States and which have
attributable to them proved oil and gas reserves. This
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report shall be substantially in the form and substance as the reports
delivered under subsection (d) above and otherwise shall be satisfactory to
Required Lenders.
(f) To the extent requested from time to time but in no event more
than one time during any Fiscal Quarter, a report in detail acceptable to
Required Lenders with respect to the Properties during the Fiscal Quarter
immediately prior thereto:
(i) describing by well and field the net quantities of oil,
gas, natural gas liquids, and water produced (and the quantities of
water injected) during such Fiscal Quarter;
(ii) describing by well and field the quantities of oil, gas
and natural gas liquids sold during such Fiscal Quarter out of
production from the Properties and calculating the average sales
prices of such oil, natural gas, and natural gas liquids;
(iii) specifying any leasehold operating expenses, overhead
charges, gathering costs, transportation costs, and other costs with
respect to the Properties of the kind chargeable as direct charges or
overhead under an Onshore COPAS Accounting Procedure for Joint
Operations (1984 form published by the Council of Petroleum
Accountants Societies);
(iv) setting forth the amount of Direct Taxes on the
Properties during such Fiscal Quarter and the amount of royalties paid
with respect to the Properties during such Fiscal Quarter;
(v) describing all activities carried out during such Fiscal
Quarter in furtherance of the Parent's annual business plan, all other
capital expenditures during such Fiscal Quarter, and all projections
of capital expenditures projected to be made on any of the Eligible
Mortgaged Properties; and
(vi) describing all workover work and drilling during such
Fiscal Quarter, including the cost and status of each well drilled or
worked over during such Fiscal Quarter, test reports for each well
tested during such Fiscal Quarter, reports on prices and volumes
received for such Fiscal Quarter, reports for each well completed
during such Fiscal Quarter, and accompanying authorizations for
expenditures.
(g) As soon as available, and in any event within forty-five (45)
days after the end of each Fiscal Quarter, a report describing aggregate
volume of production and sales attributable to production during such
Fiscal Quarter from the properties of Borrower and describing the related
severance taxes, leasehold operating expenses and capital costs
attributable thereto and incurred during such Fiscal Quarter.
44
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(h) As soon as available, and in any event within thirty (30) days
after the end of each Fiscal Year, Borrower shall deliver to Agent an
environmental compliance certificate signed by the president or chief
executive officer of Borrower in the form attached hereto as Exhibit E.
Further, if requested by Agent, Borrower shall permit and cooperate with an
environmental and safety review made in connection with the operations of
Borrower's oil and gas properties one time during each Fiscal Year, by
Pilko & Associates, Inc. or other consultants selected by Agent which
review shall, if requested by Agent, be arranged and supervised by
environmental legal counsel for Agent, all at Borrower's cost and expense.
The consultant shall render a verbal or written report, as specified by
Agent, based upon such review at Borrower's cost and expense.
(i) Concurrently with the annual renewal of the Borrower's insurance
policies, Borrower shall, if requested by Agent in writing, cause a
certificate or report to be issued by Agent's professional insurance
consultants or other insurance consultants satisfactory to Agent certifying
that Borrower's insurance for the next succeeding year after such renewal
(or for such longer period for which such insurance is in effect) complies
with the provisions of this Agreement and the Security Documents.
(j) By December 1 of each year, beginning with December 1, 1999, a
proposed business plan for the Parent and its Consolidated Subsidiaries,
including proposed budgets and plans of development of oil and gas
properties, in form and detail reasonably satisfactory to Required Lenders
for the next succeeding year.
Section 6.3. Other Information and Inspections. Each Restricted Person
---------------------------------
will furnish to each Lender any information which Agent may from time to time
request in writing concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with Restricted Persons' businesses and
operations. Each Restricted Person will permit representatives appointed by
Agent (including independent accountants, auditors, agents, attorneys,
appraisers and any other Persons) to visit and inspect during normal business
hours any of such Restricted Person's property, including its books of account,
other books and records, and any facilities or other business assets, and to
make extra copies therefrom and photocopies and photographs thereof, and to
write down and record any information such representatives obtain, and each
Restricted Person shall permit Agent or its representatives to investigate and
verify the accuracy of the information furnished to Agent or any Lender in
connection with the Loan Documents and to discuss all such matters with its
officers, employees and representatives.
Section 6.4. Notice of Material Events and Change of Address. Borrower
-----------------------------------------------
and Parent will promptly notify each Lender in writing, stating that such notice
is being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
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(c) the acceleration of the maturity of any Restricted Debt owed by
any Restricted Person or of any default by any Restricted Person under any
indenture, mortgage, agreement, contract or other instrument to which any
of them is a party or by which any of them or any of their properties is
bound, if such acceleration or default could cause a Material Adverse
Change,
(d) the occurrence of any Termination Event,
(e) any claim of $50,000 or more, any notice of potential liability
under any Environmental Laws which might exceed such amount, or any other
material adverse claim asserted against any Restricted Person or with
respect to any Restricted Person's properties, and
(f) the filing of any suit or proceeding against any Restricted
Person in which an adverse decision could cause a Material Adverse Change.
Upon the occurrence of any of the foregoing Restricted Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Borrower will also notify
Agent and Agent's counsel in writing at least twenty Business Days prior to the
date that any Restricted Person changes its name or the location of its chief
executive office or principal place of business or the place where it keeps its
books and records concerning the Collateral, furnishing with such notice any
necessary financing statement amendments or requesting Agent and its counsel to
prepare the same.
Section 6.5. Maintenance of Properties. Each Restricted Person will
-------------------------
maintain, preserve, protect, and keep all Collateral and all other property used
or useful in the conduct of its business in good condition and in compliance
with all applicable Laws, and will from time to time make all repairs, renewals
and replacements needed to enable the business and operations carried on in
connection therewith to be conducted at all times consistent with prudent
industry practices.
Section 6.6. Maintenance of Existence and Qualifications. Each Restricted
-------------------------------------------
Person will maintain and preserve its existence and its rights and franchises in
full force and effect and will qualify to do business in all states or
jurisdictions (a) where Collateral is located and (b) where required by
applicable Law, except where the failure so to qualify will not cause a Material
Adverse Change.
Section 6.7. Payment of Trade, Taxes, etc. Each Restricted Person will
-----------------------------
(a) timely file all required tax returns; (b) timely pay all taxes, assessments,
and other governmental charges or levies imposed upon it or upon its income,
profits or property; (c) within 90 days past the original invoice or billing
date thereof, or, if earlier, when due in accordance with its terms, pay and
discharge all Debt owed by it on ordinary trade terms to vendors, suppliers and
other Persons providing goods and services used by it in the ordinary course of
its business (other than Deferred Trade Payables); (d) pay and discharge when
due all other Debt now or hereafter owed
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by it; and (e) maintain appropriate accruals and reserves for all of the
foregoing in accordance with GAAP. Each Restricted Person may, however, delay
paying or discharging any of the foregoing so long as it is in good faith
contesting the validity thereof by appropriate proceedings and has set aside on
its books adequate reserves therefor. Borrower shall repay all Deferred Trade
Payables in accordance with the terms and conditions of all promissory notes,
deferral agreements, or other similar documents governing the Deferred Trade
Payables, and in any event, on or before June 30, 2000.
Section 6.8. Bonding and Insurance. The Restricted Persons will maintain
---------------------
all bonds and letters of credit in lieu of bonds which they are required to
maintain (by law, lease terms, or consistent with prudent industry practices) in
order to carry out development and production operations on, the Properties.
Each Restricted Person will keep or cause to be kept adequately insured by
financially sound and reputable insurers its and its Subsidiaries' vehicles and
all other property in accordance with Schedule 3. Any insurance policies
covering Collateral shall be endorsed (a) to provide for payment of losses to
Agent, on behalf of Lenders, as their interests may appear, pursuant to a
mortgage clause (without contribution) of standard form made part of the
applicable policy, (b) to provide that such policies may not be canceled,
reduced or adversely affected in any manner for any reason without fifteen days
prior notice to Agent, (c) to provide for any other matters specified in any
applicable Security Document or which Agent may reasonably require; and (d) to
provide for insurance against fire, casualty and any other hazards normally
insured against, in the amount of the full value (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured. (To the extent that the
Mortgages or any other Security Document contains other additional requirements
for such endorsement, each Restricted Person shall also comply with such
additional requirements.) Each Restricted Person shall at all times maintain
adequate insurance against its liability for injury to persons or property,
which insurance shall be by financially sound and reputable insurers and shall
without limitation provide the following coverages: comprehensive general
liability (including coverage for damage to underground resources and equipment,
damage caused by blowouts or cratering, damage caused by explosion, damage to
underground minerals or resources caused by saline substances, broad form
property damage coverage, broad form coverage for contractually assumed
liabilities and broad form coverage for acts of independent contractors),
worker's compensation and automobile liability. Each Restricted Person shall at
all times maintain cost of control of well insurance with respect to all wells
being drilled or deepened, which shall insure against the following costs: cost
of control of well; fires, blowouts, etc.; redrilling expense; and seepage and
pollution expense.
Section 6.9. Performance on Borrower's Behalf. If any Restricted Person
--------------------------------
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Agent may pay the same.
Borrower shall immediately reimburse Agent for any such payments and each amount
paid by Agent shall constitute an Obligation owed hereunder which is due and
payable on the date such amount is paid by Agent.
Section 6.10. Interest. Borrower hereby promises to each Lender Party to
--------
pay interest at the Default Rate applicable to Base Rate Loans on all
Obligations (excluding Loans bearing interest at the Adjusted Eurodollar Rate
but including Obligations to pay fees or to reimburse or
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indemnify any Lender) which Borrower has in this Agreement promised to pay to
such Lender Party and which are not paid when due. Such interest shall accrue
from the date such Obligations become due until they are paid.
Section 6.11. Compliance with Agreements and Law. Each Restricted Person
----------------------------------
will perform all material obligations it is required to perform under the terms
of each indenture, mortgage, deed of trust, security agreement, lease,
franchise, agreement, contract or other instrument or obligation to which it is
a party or by which it or any of its properties is bound. Each Restricted Person
will conduct its business and affairs in compliance with all Laws applicable
thereto.
Section 6.12. Environmental Matters; Environmental Reviews.
--------------------------------------------
(a) Each Restricted Person will comply in all material respects with
all Environmental Laws now or hereafter applicable to such Restricted
Person and shall obtain, at or prior to the time required by applicable
Environmental Laws, all environmental, health and safety permits, licenses
and other authorizations necessary for its operations and will maintain
such authorizations in full force and effect.
(b) Borrower will promptly furnish to Agent all written notices of
violation, orders, claims, citations, complaints, penalty assessments,
suits or other proceedings received by Borrower, or of which it has notice,
pending or threatened against Borrower, by any governmental authority with
respect to any alleged violation of or non-compliance with any
Environmental Laws or any permits, licenses or authorizations in connection
with its ownership or use of its properties or the operation of its
business.
(c) Borrower will promptly furnish to Agent all requests for
information, notices of claim, demand letters, and other notifications,
received by Borrower in connection with its ownership or use of its
properties or the conduct of its business, relating to potential
responsibility with respect to any investigation or clean-up of Hazardous
Material at any location.
Section 6.13. Evidence of Compliance. Each Restricted Person will furnish
----------------------
to each Lender at such Restricted Person's or Borrower's expense all evidence
which Agent from time to time reasonably requests in writing as to the accuracy
and validity of or compliance with all representations, warranties and covenants
made by any Restricted Person in the Loan Documents, the satisfaction of all
conditions contained therein, and all other matters pertaining thereto.
Section 6.14. Agreement to Deliver Security Documents. Parent and Borrower
---------------------------------------
agree to have any Subsidiary formed after the date hereof execute a Guaranty for
the benefit of the Lenders in form substantially similar to the Parent Guaranty.
In addition, Parent and Borrower each agree to deliver and to cause each other
Restricted Person to deliver, to further secure the Obligations whenever
requested by Agent in its sole and absolute discretion, deeds of trust,
mortgages, chattel mortgages, security agreements, financing statements and
other Security
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Documents in form and substance satisfactory to Agent for the purpose of
granting, confirming, and perfecting first and prior liens or security interests
in any real or personal property now owned or hereafter acquired by any
Restricted Person. Furthermore, Parent and Borrower each agree to deliver and to
cause each other Restricted Person to deliver whenever requested by Agent in its
sole and absolute discretion, an intercompany subordination agreement in form
and substance satisfactory to Agent. Borrower also agrees to deliver, whenever
requested by Agent in its sole and absolute discretion, favorable title opinions
from legal counsel acceptable to Agent with respect to any Restricted Person's
properties and interests designated by Agent, based upon abstract or record
examinations to dates acceptable to Agent and (a) stating that such Restricted
Person has good and defensible title to such properties and interests, free and
clear of all Liens other than Permitted Liens, (b) confirming that such
properties and interests are subject to Security Documents securing the
Obligations that constitute and create legal, valid and duly perfected first
deed of trust or mortgage liens in such properties and interests and first
priority assignments of and security interests in the oil and gas attributable
to such properties and interests and the proceeds thereof, and (c) covering such
other matters as Agent may request.
Section 6.15. Perfection and Protection of Security Interests and Liens.
---------------------------------------------------------
Borrower and Parent will from time to time deliver, and will cause each other
Restricted Person from time to time to deliver, to Agent any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by Restricted
Persons in form and substance satisfactory to Agent, which Agent requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing any Obligations.
Section 6.16. Bank Accounts; Offset. To secure the repayment of the
---------------------
Obligations Borrower and Parent each hereby grant to each Lender a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of any Lender at common Law, under the
Loan Documents, or otherwise, and each of which shall be upon and against (a)
any and all moneys, securities or other property (and the proceeds therefrom) of
Borrower or Parent now or hereafter held or received by or in transit to any
Lender from or for the account of Borrower or Parent, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, (b) any and all deposits
(general or special, time or demand, provisional or final) of Borrower or Parent
with any Lender, and (c) any other credits and claims of Borrower or Parent at
any time existing against any Lender, including claims under certificates of
deposit. At any time and from time to time after the occurrence of any Default,
each Lender is hereby authorized to foreclose upon, or to offset against the
Obligations then due and payable (in either case without notice to Borrower or
Parent), any and all items hereinabove referred to. The remedies of foreclosure
and offset are separate and cumulative, and either may be exercised
independently of the other without regard to procedures or restrictions
applicable to the other.
Section 6.17. Guaranties of Parent's Subsidiaries. Each Subsidiary of
-----------------------------------
Parent now existing or created, acquired or coming into existence after the date
hereof shall, promptly upon request by Agent, execute and deliver to Agent an
absolute and unconditional guaranty of the timely repayment of the Obligations
and the due and punctual performance of the obligations of Parent hereunder,
which guaranty shall be satisfactory to Agent in form and substance. Each
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<PAGE>
Subsidiary of Parent existing on the date hereof shall duly execute and deliver
such a guaranty prior to the making of any Loan hereunder. Parent will cause
each of its Subsidiaries to deliver to Agent, simultaneously with its delivery
of such a guaranty, written evidence satisfactory to Agent and its counsel that
such Subsidiary has taken all corporate or partnership action necessary to duly
approve and authorize its execution, delivery and performance of such guaranty
and any other documents which it is required to execute.
Section 6.17. Production Proceeds. Notwithstanding that, by the terms of
-------------------
the various Security Documents, Restricted Persons are and will be assigning to
Agent and Lenders all of the "Production Proceeds" (as defined therein) accruing
to the property covered thereby, so long as no Default has occurred Restricted
Persons may continue to receive from the purchasers of production all such
Production Proceeds, subject, however, to the Liens created under the Security
Documents, which Liens are hereby affirmed and ratified. Upon the occurrence of
a Default, Agent and Lenders may exercise all rights and remedies granted under
the Security Documents, including the right to obtain possession of all
Production Proceeds then held by Restricted Persons or to receive directly from
the purchasers of production all other Production Proceeds, subject to the
rights of the Farmee (as such term is defined in the Farmout Agreement) with
respect to proceeds of production from Earned Wells (as such term is defined in
the Farmout Agreement) under the Farmout Agreement. In no case shall any
failure, whether purposed or inadvertent, by Agent or Lenders to collect
directly any such Production Proceeds constitute in any way a waiver, remission
or release of any of their rights under the Security Documents, nor shall any
release of any Production Proceeds by Agent or Lenders to Restricted Persons
constitute a waiver, remission, or release of any other Production Proceeds or
of any rights of Agent or Lenders to collect other Production Proceeds
thereafter.
Section 6.19. Completion of Activities. Borrower will (1) timely develop
------------------------
the Properties in accordance with Borrower's business plan, and (2) except to
the extent regulatory approval has not yet been obtained, have each producing
and injection well which is hereafter completed put into normal operation.
Borrower will make capital expenditures for the drilling and development of the
Properties in accordance with Borrower's business plan.
Section 6.20. Reviews. Borrower will meet with Agent from time to time as
-------
reasonably requested by Agent or Required Lenders, at the offices of Agent or at
such other location as Agent and Borrower may agree, to review all operational
activities of Borrower with respect to the Eligible Mortgaged Properties and all
financial reports of the Restricted Persons since the date of the prior review.
Each review shall be in scope satisfactory to Agent, but will include at a
minimum, an update by Borrower on the development activities made pursuant to
Borrower's business plan, any requests by Borrower that changes be made to
Borrower's business plan, any cost or expense overruns or underruns, any
mechanical problems incurred, and any differences in reserves or production
estimates.
Section 6.21. Hedging Contracts. No later than thirty (30) days after the
-----------------
date hereof, Borrower shall enter into and at all times thereafter shall
maintain Hedging Contracts which comply with Section 7.3 and have the purpose
and effect of fixing prices on the aggregate monthly production equal to or
greater than fifty percent (50%) of Borrower's aggregate
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Projected Oil and Gas Production through December 31, 2001 and, to the extent
practical in the exercise of reasonable diligence, twenty five percent (25%) of
Borrower's aggregate Projected Oil and Gas Production through December 31, 2002.
ARTICLE VII - Negative Covenants of Borrower and Parent
-----------------------------------------
To conform with the terms and conditions under which each Lender is willing
to have credit outstanding to Borrower, and to induce each Lender to enter into
this Agreement and extend credit hereunder, Parent and Borrower each warrant,
covenant and agree that until the full and final payment of the Obligations and
the termination of this Agreement, unless Required Lenders have previously
agreed otherwise:
Section 7.1 Restricted Debt. No Restricted Person will in any manner owe
---------------
or be liable for Restricted Debt except:
(a) the Obligations.
(b) Hedging transactions permitted under Section 7.3.
(c) any Restricted Debt assumed or incurred by any Restricted Person
after the date hereof to finance all or any part of the purchase price of
property acquired by such Restricted Person, provided that:
(i) such Restricted Debt shall be secured only by the property
so acquired and the improvements thereon,
(ii) each Lien securing such Restricted Debt shall attach or be
existing at the time of acquisition,
(iii) only the Restricted Person that acquired such property
shall be liable on such Restricted Debt,
(iv) the principal amount of such Restricted Debt in respect of
such property shall not exceed the lower of the acquisition price of
or market value of the property at the time of acquisition thereof by
such Restricted Person,
(v) the aggregate outstanding principal amount of such
Restricted Debt of the Restricted Persons incurred for the purchase of
trucks or automobiles does not at any time exceed $250,000, and the
aggregate principal amount of such Restricted Debt which is incurred
for such purpose in any Fiscal Year does not exceed $100,000, and
(vi) the aggregate outstanding principal amount of such
Restricted Debt of the Restricted Persons incurred for purposes other
than the purchase of trucks or
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automobiles, does not at any time exceed $200,000, and the aggregate
principal amount of such Restricted Debt which is incurred for such
other purposes in any Fiscal Year does not exceed $50,000.
(d) the Restricted Debt described in Section 7.1 of the Disclosure
Schedule.
(e) Parent's Series D Preferred Stock, Series E Preferred Stock, and
Series Z Preferred Stock.
(f) the Debt of Inland Refining evidenced by the Production/Refining
Credit Agreement, provided that the principal amount of such Debt thereof
(including without limitation advances and the face amount of letters of
credit) shall not exceed $20,000,000 at any time outstanding.
(g) guaranties by Parent, in form and substance acceptable to
Required Lenders in their sole discretion, of obligations of Inland
Refining under agreements for the purchase of refinery feed stocks in the
ordinary course of business; provided, however, that each such guaranty
shall specify a maximum aggregate liability for Parent under such guaranty,
and the maximum aggregate amount of such specified maximum liability of
Parent under all such guaranties shall not exceed $6,000,000 at any one
time.
(h) the Deferred Trade Payables.
(i) unsecured intercompany Debt among Parent and Borrower.
(j) miscellaneous items of Restricted Debt not described in
subsections (a) through (i) which do not in the aggregate (taking into
account all such Restricted Debt of all Restricted Persons) exceed $150,000
at any one time outstanding.
Section 7.2 Limitation on Liens. No Restricted Person will create,
-------------------
assume or permit to exist any Lien upon any of the properties or assets which it
now owns or hereafter acquires, except, to the extent not otherwise forbidden by
the Security Documents the following ("Permitted Liens"):
(a) Liens which secure Obligations only.
(b) Liens securing the Restricted Debt permitted by Section 7.1 (c)
and Liens described in Section 7.1 of the Disclosure Schedule securing
Restricted Debt permitted by Section 7.1(d).
(c) Liens described on Schedule 7.
(d) Excepted Liens.
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Section 7.3 Hedging Contracts. No Restricted Person will be a party to
-----------------
or in any manner be liable on any Hedging Contract except:
(a) contracts entered into with the purpose and effect of fixing prices
on oil or gas expected to be produced by Borrower, provided that at all times:
(i) no such contract fixes a price for a term of more than thirty six (36)
months; (ii) the aggregate monthly production covered by all such contracts
(determined, in the case of contracts that are not settled on a monthly basis,
by a monthly proration acceptable to Agent) for any single month shall not in
the aggregate exceed (A) one hundred percent (100%) prior to December 31, 1999
or (B) eighty percent (80%) at any time thereafter of Borrower's aggregate
Projected Oil and Gas Production anticipated to be sold in the ordinary course
of Restricted Persons' businesses for such month, (iii) no such contract
requires any Restricted Person to put up money, assets, letters of credit or
other security against the event of its nonperformance prior to actual default
by such Restricted Person in performing its obligations thereunder, and (iv)
each such contract is with a counterparty or has a guarantor of the obligation
of the counterparty who (unless such counterparty is a Lender or one of its
Affiliates) at the time the contract is rated at least BBB- by Moody's or Baa3
by S & P. As used in this subsection, the term "Projected Oil and Gas
Production" means the projected production of oil or gas (measured by volume
unit or BTU equivalent, not sales price) for the term of the contracts or a
particular month, as applicable, from properties and interests owned by any
Restricted Person which are located in or offshore of the United States and
which have attributable to them proved oil or gas reserves, as such production
is projected in the most recent report delivered pursuant to Section 6.2(d),
after deducting projected production from any properties or interests sold or
under contract for sale that had been included in such report and after adding
projected production from any properties or interests that had not been
reflected in such report but that are reflected in a separate or supplemental
reports meeting the requirements of such Section 6.2(d) or (e) above and
otherwise are satisfactory to Agent; and
(b) contracts entered into by a Restricted Person with the purpose and
effect of fixing interest rates on a principal amount of indebtedness of such
Restricted Person that is accruing interest at a variable rate, provided that
(i) the aggregate notional amount of such contracts never exceeds eighty percent
(80%) of the anticipated outstanding principal balance of the indebtedness to be
hedged by such contracts or an average of such principal balances calculated
using a generally accepted method of matching interest swap contracts to
declining principal balances, (ii) the floating rate index of each such contract
generally matches the index used to determine the floating rates of interest on
the corresponding indebtedness to be hedged by such contract and (iii) each such
contract is with a counterparty or have a guarantor of the obligation of the
counterparty who (unless such counterparty is a Lender or one of its Affiliates)
at the time the contract is made is rated at least BBB- by Moody's or Baa3 by S
& P.
Section 7.4 No Mergers. No Restricted Person will merge or consolidate
----------
with or into any other business entity. No Restricted Person will issue any
additional shares of its capital stock or other securities or any options,
warrants or other rights to acquire such additional shares or other securities
except to Parent or another wholly-owned Subsidiary of Parent; provided, however
that Parent may issue such additional shares or other securities (other than
securities constituting Debt) so long as eighty percent (80%) of the net
proceeds of any such issuance are
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applied immediately upon receipt thereof by Parent to the prepayment of the
Loans in the manner provided for under Section 2.6. No Subsidiary of Parent
which is a partnership will allow any diminution of Parent's interest (direct or
indirect) therein. No Restricted Person shall create or own any Subsidiary other
than those listed in the Disclosure Schedule.
Section 7.5 Limitation on Sales of Property. No Restricted Person will
-------------------------------
sell, transfer, lease, exchange, alienate or dispose of any of its material
assets or properties or any material interest therein except, to the extent not
otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or not used or usable
which is replaced by equipment of equal suitability and value.
(b) personal property inventory (including oil and gas sold as
produced and seismic data) which is sold in the ordinary course of business
on ordinary trade terms.
(c) specific properties not subject to the Mortgages (or specific
portions thereof), provided the same are abandoned and not otherwise
disposed of and further provided that no well situated on the property to
be abandoned, or located on any unit containing all or any part thereof, is
capable (or is subject to being made capable through commercially feasible
operations) of producing oil, gas or other hydrocarbons or minerals in
paying quantities (with such determination of paying quantities being made
taking into account the prudent operation of any unit in which such
property is located).
(d) farmouts on terms and conditions reasonably acceptable to
Required Lenders.
Neither Parent nor any of Parent's Subsidiaries will sell, transfer or otherwise
dispose of capital stock of any of Parent's Subsidiaries except that any
Subsidiary of Parent may sell or issue its own capital stock to the extent not
otherwise prohibited hereunder. No Restricted Person will discount, sell, pledge
or assign any notes payable to it, accounts receivable or future income except
to the extent expressly permitted under the Loan Documents.
Section 7.6 Limitation on Dividends and Redemptions. No Restricted
---------------------------------------
Person will make any Distribution in respect of any class of its capital stock
or any partnership or other interest in it, nor will any Restricted Person
directly or indirectly make any Distribution in respect of any shares of the
capital stock of or partnership interests in any Restricted Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Restricted
Person, except that (a) Parent may make dividends in the form of the Series D
Preferred Stock, the Series E Preferred Stock, or the Series Z Preferred Stock
and (b) Inland Refining may at any time make payments to Borrower pursuant to
the Production/Refining Credit Agreement. Borrower shall not issue any capital
stock other than (i) common stock and (ii) the Series D Preferred Stock, the
Series E Preferred Stock, and the Series Z Preferred Stock as contemplated by
the Exchange Agreements in effect on the date of this Agreement.
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Section 7.7 Limitation on Investments. No Restricted Person will make
-------------------------
any Investment other than (a) Permitted Investments, (b) Investments in oil and
gas properties, (c) Investments of Parent in (i) Inland Refining existing as of
the date hereof or otherwise permitted by this Agreement and (ii) Inland
Production existing from time to time, (d) normal and prudent extensions of
credit to customers buying goods and services in the ordinary course of
business, which extensions shall not be for longer periods than those extended
by similar businesses operated in a normal and prudent manner, (e) the
Production/Refining Loan permitted under Section 7.17, (f) Hedging Obligations
permitted under Section 7.3, and (g) endorsements of negotiable instruments in
the ordinary course of business.
Section 7.8 Transactions with Affiliates. No Restricted Person will
----------------------------
engage in any material transaction with any of its Affiliates other than (i) for
customary director compensation paid to such Affiliates, (ii) for issuances of
equity to Affiliates for fair value, provided that such issuances are permitted
by Section 7.6, (iii) transactions between Borrower or Guarantor and any
Affiliate other than Inland Refining, the terms of which are no less favorable
than those which would have been obtainable at the time in arm's-length dealings
with Persons other than an Affiliate, (iv) the Production/Refining Loan, (v) the
Parent guaranties set forth in Section 7.1(h), (vi) the Inland Refining
Contract, (vii) the Farmout Agreement, and (viii) the transactions contemplated
by the Exchange Documents (including the consulting agreement with Arthur J.
Pasmas described in the Exchange Documents).
Section 7.9 Certain Contracts; Amendments; Multiemployer ERISA Plans.
--------------------------------------------------------
Except as expressly provided for in the Loan Documents, no Restricted Person
will, directly or indirectly, enter into, create, or otherwise allow to exist
any contract or other consensual restriction on the ability of any Subsidiary of
Borrower to: (i) make Distributions to Borrower, (ii) to redeem equity interests
held in it by Borrower, (iii) to repay loans and other indebtedness owing by it
to Borrower, or (iv) to transfer any of its assets to Borrower. No Restricted
Person will enter into any "take-or-pay" contract or other contract or
arrangement for the purchase of goods or services which obligates it to pay for
such goods or service regardless of whether they are delivered or furnished to
it. No Restricted Person will amend or permit any amendment to any contract or
lease which releases, qualifies, limits, makes contingent or otherwise
detrimentally affects the rights and benefits of any Lender under or acquired
pursuant to any Security Documents. No ERISA Affiliate will incur any
obligation to contribute to any "multiemployer plan" as defined in Section 4001
of ERISA.
Section 7.10 Working Capital. Parent's Consolidated Working Capital will
---------------
never be less than $1,000,000. As used herein, "Working Capital" means Parent's
Consolidated current assets minus Parent's Consolidated current liabilities,
provided that for the purposes of determining Working Capital: (a) Consolidated
current assets will be calculated without including (1) any accounts receivable
or other Debt owed to Parent by its Affiliates, employees or shareholders, and
(2) any account receivable unpaid more than 120 days after its original invoice
date, and (b) for so long as no Event of Default exists, Consolidated current
liabilities will be calculated without including any payments of principal on
the Obligations which are required to be made within one year from the time of
calculation.
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Section 7.11 Tangible Net Worth. Parent's Consolidated Tangible Net Worth
------------------
will never be less than the sum of (a) $70,000,000, plus (b) fifty percent (50%)
of Consolidated Net Income reported for each Fiscal Quarter of Parent in which
Consolidated Net Income is a positive amount commencing with the fiscal quarter
beginning on October 1, 1999, plus (c) seventy-five percent (75%) of each
increase in Consolidated Tangible Net Worth from the issuance of equity
beginning after the date of this Agreement (and specifically excluding the
increase in Consolidated Tangible Net Worth attributable to the Exchange
Documents).
Section 7.12 EBITDA. At the end of any Fiscal Quarter, beginning with
------
the Fiscal Quarter ending December 31, 1999, the ratio of (i) Parent's EBITDA to
(ii) required cash interest payments on Parent's Consolidated Debt, for the
four-Fiscal Quarter period ending with such Fiscal Quarter will not be less than
(a) 1.00 to 1.00 for any Fiscal Quarter ending on or before December 31, 1999,
(b) 1.20 to 1.00 for any Fiscal Quarter ending after December 31, 1999 and on or
before March 31, 2000, (c) 1.25 to 1.00 for any Fiscal Quarter ending after
March 31, 2000 and on or before June 30, 2000, (d) 1.75 to 1.0 for any Fiscal
Quarter ending after June 30, 2000 and on or before September 30, 2000, (e) 2.0
to 1.0 for any Fiscal Quarter ending after September 30, 2000 and on or before
December 31, 2000, (f) 2.50 to 1.0 for any Fiscal Quarter ending after December
31, 2000 and on or before March 31, 2001, and (g) 3.0 to 1.0 for any Fiscal
Quarter thereafter.
Section 7.13 Refinery Acquisitions. No Restricted Person will enter into
---------------------
an acquisition of a refinery (regardless of whether or not the proceeds of any
Loan are used to finance such acquisition), other than such Investments existing
as of September 1, 1999, unless all aspects of such acquisition, including the
structure of the acquisition, related documentation, additional Security
Documents, liabilities to be assumed by any Restricted Person in connection
therewith, and environmental inspections, have been reviewed and approved by
Lenders in their absolute discretion.
Section 7.14. Inland Refining. As of the date hereof, Inland Refining
---------------
shall (a) act solely in its own name and through its duly authorized directors
and officers in the conduct of its business, and shall conduct its business so
as not to mislead others as to the identity of the entity with which they are
concerned, (b) keep in full effect its existence and rights as a corporation
under the laws of the State of Utah by taking all actions required by the
corporation laws of Utah, including convening regular meetings of shareholders
and directors, (c) cause not less than one of its three directors to be
Independent Directors, (d) cause its employees and officers to not be officers,
directors or employees of Borrower or Parent, (e) cause all its actions to be
taken by a duly authorized officer of Inland Refining, (f) maintain corporate
minutes, books and accounts separate from those of Parent, (g) maintain
capitalization adequate to meet its obligations and business objectives and (h)
design and implement an environmental management plan to ensure compliance with
and manage liability under Environmental Laws. For purposes of this Section
7.14, the term 'Independent Director' means any Person who is not and for the
prior five years has not been an officer, director, or employee of either Parent
or Borrower.
Section 7.15. Parent's and other Restricted Persons' Actions Regarding
--------------------------------------------------------
Inland Refining. With respect to Inland Refining, neither Parent nor Borrower
- ---------------
shall (a) either directly or
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indirectly, provide any additional funds to Inland Refining, either through an
equity investment, loan, loan guarantee or any other means, except for (i) the
Production/Refining Credit Agreement permitted pursuant to Section 7.16 and (ii)
the Parent guaranties permitted pursuant to Section 7.1(h), (b) pay the salaries
of Inland Refining's employees or reimburse Inland Refining for any costs,
expenses or losses incurred by Inland Refining, (c) have direct involvement with
or direct control over any environmental management plan and/or remediation
program concerning any property owned by Inland Refining, including the Crysen
Refinery, and (d) have direct control over the day-to-day management and
operations or the financial affairs of Inland Refining.
Section 7.16. Production/Refining Loan. Borrower shall be permitted to
-------------------------
make loans or advances to Inland Refining, and may cause Letters of Credit to be
issued for the benefit of Inland Refining pursuant to this Agreement, in each
case under the Production/Refining Credit Agreement, provided that the aggregate
principal amount of all loans to Inland Refining plus the aggregate amount of
Letters of Credit issued to or for the account of Inland Refining, plus any
amounts that have been advanced pursuant to any such Letter of Credit which have
not been reimbursed by Inland Refining to Borrower, shall not exceed $20,000,000
in the aggregate at any one time outstanding.
Section 7.17. Inland Refining Contract. Parent and Borrower hereby agree
------------------------
that they shall not amend the Inland Refining Contract without obtaining the
prior written consent of Required Lenders, which consent may be given or
withheld in Required Lenders' sole and absolute discretion.
Section 7.18. Capital Expenditures. Inland Refining agrees that it will
--------------------
not make any capital expenditures relating to the Crysen Refinery and the
Pennzoil Refinery in an amount exceeding $1,000,000 in the aggregate during the
Fiscal Year ending December 31, 1999 or in an amount exceeding $1,000,000 in the
aggregate on and after January 1, 2000, without first obtaining the prior
written consent of Required Lenders, which consent may be given or withheld in
Required Lenders' sole and absolute discretion; provided, however, that Inland
Refining shall make any capital expenditures with respect to modifications,
repairs or improvements to the Crysen Refinery required to comply with or
address liability under any Law applicable to the Crysen Refinery, including any
Environmental Law, after providing advance written notice to Agent concerning
the applicability of such requirements.
Section 7.19. Farmout Transactions. Parent (i) shall not amend or modify
--------------------
the Farmout Agreement except as contemplated by the Exchange Documents and (ii)
will give prompt notice to Agent of any breach by any Restricted Person or by
Farmee (as such term is defined in the Farmout Agreement) under the Farmout
Agreement.
ARTICLE VII - Events of Default and Remedies
------------------------------
Section 8.1. Events of Default. Each of the following events constitutes
-----------------
an Event of Default under this Agreement:
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(a) Any Restricted Person fails to pay the principal component of any
Obligation when due and payable, whether at a date for the payment of a fixed
installment or as a contingent or other payment becomes due and payable or as a
result of acceleration or otherwise, and such failure is not remedied in full
within one (1) Business Day thereafter;
(b) Any Restricted Person fails to pay any Obligation (other than the
Obligations in Section (a) above) when due and payable, whether at a date for
the payment of a fixed installment or as a contingent or other payment becomes
due and payable or as a result of acceleration or otherwise, within one (1)
Business Day after the same becomes due in the case of interest or fifteen (15)
days thereafter in the case of any other Obligation;
(c) Any "default" or "event of default" occurs under any Loan Document
which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document;
(d) Any Restricted Person fails to duly observe, perform or comply with
any covenant, agreement or provision of Section 6.4 or Article VII;
(e) Any Restricted Person fails (other than as referred to in subsections
(a), (b), (c) or (d) above) to duly observe, perform or comply with any
covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after notice of such
failure is given by Agent to Borrower;
(f) Any representation or warranty previously, presently or hereafter made
in writing by or on behalf of any Restricted Person in connection with any Loan
Document shall prove to have been false or incorrect in any material respect on
any date on or as of which made, or any Loan Document at any time ceases to be
valid, binding and enforceable as warranted in Section 5.5 for any reason other
than its release or subordination by Agent;
(g) Any Restricted Person fails to duly observe, perform or comply with
any agreement with any Person or any term or condition of any instrument, if
such agreement or instrument is materially significant to Borrower or to Parent
and its Subsidiaries on a Consolidated basis or materially significant to any
Guarantor, and such failure is not remedied within the applicable period of
grace (if any) provided in such agreement or instrument;
(h) Any Restricted Person (i) fails to pay any portion, when such portion
is due, of any of its Restricted Debt in excess of $100,000 (other than the
Obligations and Debt described in Section 6.7 which is not required to be paid
so long as the Restricted Person is in good faith contesting the validity
thereof by appropriate proceedings), or (ii) breaches or defaults in the
performance of any agreement or instrument by which any such Restricted Debt is
issued, evidenced, governed, or secured, and any such failure, breach or default
continues beyond any applicable period of grace provided therefor;
(i) Either (i) any "accumulated funding deficiency" (as defined in Section
412(a) of the Internal Revenue Code) in excess of $100,000 exists with respect
to any ERISA Plan,
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whether or not waived by the Secretary of the Treasury or his delegate, or (ii)
any Termination Event occurs with respect to any ERISA Plan and the then current
value of such ERISA Plan's benefit liabilities exceeds the then current value of
such ERISA Plan's assets available for the payment of such benefit liabilities
by more than $100,000 (or in the case of a Termination Event involving the
withdrawal of a substantial employer, the withdrawing employer's proportionate
share of such excess exceeds such amount);
(j) Any Restricted Person:
(i) suffers the entry against it of a judgment, decree or order for
relief by a Tribunal of competent jurisdiction in an involuntary proceeding
commenced under any applicable bankruptcy, insolvency or other similar Law
of any jurisdiction now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended, or has any such proceeding
commenced against it which remains undismissed for a period of sixty days;
or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Law now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended; or applies for or consents
to the entry of an order for relief in an involuntary case under any such
Law; or makes a general assignment for the benefit of creditors; or fails
generally to pay (or admits in writing its inability to pay) its debts as
such debts become due; or takes corporate or other action to authorize any
of the foregoing; or
(iii) suffers the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of all or a substantial part of its assets or of any part of the Collateral
in a proceeding brought against or initiated by it, and such appointment or
taking possession is neither made ineffective nor discharged within thirty
days after the making thereof, or such appointment or taking possession is
at any time consented to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $100,000 (not covered by insurance
satisfactory to Agent in its discretion), unless the same is discharged
within thirty days after the date of entry thereof or an appeal or
appropriate proceeding for review thereof is taken within such period and a
stay of execution pending such appeal is obtained; or
(v) suffers a writ or warrant of attachment or any similar process
to be issued by any Tribunal against all or any substantial part of its
assets or any part of the Collateral, and such writ or warrant of
attachment or any similar process is not stayed or released within thirty
days after the entry or levy thereof or after any stay is vacated or set
aside.
(k) Any Change of Control occurs.
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Section 8.2 Acceleration. Upon the occurrence of an Event of Default
------------
described in subsection (j)(i), (j)(ii) or (j)(iii) of this section with respect
to Borrower, all of the Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of any
kind, all of which are hereby expressly waived by Borrower and each Restricted
Person who at any time ratifies or approves this Agreement. Upon any such
acceleration, any obligation of any Lender and any obligation of LC Issuer to
issue Letters of Credit hereunder to make any further Loans shall be permanently
terminated. During the continuance of any other Event of Default, Agent at any
time and from time to time may (and upon written instructions from Required
Lenders, Agent shall), without notice to Borrower or any other Restricted
Person, do either or both of the following: (1) terminate any obligation of
Lenders to make Loans hereunder and any obligation of LC Issuer to issue Letters
of Credit hereunder, and (2) declare any or all of the Obligations immediately
due and payable, and all such Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of any
kind, all of which are hereby expressly waived by Borrower and each Restricted
Person who at any time ratifies or approves this Agreement.
Section 8.3 Remedies. If any Default shall occur and be continuing, each
--------
Lender Party may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and each Lender Party may
enforce the payment of any Obligations due it or enforce any other legal or
equitable right which it may have. All rights, remedies and powers conferred
upon Lender Parties under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at Law or in equity.
ARTICLE IX - Agent
-----
Section 9.1 Appointment and Authority. Each Lender Party hereby
-------------------------
irrevocably authorizes Agent, and Agent hereby undertakes, to receive payments
of principal, interest and other amounts due hereunder as specified herein and
to take all other actions and to exercise such powers under the Loan Documents
as are specifically delegated to Agent by the terms hereof or thereof, together
with all other powers reasonably incidental thereto. The relationship of Agent
to the other Lender Parties is only that of one commercial lender acting as
administrative agent for others, and nothing in the Loan Documents shall be
construed to constitute Agent a trustee or other fiduciary for any Lender Party
or any holder of any of the Notes or of any participation therein nor to impose
on Agent duties and obligations other than those expressly provided for in the
Loan Documents. With respect to any matters not expressly provided for in the
Loan Documents and any matters which the Loan Documents place within the
discretion of Agent, Agent shall not be required to exercise any discretion or
take any action, and it may request instructions from Lenders with respect to
any such matter, in which case it shall be required to act or to refrain from
acting (and shall be fully protected and free from liability to all Lender
Parties in so acting or refraining from acting) upon the instructions of
Required Lenders
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(including itself), provided, however, that Agent shall not be required to take
any action which exposes it to a risk of personal liability that it considers
unreasonable or which is contrary to the Loan Documents or to applicable Law.
Upon receipt by Agent from Borrower of any communication calling for action on
the part of Lenders or upon notice from any other Lender to Agent of any Default
or Event of Default, Agent shall promptly notify each other Lender thereof.
Section 9.2 Exculpation, Agent's Reliance, Etc. Neither Agent nor any of
----------------------------------
its directors, officers, agents, attorneys, or employees shall be liable for any
action taken or omitted to be taken by any of them under or in connection with
the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that each
shall be liable for its own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Agent (a) may treat the payee of any
Note as the holder thereof until Agent receives written notice of the assignment
or transfer thereof in accordance with this Agreement, signed by such payee and
in form satisfactory to Agent; (b) may consult with legal counsel (including
counsel for Borrower), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any other Lender and shall
not be responsible to any other Lender Party for any statements, warranties or
representations made in or in connection with the Loan Documents; (d) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of the Loan Documents on the part of
any Restricted Person or to inspect the property (including the books and
records) of any Restricted Person; (e) shall not be responsible to any other
Lender for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any instrument or document
furnished in connection therewith; (f) may rely upon the representations and
warranties of each Restricted Person or Lender Party in exercising its powers
hereunder; and (g) shall incur no liability under or in respect of the Loan
Documents by acting upon any notice, consent, certificate or other instrument or
writing (including any telecopy, telegram, cable or telex) believed by it to be
genuine and signed or sent by the proper Person or Persons.
Section 9.3 Credit Decisions. Each Lender Party acknowledges that it
----------------
has, independently and without reliance upon any other Lender Party, made its
own analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan Documents.
Each Lender Party also acknowledges that it will, independently and without
reliance upon any other Lender Party and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Documents.
Section 9.4 Indemnification. Each Lender agrees to indemnify Agent (to
---------------
the extent not reimbursed by Borrower within ten (10) days after demand) from
and against such Lender's Percentage Share of any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called "liabilities and costs") which
to any extent (in whole or in part) may be imposed on, incurred by, or asserted
against Agent growing out of, resulting from or in any other
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way associated with any of the Collateral, the Loan Documents and the
transactions and events (including the enforcement thereof) at any time
associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by any Person or any liabilities or
duties of any Person with respect to Hazardous Materials found in or released
into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,
provided only that no Lender shall be obligated under this section to indemnify
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by Agent's own individual gross negligence or willful
misconduct, as determined in a final judgment. Cumulative of the foregoing, each
Lender agrees to reimburse Agent promptly upon demand for such Lender's
Percentage Share of any costs and expenses to be paid to Agent by Borrower under
Section 10.4(a) to the extent that Agent is not timely reimbursed for such
expenses by Borrower as provided in such section. As used in this section the
term "Agent" shall refer not only to the Person designated as such in Section
1.1 but also to each director, officer, agent, attorney, employee,
representative and Affiliate of such Person.
Section 9.5 Rights as Lender. In its capacity as a Lender, Agent shall
----------------
have the same rights and obligations as any Lender and may exercise such rights
as though it were not Agent. Agent may accept deposits from, lend money to, act
as trustee under indentures of, and generally engage in any kind of business
with any Restricted Person or their Affiliates, all as if it were not Agent
hereunder and without any duty to account therefor to any other Lender.
Section 9.6 Sharing of Set-Offs and Other Payments. Each Lender Party
--------------------------------------
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent under Section 3.1,
causes such Lender Party to have received more than it would have received had
such payment been received by Agent and distributed pursuant to Section 3.1,
then (a) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Lender Parties to share all payments as provided for in Section 3.1, and (b)
such other adjustments shall be made from time to time as shall be equitable to
ensure that Agent and all Lender Parties share all payments of Obligations as
provided in Section 3.1; provided, however, that nothing herein contained shall
in any way affect the right of any Lender Party to obtain payment (whether by
exercise of rights of banker's lien, set-off or counterclaim or otherwise) of
indebtedness other than the Obligations. Borrower expressly consents to the
foregoing arrangements and agrees that any holder of any such interest or other
participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law exercise any
and all rights of banker's lien, set-off, or
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counterclaim as fully as if such holder were a holder of the Obligations in the
amount of such interest or other participation. If all or any part of any funds
transferred pursuant to this section is thereafter recovered from the seller
under this section which received the same, the purchase provided for in this
section shall be deemed to have been rescinded to the extent of such recovery,
together with interest, if any, if interest is required pursuant to Tribunal
order to be paid on account of the possession of such funds prior to such
recovery.
Section 9.7 Investments. Whenever Agent in good faith determines that it
-----------
is uncertain about how to distribute to Lender Parties any funds which it has
received, or whenever Agent in good faith determines that there is any dispute
among Lender Parties about how such funds should be distributed, Agent may
choose to defer distribution of the funds which are the subject of such
uncertainty or dispute. If Agent in good faith believes that the uncertainty or
dispute will not be promptly resolved, or if Agent is otherwise required to
invest funds pending distribution to Lender Parties, Agent shall invest such
funds pending distribution; all interest on any such Investment shall be
distributed upon the distribution of such Investment and in the same proportion
and to the same Persons as such Investment. All moneys received by Agent for
distribution to Lender Parties (other than to the Person who is Agent in its
separate capacity as a Lender Party) shall be held by Agent pending such
distribution solely as Agent for such Lender Parties, and Agent shall have no
equitable title to any portion thereof.
Section 9.8 Benefit of Article IX. The provisions of this Article (other
---------------------
than the following Section 9.9) are intended solely for the benefit of Lender
Parties, and no Restricted Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against any Lender.
Lender Parties may waive or amend such provisions as they desire without any
notice to or consent of Borrower or any Restricted Person.
Section 9.9 Resignation. Agent may resign at any time by giving written
-----------
notice thereof to Lenders and Borrower. Each such notice shall set forth the
date of such resignation. Upon any such resignation, Required Lenders shall have
the right to appoint a successor Agent. A successor must be appointed for any
retiring Agent, and such Agent's resignation shall become effective when such
successor accepts such appointment. If, within thirty days after the date of the
retiring Agent's resignation, no successor Agent has been appointed and has
accepted such appointment, then the retiring Agent may appoint a successor
Agent, which shall be a commercial bank organized or licensed to conduct a
banking or trust business under the Laws of the United States of America or of
any state thereof. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, the retiring Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring Agent's resignation hereunder the provisions of this Article IX shall
continue to inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under the Loan Documents.
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ARTICLE X - Miscellaneous
-------------
Section 10. Waivers and Amendments; Acknowledgements.
----------------------------------------
(a) Waivers and Amendments. No failure or delay (whether by course of
----------------------
conduct or otherwise) by any Lender in exercising any right, power or remedy
which such Lender Party may have under any of the Loan Documents shall operate
as a waiver thereof or of any other right, power or remedy, nor shall any single
or partial exercise by any Lender Party of any such right, power or remedy
preclude any other or further exercise thereof or of any other right, power or
remedy. No waiver of any provision of any Loan Document and no consent to any
departure therefrom shall ever be effective unless it is in writing and signed
as provided below in this section, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which given
and to the extent specified in such writing. No notice to or demand on any
Restricted Person shall in any case of itself entitle any Restricted Person to
any other or further notice or demand in similar or other circumstances. This
Agreement and the other Loan Documents set forth the entire understanding
between the parties hereto with respect to the transactions contemplated herein
and therein and supersede all prior discussions and understandings with respect
to the subject matter hereof and thereof, and no waiver, consent, release,
modification or amendment of or supplement to this Agreement or the other Loan
Documents shall be valid or effective against any party hereto unless the same
is in writing and signed by (i) if such party is Borrower, by Borrower, (ii) if
such party is Agent, by such party, and (iii) if such party is a Lender, by such
Lender or by Agent on behalf of Lenders with the written consent of Required
Lenders (which consent has already been given as to the termination of the Loan
Documents as provided in Section 10.9). Notwithstanding the foregoing or
anything to the contrary herein, Agent shall not, without the prior consent of
each individual Lender, execute and deliver on behalf of such Lender any waiver
or amendment which would: (1) waive any of the conditions specified in Article
IV (provided that Agent may in its discretion withdraw any request it has made
under Section 4.3(f)), (2) reduce any fees payable to such Lender hereunder, or
the principal of, or interest on, such Lender's Note, (3) postpone any date
fixed for any payment of any such fees, principal or interest, (4) amend the
definition herein of "Required Lenders" or otherwise change the aggregate amount
of Percentage Shares which is required for Agent, Lenders or any of them to take
any particular action under the Loan Documents, (5) release Borrower from its
obligation to pay such Lender's Note or any Guarantor from its guaranty of such
payment.
(b) Acknowledgements and Admissions. Borrower hereby represents,
-------------------------------
warrants, acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement and
the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Agent or any Lender,
whether written, oral or implicit, other than as expressly set out in this
Agreement or in another Loan Document delivered on or after the date hereof,
(iii) there are no representations, warranties, covenants, undertakings or
agreements by any Lender as to the Loan Documents except as expressly set out in
this Agreement or in another Loan Document delivered on or after the date
hereof, (iv) no Lender has any fiduciary obligation toward Borrower with respect
to any Loan
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Document or the transactions contemplated thereby, (v) the relationship pursuant
to the Loan Documents between Borrower and the other Restricted Persons, on one
hand, and each Lender, on the other hand, is and shall be solely that of debtor
and creditor, respectively, (vi) no partnership or joint venture exists with
respect to the Loan Documents between any Restricted Person and any Lender,
(vii) Agent is not Borrower's Agent, but Agent for Lenders, (viii) should an
Event of Default or Default occur or exist, each Lender will determine in its
sole discretion and for its own reasons what remedies and actions it will or
will not exercise or take at that time, (ix) without limiting any of the
foregoing, Borrower is not relying upon any representation or covenant by any
Lender, or any representative thereof, and no such representation or covenant
has been made, that any Lender will, at the time of an Event of Default or
Default, or at any other time, waive, negotiate, discuss, or take or refrain
from taking any action permitted under the Loan Documents with respect to any
such Event of Default or Default or any other provision of the Loan Documents,
and (x) all Lenders have relied upon the truthfulness of the acknowledgements in
this section in deciding to execute and deliver this Agreement and to become
obligated hereunder.
(c) Representation by Lenders. Each Lender hereby represents that it will
-------------------------
acquire its Note for its own account in the ordinary course of its commercial
lending business; however, the disposition of such Lender's property shall at
all times be and remain within its control and, in particular and without
limitation, such Lender may sell or otherwise transfer its Note, any
participation interest or other interest in its Note, or any of its other rights
and obligations under the Loan Documents.
(d) Joint Acknowledgment. This written Agreement and the other Loan
--------------------
Documents represent the final agreement between the parties and may not be
contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties.
There are no unwritten oral agreements between the parties.
Section 10.2. Survival of Agreements; Cumulative Nature. All of Restricted
-----------------------------------------
Persons' various representations, warranties, covenants and agreements in the
Loan Documents shall survive the execution and delivery of this Agreement and
the other Loan Documents and the performance hereof and thereof, including the
making or granting of the Loans and the delivery of the Notes and the other Loan
Documents, and shall further survive until all of the Obligations are paid in
full to each Lender Party and all of Lender Parties' obligations to Borrower are
terminated. All statements and agreements contained in any certificate or other
instrument delivered by any Restricted Person to any Lender Party under any Loan
Document shall be deemed representations and warranties by Borrower or
agreements and covenants of Borrower under this Agreement. The representations,
warranties, indemnities, and covenants made by Restricted Persons in the Loan
Documents, and the rights, powers, and privileges granted to Lender Parties in
the Loan Documents, are cumulative, and, except for expressly specified waivers
and consents, no Loan Document shall be construed in the context of another to
diminish, nullify, or otherwise reduce the benefit to any Lender Party of any
such representation,
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warranty, indemnity, covenant, right, power or privilege. In particular and
without limitation, no exception set out in this Agreement to any
representation, warranty, indemnity, or covenant herein contained shall apply to
any similar representation, warranty, indemnity, or covenant contained in any
other Loan Document, and each such similar representation, warranty, indemnity,
or covenant shall be subject only to those exceptions which are expressly made
applicable to it by the terms of the various Loan Documents.
Section 10.3. Notices. All notices, requests, consents, demands and other
-------
communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic notices to the other Lender Parties), and shall
be deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy or telex, by delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, to Borrower and Restricted
Persons at the address of Borrower specified on the signature pages hereto and
to each Lender Party at its address specified on the signature pages hereto
(unless changed by similar notice in writing given by the particular Person
whose address is to be changed). Any such notice or communication shall be
deemed to have been given (a) in the case of personal delivery or delivery
service, as of the date of first attempted delivery during normal business hours
at the address provided herein, (b) in the case of telecopy or telex, upon
receipt, or (c) in the case of registered or certified United States mail, three
days after deposit in the mail; provided, however, that no Borrowing Notice
shall become effective until actually received by Agent.
Section 10.4. Payment of Expenses; Indemnity.
------------------------------
(a) Payment of Expenses. Whether or not the transactions contemplated by
-------------------
this Agreement are consummated, Borrower will promptly (and in any event, within
30 days after any invoice or other statement or notice) pay: (i) all transfer,
stamp, mortgage, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Loan Documents or any other document referred to herein or
therein, (ii all reasonable costs and expenses incurred by or on behalf of Agent
(including attorneys' fees, consultants' fees and engineering fees, travel costs
and miscellaneous expenses) in connection with (1) the negotiation, preparation,
execution and delivery of the Loan Documents, and any and all consents, waivers
or other documents or instruments relating thereto, (2) the filing, recording,
refiling and re-recording of any Loan Documents and any other documents or
instruments or further assurances required to be filed or recorded or refiled or
re-recorded by the terms of any Loan Document, (3) the borrowings hereunder and
other action reasonably required in the course of administration hereof, (4)
monitoring or confirming (or preparation or negotiation of any document related
to) Borrower's compliance with any covenants or conditions contained in this
Agreement or in any Loan Document, and (ii all reasonable costs and expenses
incurred by or on behalf of any Lender Party (including attorneys' fees,
consultants' fees and accounting fees) in connection with the defense or
enforcement of any of the Loan Documents (including this Section) or the defense
of any Lender Party's exercise of its rights thereunder. In addition to the
foregoing, until and all Obligations have been paid in full, Borrower will also
pay or reimburse Agent for all reasonable out-of-pocket costs and expenses of
Agent or its agents or employees in connection with the continuing
administration of
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the Loans and the related due diligence of Agent, including travel and
miscellaneous expenses and fees and expenses of Agent's outside counsel, reserve
engineers and consultants engaged in connection with the Loan Documents.
(b) Indemnity. Borrower and Parent each agree to indemnify each Lender
---------
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 Lender Party growing out of, resulting from or in any other way associated
with any of the Collateral, the Loan Documents and the transactions and events
(including the enforcement or defense thereof) at any time associated therewith
or contemplated therein (including any violation or noncompliance with any
Environmental Laws by any Restricted Person or any liabilities or duties of any
Restricted Person or any Lender with respect to Hazardous Materials found in or
released into the environment).
The foregoing indemnification shall apply whether or not such liabilities and
costs are in any way or to any extent owed, in whole or in part, under any claim
or theory of strict liability, or are caused, in whole or in part, by any
negligent act or omission of any kind by any Lender Party,
provided only that no Lender 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. If any Person (including Borrower
or any of its Affiliates) ever alleges such gross negligence or willful
misconduct by any Lender, the indemnification provided for in this section shall
nonetheless be paid upon demand, subject to later adjustment or reimbursement,
until such time as a court of competent jurisdiction enters a final judgment as
to the extent and effect of the alleged gross negligence or willful misconduct.
As used in this section the term "Lender Party" shall refer not only to each
Person designated as such in Section 1.1 but also to each director, officer,
agent, attorney, employee, representative and Affiliate of such Person.
Section 10.5. Joint and Several Liability; Parties in Interest;
-------------------------------------------------
Assignments.
- -----------
(a) All Obligations which are incurred by two or more Restricted Persons
shall be their joint and several obligations and liabilities. All grants,
covenants and agreements contained in the Loan Documents shall bind and inure to
the benefit of the parties thereto and their respective successors and assigns;
provided, however, that no Restricted Person may assign or transfer any of its
rights or delegate any of its duties or obligations under any Loan Document
without the prior consent of Required Lenders. Neither Borrower nor any
Affiliates of Borrower shall directly or indirectly purchase or otherwise retire
any Obligations owed to any Lender nor will any Lender accept any offer to do
so, unless each Lender shall have received substantially the
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same offer with respect to the same Percentage Share of the Obligations owed to
it. If Borrower or any Affiliate of Borrower at any time purchases some but less
than all of the Obligations owed to all Lender Parties, such purchaser shall not
be entitled to any rights of any Lender under the Loan Documents unless and
until Borrower or its Affiliates have purchased all of the Obligations.
(b) No Lender shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person other than an Eligible Transferee, and then only if the agreement
between such Lender and such participant at all times provides: (i) that such
participation exists only as a result of the agreement between such participant
and such Lender and that such transfer does not give such participant any right
to vote as a Lender or any other direct claims or rights against any Person
other than such Lender, (ii) that such participant is not entitled to payment
from any Restricted Person under Sections 3.2 through 3.6 of amounts in excess
of those payable to such Lender under such sections (determined without regard
to the sale of such participation), and (iii) unless such participant is an
Affiliate of such Lender, that such participant shall not be entitled to require
such Lender to take any action under any Loan Document or to obtain the consent
of such participant prior to taking any action under any Loan Document, except
for actions which would require the consent of all Lenders under subsection (a)
of Section 10.1. No Lender selling such a participation shall, as between the
other parties hereto and such Lender, be relieved of any of its obligations
hereunder as a result of the sale of such participation. Each Lender which sells
any such participation to any Person (other than an Affiliate of such Lender)
shall give prompt notice thereof to Agent and Borrower.
(c) Except for sales of participations under the immediately preceding
subsection (b), no Lender shall make any assignment or transfer of any kind of
its commitments or any of its rights under its Loans or under the Loan
Documents, except for assignments to an Eligible Transferee, and then only if
such assignment is made in accordance with the following requirements:
(i) Each such assignment shall apply to all Obligations owing to
the assignor Lender hereunder and to the unused portion of the assignor
Lender's commitments, so that after such assignment is made the assignor
Lender shall have a fixed (and not a varying) Percentage Share in its Loans
and Note and be committed to make that Percentage Share of all future
Loans, the assignee shall have a fixed Percentage Share in such Loans and
Note and be committed to make that Percentage Share of all future Loans,
and the Percentage Share of the Borrowing Base of both the assignor and the
assignee shall equal or exceed $5,000,000.
(ii) The parties to each such assignment shall execute and
deliver to Agent, for its acceptance and recording in the "Register" (as
defined below in this section), an Assignment and Assumption in the form of
Exhibit G, appropriately completed, together with the Note subject to such
assignment and a processing fee payable to Agent of $2,500. Upon such
execution, delivery, and payment and upon the satisfaction of the
conditions set out in such Assignment and Assumption, then (i) Borrower
shall issue new
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Notes to such assignor and assignee upon return of the old Notes to
Borrower, and (ii) as of the "Settlement Date" specified in such Assignment
and Assumption the assignee thereunder shall be a party hereto and a Lender
hereunder and Agent shall thereupon deliver to Borrower and each Lender a
schedule showing the revised Percentage Shares of such assignor Lender and
such assignee Lender and the Percentage Shares of all other Lenders.
(iii) Each assignee Lender which is not a United States person
(as such term is defined in Section 7701(a)(30) of the Internal Revenue
Code) for Federal income tax purposes, shall (to the extent it has not
already done so) provide Agent and Borrower with the "Prescribed Forms"
referred to in Section 3.6(d).
(d) Nothing contained in this section shall prevent or prohibit any Lender
from assigning or pledging all or any portion of its Loans and Note to any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that no such assignment or pledge
shall relieve such Lender from its obligations hereunder.
(e) By executing and delivering an Assignment and Assumption, each
assignee Lender thereunder will be confirming to and agreeing with Borrower,
Agents and each other Lender Party hereunder that such assignee understands and
agrees to the terms hereof, including Article IX hereof.
(f) Agent shall maintain a copy of each Assignment and Assumption and a
register for the recordation of the names and addresses of Lenders and the
Percentage Shares of, and principal amount of the Loans owing to, each Lender
from time to time (in this section called the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and Borrower and
each Lender Party may treat each Person whose name is recorded in the Register
as a Lender hereunder for all purposes. The Register shall be available for
inspection by Borrower or any Lender Party at any reasonable time and from time
to time upon reasonable prior notice.
Section 10.6. Confidentiality. Each Lender Party agrees that it will take
---------------
all reasonable steps to keep confidential any proprietary information given to
it by any Restricted Person, provided, however, that this restriction shall not
apply to information which (a) has at the time in question entered the public
domain, (b) is required to be disclosed by Law (whether valid or invalid) of any
Tribunal, (c) is disclosed to any Lender Party's Affiliates, auditors,
attorneys, or agents (provided such Persons are obligated to hold such
information in confidence on the terms provided in this section), (d) is
furnished to any other Lender Party or to any purchaser or prospective purchaser
of participations or other interests in any Loan or Loan Document (provided each
such purchaser or prospective purchaser first agrees to hold such information in
confidence on the terms provided in this section), or (e) is disclosed in the
course of enforcing its rights and remedies during the existence of an Event of
Default.
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Section 10.7. Governing Law; Submission to Process. Except to the extent
------------------------------------
that the Law of another jurisdiction is expressly elected in a Loan Document,
the Loan Documents shall be deemed contracts and instruments made under the Laws
of the State of New York and shall be construed and enforced in accordance with
and governed by the Laws of the State of New York and the Laws of the United
States of America, without regard to principles of conflicts of law. Borrower
and Parent Each hereby agree that any legal action or proceeding against
Borrower or Parent with respect to this Agreement, the Notes or any of the Loan
Documents may be brought in the courts of the State of New York or of the United
States of America for the Southern District of New York as Lender Parties may
elect, and, by execution and delivery hereof, Each of Borrower and Parent
accepts and consents for itself and in respect to its property, generally and
unconditionally, the jurisdiction of the aforesaid courts, and further agrees to
a transfer of any such proceeding to a federal court sitting in the State of New
York to the extent that it has subject matter jurisdiction, and otherwise to a
state court in New York, New York, and agrees that such jurisdiction shall be
exclusive, unless waived by Lenders in writing, with respect to any action or
proceeding brought by it against Lender Parties and any questions relating to
usury. Each of parent and Borrower agrees that Sections 5-1401 and 5-1402 of the
General Obligations Law of the State of New York shall apply to the Loan
Documents and waives any right to stay or to dismiss any action or proceeding
brought before said courts on the basis of forum non conveniens. In furtherance
of the foregoing, Each of Parent and Borrower hereby irrevocably designates and
appoints CT Corporation System, 1633 Broadway, New York, New York, as Agent of
Borrower and Parent to receive service of all process brought against Borrower
or Parent with respect to any such proceeding in any such court in New York,
such service being hereby acknowledged by Borrower and Parent to be effective
and binding service in every respect. Copies of any such process so served shall
also, if permitted by Law, be sent by registered mail to Borrower at its address
set forth below, but the failure of Borrower to receive such copies shall not
affect in any way the service of such process as aforesaid. Borrower shall
furnish to Lender Parties a consent of CT Corporation System agreeing to act
hereunder prior to the effective date of this agreement. Nothing herein shall
affect the right of Lender Parties to serve process in any other manner
permitted by Law or shall limit the right of Lender Parties to bring proceedings
against Borrower or Parent in the courts of any other jurisdiction. If for any
reason CT Corporation System shall resign or otherwise cease to act as
Borrower's or Parent's agent, Borrower and Parent hereby irrevocably agree to
(a) immediately designate and appoint a new agent acceptable to Agent to serve
in such capacity and, in such event, such new agent shall be deemed to be
substituted for CT Corporation System for all purposes hereof and (b) promptly
deliver to Lenders the written consent (in form and substance satisfactory to
Agent) of such new agent agreeing to serve in such capacity.
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Section 10.8. Limitation on Interest. Lender Parties, Restricted Persons
----------------------
and any other parties to the Loan Documents intend to contract in strict
compliance with applicable usury Law from time to time in effect. In furtherance
thereof such Persons stipulate and agree that none of the terms and provisions
contained in the Loan Documents shall ever be construed to create a contract to
pay, for the use, forbearance or detention of money, interest in excess of the
maximum amount of interest permitted to be charged by applicable Law from time
to time in effect. Neither any Restricted Person nor any present or future
guarantors, endorsers, or other Persons hereafter becoming liable for payment of
any Obligation shall ever be liable for unearned interest thereon or shall ever
be required to pay interest thereon in excess of the maximum amount that may be
lawfully contracted for, charged, or received under applicable Law from time to
time in effect, and the provisions of this section shall control over all other
provisions of the Loan Documents which may be in conflict or apparent conflict
herewith. Lender Parties expressly disavow any intention to contract for,
charge, or collect excessive unearned interest or finance charges in the event
the maturity of any Obligation is accelerated. If (a) the maturity of any
Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a
result any amounts held to constitute interest are determined to be in excess of
the legal maximum, or (c) any Lender or any other holder of any or all of the
Obligations shall otherwise collect moneys which are determined to constitute
interest which would otherwise increase the interest on any or all of the
Obligations to an amount in excess of that permitted to be charged by applicable
Law then in effect, then all sums determined to constitute interest in excess of
such legal limit shall, without penalty, be promptly applied to reduce the then
outstanding principal of the related Obligations or, at such Lender's or
holder's option, promptly returned to Borrower or the other payor thereof upon
such determination. In determining whether or not the interest paid or payable,
under any specific circumstance, exceeds the maximum amount permitted under
applicable Law, Lender Parties and Restricted Persons (and any other payors
thereof) shall to the greatest extent permitted under applicable Law, (i)
characterize any non-principal payment as an expense, fee or premium rather than
as interest, (ii exclude voluntary prepayments and the effects thereof, and (ii
amortize, prorate, allocate, and spread the total amount of interest throughout
the entire contemplated term of the instruments evidencing the Obligations in
accordance with the amounts outstanding from time to time thereunder and the
maximum legal rate of interest from time to time in effect under applicable Law
in order to lawfully contract for, charge, or receive the maximum amount of
interest permitted under applicable Law. As used in this section the term
"applicable Law" means the Laws of the State of New York or the Laws of the
United States of America, whichever Laws allow the greater interest, as such
Laws now exist or may be changed or amended or come into effect in the future.
Section 10.9. Termination; Limited Survival. In its sole and absolute
-----------------------------
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Agent to terminate this Agreement. Upon receipt by
Agent of such a notice, if no Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Restricted Person in any Loan Document, any Obligations under Sections 3.2
through 3.6, and any obligations which any Person may have to indemnify or
compensate any Lender Party shall survive any termination of this Agreement or
any other Loan Document. At the request and
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expense of Borrower, Agent shall prepare and execute all necessary instruments
to reflect and effect such termination of the Loan Documents. Agent is hereby
authorized to execute all such instruments on behalf of all Lenders, without the
joinder of or further action by any Lender.
Section 10.10. Severability. If any term or provision of any Loan Document
------------
shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.
Section 10.11. Counterparts. This Agreement may be separately executed in
------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 10.12. Waiver of Jury Trial, Punitive Damages, etc. To the extent
--------------------------------------------
permitted by Law, Lender Parties, Parent and Borrower hereby knowingly,
voluntarily, and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or directly or indirectly arising out
of, under, or in connection with, this Agreement or any other Loan Document, or
any course of conduct, course of dealing, statements (whether verbal or written)
or actions of such Persons, Parent or Borrower. This provision is a material
inducement for Lender Parties' entering into this Agreement and the other Loan
Documents. Parent, Borrower and each Lender Party hereby further (a) irrevocably
waives, to the maximum extent not prohibited by Law, any right it may have to
claim or recover in any such litigation any "Special Damages", as defined below,
(b) certifies that no party hereto nor any representative or agent or counsel
for any party hereto has represented, expressly or otherwise, or implied that
such party would not, in the event of litigation, seek to enforce the foregoing
waivers, and (c) acknowledges that it has been induced to enter into this
Agreement, the other Loan Documents and the transactions contemplated hereby and
thereby by, among other things, the mutual waivers and certifications contained
in this section. As used in this section, "Special Damages" includes all
special, consequential, exemplary, or punitive damages (regardless of how
named), but does not include any payments or funds which any party hereto has
expressly promised to pay or deliver to any other party hereto.
Section 10.13. Amendment and Restatement. As of the Effective Date, this
-------------------------
Agreement amends and restates in its entirety the Existing Credit Agreement.
Borrower and Parent hereby represent and warrant that as of the Effective Date
all conditions under Section 4.1 of this Agreement have been met. Borrower and
Parent hereby agree that (i) the Loans outstanding under the Existing Credit
Agreement and all accrued and unpaid interest thereon, (ii) all Letters of
Credit issued and outstanding under the Existing Credit Agreement, and (iii) all
accrued and unpaid fees under the Existing Credit Agreement shall be deemed to
be outstanding under and payable by this Agreement; provided that changes in the
Percentage Shares, interest rates or fee rates shall not change the amounts
accrued and owing to each Lender under the Existing Credit
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Agreement. The Percentage Shares and Commitments of the Lenders under this
Agreement are not the same as under the Existing Credit Agreement. To give
effect to such change, on the Effective Date, (i) Borrower hereby requests Loans
in the amount of $2,721,027.59 from MeesPierson Capital Corp., in the amount of
$747,225.19 from U.S. Bank National Association, (ii) subject to the terms and
conditions of this Agreement, each of MeesPierson Capital Corp. and U.S. Bank
National Association agrees to make such Loans to Borrower, (iii) Borrower
hereby requests the proceeds of such Loans be paid to ING (U.S.) Capital LLC
("ING"), in its capacity as a Lender hereunder, in order to reduce ING's
percentage share under the Existing Credit Agreement to the Percentage Share
listed on the Lender Schedule and (iv) Borrower will make such elections
regarding Interest Periods as Agent may request to cause each Lender to share in
each Eurodollar Loan based upon the Percentage Share under this Agreement as
soon as practical. By their execution hereof, each Lender consents to the
amendment or the amendment and restatement of the Security Documents under the
Existing Credit Agreement, as reflected in the documents listed on the Security
Schedule and consent to the execution and delivery by Agent of each of the
documents listed on the Security Schedule.
Section 10.14. Release. As further consideration and to induce Agent and
-------
each Lender to enter into this Agreement, each of Borrower and Parent hereby
compromises, releases and discharges each Lender, Agent, and their respective
directors, members, managers, officers, shareholders, agents, employees,
representatives, attorneys, and their respective heirs, legal representatives,
successors and assigns (collectively, the "Lending Parties") from any and all
---------------
claims, demands, causes of action, remedies, suits, judgments, damages, expenses
and liabilities (collectively, "Claims") of any nature whatsoever, whether now
------
know, suspected or claimed, whether arising under common law, in equity, or
under statute, which Borrower or Parent has against the Lending Parties which
may have arisen at any time on or prior to the Effective Date in connection
with, arising out of or related to the Loans, the Existing Credit Agreement, and
all instruments, documents, and agreements executed in connection therewith, or
the enforcement or attempted enforcement by Lending Parties of any of their
rights, remedies, or recourse related thereto.
73
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
INLAND PRODUCTION COMPANY
Borrower
By: /s/ Bill I. Pennington
--------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle R. Miller
Telephone:
(303) 893-0102
Telecopy: (303) 893-0103
INLAND RESOURCES INC.
Parent
By: /s/ Bill I.Pennington
--------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle R. Miller
Telephone: (303) 893-0102
Telecopy: (303) 893-0103
<PAGE>
ING (U.S.) Capital LLC,
Agent and Lender
By: /s/ Robert M. Spurck
-------------------------------------
Robert M. Spurck
Senior Vice President
Address for notices, Domestic Lending Office, and
-------------------------------------------------
Eurodollar Lending Office:
-------------------------
135 East 57th Street, 8th Floor
New York, New York 10022-2101
Attention: Peter Y. Clinton
Telephone: (212) 409-1514
Telecopy: (212) 409-1246
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Monte E. Deckerd
---------------------------------
Monte E. Deckerd
Vice President
Address for notices, Domestic Lending
-------------------------------------
Office, and Eurodollar Lending Office:
-------------------------------------
918 Seventeenth Street
Denver, Colorado 80202
Attention: Monte Deckerd
Telephone: (303) 585-4212
Telecopy: (303) 585-4362
<PAGE>
MEESPIERSON CAPITAL CORPORATION
By: /s/ Darrell W. Holley
----------------------------------
Darrell W. Holley
Title: Managing Director
By: /s/ Karel Louman
----------------------------------
Karel Louman
Title: Managing Director
Address for notices, Domestic Lending
-------------------------------------
Office, and Eurodollar Lending Office:
-------------------------------------
300 Crescent Court, Suite 1750
Dallas, Texas 75201
Attention: Darrell Holley
Telephone: (214) 754-0009
Telecopy: (212) 754-5981
<PAGE>
EXHIBIT 10.1
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>
<S> <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................................................. 8
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.......................................................... 11
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.............................................. 12
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............................................................... 13
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..................................................... 15
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........................................... 16
4.4 Qualified Institutional Buyer; Accredited Investor.................. 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.5 Acknowledgement of Risk............................................. 16
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
4.12 Value of JEDI New Securities........................................ 17
SECTION 5. PURCHASER AND TCW CONDITIONS TO CLOSING............................. 17
5.1 TCW's and Holdings' Conditions to Closing........................... 17
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................................... 22
7.1 Restrictive Legend.................................................. 22
7.2 Rule 144 and 144A................................................... 22
SECTION 8. AFFIRMATIVE COVENANTS OF THE COMPANIES.............................. 23
8.1 Financial Statements................................................ 23
8.2 Management's Discussion and Results of Operations................... 23
8.3 Certificates; Other Information..................................... 23
8.4 Independent Engineering Report...................................... 24
8.5 Inspection of Property; Books and Records; Discussions.............. 24
8.6 Conduct of Business and Maintenance of Existence.................... 24
8.7 Maintenance of Property; Insurance.................................. 24
8.8 Directors' and Officers' Insurance.................................. 24
8.9 Taxes............................................................... 24
8.10 Replacement of Instruments.......................................... 25
8.11 Costs and Expenses.................................................. 25
8.12 Contingent Issuance of Options to Holdings and JEDI................. 25
8.13 Bank Compliance Certificates........................................ 26
8.14 Management Controls................................................. 26
SECTION 9. Indemnity........................................................... 28
SECTION 10. MISCELLANEOUS....................................................... 28
10.1 Notices............................................................. 28
10.2 Survival............................................................ 29
10.3 Successors and Assigns.............................................. 29
10.4 Amendment and Waiver, etc........................................... 29
10.5 Counterparts........................................................ 29
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
10.6 Severability........................................................ 29
10.7 Governing Law....................................................... 30
10.8 Expenses............................................................ 30
10.9 Specific Performance................................................ 30
10.10 Arbitration......................................................... 30
</TABLE>
iii
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
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
iv
<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.
1
<PAGE>
"1935 Act" shall have the meaning set forth in Section 3.17 hereof.
--------
"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
2
<PAGE>
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.
"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
-----------------
3
<PAGE>
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.
-----------------
"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
1/st/ 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
4
<PAGE>
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.
"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.
5
<PAGE>
"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.
"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.
6
<PAGE>
"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 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.
7
<PAGE>
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
8
<PAGE>
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.
-------------------
(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
9
<PAGE>
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 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
10
<PAGE>
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.
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.
------------------------------
11
<PAGE>
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 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.
--------------------
12
<PAGE>
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) 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.
13
<PAGE>
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 Subsidiaries and
in the opinion of the Companies all tax liabilities are adequately provided for
on the books of the Companies.
<PAGE>
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
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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.
(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
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
(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
<PAGE>
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.
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
<PAGE>
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.
(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.
24
<PAGE>
(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:
"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
25
<PAGE>
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 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
-------------------------------
26
<PAGE>
. 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 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
----------------------------------
27
<PAGE>
. 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
28
<PAGE>
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 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.
29
<PAGE>
(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.
(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;
30
<PAGE>
(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;
(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
31
<PAGE>
. 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, 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
32
<PAGE>
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.
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
33
<PAGE>
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.
-----------
34
<PAGE>
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.
(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
35
<PAGE>
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.
(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.
36
<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: /s/ Kyle R. Miller
----------------------------
Kyle R. Miller
Co-Chief Executive Officer
410 17/th/ Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
INLAND PRODUCTION COMPANY,
a Texas corporation
By: /s/ Kyle R. Miller
----------------------
Kyle R. Miller
Chief Executive Officer
Address for Notices:
410 17/th/ 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: /s/ Tim H. Trawick
----------------------
Tim H. Trawick
Title:
Address for Notices:
410 17/th/ 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: /s/ Thomas F. Mehlberg
-----------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Marc MacAluso
----------------------
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: /s/ Thomas F. Mehlberg
-------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Marc MacAluso
-------------------------
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: /s/ Thomas F. Mehlberg
------------------------
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
<PAGE>
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: /s/ John Hopley
--------------------------
John Hopley
Vice President
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: /s/ Thomas F. Mehlberg
--------------------------
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 10.2
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
<PAGE>
(such schedule setting forth the record holder and number of such shares held by
each member of the Smith Group);
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.
---------
2
<PAGE>
"Holder" or "Holders" shall mean the Persons holding any of the
------ -------
Securities, either individually or collectively as the context so requires.
"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.
-------- ---------
3
<PAGE>
"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.
- ---
"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
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,
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
4
<PAGE>
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.
---------
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
5
<PAGE>
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.
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
6
<PAGE>
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 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,
7
<PAGE>
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 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
8
<PAGE>
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
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
9
<PAGE>
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 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: \s\ Kyle R. Miller
---------------------------------------------
Kyle R. Miller
Co-Chief Executive Officer
Address for Notices:
410 17/th/ 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: \s\ Thomas F. Mehlberg
---------------------------------------------
Thomas F. Mehlberg
Managing Director
By: \s\ Marc MacAluso
---------------------------------------------
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: \s\ Thomas F. Mehlberg
---------------------------------------------
Thomas F. Mehlberg
Managing Director
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, 30/th/ Floor
12
<PAGE>
Los Angeles, CA 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
13
<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: \s\ Thomas F. Mehlberg
-------------------------------------------------
Thomas F. Mehlberg
Managing Director
By: \s\ Marc MacAluso
-------------------------------------------------
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, 30/th/ Floor
Los Angeles, CA 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
14
<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: \s\ John Hopley
-------------------------------------------
John Hopley
Vice President
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
15
<PAGE>
PENGO SECURITIES CORP., a Delaware corporation
By: \s\ David Persing
----------------------------------------------
David Persing
Address for Notices:
885 3/rd/ Avenue, 34/th/ Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
16
<PAGE>
SMITH ENERGY PARTNERSHIP, a New York general
partnership
By: Smith Management LLC,
a New York limited liability company,
its General Partner
By: \s\ David Persing
----------------------------------------------
David Persing
Address for Notices:
885 3/rd/ Avenue, 34/th/ Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
17
<PAGE>
\s\ Randall D. Smith
-------------------------------------------------
RANDALL D. SMITH, an individual
Address for Notices:
885 3/rd/ Avenue, 34/th/ Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
\s\ Jeffrey A. Smith
--------------------------------------------------
JEFFREY A. SMITH, an individual
Address for Notices:
885 3/rd/ Avenue, 34/th/ Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
\s\ Barbara Stovall Smith
--------------------------------------------------
BARBARA STOVALL SMITH, an individual
Address for Notices:
885 3/rd/ Avenue, 34/th/ Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
18
<PAGE>
\s\ John W. Adams
-------------------------------------------------
JOHN W. ADAMS, an individual
Address for Notices:
885 3/rd/ Avenue, 34/th/ Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
\s\ Arthur J. Pasmas
--------------------------------------------------
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
19
<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 Corp.* 4,029,269 46.67%
Smith Energy Partnership* 152,220 1.76
Randall D. Smith* 874,410 10.13
Jeffrey A. Smith* 163,735 1.90
Barbara Stovall Smith* 108,000 1.25
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
20
<PAGE>
EXHIBIT 10.3
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>
<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.
"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
1
<PAGE>
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.
(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
2
<PAGE>
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 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
3
<PAGE>
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 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
4
<PAGE>
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 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
3
<PAGE>
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 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
6
<PAGE>
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 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;
7
<PAGE>
(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 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
8
<PAGE>
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 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 indemnificaiton 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
9
<PAGE>
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.
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
10
<PAGE>
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 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.
11
<PAGE>
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: \s\ Kyle R. Miller
--------------------------------
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: \s\ Thomas F. Mehlberg
--------------------------------
Thomas F. Mehlberg
Managing Director
By: \s\ Marc MacAluso
--------------------------------
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
<PAGE>
By: \s\ Thomas F. Mehlberg
--------------------------------
Thomas F. Mehlberg
Vice President
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: \s\ Thomas F. Mehlberg
--------------------------------
Thomas F. Mehlberg
Managing Director
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: \s\ John Hopley
--------------------------------
John Hopley
Vice President
PENGO SECURITIES CORP., a Delaware
corporation
By: \s\ David Persing
--------------------------------
David Persing
<PAGE>
SMITH ENERGY PARTNERSHIP, a New York
general partnership
By: Smith Management LLC,
a New York limited liability company,
its General Partner
By: \s\ David Persing
--------------------------------
David Persing
\s\ Randall D. Smith
-----------------------------------
RANDALL D. SMITH, an individual
\s\ Jeffrey A. Smith
-----------------------------------
JEFFREY A. SMITH, an individual
\s\ Barbara Stovall Smith
------------------------------------
BARBARA STOVALL SMITH, an individual
\s\ John W. Adams
-----------------------------------
JOHN W. ADAMS, an individual
\s\ Arthur J. Pasmas
-----------------------------------
ARTHUR J. PASMAS, an individual
