<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D/A
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
INLAND RESOURCES INC.
- -------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.001 per share
- -------------------------------------------------------------------------------
(Title of Class of Securities)
457469 20 3
----------------
(CUSIP Number)
Julia Heintz Murray, General Counsel - Finance
Enron North America Corp.
(formerly Enron Capital & Trade Resources Corp.)
1400 Smith Street
Houston, TX 77002
(713) 853-6161
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
September 21, 1999
- -------------------------------------------------------------------------------
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box [ ].
NOTE. Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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SCHEDULE 13D
- ----------------------- -----------------
CUSIP NO.: 457469 20 3 PAGE 2 OF 8 PAGES
- ----------------------- -----------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 NAME OF REPORTING PERSON
IRS IDENTIFICATION NO. OF ABOVE PERSON
Joint Energy Development Investments II Limited Partnership
- ------------- ----------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
N/A (b) [ ]
- ------------- ----------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------- ----------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
- ------------- ----------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
- ------------- ----------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- ------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
-0-
NUMBER OF ---------- -----------------------------------------------------------------------------------
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 2,920,975 shares
REPORTING ---------- -----------------------------------------------------------------------------------
PERSON
WITH 9 SOLE DISPOSITIVE POWER
-0-
---------- -----------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,920,975 shares
- ------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,920,975 shares
- ------------- ----------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
N/A
- ------------- ----------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.65%
- ------------- ----------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
PN
- ------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
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SCHEDULE 13D
- ----------------------- -----------------
CUSIP NO.: 457469 20 3 PAGE 3 OF 8 PAGES
- ----------------------- -----------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 NAME OF REPORTING PERSON
IRS IDENTIFICATION NO. OF ABOVE PERSON
Enron Corp.
- ------------- ----------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
N/A (b) [ ]
- ------------- ----------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------- ----------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
- ------------- ----------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ]
- ------------- ----------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Oregon
- ------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES ---------- -----------------------------------------------------------------------------------
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 2,920,975 shares
PERSON ---------- -----------------------------------------------------------------------------------
WITH
9 SOLE DISPOSITIVE POWER
-0-
---------- -----------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,920,975 shares
- ------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,920,975 shares
- ------------- ----------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
N/A
- ------------- ----------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.65%
- ------------- ----------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
THIS AMENDMENT NO. 2 RELATES TO THE SCHEDULE 13D ORIGINALLY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1997, WHICH WAS AMENDED BY
AMENDMENT NO. 1 THERETO FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
JANUARY 16, 1998, ITEMS 3, 4, 5, 6 AND 7 OF WHICH ARE HEREBY FURTHER AMENDED BY
THE ADDITION OF THE FOLLOWING:
Item 3. Source and Amount of Funds or Other Consideration:
On September 21, 1999, JEDI II exchanged the 100,000 shares of the
Issuer's Preferred Stock, including $2.2 million of accumulated and unpaid
dividends thereon, for (i) 2,920,975 shares of the Issuer's Common Stock and
(ii) 121,973 shares of the Issuer's Series E Redeemable Preferred Stock (the
"Series E Preferred Stock"), pursuant to an Exchange Agreement dated as of
September 21, 1999, among the Issuer, Inland Production Company, a Texas
corporation, Inland Refining, Inc., a Utah corporation, 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 JEDI II (the "Exchange Agreement"). Under
the Exchange Agreement, if any of the outstanding options and warrants of the
Issuer, which are exercisable for 1,291,651 shares of Common Stock are
exercised, JEDI II has been granted an option at the same exercise price to
acquire a number of shares of Common Stock equal to one-third of the shares
issued pursuant to such exercised option or warrant. In connection with the
Exchange Agreement, the Issuer paid to JEDI II $25,000 and all of its related
costs and expenses. The Exchange Agreement is incorporated herein by reference
to Exhibit 6.
Item 4. Purpose of Transaction:
On September 21, 1999, JEDI II exchanged the 100,000 shares of the
Issuer's Preferred Stock, including $2.2 million of accumulated and unpaid
dividends thereon, for (i) 2,920,975 shares of the Issuer's Common Stock and
(ii) 121,973 shares of Series E Preferred Stock, pursuant to the Exchange
Agreement. Under the Exchange Agreement, if any of the outstanding options and
warrants of the Issuer, which are exercisable for 1,291,651 shares of Common
Stock are exercised, JEDI II has been granted an option at the same exercise
price to acquire a number of shares of Common Stock equal to one-third of the
shares issued pursuant to such exercised option or warrant.
The Series E Preferred Stock accrues dividends on a daily basis. At
the option of the Issuer, dividends shall accrue and be paid (i) 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 for such quarter or (ii) 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. Dividends shall be paid on each December 30,
March 30, June 29 and September 29, commencing December 30, 1999. Additional
dividends shall accrue and be payable on the amount of dividends accrued but
unpaid, whether or not declared, compounding quarterly, at a rate of 11.50% per
annum. No dividends may be declared or paid on the Issuer's Common Stock or
Series Z Preferred Stock while there are any accrued and unpaid dividends on
the Series E Preferred Stock and the Issuer's Series D Redeemable Preferred
Stock (the "Series D Preferred Stock"). The Series E Preferred Stock has
liquidation preference over all other classes and series of stock, except the
Issuer's Series D Preferred Stock, in an amount equal to $100.00 per share,
together with any accrued and unpaid dividends thereon. The Series E Preferred
Stock may be redeemed, in whole or in part, at any time by the Issuer at its
option by paying an amount in cash equal to $100.00 per share, together with
any accrued and unpaid dividends thereon (the "Series E Redemption Price"). On
the earlier of (i) September
Page 4 of 8
<PAGE> 5
21, 2006 or (ii) the redemption of all outstanding shares of the Series D
Preferred Stock, all of the outstanding Series E Preferred Stock must be
redeemed by the Issuer at the Series E Redemption Price.
The Series E Preferred Stock votes together with the Issuer's Common
Stock, Series D Preferred Stock and Series Z Convertible Preferred Stock (the
"Series Z Preferred Stock") as a single class and not as a separate voting
group or class, except as mandated by law or by the Issuer's Articles of
Incorporation as described below. Each share of the Series E Preferred Stock
and the Series D Preferred Stock is entitled to vote with the Common Stock on a
share-for-share basis on all matters submitted to the shareholders of the
Issuer for approval, and each share of the Series Z Preferred Stock is entitled
to vote with the Common Stock on a share-for-share basis, but is entitled to
the number of votes that 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 Issuer's Articles of Incorporation, the total number of votes
of the combined class of Common Stock, Series E Preferred Stock, Series D
Preferred Stock and Series Z Preferred Stock presently outstanding is
39,856,310 votes, of which 3,042,948 votes, representing approximately 7.63% of
the total, are owned by JEDI II.
Pursuant to the Issuer's Articles of Incorporation, the holders of the
Series E Preferred Stock, acting separately as a class, have the right to elect
one of the members of the Board of Directors of the Issuer. If the number of
members of the Issuer's Board increases to a number greater than six, the
holders of the Series E Preferred Stock have the right to elect that number of
directors equal to one-sixth of the directors comprising the Board. The
approval of a majority of the outstanding shares of Series E Preferred Stock,
voting as a separate voting group, is required for the authorization or
issuance of any additional shares of the Issuer's Series D Preferred Stock or
Series E Preferred Stock or the designation of one or more additional series of
Class A preferred stock or any other class of stock of the Issuer 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. Additionally, the approval of 75% of the outstanding shares of
Series E Preferred Stock, voting as a separate voting group, is required for
the Issuer to: (i) consummate any merger where the Issuer is not the surviving
entity or any transaction where the holders of voting stock of the Issuer prior
to such transaction own less than 50% of the outstanding voting stock of the
Issuer 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 the Series E Preferred Stock, (ii) consummate any merger in
which the holders of the Issuer's 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 junior to the securities
issued to the holders of the Series E Preferred Stock, (iii) sell or transfer
substantially all of the Issuer's assets unless, so long as the Series D
Preferred Stock is outstanding, (A) at least 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 60% of 10/85ths 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 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 the Series E Preferred Stock.
JEDI II intends to review its investment in the Issuer on a continuing
basis and, depending upon the price of, and other market conditions relating
to, the Common Stock, subsequent developments affecting the Issuer, the
Issuer's business and prospects, other investment and business opportunities
available to JEDI II, general stock market and economic conditions, tax
considerations and other factors deemed relevant, may decide to increase or
decrease the size of its investment in the Issuer.
Page 5 of 8
<PAGE> 6
Other than the transactions described herein, none of the Reporting
Entities, nor to their knowledge, ECMLP II, ECC II, Enron North America Corp.,
a Delaware corporation formerly known as Enron Capital & Trade Resources Corp.
("ENA"), or any person listed on Schedule I hereto, has any plan or proposal
that would result in any of the consequences listed in paragraphs (a) - (j) of
Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer:
As of the date of this statement, JEDI II beneficially owns and has
the power to vote and dispose of (i) 2,920,975 shares of the Issuer's Common
Stock, representing approximately 12.65% of the Issuer's Common Stock
outstanding as of September 21, 1999, and (ii) 121,973 shares of the Issuer's
Series E Redeemable Preferred Stock. Because ECC II is an indirect, wholly
owned subsidiary of Enron, Enron may also be deemed to beneficially own such
shares. Enron disclaims beneficial ownership of all such shares.
Other than the transactions described herein, none of the Reporting
Entities, nor to their knowledge, ECMLP II, ECC II, ENA, or any person listed
on Schedule I hereto, has effected any transactions in shares of Common Stock
of the Issuer during the preceding sixty days.
Item 6. Contracts, Arrangements, Understandings or Relationships With
Respect to Securities of the Issuer:
Pursuant to the Exchange Agreement, JEDI II released the Issuer from
all claims, demands and causes of action under the Securities Purchase
Agreement dated July 21, 1997, the Registration Rights Agreement dated July 21,
1997 and the Tagalong Agreement dated July 21, 1997, which are filed as
Exhibits 1, 2 and 3, respectively.
JEDI II entered into a Registration Rights Agreement dated as of
September 21, 1999 with the Issuer, Holdings, Portfolio, 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")(the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Issuer granted JEDI II
certain demand and piggyback registration rights relating to the Common Stock
acquired by JEDI II in the exchange described under Item 4 above. The
Registration Rights Agreement is incorporated herein by reference to Exhibit 7.
In addition, JEDI II entered into a Shareholders Agreement dated as of
September 21, 1999 with the Issuer, Holdings, Fund V and the Smith Group.
Pursuant to the Shareholders Agreement, if Holdings or any of its affiliates
transfers, other than in an offering pursuant to a registration statement or
pursuant to Rule 144 under the Securities Act of 1933 (the "Securities Act"),
any shares of Common Stock or Series Z Preferred Stock held by such transferor
to any person other than an affiliate of Holdings 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 September 21, 1999, then each
of JEDI II and the Smith Group may sell to the transferee up to the number of
shares of Common Stock equal to the product of (i) the total number of shares
which JEDI II or the Smith Group, as the case may be, 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. If Holdings or any of its affiliates sells,
other than in an offering pursuant to a registration statement or pursuant to
Rule 144 under the Securities Act, shares of the Issuer's Common Stock or
Series Z Preferred Stock 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
Page 6 of 8
<PAGE> 7
Series Z Preferred Stock, then Holdings and/or its affiliates may, at their
option, and subject to certain conditions, cause each of the members of JEDI II
and the Smith Group to sell to the transferee up to the number of shares of
Common Stock equal to the product of (i) the total number of shares of Common
Stock which JEDI II or the Smith Group, as the case may be, 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. If Holdings, Fund V or Portfolio (or their
affiliate transferees) endeavors to purchase shares of Common Stock from any
person (other than a party to the Shareholders Agreement or an affiliate),
Holdings has agreed to offer to buy a proportionate number of shares of Common
Stock from each member of the Smith Group and JEDI II equal in aggregate amount
to the amount they endeavor to purchase or the total number of shares of Common
Stock then held by members of the Smith Group and JEDI II, 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). Holdings, JEDI II and the
Smith Group also agreed with each other to vote their respective shares of
voting stock to ensure that (i) the Board of Directors of the Issuer consists
of six members and (ii) one member is designated for election to the Board by
the holders of Common Stock and Series Z Preferred Stock. Each of JEDI II and
Holdings further agreed that neither it nor its affiliates would vote their
shares of Common Stock and Series Z Preferred Stock in the election of such one
designated Board member so long as they own Series E Preferred Stock or Series
D 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, that if Holdings and its affiliates do not at such time hold enough
Series D Preferred Stock to entitle it and its affiliates to elect four members
to the Board, then Holdings may vote an amount of its Common Stock
proportionate to the reduction in number of directors it and its affiliates are
entitled to designate pursuant to the terms of the Series D Preferred Stock.
Each member of the Smith Group agreed not to vote its 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. If the Smith Group does not vote its shares of Common Stock
for the election of directors, then both Holdings and JEDI II and their
affiliates may vote their Common Stock and Series Z Preferred Stock for the
election of any director elected by the holders of Common Stock, in addition to
directors that may be elected by the holders of the Series D Preferred Stock or
the Series E Preferred Stock. The Shareholders Agreement is incorporated herein
by reference to Exhibit 8.
Item 7. Material to be Filed as Exhibits:
Exhibit 6: Exchange Agreement dated as of September 21,
1999, among the Issuer, Inland Production Company,
Inland Refining, Inc., TCW, Holdings and JEDI II.
Exhibit 7: Registration Rights Agreement dated as of
September 21, 1999, among the Issuer, Holdings,
Portfolio, JEDI II and the Smith Group.
Exhibit 8: Shareholders Agreement dated as of September 21,
1999, among the Issuer, Holdings, Fund V, JEDI II
and the Smith Group.
Page 7 of 8
<PAGE> 8
After reasonable inquiry and to the best knowledge and belief of the
undersigned, the undersigned certify that the information set forth in this
statement is true, complete and correct.
Date: October 8, 1999 JOINT ENERGY DEVELOPMENT INVESTMENTS
II LIMITED PARTNERSHIP
By: Enron Capital Management II Limited
Partnership, its general partner
By: Enron Capital II Corp., its general partner
By: /s/ ANGUS H. DAVIS
-------------------------------------------
Name: Angus H. Davis
Title: Vice President and Secretary
Date: October 8, 1999 ENRON CORP.
By: /s/ ANGUS H. DAVIS
-------------------------------------------
Name: Angus H. Davis
Title: Vice President and
Deputy Corporate Secretary
ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE FEDERAL
CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001).
Page 8 of 8
<PAGE> 9
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS
ENRON CAPITAL II CORP.
<TABLE>
<CAPTION>
Name and Business Address Citizenship Position and Occupation
- ------------------------- ----------- -----------------------
<S> <C> <C>
1400 Smith Street
Houston, TX 77002
J. Clifford Baxter U.S.A. Director and Chairman, Chief
Executive Officer and Managing
Director
James V. Derrick, Jr. U.S.A. Director
Kevin P. Hannon U.S.A. Director, President and Managing
Director
Richard B. Buy U.S.A. Managing Director
Andrew S. Fastow U.S.A. Managing Director
Michael J. Kopper U.S.A. Managing Director
Jeffrey McMahon U.S.A. Managing Director, Finance and
Treasurer
Mark E. Haedicke U.S.A. Managing Director and General
Counsel
</TABLE>
I-1
<PAGE> 10
DIRECTORS AND EXECUTIVE OFFICERS
ENRON CORP.
<TABLE>
<CAPTION>
Name and Business Address Citizenship Position and Occupation
- ------------------------- ----------- -----------------------
<S> <C> <C>
Robert A. Belfer U.S.A. Director; Chairman, President and
767 Fifth Avenue, 46th Fl. Chief Executive Officer, Belco Oil &
New York, NY 10153 Gas Corp.
Norman P. Blake, Jr. U.S.A. Director; Chairman, President
Promus Hotel Corp. and Chief Executive Officer,
755 Crossover Lane Promus Hotel Corp.
Memphis, TN 38117-4900
Ronnie C. Chan U.S.A. Director; Chairman of
Hang Lung Development Hang Lung Development Group
Company Limited
28/F, Standard Chartered
Bank Building
4 Des Vouex Road Central
Hong Kong
John H. Duncan U.S.A. Director; Investments
5851 San Felipe, Suite 850
Houston, TX 77057
Joe H. Foy U.S.A. Director;
404 Highridge Dr. Retired Senior Partner,
Kerrville, TX 78028 Bracewell & Patterson, L.L.P.
Wendy L. Gramm U.S.A. Director; Former Chairman,
P. O. Box 39134 U.S. Commodity Futures
Washington, D.C. 20016 Trading Commission
Ken L. Harrison U.S.A. Director; Chairman and Chief
121 S. W. Salmon Street Executive Officer of Portland
Portland, OR 97204 General Electric Company
Robert K. Jaedicke U.S.A. Director; Professor (Emeritus)
Graduate School Business Graduate School of Business
Stanford University Stanford University
Stanford, CA 94305
Charles A. LeMaistre U.S.A. Director; President
13104 Travis View Loop (Emeritus), University of Texas
Austin, TX 78732 M.D. Anderson Cancer Center
Rebecca P. Mark U.S.A. Director; Chairman and
Chief Executive Officer,
Azurix Corp.
John Mendelsohn U.S.A. Director; President,
University of Texas University of Texas
M.D. Anderson Cancer Center M.D. Anderson Cancer Center
1515 Holcombe
Houston, TX 77030
</TABLE>
I-2
<PAGE> 11
<TABLE>
<S> <C> <C>
Jerome J. Meyer U.S.A. Director; Chairman and Chief
26600 S. W. Parkway Executive Officer,
Building 63; P. O. Box 1000 Tektronix, Inc.
Wilsonville, OR 97070-1000
John A. Urquhart U.S.A. Director; Senior Advisor to the
John A. Urquhart Assoc. Chairman of Enron Corp.;
111 Beach Road President,
Fairfield, CT 06430 John A. Urquhart Associates
John Wakeham U.K. Director; Former U.K. Secretary
Pingleston House of State for Energy and Leader
Old Alresford of the Houses of Commons
Hampshire S024 9TB and Lords
United Kingdom
Herbert S. Winokur, Jr. U.S.A. Director; President, Winokur &
Winokur & Associates, Inc. Associates, Inc.
30 East Elm Ct.
Greenwich, CT 06830
Each of the following persons' business address is:
1400 Smith Street
Houston, TX 77002
Kenneth L. Lay U.S.A. Director; Chairman and Chief
Executive Officer
J. Clifford Baxter U.S.A. Chairman of the Board, Chief
Executive Officer and
Managing Director, Enron
North America Corp.
Richard A. Causey U.S.A. Executive Vice President and
Chief Accounting Officer
James V. Derrick, Jr. U.S.A. Executive Vice President and
General Counsel
Andrew S. Fastow U.S.A. Executive Vice President and
Chief Financial Officer
Mark A. Frevert U.S.A. President and Chief
Executive Officer,
Enron Europe Limited
Stanley C. Horton U.S.A. Chairman and Chief
Executive Officer,
Enron Gas Pipeline Group
</TABLE>
I-3
<PAGE> 12
<TABLE>
<S> <C> <C>
J. Mark Metts U.S.A. Executive Vice President, Corporate
Development, Enron Corp.
Lou L. Pai U.S.A. Chairman, President and
Chief Executive Officer,
Enron Energy Services, Inc.
Kenneth D. Rice U.S.A. Co-Chairman and Co-Chief
Executive Officer and
President, Enron
Communications, Inc.
Jeffrey K. Skilling U.S.A. Director; President and
Chief Operating Officer,
Enron Corp.
Joseph W. Sutton U.S.A. Vice Chairman, Enron Corp.
</TABLE>
I-4
<PAGE> 1
EXHIBIT 6
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> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. DEFINITIONS....................................................................................1
SECTION 2. EXCHANGE OF SECURITIES.........................................................................6
2.1 Authorization and Issuance of the Preferred Stock and Common Stock.............................6
2.2 Exchange.......................................................................................7
2.3 The Closing....................................................................................7
2.4 Consent to Exchange............................................................................7
2.5 Simultaneous Transactions......................................................................8
SECTION 3. WARRANTIES, REPRESENTATIONS AND COVENANTS OF THE COMPANIES.....................................8
3.1 Organization and Authorization of the Issuer...................................................8
3.2 Capital Stock..................................................................................9
3.3 Information Regarding the Issuer..............................................................10
3.4 Independent Engineering Report................................................................10
3.5 Litigation....................................................................................10
3.6 Absence of Undisclosed Liability..............................................................11
3.7 Governmental Consent..........................................................................11
3.8 Compliance with Laws and Other Instruments of the Companies...................................11
3.9 No Affiliate Ownership........................................................................11
3.10 Compliance with Laws..........................................................................12
3.11 Hedging.......................................................................................12
3.12 Absence of Certain Changes or Events..........................................................12
3.13 Licenses and Permits..........................................................................12
3.14 Taxes.........................................................................................12
3.15 ERISA Plans and Liabilities...................................................................13
3.16 Private Offering..............................................................................13
3.17 Investment Companies Act and Public Utility Holding Companies Act.............................13
3.18 Environmental Laws............................................................................14
3.19 Labor Relations...............................................................................14
3.20 No Broker's or other Fees.....................................................................15
3.21 Bona Fide Debt Work-out.......................................................................15
SECTION 4. WARRANTIES, REPRESENTATIONS AND COVENANTS OF PURCHASERS and TCW...............................15
4.1 Acquisition for Purchaser's Account...........................................................15
4.2 Investment Experience.........................................................................15
4.3 Securities not Registered.....................................................................15
4.4 Qualified Institutional Buyer; Accredited Investor............................................15
4.5 Acknowledgement of Risk.......................................................................15
4.6 No Public Market..............................................................................16
4.7 Reliance by the Issuer........................................................................16
4.8 No Public Solicitation........................................................................16
4.9 Legal Holder..................................................................................16
4.10 Consent to Farmout............................................................................16
4.11 Bona Fide Debt Work-out.......................................................................16
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
4.12 Value of JEDI New Securities..................................................................16
SECTION 5. PURCHASER AND TCW CONDITIONS TO CLOSING.......................................................16
5.1 TCW 's and Holdings' Conditions to Closing....................................................16
5.2 JEDI's Conditions to Closing..................................................................18
5.3 Closing Deliveries of the Companies...........................................................20
SECTION 6. ISSUER'S CONDITIONS TO CLOSING; REQUIRED DELIVERIES...........................................21
SECTION 7. TRANSFERABILITY OF NEW SECURITIES.............................................................21
7.1 Restrictive Legend............................................................................21
7.2 Rule 144 and 144A.............................................................................22
SECTION 8. AFFIRMATIVE COVENANTS OF THE COMPANIES........................................................22
8.1 Financial Statements..........................................................................22
8.2 Management's Discussion and Results of Operations.............................................23
8.3 Certificates; Other Information...............................................................23
8.4 Independent Engineering Report................................................................23
8.5 Inspection of Property; Books and Records; Discussions........................................23
8.6 Conduct of Business and Maintenance of Existence..............................................23
8.7 Maintenance of Property; Insurance............................................................23
8.8 Directors' and Officers' Insurance............................................................24
8.9 Taxes.........................................................................................24
8.10 Replacement of Instruments....................................................................24
8.11 Costs and Expenses............................................................................24
8.12 Contingent Issuance of Options to Holdings and JEDI...........................................24
8.13 Bank Compliance Certificates..................................................................25
8.14 Management Controls...........................................................................25
SECTION 9. Indemnity.....................................................................................27
SECTION 10. MISCELLANEOUS.................................................................................28
10.1 Notices.......................................................................................28
10.2 Survival......................................................................................28
10.3 Successors and Assigns........................................................................28
10.4 Amendment and Waiver, etc.....................................................................28
10.5 Counterparts..................................................................................29
10.6 Severability..................................................................................29
10.7 Governing Law.................................................................................29
10.8 Expenses......................................................................................29
10.9 Specific Performance..........................................................................29
10.10 Arbitration...................................................................................29
</TABLE>
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<PAGE> 4
TABLE OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C> <C>
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
</TABLE>
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<PAGE> 5
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this "Agreement") is dated as of
September 21, 1999 among INLAND RESOURCES INC., a Washington corporation (the
"Issuer"), INLAND PRODUCTION COMPANY, a Texas corporation ("IPC"), INLAND
REFINING, INC., a Utah corporation ("Refining" and together with Issuer and IPC,
the "Companies"), TRUST COMPANY OF THE WEST, a California trust company, as
Sub-Custodian for Mellon Bank for the benefit of Account No. CPFF 873-3032
("Fund V"), TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY PARTNERSHIP, L.P., a
California limited partnership ("Portfolio," and collectively with Fund V,
"TCW"), INLAND HOLDINGS LLC, a California limited liability company ("Holdings")
and Joint Energy Development Investments II Limited Partnership, a Delaware
limited partnership ("JEDI", and together with Holdings, the "Purchasers").
WHEREAS, Fund V is presently the holder of $75 million in
principal amount of junior secured debt of IPC (plus accrued and unpaid interest
to the Closing Date, the "Fund V Debt") and Portfolio is the holder of warrants
(the "Portfolio Warrants," and together with the Fund V Debt, the "TCW
Securities") to purchase 158,512 shares of the Issuer's common stock, $.001 par
value per share (the "Common Stock");
WHEREAS, JEDI is presently the holder of 100,000 shares of
Series C Preferred Stock (as defined below), plus accumulated dividends to the
Closing Date;
WHEREAS, Fund V and Portfolio are members of Holdings;
WHEREAS, the Companies, TCW, Holdings and JEDI desire to
consummate a transaction (the "Exchange") whereby (i) TCW will exchange its
entire interest in the TCW Securities for the issuance to Holdings of (a)
10,757,747 shares (the "D Preferred Shares Number") of Series D Redeemable
Preferred Stock of the Issuer, (b) 5,882,901 shares (the "Z Preferred Shares
Number") of Series Z Preferred Stock of the Issuer and (c) 11,642,949 shares of
the Issuer's Common Stock and (ii) JEDI will exchange its entire interest in
100,000 shares of the Series C Preferred Stock (and any accumulated dividends
thereon, if any) for (a) 121,973 shares (the "E Preferred Shares Number") of the
Series E Redeemable Preferred Stock of the Issuer and (b) 2,920,975 shares of
the Issuer's Common Stock, all subject to the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, conditions and agreements contained
herein, the parties hereto, intending to be legally bound by the terms hereof,
agree as follows:
SECTION 1. DEFINITIONS
As used herein, the following terms shall have the following
meanings.
"10-Q Filing Date" shall have the meaning set forth in Section
3.3(a) hereof.
"1935 Act" shall have the meaning set forth in Section 3.17
hereof.
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<PAGE> 6
"Agreement" shall have the meaning set forth in the preamble
hereto.
"Annual Budget Plan" shall have the meaning ascribed to such
term in Section 8.14 hereof.
"Approved Annual Budget" shall have the meaning ascribed to
such term in Section 8.14 hereof.
"Approved Budgets" shall have the meaning ascribed to such
term in Section 8.14 hereof.
"Approved Updated Budget" shall have the meaning ascribed to
such term in Section 8.14 hereof.
"Akin Opinion" shall have the meaning set forth in Section
5.1(m) hereof.
"Articles of Incorporation" shall mean the Articles of
Incorporation of the Issuer, as amended from time to time.
"Board of Directors" shall mean, with respect to a party, the
board of directors of such party.
"Closing" shall have the meaning ascribed to such term in
Section 2.3 hereof.
"Closing Date" shall have the meaning ascribed to such term in
Section 2.3(c) hereof.
"Commission" shall mean the United States Securities and
Exchange Commission or any other similar or successor agency of the federal
government administering the Securities Act.
"Common Stock" shall have the meaning set forth in the
recitals hereto.
"Companies" shall have the meaning set forth in the preamble
hereto.
"Credit Agreement" shall mean the Second Amended and Restated
Credit Agreement, among IPC, the Issuer, ING, as agent, and U.S. Bank National
Association and MeesPierson Capital Corp., as lenders party thereto, dated as of
the date hereof.
"D Preferred Shares Number" shall have the meaning set forth
in the recitals hereto.
"E Preferred Shares Number" shall have the meaning set forth
in the recitals hereto.
"Environmental Laws" shall mean any and all Laws relating to
the environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface water,
ground water, or land.
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<PAGE> 7
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, together with all rules and regulations
promulgated with respect thereto.
"ERISA Affiliate" shall mean each of the Companies and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control that, together with each of
the Companies, are treated as a single employer under Section 414 of the
Internal Revenue Code of 1986, as amended.
"ERISA Plan" means any employee pension benefit plan subject
to Title IV of ERISA maintained by any ERISA Affiliate with respect to which any
of the Companies or the Subsidiaries has a fixed or contingent liability.
"Evaluated Properties" shall have the meaning set forth in
Section 3.4 hereof.
"Exchange" shall have the meaning set forth in the recitals
hereto.
"Exchange Act" shall have the meaning set forth in Section
3.3(a) hereof.
"Farmout Agreement" shall mean that certain Farmout Agreement
dated as of June 1, 1998 between IPC, the Issuer and Smith Management, LLC, as
assigned to Smith Energy Partnership effective October 1, 1998 and as amended by
Amendment No. One dated as of November 25, 1998.
"Farmout Restructurings" shall have the meaning set forth in
Section 5.1(f) hereof.
"Financial Statements" shall have the meaning set forth in
Section 3.3(a) hereof.
"Fund V" shall have the meaning set forth in the preamble
hereto.
"Fund V Debt" shall have the meaning set forth in the recitals
hereto.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time consistent with those
utilized in preparing the audited Financial Statements.
"Governmental Body" shall mean any Federal, state, municipal
or other governmental department, commission, court, tribunal, board, bureau,
agency or instrumentality, domestic or foreign (including, without limitation,
any bank regulatory authority).
"Hazardous Materials" shall mean any substances regulated
under any Environmental Law, whether as pollutants, contaminants, or chemicals,
or as industrial, toxic or hazardous substances or wastes, or otherwise.
"Holdings New Securities" shall have the meaning set forth in
Section 2.2(a) hereof.
"Indemnified Party" shall have the meaning set forth in
Section 9.
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<PAGE> 8
"Independent Engineer" shall mean Ryder Scott Company or such
other independent engineering consultant firm acceptable to the Purchasers.
"Independent Engineering Report" shall mean each engineering
report prepared by an Independent Engineer, which shall be (i) effective as of
January 1st of each year, (ii) in a form satisfactory to the Purchasers and
(iii) prepared in accordance with the then existing standards of the Society of
Petroleum Engineers.
"ING" shall mean ING (U.S.) Capital Corporation.
"Initial Independent Engineering Report" shall mean the
engineering report prepared by Ryder Scott Company dated as of January 1, 1999
acceptable to the Purchasers and prepared in accordance with the then existing
standards of the Society of Petroleum Engineers.
"IPC" shall have the meaning set forth in the preamble hereto.
"Issuer" shall have the meaning set forth in the preamble
hereto.
"JEDI" shall have the meaning set forth in the preamble
hereto.
"JEDI New Securities" shall have the meaning set forth in
Section 2.2(b) hereof.
"JEDI Release" shall mean a release of the Companies'
obligations with respect to JEDI's 100,000 shares of Series C Preferred Stock,
plus accumulated dividends thereon to the Closing Date, and any documents
related thereto, including without limitation, that certain Securities Purchase
Agreement dated July 21, 1997 between JEDI and Issuer, that certain Registration
Rights Agreement dated July 21, 1997 between JEDI and Issuer and that certain
Tagalong Agreement dated July 21, 1997 between JEDI and Pengo, pursuant to the
Release Agreement in the form attached hereto as Exhibit J.
"Law" shall mean any applicable statute, law, regulation,
ordinance, rule, treaty, judgment, order, decree, permit, concession, license or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"Liability" shall have the meaning set forth in Section 3.6
hereof.
"Lien" shall mean, with respect to any Person, any mortgage,
lien, pledge, adverse claim, charge, security interest or other encumbrance, or
any interest or title of any vendor, lessor, lender or other secured party to or
of such Person under any conditional sale or other title retention agreement or
capital lease, upon or with respect to any property or asset of such Person, or
the signing or filing by or with the consent of such Person of a financing
statement that names such Person as debtor, or the signing of any security
agreement authorizing any other Person as the secured party to file any
financing statement.
"Material Adverse Effect" shall mean, with respect to any
Person, a material adverse effect on the business, properties, financial
condition or operations of such Person.
"New Securities" shall have the meaning set forth in Section
2.2(b) hereof.
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<PAGE> 9
"Order" means any order, writ, injunction, decree, judgment,
award, determination, direction or demand.
"Person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"Portfolio Warrants" shall have the meaning set forth in the
recitals hereto.
"Preferred Stock Designation" shall mean the amendment to the
Articles of Incorporation of the Issuer, setting forth the terms of the Series D
Preferred Stock, Series E Preferred Stock and Series Z Preferred Stock, in the
form attached hereto as Exhibit A or with such changes thereto as approved by
the Purchasers and the Issuer.
"Purchaser Adjustment Options" shall have the meaning set
forth in Section 8.12 hereof.
"Purchasers" shall have the meaning set forth in the preamble
hereto.
"Randall Opinion" shall have the meaning set forth in Section
5.1(1) hereof.
"Refining" shall have the meaning set forth in the preamble
hereto.
"Registration Rights Agreement" shall have the meaning set
forth in Section 5.1(h) hereof.
"Related Person" shall mean any of the Companies, their
subsidiaries or affiliates, whether now existing or hereafter formed or
acquired.
"Requisite Ownership" shall have the meaning set forth in
Section 8 hereof.
"Responsible Officer" shall mean all officers of the
Companies.
"Restricted Securities" shall have the meaning set forth under
Rule 144 of the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Senior Creditors" shall mean the lenders under the Credit
Agreement.
"Series C Preferred Stock" shall mean the Issuer's Series C
Cumulative Convertible Preferred Stock, par value $.001 per share, all of the
issued and outstanding shares of which are owned by JEDI.
"Series D Preferred Stock" shall mean the Series D Redeemable
Preferred Stock of the Issuer, par value $.001 per share, with the terms
described in Exhibit A hereto.
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<PAGE> 10
"Series E Preferred Stock" shall mean the Series E Redeemable
Preferred Stock of the Issuer, par value $.001 per share, with the terms
described in Exhibit A hereto.
"Series Z Preferred Stock" shall mean the Series Z Convertible
Preferred Stock of the Issuer, par value $.001 per share, with the terms
described in Exhibit A hereto.
"Shareholders Agreement" shall have the meaning set forth in
Section 5.1(g) hereof.
"Smith Group" shall mean Pengo Securities Corp., Smith Energy
Partnership, Randall D. Smith, Barbara Stovall Smith, Jeffrey A. Smith, John W.
Adams, Arthur J. Pasmas, and their respective affiliates.
"Subsidiary" shall mean any entity in which any of the
Companies has a 50% or greater direct or indirect equity interest.
"TCW" shall have the meaning set forth in the preamble hereto.
"TCW Release" shall mean a release of the Companies'
obligations under or with respect to the outstanding principal of and accrued
interest on the Fund V Debt and any obligation with respect to the Portfolio
Warrants pursuant to the Release Agreement in the form attached hereto as
Exhibit K.
"TCW Securities" shall have the meaning set forth in the
recitals hereto.
"Termination Event" shall mean (a) the occurrence with respect
to any ERISA Plan of (i) a reportable event described in Sections 4043(c)(5) or
(6) of ERISA or (ii) any other reportable event described in Section 4043(c) of
ERISA other than a reportable event not subject to the provision for 30-day
notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by the
Pension Benefit Guaranty Corporation under Section 4043(a) of ERISA, or (b) the
withdrawal of any ERISA Affiliate from an ERISA Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or
(c) the filing of a notice of intent to terminate any ERISA Plan or the
treatment of any ERISA Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the
Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) any
other event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
ERISA Plan.
"Updated Budget" shall have the meaning set forth in Section
8.14 hereof.
"Utah Opinion" shall have the meaning set forth in Section
5.1(n) hereof.
"Z Preferred Shares Number" shall have the meaning set forth
in the recitals hereto.
SECTION 2. EXCHANGE OF SECURITIES
2.1 Authorization and Issuance of the Preferred Stock and
Common Stock. The Issuer has duly authorized the issuance of (a) a number of
shares of the Series D Preferred Stock
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<PAGE> 11
equal to the D Preferred Shares Number, (b) a number of shares of the Series E
Preferred Stock equal to the E Preferred Shares Number, (c) shares of Series Z
Preferred Stock equal to the Z Preferred Shares Number and (d) 14,563,924 shares
of Common Stock, pursuant to the terms of this Agreement.
2.2 Exchange.
(a) Holdings. Upon the terms and conditions set forth herein,
the Issuer agrees to issue to Holdings, and Holdings agrees to accept, (i) the D
Preferred Shares Number of Series D Preferred Stock, (ii) the Z Preferred Shares
Number of Series Z Preferred Stock and (iii) 11,642,949 shares of Common Stock
(collectively, the "Holdings New Securities") upon delivery to the Issuer of the
TCW Release and the notes and certificates evidencing the TCW Securities; TCW
agrees to deliver and the Issuer agrees to accept the TCW Release and the notes
and certificates evidencing the TCW Securities upon delivery to Holdings of the
Holdings New Securities.
(b) JEDI. Upon the terms and conditions set forth herein, the
Issuer agrees to issue to JEDI, and JEDI agrees to accept, (i) the E Preferred
Shares Number of Series E Preferred Stock and (ii) 2,920,975 shares of Common
Stock (collectively, the "JEDI New Securities" and, together with the Holdings
New Securities, the "New Securities") upon delivery to the Issuer of the JEDI
Release and certificates evidencing JEDI's entire interest in 100,000 shares of
the Series C Preferred Stock plus accumulated and unpaid dividends through the
Closing Date; JEDI agrees to deliver and the Issuer agrees to accept the JEDI
Release and the certificates evidencing JEDI's entire interest in 100,000 shares
of Series C Preferred Stock, plus accumulated and unpaid dividends through the
Closing Date, upon delivery to JEDI of the JEDI New Securities.
2.3 The Closing. At the closing of the transactions described
herein (the "Closing"),
(a) (i) TCW shall deliver to the Issuer the notes and
certificates evidencing the TCW Securities, (ii) the Issuer shall accept and
cancel the notes representing the Fund V Debt (including accrued and unpaid
interest through the Closing Date) and the certificates representing the
Portfolio Warrants, (iii) TCW shall deliver to the Issuer the TCW Release and
(iv) the Issuer shall deliver to Holdings certificates representing the Holdings
New Securities, registered in the denominations and names specified by Holdings.
(b) (i) JEDI shall deliver to the Issuer the certificate(s)
evidencing JEDI's entire interest in 100,000 shares of Series C Preferred Stock
and accrued and unpaid dividends through the Closing Date, (ii) the Issuer shall
accept and cancel such certificate(s), (iii) JEDI shall deliver to the Issuer
the JEDI Release and (iv) the Issuer shall deliver to JEDI certificates
representing the JEDI New Securities, registered in the denominations and names
specified by JEDI.
(c) The Closing shall be held at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., Houston, Texas, on the business day following
satisfaction of the conditions set forth herein or at such other time and place
as all parties to this Agreement may mutually agree (the "Closing Date").
2.4 Consent to Exchange.
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<PAGE> 12
(a) Prior to giving effect to the Exchange, JEDI is the record
holder of 100,000 shares of Series C Preferred Stock, representing all of the
issued and outstanding Series C Preferred Stock of the Issuer. By entering into
this Agreement, JEDI hereby consents and agrees to the transactions constituting
the Exchange as the sole holder of the Issuer's Series C Preferred Stock. Upon
consummation of the transactions constituting the Exchange, no shares of the
Issuer's Series C Preferred Stock will be outstanding.
(b) Prior to giving effect to the Exchange, Fund V is the
holder of the Fund V Debt and Portfolio is the holder of the Portfolio V
Warrants. By entering into this Agreement, Fund V and Portfolio hereby consent
and agree to the transactions constituting the Exchange. Upon consummation of
such transactions, neither the Fund V Debt nor the Portfolio Warrants will be
outstanding.
2.5 Simultaneous Transactions. All transactions set forth as
part of the Exchange and the transactions contemplated by Sections 5.1(d) and
5.2(e) hereof shall be deemed to take place simultaneously and each transaction
shall be contingent upon the consummation of all such transactions.
SECTION 3. WARRANTIES, REPRESENTATIONS AND COVENANTS OF THE
COMPANIES.
Each of the Companies hereby represent, warrant and covenant
to each of the Purchasers that, as of the date hereof;
3.1 Organization and Authorization of the Issuer.
(a) Each of the Companies, and their respective Subsidiaries
(i) is a duly organized and validly existing corporation in good standing under
the laws of its jurisdiction of organization, (ii) has all requisite power and
authority to own or hold under lease the property it purports to own or hold
under lease and to transact the business in which it is presently engaged or
presently proposes to engage and (iii) is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which the character
of the properties owned or held under lease by it or the nature of the business
transacted by it requires such qualification except where failure to so qualify
could not reasonably be expected to have a Material Adverse Effect on the
Companies taken as a whole.
(b) Each of the Companies has all requisite power and
authority to execute and deliver this Agreement, and any other documents or
agreements contemplated hereby and thereby to which it is a party, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereunder and thereunder. The Issuer has all requisite power and
authority to issue the New Securities. The execution and delivery of this
Agreement and the issuance of New Securities, the performance of this Agreement,
and the execution, delivery and performance of any other documents or agreements
to which any of the Companies is a party contemplated hereby and thereby, and
the consummation of the transactions contemplated hereby and thereby, have been
duly authorized and approved by the Board of Directors of the respective
Companies. Each of this Agreement, and any other document or agreement to which
any of the Companies is a party contemplated hereby or thereby has been (or on
the Closing Date will have been) duly authorized, executed and delivered by, and
each is (or, when duly executed and delivered on the Closing Date, will be) the
valid and
8
<PAGE> 13
binding obligation of, such Company, enforceable in accordance with its terms,
except as may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws or by legal or equitable principles relating to
or limiting creditors' rights generally.
(c) Schedule 3.1 hereof contains a true and correct list of
the Subsidiaries and their respective partnership interests. Neither the
Companies nor the Subsidiaries own, directly or indirectly, any capital stock,
joint venture or partnership interests in or other equity interest in any other
Person other than those Subsidiaries set forth on Schedule 3.1 hereof. Except as
set forth on Schedule 3.1, each of the Companies has good and valid title to all
the outstanding stock of each of its respective Subsidiaries, in each case, free
and clear of all liens and encumbrances.
3.2 Capital Stock.
(a) Upon the issuance of the New Securities under this
Agreement and after the filing of the Preferred Stock Designation, the total
number of shares of capital stock which the Issuer will have authority to issue
under the Articles of Incorporation is a maximum of (i) 25,000,000 shares of
Common Stock, of which 23,093,689 will be issued and outstanding, all of which
outstanding shares will have been duly and validly issued and will be fully paid
and nonassessable, and (ii) 20,000,000 shares of Class A preferred stock, of
which the D Preferred Shares Number will be designated as Series D Preferred
Stock, the E Preferred Shares Number will be designated as Series E Preferred
Stock and the Z Preferred Shares Number will be designated as Series Z Preferred
Stock and all of which shares will be issued and outstanding, duly and validly
issued and fully paid and nonassessable. Immediately prior to the issuance of
the New Securities under this Agreement, 25,000,000 shares of Common Stock were
authorized, of which 8,529,765 shares were issued and outstanding, and
20,000,000 shares of Class A preferred stock were authorized, of which 100,000
shares, designated as Series C Preferred Stock, were issued and outstanding.
(b) As of the date hereof, the Issuer does not, and as of the
Closing Date, each without giving effect to the Exchange, the Issuer will not,
have outstanding any capital stock or other securities convertible into or
exchangeable for any of its capital stock or any rights to subscribe for or to
purchase, or any options for the purchase of, or any agreements (contingent or
otherwise) providing for the issuance of, or any calls, commitments or claims of
any character relating to, any of its capital stock or any securities
convertible into or exchangeable for any of its capital stock, other than as set
forth on Schedule 3.2(b) hereto (which schedule shall include the exercise price
(except for the warrants of ING, US Bank and MeesPierson post-Closing) and
number of shares on a pre-Closing and post-Closing basis).
(c) As of the date hereof, the Issuer does not have any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any of its capital stock or obligation evidencing the right of the holder
thereof to purchase any of its capital stock. There is not in effect on the date
hereof any agreement by the Issuer (other than this Agreement) or any of its
Subsidiaries pursuant to which any holders of securities of the Issuer or any of
its Subsidiaries have a right to cause the Issuer to register such securities
under the Securities Act other than as set forth on Schedule 3.2(c) hereto.
(d) The New Securities will, when issued in accordance with
this Agreement, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges.
9
<PAGE> 14
3.3 Information Regarding the Issuer.
(a) The audited consolidated financial statements of the
Issuer and its Subsidiaries as filed with the Commission in accordance with the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), for the three most recent fiscal years (and the unaudited
interim periods reported therein and through the date hereof) (collectively, the
"Financial Statements") fairly present in all material respects the financial
position of the Issuer and its Subsidiaries as of the respective dates of such
balance sheets and the results of the Issuer and its Subsidiaries operations for
the respective periods covered by such statements of operations, stockholders'
equity and cash flows, and have been prepared in accordance with GAAP
consistently applied throughout the periods involved. There are no material
liabilities, contingent or otherwise, of the Issuer and its Subsidiaries as of
the date hereof and as of the Closing Date required to be reflected in a balance
sheet prepared in accordance with GAAP which are not reflected in such balance
sheets. Since the date of the Issuer's most recent quarterly report on form 10-Q
(the "10-Q Filing Date"), there have been no changes in the assets, liabilities
or financial position of the Issuer and its Subsidiaries from that set forth in
the balance sheet as of such date, other than changes in the ordinary course of
business which have not, either individually or in the aggregate, had a Material
Adverse Effect on the Companies taken as a whole.
(b) As of their respective dates, the Financial Statements did
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since the 10-Q Filing
Date, there has been no change in the business, properties, financial condition
or operations which has had a Material Adverse Effect on the Companies taken as
a whole.
3.4 Independent Engineering Report. The Companies have
delivered to the Purchasers, in form satisfactory to the Purchasers, results of
the Initial Independent Engineering Report on the fields and properties listed
therein or attached thereto (the "Evaluated Properties") in which the Companies
will have interests as of the Closing Date. The Initial Independent Engineering
Report is the latest engineering report available to the Companies relating to
the Evaluated Properties. To the knowledge of the Responsible Officers, the
Companies have provided no materially false or misleading information to and
have not withheld from the engineer preparing or who prepared the Initial
Independent Engineering Report any material information with respect to the
preparation of the Independent Engineering Report. The Responsible Officers and
the officers of Refining are not aware of any facts or circumstances that should
reasonably cause the Companies to conclude that (i) any of the information that
was supplied by the Companies to the Independent Engineer in connection with its
preparation of the Independent Engineering Report was not correct or (ii) the
Independent Engineering Report is incorrect in any material respect.
3.5 Litigation. Except as set forth in Schedule 3.5, (i) there
are no actions, suits, investigations or legal, equitable, arbitrative or
administrative proceedings pending or, to the knowledge of any Responsible
Officer of the Companies, currently threatened against the Companies or the
Subsidiaries before any Governmental Body which could cause a Material Adverse
Effect on the Companies , either individually or in the aggregate; and (ii)
there are no outstanding judgments, injunctions, writs, rulings or orders by any
Governmental Body against
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any of the Companies, the Subsidiaries or their respective directors or officers
which could have a Material Adverse Effect on the Companies, either individually
or in the aggregate.
3.6 Absence of Undisclosed Liability. None of the Companies
nor any of the Subsidiaries has any material direct or indirect liability,
indebtedness, obligation, expense, claim, deficiency, guarantee or endorsement
of or by any person (other than endorsements of notes, bills and checks
presented to banks for collection deposit in the ordinary course of business) of
any type, whether accrued, absolute, contingent, matured, unmatured or otherwise
(a "Liability"), other than the Liabilities (i) that are reflected, accrued or
reserved for in the most recent quarterly balance sheet of the Issuer filed
pursuant to the Exchange Act with the Commission, or (ii) arising in the
ordinary course of the Companies' or the Subsidiaries' businesses consistent
with past practice which would not result in a Material Adverse Effect on the
Companies taken as a whole or (iii) that are disclosed in Schedule 3.6. Except
as shown in the notes to the Issuer's most recent annual and quarterly financial
statements filed pursuant to the Exchange Act with the Commission or disclosed
on Schedule 3.6 hereof, none of the Companies nor any of the Subsidiaries is
subject to or restricted by any franchise, contract, deed, charter restriction
or other instrument or restriction which could reasonably be expected to have a
Material Adverse Effect on the Companies taken as a whole.
3.7 Governmental Consent. Other than the filing of the
Preferred Stock Designation and filings required by applicable state securities
laws and any other consents or approvals listed in Schedule 3.7 hereof, which
shall be made or obtained prior to Closing by the Companies, neither the nature
of the Companies, the Subsidiaries, their respective businesses or properties,
nor any relationship between the Companies or any Subsidiary and any other
Person, nor (except as expressly provided for in this Agreement) any
circumstance in connection with the offer, issue or sale of the New Securities,
is such as to require consent, approval or authorization of, or filing,
registration or qualification with, any Governmental Body on the part of the
Companies as a condition to the execution, delivery and performance of this
Agreement and any other documents or agreements contemplated hereby.
3.8 Compliance with Laws and Other Instruments of the
Companies. The consummation of the transactions contemplated by this Agreement
and the execution, delivery and performance of the terms and provisions of this
Agreement, the New Securities, or any other document or agreement contemplated
hereby or thereby will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Companies or the Subsidiaries under, any corporate charter
or bylaws, or material indenture, mortgage, deed of trust, bank loan or credit
agreement, or other material agreement or instrument to which the Companies or
the Subsidiaries are a party or by which the Companies or the Subsidiaries or
any of their properties may be bound or affected (taking into consideration the
required consents set forth on Schedule 3.8 hereof), (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of any Order of
any court, arbitrator or Governmental Body applicable to the Companies, or (iii)
violate any provision of any statute or other rule or regulation of any
Governmental Body applicable to the Companies or the Subsidiaries.
3.9 No Affiliate Ownership. Except as set forth in the
Issuer's most recent Annual Report on Form 10-K, as amended, its most recent
proxy statement, or its Quarterly Reports filed on Form 10-Q after such Annual
Report on file with the Commission, no Person controlled by, controlling or
under common control with any of the Companies (other than the Subsidiaries)
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owns any interest in any of the Evaluated Properties or any other material asset
of the Companies or the Subsidiaries.
3.10 Compliance with Laws. Except as set forth in Schedule
3.10, to the knowledge of the Companies, the Companies and the Subsidiaries have
complied with all applicable laws relating to the production of oil and gas from
their properties, leases or assets and any of their assets, rights or interests
relating thereto, the conduct of drilling and production operations with respect
to their oil and gas properties, leases, or assets and any of their assets,
rights or interests relating thereto and the regulation thereof, except where
the failure to comply could not reasonably be expected to have a Material
Adverse Effect on the Companies taken as a whole.
3.11 Hedging. Except as set forth in Schedule 3.11, as of the
date of this Agreement, neither the Companies nor any of the Subsidiaries is
bound by futures, hedge, swap, collar, put, call, floor, cap, option or other
contracts that are intended to benefit from or reduce or eliminate the risk or
fluctuations in the price of commodities, including hydrocarbons, or securities.
3.12 Absence of Certain Changes or Events. Except for events
contemplated by this Agreement or disclosed in any schedule hereto, since the
filing date of the Issuer's most recent quarterly report on Form 10-Q with the
Commission no event has occurred with respect to the Companies or the
Subsidiaries, or the condition of their material assets or the Evaluated
Properties, that has resulted in or could reasonably be expected to result in a
Material Adverse Effect on the Companies taken as a whole, except as has been
publicly disclosed in the Issuer's filings with the Commission. The Issuer has
reported on the appropriate form all events or happenings with respect to the
Companies or the Subsidiaries or the condition of their material assets or the
Evaluated Properties that are required to be disclosed under the Exchange Act.
3.13 Licenses and Permits. The Companies and the Subsidiaries
have obtained and hold in full force and effect all licenses, permits,
franchises, certificates, authorizations, qualifications, accreditations,
easements, rights of way and other rights, patents, copyrights, trademarks and
trade names, or rights thereto, consents and approvals required to conduct their
business substantially as it is now conducted and as it is currently proposed to
be conducted, without known conflict with the rights of others, except as has
been disclosed in the Issuer's filings with the Commission or except for such
failures to obtain or hold or such conflicts as would not have a Material
Adverse Effect on the Companies taken as a whole.
3.14 Taxes. The Companies and the Subsidiaries have (i) filed
all tax returns with all appropriate Federal, state, local and foreign taxing
authorities that are required to have been filed by or with respect to the
Companies and the Subsidiaries as of the date of this Agreement, and such tax
returns are true, correct and complete in all material respects; and (ii) paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments payable by the Companies and the Subsidiaries to the extent the same
have become due and payable and before they have become delinquent, except for
any taxes and assessments the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which the Companies have set aside on its books reserves (segregated
to the extent required by GAAP) deemed by it to be adequate. The Companies know
of no proposed material tax assessment against the Companies or the
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Subsidiaries and in the opinion of the Companies all tax liabilities are
adequately provided for on the books of the Companies.
3.15 ERISA Plans and Liabilities. All currently existing ERISA
Plans are listed on Schedule 3.15 hereof. Except as disclosed in the Issuer's
most recent annual and quarterly financial statements filed under the Exchange
Act with the Commission or on Schedule 3.15 hereof, no Termination Event has
occurred with respect to any ERISA Plan and all ERISA Plans are in compliance
with ERISA in all material respects. No ERISA Affiliate is required to
contribute to, or has any other absolute or contingent liability in respect of,
any "multiemployer plan" as defined in Section 4001 of ERISA. Except as set
forth in Schedule 3.15: (i) no "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) exists with
respect to any ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate, and (ii) the current value of each ERISA Plan's
benefit obligations does not exceed the current value of such ERISA Plan's
assets available for the payment of such benefits by more than $500,000.
3.16 Private Offering. During the six months prior to the
Closing Date, neither the Companies nor any other Person acting on behalf of the
Companies has offered any of the New Securities or any other securities of the
Companies (excluding options or warrants to employees and shares issuable upon
exercise or conversion of securities outstanding prior to the date hereof) for
sale to, or solicited offers to buy any thereof from, or otherwise approached or
negotiated with respect thereto with, any Person other than prospective
purchasers who are "accredited investors", as defined in Rule 501 of Regulation
D promulgated under the Securities Act. The Companies agree that neither the
Companies nor anyone acting on their behalf has offered or will offer the New
Securities or any part thereof or any similar securities for issue or sale to,
or has solicited or will solicit any offer to acquire any of the same from,
anyone so as to bring the issuance and sale of the New Securities under Section
5 of the Securities Act. Based in part on the representations of the Purchasers
set forth herein and on the Preferred Stock Designation, the offer, sale and
issuance of the New Securities in conformity with the terms of this Agreement
are exempt from the registration requirements of the Securities Act and any
applicable state securities laws.
3.17 Investment Companies Act and Public Utility Holding
Companies Act. None of the Companies or the Subsidiaries is considered an
"investment company" or a person directly or indirectly controlled by or acting
on behalf of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. None of the Companies or the Subsidiaries owns
or operates any facility used for the generation, transmission or distribution
for sale of electrical energy or any facility used for the retail distribution
of natural or manufactured gas, each within the meaning of the Public Utility
Holding Company Act of 1935, as amended (the "1935 Act"). None of the Companies
or the Subsidiaries is an "electrical utility company" within the meaning of the
1935 Act. None of the Companies or the Subsidiaries is (i) a "holding company,"
(ii) a "subsidiary company," an "affiliate" or "associate company" of a "holding
company" or (iii) an "affiliate" of a "subsidiary company" of a "holding
company," each within the meaning of the 1935 Act. None of the Companies or the
Subsidiaries is subject to regulation as a public utility or public service
company (or similar designation) by any state in the United States, by the
United States, by any foreign country or by any agency or instrumentality of any
of the foregoing.
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3.18 Environmental Laws. The sole representations of the
Companies with respect to environmental matters are set forth in this Section
3.18. To the extent representations in other sections of this Agreement also
could apply to environmental matters, including, but not limited to
Environmental Laws, such representations shall be construed to exclude
environmental matters and to apply only to matters other than environmental
matters. Except (a) as to matters not within the Companies' knowledge, (b) as
could not reasonably be expected to have a Material Adverse Effect on the
Companies taken as a whole, or (c) as set forth on Schedule 3.18 hereto,
(a) The Companies and the Subsidiaries are conducting their
businesses in compliance in all material respects with all applicable
Environmental Laws, and have all permits, licenses and authorizations required
under Environmental Laws in connection with the conduct of their businesses, and
each of the Companies and the Subsidiaries is in compliance in all material
respects with the terms and conditions of all such permits, licenses and
authorizations, and with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed, and no investigation or review is pending or to the
knowledge of any of the Companies threatened, by any Governmental Body or any
other Person with respect to (i) any actual or alleged treatment, storage,
transportation, disposal, or release of any Hazardous Materials, either by any
of the Companies or the Subsidiaries or on any property owned by any of the
Companies or the Subsidiaries, (ii) any material remedial action which might be
needed to respond to any such alleged treatment, storage, transportation,
disposal, or release, or (iii) any alleged failure by any of the Companies or
the Subsidiaries to have any permit, license or authorization required in
connection with the conduct of its business or with respect to any such
treatment, storage, transportation, disposal, or release.
(c) No Hazardous Materials have been released or disposed of,
in a quantity or manner required to be reported under or otherwise in violation
of applicable law, by any of the Companies or the Subsidiaries at, on or under
any properties owned or leased by any of the Companies or the Subsidiaries.
(d) There are no Liens existing under or pursuant to any
Environmental Laws on any of the real properties or properties owned or leased
by any of the Companies or the Subsidiaries, and to the knowledge of the
Companies no government actions have been taken or are in process which could
subject any of such properties to such Liens.
3.19 Labor Relations. No material unfair labor practice
complaint or sex, age, race or other discrimination claim has been brought
during the five years prior to the Closing Date against the Companies or any of
the Subsidiaries before the National Labor Relations Board, the Equal Employment
Opportunity Commission or any other Governmental Body. During that period, each
of the Companies and the Subsidiaries has complied in all material respects with
all applicable laws, ordinances, regulations, statutes, rules and restrictions
relating to the employment of labor, including, without limitation, those
relating to hiring, promotion, employment and pay practices, terms and
conditions of employment, federal and state wages and hours laws, immigration,
and collective bargaining. During the five years prior to the Closing Date, no
strike, slowdown, picketing or work stoppage by any union or other group of
employees
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against the Companies, any Subsidiary or any of their properties wherever
located, and no secondary boycott with respect to their products, lockout by
them of any of their employees or any other labor trouble or other occurrence,
event or condition of a similar character, has occurred or, to the knowledge of
the Responsible Officers, been threatened which has had or could be expected to
have a Material Adverse Effect on the Companies taken as a whole.
3.20 No Broker's or other Fees. Other than with respect to the
fairness opinion required pursuant to Section 5.1(i), no broker, finder or
investment banker is entitled to any fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Companies.
3.21 Bona Fide Debt Work-out. Within the meaning of 16 C.F.R.
sec 802.63(a), the acquisition by Holdings of the voting securities of the
Issuer pursuant to the Exchange will be an acquisition of voting securities in
connection with a bona fide debt work-out by a creditor of the Companies.
SECTION 4. WARRANTIES, REPRESENTATIONS AND COVENANTS OF
PURCHASERS and TCW.
Other than with respect to Sections 4.10, 4.11 and 4.12 (which
provisions apply only to the parties specified), each of the Purchasers and TCW,
severally and not jointly, hereby represents, warrants and covenants to the
Issuer with respect to such party, as follows:
4.1 Acquisition for Purchaser's Account Each Purchaser,
severally and not jointly, represents and warrants to the Issuer that it is
acquiring and will acquire its New Securities for its own account, with no
present intention of distributing or reselling such securities or any part
thereof in violation of applicable securities laws.
4.2 Investment Experience. Each Purchaser and TCW has such
knowledge and experience in financial and business matters, including investing
in securities of new and speculative companies, as to be able to evaluate the
merits and risks of an investment in its New Securities.
4.3 Securities not Registered. Each Purchaser acknowledges
that its New Securities have not been registered under the Securities Act or the
securities laws of any state in the United States or any other jurisdiction and
may not be offered or sold by such Purchaser unless subsequently registered
under the Securities Act (if applicable to the transaction) and any other
securities laws or unless exemptions from the registration or other requirements
thereof are available for the transaction.
4.4 Qualified Institutional Buyer; Accredited Investor. Each
Purchaser represents that it is a Qualified Institutional Buyer (as defined in
Rule 144A promulgated under the Securities Act) and/or an Accredited Investor
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act, as presently in effect.
4.5 Acknowledgement of Risk. Each Purchaser acknowledges that
an investment in its New Securities involves a high degree of risk and
represents that it understands the economic risk of such investment. Each
Purchaser is prepared to bear the economic risk of retaining its New Securities
for an indefinite period, all without prejudice, however, to the rights
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of such Purchaser, in accordance with this Agreement, lawfully to sell or
otherwise dispose of all or any part of any New Securities held by it.
4.6 No Public Market. Each Purchaser understands that no
public market now exists for its New Securities and that the Issuer has made no
assurances with respect to any secondary market for such securities.
4.7 Reliance by the Issuer. Each Purchaser understands and
acknowledges that the Issuer will be relying upon its respective representations
and warranties set forth in this Agreement in issuing Purchaser's New Securities
to such Purchaser.
4.8 No Public Solicitation. The issuing of each Purchaser's
New Securities to such Purchaser was made through direct, personal communication
between such Purchaser and a representative of the Issuer and not through public
solicitation and advertising.
4.9 Legal Holder. Each of JEDI and TCW is the sole legal and
beneficial holder of its Securities to be exchanged by such party hereunder and
is conveying its Securities to the Issuer, free and clear of any liens, claims,
interests, charges and encumbrances. Each of JEDI and TCW has neither previously
sold, assigned, conveyed, transferred or otherwise disposed of, in whole or in
part, its securities to be exchanged hereunder, nor entered into any agreement
to sell, assign, convey, transfer or otherwise dispose of, in whole or in part,
its securities to be exchanged hereunder.
4.10 Consent to Farmout. TCW and each Purchaser consents to
the terms of the restructuring or amendment to the terms of the existing Farmout
Agreement described in Sections 5.1(f) and 5.2(g) below.
4.11 Bona Fide Debt Work-out. TCW and Holdings each warrant
and represent that, within the meaning of 16 C.F.R. sec 802.63(a), Holding's
acquisition of voting securities pursuant to the Exchange will be an acquisition
in connection with a bona fide debt work-out by a creditor in a bona fide credit
transaction entered into in the ordinary course of the creditor's business.
4.12 Value of JEDI New Securities. JEDI represents and
warrants that it has determined that the fair market value of the JEDI New
Securities is less than $15,000,000.
SECTION 5. PURCHASER AND TCW CONDITIONS TO CLOSING.
5.1 TCW 's and Holdings' Conditions to Closing. As a condition
to the obligations of TCW and Holdings hereunder and prior to the issuance of
the New Securities, the following conditions precedent shall be satisfied (in
form and substance reasonably satisfactory to TCW, Holdings and their counsel):
(a) Each of the representations and warranties of the
Companies contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date, as though
made on and as of the Closing. TCW and Holdings shall have received one or more
certificates of the Companies signed by the Chief Executive Officer or President
and the Chief Financial Officer or Secretary of such Company to that effect.
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(b) The internal Investment Committee of TCW shall have
approved the terms of this Agreement, the Exchange, the New Securities and any
other transactions related hereto or thereto.
(c) Since the date of this Agreement, there shall not have
occurred any event or events which, individually or in the aggregate, would
have, or could be reasonably expected to have a Material Adverse Effect on the
financial condition, business or prospects of the Companies, the Subsidiaries,
or any of them or their properties.
(d) The Senior Creditors shall have agreed to a restructuring
and commitment with respect to the outstanding indebtedness of the Companies
under the Credit Agreement on terms acceptable to TCW and Holdings including,
but not limited to, a restructuring of the amortization of such debt and a
provision for additional borrowing capacity under the Credit Agreement.
(e) Creditors of the Companies listed on Schedule 5.1 hereto
shall either (i) if such debt is evidenced by a promissory note, deferral
agreement, or other similar document providing for extended payment terms, not
be in default under such promissory note, deferral agreement, or other similar
document or (ii) if such debt is not evidenced by such a document, the holder of
such debt has not commenced any action for the collection of such debt or in
respect of any lien or encumbrance securing such debt.
(f) The Companies and Smith Management LLC (and its affiliates
party thereto) shall have agreed to a restructuring or amendment to the terms of
the existing Farmout Agreement (the "Farmout Restructurings"), such amendment
substantially in the form attached hereto as Exhibit F.
(g) The Smith Group and the Purchasers shall have executed a
shareholders agreement (the "Shareholders Agreement") substantially in the form
attached hereto as Exhibit B.
(h) The Issuer, the Smith Group and the Purchasers shall have
executed a registration rights agreement (the "Registration Rights Agreement"),
in the form attached hereto as Exhibit C.
(i) The Board of Directors of the Issuer and each of IPC's and
Refining's Boards of Directors shall have approved, as applicable, the terms of
this Agreement, the Exchange, the New Securities and any other transactions
related thereto, and the Board of Directors of the Issuer shall have received an
opinion of an investment bank that the Exchange is fair, from a financial point
of view, to the existing public holders of the Issuer's Common Stock.
(j) All consents, approvals and authorizations, including
shareholder, regulatory and other approvals shall have been obtained in form and
in substance reasonably satisfactory to TCW and Holdings.
(k) All other documents required by this Agreement, relating
to the Exchange, the New Securities or any transaction related thereto or as may
be requested by TCW and Holdings, shall have been prepared and shall contain
representations, warranties, and indemnities in form and in substance reasonably
satisfactory to TCW, Holdings and their counsel.
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(l) TCW and Holdings shall have received the opinion of
Randall & Danskin P.S., counsel to the Issuer, substantially in the form
attached hereto as Exhibit D (the "Randall Opinion") as to matters of Washington
law.
(m) TCW and Holdings shall have received the opinion of Akin,
Gump, Strauss, Hauer & Feld, L.L.P., counsel to the Companies, substantially in
the form attached hereto as Exhibit E (the "Akin Opinion").
(n) TCW and Holdings shall have received the opinion of Van
Cott, Bagley, Cornwall & McCarthy, counsel to Refining, substantially in the
form attached hereto as Exhibit G (the "Utah Opinion") as to matters of Utah
law.
(o) Each of the Closing Conditions of JEDI set forth in
Section 5.2 hereof shall have been satisfied or waived by JEDI.
(p) Each of the Companies, at Closing, shall have executed the
TCW Release.
(q) Holdings shall have received certificates representing the
Holdings New Securities.
5.2 JEDI's Conditions to Closing. As a condition to the
obligations of JEDI hereunder and prior to the issuance of the New Securities,
the following conditions precedent shall be satisfied (in form and substance
reasonably satisfactory to JEDI and its counsel):
(a) Each of the representations and warranties of the
Companies contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date, as though
made on and as of the Closing. JEDI shall have received one or more certificates
of the Companies signed by the President or Chief Executive Officer and the
Chief Financial Officer or Secretary of such Company to that effect.
(b) JEDI shall have completed a satisfactory due diligence
review of the Companies including, but not limited to, a review of the
engineering, economics and projections of all properties owned or leased by the
Companies, including the refinery, all environmental documents, financial
projections and accounting and control systems of the Companies.
(c) The general partner of JEDI shall have approved the terms
of this Agreement, the Exchange, the New Securities and any other transactions
related hereto or thereto.
(d) Since the date of this Agreement, there shall not have
occurred any event or events which, individually or in the aggregate, would
have, or could be reasonably expected to have a Material Adverse Effect on the
financial condition, business or prospects of the Companies, the Subsidiaries or
any of them or their properties.
(e) The Senior Creditors shall have agreed to a restructuring
and commitment with respect to the outstanding indebtedness of the Companies
under the Credit Agreement on terms acceptable to JEDI including, but not
limited to, a restructuring of the amortization of such debt and a provision for
additional borrowing capacity under the Credit Agreement.
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(f) Creditors of the Companies listed on Schedule 5.1 hereto
shall either (i) if such debt is evidenced by a promissory note, deferral
agreement, or other similar document providing for extended payment terms, not
be in default under such promissory note, deferral agreement, or other similar
document or (ii) if such debt is not evidenced by such a document, the holder of
such debt has not commenced any action for the collection of such debt or in
respect of any lien or encumbrance securing such debt.
(g) The Companies and Smith Management LLC (and its affiliates
party thereto) shall have agreed to a restructuring or amendment to the terms of
the Farmout Agreement, such amendment substantially in the form attached hereto
as Exhibit F.
(h) The Smith Group and the Purchasers shall have executed the
Shareholders Agreement.
(i) The Issuer, the Smith Group and the Purchasers shall have
executed the Registration Rights Agreement.
(j) The Board of Directors of the Issuer and each of IPC's and
Refining's Boards of Directors shall approve, as applicable, the terms of this
Agreement, the Exchange, the New Securities and any other transactions related
thereto, and the Board of Directors of the Issuer shall receive an opinion of an
investment bank that the Exchange is fair, from a financial point of view, to
the existing public holders of the Issuer's Common Stock.
(k) All consents, approvals and authorizations, including
shareholder, regulatory and other approvals shall have been obtained in form and
in substance reasonably satisfactory to JEDI.
(l) All other documents required by this Agreement, relating
to the Exchange, the New Securities or any transaction related thereto or as may
be requested by JEDI, shall have been prepared and shall contain
representations, warranties, and indemnities in form and in substance reasonably
satisfactory to JEDI and its counsel.
(m) JEDI shall have received the Randall Opinion.
(n) JEDI shall have received the Akin Opinion.
(o) JEDI shall have received the Utah Opinion.
(p) Each of the Closing Conditions of TCW and Holdings under
Section 5.1 hereof shall have been satisfied or waived by TCW and Holdings and
the closing of the TCW and Holdings transactions in the Exchange shall occur
simultaneously with the closing of the JEDI transactions.
(q) Each of the Companies, at Closing, shall have executed the
JEDI Release.
(r) JEDI shall have received certificates representing the
JEDI New Securities.
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5.3 Closing Deliveries of the Companies. As a condition to the
obligations of TCW and the Purchasers hereunder and prior to the issuance of the
New Securities, the Companies shall have delivered to the Purchasers (in form
and substance satisfactory to TCW, the Purchasers and their counsel):
(a) A certificate, dated as of the Closing Date, of the
Secretary or an Assistant Secretary of each of IPC and Refining,
(i) attaching a true and complete copy of the
resolutions of the Boards of Directors of each of IPC and
Refining, and of all documents evidencing other necessary
corporate or shareholder action taken by each of IPC and
Refining in connection with the matters contemplated by this
Agreement;
(ii) attaching a true and complete copy of the bylaws
of each of IPC and Refining; and
(iii) setting forth the incumbency of the officer or
officers of IPC and Refining who sign this Agreement or any
other documents related hereto, including therein a signature
specimen of such officer or officers.
(b) A certificate, dated as of the Closing Date, of the
Secretary or an Assistant Secretary of the Issuer,
(i) attaching a true and complete copy of the
resolutions of the Board of Directors of the Issuer, and of
all documents evidencing other necessary corporate or
shareholder action (in form and substance reasonably
satisfactory to the Purchasers and to their counsel) taken by
the Issuer in connection with the matters contemplated by this
Agreement;
(ii) attaching a true and complete copy of the
Preferred Stock Designation;
(iii) attaching a true and complete copy of the
bylaws of the Issuer; and
(iv) setting forth the incumbency of the officer or
officers of IPC and Refining who sign this Agreement, the New
Securities or any other document related hereto or thereto,
including therein a signature specimen of such officer or
officers.
(c) Certificates of good standing (including tax status, if
applicable) of the each of the Companies under the laws of their respective
states of incorporation and as foreign corporations in every state in which
their ownership of property or their conduct of business requires qualification
or registration as a foreign corporation, except for jurisdictions wherein the
failure to be so qualified would not have a Material Adverse Effect on the
Companies and the Subsidiaries, taken as a whole.
(d) A copy of the Initial Independent Engineering Report,
certified or otherwise approved by the engineer preparing such report.
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(e) Such other documents, agreements, instruments,
certificates and evidence relating to the matters necessary to undertake the
Exchange as contemplated by this Agreement as the Purchasers or their counsel
shall reasonably require.
SECTION 6. ISSUER'S CONDITIONS TO CLOSING; REQUIRED
DELIVERIES. As a condition to the obligations of the Companies hereunder and
prior to the issuance of the New Securities, the following conditions precedent
shall be satisfied (in form and substance reasonably satisfactory to the
Companies and their counsel):
(a) Each of the representations and warranties of TCW,
Holdings and JEDI contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date,
as though made on and as of the Closing. The Companies shall have received a
certificate from each of TCW, Holdings, Portfolio and JEDI to that effect.
(b) All consents, approvals and authorizations, including
shareholder, regulatory and other approvals shall have been obtained in form and
in substance reasonably satisfactory to the Companies.
(c) TCW shall, at Closing, execute and deliver the TCW Release
and JEDI shall, at Closing, execute and deliver the JEDI Release.
(d) The Senior Creditors shall have released all security
interests or similar interests with respect to the property or assets under or
related to the Farmout Agreement.
(e) The Board of Directors of the Issuer shall have received
an opinion of an investment bank that the Exchange is fair, from a financial
point of view, to the existing public holders of the Issuer's Common Stock.
(f) The Issuer shall have received from Fund V cancelled notes
representing the Fund V Debt.
(g) The Issuer shall have received from Portfolio cancelled
certificates representing the Portfolio Warrants.
(h) The Issuer shall have received from JEDI cancelled
certificates evidencing JEDI's entire interest in 100,000 shares of Series C
Preferred Stock.
(i) The Senior Creditors shall have agreed to a restructuring
and commitment with respect to the outstanding indebtedness of the Companies
under the Credit Agreement on terms acceptable to the Issuer and IPC including,
but not limited to, a restructuring of the amortization of such debt and a
provision for additional borrowing capacity under the Credit Agreement.
SECTION 7. TRANSFERABILITY OF NEW SECURITIES.
7.1 Restrictive Legend. Each certificate for Series D
Preferred Stock, Series E Preferred Stock, Series Z Preferred Stock and Common
Stock issued under this Agreement shall be stamped or otherwise imprinted with a
legend in substantially the following form:
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"The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may be transferred only if registered pursuant to the
provisions of such Securities Act or if an exemption from
registration is available."
provided, that such restrictive legend shall not be required after the date on
which the securities evidenced by a certificate bearing such restrictive legend
no longer constitute Restricted Securities, and upon the request of the holder
of such certificate, the Issuer, without expense to the holder, shall issue a
new certificate not bearing the restrictive legend otherwise required to be
borne thereby. In addition, each New Security shall bear the legends required
under the Shareholders Agreement.
7.2 Rule 144 and 144A. At all times, in order to permit the
holders of Series D Preferred Stock, Series E Preferred Stock, Series Z
Preferred Stock and Common Stock, to transfer if they so desire, pursuant to
Rule 144 or 144A promulgated by the Commission (or any successor to such rule),
the Issuer will comply with all rules and regulations of the Commission
applicable in connection with use of Rule 144 and 144A (or any successor rules
thereto), including the provision of information concerning the Issuer to such
holders and the timely filing of all reports with the Commission in order to
enable such holders, if they so elect, to utilize Rule 144 or 144A, and the
Issuer will cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to any sale of Series D Preferred
Stock, Series E Preferred Stock, Series Z Preferred Stock or Common Stock which
is exempt from registration under the Securities Act pursuant to Rule 144 or
144A.
SECTION 8. AFFIRMATIVE COVENANTS OF THE COMPANIES
The Companies hereby warrant, covenant and agree that, so long
as a Purchaser beneficially owns either (i) five percent (5%) of the outstanding
Common Stock and Series Z Preferred Stock or (ii) 10% of the outstanding shares
of Series D Preferred Stock or Series E Preferred Stock, as applicable, acquired
under this Agreement (except with respect to Sections 8.9, 8.10, 8.11, 8.12 and
8.14 below for which no threshold or different ownership thresholds as specified
therein shall apply) (the "Requisite Ownership"):
8.1 Financial Statements. The Companies shall furnish and
deliver to the Purchasers, at the Companies' expense:
(a) as soon as available, but in any event within one hundred
twenty (120) days after the end of each fiscal year, a copy of the consolidated
balance sheet of the Companies and its consolidated Subsidiaries as at the end
of such year and the related consolidated statements of income and retained
earnings and of cash flows for such year, audited by Arthur Anderson LLP or
another independent certified public accountants of nationally recognized
standing reasonably acceptable to the Purchasers; and
(b) as soon as available, but in any event within fifty (50)
days after the end of each of the first three quarterly periods of each fiscal
year, the unaudited consolidated balance sheet of the Companies and their
consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and retained earnings and of cash
flows for such quarter and the portion of the fiscal year through the end of
such quarter, certified by the chief financial officer of the Issuer as being
fairly stated in all material respects when considered
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in relation to the consolidated financial statements of the Companies and their
consolidated Subsidiaries (subject to normal year-end adjustments).
(c) The requirements of this Section 8.1 shall be satisfied
without further action on the part of the Companies if the Issuer is timely
filing all reports with the Commission under the Exchange Act.
8.2 Management's Discussion and Results of Operations. The
Companies shall furnish and deliver to the Purchasers, at the Companies'
expense, as soon as available, but in any event within fifty (50) days after the
end of each calendar quarter, a quarterly management's discussion and results of
operations as compared to the budget for such quarter. The requirements of this
Section 8.2 shall be satisfied without further action on the part of the
Companies if the Issuer is timely filing all reports with the Commission under
the Exchange Act.
8.3 Certificates; Other Information. The Issuer shall deliver,
not more than thirty (30) days prior to the end of each fiscal year of the
Companies, a copy of the projections by the Companies of the monthly operating
budget and cash flow budget of the Companies and the Subsidiaries for the
succeeding fiscal year, such projections to be accompanied by a certificate of
the chief financial officer to the effect that such projections have been
prepared on the basis of sound financial planning practice and that such officer
has no reason to believe they are incorrect or misleading in any material
respect.
8.4 Independent Engineering Report. As soon as available after
the end of each calendar year, but in any event no later than March 1 of each
such year, the Companies, at their expense, shall promptly furnish, or cause to
be promptly furnished, to the Purchasers, an annual Independent Engineering
Report.
8.5 Inspection of Property; Books and Records; Discussions.
The Companies shall keep proper books of records and account in which full, true
and correct entries in conformity with GAAP and all requirements of law shall be
made of all dealings and transactions in relation to their business and
activities; and permit representatives of the Purchasers to visit and inspect
any of its properties and examine and make abstracts from any of their books and
records at any reasonable time and as often as may reasonably be desired and to
discuss the business, operations, properties and financial and other condition
of the Companies and the Subsidiaries with officers and employees of the
Companies and the Subsidiaries and with their independent certified public
accountants and attorneys.
8.6 Conduct of Business and Maintenance of Existence. The
Companies shall continue to engage in business of the same general type as now
conducted by it and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business. Each of the Companies shall perform all material obligations it is
required to perform under the terms of each indenture, mortgage, deed of trust,
security agreement, lease, franchise, agreement, contract or other instrument or
obligation to which it is a party or by which it or any of its properties is
bound.
8.7 Maintenance of Property; Insurance. The Companies shall
keep all property useful and necessary in its business in good working order and
condition; maintain with financially sound and reputable insurance companies
insurance on all their property in at least
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such amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business; and furnish to the Purchasers, upon written request, full information
as to the insurance carried.
8.8 Directors' and Officers' Insurance. The Companies shall
maintain, with financially sound and reputable insurance companies, insurance on
all their directors and officers in at least such amounts and against at least
such risks as are in effect as of the date hereof and on or before October 1,
1999, the Companies shall have increased the amount of such policy to an amount
not less than $10 million and furnish to the Purchasers, upon written request,
full information as to the insurance carried.
8.9 Taxes. The Companies will pay all taxes (other than
Federal, State or local income taxes) which may be payable in connection with
the execution and delivery of this Agreement or the issuance and sale of the New
Securities hereunder or in connection with any modification of the New
Securities and will save the Purchasers harmless without limitation as to time
against any and all liabilities with respect to or resulting from any delay in
paying, or omission to pay such taxes. The obligations of the Companies under
this Section 8.9 shall survive any redemption, repurchase or acquisition of the
New Securities by the Companies and the termination of this Agreement.
8.10 Replacement of Instruments. Upon receipt by the Issuer of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any certificate or instrument evidencing any of the
New Securities, and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that, if the owner of the same is a
commercial bank or an institutional lender or investor, its own agreement of
indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof, the Issuer, at its expense, will execute, register and deliver, in lieu
thereof, a new certificate or instrument for (or covering the purchase of) an
equal number of shares of the New Securities.
8.11 Costs and Expenses. So long as Holdings holds any shares
of Series D Preferred Stock, the Companies shall pay the reasonable legal,
engineering and other out-of-pocket costs and expenses of Holdings and its
affiliates relating to their dealings with, for or on behalf of the Companies.
So long as JEDI holds any shares of Series E Preferred Stock, the Companies
shall pay the reasonable legal costs and expenses of JEDI and its affiliates
relating to their dealings with, for or on behalf of the Companies.
8.12 Contingent Issuance of Options to Holdings and JEDI. The
parties hereto acknowledge and agree that the numbers of shares of Series Z
Preferred Stock and Common Stock of Issuer to be issued to Holdings and JEDI in
the Exchange have been agreed to by Holdings and JEDI based upon certain
understandings and agreements that such shares would represent certain
percentages of the fully diluted ownership of the Series Z Preferred Stock and
Common Stock of the Issuer which percentages would change if any of the options
or warrants listed on Schedule 8.12 (individually, a "Schedule 8.12 Option" and
collectively, the "Schedule 8.12 Options") are exercised. In consideration of
the agreement of Holdings and JEDI not to require an increase in the number of
shares of Series Z Preferred Stock and Common Stock to be
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issued in the Exchange, the parties hereto agree that if at any time any
Schedule 8.12 Option is exercised by the holder thereof (an "Exercised 8.12
Option"), then within twenty (20) days after the date notice of such exercise is
received by the Issuer, the Issuer shall issue to Holdings and JEDI options to
purchase shares of Common Stock in the form attached hereto as Exhibit I (the
"Purchaser Adjustment Options") having the same per share exercise price and
termination date as the Exercised 8.12 Option, except that (a) the Purchaser
Adjustment Option issued to Holdings shall be for a number of shares equal to
200% of the number of shares issued with respect to the Exercised 8.12 Option,
(b) the Purchaser Adjustment Option issued to JEDI shall be for a number of
shares equal to 33.33% (rounding to the nearest whole number of shares) of the
number of shares issued with respect to the Exercised 8.12 Option, and (c) the
Purchaser Adjustment Options shall have a minimum term of not less than sixty
(60) days. In the event that any Schedule 8.12 Option is hereafter amended or
otherwise modified, then the Purchaser Adjustment Options issuable upon the
exercise thereof shall be similarly amended or modified; provided, that no
amendments to the Schedule 8.12 Options or the Purchaser Adjustment Options may
be made as to per share exercise price or shares issuable upon conversion
thereof. In addition, the voluntary cancellation or termination of any Schedule
8.12 Option either concurrently with or substantially contemporaneously with the
issuance to the holders of such cancelled or terminated Schedule 8.12 Options of
new options or rights to purchase securities of Issuer hereafter approved by the
Issuer's Board shall not be deemed or construed to be an amendment or
modification of the Schedule 8.12 Options for purposes of this section.
8.13 Bank Compliance Certificates. The Companies shall deliver
to Purchasers at the same time as the Companies deliver to the agent under the
Credit Agreement or the agent under any replacement credit agreement all
compliance certificates pursuant to Section 6.13 of the Credit Agreement
delivered to the agent under the Credit Agreement and any other similar notices
or reports pursuant to the Credit Agreement or a replacement credit agreement.
8.14 Management Controls. The failure by the Issuer to comply
with any of the covenants set forth below, unless specifically waived in writing
by Holdings, shall entitle Holdings to a right to specific performance, other
equitable remedies or damages available under applicable law. The holders of the
Series E Preferred Stock shall have no rights or remedies under this Section
8.14 other than the right to receive copies of the Annual Budget Plan, Approved
Annual Budget, Updated Budget and Approved Updated Budget pursuant to
subsections (a) and (b) hereof.
(a) The Issuer hereby agrees that, so long as Holdings
controls or holds Series D Preferred Stock with a liquidation preference of $25
million or more, the Issuer shall within thirty (30) days prior to the fiscal
year end deliver to Holdings, a proposed detailed budget plan (the "Annual
Budget Plan"), on both a consolidated and consolidating basis, for the
operations of the Companies and the Subsidiaries for the next fiscal year,
prepared by the Issuer's officers and employees and certified by the chief
financial officer of the Issuer, which Holdings shall have the right, in its
sole discretion to approve, modify or disapprove in whole or in part, including
on a "line item" basis. Any Annual Budget Plan (or any portion thereof) approved
in writing by Holdings is herein referred to as an "Approved Annual Budget". A
copy of the Annual Budget Plan and the Approved Annual Budget shall be provided
to holders of the Series E Preferred Stock holding in excess of 49% of the
outstanding Series E Preferred Stock, unless such holders request not to receive
copies of such budgets.
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(b) The Issuer hereby agrees that, so long as Holdings
controls or holds Series D Preferred Stock with a liquidation preference of $25
million or more, the Issuer shall deliver on or immediately prior to June 10 of
each year to Holdings, an update of the Approved Annual Budget for that year
(the "Updated Budget"), on both a consolidated and consolidating basis, for the
operations of the Companies and the Subsidiaries for that year, prepared by the
Issuer's officers and employees and certified by the chief financial officer of
the Issuer, which Holdings shall have the right, in its sole discretion to
approve, modify or disapprove in whole or in part, including on a "line item"
basis. Any Updated Budget (or any items therein or portion thereof) approved in
writing by Holdings is herein referred to as an "Approved Updated Budget" and
together with the Approved Annual Budget, the "Approved Budgets." A copy of the
Updated Budget and the Approved Updated Budget shall be provided to the holders
of the Series E Preferred Stock holding in excess of 49% of the outstanding
Series E Preferred Stock, unless such holders request not to receive copies of
such budgets. No actions on the part of the Issuer's Board or its officers or
employees shall be permitted without prior approval of Holdings after June 30 of
each year for which an Updated Budget for such year has not been approved (until
such time as an Updated Budget for such year has been approved in accordance
herewith).
(c) The Issuer hereby agrees that, so long as Holdings
controls or holds Series D Preferred Stock with a liquidation preference of $25
million, without the prior written approval of Holdings, the Issuer shall not,
and shall not permit any of its subsidiaries to, directly or indirectly:
(i) Make or commit to make any individual
expenditures over $25,000 for any purpose that is not set
forth or otherwise expressly contemplated in the latest
Approved Budget;
(ii) Convey, sell, lease, assign, transfer or
otherwise dispose of any property, business or assets
(including, without limitation, receivables and leasehold
interests) with a value that exceeds $25,000 individually
whether now owned or hereafter acquired;
(iii) Approve the annual or other compensation for
any officer or director, or any salary increases or bonus
payments, benefit packages, form of employment agreements,
expense reimbursement guidelines (and exceptions thereto) or
any other adjustment to the compensation for any officer or
director;
(iv) Change any of its accounting practices or
procedures;
(v) Create, incur, assume or suffer to exist any
indebtedness for borrowed money or any other indebtedness in
an individual amount in excess of $25,000, except indebtedness
under hedging contracts approved by the Board in compliance
with the senior debt of the Issuer;
(vi) Assume any liabilities or issue any guarantees
for any amount, except in the case of any liabilities or
guarantees in an individual amount that does not exceed
$25,000;
(vii) Commence or settle any litigation where the
amount in controversy exceeds $25,000 or injunctive relief is
sought;
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(viii) Transfer, loan, assign or otherwise convey any
assets or monies to subsidiaries of the Companies;
(ix) Amend or alter the Credit Agreement or any
documents relating to other indebtedness in an individual
amount in excess of $25,000;
(x) Approve any reimbursements to the senior officers
of the Companies for expense accounts, travel expenses or any
other reimbursable out-of-pocket expenses in excess of $3,000
in any calendar month with respect to any officer; and
(xi) Approve the hiring or termination of management
employees.
provided, however, that nothing in this Section 8.14 shall be
construed to require the approval of Holdings for, or
otherwise render invalid, any action by any Company, taken or
directed by an officer or other employee of any Company in
good faith in or in response to explosion, fire, flood or
other emergency or exigent circumstances to prevent loss of
life or injury to persons or property or to comply with
applicable governmental or regulatory requirements including
without limitation Environmental Laws, but the Companies
shall, as promptly as possible, report such emergency or
exigent circumstances and the actions taken with respect
thereto to Holdings.
SECTION 9. INDEMNITY. The Companies jointly and severally
agree to indemnify each Indemnified Party, upon demand, from and against any and
all liabilities, obligations, claims, losses, damages, penalties, fines,
actions, judgments, suits, settlements, costs, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this section collectively called "liabilities
and costs") which to any extent (in whole or in part) may be imposed on,
incurred by, or asserted against such Indemnified Party growing out of,
resulting from or in any other way associated with this Agreement, the Exchange
or any of the transactions and events (including the enforcement or defense
thereof) at any time associated therewith or contemplated therein (including any
violation or noncompliance with any Environmental Laws by any Related Person or
any liabilities or duties of any Related Person or of any Indemnified Party with
respect to Hazardous Materials found in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART,
UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR ARE IN ANY EXTENT CAUSED, IN
WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY
INDEMNIFIED PARTY,
provided only that no Indemnified Party shall be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and costs
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment. As used in this section the term
"Indemnified Party" refers to each of Fund V, Portfolio, TCW Asset Management
Company, a California corporation, Trust Company of the West, a California trust
company, Holdings, JEDI (and each of their affiliates) and each director,
officer, agent,
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trustee, manager, member, partner, shareholder, principal, attorney, employee,
representative and affiliate of any such Person.
SECTION 10. MISCELLANEOUS
10.1 Notices.
(a) All communications under this Agreement shall be in
writing and shall be effective (a) upon hand delivery or delivery by telecopy or
facsimile, if delivered on a business day during normal business hours where
such notice is to be received or the first business day following such delivery
if delivered other than on a business day during normal business hours where
such notice is to be received or (b) on the second business day following the
date of mailing by first class mail, postage prepaid or by express courier
service, fully prepaid or upon actual receipt of such mailing, whichever shall
first occur:
(i) if to any party hereto, at its address for
notices specified beneath its name on the signature page
hereof, or at such other address as it may have furnished in
writing to the Issuer, or
(ii) if to any other Person who is the registered
holder of any New Securities, to the address for the purpose
of such holder as it appears in the stock ledger of the
Issuer.
10.2 Survival. All representations and warranties and
covenants made by the Companies herein or in any certificate or other instrument
delivered by them or on their behalf under this Agreement shall be considered to
have been relied upon by TCW and the Purchasers and shall survive the issuance
of the New Securities regardless of any investigation made by or on behalf of
TCW and/or the Purchasers.
10.3 Successors and Assigns. Except as otherwise expressly
provided herein, this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties whether so expressed or
not; provided, that the benefits of Section 8 shall inure to the benefit of
affiliates of the Purchasers or their transferees holding the Requisite
Ownership.
10.4 Amendment and Waiver, etc. This Agreement may be amended,
but only with the written consent of each of the Companies, TCW and the
Purchasers. No failure or delay on the part of any of TCW, the Purchasers or the
Companies in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to TCW
and/or the Purchasers at law or in equity or otherwise. No waiver of or consent
to any departure by the Companies from any provision of this Agreement shall be
effective unless signed in writing by each of the Purchasers who then holds
either five percent (5%) of the outstanding Common Stock and Series Z Preferred
Stock or any Series D Preferred Stock or Series E Preferred Stock.
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10.5 Counterparts. Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument.
10.6 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
10.7 Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of New York as applicable
to contracts.
10.8 Expenses. Whether or not the transactions contemplated by
this Agreement close, the Companies will pay all costs and expenses incurred by
the Purchasers (a) relating to the negotiation, execution and delivery of this
Agreement and the issuance of the New Securities (including, without limitation,
reasonable fees, office charges and expenses of counsel to TCW, Milbank, Tweed,
Hadley & McCloy LLP, and counsel to JEDI, Vinson & Elkins), (b) relating to
printing the instruments evidencing the New Securities, (c) relating to any
amendments, waivers or consents under this Agreement to the same extent as set
forth in clause (a) and (b) above incident to the enforcement by the Purchasers
of, or the protection or preservation of any right or remedy of the Purchasers
under, this Agreement, or any other document or agreement furnished pursuant
hereto or thereto or in connection herewith or therewith (including, without
limitation, reasonable fees and expenses of counsel), (d) relating to third
party engineering and outside accounting costs, and (e) relating to any future
dealings associated with the transactions relating to this Agreement and the
Exchange (including any engineering, legal, and outside accounting costs). The
Companies shall pay such costs and expenses, to the extent then payable, on the
date of issuance of the New Securities or, with respect to those matters
described in clauses (b), (c), (d) and (e) above thereafter from time to time
upon demand by the Purchasers upon presentation, in each such case, of a
statement thereof. Additionally, the Companies shall pay an additional $25,000
to each of TCW and JEDI (in addition to any payments made for each party's costs
and expenses as set forth herein) at Closing.
10.9 Specific Performance. The Companies recognize that money
damages may be inadequate to compensate the Purchasers for a breach by the
Companies of their obligations hereunder, and the Companies irrevocably agree
that the Purchasers shall be entitled to the remedy of specific performance or
the granting of such other equitable remedies as may be awarded pursuant to the
arbitration described in Section 10.10 below or by a court of competent
jurisdiction after the arbitration in Section 10.10 below in order to afford the
Purchasers the benefits of this Agreement and that the Companies shall not
object and hereby waive any right to object to such remedy or such granting of
other equitable remedies on the grounds that money damages will not be
sufficient to compensate the Purchasers.
10.10 Arbitration. THE PARTIES AGREE THAT IF ANY DISPUTE
SHOULD ARISE UNDER THE TERMS AND PROVISIONS OF THIS AGREEMENT, EACH PARTY WAIVES
ANY RIGHT TO COMMENCE LEGAL ACTION OR ARBITRATION OTHER THAN AS PROVIDED UNDER
THE TERMS OF THIS AGREEMENT, AND THIS AGREEMENT SHALL PROVIDE THE SOLE AND
EXCLUSIVE REMEDY FOR RESOLUTION OF DISPUTES.
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(a) THE DETERMINATION OF THE ARBITRATOR WILL BE FINAL AND
BINDING UPON EACH PARTY AND EACH PARTY SPECIFICALLY WAIVES ANY RIGHT TO CLAIM
THAT THE ARBITRATOR HAS EXCEEDED THE SCOPE OF THE ARBITRATION, HAS DISREGARDED
EVIDENCE OR PRINCIPLES OF LAW, AND FURTHER WAIVES ANY RIGHT TO DISCLAIM THE
QUALIFICATION OR FUNCTION OF THE ARBITRATOR IN ANY MANNER OR FASHION.
(b) IF SUCH A DISPUTE HAS ONLY TWO PARTIES, EACH PARTY SHALL
SELECT ONE ARBITRATOR, AND THOSE ARBITRATORS SHALL SELECT A THIRD ARBITRATOR. IF
THE PARTIES DISPUTE THE SELECTION OF THE ARBITRATOR(S) AND CANNOT AGREE UPON THE
IDENTIFICATION OF THE ARBITRATOR(S) WITHIN THIRTY (30) DAYS FROM THE MAILING OF
THE OBJECTION, A PETITION FOR APPOINTMENT OF ARBITRATOR SHALL BE FILED WITH THE
SUPERIOR COURT OF THE COUNTY OF LOS ANGELES, CALIFORNIA. IF SUCH A DISPUTE HAS
MORE THAN TWO PARTIES, ALL SUCH PARTIES SHALL WITHIN THIRTY (30) DAYS (i)
APPOINT TWO ARBITRATORS UPON AGREEMENT OF ALL SUCH PARTIES OR IF SUCH PARTIES
CANNOT SO AGREE (ii) APPROVE TWO ARBITRATOR'S SELECTED BY THE AMERICAN
ARBITRATION ASSOCIATION. THE TWO ARBITRATORS SELECTED SHALL THEN SELECT A THIRD
ARBITRATOR. THE ARBITRATION SHALL BE HELD IN LOS ANGELES, CALIFORNIA PURSUANT TO
THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION AND THE
NEW YORK CODE OF CIVIL PROCEDURE.
(c) THE ARBITRATOR'S FEES AND FEES AND COSTS OF PETITIONING
FOR THE APPOINTMENT OF THE ARBITRATOR SHALL BE PAID BY THE COMPANIES. THE
ARBITRATOR, UPON RENDERING ITS AWARD, SHALL DETERMINE THE PARTY THAT PREVAILED
BASED UPON WRITTEN STATEMENTS MADE BY EACH PARTY AT THE COMMENCEMENT OF THE
ARBITRATION AS TO THE POSITION OF THE PARTIES AND THEIR ALTERNATIVES FOR
SETTLING THE MATTER AND THEREAFTER IN ACCORDANCE WITH THE RULES FOR THE FURTHER
PRESENTATION OF EVIDENCE AS SET FORTH BY THE ARBITRATOR. A STATEMENT OF A
PROPOSED SETTLEMENT SHALL NOT BE BINDING UPON ANY PARTY AND SHALL NOT BE
CONSIDERED AS EVIDENCE BY THE ARBITRATOR EXCEPT TO THE EXTENT THAT THE
ARBITRATOR UPON MAKING ITS SOLE AND INDEPENDENT DETERMINATION SHALL DETERMINE
THE PARTY WHICH PREVAILED BASED UPON THE PROPOSALS FOR SETTLEMENT OF THE MATTER
MADE BY EACH PARTY AND SHALL DETERMINE THAT THE NON-PREVAILING PARTY SHALL PAY
SOME OR ALL OF THE COSTS OF ARBITRATION INCLUDING ANY COSTS INCURRED BY THE
ARBITRATOR IN EMPLOYING EXPERTS TO ADVISE THE ARBITRATOR IN REGARD TO SPECIFIC
SUBJECTS OR QUESTIONS. THE ARBITRATOR MAY FURTHER AWARD THE COST OF ATTORNEYS'
FEES OR EXPERT WITNESSES CONSULTED OR EMPLOYED IN THE PREPARATION OR
PRESENTATION OF EVIDENCE TO THE ARBITRATOR BY THE PREVAILING PARTY IF, IN THE
ARBITRATOR'S DETERMINATION, THE POSITION OF THE NONPREVAILING PARTY WAS NOT
REASONABLY TAKEN OR MAINTAINED OR WAS BASED UPON A FAILURE TO PROPERLY EXCHANGE
OR COMMUNICATE INFORMATION WITH THE PREVAILING PARTY IN REGARD TO THE SUBJECT
SUBMITTED TO ARBITRATION.
30
<PAGE> 35
(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.
31
<PAGE> 36
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 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
INLAND PRODUCTION COMPANY,
a Texas corporation
By: /S/ KYLE R. MILLER
---------------------------------
Kyle R. Miller
Chief Executive Officer
Address for Notices:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
<PAGE> 37
INLAND REFINING, INC.,
a Utah corporation
By: /s/ TIM H. TRAWICK
-------------------------------
Name: Tim H. Trawick
Title:
Address for Notices:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
<PAGE> 38
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 Louisiana
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> 39
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 Louisiana
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> 40
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
--------------------------------------
Name: John Hopley
Title: 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> 41
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 Louisiana
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> 1
EXHIBIT 7
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> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions....................................................................................1
Section 2. Demand Registration Rights.....................................................................2
Section 3. Shelf Registration.............................................................................3
Section 4. Piggy-back Registration........................................................................3
Section 5. Restrictions on Dispositions and Demand Registrations..........................................5
Section 6. Registration Procedures........................................................................5
Section 7. Registration Expenses..........................................................................9
Section 8. Indemnification; Contribution..................................................................9
Section 9. Rule 144......................................................................................11
Section 10. Remedies......................................................................................11
Section 11. Binding Effect; Transferees; Termination......................................................11
Section 12. Amendments and Waivers........................................................................12
Section 13. Notices.......................................................................................12
Section 14. Counterparts..................................................................................12
Section 15. Headings......................................................................................12
Section 16. Governing Law.................................................................................12
Section 17. Severability..................................................................................12
</TABLE>
i
<PAGE> 3
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 ___, 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.
1
<PAGE> 4
"Register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of
effectiveness of such registration statement.
"Registrable Common Stock" means, collectively, (a) the shares
of Common Stock issued to JEDI and Holdings pursuant to the Exchange Agreement,
(b) the shares of Common Stock acquirable upon the conversion of the Series Z
Preferred Stock issued to Holdings pursuant to the Exchange Agreement, (c) the
shares of Common Stock issuable upon exercise of any of the Purchaser Adjustment
Options, (d) the shares of Common Stock held by the Smith Group as of the date
hereof and (e) any shares of Common Stock or other securities issued with
respect to the Common Stock described in clauses (a), (b), (c) and (d) of this
definition whether by way of stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation, share
exchange, reorganization or otherwise held by Holdings, JEDI or the Smith Group;
provided, however, such Common Stock or other securities shall cease to be
Registrable Common Stock when (i) a registration statement with respect to the
disposition of such Common Stock or other securities shall have become effective
under the Securities Act and such securities shall have been disposed of in
accordance with the plan of distribution set forth in such registration
statement, (ii) such Common Stock or other securities shall have been sold
pursuant to Rule 144 (or any successor provision) under the Securities Act,
(iii) such Common Stock or other securities shall have ceased to be outstanding
or (vi) such Common Stock or other securities may be sold pursuant to Rule 144
(or a successor provision) under the Securities Act without being restricted by
the volume limitations or method of sale restrictions thereof.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Series Z Preferred Stock" means the Series Z Convertible
Preferred Stock of the Company, par value $.001 per share.
"Shelf Registration Statement" has the meaning ascribed to
such term in Section 2(a).
Section 2. Demand Registration Rights.
(a) Right to Demand Registration. Subject to Section 2(b) and
Section 5 hereof, any holder of Registrable Common Stock may make a written
request to the Company for registration with the Commission under and in
accordance with the provisions of the Securities Act of the disposition of all
or part of the Registrable Common Stock (a "Demand Registration"). All requests
made pursuant to this Section 2(a) will specify the aggregate amount of
Registrable Common Stock to be registered, will specify the intended methods of
disposition thereof and will specify whether the registration statement to be
filed is a "shelf" registration statement ("Shelf Registration Statement")
pursuant to Rule 415 under the Securities Act (or any similar rule that may be
adopted by the Commission). If any holder intends to dispose of any of the
Registrable Common Stock pursuant to an underwritten offering, the holder will
have the right to select the underwriter. No securities other than Registrable
Common Stock may be registered in connection with a Demand Registration without
the consent of the holders of a majority of the outstanding Registrable Common
Stock whose shares are subject to such Demand Registration.
2
<PAGE> 5
(b) Number of Demand Registrations; Effective Registration;
Expenses. So long as (i) Holdings holds Registrable Common Stock, it (and its
transferees), shall be entitled to initiate and have effected an aggregate of
three (3) Demand Registrations; (ii) JEDI holds Registrable Common Stock, it
(and its transferees) shall be entitled to initiate and have effected two (2)
Demand Registrations; and (iii) the Smith Group holds Registrable Common Stock,
it (and its transferees) shall be entitled to initiate and have effected one (1)
Demand Registration. The Company shall pay all Registration Expenses of all such
Demand Registrations in accordance with Section 7 hereof. The Company shall not
be deemed to have effected a Demand Registration unless and until (i) the
Company has filed a registration statement with the Commission and (ii) the
registration statement has been declared effective by the Commission.
(c) Grant of New Registration Rights. From and after the date
of this Agreement and until this Agreement is terminated, the Company shall not
grant any registration rights to any person that could adversely affect the
rights of either of the Purchasers hereunder or are inconsistent with the rights
of either of the Purchasers hereunder without the prior written consent of such
Purchasers; provided, however, that the granting of piggy-back registration
rights that are not superior to the registration rights granted under Section 4
hereof with respect to cut-backs or reductions required by underwriters shall
not, in and of itself, be deemed to adversely affect the rights of either of the
Purchasers or be inconsistent with such rights.
(d) Termination of Prior Registration Rights. By entering into
this Agreement JEDI, Portfolio and each of the members of the Smith Group, on
behalf of themselves and their affiliates, expressly consents to and
acknowledges that any registration right(s) related to any securities of the
Company held prior to the date hereof by it is/are terminated as of the date
hereof.
Section 3. Shelf Registration. The Company will, as soon as
possible following a written request pursuant to Section 2(a) for the
registration of Registrable Common Stock by means of a Shelf Registration
Statement, file a shelf registration statement on Form S-3 covering the
Registrable Common Stock and thereafter shall use its best efforts to cause the
Shelf Registration Statement to be declared effective as soon as practicable
following such filing and to take any and all reasonable action within the
Company's control, subject to and in accordance with Section 5, as may be
necessary or appropriate to maintain such effectiveness until such time as
neither any holder nor any of their assignees own any Registrable Common Stock;
provided however that the Company shall not be required to maintain the
effectiveness of any such Shelf Registration Statement for longer than (a) one
hundred and twenty days (120) from the effective date of such registration
statement for a Demand Registration initiated by the Smith Group; and (b) two
years from the effective date of such registration statement for a Demand
Registration initiated by either of the Purchasers.
Section 4. Piggy-back Registration. (a) If the Company
proposes to file a registration statement under the Securities Act with respect
to an offering by the Company for its own account or for the account of others
(the "Initiating Shareholders") of any class of security (other than pursuant to
a registration statement on Forms S-4 or S-8 (or successor forms) or in
connection with an exchange offer or an offering of securities solely to the
Company's existing stockholders), including a Demand Registration Statement or a
Shelf Registration Statement, then the Company shall in each case give written
notice of such proposed filing to the holders of Registrable Common Stock (which
notice shall indicate, to the extent then known, the proposed
3
<PAGE> 6
managing underwriter or underwriters, if such offering is to be underwritten,
and such other terms of the proposed offering that the Company reasonably
believes to be material to the holders of Registrable Common Stock) and shall
include in such registration statement all or a portion of the Registrable
Common Stock owned by such holders which such holders shall request to be so
included by written notice given by such holders to the Company within 10
business days after such holder's receipt of such notice from the Company (a
"Piggy-back Registration"). The Company shall use its best efforts to effect the
registration of all Registrable Common Stock requested to be so registered in
such offering on the same terms and conditions as any similar securities of the
Company included therein. If the managing underwriter or underwriters of an
underwritten offering, if any, advise the holders of Registrable Common Stock in
writing that in its or their reasonable opinion or, in the case of a Piggyback
Registration not being underwritten, the Company shall reasonably determine (and
notify the holders of Registrable Common Stock of such determination), after
consultation with an investment banker of nationally recognized standing, that
the number of shares of Common Stock or other securities proposed to be sold in
such registration will adversely affect the success of such offering, the
Company will include in such registration the number of securities, if any,
which, in the opinion of such underwriter or underwriters, or the Company, as
the case may be, can be sold as follows: (A) if such registration was initiated
by the Company, (i) first, the shares the Company proposed to sell, (ii) second,
the Registrable Common Stock and other shares of Common Stock requested to be
included in such registration by the holders thereof entitled to participate in
such registration under this Agreement or under any registration rights
agreement in effect on the date hereof and (iii) third, the Common Stock
requested to be included in such registration by the holders thereof entitled to
participate in such registration under a registration rights agreement effective
after the date hereof and (B) if such registration was initiated as the result
of the exercise of a demand registration right of holders of Common Stock (i)
first, the shares of Common Stock requested to be included in such registration
by the demanding holders pro rata among those requesting such registration on
the basis of the number of shares of Common Stock requested to be included),
(ii) second, shares to be issued and sold by the Company and shares held by
Persons other than the demanding holders and requested to be included in such
registration either pursuant to this Agreement or pursuant to any registration
rights agreement in effect on the date hereof and (iii) third, the Common Stock
requested to be included in such registration by the holders thereof entitled to
participate in such registration under registration rights agreements effective
after the date hereof. To the extent that the privilege of including Registrable
Common Stock or other shares of Common Stock in any Piggyback Registration must
be allocated among the holders thereof pursuant to clause (A)(ii) or (B)(ii)
above, the allocation shall be made pro rata based on the number of shares of
Common Stock that each such participant shall have requested to include therein
and to the extent that the privilege of including Common Stock in any Piggyback
Registration must be allocated among the holders thereof pursuant to clause
(A)(iii) or (B)(iii) above, the allocation shall be made pro rata based on the
number of shares of Common Stock that each shall such participant shall have
requested to include therein.
(b) The holders of Registrable Common Stock to be distributed
by such underwriters shall be parties to the underwriting agreement between the
Company and such underwriters. The representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of the holders of
Registrable Common Stock to be distributed by such underwriters, and the
conditions precedent to the obligations of such holders of Registrable Common
Stock under such underwriting
4
<PAGE> 7
agreement shall be reasonably satisfactory to such holders. Such holders shall
not be required to make any representations or warranties to the Company or its
underwriters other than representations or warranties regarding such holder,
such holder's interest in the shares to be distributed and such holder's
intended method of distribution. The Company shall have the right to discontinue
any piggy-back registration under this Section 4 at any time prior to the
effective date of such registration if the registration of the securities giving
rise to such registration under this Section 4 is discontinued by the Company,
but no such discontinuation shall preclude an immediate or subsequent request by
the holders of Registrable Common Stock for registration pursuant to Section 2
hereof if otherwise permitted.
Section 5. Restrictions on Dispositions and Demand
Registrations. Notwithstanding anything to the contrary contained herein, the
Company shall not be obligated to prepare and file any registration statement
pursuant to a Demand Registration or prepare or file any amendment or supplement
thereto and may suspend, by giving written notice to the holders of Registrable
Common Stock, such holders' rights to make dispositions of Registrable Common
Stock pursuant to a Shelf Registration Statement, at any time when the Company
reasonably believes that the filing thereof at the time requested, or the
offering or sale of securities pursuant thereto, would materially adversely
affect a pending or proposed public offering of the Company's securities, or an
acquisition, merger, recapitalization, consolidation, reorganization or similar
transaction or negotiations, discussions or pending proposals with respect
thereto. The rights of holders of Registrable Common Stock to make dispositions
thereof pursuant to a Shelf Registration Statement may similarly be suspended by
the Company upon written notice to the holders of Registrable Common Stock that
the Shelf Registration Statement is unusable as a result of an event requiring a
post-effective amendment or supplement, which has not yet been filed, and will
remain unusable until the supplement is filed or post-effective amendment is
filed and declared effective. The filing of a registration statement, or any
amendment or supplement thereto, by the Company cannot be deferred, and the
holders' rights to dispose of Registrable Common Stock pursuant to a Shelf
Registration Statement cannot be suspended for more than 90 days, may not be so
deferred or suspended more than 180 days during any twelve month period unless
such deferral or suspension is agreed to in writing by the holders of
Registrable Common Stock subject to such suspension or deferral and, with
respect to suspended dispositions, the Company shall be obligated to maintain
the effectiveness of the applicable registration statement for an additional
period of time equal to the period of suspension(s).
Section 6. Registration Procedures.
(a) Certain Company Obligations. Whenever Registrable Common
Stock is to be registered pursuant to Sections 2 or 3 of this Agreement, the
Company will use reasonable diligence to effect the registration of such
Registrable Common Stock in accordance with the intended method of disposition
thereof as quickly as practicable, and in connection with any such request and
with the Piggy-back Registration or Demand Registration, the Company will as
expeditiously as possible:
(i) prepare and file with the Commission a registration
statement which includes the Registrable Common Stock and use
its best efforts to cause such registration statement to
become effective (which registration statement, in the case of
a Demand Registration, shall in all events be filed with the
Commission within 60
5
<PAGE> 8
days after the Company's receipt of the Demand Registration,
subject to the limitations set forth in Section 5); provided
that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will
furnish to the holders of the Registrable Common Stock covered
by such registration statement and the underwriters, if any,
draft copies of all such documents proposed to be filed at
least five (5) business days prior thereto, which documents
will be subject to the reasonable review of such holders and
underwriters, and provided further that if such registration
statement refers to any holder of Registrable Common Stock by
name or otherwise as the holder of any securities of the
Company, then such holder shall have the right to require (i)
the insertion therein of language, in form and substance
satisfactory to such holder, to the effect that the holding by
such holder of such securities does not necessarily make such
holder a "controlling person" of the Company within the
meaning of the Securities Act and is not to be construed as a
recommendation by such holder of the investment quality of the
Company's securities covered thereby and that such holding
does not imply that such holder will assist in meeting any
future financial requirements of the Company, or (ii) in the
event that such reference to such holder by name or otherwise
is not required by the Securities Act or any rules and
regulations promulgated thereunder, the deletion of the
reference to such holder;
(ii) prepare and file as soon as reasonably practicable
with the Commission such amendments and post-effective
amendments to the registration statement as may be necessary
to keep the registration statement effective for the period of
time specified in Section 3 with respect to the Shelf
Registration Statement and otherwise for 90 days (or such
shorter period which will terminate when all Registrable
Common Stock covered by such registration statement has been
sold or withdrawn); cause the prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to
be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act applicable to
it with respect to the disposition of all securities covered
by such registration statement during the applicable period in
accordance with the intended methods of disposition by the
holders thereof set forth in such registration statement or
supplement to the prospectus;
(iii) furnish to any holder of Registrable Common Stock
included in such registration statement and to the managing
underwriter or underwriters, if any, without charge, at least
one signed copy of the registration statement and any
post-effective amendment thereto, upon request, and such
number of conformed copies thereof and such number of copies
of the prospectus (including each preliminary prospectus) and
any amendments or supplements thereto, and any documents
incorporated by reference therein, as such holder or
underwriter may reasonably request in order to facilitate the
disposition of the Registrable Common Stock being sold by such
holder;
(iv) notify in writing each holder of Registrable Common
Stock included in such registration statement, at any time
when a prospectus relating-thereto is required to be delivered
under the Securities Act, when the Company
6
<PAGE> 9
becomes aware of the happening of any event as a result of
which the prospectus included in such registration statement
(as then in effect) contains any untrue statement of a
material fact or omits to state a material fact necessary to
make the statements therein (in the case of the prospectus or
any preliminary prospectus, in light of the circumstances
under which they were made) not misleading and, as promptly as
practicable thereafter, prepare and file with the Commission
and furnish a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such
Registrable Common Stock, such prospectus will not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading;
(v) use reasonable diligence to cause all Registrable
Common Stock included in such registration statement to be
listed, by the date of the first sale of Registrable Common
Stock pursuant to such registration statement, on each
securities exchange on which the Common Stock of the Company
is then listed or proposed to be listed, if any, and use
reasonable diligence to cause all Registrable Common Stock
included in such Registration Statement to be quoted on The
Nasdaq Stock Market (or other national or small-cap market),
if the Common Stock of the Company is then quoted thereon;
(vi) make generally available to its security holders an
earnings statement satisfying the provisions of Section 11(a)
of the Securities Act as soon as practicable, which earnings
statement shall cover the requisite 12-month period, which
requirements will be deemed to be satisfied if the Company
timely files complete and accurate information on Forms 10-Q,
10-K and 8-K under the Exchange Act and otherwise complies
with Rule 158 under the Act as soon as feasible;
(vii) if requested by the managing underwriter or
underwriters or any holder of Registrable Common Stock covered
by the registration statement, promptly incorporate in a
prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters or
such holder reasonably requests to be included therein,
including, without limitation, with respect to the Registrable
Common Stock being sold by such holder to such underwriter or
underwriters, the purchase price being paid therefor by such
underwriter or underwriters and with respect to any other
terms of the underwritten offering of the Registrable Common
Stock to be sold in such offering, and promptly make all
required filings of such prospectus supplement or
post-effective amendment;
(viii) on or prior to the date on which the registration
statement is declared effective, use reasonable diligence to
register or qualify, and cooperate with the holders of
Registrable Common Stock included in such registration
statement, the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification
of the Registrable Common Stock covered by the registration
statement for offer and sale under the securities or blue sky
laws of each state and other jurisdiction of the United States
as any such holder or underwriter
7
<PAGE> 10
reasonably requests in writing, to use reasonable diligence to
keep each such registration or qualification effective,
including through new filings, or amendments or renewals,
during the period such registration statement is required to
be kept effective and to do any and all other acts or things
necessary or advisable to enable the disposition in all such
jurisdictions of the Registrable Common Stock covered by the
applicable registration statement; provided that the Company
will not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of
process in any such jurisdiction where it is not then so
subject;
(ix) cooperate with the holders of Registrable Common
Stock covered by the registration statement and the managing
underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any
restrictive legends) representing securities to be sold under
the registration statement, and enable such securities to be
in such denominations and registered in such names as the
managing underwriter or underwriters, if any, or such holders
may request;
(x) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such
other actions as the holders of the Registrable Common Stock
being sold or the underwriters retained by holders
participating in an underwritten public offering, if any,
reasonably request in order to expedite or facilitate the
disposition of such Registrable Common Stock;
(xi) make available for inspection by the holders, by any
underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney,
accountant or other agent retained by the holders or any such
underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of the Company,
and cause all of the Company's officers, directors and
employees to supply all information, reasonably requested by
the holders or any such seller, underwriter, attorney,
accountant or agent in connection with such registration
statement. In that connection, the Company may require the
holders, such underwriter and such other persons to conduct
their investigation in a manner which does not disrupt the
operations of the Company and to execute such confidentiality
agreements as the Company may reasonably determine to be
advisable; and
(xii) notify each holder of Registrable Common Stock of
any stop order issued or threatened by the Commission in
connection with any registration statement covering
Registrable Common Stock and take all reasonable actions
required to prevent the entry of such stop order or to remove
it if entered.
(b) Certain Obligations of Holders of Registrable Common
Stock. Each holder of Registrable Common Stock shall provide the Company in
writing such information as the Company reasonably requests in order to
effectuate the registration and disposition of such holder's Registrable Common
Stock pursuant to this Agreement and such holder shall execute all consents,
powers of attorney, registration statements and other documents reasonably
required to be signed
8
<PAGE> 11
by such holder in order to effectuate the registration or disposition of
Registrable Common Stock by such holder.
Section 7. Registration Expenses. The Company shall pay all
expenses incident to the Company's performance of or compliance with its
obligations hereunder, including, without limitation, all registration, filing
and National Association of Securities Dealers, Inc. fees, all fees and expenses
of complying with securities or blue sky laws, all word processing, duplicating
and printing expenses, messenger and delivery expenses, and the reasonable fees
and disbursements of the Company's independent public accountants, of the
Company's counsel and of one law firm acting as counsel to the holders
requesting registration of all or a portion of their Registrable Common Stock .
Holders of Registrable Common Stock requesting registration will be responsible
for any other expenses incurred by them, including for their own accountants and
representatives, as well as any underwriting discounts and commissions on the
sale of the Registrable Common Stock.
Section 8. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each holder of Registrable Common Stock, its
officers, directors, partners and members (and officers and directors of such
partners and members) and each person who controls such holder (within the
meaning of the Securities Act) against all losses, claims, damages or
liabilities arising out of or based upon any untrue or alleged untrue statement
of material fact contained in any registration statement registering the
disposition of Registrable Common Stock, any amendment or supplement thereto,
any prospectus or preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same arise out of
or are based upon, any such untrue statement or omission based upon information
furnished in writing to the Company by such indemnified person expressly for use
therein and will reimburse, as incurred, such holder, officer, director, partner
or controlling person for any legal or other expenses incurred by such holder,
officer, director, partner or controlling person in connection with
investigating, defending or appearing as a third party witness in connection
with any such loss, claim, damage, or liability. In connection with an
underwritten offering, the Company will indemnify, and reimburse for expenses,
the underwriters thereof, their officers and directors and each person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to holders of Registrable Common
Stock.
(b) Indemnification by Holders of Registrable Common Stock. In
connection with any registration statement in which a holder of Registrable
Common Stock is participating, such holder will furnish to the Company in
writing such information with respect to the name and address of such holder and
the amount of Registrable Common Stock held by such holder and such other
information as the Company shall reasonably request, for use in connection with
any such registration statement or prospectus and agrees to indemnify the
Company, its directors and officers, any underwriter (within the meaning of the
Securities Act) for the Company or other persons selling securities pursuant to
such registration statement, and each person who controls the Company, against
any losses, claims, damages, liabilities and expenses resulting from any untrue
statement of a material fact or any omission of a material fact required to be
stated in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary
9
<PAGE> 12
to make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
with respect to such holder so furnished in writing by such holder expressly for
inclusion in any prospectus or registration statement. In no event shall the
liability of any selling holder of Registrable Common Stock hereunder be greater
in amount than the dollar amount of the proceeds received by such holder upon
the sale of the Registrable Common Stock giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Any person
entitled to indemnification hereunder agrees to give prompt written notice to
the indemnifying party after the receipt by such person of any written notice of
the commencement of any action, suit, proceeding or investigation or threat
thereof made in writing as to which such person will claim indemnification or
contribution pursuant to this Agreement and, unless in the reasonable judgment
of such indemnified party a conflict of interest may exist between such
indemnified party and the indemnifying party with respect to such claim, permit
the indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to such indemnified party. The failure to notify the
indemnifying party promptly of such commencement or threat shall not relieve the
indemnifying party of its obligation to indemnify the indemnified party, except
to the extent that the indemnifying party is actually prejudiced by such
failure. Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. If the indemnifying party is
not entitled to, or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel for the
indemnified party or parties with respect to such claim, unless in the
reasonable judgment of any indemnified party an actual conflict of interest
exists between such indemnified party and any other of such indemnified parties
with respect to such claim, in which event the indemnified party shall be
obligated to pay the fees and expenses of such additional counsel or counsels.
(d) Contribution. If the indemnification provided for in this
Section 8 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact, has been made by, or related to
information supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 8(b), any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding.
10
<PAGE> 13
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 8(d), no underwriter
shall be required to contribute any amount in excess of the amount by which the
underwriting discount applicable to the Registrable Common Stock purchased by it
and distributed to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no selling holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Common Stock of such selling holder was
offered to the public exceeds the amount of any damages which such selling
holder has otherwise been required to pay by reason of such untrue statement or
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The obligations of the Company pursuant to this Section 8
shall be further subject to such additional express agreements of the Company as
may be required to facilitate an underwritten offering, provided that no such
agreement shall in any way limit the rights of the holders of Registrable Common
Stock under this Agreement, or create additional obligations of such holders not
set forth herein, except as otherwise expressly agreed in writing by any such
holders. The obligations of the Company pursuant to this Section 8 shall be in
addition to any liability or obligation the Company may have at common law or
otherwise.
Section 9. Rule 144. The Company covenants that for so long as
any Holder owns any Registrable Common Stock that it will file, in a timely
manner, the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission thereunder,
and it will take such further action as any holder of Registrable Common Stock
may reasonably request, all to the extent required from time to time to enable
such holder to sell Registrable Common Stock without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Common Stock, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
Section 10. Remedies. Each holder of Registrable Common Stock
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
Section 11. Binding Effect; Transferees; Termination. Except
to the extent otherwise provided herein, the provisions of this Agreement shall
be binding upon and accrue to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns. A transferee of
Registrable Common Stock, which acquires such securities from a holder of
Registrable Common Stock in a transfer, whether in a public distribution or
otherwise, which results in such transferred securities not being Registrable
Common Stock in the hands of such
11
<PAGE> 14
transferee, shall not be a holder of Registrable Common Stock hereunder and
shall not have any rights or obligations hereunder as a result of such transfer
of Registrable Common Stock. Except as provided in the preceding sentence, a
transferee of a holder of Registrable Common Stock, whether becoming such by
sale, transfer, assignment, operation of law or otherwise, shall be deemed to be
a holder of Registrable Common Stock hereunder and such transferee shall be
entitled to the rights, and subject to the obligations, of such a holder
hereunder. This Agreement shall terminate at such time as there are no
outstanding shares of Registrable Common Stock.
Section 12. Amendments and Waivers. Except as otherwise
provided herein, the provisions of this Agreement may not be amended, modified
or supplemented without the written agreement of each of the Company, Holdings,
JEDI and the Smith Group; provided, however, at such time as any of Holdings,
JEDI or any member of the Smith Group no longer holds Registrable Common Stock,
this Agreement (other than Section 8) may be amended, modified or supplemented
without consent of the party no longer holding Registrable Common Stock.
Section 13. Notices. All communications under this Agreement
shall be in writing and shall be effective (a) upon hand delivery or delivery by
telecopy or facsimile, if delivered on a business day during normal business
hours where such notice is to be received or the first business day following
such delivery if delivered other than on a business day during normal business
hours where such notice is to be received or (b) on the second business day
following the date of mailing by first class mail, postage prepaid or by express
courier service, fully prepaid, or upon actual receipt of such mailing,
whichever shall first occur:
(i) if to a holder of Registrable Common Stock at the
most current address given by such holder to the Company in
writing;
(ii) if to the Company at its address set forth in the
Exchange Agreement.
Section 14. Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
Section 15. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 16. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Section 17. Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions contained herein shall not be in
any way impaired thereby, it being intended that all of the rights and
privileges of the parties hereto shall be enforceable to the fullest extent
permitted by law.
[REMAINDER OF PAGE LEFT BLANK]
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<PAGE> 15
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
By: /s/ THOMAS F. MEHLBERG
-----------------------------------
Thomas F. Mehlberg
Vice President
<PAGE> 16
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
Vice President
JOINT ENERGY DEVELOPMENT INVESTMENTS II
LIMITED PARTNERSHIP, a Delaware limited
partnership
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corp., its General
Partner
By: /s/ JOHN HOPLEY
-----------------------------------
Name: John Hopley
----------------------------------
Title: Vice President
---------------------------------
PENGO SECURITIES CORP., a Delaware
corporation
By: /s/ DAVID PERSING
-----------------------------------
Name: David Persing
----------------------------------
<PAGE> 17
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
-----------------------------------
Name: David Persing
----------------------------------
Title:
---------------------------------
/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
<PAGE> 1
EXHIBIT 8
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> 2
(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.
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<PAGE> 3
"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> 4
"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 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
4
<PAGE> 5
shall only be entitled to sell shares of Common Stock under this Section 3 that
it owns as of the date hereof; securities acquired after the date hereof in any
manner shall not be subject to the tagalong rights provided in this Section 3.
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.
5
<PAGE> 6
4.2 If any of the Drag-Along Parties proposes to Transfer to
any of its affiliates any of the Common Stock held by such Drag-Along Party,
then such Drag-Along Party, as a condition to the exercise of such right of
Transfer, shall cause such Transferee to agree to be bound by this Section 4.
The drag-along rights set forth in this Section 4 shall not be applicable to
transferees of the Drag-Along Parties other than to their respective affiliates.
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> 7
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, convey, transfer or otherwise dispose of, in whole or in part, such
securities.
7
<PAGE> 8
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 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
8
<PAGE> 9
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 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
9
<PAGE> 10
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> 11
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
----------------------------------
Name: Kyle R. Miller
Title: Co-Chief Executive Officer
Address for Notices:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Chief Executive Officer
Telephone: (303) 893-0102
Facsimile: (303) 893-0113
11
<PAGE> 12
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 South Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0000
Facsimile: (213) 244-0604
With Copies To:
TCW Asset Management Company
1000 Louisiana, Suite 2175
Houston, Texas 77002
Attention: Marc MacAluso
Telephone: (713) 615-7415
Facsimile: (713) 615-7460
Milbank, Tweed, Hadley & McCloy LLP
601 South Figueroa Street, 30th Floor
Los Angeles, CA 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
12
<PAGE> 13
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, 30th Floor
Los Angeles, CA 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
13
<PAGE> 14
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
---------------------------------------
Name: John Hopley
Title: 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
14
<PAGE> 15
PENGO SECURITIES CORP., a Delaware corporation
By: /s/ DAVID PERSING
---------------------------------------
Name: David Persing
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
15
<PAGE> 16
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
---------------------------------------
Name: David Persing
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
16
<PAGE> 17
/s/ RANDALL D. SMITH
----------------------------------------
RANDALL D. SMITH, an individual
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
/s/ JEFFREY A. SMITH
----------------------------------------
JEFFREY A. SMITH, an individual
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
/s/ BARBARA STOVALL SMITH
----------------------------------------
BARBARA STOVALL SMITH, an individual
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
17
<PAGE> 18
/s/ JOHN W. ADAMS
----------------------------------------
JOHN W. ADAMS, an individual
Address for Notices:
885 3rd Avenue, 34th Floor
New York, New York 10022
Attention: David Persing
Telephone: (212) 888-5500
Facsimile: (212) 702-0145
/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
18
<PAGE> 19
SCHEDULE A
Shares of Common Stock of the Issuer Held By Members of the Smith Group and JEDI
after giving effect to the Exchange
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
HOLDER SHARES OF COMMON STOCK SMITH GROUP SHARE PERCENTAGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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%
----- --------- ----
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* members of the Smith Group
19
