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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ___ to ___
Commission File Number 0-16487
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INLAND RESOURCES INC.
(Exact Name of Registrant as Specified in its Charter)
WASHINGTON 91-1307042
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
410 17th Street
Suite 700
Denver, Colorado
(303) 893-0102 80202
(Address of Principal Executive Offices) (Zip Code)
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Issuer's telephone number, including area code: (303) 893-0102
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO ___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K contained herein, and none will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 15, 1999, the registrant had outstanding 8,529,765 shares of
par value $.001 common stock. The aggregate value on such date of the voting
stock of the Registrant held by non-affiliates was an estimated $5,114,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates certain
information by reference from the definitive Proxy Statement for the
registrant's 1999 Annual Meeting of Stockholders.
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TABLE OF CONTENTS
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PAGE
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PART I
Items 1 & 2. Business and Properties..................................................................1
Item 3. Legal Proceedings.......................................................................14
Item 4. Submission Of Matters To a Vote Of Security Holders.....................................14
PART II
Item 5. Market For Registrant's Common Stock and Related Stockholder Matters....................15
Item 6. Selected Financial Data.................................................................16
Item 7. Management's Discussion And Analysis of Financial Condition and Results of Operations...17
Item 7A. Quantitative and Qualitative Disclosures About Market Risks.............................25
Item 8. Financial Statements and Supplementary Data.............................................26
Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure ...26
PART III
Item 10. Directors and Executive Officers of the Registrant......................................27
Item 11. Executive Compensation..................................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management..........................27
Item 13. Certain Relationships and Related Transactions..........................................27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................28
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PART I
The following text is qualified in its entirety by reference to the
more detailed information and consolidated financial statements (including the
notes thereto) appearing elsewhere in this Annual Report on Form 10-K. Unless
the context otherwise requires, references to Inland" shall mean Inland
Resources Inc., a Washington corporation, and references to the "Company" or its
operations shall mean Inland and its consolidated subsidiaries, including Inland
Production Company ("IPC"), a Utah corporation and Inland Refining, Inc.
("Refining"), a Utah corporation. For definitions of certain terms relating to
the oil and gas industry used in this section, see Items 1. and 2. "Business and
Properties -- Certain Definitions."
ITEMS 1 & 2. BUSINESS AND PROPERTIES
OVERVIEW
Inland Resources Inc. is an independent energy company engaged in the
acquisition, development, and enhancement of oil and gas properties in the
western United States. All of the Company's oil and gas reserves are located in
the Monument Butte Field (the "Field") within the Uinta Basin of northeastern
Utah. The Company is also engaged in the refining of crude oil and wholesale
marketing of refined petroleum products, including various grades of gasoline,
kerosene, diesel fuel, waxes and asphalt. Inland conducts its operations through
its subsidiaries, IPC and Refining. In 1998, IPC drilled 95 gross (73 net)
developmental wells. At December 31, 1998, the Company's estimated net proved
reserves totaled 21.6 MBOE, having a pre-tax present value discounted at 10%
using constant prices of $54.1 million.
The Company intends to pursue a balanced strategy of development
drilling and acquisitions, focusing on enhancing operating efficiency and
reducing capital costs through the concentration of assets in selected
geographic areas. Currently, the Company's operations are focused on the full
development of the Field where the Company operates 600 gross (506 net) oil
wells, including 141 gross (121 net) injection wells. Inland pioneered the
secondary water flood recovery processes used in the Field and currently
operates 20 approved secondary recovery projects in the area. Budgeted
development expenditures for 1999 in the Field are $500,000 net to the Company.
Inland also has budgeted $900,000 for refinery upgrades.
RECENT DEVELOPMENTS
On January 18, 1999, Inland entered into a non-binding letter of intent
with Flying J Inc. ("Flying J") and Smith Management LLC ("Smith Management")
regarding the acquisition of certain assets by Inland from Flying J or one of
its subsidiaries. The acquisition includes a 25,000 BPD refinery located in
North Salt Lake City, eleven Flying J gasoline stations located primarily in the
Salt Lake City area and Idaho and all oil and gas reserves owned by Flying J in
the Uinta Basin, fifteen miles north of the Field. The purchase price is $80
million in cash and approximately 12.8 million shares of Inland common stock,
par value $0.001 per share, which is equal to approximately 60% of the shares
outstanding after the acquisition. A restructuring of the Company's capital and
debt structure could be required to effectuate the acquisition. Management
anticipates that if the transaction is consummated, it will close during the
third quarter of 1999. The acquisition is contingent on preparation of
definitive documents, financing, due diligence procedures and approval by
regulatory agencies, Inland's lenders, the Board of Directors of each company
and Inland's shareholders. The failure of any one of these events could prevent
the consummation of the acquisition.
OIL AND GAS EXPLORATION AND PRODUCTION OPERATIONS
General. The Company conducts exploration and production activities
primarily through IPC, which owns all of the oil and gas acreage, wells, gas
gathering systems, water delivery, injection and disposal systems and other
non-refining oil and gas related tangible assets of the Company. IPC serves as
the operator for the drilling, completion and operation of 600 wells, or 97% of
the wells in which the Company has an interest. Revenues, profits and losses and
total assets with respect to production, exploration and transportation
activities for Inland's fiscal years 1996, 1997 and 1998 are set forth in pages
F-5 and F-30 of this Annual Report.
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Oil and Gas Reserves. The following table sets forth the Company's
estimated quantities of proved oil and gas reserves and the estimated future net
revenues (by reserve categories) without consideration of indirect costs such as
interest, administrative expenses or taxes. These estimates were prepared by the
Company, with certain portions having been reviewed by Ryder Scott Company, an
independent reservoir engineer. The review by Ryder Scott Company consisted of
properties which comprised approximately 80% of the total present worth of
future net revenue discounted at 10% as of December 31, 1998. The total proved
net reserves estimated by the Company were within 10% of those reviewed and
estimated by Ryder Scott Company; however, on a well by well basis, differences
of greater than 10% may exist. See also, the Supplemental Oil and Gas
Disclosures appearing on pages F-30 through F-33 of this Annual Report.
<TABLE>
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As of December 31, 1998
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Proved Proved Total
Developed Undeveloped Proved
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(dollars in thousands)
Net Proved Reserves
Oil (MBls) 18,394 208 18,602
Gas (MMcf) 18,030 33 18,063
MBOE (6Mcf per Bbl) 21,398 214 21,612
Estimated Future Net Revenues(1) $ 94,060 $712 $ 94,772
Present Value of Future Net Revenues(2) $ 53,863 $250 $ 54,113
</TABLE>
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(1) Undiscounted.
(2) Discounted at 10%.
Future net revenues from reserves at December 31, 1998 were calculated
on the basis of average prices in effect on that date and were approximately
$7.60 per barrel of oil and $2.34 per Mcf of gas. The value of the estimated
proved gas reserves are net of deductions for shrinkage and natural gas required
to power future field operations. The standard measure of discounted future net
revenues (defined as the estimated future net revenues after taxes and
discounted at 10%) is equal to the present value of future net revenues because
depreciation and depletion of the tax basis of the oil and gas properties
completely offsets projected future net revenues.
Petroleum engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact manner.
Estimates of economically recoverable oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
including the following:
o historical production from the area compared with production from
other producing areas;
o the assumed effects of regulations by governmental agencies;
o assumptions concerning future oil and gas prices; and
o assumptions concerning future operating costs, production taxes,
development costs and workover and remedial costs.
Because all reserve estimates are to some degree subjective, (a) the
quantities of oil and gas that are ultimately recovered, (b) the production and
operating costs incurred, (c) the amount and timing of future development
expenditures and (d) future oil and gas sales prices may differ materially from
those assumed in estimating reserves. Furthermore, different reserve engineers
may make different estimates of reserves and cash
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flows based on the same available data. Inland's actual production, revenues and
expenditures with respect to reserves will likely vary from estimates and the
variances may be material.
No estimates of total proven net oil and gas reserves have been filed
by the Company with, or included in any report to, any United States authority
or agency pertaining to the Company's individual reserves since the beginning of
the Company's last fiscal year.
Production, Unit Prices and Costs. The following table sets forth
certain information regarding the production volumes of, average sale prices
received for, and average production costs for the sales of oil and gas by the
Company. See also, the Supplemental Oil and Gas Disclosures appearing on pages
F-30 through F-33 of this Annual Report.
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Year Ended December 31,
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1998 1997 1996
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Net Production:
Oil (MBls) ............... 1,501 855 502
Gas (MMcf)(1) ............ 3,006 1,637 710
Total (MBOE) ......... 2,002 1,128 620
Average Sale Price(2):
Oil (per Bbl) ............ $ 9.82 $16.17 $20.18
Gas (per Mcf)(3) ......... $ 2.00 $ 2.19 $ 1.56
Average Production Cost:
($/BOE)(4) ........... $ 4.18 $ 3.35 $ 2.31
</TABLE>
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(1) Excludes lease fuel used for operations.
(2) Does not reflect the effects of hedging transactions.
(3) Includes natural gas liquids.
(4) Includes direct lifting costs (labor, repairs and maintenance, materials and
supplies) and the administrative costs of production offices, insurance and
property taxes.
Drilling Activities. The following table sets forth the number of oil
and gas wells drilled in which the Company had an interest during 1998, 1997 and
1996.
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -------------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
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Development wells:
Oil(1)............... 90 69 73 64 57 50.1
Water Injection...... -- -- -- -- 4 2.8
Dry.................. 5 4 5 4.8 2 2
----- ----- ----- ----- ----- -----
Total............ 95 73 78 68.8 63 54.9
===== ===== ===== ===== ===== =====
Exploratory wells:
Oil(1)............... -- -- 2 2 -- --
Dry.................. -- -- -- -- 1 1
----- ----- ----- ----- ----- -----
Total............ 0 0 2 2 1 1
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</TABLE>
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<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -------------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
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Total wells:
Oil(1)............... 90 69 75 66.0 57 50.1
Water Injection...... -- -- -- - 4 2.8
Dry.................. 5 4 5 4.8 3 3.0
----- ----- ----- ----- --- -----
Total............ 95 73 80 70.8 64 55.9
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(1) All of the completed wells have multiple completions, including both oil
completions and gas completions. Consequently, pursuant to the rules of the
Securities and Exchange Commission, each well is classified as an oil well.
The information contained in the foregoing table should not be
considered indicative of future drilling performance nor should it be assumed
that there is any necessary correlation between the number of productive wells
drilled and the amount of oil and gas that may ultimately be recovered by the
Company.
The Company does not own any drilling rigs and all of its drilling
activities are conducted by independent contractors on a day rate or footage
basis under standard drilling contracts.
Productive Oil And Gas Wells and Water Injection Wells. The following
table reflects the number of productive oil and gas wells and water injection
wells in which the Company held a working interest as of December 31, 1998:
<TABLE>
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Wells(1)
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Gross(2) Net(2)
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Water Water
Location Oil(1) Injection Oil(1) Injection
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Utah(3) 473 144 387.5 121
Other(4) 2 -- 0.5 --
----- ------ ----- ------
Total 475 144 388.0 121
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(1) The Company is an operator of 600 gross wells (506 net) and a non-operator
with respect to 19 gross (3 net) wells.
(2) Net wells represent the sum of the actual percentage working interests
owned by the Company in gross wells at December 31, 1998.
(3) All of the Company's wells in Utah are located in the Field.
(4) The Company has one producing oil or gas well in each of Wyoming and
Oklahoma; however, there are no reserves attributable to such wells.
Acreage Data. The following table reflects the developed and
undeveloped acreage that the Company held as of December 31, 1998:
<TABLE>
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Developed Acreage Undeveloped Acreage(1)
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Gross Net Gross Net
Location Acres Acres Acres Acres
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Utah(2) 24,000 19,400 126,500 98,700
Other(3) 700 100 8,300 8,100
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Total 24,700 19,500 134,800 106,800
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(1) Undeveloped acreage includes 60,100 gross (58,800 net) acres held by
production at December 31, 1998.
(2) All of the Company's acreage in Utah is located in the Field.
(3) The Company has one producing oil or gas well in each of Wyoming and
Oklahoma; however, there are no reserves attributable to such acreage.
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As of December 31, 1998, the undeveloped acreage not held by production
involves 363 leases with remaining terms of up to 10 years. Leases covering
approximately 5,400 net acres have expiration dates in 1999. The Company intends
to renew expiring leases in areas considered to have good development potential.
The Company also intends to continue paying delay rentals and minimum royalties
necessary to maintain these leases (an expense of approximately $94,000 net to
the Company in 1998). To the extent that wells cannot be drilled in time to hold
a lease which the Company desires to retain, the Company may negotiate a
farm-out arrangement of such lease retaining an override or back-end interest.
Secondary Recovery Enhancement Activities. Inland presently engages in
secondary recovery enhancement operations in the Field through water flooding.
Water flooding involves the pumping of large volumes of water into an oil
producing reservoir to increase or maintain reservoir pressures, resulting in
greater crude oil production. Inland currently operates 20 approved water flood
units or areas. At December 31, 1998, the Company had 141 wells injecting an
aggregate of 13,000 BWPD. During 1998, the Company installed 25 miles of water
pipelines to handle low pressure water delivery and high pressure water
injection and built two new water injection plants. The Company also converted
31 gross (28 net) oil wells into injection wells. At December 31, 1998, the
Company owned and operated 105 miles of water pipelines and eight water
injection plants with an injection capacity of 32,000 BWPD. Inland has
experienced stabilized or increasing production in many wells offsetting its
water injection operations. It intends to continue aggressively developing
secondary recovery water flood operations by extending infrastructure and
initiating injection in as many as 30 wells in the Field during 1999.
The Company has agreements with the Johnson Water District, the Upper
Country Water District and the State of Utah to take up to 37,000 BWPD, subject
to availability, from their water pipelines for the Company's water flood
injection operations in the Field. All water rights are subject to various terms
and conditions including state and federal environmental regulations and system
availability. Inland believes that these agreements will provide sufficient
water to handle all water injection at peak field development.
Gas Gathering And Transportation Systems. The Company currently
produces 13.5 MMcf of natural gas per day and sells approximately 10.5 MMcf of
natural gas per day. The difference between the volume of natural gas produced
and sold is the amount of natural gas that the Company uses as lease fuel for
operations. The Company collects and markets approximately 88% of its operated
gas production using its gas gathering, transportation and compression system.
During 1998, the Company continued development of this system by installing 66
miles of gas gathering and fuel pipelines and one gas compression and
dehydration unit. The system now consists of approximately 310 miles of
pipelines and two compression facilities using five compressors and two
dehydration units with a throughput capacity of 22.5 MMcf per day. Inland also
owns an 84% partnership interest in the West Monument Butte Pipeline Company,
which owns a portion of the "Travis Expansion Unit" gas gathering and
transportation system.
Delivery Commitments. Approximately 12% of the natural gas produced by
the Company is sold pursuant to contracts which do not obligate the Company to
deliver a fixed quantity of natural gas, but require it to deliver all of its
production from the wells, net of lease fuel used, subject to such contracts.
These contracts expire between December 1999 and March 2000. The Company also
has a contract to sell 4,300 Mcf per day for the period April 1999 through March
2000 at a fixed price of $1.97 per Mcf. The majority of the Company's remaining
production is sold on a month-to-month basis in the spot market.
Markets for Oil and Gas. The availability of a ready market and the
prices obtained for the Company's oil and gas depend on many factors beyond the
Company's control, including the extent of domestic production and imports of
oil and gas, the proximity and capacity of natural gas pipelines and other
transportation facilities, fluctuating demands for oil and gas, the marketing of
competitive fuels, and the effects of governmental regulation of oil and gas
production and sales. In 1998, there was a substantial decrease in oil and gas
prices worldwide. Continuing decreases in the prices of oil and gas would have
continuing adverse effects on the Company's proved reserves, revenues,
profitability and cash flow.
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The crude oil produced from the Field is called Black Wax.
Approximately 16,000 BPD of Black Wax crude oil is currently produced in Utah
and refined in Salt Lake City. Transporting Black Wax crude oil to refineries in
California or Colorado is not practical because of the high cost of
transportation over such distances by truck or rail. Black Wax can be distilled
and cracked into high margin petroleum products such as gasoline, diesel and jet
fuel; however, it does not blend well with other crude oil feedstocks in the
refining process. Since Black Wax has limited compatibility in blending with
other crude oil feedstocks, the demand for Black Wax at the Salt Lake City
refineries tends to become inelastic as the supply of Black Wax reaches the
blending capacity of the Salt Lake City refineries.
The Company estimates the existing refining capacity for Black Wax in
Salt Lake City to be approximately equal to production. Since 1995, the basis
differential (the difference between the price of West Texas Intermediate crude
oil delivered to Cushing, Oklahoma ("NYMEX") and the wellhead price for Black
Wax) has increased from $1.50 to $4.40 today. This widening basis differential
has been caused in part by the substantial growth in production in the Field
which the Company has grown from approximately 100 BPD in 1993 to approximately
5,300 BPD as of March 1999.
"Black Wax" is sold at the average monthly posted field price less a
deduction of approximately $0.90 per barrel for oil quality adjustments. The
posted field price ranged from $7.25 to $14.25 during 1998 and $14.00 to $24.25
during 1997, and was $8.50 per barrel on December 31, 1998. During 1998 and
1997, the Company sold approximately 51% and 89%, respectively, of its oil
production to Chevron. In 1998, the Company sold 35% of its crude oil to
Refinery, and 13% of its crude oil to BP Amoco. Inland believes that the loss of
either Chevron or BP Amoco as a purchaser of its production would not have a
material adverse effect on its results of operations due to the Company's
ownership of the Woods Cross Refinery.
As the quantity of Black Wax produced within the Field grows, physical
limitations within the regional refineries will limit the amount of Black Wax
that can be economically processed. One of the reasons for acquiring the Woods
Cross Refinery was to provide a refining source, if needed, for the Company's
Black Wax production. Until refinery modifications at one or more of the other
refineries are accomplished, there may continue to be downward pressure on Black
Wax pricing. See "Refining Operations." If the Flying J transaction is
completed, Inland will acquire an additional refinery to process the Company's
Black Wax production.
The natural gas produced by the Company not subject to gas purchase
agreements is sold on a month-to-month basis in the spot market, the price of
which ranged from $1.78 to $2.38 per Mcf during 1998 and from $1.61 to $4.91 per
Mcf during 1997, and was $2.34 per Mcf for December 1998. All spot market sales
during 1998 were made to Wasatch Energy Corporation ("Wasatch"). Inland believes
that the loss of Wasatch as a purchaser of its gas production would not have a
material adverse effect on its results of operations due to the availability of
other natural gas purchasers in the area.
Regulation of Exploration and Production. The Company's oil and gas
exploration, production and related operations are subject to extensive rules
and regulations promulgated by federal and state agencies. Failure to comply
with such rules and regulations can result in substantial penalties. The
regulatory burden on the oil and gas industry increases the Company's cost of
doing business and affects its profitability. Because such rules and regulations
are frequently amended or interpreted differently by regulatory agencies, Inland
is unable to accurately predict the future cost or impact of complying with such
laws.
The Company's oil and gas exploration and production operations are
affected by state and federal regulation of oil and gas production, federal
regulation of gas sold in interstate and intrastate commerce, state and federal
regulations governing environmental quality and pollution control, state limits
on allowable rates of production by a well or proration unit and the amount of
oil and gas available for sale, state and federal regulations governing the
availability of adequate pipeline and other transportation and processing
facilities, and state and federal regulation governing the marketing of
competitive fuels. For example, a productive gas well may be "shut-in" because
of an over-supply of gas or lack of an available gas pipeline in the areas in
which Inland may conduct operations. State and federal regulations generally are
intended to prevent waste of oil and gas, protect rights to produce oil and gas
between owners in a common reservoir, control the amount of oil and gas produced
by assigning allowable rates of production and control contamination of the
environment. Pipelines are subject to the jurisdiction of various federal, state
and local agencies.
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Many state authorities require permits for drilling operations,
drilling bonds and reports concerning operations and impose other requirements
relating to the exploration and production of oil and gas. Such states also have
ordinances, statutes or regulations addressing conservation matters, including
provisions for the unitization or pooling of oil and gas properties, the
regulation of spacing, plugging and abandonment of such wells, and limitations
establishing maximum rates of production from oil and gas wells. However, no
Utah regulations provide such production limitations with respect to the Field.
Environmental Regulation. The Company is subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations may
require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands, and areas containing threatened and endangered plant and wildlife
species, and impose substantial liabilities for unauthorized pollution resulting
from Inland's operations.
A substantial portion of the Company's operations occur on federal
leaseholds. During 1996, the Vernal, Utah office of the Bureau of Land
Management ("BLM") undertook the preparation of an Environmental Assessment
("EA") to evaluate the environmental and socioeconomic impacts of the Company's
proposed development plan within the Monument Butte Field. The Agency's Record
of Decision ("ROD") on the EA, which was issued on February 3, 1997, identified
surface stipulations and mitigation measures that the Company must implement to
protect various surface resources, including protected and sensitive plant and
wildlife species, archaeological and paleontological resources, soils and
watersheds. The Company has successfully complied with the surface stipulations
and mitigation measures contained in the ROD, while significantly increasing its
drilling rate on federal leaseholds in 1998. The cost of compliance with surface
stipulations in the Monument Butte Field was approximately $315,000 in 1998. The
Company estimates that the cost of compliance with surface stipulations will
decrease substantially in 1999 due to a reduction in drilling activity.
On February 16, 1999, the United States Fish and Wildlife Service
("USFWS") issued a Proposed Rule to list the mountain plover, a small
ground-nesting bird, as "threatened" under the Federal Endangered Species Act.
The Monument Butte Field contains the only known breeding population of mountain
plover in Utah. The USFWS and BLM are likely to implement additional restrictive
surface stipulations in the Monument Butte Field in order to provide additional
protection to the mountain plover and its habitat. Based on preliminary
discussions with the USFWS and BLM, the Company believes it will be able to
comply with any additional surface stipulations without causing a material
impact on its future drilling plans in the Monument Butte Field.
The Company's operations involve the injection of water into the
subsurface to enhance oil recovery. Under the Safe Drinking Water Act ("SDWA"),
oil and gas operators, such as the Company, must obtain a permit for the
construction and operation of underground Class II enhanced recovery underground
injection wells. To protect against contamination of drinking water, the
Environmental Protection Agency ("EPA") and the State of Utah regulate the
quality of water that may be injected into the subsurface, and require that
mechanical integrity tests be performed on injection wells every five years. In
addition, the company is required to monitor the pressure at which water is
injected, and must not exceed the maximum allowable injection pressure set by
EPA and the State of Utah.
The Company has obtained the necessary permits for the Class II
injection wells it operates, and monitors the water quality of injection water
at several injection stations. The Company also maintains a schedule to conduct
mechanical integrity tests for each well every five years. While the Company
experienced some difficulty monitoring and regulating injection pressures at
each individual well-head during 1998, the Company is in substantial compliance
with its underground injection program. The Company recently developed a
computer program to assist with monitoring injection pressures that will enhance
efforts to monitor injection pressures during 1999.
The recent trend in environmental legislation and regulation has been
generally toward stricter standards, and this trend will likely continue. The
Company does not presently anticipate that it will be required to expend amounts
relating to its oil and gas production operations that are material in relation
to its total capital expenditure program by reason of environmental laws and
regulations, but because such laws and regulations are subject to
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interpretation by enforcement agencies and frequently changed legislative
bodies, the Company is unable to predict the ultimate cost of such compliance
for 1999.
Operational Hazards And Uninsured Risks. The oil and gas business
involves certain inherent operating hazards such as (a) well blowouts, (b)
cratering, (c) explosions, (d) uncontrollable flows of oil, gas or well fluids,
(e) fires, (f) formations with abnormal pressures, (g) pollution, (h) releases
of toxic gas and (i) other environmental hazards and risks. Any of these
operating hazards could result in substantial losses to us. In accordance with
customary industry practices, we maintain insurance against some, but not all,
of these risks and losses. The Company is also required under various operating
agreements to (a) maintain certain insurance coverage on existing wells and all
new wells drilled during drilling operations, and (b) name others as additional
insureds under such insurance coverage. The occurrence of an event that is not
fully covered by insurance could have an adverse impact on our financial
condition and results of operations.
Competition. Many companies and individuals are engaged in the oil and
gas business. Inland is faced with strong competition from major oil and gas
companies and other independent operators attempting to acquire prospective oil
and gas leases, producing oil and gas properties and other mineral interests.
Some competitors are very large, well-established companies with substantial
capabilities and long earnings records. Inland may be at a disadvantage in
acquiring oil and gas prospects since it must compete with individuals and
companies which have greater financial resources and larger technical staffs
than Inland.
With respect to Black Wax production, additional competitive pressures
result from the inelasticity in the demand for Black Wax after the refining
capacity in the Salt Lake City area is reached. Until the Company is successful
in converting its current refineries or acquiring refineries capable of Black
Wax processing, these competitive pressures will persist.
REFINING OPERATIONS
The Company's refining operations are conducted through its
wholly-owned subsidiary, Refining, at the Woods Cross Refinery, a hydroskimming
plant with an overall crude capacity of approximately 10,000 BPD. The Refinery
is located on approximately 42 acres owned by Refining in Woods Cross, Utah. The
refinery receives crude oil on the BP Amoco and Chevron pipelines and ships
products by truck, rail or the Chevron products pipeline to Idaho and
Washington. The refinery has a 485,000 barrel capacity of tankage on site.
The Woods Cross Refinery is currently processing approximately 3,000
BPD of Black Wax crude. The refinery has the capacity to process 5,000 BPD, but
does not dedicate this entire amount to Black Wax processing due to the
availability of alternative feedstocks at economic prices. Currently, the
Company produces approximately 5,300 BPD of Black Wax from the Field. Revenues,
profits and losses and total assets with respect to refining operations for
Inland's fiscal years 1996, 1997 and 1998 are set forth in pages F-5 and F-30
of this Annual Report.
Crude Oil Supply. In recent years, the crude oil supply in the Salt
Lake City area has been limited because of (1) a decrease in production of local
crudes and (2) limited pipeline capacities and, therefore, limited access to
crude outside the region. Crude is imported into the area by tank truck or rail
car, but these transportation methods are more expensive than the pipelines.
Refining acquires crude oil from a number of sources, including major oil
companies and small independent producers, under arrangements which contain
market-responsive pricing provisions.
Refining obtains and processes three primary crude oil supplies:
o Wyoming Sweet, which comprised approximately 34% of the Company's
refining crude oil feedstock in 1998, is obtained and processed
pursuant to contracts with various oil producers that are generally
terminable by either party on 30 days' notice.
o Yellow Wax crude, which comprised approximately 29% of the Company's
refining crude oil feedstock in 1998, is obtained and processed
pursuant to a processing agreement with Pennzoil terminable by either
8
<PAGE> 11
party upon twelve months' notice. Pennzoil supplies Yellow Wax crude to
Refining and purchases the resulting wax distillate and vacuum tower
bottoms. Refining also obtains additional barrels of Yellow Wax from
Pennzoil and other sources pursuant to month-to-month purchase
contracts. Yellow Wax is delivered to the Salt Lake City area by
insulated tank truck.
o Black Wax crude, which comprised approximately 28% of the Company's
refining crude oil feedstock in 1998, is obtained from the Company's
production in the Field in addition to various other oil producers.
Refining modified its facilities in 1998 to allow it to increase its
Black Wax crude processing capability from 2,000 BPD to 5,000 BPD.
Black Wax is transported to the refinery by insulated tank truck.
The remainder of crude oil feedstock comes from a variety of other sources.
In addition to crude, Refining purchases other feedstocks, including
blowing flux, finished gasoline and diesel and MTBE. Blowing flux is purchased
from regional suppliers at market rates and delivered via truck or rail car.
Finished gasoline and diesel is purchased from other area refineries or
suppliers to meet contractual obligations during refinery downtimes or
slowdowns, or when profitable resale opportunities arise. MTBE is supplied to
Refining by truck or rail pursuant to month-to-month contracts with regional or
Gulf Coast suppliers.
The Company believes an adequate supply of crude oil and other
feedstocks will be available for the foreseeable future. However, there is no
assurance that this situation will continue. The Company continues to evaluate
other supplemental crude oil supply alternatives for its refinery on both a
short-term and long-term basis. Among other alternatives, the Company has
considered making additional equipment modifications to increase its ability to
use alternative crude oils. If additional supplemental crude oil becomes
necessary, the Company intends to implement then available alternatives as
necessary and as are most advantageous under then prevailing conditions.
Implementation of supplemental supply alternatives may result in additional raw
material costs, operating costs, capital costs, or a combination thereof in
amounts which are not presently ascertainable by the Company, but which will
vary depending on factors such as the specific alternative implemented, the
quantity of supplemental feedstocks required, and the date of implementation.
Marketing of Products. The Company currently owns no retail outlets for
its gasoline and diesel products and, therefore, sells such products on a
wholesale basis to a broad base of independent retailers, jobbers and major oil
companies in the region. Prices are determined by local market conditions at the
"terminal rack" located at the refinery or at pipeline terminals. The customer
typically supplies his own truck transportation. Two large local distributors,
Maverick Country Stores and Brad Hall & Associates, began purchasing increasing
volumes of gasoline from the Company in 1998 pursuant to month-to-month
contracts. Revenue from each of these two purchasers exceeded 10% of the
Company's revenues from refining operations and, the combined revenue from both
of these purchasers represented 48% of 1998 refining revenue. Depending on the
future level of such purchases, the loss of such customers could have a
short-term material adverse effect on the Company until replacement purchasers
are obtained.
The Company sells its roofing asphalt to a broad base of customers in
the Salt Lake City area, Arizona, Nevada and northern California at prices
determined by local market conditions. No single purchaser of the Company's
asphalt products accounted for more than 10% of the Company's revenues from
refining operations in 1998 or 1997.
In 1998 and 1997, the Company's sales of its Yellow Wax products to
Pennzoil constituted approximately 65% of its Yellow Wax production but did not
represent more than 10% of the Company's revenues from refining operations
during either year.
Scheduled Maintenance and Capital Improvements. Each refinery operating
unit requires regular maintenance and repair shutdowns (referred to as
"turnarounds") during which it is not in operation. Turnaround cycles vary for
different units. In general, Refining manages refinery turnarounds so that some
units continue to operate while others are down for scheduled maintenance.
Turnaround work proceeds on a continuous 24-hour basis in order to minimize unit
down time. The Company expenses current maintenance charges and capitalizes
turnaround costs which are then amortized over the estimated period until the
next turnaround. The Company plans
9
<PAGE> 12
to expend approximately $2.2 million (including $400,000 in turnarounds) during
1999 implementing various necessary repairs and maintenance and environmental
upgrades.
Volatility Of Crude Oil Prices And Refining Margins. The Company's cash
flow from refining operations is primarily dependent upon the production and
sale of quantities of refined products at refinery margins sufficient to cover
fixed and variable expenses. In recent years, crude oil costs and prices of
refined products have fluctuated substantially. These costs and prices depend on
numerous factors, including the demand for crude oil, gasoline and other refined
products.
Crude oil supply contracts are generally relatively short-term
contracts with market-responsive pricing provisions. The prices that the Company
receives for its refined products are affected by local factors such as product
pipeline capacity, local market conditions and the level of operations of out of
state refineries. A large, rapid increase in crude oil prices would adversely
affect the Company's operating margins if the increased cost of raw materials
could not be passed along to its customers. The Company generally does not hedge
a significant portion of its feedstock purchases or refined product sales.
Competition. The petroleum industry is highly competitive in all
phases, including (1) the refining of crude oil, (2) the marketing of refined
petroleum products and (3) the exploration and production of oil and gas
reserves. The Company currently competes with four other refineries in the Salt
Lake City metropolitan area owned by BP Amoco, Chevron, Flying J and Phillips
Petroleum Co. These companies have substantially greater financial resources,
staffs and facilities than the Company's and therefore, may be better able than
the Company to withstand volatile industry conditions, such as shortages or
excesses of crude oil or refined products or intense price competition at the
wholesale and retail level. BP Amoco's refinery has a capacity of 53,000 BPD,
Chevron's has a capacity of 45,000 BPD, Flying J's (which is the refinery
subject to the letter of intent dated January 18, 1999 with the Company) has
25,000 BPD capacity and Phillips has 25,000 BPD capacity. Each refinery is more
sophisticated than the Woods Cross Refinery and, therefore, more capable of
producing higher end gasoline products, as well as the asphalt and wax
distillates produced by Refining.
Seasonality. The Company experiences seasonal fluctuations with its
gasoline and diesel fuel products. The demand for such products is significantly
stronger during the spring, summer and early fall because of increased tourist
travel.
Regulatory, Environmental and Other Matters Affecting Refining
Operations. The Company's refining operations are subject to a variety of
federal, state and local health, safety, and environmental laws and regulations
governing process operations, product specifications, the discharge of
pollutants into the air and water, and the generation, treatment, storage,
transportation and disposal of solid and hazardous materials and wastes. The
Company believes that the refinery is capable of processing currently utilized
feedstocks in substantial compliance with existing environmental laws and
regulations; however, compliance with more stringent laws or regulations, as
well as more vigorous enforcement policies of regulatory agencies, could have an
adverse effect on the financial position of the Company. Regulatory agencies
frequently propose and implement new laws and regulations, and each new
applicable law or regulation may increase the Company's overall compliance
costs. In addition, many regulatory programs under existing environmental laws
and regulations are "phased in" over time, causing incremental increases in
compliance costs as each new program is implemented.
The Company cannot predict what additional health, safety, and
environmental legislation or regulations will be enacted or become effective in
the future or how existing or future laws or regulations will be administered,
interpreted, or enforced with respect to products or activities to which they
have not been previously applied. Refining and marketing trade associations
track the development and implementation of new laws and regulations that may
affect the refining and marketing industry in the future. The following
currently appear to be the most significant of existing and proposed new health,
safety, and environmental laws and regulations as they relate to the Company's
operations during 1999 and beyond. Where possible, the Company has attempted to
estimate a range of its costs of compliance based upon its current understanding
of such laws and regulations. The current estimates of costs provided are
preliminary only and actual costs may differ significantly from these estimates.
Clean Air Regulatory Programs. Refining is subject to the federal Clean
Air Act ("CAA"), state equivalents, and implementing regulations. Among other
things, the CAA requires all major sources of hazardous
10
<PAGE> 13
air pollutants, as well as major sources of certain other criteria pollutants,
to obtain operating permits, and in some cases, construction permits. The
permits must contain applicable federal and state emission limitations and
standards as well as satisfy other statutory and regulatory requirements. The
1990 Amendments to the CAA also established new monitoring, reporting, and
recordkeeping requirements to provide a reasonable assurance of compliance with
emission limitations and standards.
Authorities at the State of Utah, Division of Air Quality ("DAQ") are
currently reviewing each "applicable requirement" of the Woods Cross Refinery
Comprehensive Air Permit submitted in October of 1995. For each "applicable
requirement" of the final permit, there are periodic monitoring provisions under
the Periodic Monitoring Program, which should be sufficient to assure
compliance. Agency officials expect guidance from Region-VIII of the
Environmental Protection Agency requiring that the DAQ complete its review and
publish Comprehensive Air Permits within the next two years. The Woods Cross
Refinery is currently in compliance with all CAA regulations, and will not need
to submit Compliance Assurance Monitoring Plans ("CAM") under the Periodic
Monitoring Program for any processes as currently operated. This assessment is
subject to change, should business decisions or economic conditions require that
the Woods Cross Facility revise its Title V Comprehensive Air Permit.
The cost of such modifications cannot be predicted at this time.
Under the CAA Amendments of 1990, Refining also will be required to
prepare a Risk Management Plan by June of 1999 for the Woods Cross Refinery. The
focus of this new regulatory program is emergency response preparedness in the
event of an accidental release of flammables or toxics that have the potential
to impact public health. The Woods Cross Refinery currently has an Integrated
Pollution Prevention Plan, which addresses the requirements for an Oil Spill
Prevention Control and Countermeasures ("SPCC") Plan and a Storm Water Pollution
Prevention ("SWPP") Plan. In 1999, Refining will complete the development of an
Integrated Contingency Plan ("ICP"), which will address the requirements of
Process Safety Management Procedures and Risk Management Planning, and which
will meet all federal, state, and local contingency planning requirements. The
Federal Oil Pollution Act of 1990 ("OPA 90") requires that certain refinery
operations also maintain a Facility Response Plan for responding to accidental
releases. This planning requirement also will be incorporated into the
comprehensive ICP for the Woods Cross Refinery. The Company does not believe the
cost of developing the ICP will be material, although there can be no assurance
until it is completed.
During 1997, the EPA proposed a controversial new CAA rule regarding
haze. A final rule may be issued in 1999. The impact on Refining from this rule
is not yet known.
Clean Water Regulatory Programs. The federal Clean Water Act ("CWA")
imposes restrictions and controls on discharges to water. Such discharges may be
authorized by permit. The refinery maintains a current wastewater discharge
permit and is in substantial compliance with its discharge limitations. The
Woods Cross Refinery currently operates a groundwater collection trench and pump
system to prevent potential groundwater contamination from migrating offsite.
Water that collects in the trench is pumped to the Refinery's process water
treatment system and is discharged, under permit, as wastewater.
In 1998, Refining submitted to the Utah Division of Water Quality
("DWQ") a revised Groundwater Management Plan for the Woods Cross Refinery.
Refining has not yet received response and comment from DWQ, but anticipates a
response in 1999. The anticipated 1999 cost of continuing existing groundwater
programs and implementing the revised Groundwater Management Plan is $125,000.
The actual 1999 cost and additional ongoing costs related to the Groundwater
Management Plan cannot be estimated until the Plan has been approved and
finalized by DWQ.
Waste Disposal Regulatory Programs. Refining operations are inherently
subject to accidental spills, discharges, or other releases of petroleum or
hazardous substances that may give rise to liability to governmental entities or
private parties under federal, state or local environmental laws, as well as
under common law. Accidental discharges of contaminants have occurred from time
to time during the normal course of operations of the Company's Woods Cross
Refinery. Refining has undertaken or intends to undertake all investigative or
remedial work thus far required by governmental agencies to address potential
contamination by Refining and minimize future discharges.
11
<PAGE> 14
At the present time, no portion of the Woods Cross Refinery is actively
regulated under the Resource Conservation and Recovery Act ("RCRA"). In 1998,
Refining acquired an inactive facility in Roosevelt, Utah, that is currently
undergoing soil and groundwater remediation activities required under RCRA. The
costs of the RCRA remediation are being paid by Pennzoil Products Company
(Pennzoil), the former owner and operator of the facility. Pennzoil is obligated
by contract to complete the RCRA-mandated soil and groundwater remediation to
the satisfaction of federal, state, and local authorities. The Company estimates
that it will incur minimal compliance costs related to the inactive Roosevelt
Refinery during 1999, but long-term costs related to this facility cannot be
estimated at this time.
The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons who are considered to have caused or contributed to the release or
threatened release of a "hazardous substance" into the environment. These
persons include the current or past owner or operator of the disposal site or
sites where the release occurred and companies that transported, disposed or
arranged for the disposal of the hazardous substances under CERCLA. These
persons may be subject to joint and several liability for the costs of cleaning
up the hazardous substances that have been released into the environment and for
damages to natural resources. It is not uncommon for neighboring landowners and
other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment.
Refining periodically disposes of hazardous waste off site at licensed disposal
facilities. The Company is not presently aware of any potential adverse claims
in this regard.
The Company's operations generate and result in the transportation,
treatment, and disposal of both hazardous and nonhazardous solid wastes that are
subject to the disposal requirements of RCRA and comparable state and local
requirements. The EPA is currently considering the adoption of stricter disposal
standards for nonhazardous waste. Further, it is possible that some wastes that
are currently classified as nonhazardous, perhaps including wastes generated
during pipeline, drilling and production operations, may in the future be
designated as "hazardous wastes," which are subject to more rigorous and costly
treatment, storage, transportation and disposal requirements. Such changes in
the regulations may result in additional expenditures or operating expenses by
the Company. On August 8, 1998, the Environmental Protection Agency added four
petroleum refining wastes to the list of RCRA hazardous wastes. While the full
impact of this new rule has yet to be determined, the rule may impose increased
expenditures and operating expenses on the Company, which may take on additional
obligations relating to the treatment, storage, transportation and disposal of
certain petroleum refining wastes that were not previously regulated as
hazardous waste. Certain wastes that were not previously regulated as hazardous
waste may now fall within the definition of CERCLA hazardous substances.
Health and Safety Regulatory Programs. Refining also is subject to
regulations promulgated by the Occupational Safety and Health Administration
("OSHA") regarding management of process safety hazards. Under regulations
governing Process Safety Management ("PSM") process hazard analyses ("PHA") were
to be completed over a four-year period from 1993 through mid-1997. These
analyses had not been completed for the Woods Cross Refinery as of January of
1998. During a six-month period in 1998, Refining committed the resources to
completing PHA for all refinery processes. Work began on addressing the
recommendations identified from the PHA. During 1999, refinery personnel will
continue to address the identified recommendations. The anticipated cost for
implementing the recommendations identified from the PHA over the next three
years is estimated to be $1 million. The cost to address individual
recommendations ranges from zero (in the event that it is determined that no
action should result from the recommendation) to significant. An example of
significant costs that may result would be an expansion to the Distributed
Control System that would allow additional process monitors to be tied into
automatic alarms. The costs for 1999 are dependent on the identified action
items, priorities, and available funds.
EMPLOYEES
At March 15, 1999, the Company had 163 employees, consisting of five
executive officers, 21 clerical and administrative employees and 57 field
operations staff involved in the Company's oil and gas operations in Utah and 80
employees employed in the refining operations at the Wood Cross Refinery.
12
<PAGE> 15
OTHER PROPERTY
The Company's principal executive office is located in Denver,
Colorado. The Company leases approximately 16,500 square feet pursuant to a
lease which expires in December 2002 and provides for a rental rate of $22,000
per month.
CERTAIN DEFINITIONS
The following are abbreviations and words commonly used in the oil and
gas industry and in this Annual Report.
"bbl" or "barrel" means barrels, a standard measure of volume for oil,
condensate and natural gas liquids which equals 42 U.S. gallons.
"BOE" means equivalent barrels of oil. In reference to natural gas,
natural gas equivalents are determined using the ratio of six Mcf of natural gas
to one Bbl of crude oil, condensate or natural gas liquids.
"BPD" means barrels per day.
"BWPD" means barrels of water per day.
"development well" means a well drilled within the proved area of an
oil or gas reservoir to the depth of a stratigraphic horizon known to be
productive.
"exploration well" means a well drilled to find commercially productive
hydrocarbons in an unproved area or to extend significantly a known oil or
natural gas reservoir.
"farm-in" or "farm-out" refers to an agreement whereunder the owner of
a working interest in an oil and gas lease delivers the contractual right to
earn the working interest or a portion thereof to another party who desires to
drill on the leased acreage. Generally, the assignee is required to drill one or
more wells in order to earn a working interest in the acreage. The assignor
usually retains a royalty or a working interest after payout in the lease. The
assignor is said to have "farmed-out" the acreage. The assignee is said to have
"farmed-in" the acreage.
"gathering system" means a pipeline system connecting a number of
wells, batteries or platforms to an interconnection with an interstate pipeline.
"gross" oil and natural gas wells or "gross" acres are the total number
of wells or acres, respectively, in which the Company has an interest, without
regard to the size of that interest.
"MBls" means one thousand barrels.
"MBOE" means one thousand equivalent barrels of oil.
"Mcf" means one thousand cubic feet, a standard measure of volume for
gas.
"MMcf" means one million cubic feet.
"MTBE" is a gasoline blendstock component used in the production of
gasoline.
"net" oil and natural gas wells or "net" acres are the total gross
number of wells or acres respectively in which the Company has an interest
multiplied times the Company's or other referenced party's working interest in
such wells or acres.
"posted field price" is an industry term for the fair market value of
oil in a particular field.
"productive wells" are producing wells or wells capable of production
13
<PAGE> 16
In this Annual Report, natural gas volumes are stated at the legal
pressure base of the state or area in which the reserves are located and at 60
degrees Fahrenheit.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Inland's common stock is quoted on the National Association of
Securities Dealer's Automated Quotation System ("Nasdaq") under the symbol
"INLN". The closing price of Inland's common stock on Nasdaq was $2.06 per share
on March 15, 1999. As of March 15, 1999, there were approximately 462 holders of
record of Inland's common stock. The following table sets forth the range of
high and low sales prices as reported by Nasdaq for the periods indicated. The
quotations reflect inter-dealer prices without retail markup, markdown or
commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Price Range
------------------------
High Low
------- ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
First Quarter ...................................... $ 11.00 $ 8.38
Second Quarter ..................................... 10.25 8.13
Third Quarter ...................................... 12.63 8.75
Fourth Quarter ..................................... 12.63 10.00
YEAR ENDED DECEMBER 31, 1998
First Quarter ...................................... $ 10.50 $ 8.50
Second Quarter ..................................... 9.25 8.38
Third Quarter ...................................... 9.50 4.25
Fourth Quarter ..................................... 6.50 0.88
PERIOD FROM JANUARY 1, 1999 THROUGH MARCH 15, 1999..... $ 5.25 $ 1.19
</TABLE>
DIVIDEND POLICY
Inland has not paid cash dividends on Inland's common stock during the
last two years and does not intend to pay cash dividends on common stock in the
foreseeable future. The payment of future dividends will be determined by
Inland's Board of Directors in light of conditions then existing, including
Inland's earnings, financial condition, capital requirements, restrictions in
financing agreements, business conditions and other factors. The ING Credit
Agreement and TCW Credit Agreement forbid the payment of dividends by Inland on
its common stock. In addition, Inland's charter forbids the payment of cash
dividends on common stock if there are accumulated and unpaid dividends on the
Series C preferred stock.
RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to sales and other issuances by
Inland within the past three fiscal years of Inland securities, the sales or
issuance of which were not registered pursuant to the Securities Act of 1933
(the "Securities Act").
As of December 31, 1998, Smith Energy Partnership ("SEP"), an affiliate
of Smith Management, received 152,220 shares of Inland common stock as payment
of proceeds under the Farmout Agreement between Inland and Smith Management
effective June 1, 1998. To Inland's knowledge, SEP (a) is an "accredited
investor" within the
15
<PAGE> 18
meaning of Section 501(a) of Regulation D, (b) is the only record holder of
shares of common stock issued pursuant to the Farmout Agreement, and (c) intends
to hold the shares for investment purposes. Based on these facts and other
circumstances, Inland issued its common stock to SEP without registration under
the Securities Act in reliance on the exemption provided by Section 4(2) of the
Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected historical consolidated
financial and operating data for Inland as of and for each of the five years
ended December 31, 1998. Inland utilizes the successful efforts method of
accounting for oil and gas activities. Such data should be read together with
the historical consolidated financial statements of Inland, incorporated by
reference in this annual report.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(dollars in thousands, except for unit amounts)
<S> <C> <C> <C> <C> <C>
REVENUE AND EXPENSE DATA:
Revenues:
Refined product sales ........................ $ 68,477 $ -- $ -- $ -- $ --
Oil and gas sales ............................ 14,920 17,182 10,704 1,905 1,063
Management fees .............................. -- -- -- 326 --
-------- -------- -------- -------- --------
Total revenues ............................ 83,397 17,182 10,704 2,231 1,063
-------- -------- -------- -------- --------
Operating Expenses:
Cost of refinery feedstock ................... 51,908 -- -- -- --
Refinery operating expenses .................. 9,858 -- -- -- --
Lease operating expenses ..................... 8,362 3,780 1,435 1,010 915
Production taxes ............................. 454 383 610 133 90
Exploration .................................. 153 61 167 342 306
Impairment ................................... 4,164 -- -- -- --
Depletion, depreciation and amortization ..... 12,795 6,480 3,428 858 330
General and administrative, net .............. 3,974 2,118 1,670 1,335 1,004
-------- -------- -------- -------- --------
Total operating expenses .................. 91,668 12,822 7,310 3,678 2,645
-------- -------- -------- -------- --------
Operating income (loss) ......................... (8,271) 4,360 3,394 (1,447) (1,582)
Interest expense ................................ (15,290) (4,759) (1,633) (749) (143)
Interest and other income ....................... 321 380 414 128 54
Gain on sale of assets .......................... -- -- -- 850 --
Loss on disposal of discontinued operations ..... -- -- (30) (500) (100)
-------- -------- -------- -------- --------
Net income (loss) before extraordinary item ..... (23,240) (19) 2,145 (1,718) (1,771)
Extraordinary item .............................. (212) (1,160) -- (216) --
-------- -------- -------- -------- --------
Net income (loss) ............................... (23,452) (1,179) 2,145 (1,934) (1,771)
Redemption premium - Series A Stock ............. -- -- (214) -- --
Redemption premium - Series B Stock ............. -- (580) -- -- --
Accrued Series C Stock dividends ................ (1,084) (450) -- -- --
-------- -------- -------- -------- --------
Net income (loss) attributable to common
stockholders ................................. $(24,536) $ (2,209) $ 1,931 $ (1,934) $ (1,771)
======== ======== ======== ======== ========
Earnings (loss) per common share before
extraordinary item:
Basic ...................................... $ (2.90) $ (0.14) $ 0.38 $ (0.63) $ (0.95)
Diluted .................................... (2.90) (0.14) 0.30 (0.63) (0.95)
Earnings (loss) per common share:
Basic ...................................... $ (2.93) $ (0.30) $ 0.38 $ (0.63) $ (0.95)
Diluted .................................... (2.93) (0.30) 0.30 (0.63) (0.95)
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Oil and gas properties, net ....................... $ 159,105 $ 133,820 $ 42,998 $ 16,819 $ 12,041
Total assets ...................................... $ 195,829 $ 175,953 $ 57,329 $ 21,923 $ 17,038
Debt .............................................. $ 158,823 $ 123,111 $ 21,120 $ 4,636 $ 2,458
Stockholders' equity .............................. $ 7,039 $ 30,672 $ 31,972 $ 13,979 $ 9,924
OTHER FINANCIAL DATA:
Net cash provided by operating activities ......... $ 12,770 $ 5,668 $ 5,006 $ 302 $ (2,310)
Net cash used in investing activities ............. (45,327) (122,222) (23,752) (8,030) (2,507)
Net cash provided by financing activities ......... 33,579 107,128 25,806 9,008 6,205
OPERATING DATA:
Sales Volumes:
Oil (MBbls) .................................. 1,501 855 502 105 46
Gas (MMcf) ................................... 3,006 1,637 710 109 171
MBOE ......................................... 2,002 1,128 620 123 75
BOEPD ........................................ 5,485 3,090 1,698 336 204
Average Prices (excluding hedging activities):
Oil (per Bbl) ................................ $ 9.82 $ 16.17 $ 20.18 $ 17.10 $ 16.09
Gas (per Mcf) ................................ 2.00 2.19 1.56 1.21 1.78
Per BOE ...................................... 10.35 15.23 17.26 15.52 14.26
Production and operating costs
(per BOE)(1) ............................... 4.18 3.35 2.31 8.23 12.27
</TABLE>
- --------------------
(1) Excludes production and ad valorem taxes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto included elsewhere
in this Annual Report and the information set forth under the heading "Selected
Financial Data" and is intended to assist in the understanding of the Company's
financial position and results of operations for each of the years ended
December 31, 1998, 1997, and 1996.
GENERAL
Inland is a diversified and independent energy company engaged in the
acquisition, development and enhancement of oil and gas properties in the
western United States. All of the Company's oil and gas reserves are located in
the Field within the Uinta Basin of northeastern Utah. The Company is also
engaged in the refining of crude oil and the wholesale marketing of refined
petroleum products, including various grades of gasoline, kerosene, diesel fuel,
waxes and asphalt.
In September 1997, the Company acquired 153 gross (46.9 net) wells from
Enserch Exploration Company ("Enserch") and 279 gross (184 net) wells from
Equitable Resources Energy Company ("EREC") in two separate transactions. In
addition, the Company acquired an oil refinery located in Woods Cross, Utah (the
"Woods Cross Refinery") on December 31, 1997. On September 16, 1998, the Company
acquired a non-operating crude oil refinery known as the Roosevelt Refinery.
These acquisitions were accounted for as purchases, and therefore, the assets
and results of operations are included in the Company's financial statements
from the effective acquisition dates forward.
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RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Refined Products Sales. The Company averaged refined product sales
of 9,000 barrels per day from the Woods Cross Refinery during 1998, of which 58%
represented gasoline and diesel products. The Company performed various major
repair and maintenance procedures during the initial six months of 1998 which
contributed to a growth in average sales volume from 8,500 barrels per day
during the initial six months of 1998 to 9,500 barrels per day during the last
six months of 1998. Due to market conditions in the Salt Lake region, the
efficiencies of increasing volumes were offset by decreasing average sales
prices. The sales price of the Company's product slate averaged $19.90 for 1998.
The Company did not have refining operations during 1997.
Oil and Gas Sales. The Company eliminated in consolidation $6.4
million of crude oil sales made between its production operations and the Woods
Cross Refinery during 1998. Prior to considering intercompany eliminations,
crude oil and natural gas revenue for the year ended December 31, 1998
increased $4.1 million, or 24% from the previous year. The increase was
attributable to the acquisitions of the properties from Enserch and EREC and
the effects of the Company's development drilling results. During 1997 and
1998, the Company drilled 175 wells. Although production increased 77% on a BOE
basis, the revenue increase was only 24% due primarily to a 39% decrease in the
average price received for crude oil production from $16.17 during 1997 to
$9.82 during 1998. Natural gas prices also declined by 9% from $2.19 per Mcf
during 1997 to $2.00 per Mcf during 1998. Oil sales as a percentage of total
oil and gas sales were 72 % and 80% in 1998 and 1997, respectively. Crude oil
is expected to continue as the predominant product produced from the Field.
Inland has entered into price protection agreements to hedge against
the volatility in crude oil prices. Although hedging activities do not affect
Inland's actual sales price for crude oil in the Field, the financial impact of
hedging transactions is reported as an adjustment to crude oil revenue in the
period in which the related oil is sold. Crude oil sales were increased by
$550,000 during 1998 and decreased by $217,000 during 1997 to recognize hedging
contract settlement gains and losses and contract purchase cost amortization.
See Item 7A "Quantitative and Qualitative Disclosures About Market Risk."
Cost of Refinery Feedstock - The Company's average cost of crude oil
and other refinery feedstocks, including transportation charges, was $16.79 per
barrel during 1998. The Company eliminated in consolidation $6.4 million of
costs associated with sales between its production operations and the Woods
Cross Refinery. The Company did not have refining operations during 1997.
Refinery Operating Expenses. During 1998, the Company upgraded and
repaired key refinery equipment. Operating costs, consisting primarily of direct
labor, utilities and repairs averaged $3.00 per barrel sold. The refinery is
considered to be in good operating condition. Routine turnaround projects
totaling approximately $400,000 are expected in 1999, in addition to ongoing
repairs and upgrades to the Company's buildings, tanks and roads. The Company
did not have refining operations during 1997.
Lease Operating Expenses. Lease operating expense for the year ended
December 31, 1998 increased 121%, or $4.58 million, from the previous year as a
result of the large increase in the number of producing wells the Company
operates from 151 wells at the beginning of 1997 to 600 at the end of 1998.
Lease operating expense per BOE sold for the year ended December 31, 1998 was
$4.18 as compared to $3.35 for the year ended December 31, 1997. The increase on
a BOE basis is the result of the acquisitions of the properties from Enserch and
EREC in September 1997 that included a large number of lower producing wells.
Production Taxes. Production taxes as a percentage of sales were 2.2%
in both 1998 and 1997. Production tax expense consists of estimates of the
Company's yearly effective tax rate for Utah state severance tax and production
ad valorem tax. Changes in sales prices, tax rates, tax exemptions and the
timing, location and results of drilling activities can all affect the Company's
actual effective tax rate.
Exploration. Exploration expense in 1998 and 1997 represents the
Company's cost to retain unproved acreage.
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Impairment. Impairment reflects the adjustment in carrying value to
write down the Roosevelt Refinery, a note receivable and certain undeveloped
acreage to their estimated net realizable value.
Depletion, Depreciation and Amortization. Depletion, depreciation and
amortization for the year ended December 31, 1998 increased 97%, or $6.3
million, from the previous year. The increase resulted from a higher average
depletion rate and increased sales volumes. In addition, the refinery purchase
increased the depreciable basis of assets. Depletion, which is based on the
units-of-production method, comprises the majority of the total charge. The
depletion rate is a function of capitalized costs and related underlying proved
reserves in the periods presented. The Company's average depletion rate was
$5.70 per BOE sold during 1998 compared to $5.52 per BOE sold during 1997. Based
on December 31, 1998 proved reserves, the Company's depletion rate entering 1999
is $6.67 per BOE.
General and Administrative, Net. General and administrative expense for
the year ended December 31, 1998 increased 88%, or $1.85 million, from the
previous year. This expense would have decreased slightly if not for the $1.9
million of general and administrative expense related to refining operations
that were not present in the prior year. As a result, general and administrative
expense for production operations is reported net of operator fees and
reimbursements which were $5.7 million and $3.2 million during 1998 and 1997,
respectively. Gross general and administrative expense for production operations
was $7.8 million in 1998 and $5.3 million in 1997. The increase in
reimbursements and expense is a function of the level of operated field activity
which increased dramatically with the purchases of the properties from Enserch
and EREC and development drilling activity.
Interest Expense. Interest expense for the year ended December 31, 1998
increased 221%, or $10.5 million to $15.3 million from $4.8 million, for the
year ended December 31, 1997. The increase resulted from a significant increase
in the average amount of borrowings outstanding due to the leveraged purchases
of the properties from Enserch and EREC, the Woods Cross Refinery and
development drilling activity. Borrowings during 1998 and 1997 were recorded at
an effective interest rate of approximately 10.6%.
Other Income. Other income in 1998 and 1997 primarily represents
interest earned on the investment of surplus cash balances.
Income Taxes. In 1998 and 1997, no income tax provision or benefit was
recognized due to net operating losses incurred and the reversal and recording
of a full valuation allowance.
Extraordinary Item. On May 29, 1998, the Company refinanced its Credit
Agreement with Banque Paribas and wrote off $212,000 of debt issuance cost. On
September 30, 1997, the Company refinanced an existing obligation to a former
lender causing unamortized debt issue costs of $296,000 to be written off as an
extraordinary loss. On June 30, 1997, the Company refinanced an obligation to
Trust Company of the West causing debt issue costs of $291,000 and an
unamortized loan discount of $573,000 to be written off as an extraordinary
loss.
Redemption Premium Preferred Series B Stock. During July 1997, Inland
called for the redemption of its Series B Convertible Preferred Stock (the
"Series B Stock"). All Series B holders elected to convert their holdings to
common stock rather than have their shares redeemed for cash. The amount
recorded as a redemption premium represents the excess consideration paid over
the carrying amount of the Series B Stock.
Accrued Series C Stock Dividends. Inland's Series C Stock accrues
dividends at 10% compounded quarterly. No dividends on the stock have been
paid since it was issued on July 21, 1997. The amount accrued represents those
dividends earned during 1998 or 1997, respectively.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Oil and Gas Sales. Crude oil and natural gas revenue for the year ended
December 31, 1997 increased by $6.5 million, or 61%, from the previous year. The
increase was attributable to the acquisitions of the properties from Enserch and
EREC and the effects of the Company's development drilling results. During 1996
and 1997, the Company drilled 144 wells. Although production increased 82% on a
BOE basis, the revenue increase was only 61% due primarily to a 20% decrease in
the average price received for crude oil production from $20.18 during 1996 to
$16.17 during 1997. Natural gas prices contributed to the revenue increase by
improving 40% from
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$1.56 per Mcf during 1996 to $2.19 per Mcf during 1997. Oil sales as a
percentage of total oil and gas sales were 80% and 89% in 1997 and 1996,
respectively.
Inland has entered into price protection agreements to hedge against
the volatility in crude oil prices. Although hedging activities do not affect
Inland's actual sales price for crude oil in the Field, the financial impact of
hedging transactions is reported as an adjustment to crude oil revenue in the
period in which the related oil is sold. Crude oil sales were decreased by
$217,000 during 1997 and $535,000 during 1996 to recognize hedging contract
settlement gains and losses and contract purchase cost amortization. See
Item 7A "Quantitative and Qualitative Disclosures About Market Risk."
Lease Operating Expenses. Lease operating expenses for the year ended
December 31, 1997 increased 163%, or $2.3 million from the previous year, as a
result of the large increase in the number of producing wells the Company
operates from 87 wells at the beginning of 1996 to 510 at the end of 1997. Lease
operating expense per BOE sold for the year ended December 31, 1997 increased
$1.04 to $3.35 from $2.31 for the year ended December 31, 1996. The increase on
a BOE basis is the result of the acquisitions of the properties from Enserch and
EREC in September 1997 that included a large number of lower producing wells.
Production Taxes. Production taxes as a percentage of sales was 2.2%
for the year ended December 31, 1997 as compared to 5.4% for the year ended
December 31, 1996. Production tax expense consists of estimates of the Company's
yearly effective tax rate for Utah state severance tax and production ad valorem
tax. Changes in sales prices, tax rates, tax exemptions and the timing, location
and results of drilling activities can all affect the Company's actual effective
tax rate. The ad valorem tax does not correspond directly with the Company's
revenues; therefore, as the Company's revenues increased in 1997, the ad valorem
tax decreased as a percentage of sales. In addition, the amount of severance tax
paid as a percentage of sales also decreased due to the increasing number of
wells that qualified for exemptions or credits from severance tax.
Exploration. Exploration expense in 1997 and 1996 represents Inland's
share of costs to retain unproved acreage and drilling costs related to one
uneconomic exploration well in 1996.
Depletion, Depreciation and Amortization. Depletion, depreciation and
amortization for the year ended December 31, 1997 increased $3.1 million from
the previous year. The increase resulted from a higher average depletion rate
and increased sales volumes. Depletion, which is based on the
units-of-production method, comprises the majority of the total charge. The
depletion rate is a function of capitalized costs and related underlying proved
reserves in the periods presented. The Company's average depletion rate was
$5.52 per BOE sold during 1997 compared to $5.17 per BOE sold during 1996.
General and Administrative, Net. General and administrative expense for
the year ended December 31, 1997 increased $448,000 from the previous year.
General and administrative expense is reported net of operator fees and
reimbursements which were $3.2 million and $1.9 million during 1997 and 1996,
respectively. Gross general and administrative expense was $5.3 million in 1997
and $3.6 million in 1996. The increase in reimbursements and expense is a
function of the level of operated field activity which increased dramatically
with the purchases of the properties from Enserch and EREC and development
drilling activity.
Interest Expense. Interest expense for the year ended December 31, 1997
increased $3.1 million to $4.8 million from $1.7 million for the year ended
December 31, 1996. The increase in expense between periods was due to a
significant increase in the average amount of borrowings outstanding due to the
leveraged purchases of the properties from Enserch and EREC, and development
drilling activity. Borrowings during 1997 averaged approximately $45 million,
compared to an approximate average of $15 million of borrowings during 1996.
Borrowings during 1997 and 1996 were recorded at an effective interest rates of
approximately 10.6% and 11%, respectively. The change in the effective interest
rate resulted from various debt refinancings performed during 1997.
Other Income. Other income in 1997 and 1996 primarily represents
interest earned on the investment of surplus cash balances.
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Income Taxes. In 1997 and 1996, no income tax provision or benefit was
recognized due to net operating losses incurred and the reversal and recording
of a full valuation allowance.
Extraordinary Item. On September 30, 1997, the Company refinanced an
existing obligation to a former lender causing unamortized debt issue costs of
$296,000 to be written off as an extraordinary loss. On June 30, 1997, the
Company refinanced an obligation to Trust Company of the West causing debt issue
costs of $291,000 and an unamortized loan discount of $573,000 to be written off
as an extraordinary loss.
Redemption Premium Preferred Series A Stock. During August 1996, Inland
called for the redemption of its Series A preferred stock. The amount recorded
as a dividend represents the excess of the redemption amount over the carrying
amount for those Series A holders who elected to redeem their shares rather than
convert.
Redemption Premium Preferred Series B Stock. During July 1997, Inland
called for the redemption of its Series B Stock. All Series B holders elected to
convert their holdings to common stock rather than have their shares redeemed
for cash. The amount recorded as a redemption premium represents the excess
consideration paid over the carrying amount of the Series B Stock.
Accrued Series C Stock Dividends. Inland's Series C stock accrues
dividends at 10% or $1,000,000 per year. No dividends have been paid since the
stock was issued on July 21, 1997. The amount accrued represents those dividends
earned during the period through December 31, 1997.
Discontinued Operations. Effective December 30, 1996, Inland sold the
Toiyabe Mine and completely divested itself of any remaining business activities
related to the mining of precious metals. During 1996, Inland focused
reclamation activities on recontouring and revegetating certain disturbed land
areas, lowering constituent levels in leachate solution and certain other
miscellaneous tasks. Costs incurred in performing these operations were
$129,000. Placer Dome U.S. Inc. purchased the Toiyabe Mine from the Company and
assumed responsibility for all past, present and future environmental and
reclamation activities, liabilities and expenses. The Company paid Placer
$500,000 in consideration of the assumption of such responsibilities. As a
result, the Company has no future liability for the Toiyabe Mine, unless Placer
fails to honor its agreement with Inland to assume and pay such liabilities.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company continued its development of the Field by
drilling 95 gross (73 net) development wells and converting 31 gross (28 net)
wells to injection. The Company also expanded and upgraded its water delivery
and gas gathering infrastructures. Total capital costs incurred in the
development of the Field were $37.7 million. The Company also used $5.9 million
to perform capital upgrades at its Woods Cross Refinery and purchase an idle
refinery in Roosevelt Utah and used $12.5 million to repay a former lender. The
Company funded these activities with new borrowings of $47.75 million and cash
generated from operations of $12.8 million. The remaining net change in cash was
caused by various other smaller items.
Commencing June 1, 1998, the Company's drilling program was conducted
under the Farmout Agreement with SEP. Funds expended by Smith Management
pursuant to this Agreement were treated as debt by the Company for financial
reporting purposes. Forty-three wells were drilled under the Farmout Agreement
in 1998, aggregating net expenditures to Smith Management of $15.1 million
(including management fees). Under the Farmout Agreement, Smith Management
agreed to fund 100% of the drilling and completion costs for wells commenced
prior to October 1, 1998 and 70% for wells commenced after September 30, 1998.
At the Company's option, Smith Management agreed to take production proceeds
payments either in cash or in shares of the Company's common stock. If the
Company elects to pay using common stock, the stock is priced at a 10% discount
to average closing price for the production month to which the payment relates.
Through December 31, 1998, the Company has elected to make all payments in the
form of common stock totaling 152,220 shares. Effective November 1, 1998, an
Amendment to the Farmout Agreement was executed that suspended future drilling
rights under the Farmout Agreement until such time as both the Company, Smith
Management and the Company's senior lenders agree to recommence such rights. In
addition, a provision was added that gave Smith Management the option to receive
cash rather than common stock if the average price was calculated at less than
$3.00 per share, such cash only to be paid if the Company's senior lenders agree
to such payment. The Farmout Agreement provides that Smith Management will
reconvey all drillsites to the Company
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once Smith Management has recovered from production an amount equal to 100% of
its expenditures, including management fees and production taxes, plus an
additional sum equal to 18% per annum on such expended sums.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The continuing low oil
price environment has significantly impacted the Company's financial condition.
The Company has a working capital deficit of $145.0 million at December 31, 1998
and generated a net loss of $23.5 million during the year ended December 31,
1998. Approximately $141.7 million of the deficit is caused by principal amounts
related to the Company's long-term debt facilities. Based on current conditions,
the Company will not be able to make its principal payments as scheduled under
its long-term debt facilities. In addition, at December 31, 1998 the Company was
in default of certain provisions of its credit agreements and required
additional capital outside of cash flow from operations to fund a portion of its
outstanding accounts payable. The short-term liquidity issues were temporarily
mitigated (as further explained below) in March 1999 when the Company's senior
lenders advanced $3.25 million which the Company immediately used to reduce
outstanding accounts payable.
The Company is considering a number of additional strategies to cure
its working capital and liquidity issues. A solution that the Company is
currently pursuing is the Flying J acquisition. On January 18, 1999, Inland
entered into a non-binding letter of intent with Flying J and Smith Management
regarding the acquisition of certain assets by Inland from Flying J or one of
its subsidiaries. The acquisition includes a 25,000 BPD refinery located in
North Salt Lake City, eleven Flying J gasoline stations located primarily in the
Salt Lake City area and Idaho and all oil and gas reserves owned by Flying J in
the Uinta Basin, fifteen miles north of the Field. The purchase price is $80
million in cash and approximately 12.8 million shares of Inland common stock,
par value $0.001 per share, which is equal to approximately 60% of the shares
outstanding after the acquisition. This transaction would be accounted for as a
reverse merger. A restructuring of the Company's capital and debt structure
could be required to effectuate the acquisition. Management anticipates that if
the transaction is consummated, it will close during the third quarter of 1999.
The acquisition is contingent on preparation of definitive documents, financing,
due diligence procedures and approval by regulatory agencies, Inland's lenders,
the Board of Directors of each company and Inland's shareholders. The failure of
any one of these events could prevent the consummation of the acquisition.
If the proposed Flying J transaction is not consummated, the Company
will attempt to restructure its capital such that a drilling program can be
resumed although there is no assurance that the Company will be successful.
Until the capital restructuring is complete, the Company does not plan to drill
additional wells, focusing instead on its continuing efforts to pressurize the
Field through additional development of its water injection infrastructure. The
Company plans to convert 30 of its oil wells to injection wells during 1999
while incurring net capital expenditures of $500,000. The Company also expects
to spend $900,000 performing required capital improvements at the Woods Cross
Refinery. The level of these and other capital expenditures is largely
discretionary, and the amount of funds devoted to any particular activity may
increase or decrease significantly depending on available opportunities, capital
availability and market conditions.
Other possible solutions include obtaining additional modifications to
its credit agreements, selling assets, issuing additional debt or selling equity
of the Company. The Company believes its lenders will assist in solving the
Company's liquidity and working capital issues, although management can not be
assured that the Company will obtain modifications or concessions from its
lenders or raise the necessary capital from other sources in the time frames
required. As a result, the Company may have to further slow or stop development
of the Field and suspend all upgrades at the Woods Cross Refinery. As a result
of the items noted above, there is substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classifications of liabilities that
might result should the Company be unable to continue as a going concern.
Financing. On September 30, 1997, the Company closed separate Credit
Agreements with Trust Company of the West and TCW Asset Management Company in
their capacities as noteholder and agent (collectively "TCW") and ING (U.S.)
Capital Corporation ("ING"). Subsequent to the closing of the ING Credit
Agreement, U.S. Bank National Association and Meespierson Capital Corp.
(collectively referred to herein with ING as the "Senior Lenders") became loan
participants in the ING Credit Agreement. The Credit Agreement with TCW provided
the Company with $75.0 million, all of which was funded at closing. The ING
Credit Agreement provides the Company with a borrowing base that was $70 million
at December 31, 1998. The borrowing base under the ING facility is
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limited to the collateral value of proved reserves as determined semiannually by
the Senior Lenders. At December 31, 1998, the Company had $67.7 million of
borrowings and $2.3 million of letter of credit obligations outstanding under
the ING Credit Agreement and $75.0 million borrowed under the TCW Credit
Agreement.
On March 11, 1999, the Company entered into amendments to the ING
Credit Agreement and the TCW Credit Agreement. The ING amendment increased the
borrowing base to $73.25 million. The Company immediately borrowed the
additional $3.25 million of availability and used the proceeds to reduce
accounts payable. The Senior Lenders received a warrant to purchase 50,000
shares of common stock at $1.75 as consideration for entering into the
amendment. Under the TCW amendment, TCW agreed to defer the quarterly payments
for interest accruing during the initial six months of 1999 until the earlier of
December 31, 2003 or the date on which the ING loan is paid in full. The
deferred interest will bear interest at 12%. TCW received a warrant to purchase
58,512 shares of common stock at $1.75 as consideration for entering into the
amendment.
The ING Credit Agreement constitutes a revolving line of credit until
March 31, 1999, at which time it converts to a term loan payable in quarterly
installments through March 29, 2003. The quarterly installments, based on a
$73.25 million borrowing base, are $9.5 million on June 29, 1999, $6.2 million
for the next two quarters, $4.7 million for the next four quarters, $3.9 million
for the next four quarters, $3.5 million for the next four quarters, and $3.0
million on March 29, 2003. The ING loan bears interest, at the Company's option,
at either (i) the average prime rates announced from time to time by The Chase
Manhatten Bank, Citibank, N.A. and Morgan Guaranty Trust Company of New York
plus 0.5% per annum; or (ii) at LIBOR plus 1.75%. The Company has consistently
selected the LIBOR rate option resulting in a currently effective interest rate
of approximately 6.8%. As required by the ING and TCW Credit Agreements, on
April 30, 1998 the Company paid $140,000 to put in place an interest rate hedge.
The hedge covers the period June 12, 1998 through December 12, 2000 and
effectively provides a 6.75% LIBOR rate interest ceiling (before consideration
of the 1.75% adjustment) on $35.0 million of borrowings under the ING Credit
Agreement. The ING Credit Agreement is secured by a first lien on substantially
all assets of the Company.
The TCW Credit Agreement is comprised of a $65.0 million tranche and a
$10.0 million tranche and is payable interest only, at a rate of 9.75% per
annum, quarterly until the earlier of December 31, 2003 or the date on which the
ING loan is paid in full. At that time, the TCW Credit Agreement converts to a
term loan payable in twelve quarterly installments of principal and interest.
The quarterly principal installments are $6.25 million for the first four
quarters, $8.75 million for the next four quarters and $3.75 million for the
last four quarters. The Company granted a warrant to TCW to purchase 100,000
shares of common stock at an exercise price of $10.00 per share (subject to
anti-dilution adjustments) at any time after September 23, 2000 and before
September 23, 2007. The Company also granted piggyback registration rights in
connection with such warrants. TCW is also entitled to additional interest on
the $65.0 million tranche in an amount that yields TCW a 12.5% internal rate of
return, such interest payment to be made concurrently with the final payment of
all principal and interest on the TCW Credit Agreement. For purposes of the
internal rate of return calculation, the Company is given credit for the funding
fee of $2.25 million paid to TCW at closing. In regards to the $10.0 million
tranche, upon payment in full of the TCW Credit Agreement by the Company, TCW
may elect to "put" their warrants back to the Company and accept a cash payment
which will cause TCW to achieve a 12.5% rate of return on such tranche. The TCW
Credit Agreement restricts any repayment of the indebtedness until October 1,
1999. The TCW Credit Agreement is secured by a second lien on substantially all
assets of the Company.
The TCW and ING Credit Agreements have common covenants that restrict
the payment of cash dividends, borrowings, sale of assets, loans to others,
investment and merger activity and hedging contracts without the prior consent
of the lenders and requires the Company to maintain certain net worth, interest
coverage and working capital ratios. At December 31, 1998 the Company was in
violation of certain covenants common to both the ING Credit Agreement and the
TCW Credit Agreement. All lenders have been notified of the covenant defaults,
including the filings of liens by vendors. Based on the recent borrowing base
increase and interest deferral, the Company's lenders have shown a willingness
to help the Company solve its working capital and liquidity issues. Although
there can be no assurance, the Company does not expect its lenders to issue
notices of default allowing them to call their debt for repayment in the near
future. The Company's management is estimating that current cash flow
projections will not be sufficient to repay scheduled maturities given the oil
and gas pricing environment in 1999. As a result, all borrowings for both of
these facilities have been classified as current under the
cross-collateralization provisions of such facilities.
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INFLATION AND CHANGES IN PRICES
Inland's revenues and the value of its oil and gas properties have been
and will be affected by changes in oil and gas prices. Inland's ability to
borrow from traditional lending sources and to obtain additional capital on
attractive terms is also substantially dependent on oil and gas prices. Oil and
gas prices are subject to significant seasonal and other fluctuations that are
beyond Inland's ability to control or predict. Although certain of Inland's
costs and expenses are affected by the level of inflation, inflation did not
have a significant effect on Inland's result of operations during 1998 or 1997.
YEAR 2000 ISSUES
The Company is aware of the issues associated with the programming code
in many existing computer systems as the millennium approaches. The "Year 2000"
problem is pervasive; virtually every computer operation may be affected in some
way by the rollover of the digit value to 00. The risk is that computer systems
will not properly recognize sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail, resulting in business interruption.
The Company has conducted a review of its computer systems and is
taking steps to correct Year 2000 compliance issues. The Company benefits from
having relatively new computer systems in most locations. The Company believes
its computer hardware and software is over 90% Year 2000 compliant. Computer
hardware and software that is not Year 2000 compliant is scheduled to be updated
before June 1999. The Company's operations are not extremely dependent on vendor
compliance with Year 2000 issues. To the extent a major vendor is not Year 2000
compliant by June 1999, the Company believes that alternative vendors that are
Year 2000 compliant will be available and selected. In summary, management
believes that Year 2000 issues can be mitigated without a significant effect on
the Company's financial position. The Company expects to expend less than
$50,000 to become fully Year 2000 compliant. However, given the complexity of
the Year 2000 issue, there can be no assurance that the Company will be able to
address the problem without incurring costs that are material to future
financial results or future financial condition.
FORWARD LOOKING STATEMENTS
Certain statements in this report, including statements of the
Company's and management's expectation, intentions, plans and beliefs, including
those contained in or implied by "Business and Properties" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Notes to Consolidated Financial Statements, are "forward-looking
statements", within the meaning of Section 21E of the Securities Exchange Act of
1934, that are subject to certain events, risk and uncertainties that may be
outside the Company's control. These forward-looking statements include
statements of management's plans and objectives for the Company's future
operations and statements of future economic performance, information regarding
the Flying J transaction, information regarding drilling schedules, expected or
planned production or transportation capacity, future production levels of
fields, marketing of crude oil and natural gas, sources of crude oil for
refining, marketing of refined products, refinery maintenance, operations and
upgrades, the Company's capital budget and future capital requirements, the
Company's meeting its future capital needs, the Company's realization of its
deferred tax assets, the level of future expenditures for environmental costs
and the outcome of regulatory and litigation matters, and the assumptions
described in this report underlying such forward-looking statements. Actual
results and developments could differ materially from those expressed in or
implied by such statements due to a number of factors, including, without
limitation, those described in the context of such forward-looking statements,
fluctuations in the price of crude oil and natural gas, the success rate of
exploration efforts, timeliness of development activities, risk incident to the
drilling and completion for oil and gas wells, future production and development
costs, the strength and financial resources of the Company's competitors, the
Company's ability to find and retain skilled personnel, climatic conditions, the
results of financing efforts, the political and economic climate in which the
Company conducts operations and the risk factors described from time to time in
the Company's other documents and reports filed with the Securities and Exchange
Commission (the "Commission").
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<PAGE> 27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market risk generally represents the risk that losses may occur in the
value of financial instruments as a result of movements in interest rates,
foreign currency exchange rates and commodity prices.
Interest Rate Risk. Inland is exposed to some market risk due to the
floating interest rate under the ING Credit Agreement. See Item 7. -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." The ING Credit Agreement is a
revolving line of credit until March 31, 1999, at which time it converts to a
term loan payable in quarterly installments through March 29, 2003. As of
December 31, 1998, the ING Credit Facility had a principal balance of
$67,665,000 at an average floating interest rate of 7.07% per annum and
$2,335,000 of letters of credit obligations outstanding. Assuming no hedge, and
assuming the principal is paid according to the terms of the loan, an increase
in interest rates could result in an increase in interest expense on the
existing principal balance for the remaining term of the loan, as shown by the
following chart:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Increase in Interest Expense Without Hedge
---------------------------------------------------------------------------------------------------
January 1, 1999 January 1, 2000 January 1, 2001 January 1, 2002 January 1, 2003
through through through through through
December 31, 1999 December 31, 2000 December 31, 2001 December 31, 2002 March 29, 2003
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1% increase in $630,000 $430,000 $257,000 $109,000 $6,000
Interest Rates
- --------------------------------------------------------------------------------------------------------------------
2% increase in $1,267,000 $877,000 $537,000 $246,000 $19,000
Interest Rates
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
On April 30, 1998, as required by the ING Credit Agreement, Inland
entered into an interest rate hedge covering the ING Credit Agreement at a cost
of $140,000. This interest rate cap agreement with Enron Capital and Trade
Resources Corp. covers the period June 12, 1998 through December 12, 2000 and
provides a 6.75% LIBOR rate, the net effect of which is to cap the interest rate
at 8.5% on $35.0 million of borrowings. Pursuant to the ING Credit Agreement,
this hedge must be renewed or replaced through the remaining term of the loan.
Assuming the renewal of the terms of the interest rate cap agreement, the effect
of the hedge through March 29, 2003 will be to limit hypothetical increases in
interest expenses under the ING Credit Agreement, as shown by the following
chart:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Increase in Interest Expense with Hedge
---------------------------------------------------------------------------------------------------
January 1, 1999 January 1, 2000 January 1, 2001 January 1, 2002 January 1, 2003
through through through through through
December 31, 1999 December 31, 2000 December 31, 2001 December 31, 2002 March 29, 2003
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1% increase in $630,000 $430,000 $257,000 $109,000 $6,000
Interest Rates
- --------------------------------------------------------------------------------------------------------------------
2% increase in $1,067,000 $667,000 $374,000 $164,000 $10,000
Interest Rates
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The TCW Credit Agreement is composed of two revolving tranches, and is
ultimately convertible to a term loan payable over three years. The TCW Credit
Agreement calculates interest based on both a fixed rate and, alternatively, an
internal rate of return. As a result, there is no interest rate risk with
respect to this facility.
Commodity Risks. Inland hedges a portion of its oil and gas production
to reduce its exposure to fluctuations in the market prices thereof. Inland uses
various financial instruments whereby monthly settlements are based on
differences between the prices specified in the instruments and the settlement
prices of certain futures
25
<PAGE> 28
contracts quoted on the NYMEX or certain other indices. Gains or losses on
hedging activities are recognized as oil and gas sales in the period in which
the hedged production is sold.
On March 10, 1999 Inland entered into two swap agreements with Enron
Capital and Trade Resources Corp. ("Enron"), each of which cover 40,000 barrels
per month of crude oil production during the period April 1, 1999 through
December 31, 1999. The swap price on the first contract is $14.02 and the swap
price on the second contract is $14.54, based on NYMEX Light Sweet Crude Oil
Futures Contracts. The potential gains or losses on these contracts based on a
hypothetical average market price of equivalent product for the period from
April 1, 1999 to December 31, 1999 are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Average NYMEX Per Barrel Market Price for the Contract Period
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$12.00 $13.00 $14.00 $15.00 $16.00 $17.00 $18.00
- ---------------------------------------------------------------------------------------------------------------------
$14.02 Contract $727,000 $367,000 $7,000 $(353,000) $(713,000) $(1,073,000) $(1,433,000)
- ---------------------------------------------------------------------------------------------------------------------
$14.54 Contract $914,000 $554,000 $194,000 $(166,000) $(526,000) $(886,000) $(1,246,000)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Inland has a hedge (the "Enron Hedge") in place with Enron that hedges
crude oil production over a five year period beginning January 1, 1996 in
monthly amounts escalating from 8,500 Bbls in January 1996 to 14,000 Bbls in
December 2000. The hedge is structured as a cost free collar whereby if the
average monthly price, based on NYMEX Light Sweet Crude Oil Futures Contracts,
is between $18.00 and $20.55 per barrel, no payment is exchanged between the
parties. On January 1, 1997, Inland paid $34,170 to enter into a contract with
Koch Gas Services Company ("Koch") that exactly offsets the effect of the Enron
Hedge during the period January 1998 through December 2000. As a result, the
potential for gains and losses with respect to the Enron Hedge expired on
January 1, 1998, and Inland recognized no net gain or loss on the Enron Hedge in
1998.
On May 12, 1997, Inland entered into a put contract with Enron for
100,000 barrels per month for the period January 1998 through March 1998 at a
put price of $16.00 per barrel. Inland recorded $95,000 of income under this
contract in the first quarter of 1998.
On March 12, 1998, Inland entered into a cost free collar with Enron
whereby the average monthly price, based on NYMEX Light Sweet Crude Oil Futures
Contracts, is between $14.50 and $17.70 per barrel. The collar covered 75,000
barrels per month for the period from April 1998 through December 1998. For the
year ended December 31, 1998, Inland recognized income of $532,000 on this
contract.
During 1998 and 1997, Inland had various other contracts in place
consisting of puts, calls and collars. Each of the contracts was completely
settled as of December 31, 1998. The effects of all hedging contracts resulted
in income of $550,000 in 1998 and a loss of $217,000 in 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required hereunder are
included in this Annual Report or incorporated by reference as set forth in Item
14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the directors and executive officers of the
Registrant in the Proxy Statement relating to the Company's 1999 Annual Meeting,
which will be filed with the Commission within 120 days after December 31, 1998,
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation in the Proxy Statement
relating to the Company's 1999 Annual Meeting, which will be filed with the
Commission within 120 days after December 31, 1998, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding the security ownership of certain beneficial
owners and management in the Proxy Statement relating to the Company's 1999
Annual Meeting, which will be filed with the Commission within 120 days after
December 31, 1998, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related
transactions in the Proxy Statement relating to the Company's 1999 Annual
Meeting, which will be filed with the Commission within 120 days after December
31, 1998, is incorporated herein by reference.
27
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report or
incorporated by reference:
1. Financial Statements
See "Index to Consolidated Financial Statements" on page F-1
of this Annual Report.
2. Financial Statement Schedules
None. All financial statements schedules are omitted because
the information is not required, is not material or is
otherwise included in the consolidated financial statements or
notes thereto included elsewhere in this Annual Report.
3. (a) Exhibits
Item
Number Description
2.1 Agreement and Plan of Merger between Inland Resources Inc.
("Inland"), IRI Acquisition Corp. and Lomax Exploration
Company (exclusive of all exhibits) (filed as Exhibit 2.1 to
Inland's Registration Statement on Form S-4, Registration
No. 33-80392, and incorporated herein by this reference).
3.1 Amended and Restated Articles of Incorporation, as amended
through July 21, 1997 (filed as Exhibit 3.1 to Inland's Form
10-QSB for the quarter ended June 30, 1997, and incorporated
herein by reference).
3.2 By-Laws of Inland (filed as Exhibit 3.2 to Inland's
Registration Statement on Form S-18, Registration No.
33-11870-F, and incorporated herein by reference).
3.2.1 Amendment to Article IV, Section 1 of the Bylaws of Inland
adopted February 23, 1993 (filed as Exhibit 3.2.1 to
Inland's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, and incorporated herein by
reference).
3.2.2 Amendment to the Bylaws of Inland adopted April 8, 1994
(filed as Exhibit 3.2.2 to Inland's Registration Statement
on Form S-4, Registration No. 33-80392, and incorporated
herein by reference).
3.2.3 Amendment to the Bylaws of Inland adopted April 27, 1994
(filed as Exhibit 3.2.3 to Inland's Registration Statement
on Form S-4, Registration No. 33-80392, and incorporated
herein by reference).
4.1 Credit Agreement dated September 23, 1997 between Inland
Production Company ("IPC"), Inland, ING (U.S.) Capital
Corporation, as Agent, and Certain Financial Institutions,
as banks (filed as Exhibit 4.1 to Inland's Current Report on
Form 8-K dated September 23, 1997, and incorporated herein
by reference).
4.1.1 Third Amendment to Credit Agreement entered into as of
April 22, 1998, amending Exhibit 4.1 (filed as Exhibit 4.1.1
to Inland's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, and incorporated herein by reference).
* 4.1.2 Amended and Restated Credit Agreement dated as of
September 11, 1998 amending and restating Exhibit 4.1.
* 4.1.3 First Amendment to Amended and Restated Credit Agreement
dated as of March 5, 1999 amending Exhibit 4.1.2.
28
<PAGE> 31
4.2 Credit Agreement dated September 23, 1997, among IPC,
Inland, Trust Company of the West, and TCW Asset Management
Company, in the capacities described therein (filed as
Exhibit 4.2 to Inland's Current Report on Form 8-K dated
September 23, 1997, and incorporated herein by reference).
4.2.1 Second Amendment to Credit Agreement entered into as of
April 22, 1998, amending Exhibit 4.2 (filed as Exhibit 4.2.1
to Inland's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, and incorporated herein by reference).
* 4.2.2 Amended and Restated Credit Agreement dated as of
September 11, 1998, amending and restating Exhibit 4.2.
* 4.2.3 First Amendment to Amended and Restated Credit Agreement
dated as of March 5, 1999, amending Exhibit 4.2.2.
4.3 Intercreditor Agreement dated September 23, 1997, between
IPC, TCW Asset Management Company, Trust Company of the West
and ING (U.S.) Capital Corporation (filed as Exhibit 4.3 to
Inland's Current Report on Form 8-K dated September 23,
1997, and incorporated herein by reference).
4.3.1 Third Amendment to Intercreditor Agreement entered into as
of April 22, 1998, amending Exhibit 4.3 (filed as Exhibit
4.3.1 to Inland's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, and incorporated herein by
reference).
* 4.3.2 Amended and Restated Intercreditor Agreement dated as of
September 11, 1998, amending and restating Exhibit 4.3.
* 4.3.3 First Amendment to Amended and Restated Intercreditor
Agreement dated as of March 5, 1999, amending Exhibit 4.3.2.
4.4 Warrant Agreement by and between Inland and TCW Portfolio
No. 1555 DR V Sub-Custody Partnership, L.P. dated September
23, 1997 (filed as Exhibit 4.4 to Inland's Current Report on
Form 8-K dated September 23, 1997, and incorporated herein
by reference).
4.5 Warrant issued by Inland pursuant to the Warrant Agreement,
dated September 23, 1997, representing the right to purchase
100,000 shares of Inland's Common Stock (filed as Exhibit
4.5 to Inland's Current Report on Form 8-K dated September
23, 1997, and incorporated herein by reference).
4.6 Credit Agreement dated as of December 24, 1997 between
Inland Refining, Inc. and Banque Paribas (without exhibits)
(filed as Exhibit 4.1 to the Company's Current Report on
Form 8-K dated December 31, 1997, and incorporated herein by
reference).
10.1 1988 Option Plan of Inland Gold and Silver Corp. (filed as
Exhibit 10(15) to Inland's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, and incorporated
herein by reference).
10.1.1 Amended 1988 Option Plan of Inland Gold and Silver Corp.
(filed as Exhibit 10.10.1 to Inland's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.1.2 Amended 1988 Option Plan of Inland, as amended through
August 29, 1994 (including amendments increasing the number
of shares to 212,800 and changing "formula award") (filed as
Exhibit 10.1.2 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
29
<PAGE> 32
10.1.3 "Automatic Adjustment to Number of Shares Covered by Amended
1988 Option Plan" executed effective June 3, 1996 (filed as
Exhibit 10.1 to Inland's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1996, and incorporated herein by
reference).
10.2 Warrant Agreement and Warrant Certificate between Kyle R.
Miller and Inland dated February 23, 1993 (filed as Exhibit
10.2 to Inland's Current Report on Form 8-K dated February
23, 1993, and incorporated herein by reference).
10.2.1 Warrant Certificate between Kyle R. Miller and Inland dated
October 15, 1993 representing 3,150 shares (filed as Exhibit
10.2.1 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein
by reference).
10.2.2 Warrant Certificate between Kyle R. Miller and Inland dated
March 22, 1994 representing 5,715 shares (filed as Exhibit
10.2.2 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein
by reference).
10.2.3 Warrant Certificate between Kyle R. Miller and Inland dated
September 21, 1994 representing 44,811 shares (filed as
Exhibit 10.2.3 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
10.2.4 Warrant Certificate between Kyle R. Miller and Inland dated
September 21, 1994 representing 38,523 shares (filed as
Exhibit 10.2.4 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
10.2.5 Warrant Certificate between Kyle R. Miller and Inland dated
September 21, 1994 representing 30,000 shares (filed as
Exhibit 10.2.5 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
10.2.6 Amendment to Warrant Certificates filed as Exhibits 10.2,
10.2.1 and 10.2.2 (filed as Exhibit 10.2.6 to Inland's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
10.2.7 Warrant Certificate between Kyle R. Miller and Inland dated
November 16, 1993 representing 1,500 shares (filed as
Exhibit 10.2.7 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, and incorporated
herein by reference).
10.2.8 Warrant Certificate between Kyle R. Miller and Inland dated
March 15, 1995 representing 1,250 shares (filed as Exhibit
10.2.8 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, and incorporated herein
by reference).
10.2.9 Warrant Certificate between Kyle R. Miller and Inland dated
November 6, 1995 representing 30,000 shares (filed as
Exhibit 10.2.9 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, and incorporated
herein by reference).
10.2.10 First Amendment to Warrant Agreement between Inland and
Kyle R. Miller dated October 19, 1995 (filed as Exhibit 10.1
to Inland's Quarterly Report on Form 10-QSB for the fiscal
quarter ended September 30, 1995, and incorporated herein by
reference).
10.2.11 Warrant Certificate between Inland and Kyle R. Miller dated
May 22, 1996 (corrected version) (filed as Exhibit 10.2.11
to Inland's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996, and incorporated herein by
reference).
30
<PAGE> 33
10.2.12 Warrant Certificate between Inland and Kyle R. Miller dated
January 23, 1997 representing 70,000 shares (filed as
Exhibit 10.2.12 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, and incorporated
herein by reference).
10.2.13 Option Certificate between Inland and Kyle R. Miller dated
November 10, 1997 representing 225,000 shares (filed as
Exhibit 10.2.13 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997, and incorporated
herein by reference).
10.3 Employment Agreement between Inland and Kyle R. Miller dated
June 1, 1996 (filed as Exhibit 10.2 to Inland's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1996,
and incorporated herein by reference).
10.4 Employment Agreement between Inland and Bill I. Pennington
dated June 1, 1996 (corrected version) (filed as Exhibit
10.9.2 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996, and incorporated herein
by reference).
10.5 Chevron Crude Oil Purchase Contract No. 531144 dated
October 25, 1998, as amended by Amendment No. 1 dated
November 27, 1989, Amendment No. 2 dated September 12, 1990,
Amendment 3 dated July 15, 1991, Amendment No. 4 dated
January 22, 1992, Amendment No. 5 dated January 13, 1993,
and the March 4, 1992 letter from Chevron U.S.A. Products
Company to all Chevron Products Company customers (filed as
Exhibit 10.29 to Inland's Registration Statement on Form
S-4, Registration No. 33 80392, and incorporated herein by
reference).
10.6 Registration Rights Agreement dated September 21, 1994
between Inland and Energy Management Corporation, a wholly
owned subsidiary of Smith Management Company, Inc. and the
assignee of Smith Management Company, Inc. under the
Subscription Agreement filed as Exhibit 10.9 (filed as
Exhibit 10.19 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
10.6.1 Correspondence constituting an amendment/clarification of
the Registration Rights Agreement filed as Exhibit 10.10
(filed as Exhibit 10.19.1 to Inland's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994, and
incorporated herein by reference).
10.6.2 Registration Rights Agreement dated March 20, 1995 between
Inland and Energy Management Corporation (filed as Exhibit
10.19.2 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein
by reference).
10.7 Warrant Certificate dated November 22, 1995 granted by
Inland to Randall D. Smith, together with Exhibit "A", a
Registration Rights Agreement (filed as Exhibit 10.29.1 to
Inland's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995, and incorporated herein by
reference).
10.7.1 Form of Registration Rights Agreement dated June 12, 1996
between Inland, Smith Management Company, Inc. and Randall
D. Smith, Jeffrey A. Smith and John W. Adams (filed as
Exhibit 10.2 to Inland's Current Report on Form 8-K dated
June 12, 1996, and incorporated herein by reference).
10.7.2 Security Agreement dated June 12, 1996 between
Randall D. Smith, Jeffrey A. Smith and John W. Adams and
Inland (filed as Exhibit 10.3 to Inland's Current Report on
Form 8-K dated June 12, 1996, and incorporated herein by
reference).
31
<PAGE> 34
10.7.3 Form of Agreement dated June 12, 1996 between Inland and
Arthur J. Pasmas (filed as Exhibit 10.4 to Inland's Current
Report on Form 8-K dated June 12, 1996, and incorporated
herein by reference).
10.7.4 Form of Registration Rights Agreement entered into as of
July 31, 1996 between Inland and Arthur J. Pasmas (filed as
Exhibit 10.5 to Inland's Current Report on Form 8-K dated
June 12, 1996, and incorporated herein by reference).
10.7.5 Form of Amendment to Registration Rights Agreement filed as
Exhibit 10.29.6 (filed as Exhibit 10.29.7 to Inland's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1996, and incorporated herein by reference).
10.8 Crude Oil Call/Put Option (Costless Collar) between IPC and
Koch Gas Services Company dated November 20, 1995 (filed as
Exhibit 10.30 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, and incorporated
herein by reference).
10.9 Swap Agreement dated November 22, 1994 between Inland and
Joint Energy Development Investments Limited Partnership
(filed as Exhibit 10.1 to Inland's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 1995, and
incorporated herein by reference).
10.10 Employment Agreement between Inland and John E. Dyer dated
June 1, 1996 (corrected version) (filed as Exhibit 10.35 to
Inland's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996, and incorporated herein by
reference).
10.10.1 Amendment to Employment Agreement filed as Exhibit 10.26
(filed as Exhibit 10.35.1 to Inland's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996, and
incorporated herein by reference).
10.11 Warrant Certificate between Inland and John E. Dyer dated
May 22, 1996 representing 50,000 shares (corrected version)
(filed as Exhibit 10.37 to Inland's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996, and
incorporated herein by reference).
10.11.1 Warrant Certificate between Inland and John E. Dyer dated
January 23, 1997 representing 70,000 shares (filed as
Exhibit 10.37.1 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, and incorporated
herein by reference).
10.11.2 Option Certificate between Inland and John E. Dyer dated
November 10, 1997 representing 150,000 shares (filed as
Exhibit 10.28.2 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997, and incorporated
herein by reference).
10.12 Warrant Certificate between Inland and Bill I. Pennington
dated May 22, 1996 representing 50,000 shares (corrected
version) (filed as Exhibit 10.38 to Inland's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1996,
and incorporated herein by reference).
10.12.1 Warrant Certificate between Inland and Bill I. Pennington
dated January 23, 1997 representing 60,000 shares (filed as
Exhibit 10.38.1 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, and incorporated
herein by reference).
10.12.2 Option Certificate between Inland and Bill I. Pennington
dated November 10, 1997 representing 125,000 shares (filed
as Exhibit 10.29.2 to Inland's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997, and
incorporated herein by reference).
10.13 Option Certificate between Inland and Michael J. Stevens
dated November 10, 1997
32
<PAGE> 35
representing 100,000 shares (filed as Exhibit 10.30 to
Inland's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997, and incorporated herein by
reference).
10.14 Letter agreement dated October 30, 1996 between Inland and
Johnson Water District (filed as Exhibit 10.41 to Inland's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996, and incorporated herein by reference).
10.15 Collar between Koch Oil Company and Inland effective
January 1, 1997 (filed as Exhibit 10.42 to Inland's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1996, and incorporated herein by reference).
10.16 Securities Purchase Agreement dated July 21, 1997 between
Inland and Joint Energy Development Investments Limited
Partnership (filed as Exhibit 10.1 to Inland's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1997,
and incorporated herein by reference).
10.16.1 Registration Rights Agreement dated July 21, 1997 between
Inland and Joint Energy Development Investments Limited
Partnership (filed as Exhibit 10.2 to Inland's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1997,
and incorporated herein by reference).
10.17 Employment Agreement between Inland and Michael J. Stevens
dated May 1, 1997 (filed as Exhibit 10.39 to Inland's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1997, and incorporated herein by reference).
10.18 Interest Rate Cap Agreement dated April 30, 1998 between
IPC and Enron Capital and Trade Resources Corp. (filed as
Exhibit 10.4 to Inland's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, and incorporated herein by
reference).
10.19 Farmout Agreement between Inland and Smith Management LLC
dated effective as of June 1, 1998 (filed as Exhibit 10.1 to
Inland's Current Report on Form 8-K dated June 1, 1998, and
incorporated herein by reference).
* 10.20 Warrant Agreement dated as of March 5, 1999 between Inland
Resources Inc. and TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P.
* 10.21 Warrant Certificate dated March 5, 1999 between Inland and
TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P.
representing 58,512 shares.
* 10.22 Swap Agreement dated March 10, 1999 between Inland and Enron
Capital and Trade Resources Corp.
* 10.23 Swap Agreement dated March 10, 1999 between Inland and Enron
Capital and Trade Resources Corp.
* 21.1 Subsidiaries of Inland.
* 23.1 Consent of Arthur Andersen LLP.
* 23.2 Consent of Ryder Scott Company Petroleum Engineers.
* 27.1 Financial Data Schedule.
- ------------------------------------
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1998.
33
<PAGE> 36
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
INLAND RESOURCES INC.
March 29, 1999
By: /s/ Kyle R. Miller
----------------------------------
Kyle R. Miller
Co-Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Kyle R.
Miller as his attorney-in-fact to sign on his behalf and in the capacity stated
below and to file all amendments to this Annual Report, which amendment or
amendments may make such changes and additions thereto as such attorney-in-fact
may deem necessary or appropriate.
March 29, 1999 /s/ ARTHUR J. PASMAS
---------------------------------------------
Arthur J. Pasmas
Co-Chairman of the Board and Chief Executive
Officer
March 29, 1999 /s/ JOHN E. DYER
---------------------------------------------
John E. Dyer
President and Chief Operating Officer
March 29, 1999 /s/ BILL I. PENNINGTON
---------------------------------------------
Bill I. Pennington
Vice President and Chief Financial
Officer (Principal Financial Officer)
March 29, 1999 /s/ MICHAEL J. STEVENS
---------------------------------------------
Michael J. Stevens
Secretary, Treasurer and Controller
(Principal Accounting Officer)
March 29, 1999 /s/ THOMAS J. TRZANOWSKI
---------------------------------------------
Thomas J. Trzanowski
Director
March 29, 1999 /s/ GREGORY S. ANDERSON
---------------------------------------------
Gregory S. Anderson
Director
March 29, 1999 /s/ BRUCE M. SCHNELWAR
---------------------------------------------
Bruce M. Schnelwar
Director
<PAGE> 37
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets, December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the three years ended
December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1998, 1997 and 1996 F-7
Consolidated Statements of Cash flows for the three years ended
December 31, 1998, 1997 and 1996 F-8
Notes to Consolidated Financial Statements F-9
</TABLE>
F - 1
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Inland Resources Inc.:
We have audited the accompanying consolidated balance sheets of Inland
Resources Inc. (a Washington corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Inland Resources Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and has a net working capital deficiency and under
current conditions, will not be able to satisfy its scheduled repayments under
its long-term debt facilities that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
Denver, Colorado,
March 29, 1999.
F-2
<PAGE> 39
INLAND RESOURCES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
----------------------
ASSETS 1998 1997
------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,627 $ 605
Accounts receivable and accrued sales 5,682 13,601
Inventory 5,353 6,974
Other current assets 700 2,087
--------- ---------
Total current assets 13,362 23,267
--------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Oil and gas properties (successful efforts method) 180,538 143,829
Accumulated depletion, depreciation and amortization (21,433) (10,009)
--------- ---------
Total oil and gas properties, net 159,105 133,820
Other property and equipment, net 20,212 14,698
--------- ---------
Total property and equipment, net 179,317 148,518
OTHER LONG-TERM ASSETS 3,150 4,168
--------- ---------
Total assets $ 195,829 $ 175,953
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated balance sheets.
F-3
<PAGE> 40
INLAND RESOURCES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 14,282 $ 6,238
Accrued expenses 2,408 3,614
Current portion of long-term debt 141,709 167
--------- ---------
Total current liabilities 158,399 10,019
LONG-TERM DEBT 17,114 122,944
ENVIRONMENTAL LIABILITY 875 1,000
COMMITMENTS AND CONTINGENCIES (Notes 1 and 11)
MANDATORILY REDEEMABLE PREFERRED SERIES C
STOCK, 100,000 shares issued and outstanding 9,568 9,568
ACCRUED PREFERRED SERIES C DIVIDENDS 1,534 450
WARRANTS OUTSTANDING 1,300 1,300
STOCKHOLDERS' EQUITY:
Preferred Class A stock, par value $.001; 20,000,000
shares authorized -- --
Common stock, par value $.001; 25,000,000 shares authorized,
8,529,765 and 8,359,830 issued and outstanding, respectively 9 8
Additional paid-in capital 42,758 41,856
Accumulated deficit (35,728) (11,192)
--------- ---------
Total stockholders' equity 7,039 30,672
--------- ---------
Total liabilities and stockholders' equity $ 195,829 $ 175,953
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated balance sheets.
F-4
<PAGE> 41
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
REVENUES:
Refined product sales $ 68,477 $ -- $ --
Oil and gas sales 14,920 17,182 10,704
-------- -------- --------
Total revenues 83,397 17,182 10,704
OPERATING EXPENSES:
Cost of refinery feedstock 51,908 -- --
Refinery operating expenses 9,858 -- --
Lease operating expenses 8,362 3,780 1,435
Production taxes 454 383 610
Exploration 153 61 167
Impairment 4,164 -- --
Depletion, depreciation and amortization 12,795 6,480 3,428
General and administrative, net 3,974 2,118 1,670
-------- -------- --------
Total operating expenses 91,668 12,822 7,310
-------- -------- --------
OPERATING INCOME (LOSS) (8,271) 4,360 3,394
INTEREST EXPENSE (15,290) (4,759) (1,633)
INTEREST AND OTHER INCOME 321 380 384
-------- -------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (23,240) (19) 2,145
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT (Note 7) (212) (1,160) --
-------- -------- --------
NET INCOME (LOSS) (23,452) (1,179) 2,145
REDEMPTION PREMIUM - PREFERRED SERIES A
STOCK -- -- (214)
REDEMPTION PREMIUM - PREFERRED SERIES B
STOCK -- (580) --
ACCRUED PREFERRED SERIES C STOCK DIVIDENDS (1,084) (450) --
-------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(24,536) $ (2,209) $ 1,931
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE> 42
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
BASIC NET INCOME (LOSS) PER SHARE:
Continuing operations $ (2.90) $ (0.14) $ 0.38
Extraordinary loss (0.03) (0.16) --
------------- ------------- -------------
Total $ (2.93) $ (0.30)$ 0.38
============= ============= =============
Basic weighted average common
shares outstanding 8,387,895 7,377,944 5,148,056
============= ============= =============
DILUTED NET INCOME (LOSS) PER SHARE:
Continuing operations $ (2.90) $ (0.14)$ 0.30
Extraordinary loss (0.03) (0.16) --
------------- ------------- -------------
Total $ (2.93) $ (0.30)$ 0.30
============= ============= =============
Diluted weighted average common
shares outstanding 8,387,895 7,377,944 6,499,098
============= ============= =============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
<PAGE> 43
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Accrued
Preferred Stock Series B Common Stock
Shares Amount Dividend Shares Amount
-------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995 $ 106,850 $ 4,100 $ -- 40,927,999 $ 41
One-for-ten reverse stock split -- -- -- (36,835,151) (37)
Purchase of Farmout Inc. -- -- -- 1,309,880 1
Redemption of Preferred Series A (13,713) (740) -- -- --
Conversion of Preferred Series A (93,137) (3,360) -- 900,831 1
Issuance of Preferred Series B 1,000,000 10,000 -- -- --
Exercise of employee stock options -- -- -- 8,500 --
Accrued Preferred Series B dividend -- -- 670 -- --
Net income -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1996 1,000,000 10,000 670 6,312,059 6
Accrued Preferred Series B dividend -- -- 1,150 -- --
Conversion of Preferred Series B (1,000,000) (10,000) (1,820) 1,977,671 2
Preferred Series C dividends -- -- -- -- --
Exercise of employee stock options -- -- -- 70,100 --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1997 -- -- -- 8,359,830 8
Issuance of common stock under
Farmout Agreement -- -- -- 152,220 1
Preferred Series C dividends -- -- -- -- --
Exercise of employee stock options -- -- -- 17,715 --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1998 -- $ -- $ -- 8,529,765 $ 9
=========== =========== =========== =========== ===========
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit
----------- ------------
<S> <C> <C>
BALANCES, December 31, 1995 $ 19,146 $ (9,308)
One-for-ten reverse stock split 37 --
Purchase of Farmout Inc. 6,541 --
Redemption of Preferred Series A -- --
Conversion of Preferred Series A 3,360 --
Issuance of Preferred Series B -- --
Exercise of employee stock options 45 --
Accrued Preferred Series B dividend -- (670)
Net income -- 2,145
----------- -----------
BALANCES, December 31, 1996 29,129 (7,833)
Accrued Preferred Series B dividend -- (1,150)
Conversion of Preferred Series B 12,398 (580)
Preferred Series C dividends (450)
Exercise of employee stock options 329 --
Net loss -- (1,179)
----------- -----------
BALANCES, December 31, 1997 41,856 (11,192)
Issuance of common stock under
Farmout Agreement 865 --
Preferred Series C dividends -- (1,084)
Exercise of employee stock options 37 --
Net loss -- (23,452)
----------- -----------
BALANCES, December 31, 1998 $ 42,758 $ (35,728)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 44
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See Note 10)
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1998 1997 1996
--------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (23,452) $ (1,179) $ 2,145
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Net cash used by discontinued operations -- -- (129)
Loss on disposal of discontinued operations -- -- 30
Depletion, depreciation and amortization 12,795 6,480 3,428
Amortization of debt issuance costs and debt discount 697 265 199
Loss on early extinguishment of debt 212 1,160 --
Impairment of assets 4,164 -- --
Interest payment with common stock 866 -- --
Effect of changes in current assets and liabilities--
Accounts receivable and accrued sales 7,919 (950) (1,376)
Inventory 1,257 (1,131) (445)
Other current assets 1,599 405 (223)
Accounts payable and accrued expenses 6,713 618 1,377
--------- --------- ---------
Net cash provided by operating activities 12,770 5,668 5,006
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Development expenditures and equipment purchases (41,993) (29,740) (23,252)
Acquisition of Roosevelt Refinery (3,334) -- --
Acquisition of oil and gas properties -- (69,532) --
Acquisition of Woods Cross Refinery, net -- (22,950) --
Payment to sell discontinued operations -- -- (500)
--------- --------- ---------
Net cash used in investing activities (45,327) (122,222) (23,752)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock -- 9,568 10,000
Proceeds from sale of common stock 37 328 45
Proceeds from issuance of long-term debt 77,550 161,000 16,578
Payments of long-term debt (42,984) (60,099) (73)
Debt issuance costs (1,024) (3,669) (4)
Redemption of Preferred Series A stock -- -- (740)
--------- --------- ---------
Net cash provided by financing activities 33,579 107,128 25,806
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,022 (9,426) 7,060
CASH AND CASH EQUIVALENTS, at beginning of period 605 10,031 2,971
--------- --------- ---------
CASH AND CASH EQUIVALENTS, at end of period $ 1,627 $ 605 $ 10,031
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-8
<PAGE> 45
INLAND RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Inland Resources Inc. (the "Company") is an independent energy company with
substantially all of its producing oil and gas property interests located in
the Monument Butte Field within the Uinta Basin of Northeastern Utah. The
Company also operates a crude oil refinery located in Woods Cross, Utah (the
"Woods Cross Refinery"). The refinery has a processing capacity of
approximately 10,000 barrels per day and tankage capacity of 485,000 barrels
(see Note 5).
Going Concern
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as going concern. However, the continuing low oil
price environment has significantly impacted the Company's financial condition.
The Company has a working capital deficit of $145.0 million at December 31, 1998
and generated a net loss of $23.5 million in the year ended December 31, 1998.
Approximately $141.7 million of the deficit is caused by principal amounts
related to the Company's long-term debt facilities. Based on current conditions,
the Company will not be able to make its principal payments as scheduled under
its long-term debt facilities. In addition, at December 31, 1998 the Company was
in default of certain provisions of its credit agreements and required
additional capital outside of cash flow from operations to fund a portion of its
outstanding accounts payable. The short-term liquidity issues were temporarily
mitigated in March 1999 when the Company's senior lenders advanced $3.25 million
which the Company immediately used to reduce outstanding accounts payable. As a
result of the items noted above, there is substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
The Company is considering a number of additional strategies to cure its
working capital and liquidity issues. A solution the Company is currently
pursuing is the following transaction. On January 18, 1999, the Company entered
into a non-binding letter of intent with Flying J Inc. ("Flying J") and Smith
Management LLC ("Smith Management") (an affiliate majority shareholder in the
Company) regarding the acquisition of certain assets by the Company from Flying
J or one of its subsidiaries. The acquisition includes a 25,000 barrel per day
refinery located in North Salt Lake City, eleven Flying J gasoline stations
located primarily in the Salt Lake City area and Idaho and all oil and gas
reserves owned by Flying J in the Uinta Basin, fifteen miles north of the
Monument Butte Field. The purchase price is $80.0 million in cash and
approximately 12.8 million shares of
F-9
<PAGE> 46
the Company's common stock, par value $0.001 per share, which is equal to
approximately 60% of the shares outstanding after the acquisition. This
transaction would be accounted for as a reverse merger. A restructuring of the
Company's capital and debt structure could be required to effectuate the
acquisition. Management anticipates that if the transaction is consummated, it
will close during the third quarter of 1999. The acquisition is contingent on
preparation of definitive documents, financing, due diligence procedures and
approval by regulatory agencies, the Company's lenders, the Board of Directors
of each company and the Company's shareholders. The failure of any one of these
events could prevent the consummation of the acquisition.
If the proposed Flying J transaction is not consummated, the Company will
attempt to restructure its capital such that a drilling program can be resumed
although there is no assurance that the Company will be successful. Until the
capital restructuring is complete, the Company does not plan to drill
additional wells focusing instead on its continuing efforts to pressurize the
Monument Butte Field through additional development of its water injection
infrastructure. The Company plans to convert 30 wells to injection during 1999
while incurring net capital expenditures of $500,000. The Company also expects
to spend $900,000 performing required capital improvements at the Woods Cross
Refinery. The level of these and other capital expenditures is largely
discretionary, and the amount of funds devoted to any particular activity may
increase or decrease significantly depending on available opportunities,
capital availability and market conditions.
Other possible solutions the Company is considering include obtaining
additional modifications to its credit agreement, selling assets, issuing
additional debt or selling equity. The Company believes its lenders will assist
in solving the Company's liquidity and working capital issues, although
management can not be assured that the Company will obtain modifications or
concessions from its lenders or raise the necessary capital from other sources
in the time frames required. As a result, the Company may have to further slow
or stop development of the Monument Butte Field and suspend all upgrades at the
Woods Cross Refinery.
Consolidation
The accompanying financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The impact of oil and gas
prices has a significant influence on estimates made by management. Changes in
oil and gas prices directly effect the economic limits of estimated oil and gas
reserves. These economic limits have significant effects upon predicted reserve
quantities and valuations. These estimates drive the calculation of
depreciation, depletion and amortization for the oil and gas properties and the
need for an assessment as to whether an impairment is required. Overall oil and
gas pricing estimates factor into estimated future cash flow projections used in
assessing impairment for the oil and gas properties as do refined product
pricing estimates for the refinery operations.
F-10
<PAGE> 47
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and amounts due from banks and
other investments with original maturities of less than three months.
Concentrations of Credit Risk
The Company regularly has cash in a single financial institution which exceeds
depository insurance limits. The Company places such deposits with high credit
quality institutions and has not experienced any credit losses. Substantially
all of the Company's receivables are within the oil and gas industry, primarily
from its oil and gas purchasers, joint interest owners and refined product
purchasers. Although diversified within many companies, collectibility is
dependent upon the general economic conditions of the industry. To date,
write-offs of uncollectable accounts have been minimal.
Fair Value of Financial Instruments
The Company's financial investments consist of cash, trade receivables, trade
payables, accrued liabilities, long-term debt and mandatorily redeemable
preferred stock. The carrying value of cash and cash equivalents, trade
receivables and trade payables are considered to be representative of their
fair market value, due to the short maturity of these instruments.
Inventories and Exchanges
Inventories consist of crude oil and refined products recorded at the lower of
cost on a first-in, first-out basis or market. Also included in inventory is
tubular goods valued at the lower of average cost or market. Materials and
supplies inventories are stated at cost and are charged to capital or expense,
as appropriate, when used.
The Company has product exchange agreements with other companies. Exchange
transactions are considered asset exchanges, with deliveries offset against
receipts. The net exchange balance is included in inventory.
Accounting for Oil and Gas Operations
The Company follows the successful efforts method of accounting for oil and gas
operations. The use of this method results in the capitalization of those costs
associated with the acquisition, exploration and development of properties that
produce revenue or are anticipated to produce future revenue. The Company does
not capitalize general and administrative expenses directly identifiable with
such activities or lease operating expenses associated with secondary recovery
startup projects. Costs of unsuccessful exploration efforts are expensed in the
period it is determined that such costs are not recoverable through future
revenues. Geological and geophysical costs are expensed as incurred. The cost
of development wells are capitalized whether productive or nonproductive. Upon
the sale of proved properties, the cost and accumulated depletion are removed
from the accounts and any gain or loss is charged to income. Interest is
capitalized during the drilling and completion period of wells and on other
major projects. The amount of interest capitalized was $150,000, $135,000 and
$135,000 during 1998, 1997 and 1996, respectively.
F-11
<PAGE> 48
The provision for depletion, depreciation and amortization of developed oil and
gas properties is based on the units of production method, based on proved oil
and gas reserves determined using prices being received by the Company at the
end of each reporting period. Dismantlement, restoration and abandonment costs
are in management's opinion offset by residual values of lease and well
equipment. As a result, no accrual for such costs is provided.
Impairment Review
The Company reviews and evaluates its long-lived assets for impairment when
events or changes in circumstances indicate that the related carrying amounts
may not be recoverable. An impairment loss is measured as the amount by which
asset carrying value exceeds fair value. A calculation of the aggregate
before-tax undiscounted future net revenues is performed for each asset base
which generates a distinct cash flow stream. The asset bases considered by the
Company were the oil and gas properties and the operating refinery. For the oil
and gas operations, the Company utilized an estimated price scenario based on
its budget and future estimates of oil and gas prices from industry projections
and future quoted prices. The assumptions used were based on an average oil
price of $12.90 per barrel and $2.26 per Mcf over the remaining estimated life
of the properties. The refinery operations considered historical trends and
future projections of crude prices and sales prices in developing the estimate
of future cash flows. If the net capitalized cost of each distinct asset pool
exceeds the applicable undiscounted calculation, the excess, as measured by fair
value, is recorded as a charge to operations.
The Company also periodically assesses unproved oil and gas properties for
impairment. Impairment represents management's estimate of the decline in
realizable value experienced during the period for leases not expected to be
utilized the Company.
The Company assessed the realizability of the Roosevelt Refinery (see Note 5)
as an asset to be disposed of. Originally the Company intended to reactivate
the Roosevelt Refinery, however, the strategy changed shortly following its
purchase and the plan to merge with Flying J. Therefore the net realizable
value is the most appropriate estimate of carrying value. As such, the
Roosevelt Refinery is recorded as property held for sale with a projected net
realizable value of $500,000 after considering an impairment of $2.8 million.
Property and Equipment
Property and equipment is recorded at cost. Replacements and major improvements
are capitalized while maintenance and repairs are charged to expense as
incurred. Upon sale or retirement, the asset cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is reflected in
operations. Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets, generally ranging from three to
thirty years. Maintenance and repairs are expensed as incurred. Major scheduled
repairs and maintenance (turnaround) of the refinery operating units are accrued
and expensed over the estimated period until the next turnaround. Major
improvements are capitalized, and the assets replaced, are retired.
F-12
<PAGE> 49
Environmental
Environmental costs are expensed or capitalized based upon their future
economic benefit. Costs which are improvements are capitalized. Costs related
to environmental remediation and reclamation are expensed. Liabilities for
remediation and reclamation costs are accrued when it is determined that an
obligation exists and the amount of the costs can be reasonably estimated.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under the
liability method, deferred income taxes are recorded for differences between
the book and tax basis of assets and liabilities at tax rates in effect when
the balances are expected to reverse. A valuation allowance is recorded when
the conclusion by Company management is reached that the realizability of the
deferred tax asset is not more likely then not going to be realized.
Revenue Recognition
Sales of crude oil, natural gas and refined products are recorded upon delivery
to purchasers.
Earnings Per Share
Earnings or loss per share are presented for basic diluted net income (loss)
and, if applicable, for net income (loss) before extraordinary loss. Basic
earnings per share is computed by dividing net income (loss) attributable to
common stockholders by the weighted-average number of common shares for the
period. The computation of diluted earnings per share includes the effects of
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued (see Note 4).
Recent Accounting Pronouncements
The FASB issued SFAS No. 130 "Reporting Comprehensive Income" in June 1997
which established standards for reporting and displaying comprehensive income
and its components in a full set of general purpose financial statements. In
addition to net income, comprehensive income includes all changes in equity
during a period, except those resulting from investments by and distributions
to owners. The adoption of SFAS No. 130 in the first quarter of 1998 did not
have any impact on the Company.
(2) FINANCIAL INSTRUMENTS
Periodically, the Company enters into commodity contracts to hedge or otherwise
reduce the impact of oil and gas price fluctuations and to help ensure the
repayment of indebtedness. The amortized cost and the monthly settlement gain
or loss are reported as adjustments to revenue in the period in which the
related oil or gas is sold or the scheduled settlement of interest rate
instruments. Hedging activities do not affect the actual sales price or
interest rate for the Company's crude oil and natural gas or debt facilities.
The Company is subject to the creditworthiness of its counterparties since the
contracts are not collateralized.
F-13
<PAGE> 50
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for derivative instruments and hedging activity. SFAS No. 133
requires recognition of all derivative instruments on the balance sheet as
either assets or liabilities and measurement of fair value. Changes in the
derivative's fair value will be recognized currently in earnings unless
specific hedge accounting criteria are met. Gains and losses on derivative
hedging instruments must be recorded in either other comprehensive income or
current earnings, depending on the nature and designation of the instrument.
The Company is currently assessing the effect of adopting SFAS No. 133 on its
financial statements and plans to adopt the statement on January 1, 2000.
Crude Oil Hedging Activities
As of December 31, 1998 the Company has a hedge in place with Enron (the "Enron
Hedge") that hedges crude oil production over a five year period beginning
January 1, 1996 in monthly amounts escalating from 8,500 Bbls in January 1996
to 14,000 Bbls in December 2000. The hedge is structured as a cost free collar
whereby if the average monthly price, based on NYMEX Light Sweet Crude Oil
Futures Contracts, is between $18.00 and $20.55 per barrel, no payment is
exchanged between the parties. On January 1, 1997, the Company paid $34,170 to
enter into a contract with Koch Gas Services Company ("Koch") that exactly
offsets the effect of the Enron Hedge during the period January 1998 through
December 2000. As a result, the potential for gains and losses with respect to
the Enron Hedge expired on January 1, 1998, and the Company recognized no net
gain or loss on the Enron Hedge in 1998, nor will any gain or loss be
recognized on the Enron Hedge in the future.
On May 12, 1997, the Company entered into a put contract with Enron for 100,000
barrels per month for the period January 1998 through March 1998 at a put price
of $16.00 per barrel. The Company recorded $95,000 of income under this
contract in the first quarter of 1998.
On March 12, 1998 the Company entered into a cost free collar with Enron
whereby the average monthly price, based on NYMEX Light Sweet Crude Oil Futures
Contracts, is between $14.50 and $17.70 per barrel. The collar covered 75,000
barrels per month for the period from April 1998 through December 1998. For the
year ended December 31, 1998, the Company recognized income of $532,000 on this
contract.
During 1998, 1997 and 1996 the Company had various other contracts in place
consisting of puts, calls and collars. Each of the contracts was completely
settled as of December 31, 1998. The effect of all hedging contracts resulted
in income of $550,000 in 1998 and losses of $217,000 and $535,000 in 1997 and
1996, respectively.
On March 10, 1999, the Company entered into two hedge contracts with Enron
Capital and Trade Resources Corp. ("Enron"), each of which cover 40,000 barrels
per month of crude oil production during the period April 1, 1999 through
December 31, 1999. The swap price on the first contract is $14.02 and the swap
price on the second contract is $14.54 based on NYMEX Light Sweet Crude Oil
Futures Contracts.
F-14
<PAGE> 51
Interest Rate Hedging Activity
In April 1998, the Company entered into an interest rate put, whereby the
Company is paid the difference between 6.75% and LIBOR on a notional principle
amount of $35.0 million when the LIBOR rate is above 6.75%. The cost of this
put was $140,000 and will be amortized through December 2000, at which time the
put expires. The Company received no payments under this arrangement in 1998.
(3) INVENTORIES
Inventories at December 31, 1998 and 1997 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Crude oil $ 827 $ 1,006
Refined product 2,910 3,685
Tubular goods 1,416 1,994
Material and supplies 200 289
------- -------
Total $ 5,353 $ 6,974
======= =======
</TABLE>
(4) EARNINGS (LOSS) PER SHARE
The calculation of earnings (loss) per share for the years ended December 31,
1998, 1997 and 1996 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------ -------------------------- -----------------------------
Per Share Per Share Per Share
Loss Shares Amount Income Shares Amount Income Shares Amount
------------------------------ -------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
item (23,240) $ (19) $2,145
Less: Preferred Series A redemption
premium - - (214)
Preferred Series B redemption
premium - (580) -
Preferred Series C stock
premium (1,084) (450) -
-------- ------
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) before extraordinary
item attributable to common
stockholders (24,324) 8,388 $(2.90) (1,049) 7,378 $(0.14) 1,931 5,148 $0.38
====== ====== =====
EFFECT OF DILUTIVE SECURITIES
Options and warrants - - - - - 111
Convertible preferred stock - - - - - 667
Stock dividend on convertible
preferred stock - - - - - 573
-------- ------- ----- ------ ------
DILUTED EARNINGS (LOSS)
PER SHARE
Income (loss) before
extraordinary item
attributable to common
stockholders plus
assumed conversion $(24,324) 8,388 $(2.90) $(1,049) 7,378 $(0.14) $1,931 6,499 $0.30
======== ===== ====== ======= ===== ====== ====== ===== =====
</TABLE>
F-15
<PAGE> 52
(5) ACQUISITIONS
Farmout Inc.
On June 12, 1996, the Company entered into an agreement to acquire one hundred
percent (100%) of the outstanding capital stock of Farmout Inc., a company
affiliated with Smith Management, in exchange for 1,309,880 shares of the
Company's common stock. Under the terms of the agreement, the Company did not
issue the common stock until January 2, 1997. Since no contingencies existed as
to the common stock issuance, the 1,309,880 shares are considered outstanding
for purposes of reporting in the accompanying consolidated financial
statements. The purchase was valued at $6.55 million for accounting purposes.
The only assets of Farmout Inc. were twenty producing wells. Farmout Inc. had
no liabilities at the purchase date. Income tax liabilities arising prior to
June 12, 1996 are the responsibility of the prior owners and income tax
liabilities from June 12, 1996 forward are the responsibility of the Company.
The acquisition of Farmout Inc. was accounted for as a purchase, therefore, the
assets and results of operations of Farmout Inc. are included in the Company's
consolidated financial statements from the acquisition date forward.
Enserch
Effective September 1, 1997, the Company purchased producing oil and gas
properties and undeveloped acreage allocated in the Monument Butte region from
Enserch Exploration, Inc. ("Enserch") for $10.4 million. The acquisition was
accounted for as a purchase, therefore assets and results of operations of the
Enserch properties are included in the Company's consolidated financial
statements from the acquisition date forward. The Company funded this
acquisition with debt.
EREC
Effective September 30, 1997, the Company purchased producing oil and gas
properties and undeveloped acreage, in the same region as the Enserch
acquisition, from Equitable Resources Energy Company ("EREC") for a purchase
price of $56.0 million. The acquisition was also accounted for as a purchase,
and therefore the assets and results of operations of the EREC properties are
included in the Company's consolidated financial statements from the
acquisition date forward. The Company also funded the EREC acquisition with
debt.
Woods Cross Refinery
On December 31, 1997, the Company purchased certain assets and liabilities of
the refining business Crysen Refining, Inc. for a purchase price of $22.9
million. The acquisition was funded with bank debt. The acquisition of the
Woods Cross Refinery was accounted for as a purchase as of December 31, 1997,
and the assets and liabilities assumed are included in the Company's
consolidated balance sheet as of that date. Because the purchase was closed on
December 31, 1997, no revenues or expenses have been recorded in the Company's
1996 or 1997 consolidated statement of operations, while the 1998 consolidated
statement of operations includes a full year of refining operations.
F-16
<PAGE> 53
In conjunction with the purchase of the Woods Cross Refinery, the Company also
purchased certain inventory and held a note receivable related to a refinery
located in Tacoma, Washington. A former director of Inland Refining, Inc. (a
wholly owned subsidiary of the Company), is also a director of the company to
which the note was issued. On February 1, 1999, the Company sold the inventory
to the same company holding the note and received $435,000 in immediate value
and added $200,000 to the note receivable. The note receivable totals $700,000,
bears interest at 10% and is payable at $15,000 per month with the balance due
June 15, 2000. This note is backed by the personal guarantee of the note
holder.
Roosevelt Refinery
On September 16, 1998, the Company closed on the acquisition of a crude oil
refinery know as the Roosevelt Refinery for a total purchase price of $2.25
million. This refinery was inactive at the time of purchase and remains so
today. Originally, the Company intended to reactivate the refinery to process
its production from the exploration and production segment and spent an
additional $1.09 million on consulting services related to design
considerations. Because of the plans to merge with Flying J, the Company
currently plans to sell the refinery or the units and equipment combined
therein. As a result, this asset is held as available for sale and has been
recorded at management's estimate of fair value.
(6) OTHER PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Vehicles $ 1,774 $ 1,054
Land and buildings 2,632 1,699
Refining plant and equipment 15,672 11,619
Furniture and fixtures 1,465 940
Leasehold improvements 165 24
Property held for sale 500 -
--------- ---------
22,208 15,336
Less accumulated depreciation (1,996) (638)
--------- ---------
Total $ 20,212 $ 14,698
========= =========
</TABLE>
(7) LONG-TERM DEBT
TCW I Agreement
On November 29, 1995, the Company entered into a Credit Agreement (the "TCW I")
with Trust Company of the West and affiliated entities (collectively "TCW"),
which provided a recourse loan facility to the Company of up to $25.0 million
for the development of the Monument Butte Field. The Company advanced $5.0
million at closing. During 1996, $16.5 million of the $20.0 million of
remaining loan availability was drawn to fund development drilling in the
Monument Butte Field.
F-17
<PAGE> 54
The remaining amount was drawn in January 1997. The TCW I bore interest at 10%
per annum. Interest was payable quarterly beginning March 1996 and minimum
payments of principal were required quarterly beginning March 1997. In addition
to these payments, the Company granted TCW an initial 7% overriding royalty
interest, proportionately reduced to the Company's working interest in the oil
and gas properties, commencing November 29, 1995 and continuing until the
internal annual rate of return to TCW equaled 16%, at which time it reduced to
3%, proportionately reduced to the Company's working interest, until TCW's
internal rate of return equaled 22%.
The TCW I subjected the Company to penalties on the overriding royalty interest
if the loan was prepaid prior to November 29, 1997. The Company paid a $250,000
commitment fee at closing and recorded an $800,000 loan discount relating to
the 7% override which was being amortized over the term of the loan using the
effective interest method. During 1997, the Company refinanced the TCW I and
expensed the unamortized discount and debt issuance costs totaling
approximately $864,000 as an extraordinary loss.
CIBC Loan Agreement
On June 30, 1997, the Company entered into a $50.0 million Credit Agreement
with Canadian Imperial Bank of Commerce (the "CIBC Loan Agreement"). The
initial advance of $26.0 million was funded on June 30, 1997. The loan
proceeds, along with cash on hand, were used to retire The TCW I loan
obligation and to purchase the override on the Company's properties held by
TCW. On August 15, 1997, an additional $9.0 million was drawn under the
facility to fund the acquisition of properties from Enserch. Interest under the
CIBC Loan Agreement was calculated at the London interbank eurodollar rate
("LIBOR") plus a spread of 1.875% or approximately 7.5%. The CIBC Loan
Agreement was repaid in full with proceeds provided by the financing described
below on September 30, 1997, resulting in the Company expensing the unamortized
debt issuance costs of approximately $296,000 as an extraordinary loss.
TCW and ING Credit Agreements
On September 30, 1997, the Company closed separate Credit Agreements with Trust
Company of the West and TCW Asset Management Company in their capacities as
noteholder and agent (collectively "TCW") and ING (U.S.) Capital Corporation
("ING"). The TCW Credit Agreement provided the Company with $75.0 million, all
of which was funded at closing. The ING Credit Agreement provided the Company
with an initial borrowing base of $45.0 million of which $17.8 million was
drawn at closing. Subsequent to closing of the ING Credit Agreement, a portion
of this loan was participated to Meespierson Capital Corp. and U.S. Bank
National Association. The proceeds from the loans were used to finance the
acquisition of the properties purchased from EREC, fund full repayment of the
CIBC Loan Agreement, pay transaction costs and provide the Company with working
capital. An additional $17.2 million was drawn under the ING Credit Agreement
before December 31, 1997 to fund operating capital and the acquisition of the
Woods Cross Refinery
The ING Credit Agreement constitutes a revolving line of credit until March 31,
1999, at which time it converts to a term loan payable in quarterly
installments through March 29, 2003. The quarterly installments, based on a
$73.25 million borrowing base, are $9.5 million on June 29, 1999, $6.2 million
for the next two quarters, $4.7 million for the next four quarters, $3.9
million for the next four quarters, $3.5 million for the next four quarters,
and $3.0 million on March 29, 2003. As of
F-18
<PAGE> 55
December 31, 1998, $67.7 million was outstanding under the ING Credit
Agreement. Letters of credit, used to secure purchases of crude inventory for
the refining operations, of $2.3 million were also outstanding as of December
31, 1998. The ING loan bears interest, at the Company's option, at either (i)
the average prime rates announced from time to time by The Chase Manhattan
Bank, Citibank, N.A. and Morgan Guaranty Trust Company of New York plus 0.5%
per annum; or (ii) at LIBOR plus 1.75%. The Company has consistently selected
the LIBOR rate option resulting in a currently effective interest rate of
approximately 6.8%. As required by the ING and TCW Credit Agreements, on April
30, 1998 the Company paid $140,000 to put in place an interest rate hedge. The
hedge covers the period June 12, 1998 through December 12, 2000 and effectively
provides a 6.75% LIBOR rate interest ceiling (before consideration of the 1.75%
adjustment) on $35.0 million of borrowings under the ING Credit Agreement. The
ING Credit Agreement is secured by a first lien on substantially all assets of
the Company. The borrowing base under the ING facility is limited to the
collateral value of proved reserves as determined semiannually by the lender.
The TCW Credit Agreement is comprised of a $65.0 million tranche and a $10.0
million tranche and is payable interest only, at a rate of 9.75% per annum,
quarterly until the earlier of December 31, 2003 or the date on which the ING
loan is paid in full. At that time, the TCW Credit Agreement loan converts to a
term loan payable in twelve quarterly installments of principal and interest.
The quarterly principal installments are $6.25 million for the first four
quarters, $8.75 million for the next four quarters and $3.75 million for the
last four quarters. The Company granted a warrant to TCW to purchase 100,000
shares of common stock at an exercise price of $10.00 per share (subject to
anti-dilution adjustments) at any time after September 23, 2000 and before
September 23, 2007 (see Note 12). The Company also granted registration rights
in connection with such warrants. TCW is also entitled to additional interest
on the $65.0 million tranche in an amount that yields TCW a 12.5% internal rate
of return, such interest payment to be made concurrently with the final payment
of all principal and interest on the TCW Credit Agreement. Interest expense is
calculated using the effective interest method for these borrowings. For
purposes of the internal rate of return calculation, the Company is given
credit for the funding fee of $2.25 million paid to TCW at closing. In regards
to the $10 million tranche, upon payment in full of TCW Credit Agreement by the
Company, TCW may elect to "put" their warrant back to the Company and accept a
cash payment which will cause TCW to achieve a 12.5% rate of return on this
tranche. The TCW Credit Agreement restricts repayment of the indebtedness until
October 1, 1999. The TCW Credit Agreement is secured by a second lien on
substantially all assets of the Company.
On March 11, 1999, the Company entered into amendments of the ING Credit
Agreement and the TCW Credit Agreement. The ING amendment increased the
borrowing base to the $73.25 million noted earlier. The Company immediately
borrowed the additional $3.25 million of availability and used the proceeds to
reduce accounts payable. ING received a warrant to purchase 50,000 shares of
common stock at $1.75 as consideration for entering into the amendment. Under
the TCW amendment, TCW agreed to defer the quarterly payments for interest
accruing during the initial six months of 1999 until the earlier of December
31, 2003 or the date on which the ING loan is paid in full. The deferred
interest will bear interest at 12%. TCW received a warrant to purchase 58,512
shares of common stock at $1.75 as consideration for entering into the
amendment. The fair value of the borrowings under the ING and TCW Credit
Agreements cannot currently be assessed due to the current financial condition
of the Company.
F-19
<PAGE> 56
The TCW and ING Credit Agreements have common covenants that restrict the
payment of cash dividends, borrowings, sale of assets, loans to others,
investment and merger activity and hedging contracts without the prior consent
of the lenders and requires the Company to maintain certain net worth, interest
coverage and working capital ratios. At December 31, 1998, the Company was in
violation of certain covenants common to both the ING Credit Agreement and the
TCW Credit Agreement. All lenders have been notified of the covenant defaults
including the filings of liens by vendors. In management's opinion, based on the
recent borrowing base increase and interest deferral, the Company's lenders
have shown a willingness to help the Company solve its working capital and
liquidity issues. Although there cannot be assurances, the Company does not
expect its lenders to issue notices of default allowing them to call their debt
for repayment in the near future. The Company's management is estimating that
current cash flow projections will not be sufficient to repay scheduled
maturities given the projected oil and gas pricing environment in 1999. As a
result, all borrowings for both these facilities have been classified as
current under the cross-collateralization provisions of these agreements.
Banque Paribas
The Company's Credit Agreement with Banque Paribas constituted a revolving line
of credit in an amount not to exceed $23.75 million. The Company initially drew
$12.5 million to partially fund the Crysen acquisition on December 31, 1997.
The facility was used to fund working capital requirements and for letters of
credit obligations. The Credit Agreement was secured by all refining assets of
the Company. The Company's ability to borrow funds or have letters of credit
issued under the Credit Agreement was subject to its compliance with various
financial covenants and ratios. Amounts outstanding bear interest at the prime
rate of The Chase Manhattan Bank in New York, New York, and interest is payable
monthly. On May 29, 1998, the Company repaid in full, the Credit Agreement with
Banque Paribas, resulting in $212,000 of unamortized debt issuance costs being
expensed as an extraordinary item.
Phillips
The Company assumed a $1.7 million note payable to Phillips Petroleum Company
("Phillips") in connection with the Crysen transaction. This note is unsecured
and is repayable based on quantities of Phillips' crude oil processed through
the Woods Cross Refinery, on a monthly basis. This agreement includes
provisions for minimum refining requirements per month. Phillips greatly
curtailed deliveries under the terms of the note, resulting in only a slight
decrease in the outstanding principal from December 31, 1997 to 1998. If the
note is not repaid by June 2003, the remaining principal outstanding at that
date is repayable in equal monthly installments over 5 years. Subsequent to
June 2003, the remaining principal outstanding bears interest at prime plus 3%,
with a cap of 12%. Based on the uniqueness of this transaction, fair value is
not a relevant measure for the Phillips note.
Smith Farmout
Commencing June 1, 1998, the Company's drilling program was conducted under a
Farmout Agreement with Smith Energy Partnership, an affiliate of Smith
Management. Funds expended by Smith Management pursuant to this agreement were
treated as debt by the Company for financial reporting purposes. Forty-three
wells were drilled under the Farmout Agreement in 1998, aggregating net
expenditures to Smith Management of $15.1 million (including management fees).
F-20
<PAGE> 57
Under the Farmout Agreement, Smith Management agreed to fund 100% of the
drilling and completion costs for wells commenced prior to October 1, 1998 and
70% for wells commenced after September 30, 1998. At the Company's option,
Smith Management agreed to take production proceed payments either in cash or
in shares of the Company's common stock. If the Company elects to pay using
common stock, the stock is priced at a 10% discount to average closing price
for the production month to which the payment relates. Through December 31,
1998, the Company has elected to make all payments in the form of common stock
totaling 152,220 shares. Due to the uncertainty of timing for repayment of the
borrowings, all amounts outstanding have been classified as long-term,
scheduled beyond five years. Effective November 1, 1998, an Amendment to the
Farmout Agreement was executed that suspended future drilling rights under the
Farmout Agreement until such time as both the Company, Smith Management and the
Company's senior lenders agree to recommence such rights. In addition, a
provision was added that gave Smith Management the option to receive cash
rather than common stock if the average price was calculated at less than $3.00
per share, such cash only to be paid if the Company's senior lenders agree to
such payment. The Farmout Agreement provides that Smith Management will
reconvey all drill sites to the Company once Smith Management has recovered
from production an amount equal to 100% of its expenditures, including
management fees and production taxes, plus an additional sum equal to 18% on
such expended sums. The carrying value of the Smith Farmout borrowing cannot be
determined given the Company's current financial condition.
A summary of the Company's long-term debt follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
TCW Credit Agreement $ 75,000 $ 75,000
Less discount on TCW Credit Agreement (955) (1,231)
--------- ---------
74,045 73,769
Smith Farmout 15,085 --
ING Credit Agreement 67,665 35,000
Banque Paribas -- 12,481
Phillips 1,593 1,660
Other 435 201
--------- ---------
Total 158,823 123,111
Current portion (141,709) (167)
--------- ---------
Long-term portion $ 17,144 $ 122,944
========= =========
</TABLE>
F-21
<PAGE> 58
As of December 31, 1998, the annual principal payments on long-term debt for
the next five years are as follows (in thousands):
<TABLE>
<S> <C>
1999 141,709
2000 30
2001 33
2002 37
2003 194
Thereafter 16,820
----------
$ 158,823
==========
</TABLE>
(8) INCOME TAXES
In 1998 and 1997, no income tax provision or benefit was recognized due to the
effect of net operating losses and the recording of a valuation allowance
against portions of the deferred tax assets that did not meet the utilization
criteria of more likely than not. Deferred income taxes reflect the impact of
temporary differences between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws. The tax effect of
the temporary differences and carryforwards giving rise to the Company's
deferred tax assets and liabilities at December 31, 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
Deferred
December 31, Expense December 31,
1998 (Benefit) 1997
----------- ---------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 14,174 $ 7,273 $ 6,901
Smith Farmout debt 5,483 5,483 --
-------- -------- --------
Total 19,657 12,756 6,901
Valuation allowance (9,939) (8,292) (1,647)
-------- -------- --------
Deferred tax assets 9,718 4,464 5,254
-------- -------- --------
Deferred tax liabilities:
Depletion, depreciation and amortization
of property and equipment (9,718) (4,464) (5,254)
-------- -------- --------
Deferred tax liabilities (9,718) (4,464) (5,254)
-------- -------- --------
Net deferred tax assets $ -- $ -- $ --
======== ======== ========
</TABLE>
F-22
<PAGE> 59
A valuation allowance is to be provided if it is more likely than not that some
portion or all of a deferred tax asset will not be realized. The Company's
ability to realize the benefit of its tax assets depends on the generation of
future taxable income through profitable operations and expansion of the
Company's oil and gas producing properties. The market, capital and
environmental risks associated with that growth requirement caused the Company
to conclude that a valuation allowance should be provided, except to the extent
that the benefit of operating loss carryforwards can be used to offset future
reversals of existing deferred tax liabilities. The Company will continue to
monitor the need for the valuation allowance that has been provided.
Income tax expense for 1998, 1997 and 1996 differed from amounts computed by
applying the statutory federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Expected statutory tax expenses at 34% $(7,974) $ (401) $ 729
Change in valuation allowance, net 8,292 540 (740)
Other (318) (139) 11
------- ------- -------
Net tax expense $ -- $ -- $ --
======= ======= =======
</TABLE>
In 1997, $1.77 million of the valuation allowance was reversed upon the
acquisition of Farmout Inc. as the book basis in the purchased assets was
greater than the associated tax basis. No state or federal income taxes are
payable at December 31, 1998 or 1997, and the Company did not pay any income
taxes in 1998, 1997 or 1996.
At December 31, 1998, the Company had tax basis net operating loss
carryforwards available to offset future regular and alternative taxable income
of $38.0 million, that expire from 1999 to 2018. Utilization of the net
operating loss carryforwards are limited under the change of ownership tax
rules.
(9) CAPITAL STOCK
Common Stock
On May 22, 1996, the Company's shareholders approved a 1-for-10 reverse stock
split of the Company's common stock. The effect of the stock split was to lower
the authorized common shares from 100,000,000 shares to 10,000,000 shares and
reduce outstanding common shares from 40,927,999 shares to 4,092,800 shares.
The shareholders further approved an increase in the number of post-split
authorized shares from 10,000,000 shares to 25,000,000. All earnings per share
amounts and weighted average common and common equivalent shares outstanding as
reported on the consolidated statement of operations have been calculated based
on post-reverse split share amounts.
F-23
<PAGE> 60
Preferred Stock
On July 31, 1996, the Company sold an affiliate of Smith 950,000 shares of a
newly designated series of preferred stock of the Company (the "Series B
Stock") which has 1,000,000 shares designated in the series. A director of the
Company who is also a vice president of Smith entered into a similar agreement
pursuant to which he agreed to purchase the remaining 50,000 shares of Series B
Stock. The Series B Stock was issued by the Company for cash of $10.00 per
share (an aggregate of $10.0 million). Concurrently with the issuance of the
Series B Stock, the Company called for redemption of its outstanding Series A
Convertible Preferred Stock (the "Series A Stock"). Each record holder of
Series A Stock had the right to elect to receive either (i) cash in the amount
of $54.00 per share, or (ii) 9.6726 shares of common stock for each share of
Series A Stock. During 1996, 93,137 shares of Series A Stock elected to convert
into 900,831 shares of common stock. The remaining 13,713 shares of Series A
Stock were redeemed for $740,000.
The Series B Stock bears a dividend of 12% per annum on the Redemption Price
(defined below); has a liquidation preference over common stock equal to $10.00
per share plus any accumulated and unpaid dividends; is redeemable at a
"Redemption Price" equal to $10.00 per share, plus accumulated and unpaid
dividends; is convertible at a "Conversion Price" of $6.27 per share (divided
into the Redemption Price) subject to certain anti-dilution adjustments; and is
entitled to one vote per share of Series B Stock on all matters submitted to
the stockholders of the Company and will vote with the common stock as one
voting group or class, and not as a separate voting group or class, except
where required by law or except with regard to various amendments to the
Company's Articles of Incorporation affecting the Series B Stock or creating
another series of preferred stock with rights equal to or greater than the
rights of the Series B Stock. In addition, if at any time prior to July 31,
1998, (i) the Company sells all or substantially all of its assets other than
in the ordinary course of business, (ii) the Company merges or consolidates
with or into another person, (iii) a change of control of the Company occurs or
(iv) the Company is liquidated or dissolved, the holders of Series B Stock will
be entitled to a full two years of accumulated dividends in calculating amounts
payable upon liquidation, redemption or conversion to a number of calculated
common shares.
On July 21, 1997, the Company closed the sale of 100,000 shares of a newly
designated Series C Cumulative Convertible Preferred Stock (the "Series C Stock
") to an affiliate of Enron Corp. for cash of $10.0 million ($9.6 million net
of closing fees). Concurrently with the issuance of the Series C Stock, the
Company called for redemption its outstanding Series B Stock. The holders of
the Series B Stock waived redemption and instead elected to convert their
Series B Stock into 1,977,671 shares of the Company's common stock.
The Series C Stock is initially convertible at any time by the holder into
8.333 shares of the Company common stock, an effective conversion price of
$12.00 per share. The Series C Stock bears a dividend of 10% per annum.
Accumulated dividends may also be converted by the holder at the same ratio as
the Series C Stock. Subsequent to July 21, 2000, (the third anniversary), the
Company has the option to redeem for cash at par value ($100 per share) all
outstanding shares of Series C Stock plus accrued dividends. If not converted
by the holder or redeemed for cash by the Company prior to the later of (i)
July 21, 2005 (the eighth anniversary) or (ii) six months following maturity of
any high yield offering or long-term debt financing in the aggregate amount of
at least $25.0 million obtained after July 21, 1997, the Company must redeem
the Series C Stock and all
F-24
<PAGE> 61
accrued dividends for (i) cash or, at the Company's election, (ii) common stock
issued at 80% of the market price of the common stock on the day of redemption.
Given the Company's current financial situation, the fair value of this
financial instrument cannot be reasonably determined.
The Company must also redeem the Series C Stock if (i) the Company enters into
any new line of business (other than exploration, development and production of
oil and gas) and holders of Series C Stock elect to be redeemed prior to the
Company commencing such new line of business, (the holder however waived its
right to redeem its shares as a result of closing on the purchase of the Woods
Cross Refinery) or (ii) the Company proposes to enter into a merger,
consolidation or share exchange pursuant to which holders of common stock would
receive cash or other property (rather than stock in the surviving company) in
a per share amount less than the effective conversion price for the Series C
Stock (which is initially $12 per share). The Series C Stock votes with common
stockholders on all matters based on the number of shares of Company common
stock the Series C Stock is convertible into; except for the approval of
amendments to the Series C Stock, the authorization of any other series of
preferred stock having equal or greater rights, and the approval of any merger,
consolidation or share exchange involving the Company unless the holder of the
Series C Stock receives equivalent stock with equivalent rights. In these
instances, the Series C Stock votes as a separate class. The Series C Stock
also carries anti-dilution protection, rights to demand registration at the
Company's expense and a liquidation preference equal to par value of all
outstanding shares plus accrued dividends.
(10) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest during 1998, 1997 and 1996 was approximately
$11,629,000, $4,092,000 and $1,616,000, respectively.
During 1998, the Company paid interest on the Smith Farmout transaction, as
allowed by its terms, by issuing common stock valued at $866,000.
During 1996, the Company purchased Farmout Inc. by issuing common stock valued
at $6,542,000.
(11) COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space, railcars, catalyst and equipment under
noncancellable operating leases. The Company has sublet office space under a
previous office lease to a third party. The difference between the sublease
income over the life of the previous lease and the required rental payments to
be made by the Company was charged to expense in 1997. Lease payments under
these outstanding leases, net of the sublease income, are approximately as
follows (in thousands):
<TABLE>
<S> <C>
1999 $1,347
2000 1,168
2001 1,049
2002 917
2003 402
------
Total $4,883
======
</TABLE>
F-25
<PAGE> 62
Total lease expense during 1998, 1997 and 1996 was $962,000, $148,000 and
$108,000, respectively.
Environmental Laws and Regulations
The Company is subject to increasingly demanding environmental standards
imposed by federal, state and local laws and regulations. It is the policy of
the Company to comply with applicable environmental laws and regulations.
Governmental regulations covering environmental issues are very complex and are
subject to continual change. Accordingly, changes in the regulations or
interpretations thereof, and the ultimate settlement of the amounts sought from
other parties, could result in material future costs to the Company in excess
of the amounts accrued. In connection with the Crysen acquisition, the Company
established a reserve of $1.0 million to accrue for environmental obligations,
various amounts were expended during 1998 against this accrual. As of December
31, 1998, the Company has a remaining accrual of $875,000 as management's
estimate of the most likely liability. The range of the liability is estimated
to be 44% lower and 11% higher. The Company is currently assessing the impact
of proposed Clean Air legislation on it operations.
401(k) Plan
The Company provides a voluntary 401(k) employee savings plan which covers all
full-time employees who meet certain eligibility requirements. Voluntary
contributions are made to the 401(k) Plan by participants. In addition, the
Company matches 100% of the first 6% of salary contributed by each employee.
Effective January 1, 1999, the Company match was reduced to 100% of the first
2% of salary contributed. Matching contributions of $373,000, $50,000 and
$17,000 were made by the Company during 1998, 1997 and 1996, respectively.
Legal Proceedings
The Company is from time to time involved in various legal proceedings
characterized as normally incidental to the business. Management believes its
defenses to any existing litigation will be meritorious and any adverse
decisions in any pending or threatened proceedings or any amounts which it may
be required to pay by reason thereof will not have a material adverse effect on
its financial condition or results of operations.
(12) STOCK OPTIONS AND WARRANTS
1988 Stock Option Plan
On August 25, 1988, the Company's Board of Directors adopted an incentive stock
option plan (the "1988 Plan") for key employees and directors of the Company. A
total of 212,800 shares of common stock are reserved for issuance under the
1988 Plan. All options under the Plan are granted and become exercisable 90
days after grant date and expire 10 years from the date of grant. All options
were exercisable at December 31, 1998.
F-26
<PAGE> 63
1997 Stock Option Plan
On April 30, 1997, another incentive stock option plan (the "1997 Plan") was
adopted by the Board of Directors for the benefit of key employees and
directors of the Company. Options under the 1997 Plan vest based upon the
determination made by the Company's Compensation Committee at the time of
grant, and expire 10 years from the date of grant. The Company reserved 500,000
shares for grant under the 1997 Plan of which 118,500 options (determined to
vest immediately) were granted during 1997 and 1998 at prices equal to the
market value of the Company's stock on the date of grant. There are 381,500
shares available for grant as of December 31, 1998.
A summary of option grants, exercise and average prices under both the plans is
presented below:
<TABLE>
<CAPTION>
Weighted Option Weighted
Average Exercise Fair Value
Number of Exercise Price of Options
Options Price Range Granted
--------- --------- -------------------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 150,460 $ 4.74 $2.50 - $ 11.50
Granted 62,340 6.54 5.00 - 6.87 $2.99
====
Exercised (8,500) 5.31 3.13 - 6.50
------- ------ -------------------
Balance, December 31, 1996 204,300 5.26 2.50 - 11.50
Granted 88,500 10.36 8.50 - 11.00 $5.54
====
Exercised (70,100) 4.69 3.13 - 6.87
------- ------ -------------------
Balance, December 31, 1997 222,700 7.58 2.50 - 11.50
Granted 30,000 8.44 8.44 - 8.44 $6.08
====
Exercised (6,800) 5.46 2.50 - 6.87
------- ------ -------------------
Balance, December 31, 1998* 245,900 $ 7.64 $ 2.50 $ 11.50
======= ====== ======== ========
</TABLE>
*All options are exercisable as of December 31, 1998.
Non-Plan Grants
On May 22, 1996, the Warrant Agreement entered into on February 23, 1993, with
the co-chief executive officer of the Company was terminated. The Warrant
Agreement provided for the automatic grant of five-year warrants equal to 5% of
the number of shares issued by the Company with an exercise price equal to the
price at which such shares were issued. In consideration for the termination of
the Warrant Agreement, the Compensation Committee extended the term of all
warrants granted under the agreement (a total of 201,911 warrants) to June 1,
2003. All such warrants were outstanding and exercisable at December 31, 1998.
F-27
<PAGE> 64
From time to time the Company grants nonqualified warrants and options to
purchase common stock to its executive officers. The grants have vesting
periods ranging from immediate to three years. The grants' lives vary from five
to ten years. The table below summarizes the activities associated with these
grants to executive officers.
<TABLE>
<CAPTION>
Weighted
Weighted Warrant Fair Value
Number of Average Exercise of Options
Options and Exercise Price and Warrants
Warrants Price Range Granted
--------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 201,911 $ 4.93 $5.00 - $ 6.51
Terminated (201,911) 4.93 5.00 - 6.51
Granted 401,911 5.36 3.13 - 6.50 $2.51
====
-------- ------ --------------
Balance, December 31, 1996 401,911 5.36 3.13 - 6.50
Granted 545,000 10.33 9.00 - 11.00 $4.89
====
-------- ------ --------------
Balance, December 31, 1997
and 1998* 946,911 $ 8.21 $3.13 - $11.00
======== ====== ===== ======
Non plan options and warrants
exercisable as of
December 31, 1998 624,411 $ 7.15
======= ======
</TABLE>
*No activity during 1998.
As discussed in Note 7, during 1997, a warrant to purchase 100,000 shares of
common stock was issued to TCW in conjunction with the debt offering. These
warrants vest on September 23, 2000 and have a ten year life. The discounted
value ascribed to these warrants was $1,300,000 and was recorded as warrants
outstanding on the date of grant.
During 1997, the Company also granted warrants to purchase 300,000 shares of
common stock to four officers of the Company at a grant price of $16.00 per
warrant. These grants are not actually considered outstanding until certain
performance targets have been met by the Company. The grant period begins on
November 11, 2000 and extends over a three year period. As a result of the
unknown market price at the time of actual grant, these warrants are accounted
for as a variable option plan and the value of the grant is marked-to-market. As
of December 31, 1998, no compensation expense has been recorded associated with
these warrants.
On March 15, 1995, the Company issued a consultant a warrant to purchase 25,000
shares of Common Stock at $6.50 per share. The warrant was exercised in 1998.
F-28
<PAGE> 65
The Company has elected to account for grants of stock options and warrants
granted to employees and non-employee directors of the Company under APB
Opinion No. 25. If compensation expense for grants of stock options and
warrants had been determined consistent with Statement on Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net
income (loss) and earnings per share ("EPS") would have been reduced to the
following pro forma amounts (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) As reported $(23,452) $(1,179) $2,145
Pro forma (24,714) (5,734) 1,451
Basic EPS As reported (2.93) (0.30) 0.38
Pro forma (3.08) (0.92) 0.29
Diluted EPS As reported (2.93) (0.30) 0.30
Pro forma (3.08) (0.92) 0.23
</TABLE>
Due to the requirements of Statement No. 123, the calculated compensation
expense in 1998, 1997 and 1996 as adjusted in the pro forma amounts above, may
not be representative of compensation expense to be calculated in future years.
The pro forma adjustments are calculated using an estimate of the fair value of
each option and warrant on the date of grant. The Company used the following
assumptions within the Black-Scholes pricing model to estimate the fair value
of stock option and warrant grants in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Weighted average remaining life 5 years 4.9 years 4.8 years
Risk-free interest rate 5.3% 5.7% to 6.5% 5.1% to 7.3%
Expected dividend yield 0% 0% 0%
Expected lives 5 years 3 to 5 years 3 to 5 years
Expected volatility 87.5% 54.3% 57.1%
</TABLE>
(13) SEGMENT AND RELATED INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" that established standards for reporting
information about operating segments. SFAS No. 131 also establishes standards
for related disclosures about products and services and major customers.
The Company operates in two segments; oil and gas exploration, development and
production ("E&P") operations in the Monument Butte Field in Utah and crude oil
refining in Woods Cross, Utah. No segment disclosures are presented for 1997 or
1996 as Inland operated only in the E&P segment until the acquisition of the
Woods Cross Refinery on December 31, 1997 for $22.9 million. Segment
disclosures for the year ended December 31, 1998 are as follows (in thousands).
F-29
<PAGE> 66
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------
E&P Refinery Eliminations Total
------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Revenues from external customers $ 14,920 $ 68,477 $ -- $ 83,397
Revenues from transactions with operating
segments of the same enterprise 6,358 -- (6,358) --
Interest income and other 604 215 (498) 321
Interest expense 14,895 892 (497) 15,290
Lease operating and production taxes 8,816 -- -- 8,816
Depreciation, depletion and amortization 12,025 770 -- 12,795
Extraordinary items -- 212 -- 212
Capital additions 39,391 5,936 -- 45,327
Total assets at December 31, 1998 183,389 27,222 (14,782) 195,829
</TABLE>
Sales to the following Company's represented 10% or more of the Company's
revenues (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Customer A $19,141 $ -- $ --
Customer B 11,232 -- --
Customer C 10,370 12,320 10,129
Customer D -- 3,086 1,196
</TABLE>
(14) OIL AND GAS PRODUCING ACTIVITIES
Cost Incurred in Oil and Gas Producing Activities (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Unproved property acquisition cost $ 303 $12,543 $ 189
Proved property acquisition cost 105 56,989 363
Development cost 37,709 28,563 21,577
Exploration cost 153 61 875
------- ------- -------
Total $38,270 $98,156 $23,004
======= ======= =======
</TABLE>
F-30
<PAGE> 67
Net Capital Costs
Net capitalized costs related to the Company's oil and gas producing activities
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Unproved properties $ 14,585 $ 13,806 $ 6,165
Proved properties 161,472 127,500 39,693
Gas and water transportation facilities 4,481 2,523 975
--------- --------- ---------
Total 180,538 143,829 46,833
Accumulated depletion, depreciation and
amortization (21,433) (10,009) (3,835)
--------- --------- ---------
Total $ 159,105 $ 133,820 $ 42,998
========= ========= =========
</TABLE>
Results of Operations For Oil and Gas Producing Activities
Had the Company been in position to pay income taxes based on the statutory tax
rate for the period, the results of operations, defined as revenues, less
production costs, exploration expenses, depreciation, depletion and
amortization, valuation provisions and income taxes would have been $187,000,
$4,275,000 and $3,342,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Standardized Measure of Discounted
Future Net Cash Flows (Unaudited)
SFAS No. 69 "Disclosures about Oil and Gas Producing Activities" ("SFAS No.
69")prescribes guidelines for computing a standardized measure of future net
cash flow and changes therein relating to estimated proved reserves. The
Company has followed these guidelines which are briefly discussed below.
Future cash inflows and future production and development costs are determined
by applying yearend prices and costs to the estimated quantities of oil and gas
to be produced. Estimated future income taxes are computed using current
statutory income tax rates including consideration for estimated future
statutory depletion. The resulting future net cash flows are reduced to present
value amounts by applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed
by the Financial Accounting Standards Board and, as such, do not necessarily
reflect the Company's expectations of actual revenues to be derived from those
reserves nor their present worth. The limitations inherent in the reserve
quantity estimation process, as discussed previously, are equally applicable to
the standardized measure computations since these estimates are the basis for
the valuation process.
F-31
<PAGE> 68
The following summary sets forth the Company's future net cash flows relating
to proved oil and gas reserves based on the standardized measure prescribed in
SFAS No. 69 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Future cash inflows $ 183,642 $ 694,065 $ 210,473
Future production costs (88,870) (251,434) (63,007)
Future development costs -- (232,087) (31,941)
Future income tax provision -- (33,394) (27,174)
--------- --------- ---------
Future net cash flows 94,772 177,150 88,351
Less effect of 10% discount factor (40,659) (98,528) (35,368)
--------- --------- ---------
Standardized measure of discounted
future net cash flows $ 54,113 $ 78,622 $ 52,983
========= ========= =========
</TABLE>
The principal sources of changes in the standardized measure of discounted
future net cash flows are as follows for the years ended December 31, 1998,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Standardized measure, beginning of year $ 78,622 $ 52,983 $ 9,431
Purchase of reserves in place 76 45,747 5,398
Sales of oil and gas produced, net of
production costs (12,462) (13,019) (8,659)
Net change in prices, net production cost (96,051) (42,277) 13,448
Extensions, discoveries and improved
recovery, net 7,910 12,922 96,807
Revisions of previous quantity estimates (58,104) 12,351 1,428
Change in future development costs 232,087 9,557 (16,122)
Net change in income taxes 15,200 3,706 (22,954)
Accretion of discount 9,384 7,190 (13,838)
Changes in production rates and other (122,549) (10,538) (11,956)
--------- --------- ---------
Standardized measure, end of year $ 54,113 $ 78,622 $ 52,983
========= ========= =========
</TABLE>
Oil and Gas Reserve Quantities (Unaudited)
The reserve information presented below is based upon reports prepared by the
Company's in-house petroleum engineer and reviewed by the independent petroleum
engineering firm of Ryder Scott Company. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new discoveries are
more imprecise than those of producing oil and gas properties. As a result,
revisions to previous estimates are expected to occur as additional production
data becomes available or economic factors change.
F-32
<PAGE> 69
Proved oil and gas reserves are estimated quantities of crude oil, natural gas
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed oil and gas
reserves are those expected to be recovered through existing wells with
existing equipment and operating methods. The impact of oil and gas prices has
a significant impact on the standardized measure. Future increases or decreases
in oil or gas prices increase or decrease the value of the standardized measure
accordingly. As of December 31, 1998, the Company used prices of $7.60 per Bbl
and $2.34 per Mcf which is reflective of the actual price received by the
Company. The Company is currently receiving approximately $11.00 per Bbl and
$1.90 per Mcf for the sale of its oil and gas.
Presented below is a summary of the changes in estimated proved reserves of the
Company, all of which are located in the United States, for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
Oil (MBbl) Gas (MMcf) Oil (MBbl) Gas (MMcf) Oil (MBbl) Gas (MMcf)
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves, beginning of year 37,135 75,483 7,312 10,188 3,016 5,663
Purchase of reserves in place 21 14 15,071 26,387 485 1,202
Extensions and discoveries -- -- 12,836 34,744 3,950 5,807
Improved recoveries 3,145 2,814 1,723 (1,870) -- --
Production (1,501) (3,006) (855) (1,637) (502) (710)
Revisions of previous estimates (20,198) (57,242) 1,048 7,671 363 (1,774)
------- ------- ------- ------- ------- -------
Proved reserves, end of year 18,602 18,063 37,135 75,483 7,312 10,188
======= ======= ======= ======= ======= =======
Proved developed reserves,
beginning of year 12,980 15,224 4,385 5,409 1,227 1,223
======= ======= ======= ======= ======= =======
Proved developed reserves,
end of year 18,394 18,030 12,980 15,224 4,385 5,409
======= ======= ======= ======= ======= =======
</TABLE>
(15) QUARTERLY EARNINGS (UNAUDITED)
Summarized unaudited quarterly financial data for 1998 and 1997 is as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Revenues $ 22,081 $ 21,753 $ 20,845 $ 18,718
Operating income (loss) (603) 1,356 (459) (8,565)
Net loss before extraordinary item (3,870) (2,136) (4,224) (13,010)
Net loss (3,870) (2,348) (4,224) (13,010)
Basic and diluted loss per share
before extraordinary item (0.49) (0.28) (0.53) (1.60)
Basic and diluted loss per share (0.49) (0.31) (0.53) (1.60)
</TABLE>
F-33
<PAGE> 70
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Revenues $3,602 $2,885 $3,915 $6,780
Operating income 1,114 587 860 1,798
Net income (loss) before
extraordinary item 631 78 323 (1,051)
Net income (loss) 631 (768) 28 (1,051)
Basic earnings (loss) per share
before extraordinary item 0.10 0.01 (0.03) (0.15)
Diluted earnings (loss) per share
before extraordinary item 0.08 0.01 (0.03) (0.15)
Basic earnings (loss) per share 0.10 (0.12) (0.07) (0.15)
Diluted earnings (loss) per share 0.08 (0.09) (0.07) (0.15)
</TABLE>
F-34
<PAGE> 71
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item
Number Description
------ -----------
<S> <C>
2.1 Agreement and Plan of Merger between Inland Resources Inc.
("Inland"), IRI Acquisition Corp. and Lomax Exploration
Company (exclusive of all exhibits) (filed as Exhibit 2.1 to
Inland's Registration Statement on Form S-4, Registration
No. 33-80392, and incorporated herein by this reference).
3.1 Amended and Restated Articles of Incorporation, as amended
through July 21, 1997 (filed as Exhibit 3.1 to Inland's Form
10-QSB for the quarter ended June 30, 1997, and incorporated
herein by reference).
3.2 By-Laws of Inland (filed as Exhibit 3.2 to Inland's
Registration Statement on Form S-18, Registration No.
33-11870-F, and incorporated herein by reference).
3.2.1 Amendment to Article IV, Section 1 of the Bylaws of Inland
adopted February 23, 1993 (filed as Exhibit 3.2.1 to
Inland's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, and incorporated herein by
reference).
3.2.2 Amendment to the Bylaws of Inland adopted April 8, 1994
(filed as Exhibit 3.2.2 to Inland's Registration Statement
on Form S-4, Registration No. 33-80392, and incorporated
herein by reference).
3.2.3 Amendment to the Bylaws of Inland adopted April 27, 1994
(filed as Exhibit 3.2.3 to Inland's Registration Statement
on Form S-4, Registration No. 33-80392, and incorporated
herein by reference).
4.1 Credit Agreement dated September 23, 1997 between Inland
Production Company ("IPC"), Inland, ING (U.S.) Capital
Corporation, as Agent, and Certain Financial Institutions,
as banks (filed as Exhibit 4.1 to Inland's Current Report on
Form 8-K dated September 23, 1997, and incorporated herein
by reference).
4.1.1 Third Amendment to Credit Agreement entered into as of
April 22, 1998, amending Exhibit 4.1 (filed as Exhibit 4.1.1
to Inland's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, and incorporated herein by reference).
* 4.1.2 Amended and Restated Credit Agreement dated as of
September 11, 1998 amending and restating Exhibit 4.1.
* 4.1.3 First Amendment to Amended and Restated Credit Agreement
dated as of March 5, 1999 amending Exhibit 4.1.2.
</TABLE>
<PAGE> 72
<TABLE>
<S> <C>
4.2 Credit Agreement dated September 23, 1997, among IPC,
Inland, Trust Company of the West, and TCW Asset Management
Company, in the capacities described therein (filed as
Exhibit 4.2 to Inland's Current Report on Form 8-K dated
September 23, 1997, and incorporated herein by reference).
4.2.1 Second Amendment to Credit Agreement entered into as of
April 22, 1998, amending Exhibit 4.2 (filed as Exhibit 4.2.1
to Inland's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, and incorporated herein by reference).
* 4.2.2 Amended and Restated Credit Agreement dated as of
September 11, 1998, amending and restating Exhibit 4.2.
* 4.2.3 First Amendment to Amended and Restated Credit Agreement
dated as of March 5, 1999, amending Exhibit 4.2.2.
4.3 Intercreditor Agreement dated September 23, 1997, between
IPC, TCW Asset Management Company, Trust Company of the West
and ING (U.S.) Capital Corporation (filed as Exhibit 4.3 to
Inland's Current Report on Form 8-K dated September 23,
1997, and incorporated herein by reference).
4.3.1 Third Amendment to Intercreditor Agreement entered into as
of April 22, 1998, amending Exhibit 4.3 (filed as Exhibit
4.3.1 to Inland's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, and incorporated herein by
reference).
* 4.3.2 Amended and Restated Intercreditor Agreement dated as of
September 11, 1998, amending and restating Exhibit 4.3.
* 4.3.3 First Amendment to Amended and Restated Intercreditor
Agreement dated as of March 5, 1999, amending Exhibit 4.3.2.
4.4 Warrant Agreement by and between Inland and TCW Portfolio
No. 1555 DR V Sub-Custody Partnership, L.P. dated September
23, 1997 (filed as Exhibit 4.4 to Inland's Current Report on
Form 8-K dated September 23, 1997, and incorporated herein
by reference).
4.5 Warrant issued by Inland pursuant to the Warrant Agreement,
dated September 23, 1997, representing the right to purchase
100,000 shares of Inland's Common Stock (filed as Exhibit
4.5 to Inland's Current Report on Form 8-K dated September
23, 1997, and incorporated herein by reference).
4.6 Credit Agreement dated as of December 24, 1997 between
Inland Refining, Inc. and Banque Paribas (without exhibits)
(filed as Exhibit 4.1 to the Company's Current Report on
Form 8-K dated December 31, 1997, and incorporated herein by
reference).
10.1 1988 Option Plan of Inland Gold and Silver Corp. (filed as
Exhibit 10(15) to Inland's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, and incorporated
herein by reference).
10.1.1 Amended 1988 Option Plan of Inland Gold and Silver Corp.
(filed as Exhibit 10.10.1 to Inland's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.1.2 Amended 1988 Option Plan of Inland, as amended through
August 29, 1994 (including amendments increasing the number
of shares to 212,800 and changing "formula award") (filed as
Exhibit 10.1.2 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
</TABLE>
<PAGE> 73
<TABLE>
<S> <C>
10.1.3 "Automatic Adjustment to Number of Shares Covered by Amended
1988 Option Plan" executed effective June 3, 1996 (filed as
Exhibit 10.1 to Inland's Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1996, and incorporated herein by
reference).
10.2 Warrant Agreement and Warrant Certificate between Kyle R.
Miller and Inland dated February 23, 1993 (filed as Exhibit
10.2 to Inland's Current Report on Form 8-K dated February
23, 1993, and incorporated herein by reference).
10.2.1 Warrant Certificate between Kyle R. Miller and Inland dated
October 15, 1993 representing 3,150 shares (filed as Exhibit
10.2.1 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein
by reference).
10.2.2 Warrant Certificate between Kyle R. Miller and Inland dated
March 22, 1994 representing 5,715 shares (filed as Exhibit
10.2.2 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein
by reference).
10.2.3 Warrant Certificate between Kyle R. Miller and Inland dated
September 21, 1994 representing 44,811 shares (filed as
Exhibit 10.2.3 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
10.2.4 Warrant Certificate between Kyle R. Miller and Inland dated
September 21, 1994 representing 38,523 shares (filed as
Exhibit 10.2.4 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
10.2.5 Warrant Certificate between Kyle R. Miller and Inland dated
September 21, 1994 representing 30,000 shares (filed as
Exhibit 10.2.5 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
10.2.6 Amendment to Warrant Certificates filed as Exhibits 10.2,
10.2.1 and 10.2.2 (filed as Exhibit 10.2.6 to Inland's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
10.2.7 Warrant Certificate between Kyle R. Miller and Inland dated
November 16, 1993 representing 1,500 shares (filed as
Exhibit 10.2.7 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, and incorporated
herein by reference).
10.2.8 Warrant Certificate between Kyle R. Miller and Inland dated
March 15, 1995 representing 1,250 shares (filed as Exhibit
10.2.8 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, and incorporated herein
by reference).
10.2.9 Warrant Certificate between Kyle R. Miller and Inland dated
November 6, 1995 representing 30,000 shares (filed as
Exhibit 10.2.9 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, and incorporated
herein by reference).
10.2.10 First Amendment to Warrant Agreement between Inland and
Kyle R. Miller dated October 19, 1995 (filed as Exhibit 10.1
to Inland's Quarterly Report on Form 10-QSB for the fiscal
quarter ended September 30, 1995, and incorporated herein by
reference).
10.2.11 Warrant Certificate between Inland and Kyle R. Miller dated
May 22, 1996 (corrected version) (filed as Exhibit 10.2.11
to Inland's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996, and incorporated herein by
reference).
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10.2.12 Warrant Certificate between Inland and Kyle R. Miller dated
January 23, 1997 representing 70,000 shares (filed as
Exhibit 10.2.12 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, and incorporated
herein by reference).
10.2.13 Option Certificate between Inland and Kyle R. Miller dated
November 10, 1997 representing 225,000 shares (filed as
Exhibit 10.2.13 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997, and incorporated
herein by reference).
10.3 Employment Agreement between Inland and Kyle R. Miller dated
June 1, 1996 (filed as Exhibit 10.2 to Inland's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1996,
and incorporated herein by reference).
10.4 Employment Agreement between Inland and Bill I. Pennington
dated June 1, 1996 (corrected version) (filed as Exhibit
10.9.2 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996, and incorporated herein
by reference).
10.5 Chevron Crude Oil Purchase Contract No. 531144 dated
October 25, 1998, as amended by Amendment No. 1 dated
November 27, 1989, Amendment No. 2 dated September 12, 1990,
Amendment 3 dated July 15, 1991, Amendment No. 4 dated
January 22, 1992, Amendment No. 5 dated January 13, 1993,
and the March 4, 1992 letter from Chevron U.S.A. Products
Company to all Chevron Products Company customers (filed as
Exhibit 10.29 to Inland's Registration Statement on Form
S-4, Registration No. 33 80392, and incorporated herein by
reference).
10.6 Registration Rights Agreement dated September 21, 1994
between Inland and Energy Management Corporation, a wholly
owned subsidiary of Smith Management Company, Inc. and the
assignee of Smith Management Company, Inc. under the
Subscription Agreement filed as Exhibit 10.9 (filed as
Exhibit 10.19 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated
herein by reference).
10.6.1 Correspondence constituting an amendment/clarification of
the Registration Rights Agreement filed as Exhibit 10.10
(filed as Exhibit 10.19.1 to Inland's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994, and
incorporated herein by reference).
10.6.2 Registration Rights Agreement dated March 20, 1995 between
Inland and Energy Management Corporation (filed as Exhibit
10.19.2 to Inland's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein
by reference).
10.7 Warrant Certificate dated November 22, 1995 granted by
Inland to Randall D. Smith, together with Exhibit "A", a
Registration Rights Agreement (filed as Exhibit 10.29.1 to
Inland's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995, and incorporated herein by
reference).
10.7.1 Form of Registration Rights Agreement dated June 12, 1996
between Inland, Smith Management Company, Inc. and Randall
D. Smith, Jeffrey A. Smith and John W. Adams (filed as
Exhibit 10.2 to Inland's Current Report on Form 8-K dated
June 12, 1996, and incorporated herein by reference).
10.7.2 Security Agreement dated June 12, 1996 between
Randall D. Smith, Jeffrey A. Smith and John W. Adams and
Inland (filed as Exhibit 10.3 to Inland's Current Report on
Form 8-K dated June 12, 1996, and incorporated herein by
reference).
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10.7.3 Form of Agreement dated June 12, 1996 between Inland and
Arthur J. Pasmas (filed as Exhibit 10.4 to Inland's Current
Report on Form 8-K dated June 12, 1996, and incorporated
herein by reference).
10.7.4 Form of Registration Rights Agreement entered into as of
July 31, 1996 between Inland and Arthur J. Pasmas (filed as
Exhibit 10.5 to Inland's Current Report on Form 8-K dated
June 12, 1996, and incorporated herein by reference).
10.7.5 Form of Amendment to Registration Rights Agreement filed as
Exhibit 10.29.6 (filed as Exhibit 10.29.7 to Inland's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1996, and incorporated herein by reference).
10.8 Crude Oil Call/Put Option (Costless Collar) between IPC and
Koch Gas Services Company dated November 20, 1995 (filed as
Exhibit 10.30 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, and incorporated
herein by reference).
10.9 Swap Agreement dated November 22, 1994 between Inland and
Joint Energy Development Investments Limited Partnership
(filed as Exhibit 10.1 to Inland's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 1995, and
incorporated herein by reference).
10.10 Employment Agreement between Inland and John E. Dyer dated
June 1, 1996 (corrected version) (filed as Exhibit 10.35 to
Inland's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996, and incorporated herein by
reference).
10.10.1 Amendment to Employment Agreement filed as Exhibit 10.26
(filed as Exhibit 10.35.1 to Inland's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996, and
incorporated herein by reference).
10.11 Warrant Certificate between Inland and John E. Dyer dated
May 22, 1996 representing 50,000 shares (corrected version)
(filed as Exhibit 10.37 to Inland's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996, and
incorporated herein by reference).
10.11.1 Warrant Certificate between Inland and John E. Dyer dated
January 23, 1997 representing 70,000 shares (filed as
Exhibit 10.37.1 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, and incorporated
herein by reference).
10.11.2 Option Certificate between Inland and John E. Dyer dated
November 10, 1997 representing 150,000 shares (filed as
Exhibit 10.28.2 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997, and incorporated
herein by reference).
10.12 Warrant Certificate between Inland and Bill I. Pennington
dated May 22, 1996 representing 50,000 shares (corrected
version) (filed as Exhibit 10.38 to Inland's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1996,
and incorporated herein by reference).
10.12.1 Warrant Certificate between Inland and Bill I. Pennington
dated January 23, 1997 representing 60,000 shares (filed as
Exhibit 10.38.1 to Inland's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996, and incorporated
herein by reference).
10.12.2 Option Certificate between Inland and Bill I. Pennington
dated November 10, 1997 representing 125,000 shares (filed
as Exhibit 10.29.2 to Inland's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997, and
incorporated herein by reference).
10.13 Option Certificate between Inland and Michael J. Stevens
dated November 10, 1997
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representing 100,000 shares (filed as Exhibit 10.30 to
Inland's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997, and incorporated herein by
reference).
10.14 Letter agreement dated October 30, 1996 between Inland and
Johnson Water District (filed as Exhibit 10.41 to Inland's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996, and incorporated herein by reference).
10.15 Collar between Koch Oil Company and Inland effective
January 1, 1997 (filed as Exhibit 10.42 to Inland's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1996, and incorporated herein by reference).
10.16 Securities Purchase Agreement dated July 21, 1997 between
Inland and Joint Energy Development Investments Limited
Partnership (filed as Exhibit 10.1 to Inland's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1997,
and incorporated herein by reference).
10.16.1 Registration Rights Agreement dated July 21, 1997 between
Inland and Joint Energy Development Investments Limited
Partnership (filed as Exhibit 10.2 to Inland's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1997,
and incorporated herein by reference).
10.17 Employment Agreement between Inland and Michael J. Stevens
dated May 1, 1997 (filed as Exhibit 10.39 to Inland's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1997, and incorporated herein by reference).
10.18 Interest Rate Cap Agreement dated April 30, 1998 between
IPC and Enron Capital and Trade Resources Corp. (filed as
Exhibit 10.4 to Inland's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, and incorporated herein by
reference).
10.19 Farmout Agreement between Inland and Smith Management LLC
dated effective as of June 1, 1998 (filed as Exhibit 10.1 to
Inland's Current Report on Form 8-K dated June 1, 1998, and
incorporated herein by reference).
* 10.20 Warrant Agreement dated as of March 5, 1999 between Inland
Resources Inc. and TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P.
* 10.21 Warrant Certificate dated March 5, 1999 between Inland and
TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P.
representing 58,512 shares.
* 10.22 Swap Agreement dated March 10, 1999 between Inland and Enron
Capital and Trade Resources Corp.
* 10.23 Swap Agreement dated March 10, 1999 between Inland and Enron
Capital and Trade Resources Corp.
* 21.1 Subsidiaries of Inland.
* 23.1 Consent of Arthur Andersen LLP.
* 23.2 Consent of Ryder Scott Company Petroleum Engineers.
* 27.1 Financial Data Schedule.
</TABLE>
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* Filed herewith
<PAGE> 1
EXHIBIT 4.1.2
Execution
===============================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------------------------
INLAND PRODUCTION COMPANY
Borrower
INLAND RESOURCES INC.
as Guarantor
and
ING (U.S.) CAPITAL CORPORATION
as Agent
and CERTAIN FINANCIAL INSTITUTIONS
as Banks
-------------------------------------------------------
September 11, 1998
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
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CREDIT AGREEMENT..............................................................1
ARTICLE I - Definitions and References........................................1
Section 1.1. Defined Terms..............................................1
Section 1.2. Annexes, Exhibits and Schedules; Additional Definitions....6
Section 1.3. Amendment of Defined Instruments...........................6
Section 1.4. References and Titles......................................7
Section 1.5. Calculations and Determinations............................7
ARTICLE II - The Loans........................................................7
Section 2.1. Commitments to Lend; Notes.................................7
Section 2.2. Requests for New Loans.....................................8
Section 2.3. Continuations and Conversions of Existing Loans............8
Section 2.4. Use of Proceeds............................................9
Section 2.5. Fees......................................................10
Section 2.6. Optional Prepayments......................................10
Section 2.7. Mandatory Prepayments.....................................10
Section 2.9. Initial Borrowing Base....................................12
Section 2.10. Subsequent Determinations of Borrowing Base...............12
Section 2.11. Letters of Credit.........................................13
Section 2.12. Requesting Letters of Credit..............................13
Section 2.13. Reimbursement and Participations..........................14
Section 2.14. Letter of Credit Fees.....................................15
Section 2.15. No Duty to Inquire........................................15
Section 2.16. LC Collateral.............................................16
ARTICLE III - Payments to Banks..............................................17
Section 3.1. General Procedures........................................17
Section 3.2. Capital Reimbursement.....................................18
Section 3.3. Increased Cost of Eurodollar Loans and Letters of Credit..18
Section 3.4. Availability..............................................19
Section 3.5. Funding Losses............................................19
Section 3.6. Reimbursable Taxes........................................19
Section 3.7. Change of Applicable Lending Office.......................21
Section 3.8. Replacement of Banks......................................21
ARTICLE IV - Conditions Precedent to Effectiveness...........................21
Section 4.1. Documents to be Delivered.................................21
Section 4.2. Additional Conditions Precedent...........................22
ARTICLE V - Representations and Warranties...................................23
ARTICLE VI - Affirmative Covenants of Borrower and Parent....................23
Section 6.1. Payment and Performance...................................23
Section 6.2. Agreement to Deliver Security Documents...................23
Section 6.3. Perfection and Protection of Security Interests and
Liens.....................................................24
Section 6.4. Bank Accounts; Offset.....................................24
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Section 6.5. Guaranties of Parent's Subsidiaries.......................24
Section 6.6. Production Proceeds.......................................24
Section 6.7. TCW Debt..................................................25
ARTICLE VII - Events of Default and Remedies.................................25
Section 7.1. Events of Default.........................................25
Section 7.2. Acceleration..............................................25
Section 7.3. Remedies..................................................25
ARTICLE VIII - Agent.........................................................26
Section 8.1. Appointment and Authority.................................26
Section 8.2. Exculpation, Agent's Reliance, Etc........................26
Section 8.3. Credit Decisions..........................................26
Section 8.4. Indemnification...........................................27
Section 8.5. Rights as Bank............................................27
Section 8.6. Sharing of Set-Offs and Other Payments....................27
Section 8.7. Investments...............................................28
Section 8.8. Benefit of Article VIII...................................28
Section 8.9. Resignation...............................................28
ARTICLE IX - Miscellaneous...................................................28
Section 9.1. Waivers and Amendments; Acknowledgements..................28
Section 9.2. Survival of Agreements; Cumulative Nature.................30
Section 9.3. Notices...................................................30
Section 9.4. Payment of Expenses; Indemnity............................30
Section 9.5. Joint and Several Liability; Parties in Interest;
Assignment................................................31
Section 9.6. Confidentiality...........................................33
Section 9.7. Governing Law; Submission to Process......................33
Section 9.8. Limitation on Interest....................................34
Section 9.9. Termination; Limited Survival.............................34
Section 9.10. Severability..............................................35
Section 9.11. Counterparts..............................................35
Section 9.12. Waiver of Jury Trial, Punitive Damages, etc...............35
Section 9.13. Amendment and Restatement.................................35
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<PAGE> 4
Annexes, Schedules and Exhibits:
Annex A - Common Definitions
Annex B - Common Representations and Warranties
Annex C - Common Covenants
Annex D - Common Events of Default
Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 3 - Insurance Schedule
Schedule 4 - Bank Schedule
Exhibit A - Promissory Note
Exhibit B - Borrowing Notice
Exhibit C - Continuation/Conversion Notice
Exhibit D - Certificate Accompanying Financial Statements
Exhibit E - Environmental Compliance Certificate
Exhibit F-1 - Opinion of Glast, Phillips & Murray, P.C.
Exhibit G - Assignment and Assumption Agreement
iii
<PAGE> 5
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is made as of September 11,
1998 by and among Inland Production Company, a Texas corporation, (herein
called "Borrower"), Inland Resources Inc., a Washington corporation (herein
called "Parent"), ING (U.S.) Capital Corporation (herein called "Agent") and
the Banks referred to below. In consideration of the mutual covenants and
agreements contained herein the parties hereto agree as follows:
ARTICLE I - Definitions and References
Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:
"Agent" means ING (U.S.) Capital Corporation, as Agent hereunder
(including its capacity as LC Issuer hereunder), and its successors in such
capacity.
"Agreement" means this Amended and Restated Credit Agreement.
"Applicable Lending Office" means, with respect to each Bank, such
Bank's Domestic Lending Office in the case of Base Rate Loans and such Bank's
Eurodollar Lending Office in the case of Eurodollar Loans.
"Approval Letter" has the meaning given it in the Intercreditor
Agreement.
"Banks" means each signatory hereto (other than Borrower and Related
Persons a party hereto), including ING (U.S.) Capital Corporation in its
capacity as a Bank hereunder rather than as Agent, and the successors of each
such party as holder of a Note.
"Bank Parties" means Agent, LC Issuer, and all Banks.
"Bank Schedule" means Schedule 4 hereto.
"Base Rate" means the higher of (a) the Reference Rate and (b) the
Federal Funds Rate plus one-half percent (0.5%) per annum. For purposes of this
definition, "Reference Rate" means the arithmetic average of the rates of
interest publicly announced by The Chase Manhattan Bank, Citibank, N.A. and
Morgan Guaranty Trust Company of New York (or their respective successors) as
their respective prime commercial lending rates (or, as to any such bank that
does not announce such a rate, such bank's 'base' or other rate determined by
Agent to be the equivalent rate announced by such bank), except that, if any
such bank shall, for any period, cease to announce publicly its prime
commercial lending (or equivalent) rate, Agent shall, during such period,
determine the "Base Rate" based upon the prime commercial lending (or
equivalent) rates announced publicly by the other such banks. The Base Rate
shall in no event, however, exceed the Highest Lawful Rate.
"Base Rate Loan" means a Loan which does not bear interest at the
Eurodollar Rate.
"Borrower" means Inland Production Company, a Texas corporation.
"Borrowing" means a borrowing of new Loans of a single Type pursuant
to Section 2.2 or a continuation or conversion of existing Loans into a single
Type (and, in the case of Eurodollar Loans, with the same Interest Period)
pursuant to Section 2.3.
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<PAGE> 6
"Borrowing Base" means, at the particular time in question, either the
amount provided for in Section 2.9 or the amount determined by Agent in
accordance with the provisions of Section 2.10.
"Borrowing Base Deficiency" has the meaning given it in Section 2.7(b).
"Borrowing Notice" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in New York, New York.
Any Business Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Agent, significant transactions in dollars are carried out in the
interbank Eurocurrency market.
"Commitment Period" means the period from and including the date
hereof until and including March 31, 1999 (or, if earlier, the day on which the
Notes first become due and payable in full).
"Continuation/Conversion Notice" means a written or telephonic
request, or a written confirmation, made by Borrower which meets the
requirements of Section 2.3.
"Coverage Default" has the meaning given to such term in the TCW
Agreement.
"Coverage Deficiency" has the meaning given to such term in the TCW
Agreement.
"Default" means (a) any Event of Default and any default, event or
condition which would, with the giving of any requisite notices and the passage
of any requisite periods of time, constitute an Event of Default and (b) any
"Default" as defined in the TCW Agreement.
"Determination Date" has the meaning given it in Section 2.10.
"Domestic Lending Office" means, with respect to any Bank, the office
of such Bank specified as its "Domestic Lending Office" below its name on the
Bank Schedule attached hereto, or such other office as such Bank may from time
to time specify to Borrower and Agent.
"Eligible Transferee" means a Person which either (a) is a Bank, or
(b) is consented to as an Eligible Transferee by Agent and, so long as no Event
of Default is continuing by Borrower, which consents in each case will not be
unreasonably withheld (provided that no Person organized outside the United
States may be an Eligible Transferee if Borrower would be required to pay
withholding taxes on interest or principal owed to such Person).
"Eurodollar Loan" means a Loan which is properly designated as a
Eurodollar Loan pursuant to Section 2.2 or 2.3.
"Eurodollar Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Eurodollar Lending Office" below its name
on the Bank Schedule attached hereto (or, if no such office is specified, its
Domestic Lending Office), or such other office of such Bank as such Bank may
from time to time specify to Borrower and Agent.
2
<PAGE> 7
"Eurodollar Rate" means, with respect to each particular Eurodollar
Loan and the associated LIBOR Rate and Reserve Percentage, the rate per annum
calculated by Agent (rounded upwards, if necessary, to the next higher 0.01%)
determined on a daily basis pursuant to the following formula:
Eurodollar Rate =
LIBOR Rate + A
-----------------------
100.0% - Reserve Percentage
where A means 1.75%. The Eurodollar Rate for any Eurodollar Loan shall change
whenever the Reserve Percentage changes. No Eurodollar Rate shall ever exceed
the Highest Lawful Rate.
"Event of Default" has the meaning given it in Section 7.1.
"Facility Usage" means, at the time in question, the aggregate amount
of outstanding Loans and existing LC Obligations at such time.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day shall be the
average rate quoted to Agent on such day on such transactions as determined by
Agent.
"Guarantor" means any Person who has guaranteed some or all of the
Obligations pursuant to a guaranty listed on the Security Schedule or any other
Person who has guaranteed some or all of the Obligations and who has been
accepted by Agent as a Guarantor or any Subsidiary of Parent which now or
hereafter executes and delivers a guaranty to Agent pursuant to Section 6.5.
"Highest Lawful Rate" means, with respect to each Bank, the maximum
nonusurious rate of interest that such Bank is permitted under applicable Law
to contract for, take, charge, or receive with respect to its Loan. All
determinations herein of the Highest Lawful Rate, or of any interest rate
determined by reference to the Highest Lawful Rate, shall be made separately
for each Bank as appropriate to assure that the Loan Documents are not
construed to obligate any Person to pay interest to any Bank at a rate in
excess of the Highest Lawful Rate applicable to such Bank.
"Intercreditor Agreement" means that certain Amended and Restated
Intercreditor Agreement dated of even date herewith among Agent, Banks, Tamco,
Borrower, Parent, and Noteholders (as defined therein).
"Interest Period" means, with respect to each particular Eurodollar
Loan in a Borrowing, a period of 1, 2, 3 or 6 months, as specified in the
Borrowing Notice applicable thereto, beginning on and including the date
specified in such Borrowing Notice (which must be a Business Day), and ending
on but not including the same day of the month as the day on which it began
(e.g., a period beginning on the third day of one month shall end on but not
include the third day of another month), provided that each Interest Period
which would otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day (unless such next succeeding Business Day is the
first Business Day of a
3
<PAGE> 8
calendar month, in which case such Interest Period shall end on the immediately
preceding Business Day). No Interest Period may be elected which would extend
past the date on which the associated Note is due and payable in full.
"Late Payment Rate" means, at the time in question, two percent (2.0%)
per annum plus the Base Rate then in effect; provided that, with respect to any
Eurodollar Loan with an Interest Period extending beyond the date such
Eurodollar Loan becomes due and payable, "Late Payment Rate" shall mean two
percent (2.0%) per annum plus the related Eurodollar Rate. The Late Payment
Rate shall never exceed the Highest Lawful Rate.
"Lenders" means Agent and all Banks.
"Lending Office" means, with respect to any Bank, the office, branch,
or agency through which it funds its Eurodollar Loans; and with respect to
Agent, the office, branch, or agency through which it administers this
Agreement.
"LC Application" means any application for a Letter of Credit
hereafter made by Borrower to LC Issuer.
"LC Collateral" has the meaning given it in Section 2.16(a).
"LC Issuer" means, collectively, ING (U.S.) Capital Corporation and
U.S. Bank National Association, or either of them, in their capacity as the
issuer or issuers of Letters of Credit hereunder, and their successors in such
capacity. Agent may, with the consent of Borrower and the Bank in question,
appoint any Bank hereunder as an LC Issuer in place of or in addition to either
such LC Issuer.
"LC Obligations" means, at the time in question, the sum of all
Matured LC Obligations plus the Maximum Drawing Amount.
"Letter of Credit" means any letter of credit issued by LC Issuer
hereunder at the application of Borrower. Each Letter of Credit shall be
classified by LC Issuer as a 'Commercial' Letter of Credit or a 'Standby'
Letter of Credit (and each Standby Letter of Credit shall be subclassified as a
'Financial Standby' Letter of Credit or a 'Performance Standby' Letter of
Credit), in accordance with the Laws and regulations applicable to LC Issuer
from time to time and in accordance with LC Issuer's customary practices at
such times for reporting to regulatory authorities.
"LIBOR Rate" means, with respect to each particular Eurodollar Loan
and the related Interest Period, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) reported, on the date two Business Days
prior to the first day of such Interest Period, on Telerate Access Service Page
3750 (British Bankers Association Settlement Rate) as the London Interbank
Offered Rate for dollar deposits having a term comparable to such Interest
Period and in an amount of $1,000,000 or more (or, if such Page shall cease to
be publicly available or if the information contained on such Page, in Agent's
sole judgment, shall cease to accurately reflect such London Interbank Offered
Rate, as reported by any publicly available source of similar market data
selected by Agent that, in Agent's sole judgment, accurately reflects such
London Interbank Offered Rate).
"Loan" has the meaning given it in Section 2.1.
"Loan Documents" means this Agreement, the Notes, the LC Applications,
the Letters of Credit, the Security Documents, the Intercreditor Agreement, and
all other agreements, certificates, documents,
4
<PAGE> 9
instruments and writings at any time delivered in connection herewith or
therewith (exclusive of term sheets, commitment letters, correspondence and
similar documents used in the negotiation hereof, except to the extent the same
contain information about Borrower or its Affiliates, properties, business or
prospects).
"Matured LC Obligations" means all amounts paid by LC Issuer on drafts
or demands for payment drawn or made under or purported to be under any Letter
of Credit and all other amounts due and owing to LC Issuer under any LC
Application for any Letter of Credit, to the extent the same have not been
repaid to LC Issuer (with the proceeds of Loans or otherwise).
"Maximum Drawing Amount" means at the time in question the sum of the
maximum amounts which LC Issuer might then or thereafter be called upon to
advance under all Letters of Credit then outstanding.
"Note" has the meaning given it in Section 2.1.
"Obligations" means all Debt from time to time owing by any Related
Person to any Lender under or pursuant to any of the Loan Documents, including
all LC Obligations. 'Obligation' means any part of the Obligations.
"Other Allowed Debt" means the TCW Debt.
"Other Loan Documents" means the TCW Documents.
"Parent Guaranty" means that certain Guaranty dated as of September
23, 1997, made by Parent in favor of Agent, as amended, supplemented, restated,
or ratified to the date hereof.
"Percentage Share" means, with respect to any Bank (a) when used in
Sections 2.1 or 2.5, in any Borrowing Notice or when no Loans are outstanding
hereunder, the percentage set forth opposite such Bank's name on the Bank
Schedule attached hereto, and (b) when used otherwise, the percentage obtained
by dividing (i) the sum of the unpaid principal balance of such Bank's Loans at
the time in question plus the Matured LC Obligations which such Bank has funded
pursuant to Section 2.13(c) plus the portion of the Maximum Drawing Amount
which such Bank might be obligated to fund under Section 2.13(c), by (ii) the
sum of the aggregate unpaid principal balance of all Loans at such time plus
the aggregate amount of LC Obligations outstanding at such time.
"Plan of Development" or "POD" means the Plan of Development as such
is approved annually beginning with the period from January 1, 1998 to December
31, 1998, by Borrower, Agent and Tamco or is modified or replaced from time to
time by agreement among Borrower, Agent and Tamco. The first such POD must be
approved by December 1, 1997.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect.
"Required Lenders" means Agent and the Banks whose aggregate
Percentage Shares (including the Percentage Share of Agent) equals seventy-five
percent (75%).
"Reserve Percentage" means, on any day with respect to each particular
Eurodollar Loan, the maximum reserve requirement, as determined by Agent
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the
5
<PAGE> 10
next higher 0.01%, which would then apply under Regulation D with respect to
"Eurocurrency liabilities," as such term is defined in Regulation D, of
$1,000,000 or more. If such reserve requirement shall change after the date
hereof, the Reserve Percentage shall be automatically increased or decreased,
as the case may be, from time to time as of the effective time of each such
change in such reserve requirement.
"Security Documents" means the instruments listed in the Security
Schedule and all other security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, guaranties, financing statements, continuation statements,
extension agreements and other agreements or instruments now, heretofore, or
hereafter delivered by any Related Person to Agent in connection with this
Agreement or any transaction contemplated hereby to secure or guarantee the
payment of any part of the Obligations or the performance of any Related
Person's other duties and obligations under the Loan Documents.
"Security Schedule" means Schedule 2 hereto.
"Tamco" means TCW Asset Management Company, in its capacity as Agent
under the TCW Agreement, and its successors in such capacity.
"TCW Agreement" means that certain Amended and Restated Credit
Agreement of even date herewith among Borrower, Parent, Trust Company of the
West and Tamco, as the same may be amended, restated, or supplemented from time
to time.
"TCW Debt" means any and all Debt (whether for principal, interest,
indemnifications, expenses or otherwise) owing by Borrower under the TCW
Agreement or any other TCW Document providing for the payment of fees in
connection therewith, which Debt is subordinated to the Obligations pursuant to
the terms of the Intercreditor Agreement.
"TCW Documents" means the TCW Agreement and each note, mortgage,
security agreement, pledge agreement, guarantee, or other agreement,
certificate, document, instrument and writing at any time delivered in
connection therewith.
"Type" means, with respect to any Loans, the characterization of such
Loans as either Base Rate Loans or Eurodollar Loans.
Section 1.2. Annexes, Exhibits and Schedules; Additional Definitions.
All Annexes, Exhibits and Schedules attached to this Agreement are a part
hereof for all purposes. Reference is hereby made to Annex A and to the
Security Schedule for the meaning of certain terms defined therein and used but
not defined herein, which definitions are incorporated herein by reference.
Section 1.3. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement
to Annexes, Exhibits, Schedules, articles, sections, subsections and other
subdivisions refer to the Annexes, Exhibits, Schedules, articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise. Titles appearing at the beginning of any subdivisions are for
convenience only and
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<PAGE> 11
do not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement," "this instrument," "herein," "hereof," "hereby," "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation." Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. Calculations and Determinations. All calculations under
the Loan Documents of interest chargeable with respect to Eurodollar Loans and
of fees shall be made on the basis of actual days elapsed (including the first
day but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual
days elapsed (including the first day but excluding the last) and a year of 365
or 366 days, as appropriate. Each determination by a Lender of amounts to be
paid under Sections 3.2 through 3.6 or any other matters which are to be
determined hereunder by a Lender (such as any Eurodollar Rate, LIBOR Rate,
Business Day, Interest Period, or Reserve Percentage) shall, in the absence of
manifest error, be conclusive and binding. Unless otherwise expressly provided
herein or unless Required Lenders otherwise consent all financial statements
and reports furnished to any Lender hereunder shall be prepared and all
financial computations and determinations pursuant hereto shall be made in
accordance with GAAP.
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<PAGE> 12
ARTICLE II - The Loans
Section 2.1. Commitments to Lend; Notes. Subject to the terms and
conditions hereof, each Bank agrees to make loans to Borrower (herein called
such Bank's 'Loans') upon Borrower's request from time to time during the
Commitment Period, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all
Banks are requested to make Loans of the same Type in accordance with their
respective Percentage Shares and as part of the same Borrowing, (b) the sum of
(i) the aggregate amount of such Bank's Loans outstanding at any time plus (ii)
the Maximum Drawing Amount for which such Bank is liable to purchase
participations under Section 9.5, plus (iii) the Matured LC Obligations which
have been funded by such Bank under such section, does not exceed such Bank's
Percentage Share of the Borrowing Base determined as of the date on which the
requested Loan is to be made, and (c) after giving effect to such Loans, the
aggregate amount of all Loans plus all LC Obligations does not exceed the
Borrowing Base determined as of the date on which the requested Loans are to be
made. The aggregate amount of all Loans in any Borrowing must be greater than
or equal to $1,000,000 or must equal the remaining availability under the
Borrowing Base. Borrower may have no more than six Borrowings of Eurodollar
Loans outstanding at any time. The obligation of Borrower to repay to each Bank
the aggregate amount of all Loans made by such Bank, together with interest
accruing in connection therewith, shall be evidenced by a single promissory
note (herein called such Bank's "Note") made by Borrower payable to the order
of such Bank in the form of Exhibit A with appropriate insertions. The amount
of principal owing on any Bank's Note at any given time shall be the aggregate
amount of all Loans theretofore made by such Bank minus all payments of
principal theretofore received by such Bank on such Note. Interest on each Note
shall accrue and be due and payable as provided herein and therein, with
Eurodollar Loans bearing interest at the Eurodollar Rate and Base Rate Loans
bearing interest at the Base Rate (subject to the applicability of the Late
Payment Rate and limited by the provisions of Section 9.8). Subject to the
terms and conditions hereof, Borrower may borrow, repay, and reborrow
hereunder. It is expressly understood that Banks' commitment to make Loans is
determined only by reference to the Borrowing Base from time to time in effect,
and the aggregate amount of the Notes and the amount specified in the Security
Documents are specified at a greater amount only for the convenience of the
parties to avoid the necessity of preparing and recording supplements to the
Security Documents.
Section 2.2. Requests for New Loans. Borrower must give to Agent
written notice (or telephonic notice promptly confirmed in writing) of any
requested Borrowing of new Loans to be advanced by Banks. Each such notice
constitutes a "Borrowing Notice" hereunder and must:
(a) specify (i) the aggregate amount of any such Borrowing of
new Base Rate Loans and the date on which such Base Rate Loans are to
be advanced, or (ii) the aggregate amount of any such Borrowing of new
Eurodollar Loans, the date on which such Eurodollar Loans are to be
advanced (which shall be the first day of the Interest Period which is
to apply thereto), and the length of the applicable Interest Period;
and
(b) be received by Agent not later than 1:00 p.m., New York,
New York time, on (i) the day on which any such Base Rate Loans are to
be made, or (ii) the third Business Day preceding the day on which any
such Eurodollar Loans are to be made.
Each such written request or confirmation must be made in the form and
substance of the "Borrowing Notice" attached hereto as Exhibit B, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Bank prompt notice of the terms
thereof. If all conditions precedent to such new Loans have been met, each Bank
will on the date requested promptly remit to Agent at Agent's office in New
York, New York the amount of such Bank's new Loan in immediately available
funds, and upon receipt of such funds, unless to its actual knowledge any
conditions precedent to such Loans have been neither
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<PAGE> 13
met nor waived as provided herein, Agent shall promptly make such Loans
available to Borrower. Unless Agent shall have received prompt notice from a
Bank that such Bank will not make available to Agent such Bank's new Loan,
Agent may in its discretion assume that such Bank has made such Loan available
to Agent in accordance with this section and Agent may if it chooses, in
reliance upon such assumption, make such Loan available to Borrower. If and to
the extent such Bank shall not so make its new Loan available to Agent, such
Bank and Borrower severally agree to pay or repay to Agent within three days
after demand the amount of such Loan together with interest thereon, for each
day from the date such amount was made available to Borrower until the date
such amount is paid or repaid to Agent, with interest at (i) the Federal Funds
Rate, if such Bank is making such payment and (ii) the interest rate applicable
at the time to the other new Loans made on such date, if Borrower is making
such repayment. If neither such Bank nor Borrower pay or repay to Agent such
amount within such three-day period, Agent shall in addition to such amount be
entitled to recover from such Bank and from Borrower, on demand, interest
thereon at the Late Payment Rate, calculated from the date such amount was made
available to Borrower. The failure of any Bank to make any new Loan to be made
by it hereunder shall not relieve any other Bank of its obligation hereunder,
if any, to make its new Loan, but no Bank shall be responsible for the failure
of any other Bank to make any new Loan to be made by such other Bank.
Section 2.3. Continuations and Conversions of Existing Loans. Borrower
may make the following elections with respect to Loans already outstanding: to
convert Base Rate Loans to Eurodollar Loans, to convert Eurodollar Loans to
Base Rate Loans on the last day of the Interest Period applicable thereto, or
to continue Eurodollar Loans beyond the expiration of such Interest Period by
designating a new Interest Period to take effect at the time of such
expiration. In making such elections, Borrower may combine existing Loans made
pursuant to separate Borrowings into one new Borrowing or divide existing Loans
made pursuant to one Borrowing into separate new Borrowings. To make any such
election, Borrower must give to Agent written notice (or telephonic notice
promptly confirmed in writing) of any such conversion or continuation of
existing Loans, with a separate notice given for each new Borrowing. Each such
notice constitutes a "Continuation/Conversion Notice" hereunder and must:
(a) specify the existing Loans which are to be continued or
converted;
(b) specify (i) the aggregate amount of any Borrowing of Base
Rate Loans into which such existing Loans are to be continued or
converted and the date on which such continuation or conversion is to
occur, or (ii) the aggregate amount of any Borrowing of Eurodollar
Loans into which such existing Loans are to be continued or converted,
the date on which such continuation or conversion is to occur (which
shall be the first day of the Interest Period which is to apply to
such Eurodollar Loans), and the length of the applicable Interest
Period; and
(c) be received by Agent not later than 1:00 p.m., New York,
New York time, on (i) the day on which any such continuation or
conversion to Base Rate Loans is to occur, or (ii) the third Business
Day preceding the day on which any such continuation or conversion to
Eurodollar Loans is to occur.
Each such written request or confirmation must be made in the form and
substance of the "Continuation/Conversion Notice" attached hereto as Exhibit C,
duly completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Bank prompt notice of the terms
thereof. Each Borrowing Notice shall be irrevocable and binding on Borrower.
During the continuance of any Default, Borrower may not make any election to
convert existing Loans into Eurodollar Loans or continue existing Loans as
Eurodollar Loans. If (due to the existence of a Default or for any other
reason) Borrower fails to timely
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<PAGE> 14
and properly give any notice of continuation or conversion with respect to a
Borrowing of existing Eurodollar Loans at least three days prior to the end of
the Interest Period applicable thereto, such Eurodollar Loans shall
automatically be converted into Base Rate Loans at the end of such Interest
Period. No new funds shall be repaid by Borrower or advanced by any Bank in
connection with any continuation or conversion of existing Loans pursuant to
this section, and no such continuation or conversion shall be deemed to be a
new advance of funds for any purpose; such continuations and conversions merely
constitute a change in the interest rate applicable to already outstanding
Loans.
Section 2.4. Use of Proceeds. Borrower shall use the proceeds of all
Loans to (i) finance future proved oil and gas acquisitions and development by
Borrower, (ii) make advances to Inland Refining to finance (A) the purchase of
the Pennzoil Refinery and (B) the purchase of other fixed assets during the
year ending December 31, 1998 up to the amount of $2,500,000, (iii) provide
working capital for Borrower's and Inland Refining's operations, provided that
the advances to Inland Refining (exclusive of the capital contribution of
$10,450,000 to partially fund the acquisition of the Crysen Refinery), plus
Letters of Credit issued for the benefit of Inland Refining, plus any amounts
that have been advanced pursuant to any such Letter of Credit which have not
been reimbursed by Inland Refining to Borrower, shall not in the aggregate (but
without duplication) exceed the amount of $20,000,000 outstanding at any one
time, and (iv) refinance its Matured LC Obligations; provided, however, that
Borrower shall not use any Loans to make advances to Inland Refining, including
without limitation advances to finance any fixed assets at the Crysen Refinery,
except as specifically set forth in this Section 2.4. Borrower shall use all
Letters of Credit for its general corporate purposes and to support agreements
for the purchase by Inland Refining of refining feed stocks in the ordinary
course of business. In no event shall the funds from any Loan or any Letter of
Credit be used directly or indirectly by any Person for personal, family,
household or agricultural purposes or for the purpose, whether immediate,
incidental or ultimate, of purchasing, acquiring or carrying any "margin stock"
or any "margin securities" (as such terms are defined respectively in
Regulation U and Regulation G promulgated by the Board of Governors of the
Federal Reserve System) or to extend credit to others directly or indirectly
for the purpose of purchasing or carrying any such margin stock or margin
securities. Borrower represents and warrants that Borrower is not engaged
principally, or as one of Borrower's important activities, in the business of
extending credit to others for the purpose of purchasing or carrying such
margin stock or margin securities.
Section 2.5. Fees.
(a) Commitment Fees. In consideration of each Bank's commitment to
make Loans, Borrower will pay to Agent for the account of each Bank a
commitment fee determined on a daily basis by applying a rate of one-half of
one percent (0.5%) per annum to such Bank's Percentage Share of the unused
portion of the Borrowing Base on each day during the Commitment Period,
determined for each such day by deducting from the amount of the Borrowing Base
at the end of such day the sum of (i) the Facility Usage and (ii) the amount of
all LC Obligations outstanding at the end of such day. This commitment fee
shall be due and payable in arrears on the last Business Day after the end of
each Fiscal Quarter and at the end of the Commitment Period.
(b) Facility Fee. In addition to all other amounts due to Agent under
the Loan Documents, Borrower will pay facility fees to Agent, for its own
account, as described in that certain letter agreement executed prior to the
date hereof between Agent and Borrower.
Section 2.6. Optional Prepayments. Borrower may, upon five Business
Days' notice to each Bank, from time to time and without premium or penalty
prepay the Notes, in whole or in part, so long as the aggregate amounts of all
partial prepayments of principal on the Notes equals $1,000,000 or any
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<PAGE> 15
higher integral multiple of $1,000,000, so long as Borrower does not prepay any
Eurodollar Loan, and so long as Borrower does not make any prepayments which
would reduce the unpaid principal balance of any Loan to less than $100,000
without first either (a) terminating this Agreement or (b) providing assurance
satisfactory to Agent in its discretion that Banks' legal rights under the Loan
Documents are in no way affected by such reduction. Each partial prepayment of
principal made after the end of the Commitment Period shall be applied to the
regular installments of principal due under the Notes in the inverse order of
their maturities. Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Any principal or interest prepaid pursuant to this section shall be in
addition to, and not in lieu of, all payments otherwise required to be paid
under the Loan Documents at the time of such prepayment.
Section 2.7. Mandatory Prepayments.
(a) Borrower will make all payments on the Obligations which are
required under the Intercreditor Agreement, including all prepayments of
principal on the Notes which are required under Section 3(a)(iv) of the
Intercreditor Agreement.
(b) If at any time the Facility Usage plus the aggregate of amount of
outstanding LC Obligations is in excess of the Borrowing Base (such excess
being herein called a "Borrowing Base Deficiency"), Borrower shall, within five
Business Days after Agent gives notice of such fact to Borrower, either:
(i) prepay the principal of the Loans in an aggregate amount
at least equal to such Borrowing Base Deficiency, or
(ii) give notice to Agent electing to prepay the principal of
the Loans in up to three monthly installments in an aggregate amount
at least equal to such Borrowing Base Deficiency, with each such
installment equal to or in excess of one-third of such Borrowing Base
Deficiency, and with the first such installment to be paid one month
after the giving of such notice and the subsequent installments to be
due and payable at one month intervals thereafter until such Borrowing
Base Deficiency has been eliminated, or
(iii) give notice to Agent that Borrower desires to provide
Agent with deeds of trust, mortgages, chattel mortgages, security
agreements, financing statements and other security documents in form
and substance satisfactory to Agent, granting, confirming, and
perfecting first and prior liens or security interests in collateral
acceptable to all Banks, to the extent needed to allow all Banks to
increase the Borrowing Base (as they in their reasonable discretion
deem consistent with prudent oil and gas banking industry lending
standards at the time) to an amount which eliminates such Borrowing
Base Deficiency, and then provide such security documents within
thirty days after Agent specifies such collateral to Borrower. If,
prior to any such specification by Agent, Required Lenders determine
that the giving of such security documents will not serve to eliminate
such Borrowing Base Deficiency, then, within five Business Days after
receiving notice of such determination, Borrower will elect to make,
and thereafter make, the prepayments specified in either of the
preceding subsections (i) or (ii) of this subsection (b).
(c) Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Any principal or interest prepaid pursuant to this section shall be in
addition to, and not in lieu of, all payments otherwise required to be paid
under the Loan Documents at the time of such prepayment.
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<PAGE> 16
Section 2.8. Scheduled Principal Payments. Beginning on June 29, 1999,
and on each Quarterly Payment Date thereafter, Borrower will, in addition to
paying any interest then due on the Loans, make a principal payment in
accordance with the following schedule:
<TABLE>
<CAPTION>
Quarterly Amount
Payment Date of Payment
------------ ----------
<S> <C>
June 29, 1999 $6,222,222
Sept 29, 1999 $6,222,222
Dec 30, 1999 $6,222,222
Mar 30, 2000 $4,666,666
June 29, 2000 $4,666,666
Sept 28, 2000 $4,666,666
Dec 28, 2000 $4,666,666
Mar 29, 2001 $3,888,889
June 28, 2001 $3,888,889
Sept 27, 2001 $3,888,889
Dec 28, 2001 $3,888,889
Mar 28, 2002 $3,500,000
June 27, 2002 $3,500,000
Sept 27, 2002 $3,500,000
Dec 30, 2002 $3,500,000
Mar 28, 2003 $3,111,114
</TABLE>
The principal installments required by this Section 2.8 are in addition to all
other principal payments required by the terms of this Agreement.
Section 2.9. Initial Borrowing Base. During the period from the date
hereof to the first Determination Date the Borrowing Base shall be 70,000,000.
Section 2.10. Subsequent Determinations of Borrowing Base. By March 1
and July 15 of each year Borrower shall furnish to each Bank all information,
reports and data which Agent has then requested concerning Related Persons'
businesses and properties (including their oil and gas properties and interests
and the reserves and production relating thereto), together with the
Engineering Report described in Section C.1(d) or C.1(e) of Annex C, as
applicable. Within thirty days after receiving such information, reports and
data, Required Lenders shall agree upon an amount for the Borrowing Base
(provided that all Banks must agree to any increase in the Borrowing Base) and
Agent shall by notice to Borrower designate such amount as the new Borrowing
Base available to Borrower hereunder, which designation shall take effect
immediately on the date such notice is sent (herein called a "Determination
Date") and shall remain in effect until but not including the next date as of
which the Borrowing Base is redetermined. If Borrower does not furnish all such
information, reports and data by the date specified in the first sentence of
this section, Agent may nonetheless designate the Borrowing Base at any amount
which Required Lenders determine and may redesignate the Borrowing Base from
time to time thereafter until each Bank receives all such information, reports
and data, whereupon Required Lenders shall
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<PAGE> 17
designate a new Borrowing Base as described above. Required Lenders shall
determine the amount of the Borrowing Base based upon the loan collateral value
which they in their discretion assign to the various proved oil and gas
properties of Related Persons at the time in question and based upon such other
credit factors (including without limitation the assets, liabilities, cash
flow, hedged and unhedged exposure to price, foreign exchange rate, and
interest rate changes, business, properties, prospects, management and
ownership of Borrower and its Affiliates) as they in their discretion deem
significant. It is expressly understood that Banks and Agent have no obligation
to agree upon or designate the Borrowing Base at any particular amount, whether
in relation to the aggregate face amount of the Notes or otherwise, and that
Banks' commitments to advance funds hereunder is determined by reference to the
Borrowing Base from time to time in effect, which Borrowing Base shall be used
for calculating commitment fees under Section 2.5 and, to the extent permitted
by Law and regulatory authorities, for the purposes of capital adequacy
determination and reimbursements under Section 3.2. It is further understood
that the scheduled principal payments set forth in Section 2.8 are based upon
the Borrowing Base as in effect on the date hereof and that Banks and Agent
shall not increase the Borrowing Base without (i) an amendment to such
scheduled principal payments as determined by the Banks in connection with such
Borrowing Base increase and (ii) the consent of Tamco to such amendment to such
scheduled principal payments. In no event shall the Borrowing Base ever exceed
the Allowed Bank Indebtedness, as that term is defined in the Intercreditor
Agreement.
Section 2.11. Letters of Credit. Subject to the terms and conditions
hereof, Borrower may during the Commitment Period request either LC Issuer to
issue one or more Letters of Credit, provided that, after taking such Letter of
Credit into account:
(a) the Facility Usage does not exceed the Borrowing Base at
such time; and
(b) the aggregate amount of LC Obligations at such time does
not exceed $9,750,000; and
(c) the expiration date of such Letter of Credit is prior to
the end of the Commitment Period.
and further provided that:
(d) such Letter of Credit is to be used to support (i)
agreements for the purchase by Inland Refining of refinery feed stocks
in the ordinary course of business and (ii) up to the amount of
$200,000, obligations for diesel fuel and motor fuel taxes payable to
the State of Utah;
(e) such Letter of Credit is not directly or indirectly used
to assure payment of or otherwise support any Indebtedness of any
Person;
(f) the issuance of such Letter of Credit will be in
compliance with all applicable governmental restrictions, policies,
and guidelines and will not subject LC Issuer to any cost which is not
reimbursable under Article III;
(g) the form and terms of such Letter of Credit are
acceptable to such LC Issuer in its sole and absolute discretion; and
(h) all other conditions in this Agreement to the issuance of
such Letter of Credit have been satisfied.
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<PAGE> 18
An LC Issuer will honor any such request if the foregoing conditions
(a) through (h) (in the following Section 2.12 called the "LC
Conditions") have been met as of the date of issuance of such Letter
of Credit. An LC Issuer may choose to honor any such request for any
other Letter of Credit but has no obligation to do so and may refuse
to issue any other requested Letter of Credit for any reason which
such LC Issuer in its sole discretion deems relevant.
Section 2.12. Requesting Letters of Credit. Borrower must make written
application for any Letter of Credit from any LC Issuer at least three Business
Days before the date on which Borrower desires for such LC Issuer to issue such
Letter of Credit. A copy of such application shall be simultaneously delivered
to Agent. By making any such written application Borrower shall be deemed to
have represented and warranted to each Bank that the LC Conditions described in
Section 2.11 will be met as of the date of issuance of such Letter of Credit.
Each such written application for a Letter of Credit must be made in writing in
the form and substance of Exhibit G, the terms and provisions of which are
hereby incorporated herein by reference (or in such other form as may mutually
be agreed upon by Agent, LC Issuer and Borrower). Two Business Days after the
LC Conditions for a Letter of Credit have been met as described in Section 2.11
(or if an LC Issuer otherwise desires to issue such Letter of Credit), LC
Issuer will issue such Letter of Credit at LC Issuer's office, and will provide
Agent with a specimen copy of the Letter of Credit so issued. If any provisions
of any LC Application conflict with any provisions of this Agreement, the
provisions of this Agreement shall govern and control.
Section 2.13. Reimbursement and Participations.
(a) Reimbursement by Borrower. Each Matured LC Obligation
shall constitute a loan by LC Issuer to Borrower. Borrower promises to
pay to LC Issuer, or to LC Issuer's order, on demand, the full amount
of each Matured LC Obligation, together with interest thereon at the
Late Payment Rate.
(b) Letter of Credit Advances. If the beneficiary of any
Letter of Credit makes a draft or other demand for payment thereunder
then Borrower may, during the interval between the making thereof and
the honoring thereof by LC Issuer, request Banks to make Loans to
Borrower in the amount of such draft or demand, which Loans shall be
made concurrently with LC Issuer's payment of such draft or demand and
shall be immediately used by LC Issuer to repay the amount of the
resulting Matured LC Obligation. Such a request by Borrower shall be
made in compliance with all of the provisions hereof, provided that
for the purposes of the first sentence of Section 2.1 the amount of
such Loans shall be considered but the amount of the Matured LC
Obligation to be concurrently paid by such Loans shall not be
considered.
(c) Participation by Banks. Each LC Issuer irrevocably agrees
to grant and hereby grants to each Bank, and -- to induce each LC
Issuer to issue Letters of Credit hereunder -- each Bank irrevocably
agrees to accept and purchase and hereby accepts and purchases from
such LC Issuer, on the terms and conditions hereinafter stated and for
such Bank's own account and risk, an undivided interest equal to such
Bank's Percentage Share of such LC Issuer's obligations and rights
under each Letter of Credit issued hereunder by such LC Issuer and the
amount of each Matured LC Obligation paid by such LC Issuer
thereunder. Each Bank unconditionally and irrevocably agrees with LC
Issuer that, if a Matured LC Obligation is paid under any Letter of
Credit for which such LC Issuer is not reimbursed in full by Borrower
in accordance with the terms of this Agreement and the related LC
Application (including any reimbursement by means of concurrent Loans
or by the application of LC Collateral), such Bank shall (in all
circumstances and without set-off or counterclaim) pay to such LC
Issuer on demand, in
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<PAGE> 19
immediately available funds at such LC Issuer's address for notices
hereunder, such Bank's Percentage Share of such Matured LC Obligation
(or any portion thereof which has not been reimbursed by Borrower).
Each Bank's obligation to pay an LC Issuer pursuant to the terms of
this subsection is irrevocable and unconditional. If any amount
required to be paid by any Bank to an LC Issuer pursuant to this
subsection is paid by such Bank to an LC Issuer within three Business
Days after the date such payment is due, LC Issuer shall in addition
to such amount be entitled to recover from such Bank, on demand,
interest thereon calculated from such due date at the Federal Funds
Rate. If any amount required to be paid by any Bank to LC Issuer
pursuant to this subsection is not paid by such Bank to LC Issuer
within three Business Days after the date such payment is due, LC
Issuer shall in addition to such amount be entitled to recover from
such Bank, on demand, interest thereon calculated from such due date
at the Late Payment Rate.
(d) Distributions to Participants. Whenever an LC Issuer has
in accordance with this section received from any Bank payment of such
Bank's Percentage Share of any Matured LC Obligation, if such LC
Issuer thereafter receives any payment of such Matured LC Obligation
or any payment of interest thereon (whether directly from Borrower or
by application of LC Collateral or otherwise, and excluding only
interest for any period prior to such LC Issuer's demand that such
Bank make such payment of its Percentage Share), such LC Issuer will
distribute to such Bank its Percentage Share of the amounts so
received by such LC Issuer; provided, however, that if any such
payment received by an LC Issuer must thereafter be returned by such
LC Issuer, such Bank shall return to such LC Issuer the portion
thereof which such LC Issuer has previously distributed to it.
(e) Calculations. A written advice setting forth in
reasonable detail the amounts owing under this section, submitted by
an LC Issuer to Borrower or any Bank from time to time, shall be
conclusive, absent manifest error, as to the amounts thereof.
Section 2.14. Letter of Credit Fees. In consideration of LC Issuer's
issuance of any Letter of Credit, Borrower agrees to pay (a) to Agent, for the
account of all Banks in accordance with their respective Percentage Shares, a
letter of credit fee at a rate equal to one and five-eighths percent (1.625%)
per annum of the amount of all Letters of Credit, and (b) to a LC Issuer for
its own account, a letter of credit fronting fee at a rate equal to one-eighth
percent (.125%) per annum of each Letter of Credit issued by such LC Issuer.
Each such fee will be calculated on a daily basis, on the face amount of
Letters of Credit outstanding on each day at the above applicable rate and will
be payable quarterly in arrears. In addition, Borrower will pay to an LC Issuer
a minimum administrative issuance fee of $200 for each Letter of Credit issued
by such LC Issuer and an amendment fee of $65 for each Letter of Credit, each
such fee to be payable upon issuance or amendment, respectively, of a Letter of
Credit.
Section 2.15. No Duty to Inquire.
(a) Drafts and Demands. LC Issuer is authorized and
instructed to accept and pay drafts and demands for payment under any
Letter of Credit without requiring, and without responsibility for,
any determination as to the existence of any event giving rise to said
draft, either at the time of acceptance or payment or thereafter. LC
Issuer is under no duty to determine the proper identity of anyone
presenting such a draft or making such a demand (whether by tested
telex or otherwise) as the officer, representative or agent of any
beneficiary under any Letter of Credit, and payment by LC Issuer to
any such beneficiary when requested by any such purported officer,
representative or agent is hereby authorized and approved. Borrower
agrees to hold LC Issuer and each other Bank Party harmless and
indemnified against any liability or claim in connection with or
arising out of the subject matter of this section,
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WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM
IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK PARTY, provided only
that no Bank Party shall be entitled to indemnification for that
portion, if any, of any liability or claim which is proximately caused
by its own individual gross negligence or willful misconduct, as
determined in a final judgment.
(b) Extension of Maturity. If the maturity of any Letter of
Credit is extended by its terms or by Law or governmental action, if
any extension of the maturity or time for presentation of drafts or
any other modification of the terms of any Letter of Credit is made at
the request of any Related Person, or if the amount of any Letter of
Credit is increased at the request of any Related Person, this
Agreement shall be binding upon all Related Persons with respect to
such Letter of Credit as so extended, increased or otherwise modified,
with respect to drafts and property covered thereby, and with respect
to any action taken by LC Issuer, LC Issuer's correspondents, or any
Bank Party in accordance with such extension, increase or other
modification.
(c) Transferees of Letters of Credit. If any Letter of Credit
provides that it is transferable, LC Issuer shall have no duty to
determine the proper identity of anyone appearing as transferee of
such Letter of Credit, nor shall LC Issuer be charged with
responsibility of any nature or character for the validity or
correctness of any transfer or successive transfers, and payment by LC
Issuer to any purported transferee or transferees as determined by LC
Issuer is hereby authorized and approved, and Borrower further agrees
to hold LC Issuer and each other Bank Party harmless and indemnified
against any liability or claim in connection with or arising out of
the foregoing, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH
LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR
IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK
PARTY, provided only that no Bank Party shall be entitled to
indemnification for that portion, if any, of any liability or claim
which is proximately caused by its own individual gross negligence or
willful misconduct, as determined in a final judgment.
Section 2.16. LC Collateral.
(a) LC Obligations in Excess of Borrowing Base. If, after the
making of all mandatory prepayments required under Section 2.7, the
outstanding LC Obligations will exceed the Borrowing Base, then in
addition to prepayment of the Borrowing Base Deficiency Borrower will
immediately pay to LC Issuer an amount equal to such excess. LC Issuer
will hold such amount as security for the remaining LC Obligations
(all such amounts held as security for LC Obligations being herein
collectively called "LC Collateral") until such LC Obligations become
Matured LC Obligations, at which time such LC Collateral may be
applied to such Matured LC Obligations. Neither this subsection nor
the following subsection shall, however, limit or impair any rights
which LC Issuer may have under any other document or agreement
relating to any Letter of Credit or LC Obligation, including any LC
Application, or any rights which any Bank Party may have to otherwise
apply any payments by Borrower and any LC Collateral under Section
3.1.
(b) Acceleration of LC Obligations. If the Obligations or any
part thereof become immediately due and payable pursuant to Section
7.2 then, unless Required Lenders otherwise specifically elect to the
contrary (which election may thereafter by retracted by Required
Lenders
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at any time), all LC Obligations shall become immediately due and
payable without regard to whether or not actual drawings or payments
on the Letters of Credit have occurred, and Borrower shall be
obligated to pay to LC Issuer immediately an amount equal to the
aggregate LC Obligations which are then outstanding. All amounts so
paid shall first be applied to Matured LC Obligations and then held by
LC Issuer as LC Collateral until such LC Obligations become Matured LC
Obligations, at which time such LC Collateral shall be applied to such
Matured LC Obligations.
(c) Investment of LC Collateral. Pending application thereof,
all LC Collateral shall be invested by LC Issuer in such investments
as LC Issuer may choose in its sole discretion. All interest on such
investments shall be reinvested or applied to Matured LC Obligations.
When all Obligations have been satisfied in full, including all LC
Obligations, all Letters of Credit have expired or been terminated,
and all of Borrower's reimbursement obligations in connection
therewith have been satisfied in full, LC Issuer shall release any
remaining LC Collateral. Borrower hereby assigns and grants to LC
Issuer a continuing security interest in all LC Collateral paid by it
to LC Issuer, all investments purchased with such LC Collateral, and
all proceeds thereof to secure its Matured LC Obligations and its
Obligations under this Agreement, each Note, and the other Loan
Documents, and Borrower agrees that such LC Collateral and investments
shall be subject to all of the terms and conditions of the Security
Documents. Borrower further agrees that LC Issuer shall have all of
the rights and remedies of a secured party under the Uniform
Commercial Code as adopted in the State of New York with respect to
such security interest and that an Event of Default under this
Agreement shall constitute a default for purposes of such security
interest.
(d) Payment of LC Collateral. When Borrower is required to
provide LC Collateral for any reason and fails to do so on the day
when required, LC Issuer may without notice to Borrower or any other
Related Person provide such LC Collateral (whether by application of
proceeds of other Collateral, by transfers from other accounts
maintained with LC Issuer, or otherwise) using any available funds of
Borrower or any other Person also liable to make such payments. Any
such amounts which are required to be provided as LC Collateral and
which are not provided on the date required shall, for purposes of
each Security Document, be considered past due Obligations owing
hereunder, and LC Issuer is hereby authorized to exercise its
respective rights under each Security Document to obtain such amounts.
ARTICLE III - Payments to Banks
Section 3.1. General Procedures. Borrower will make each payment which
it owes under the Loan Documents to Agent for the account of the Lender to whom
such payment is owed. Each such payment must be received by Agent not later
than 11:00 a.m., New York, New York time, on the date such payment becomes due
and payable, in lawful money of the United States of America, without set-off,
deduction or counterclaim, and in immediately available funds. Any payment
received by Agent after such time will be deemed to have been made on the next
following Business Day. Should any such payment become due and payable on a day
other than a Business Day, the maturity of such payment shall be extended to
the next succeeding Business Day, and, in the case of a payment of principal or
past due interest, interest shall accrue and be payable thereon for the period
of such extension as provided in the Loan Document under which such payment is
due. Each payment under a Loan Document shall be due and payable at the place
provided therein and, if no specific place of payment is provided, shall be due
and payable at the place of payment of Agent's Note. When Agent collects or
receives money on account of the Obligations, Agent shall distribute all money
so collected or received, and each Lender shall apply all such money so
distributed, as follows:
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(a) first, for the payment of all Obligations which are then
due (and if such money is insufficient to pay all such Obligations,
first to any reimbursements due Agent under Section C.8 of Annex C of
this Agreement or Section 9.4 and then to the partial payment of all
other Obligations then due in proportion to the amounts thereof, or as
Lenders shall otherwise agree);
(b) then for the prepayment of amounts owing under the Loan
Documents (other than principal on the Notes) if so specified by
Borrower;
(c) then for the prepayment of principal on the Notes,
together with accrued and unpaid interest on the principal so prepaid;
and
(d) last, for the payment or prepayment of any other
Obligations.
All payments applied to principal or interest on any Note shall be applied
first to any interest then due and payable, then to principal then due and
payable, and last to any prepayment of principal and interest in compliance
with Sections 2.6 and 2.7. All distributions of amounts described in any of
subsections (b), (c), or (d) above shall be made by Agent pro rata to Agent and
each Lender then owed Obligations described in such subsection in proportion to
all amounts owed all Lenders which are described in such subsection; provided
that if any Lender then owes payments to Agent for the purchase of a
participation under Section 9.5 hereof, any amounts otherwise distributable
under this section to such Lender shall be deemed to belong to Agent, to the
extent of such unpaid payments, and Agent shall apply such amounts to make such
unpaid payments rather than distribute such amounts to such Lender.
Section 3.2. Capital Reimbursement. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any central bank or
other governmental authority (whether or not having the force of Law) affects
or would affect the amount of capital required or expected to be maintained by
any Lender or any corporation controlling any Lender, then, upon demand by such
Lender, Borrower will pay to Agent for the benefit of such Lender, from time to
time as specified by such Lender, such additional amount or amounts which such
Lender shall determine to be appropriate to compensate such Lender or any
corporation controlling such Lender in light of such circumstances, to the
extent that such Lender reasonably determines that the amount of any such
capital would be increased or the rate of return on any such capital would be
reduced by or in whole or in part based on the existence of the face amount of
such Lender's Loans, commitments, or the provisions concerning the issuance of
Letters of Credit under this Agreement.
Section 3.3. Increased Cost of Eurodollar Loans and Letters of Credit.
If any applicable Law (whether now in effect or hereinafter enacted or
promulgated, including Regulation D) or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of Law):
(i) shall change the basis of taxation of payments
to any Lender of any principal, interest, or other amounts
attributable to any Eurodollar Loan or otherwise due under
this Agreement in respect of any Eurodollar Loan or Letter of
Credit (other than taxes imposed on the overall net income of
such Lender or any lending office of such Lender by any
jurisdiction in which such Lender or any such lending office
is located); or
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(ii) shall change, impose, modify, apply or deem
applicable any reserve, special deposit or similar
requirements in respect of any Eurodollar Loan or Letter of
Credit (excluding those for which such Lender is fully
compensated pursuant to adjustments made in the definition of
Eurodollar Rate) or against assets of, deposits with or for
the account of, or credit extended by, such Lender; or
(iii) shall impose on any Lender or the interbank
Eurocurrency deposit market any other condition affecting any
Eurodollar Loan or Letter of Credit, the result of which is
to increase the cost to any Lender of funding or maintaining
any Eurodollar Loan or of issuing any Letter of Credit or to
reduce the amount of any sum receivable by any Lender in
respect of any Eurodollar Loan or Letter of Credit by an
amount deemed by such Lender to be material,
then such Lender shall promptly notify Agent and Borrower in writing
of the happening of such event and of the amount required to
compensate such Lender for such event (on an after-tax basis, taking
into account any taxes on such compensation), whereupon (iv) Borrower
shall pay such amount to Agent for the account of such Lender and (v)
Borrower may elect, by giving to Agent and such Lender not less than
three Business Days' notice, to convert all (but not less than all) of
any such Eurodollar Loans into Base Rate Loans.
Section 3.4. Availability. If (a) any change in applicable Laws, or in
the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for
any Lender to fund or maintain Eurodollar Loans, or shall materially restrict
the authority of any Lender to purchase or take offshore deposits of dollars
(i.e., "eurodollars") or to issue Letters of Credit, (b) any Lender determines
that matching deposits appropriate to fund or maintain any Eurodollar Loan are
not available to it, or (c) any Lender determines that the formula for
calculating the Eurodollar Rate does not fairly reflect the cost to such Lender
of making or maintaining loans based on such rate, then, upon notice by such
Lender to Borrower and Agent, Borrower's right to elect Eurodollar Loans or to
apply for Letters of Credit from such Lender shall be suspended to the extent
and for the duration of such illegality, impracticability or restriction and
all Eurodollar Loans of such Lender which are then outstanding or are then the
subject of any Borrowing Notice and which cannot lawfully or practicably be
maintained or funded shall immediately become or remain, or shall be funded as,
Base Rate Loans of such Lender. Borrower agrees to indemnify each Lender and
hold it harmless against all costs, expenses, claims, penalties, liabilities
and damages which may result from any such change in Law, interpretation or
administration (other than taxes imposed on the overall net income of such
Lender or any lending office of such Lender). Such indemnification shall be on
an after-tax basis, taking into account any taxes imposed on the amounts paid
as indemnity.
Section 3.5. Funding Losses. In addition to its other obligations
hereunder, Borrower will indemnify each Lender against, and reimburse each
Lender on demand for, any loss or expense incurred or sustained by such Lender
(including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by a Lender to fund or
maintain Eurodollar Loans), as a result of (a) any payment or prepayment
(whether authorized or required hereunder or otherwise) of all or a portion of
a Eurodollar Loan on a day other than the day on which the applicable Interest
Period ends, (b) any payment or prepayment, whether required hereunder or
otherwise, of a Loan made after the delivery, but before the effective date, of
a Continuation/ Conversion Notice, if such payment or prepayment prevents such
Continuation/Conversion Notice from becoming fully effective, (c) the failure
of any Loan to be made or of any Continuation/ Conversion Notice to become
effective due to any condition precedent not being satisfied or due to any
other action or inaction of any Related Person, or (d) any conversion (whether
authorized or required hereunder or otherwise) of all or any portion of any
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Eurodollar Loan into a Base Rate Loan or into a different Eurodollar Loan on a
day other than the day on which the applicable Interest Period ends. Such
indemnification shall be on an after-tax basis, taking into account any taxes
imposed on the amounts paid as indemnity.
Section 3.6. Reimbursable Taxes. Borrower covenants and agrees that:
(a) Borrower will indemnify each Lender against and reimburse
each Lender for all present and future income, stamp and other taxes,
levies, costs and charges whatsoever imposed, assessed, levied or
collected on or in respect of this Agreement or any Eurodollar Loans
or Letters of Credit (whether or not legally or correctly imposed,
assessed, levied or collected), excluding, however, any taxes imposed
on or measured by the overall net income of Agent or such Lender or
any lending office of such Lender by any jurisdiction in which such
Lender or any such lending office is located (all such non-excluded
taxes, levies, costs and charges being collectively called
'Reimbursable Taxes' in this section). Such indemnification shall be
on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.
(a) All payments on account of the principal of, and interest
on, each Lender's Loans and Note, and all other amounts payable by
Borrower to any Lender hereunder, shall be made in full without
set-off or counterclaim and shall be made free and clear of and
without deductions or withholdings of any nature by reason of any
Reimbursable Taxes, all of which will be for the account of Borrower.
In the event of Borrower being compelled by Law to make any such
deduction or withholding from any payment to any Lender, Borrower
shall pay on the due date of such payment, by way of additional
interest, such additional amounts as are needed to cause the amount
receivable by such Lender after such deduction or withholding to equal
the amount which would have been receivable in the absence of such
deduction or withholding. If Borrower should make any deduction or
withholding as aforesaid, Borrower shall within 60 days thereafter
forward to such Lender an official receipt or other official document
evidencing payment of such deduction or withholding.
(b) If Borrower is ever required to pay any Reimbursable Tax
with respect to any Eurodollar Loan, Borrower may elect, by giving to
Agent and such Lender not less than three Business Days' notice, to
convert all (but not less than all) of any such Eurodollar Loan into a
Base Rate Loan, but such election shall not diminish Borrower's
obligation to pay all Reimbursable Taxes.
(c) Notwithstanding the foregoing provisions of this section,
Borrower shall be entitled, to the extent it is required to do so by
Law, to deduct or withhold (and not to make any indemnification or
reimbursement for) income or other similar taxes imposed by the United
States of America (other than any portion thereof attributable to a
change in federal income tax Laws effected after the date hereof) from
interest, fees or other amounts payable hereunder for the account of
any Lender, other than a Lender (i) who is a U.S. person for Federal
income tax purposes or (ii) who has the Prescribed Forms on file with
Agent (with copies provided to Borrower) for the applicable year to
the extent deduction or withholding of such taxes is not required as a
result of the filing of such Prescribed Forms, provided that if
Borrower shall so deduct or withhold any such taxes, it shall provide
a statement to Agent and such Lender, setting forth the amount of such
taxes so deducted or withheld, the applicable rate and any other
information or documentation which such Lender may reasonably request
for assisting such Lender to obtain any allowable credits or
deductions for the taxes so deducted or withheld in the jurisdiction
or jurisdictions in which such Lender is subject to tax. As used in
this section, "Prescribed Forms" means such duly executed forms or
statements, and in such number of copies, which may, from time to
time, be prescribed by Law and which, pursuant to applicable
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provisions of (x) an income tax treaty between the United States and
the country of residence of the Lender providing the forms or
statements, (y) the Internal Revenue Code of 1986, as amended from
time to time, or (z) any applicable rules or regulations thereunder,
permit Borrower to make payments hereunder for the account of such
Lender free of such deduction or withholding of income or similar
taxes.
Section 3.7. Change of Applicable Lending Office. Each Lender agrees
that, upon the occurrence of any event giving rise to the operation of Sections
3.2 through 3.6 with respect to such Lender, it will, if requested by Borrower,
use reasonable efforts (subject to overall policy considerations of such
Lender) to designate another Lending Office, provided that such designation is
made on such terms that such Lender and its Lending Office suffer no economic,
legal or regulatory disadvantage, with the object of avoiding the consequence
of the event giving rise to the operation of any such section. Nothing in this
section shall affect or postpone any of the obligations of Borrower or the
rights of any Lender provided in Sections 3.2 through 3.6.
Section 3.8. Replacement of Banks. If any Lender seeks reimbursement
for increased costs under Sections 3.2 through 3.6, then within ninety days
thereafter -- provided no Event of Default then exists -- Borrower shall have
the right (unless such Lender withdraws its request for additional
compensation) to replace such Lender by requiring such Lender to assign its
Loans and Notes and its commitments hereunder to an Eligible Transferee
reasonably acceptable to Agent and to Borrower, provided that: (i) all
Obligations of Borrower owing to such Lender being replaced (including such
increased costs, but excluding principal and accrued interest on the Notes
being assigned) shall be paid in full to such Lender concurrently with such
assignment, and (ii) the replacement Eligible Transferee shall purchase the
Note being assigned by paying to such Lender a price equal to the principal
amount thereof plus accrued and unpaid interest thereon. In connection with any
such assignment Borrower, Agent, such Lender and the replacement Eligible
Transferee shall otherwise comply with Section 9.5. Notwithstanding the
foregoing rights of Borrower under this section, however, Borrower may not
replace any Lender which seeks reimbursement for increased costs under Section
3.2 through 3.6 unless Borrower is at the same time replacing all Lenders which
are then seeking such compensation.
ARTICLE IV - Conditions Precedent to Effectiveness
Section 4.1. Documents to be Delivered. This Agreement shall not
become effective until Agent shall have received all of the following, at
Agent's office in New York, New York, duly executed and delivered and in form,
substance and date satisfactory to Agent:
(a) This Agreement and any other documents that Banks are to
execute in connection herewith.
(b) Each Note.
(c) Each Security Document listed in the Security Schedule.
(d) The Intercreditor Agreement.
(e) The Bank Interest Rate Hedge Agreement.
(f) Certain certificates of Borrower including:
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(i) An "Omnibus Certificate" of the Secretary and of
the Chairman of the Board or President of Borrower, which
shall contain the names and signatures of the officers of
Borrower authorized to execute Loan Documents and which shall
certify to the truth, correctness and completeness of the
following exhibits attached thereto: (1) a copy of
resolutions duly adopted by the Board of Directors of
Borrower and in full force and effect at the time this
Agreement is entered into, authorizing the execution of this
Agreement and the other Loan Documents delivered or to be
delivered in connection herewith and the consummation of the
transactions contemplated herein and therein, (2) a copy of
the charter documents of Borrower and all amendments thereto,
certified by the appropriate official of Borrower's state of
organization, and (3) a copy of any bylaws of Borrower; and
(ii) A "Compliance Certificate" of the Chairman of
the Board or President and of the chief financial officer of
Borrower, of even date with such Loan, in which such officers
certify to the satisfaction of the conditions set out in
subsections (a), (b), (c) and (d) of Section 4.2.
(g) A certificate (or certificates) of the due formation,
valid existence and good standing of Borrower in its state of
organization, issued by the appropriate authorities of such
jurisdiction, and certificates of Borrower's good standing and due
qualification to do business, issued by appropriate officials in any
states in which Borrower owns property subject to Security Documents.
(h) Documents similar to those specified in subsections
(f)(i) and (g) of this section with respect to each Guarantor and the
execution by it of the Loan Documents to which it is a party.
(i) A favorable opinion of Glast, Phillips & Murray, P.C.,
counsel for Related Persons, substantially in the form set forth in
Exhibit F-1.
(j) The Initial Financial Statements.
(k) Payment of all commitment, facility, agency and other
fees required to be paid to any Lender pursuant to any Loan Documents
or any commitment agreement heretofore entered into.
Section 4.2. Additional Conditions Precedent. No Bank has any
obligation to make any Loan (including its first) or issue any Letter of
Credit, unless the following conditions precedent have been satisfied on the
date of such Loan or the date of issuance of such Letter of Credit:
(a) All representations and warranties made by any
Related Person in any Loan Document shall be true on and as
of the date of such Loan or such Letter of Credit (except to
the extent that the facts upon which such representations are
based have been changed by the extension of credit hereunder)
as if such representations and warranties had been made as of
the date of such Loan or Letter of Credit.
(b) No Default shall exist at the date of such Loan
or Letter of Credit.
(c) No Material Adverse Change shall have occurred
to, and no event or circumstance shall have occurred that
could cause a Material Adverse Change to,
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Borrower's Consolidated financial condition or businesses
since the date of this Agreement.
(d) Each Related Person shall have performed and
complied with all agreements and conditions required in the
Loan Documents to be performed or complied with by it on or
prior to the date of such Loan or Letter of Credit.
(e) The making of such Loan or the issuance of such
Letter of Credit shall not be prohibited by any Law and shall
not subject any Bank to any penalty or other onerous
condition under or pursuant to any such Law.
(f) Agent shall have received all documents and
instruments which Agent has then requested, in addition to
those described in Section 4.1 (including opinions of legal
counsel for Related Persons and Agent; corporate documents
and records; documents evidencing governmental
authorizations, consents, approvals, licenses and exemptions;
and certificates of public officials and of officers and
representatives of Borrower and other Persons), as to (i) the
accuracy and validity of or compliance with all
representations, warranties and covenants made by any Related
Person in this Agreement and the other Loan Documents, (ii)
the satisfaction of all conditions contained herein or
therein, and (iii) all other matters pertaining hereto and
thereto. All such additional documents and instruments shall
be satisfactory to Agent in form, substance and date.
ARTICLE V - Representations and Warranties
To confirm each Lender's understanding concerning Related Persons and
Related Persons' businesses, properties and obligations and to induce each
Lender to enter into this Agreement and to extend credit hereunder, Borrower
and Parent each represent and warrant to each Lender that each of the
statements in Annex B is true and correct in all respects.
ARTICLE VI - Affirmative Covenants of Borrower and Parent
To conform with the terms and conditions under which each Lender is
willing to have credit outstanding to Borrower, and to induce each Lender to
enter into this Agreement and extend credit hereunder, Parent and Borrower each
warrant, covenant and agree that until the full and final payment of the
Obligations and the termination of this Agreement, unless Required Lenders have
previously agreed otherwise:
Section 6.1. Payment and Performance. Borrower will pay all amounts
due under the Loan Documents in accordance with the terms thereof and will
observe, perform and comply with every covenant, term and condition expressed
or implied in the Loan Documents, including Annex C, and Borrower and Parent
will cause each other Related Person to observe, perform and comply with every
such term, covenant and condition.
Section 6.2. Agreement to Deliver Security Documents. Parent and
Borrower agree to have any Subsidiary formed after the date hereof execute a
Guaranty for the benefit of the Lenders in form substantially similar to the
Parent Guaranty. In addition, Parent and Borrower each agree to deliver and to
cause each other Related Person to deliver, to further secure the Obligations
whenever requested by Agent in its sole and absolute discretion, deeds of
trust, mortgages, chattel mortgages, security
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agreements, financing statements and other Security Documents in form and
substance satisfactory to Agent for the purpose of granting, confirming, and
perfecting first and prior liens or security interests in any real or personal
property now owned or hereafter acquired by any Related Person.
Furthermore, Parent and Borrower each agree to deliver and to cause each other
Related Person to deliver whenever requested by Agent in its sole and absolute
discretion, an intercompany subordination agreement in form and substance
satisfactory to Agent. Borrower also agrees to deliver, whenever requested by
Agent in its sole and absolute discretion, favorable title opinions from legal
counsel acceptable to Agent with respect to any Related Person's properties and
interests designated by Agent, based upon abstract or record examinations to
dates acceptable to Agent and (a) stating that such Related Person has good and
defensible title to such properties and interests, free and clear of all Liens
other than Permitted Liens, (b) confirming that such properties and interests
are subject to Security Documents securing the Obligations that constitute and
create legal, valid and duly perfected first deed of trust or mortgage liens in
such properties and interests and first priority assignments of and security
interests in the oil and gas attributable to such properties and interests and
the proceeds thereof, and (c) covering such other matters as Agent may request.
Section 6.3. Perfection and Protection of Security Interests and
Liens. Borrower and Parent will from time to time deliver, and will cause each
other Related Person from time to time to deliver, to Agent any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by Related
Persons in form and substance satisfactory to Agent, which Agent requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing any Obligations.
Section 6.4. Bank Accounts; Offset. To secure the repayment of the
Obligations Borrower and Parent each hereby grant to each Lender a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of any Lender at common law, under the
Loan Documents, or otherwise, and each of which shall be upon and against (a)
any and all moneys, securities or other property (and the proceeds therefrom)
of Borrower or Parent now or hereafter held or received by or in transit to any
Lender from or for the account of Borrower or Parent, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, (b) any and all
deposits (general or special, time or demand, provisional or final) of Borrower
or Parent with any Lender, and (c) any other credits and claims of Borrower or
Parent at any time existing against any Lender, including claims under
certificates of deposit. At any time and from time to time after the occurrence
of any Default, each Lender is hereby authorized to foreclose upon, or to
offset against the Obligations then due and payable (in either case without
notice to Borrower or Parent), any and all items hereinabove referred to. The
remedies of foreclosure and offset are separate and cumulative, and either may
be exercised independently of the other without regard to procedures or
restrictions applicable to the other.
Section 6.5. Guaranties of Parent's Subsidiaries. Each Subsidiary of
Parent now existing or created, acquired or coming into existence after the
date hereof shall, promptly upon request by Agent, execute and deliver to Agent
an absolute and unconditional guaranty of the timely repayment of the
Obligations and the due and punctual performance of the obligations of Parent
hereunder, which guaranty shall be satisfactory to Agent in form and substance.
Each Subsidiary of Parent existing on the date hereof shall duly execute and
deliver such a guaranty prior to the making of any Loan hereunder. Parent will
cause each of its Subsidiaries to deliver to Agent, simultaneously with its
delivery of such a guaranty, written evidence satisfactory to Agent and its
counsel that such Subsidiary has taken all corporate or partnership action
necessary to duly approve and authorize its execution, delivery and performance
of such guaranty and any other documents which it is required to execute.
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Section 6.6. Production Proceeds. Notwithstanding that, by the terms
of the various Security Documents, Related Persons are and will be assigning to
Agent and Banks all of the "Production Proceeds" (as defined therein) accruing
to the property covered thereby, so long as no Default has occurred Related
Persons may continue to receive from the purchasers of production all such
Production Proceeds, subject, however, to the Liens created under the Security
Documents, which Liens are hereby affirmed and ratified. Upon the occurrence of
a Default, Agent and Banks may exercise all rights and remedies granted under
the Security Documents, including the right to obtain possession of all
Production Proceeds then held by Related Persons or to receive directly from
the purchasers of production all other Production Proceeds. In no case shall
any failure, whether purposed or inadvertent, by Agent or Banks to collect
directly any such Production Proceeds constitute in any way a waiver, remission
or release of any of their rights under the Security Documents, nor shall any
release of any Production Proceeds by Agent or Banks to Related Persons
constitute a waiver, remission, or release of any other Production Proceeds or
of any rights of Agent or Banks to collect other Production Proceeds
thereafter.
Section 6.7. TCW Debt. No Related Person will make any payment on or
with respect to the TCW Debt except as expressly permitted by the terms of the
Intercreditor Agreement.
ARTICLE VII - Events of Default and Remedies
Section 7.1. Events of Default. Each of the events described in Annex
D constitutes an Event of Default under this Agreement.
Section 7.2. Acceleration. Upon the occurrence of an Event of Default
described in subsection D.10(a), (b) or (c) of Annex D with respect to Borrower
or the acceleration of the Other Allowed Debt under the Other Loan Documents,
all of the Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Related Person who at any time
ratifies or approves this Agreement. Upon any such acceleration, any obligation
of any Bank to make any further Loans shall be permanently terminated. During
the continuance of any other Event of Default, Agent at any time and from time
to time may (and upon written instructions from Required Lenders, Agent shall),
without notice to Borrower or any other Related Person, do either or both of
the following: (1) terminate any obligation of Banks to make Loans hereunder,
and (2) declare any or all of the Obligations immediately due and payable, and
all such Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Related Person who at any time
ratifies or approves this Agreement.
Section 7.3. Remedies. If any Default shall occur and be continuing,
each Lender may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and each Lender may
enforce the payment of any Obligations due it or enforce any other legal or
equitable right which it may have. All rights, remedies and powers conferred
upon Lenders under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at Law or in equity.
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ARTICLE VIII - Agent
Section 8.1. Appointment and Authority. Each Bank hereby irrevocably
authorizes Agent, and Agent hereby undertakes, to receive payments of
principal, interest and other amounts due hereunder as specified herein and to
take all other actions and to exercise such powers under the Loan Documents as
are specifically delegated to Agent by the terms hereof or thereof, together
with all other powers reasonably incidental thereto. The relationship of Agent
to the other Banks is only that of one commercial Bank acting as administrative
agent for others, and nothing in the Loan Documents shall be construed to
constitute Agent a trustee or other fiduciary for any holder of any of the
Notes or of any participation therein nor to impose on Agent duties and
obligations other than those expressly provided for in the Loan Documents. With
respect to any matters not expressly provided for in the Loan Documents and any
matters which the Loan Documents place within the discretion of Agent, Agent
shall not be required to exercise any discretion or take any action, and it may
request instructions from Banks with respect to any such matter, in which case
it shall be required to act or to refrain from acting (and shall be fully
protected and free from liability to all Banks in so acting or refraining from
acting) upon the instructions of Required Lenders (including itself), provided,
however, that Agent shall not be required to take any action which exposes it
to a risk of personal liability that it considers unreasonable or which is
contrary to the Loan Documents or to applicable Law. Upon receipt by Agent from
Borrower of any communication calling for action on the part of Banks or upon
notice from any other Bank to Agent of any Default or Event of Default, Agent
shall promptly notify each other Bank thereof.
Section 8.2. Exculpation, Agent's Reliance, Etc. Neither Agent nor any
of its directors, officers, agents, attorneys, or employees shall be liable for
any action taken or omitted to be taken by any of them under or in connection
with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that
each shall be liable for its own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, Agent (a) may treat the payee
of any Note as the holder thereof until Agent receives written notice of the
assignment or transfer thereof in accordance with this Agreement, signed by
such payee and in form satisfactory to Agent; (b) may consult with legal
counsel (including counsel for Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
other Bank and shall not be responsible to any other Bank for any statements,
warranties or representations made in or in connection with the Loan Documents;
(d) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of the Loan Documents
on the part of any Related Person or to inspect the property (including the
books and records) of any Related Person; (e) shall not be responsible to any
other Bank for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Loan Document or any instrument or
document furnished in connection therewith; (f) may rely upon the
representations and warranties of each Related Person and the Banks in
exercising its powers hereunder; and (g) shall incur no liability under or in
respect of the Loan Documents by acting upon any notice, consent, certificate
or other instrument or writing (including any telecopy, telegram, cable or
telex) believed by it to be genuine and signed or sent by the proper Person or
Persons.
Section 8.3. Credit Decisions. Each Bank acknowledges that it has,
independently and without reliance upon any other Bank, made its own analysis
of Borrower and the transactions contemplated hereby and its own independent
decision to enter into this Agreement and the other Loan Documents. Each Bank
also acknowledges that it will, independently and without reliance upon any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents.
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Section 8.4. Indemnification. Each Bank agrees to indemnify Agent (to
the extent not reimbursed by Borrower within ten (10) days after demand) from
and against such Bank's Percentage Share of any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called "liabilities and costs") which
to any extent (in whole or in part) may be imposed on, incurred by, or asserted
against Agent growing out of, resulting from or in any other way associated
with any of the Collateral, the Loan Documents and the transactions and events
(including the enforcement thereof) at any time associated therewith or
contemplated therein (including any violation or noncompliance with any
Environmental Laws by any Person or any liabilities or duties of any Person
with respect to Hazardous Materials found in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,
provided only that no Bank shall be obligated under this section to indemnify
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by Agent's own individual gross negligence or willful
misconduct, as determined in a final judgment. Cumulative of the foregoing,
each Bank agrees to reimburse Agent promptly upon demand for such Bank's
Percentage Share of any costs and expenses to be paid to Agent by Borrower
under Section 9.4(a) to the extent that Agent is not timely reimbursed for such
expenses by Borrower as provided in such section. As used in this section the
term "Agent" shall refer not only to the Person designated as such in Section
1.1 but also to each director, officer, agent, attorney, employee,
representative and Affiliate of such Person.
Section 8.5. Rights as Bank. In its capacity as a Bank, Agent shall
have the same rights and obligations as any Bank and may exercise such rights
as though it were not Agent. Agent may accept deposits from, lend money to, act
as Trustee under indentures of, and generally engage in any kind of business
with any Related Person or their Affiliates, all as if it were not Agent
hereunder and without any duty to account therefor to any other Bank.
Section 8.6. Sharing of Set-Offs and Other Payments. Each Bank agrees
that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent under Section
3.1, causes such Bank to have received more than it would have received had
such payment been received by Agent and distributed pursuant to Section 3.1,
then (a) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Banks to share all payments as provided for in Section 3.1, and (b) such other
adjustments shall be made from time to time as shall be equitable to ensure
that Agent and all Banks share all payments of Obligations as provided in
Section 3.1; provided, however, that nothing herein contained shall in any way
affect the right of any Bank to obtain payment (whether by exercise of rights
of banker's lien, set-off or counterclaim or otherwise) of indebtedness other
than the Obligations. Borrower expressly consents to the foregoing arrangements
and agrees that any holder of any such interest or other participation in the
Obligations, whether or not acquired pursuant to the foregoing arrangements,
may to the fullest extent permitted by Law exercise any and all rights of
banker's lien, set-off, or counterclaim as fully as if such holder were a
holder of the Obligations in the amount of such interest or other
participation. If all or any part of any funds transferred pursuant to this
section is thereafter recovered from the seller under this section which
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received the same, the purchase provided for in this section shall be deemed to
have been rescinded to the extent of such recovery, together with interest, if
any, if interest is required pursuant to Tribunal order to be paid on account
of the possession of such funds prior to such recovery.
Section 8.7. Investments. Whenever Agent in good faith determines that
it is uncertain about how to distribute to Banks any funds which it has
received, or whenever Agent in good faith determines that there is any dispute
among Banks about how such funds should be distributed, Agent may choose to
defer distribution of the funds which are the subject of such uncertainty or
dispute. If Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Agent is otherwise required to invest funds
pending distribution to Banks, Agent shall invest such funds pending
distribution; all interest on any such investment shall be distributed upon the
distribution of such investment and in the same proportion and to the same
Persons as such investment. All moneys received by Agent for distribution to
Banks (other than to the Person who is Agent in its separate capacity as a
Bank) shall be held by Agent pending such distribution solely as Agent for such
Banks, and Agent shall have no equitable title to any portion thereof.
Section 8.8. Benefit of Article VIII. The provisions of this Article
(other than the following Section 8.9) are intended solely for the benefit of
Banks, and no Related Person shall be entitled to rely on any such provision or
assert any such provision in a claim or defense against any Bank. Banks may
waive or amend such provisions as they desire without any notice to or consent
of Borrower or any Related Person.
Section 8.9. Resignation. Agent may resign at any time by giving
written notice thereof to Banks and Borrower. Each such notice shall set forth
the date of such resignation. Upon any such resignation, Required Banks shall
have the right to appoint a successor Agent. A successor must be appointed for
any retiring Agent, and such Agent's resignation shall become effective when
such successor accepts such appointment. If, within thirty days after the date
of the retiring Agent's resignation, no successor Agent has been appointed and
has accepted such appointment, then the retiring Agent may appoint a successor
Agent, which shall be a commercial bank organized or licensed to conduct a
banking or trust business under the Laws of the United States of America or of
any state thereof. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, the retiring Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring Agent's resignation hereunder the provisions of this Article VIII
shall continue to inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under the Loan Documents.
ARTICLE IX - Miscellaneous
Section 9.1. Waivers and Amendments; Acknowledgements.
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(a) Waivers and Amendments. No failure or delay (whether by course of
conduct or otherwise) by any Lender in exercising any right, power or remedy
which such Lender may have under any of the Loan Documents shall operate as a
waiver thereof or of any other right, power or remedy, nor shall any single or
partial exercise by any Lender of any such right, power or remedy preclude any
other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and signed as
provided below in this section, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which given
and to the extent specified in such writing. No notice to or demand on any
Related Person shall in any case of itself entitle any Related Person to any
other or further notice or demand in similar or other circumstances. This
Agreement and the other Loan Documents set forth the entire understanding
between the parties hereto with respect to the transactions contemplated herein
and therein and supersede all prior discussions and understandings with respect
to the subject matter hereof and thereof, and no waiver, consent, release,
modification or amendment of or supplement to this Agreement or the other Loan
Documents shall be valid or effective against any party hereto unless the same
is in writing and signed by (i) if such party is Borrower, by Borrower, (ii) if
such party is Agent, by such party, and (iii) if such party is a Bank, by such
Bank or by Agent on behalf of Banks with the written consent of Required
Lenders (which consent has already been given as to the termination of the Loan
Documents as provided in Section 9.9). Notwithstanding the foregoing or
anything to the contrary herein, Agent shall not, without the prior consent of
each individual Bank, execute and deliver on behalf of such Bank any waiver or
amendment which would: (1) waive any of the conditions specified in Article IV
(provided that Agent may in its discretion withdraw any request it has made
under Section 4.2(f)), (2) reduce any fees payable to such Bank hereunder, or
the principal of, or interest on, such Bank's Note, (3) postpone any date fixed
for any payment of any such fees, principal or interest, (4) amend the
definition herein of "Required Lenders" or otherwise change the aggregate
amount of Percentage Shares which is required for Agent, Banks or any of them
to take any particular action under the Loan Documents, (5) release Borrower
from its obligation to pay such Bank's Note or any Guarantor from its guaranty
of such payment, or (7) amend any provision of the Intercreditor Agreement.
(b) Acknowledgements and Admissions. Borrower hereby represents,
warrants, acknowledges and admits that (i) it has been advised by counsel in
the negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement
and the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Agent or any Bank, whether
written, oral or implicit, other than as expressly set out in this Agreement or
in another Loan Document delivered on or after the date hereof, (iii) there are
no representations, warranties, covenants, undertakings or agreements by any
Lender as to the Loan Documents except as expressly set out in this Agreement
or in another Loan Document delivered on or after the date hereof, (iv) no
Lender has any fiduciary obligation toward Borrower with respect to any Loan
Document or the transactions contemplated thereby, (v) the relationship
pursuant to the Loan Documents between Borrower and the other Related Persons,
on one hand, and each Lender, on the other hand, is and shall be solely that of
debtor and creditor, respectively, (vi) no partnership or joint venture exists
with respect to the Loan Documents between any Related Person and any Lender,
(vii) Agent is not Borrower's Agent, but Agent for Banks, (viii) should an
Event of Default or Default occur or exist, each Lender will determine in its
sole discretion and for its own reasons what remedies and actions it will or
will not exercise or take at that time, (ix) without limiting any of the
foregoing, Borrower is not relying upon any representation or covenant by any
Lender, or any representative thereof, and no such representation or covenant
has been made, that any Lender will, at the time of an Event of Default or
Default, or at any other time, waive, negotiate, discuss, or take or refrain
from taking any action permitted under the Loan Documents with respect to any
such Event of Default or Default or any other provision of the Loan Documents,
and (x) all Lenders have relied upon the
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truthfulness of the acknowledgements in this section in deciding to execute and
deliver this Agreement and to become obligated hereunder.
(c) Representation by Banks. Each Bank hereby represents that it will
acquire its Note for its own account in the ordinary course of its commercial
lending business; however, the disposition of such Bank's property shall at all
times be and remain within its control and, in particular and without
limitation, such Bank may sell or otherwise transfer its Note, any
participation interest or other interest in its Note, or any of its other
rights and obligations under the Loan Documents.
(d) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 9.2. Survival of Agreements; Cumulative Nature. All of Related
Persons' various representations, warranties, covenants and agreements in the
Loan Documents shall survive the execution and delivery of this Agreement and
the other Loan Documents and the performance hereof and thereof, including the
making or granting of the Loans and the delivery of the Notes and the other
Loan Documents, and shall further survive until all of the Obligations are paid
in full to each Lender and all of Lenders' obligations to Borrower are
terminated. All statements and agreements contained in any certificate or other
instrument delivered by any Related Person to any Lender under any Loan
Document shall be deemed representations and warranties by Borrower or
agreements and covenants of Borrower under this Agreement. The representations,
warranties, indemnities, and covenants made by Related Persons in the Loan
Documents, and the rights, powers, and privileges granted to Lenders in the
Loan Documents, are cumulative, and, except for expressly specified waivers and
consents, no Loan Document shall be construed in the context of another to
diminish, nullify, or otherwise reduce the benefit to any Lender of any such
representation, warranty, indemnity, covenant, right, power or privilege. In
particular and without limitation, no exception set out in this Agreement to
any representation, warranty, indemnity, or covenant herein contained shall
apply to any similar representation, warranty, indemnity, or covenant contained
in any other Loan Document, and each such similar representation, warranty,
indemnity, or covenant shall be subject only to those exceptions which are
expressly made applicable to it by the terms of the various Loan Documents.
Section 9.3. Notices. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic notices to the other Lenders), and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy or telex, by delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, to Borrower and Related
Persons at the address of Borrower specified on the signature pages hereto and
to each Lender at its address specified on the signature pages hereto (unless
changed by similar notice in writing given by the particular Person whose
address is to be changed). Any such notice or communication shall be deemed to
have been given (a) in the case of personal delivery or delivery service, as of
the date of first attempted delivery during normal business hours at the
address provided herein, (b) in the case of telecopy or telex, upon receipt, or
(c) in the case of registered or certified United States mail, three days after
deposit in the mail; provided, however, that no Borrowing Notice shall become
effective until actually received by Agent.
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Section 9.4. Payment of Expenses; Indemnity.
(a) Payment of Expenses. Whether or not the transactions contemplated
by this Agreement are consummated, Borrower will promptly (and in any event,
within 30 days after any invoice or other statement or notice) pay: (i) all
transfer, stamp, mortgage, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any of the other Loan Documents or any other document referred to
herein or therein, (ii) all reasonable costs and expenses incurred by or on
behalf of Agent (including attorneys' fees, consultants' fees and engineering
fees, travel costs and miscellaneous expenses) in connection with (1) the
negotiation, preparation, execution and delivery of the Loan Documents, and any
and all consents, waivers or other documents or instruments relating thereto,
(2) the filing, recording, refiling and re-recording of any Loan Documents and
any other documents or instruments or further assurances required to be filed
or recorded or refiled or re-recorded by the terms of any Loan Document, (3)
the borrowings hereunder and other action reasonably required in the course of
administration hereof, (4) monitoring or confirming (or preparation or
negotiation of any document related to) Borrower's compliance with any
covenants or conditions contained in this Agreement or in any Loan Document,
and (iii) all reasonable costs and expenses incurred by or on behalf of any
Lender (including attorneys' fees, consultants' fees and accounting fees) in
connection with the defense or enforcement of any of the Loan Documents
(including this section) or the defense of any Lender's exercise of its rights
thereunder. In addition to the foregoing, until and all Obligations have been
paid in full, Borrower will also pay or reimburse Agent for all reasonable
out-of-pocket costs and expenses of Agent or its agents or employees in
connection with the continuing administration of the Loans and the related due
diligence of Agent, including travel and miscellaneous expenses and fees and
expenses of Agent's outside counsel, reserve engineers and consultants engaged
in connection with the Loan Documents.
(b) Indemnity. Borrower and Parent each agree to indemnify each
Lender, upon demand, from and against any and all liabilities, obligations,
claims, losses, damages, penalties, fines, actions, judgments, suits,
settlements, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this section collectively called "liabilities and costs") which to any
extent (in whole or in part) may be imposed on, incurred by, or asserted
against such Lender growing out of, resulting from or in any other way
associated with any of the Collateral, the Loan Documents and the transactions
and events (including the enforcement or defense thereof) at any time
associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by any Related Person or any
liabilities or duties of any Related Person or any Lender with respect to
Hazardous Materials found in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER,
provided only that no Lender shall be entitled under this section to receive
indemnification for that portion, if any, of any liabilities and costs which is
proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment. If any Person (including
Borrower or any of its Affiliates) ever alleges such gross negligence or
willful misconduct by any Lender, the indemnification provided for in this
section shall nonetheless be paid upon demand, subject to later adjustment or
reimbursement, until such time as a court of competent jurisdiction enters a
final judgment
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as to the extent and effect of the alleged gross negligence or willful
misconduct. As used in this section the term "Lenders" shall refer not only to
the Persons designated as such in Section 1.1 but also to each director,
officer, agent, attorney, employee, representative and Affiliate of such
Persons.
Section 9.5. Joint and Several Liability; Parties in Interest;
Assignments.
(a) All Obligations which are incurred by two or more Related Persons
shall be their joint and several obligations and liabilities. All grants,
covenants and agreements contained in the Loan Documents shall bind and inure
to the benefit of the parties thereto and their respective successors and
assigns; provided, however, that no Related Person may assign or transfer any
of its rights or delegate any of its duties or obligations under any Loan
Document without the prior consent of Required Lenders. Neither Borrower nor
any Affiliates of Borrower shall directly or indirectly purchase or otherwise
retire any Obligations owed to any Bank nor will any Bank accept any offer to
do so, unless each Bank shall have received substantially the same offer with
respect to the same Percentage Share of the Obligations owed to it. If Borrower
or any Affiliate of Borrower at any time purchases some but less than all of
the Obligations owed to all Lenders, such purchaser shall not be entitled to
any rights of any Lender under the Loan Documents unless and until Borrower or
its Affiliates have purchased all of the Obligations.
(b) No Bank shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person other than an Eligible Transferee, and then only if the agreement
between such Bank and such participant at all times provides: (i) that such
participation exists only as a result of the agreement between such participant
and such Bank and that such transfer does not give such participant any right
to vote as a Bank or any other direct claims or rights against any Person other
than such Bank, (ii) that such participant is not entitled to payment from any
Related Person under Sections 3.2 through 3.6 of amounts in excess of those
payable to such Bank under such sections (determined without regard to the sale
of such participation), and (iii) unless such participant is an Affiliate of
such Bank, that such participant shall not be entitled to require such Bank to
take any action under any Loan Document or to obtain the consent of such
participant prior to taking any action under any Loan Document, except for
actions which would require the consent of all Banks under subsection (a) of
Section 9.1. No Bank selling such a participation shall, as between the other
parties hereto and such Bank, be relieved of any of its obligations hereunder
as a result of the sale of such participation. Each Bank which sells any such
participation to any Person (other than an Affiliate of such Bank) shall give
prompt notice thereof to Agent and Borrower.
(c) Except for sales of participations under the immediately preceding
subsection (b), no Bank shall make any assignment or transfer of any kind of
its commitments or any of its rights under its Loans or under the Loan
Documents, except for assignments to an Eligible Transferee, and then only if
such assignment is made in accordance with the following requirements:
(i) Each such assignment shall apply to all Obligations owing
to the assignor Bank hereunder and to the unused portion of the
assignor Bank's commitments, so that after such assignment is made the
assignor Bank shall have a fixed (and not a varying) Percentage Share
in its Loans and Note and be committed to make that Percentage Share
of all future Loans, the assignee shall have a fixed Percentage Share
in such Loans and Note and be committed to make that Percentage Share
of all future Loans, and the Percentage Share of the Borrowing Base of
both the assignor and the assignee shall equal or exceed $5,000,000.
(ii) The parties to each such assignment shall execute and
deliver to Agent, for its acceptance and recording in the "Register"
(as defined below in this section), an Assignment and
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<PAGE> 37
Assumption in the form of Exhibit G, appropriately completed, together
with the Note subject to such assignment and a processing fee payable
to Agent of $2,500. Upon such execution, delivery, and payment and upon
the satisfaction of the conditions set out in such Assignment and
Assumption, then (i) Borrower shall issue new Notes to such assignor
and assignee upon return of the old Notes to Borrower, and (ii) as of
the "Settlement Date" specified in such Assignment and Assumption the
assignee thereunder shall be a party hereto and a Bank hereunder and
Agent shall thereupon deliver to Borrower and each Bank a schedule
showing the revised Percentage Shares of such assignor Bank and such
assignee Bank and the Percentage Shares of all other Banks.
(iii) Each assignee Bank which is not a United States person
(as such term is defined in Section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended) for Federal income tax purposes,
shall (to the extent it has not already done so) provide Agent and
Borrower with the "Prescribed Forms" referred to in Section 3.6(d).
(d) Nothing contained in this section shall prevent or prohibit any
Bank from assigning or pledging all or any portion of its Loans and Note to any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that no such assignment or pledge
shall relieve such Bank from its obligations hereunder.
(e) By executing and delivering an Assignment and Assumption, each
assignee Bank thereunder will be confirming to and agreeing with Borrower,
Agents and each other Bank hereunder that such assignee understands and agrees
to the terms hereof, including Article IX hereof.
(f) Agent shall maintain a copy of each Assignment and Assumption and
a register for the recordation of the names and addresses of Banks and the
Percentage Shares of, and principal amount of the Loans owing to, each Bank
from time to time (in this section called the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and Borrower
and each Lender may treat each Person whose name is recorded in the Register as
a Bank hereunder for all purposes. The Register shall be available for
inspection by Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
Section 9.6. Confidentiality. Each Lender agrees that it will take all
reasonable steps to keep confidential any proprietary information given to it
by any Related Person, provided, however, that this restriction shall not apply
to information which (i) has at the time in question entered the public domain,
(ii) is required to be disclosed by Law (whether valid or invalid) of any
Tribunal, (iii) is disclosed to any Lender's Affiliates, auditors, attorneys,
or agents (provided such Persons are obligated to hold such information in
confidence on the terms provided in this section), (iv) is furnished to any
other Lender or to any purchaser or prospective purchaser of participations or
other interests in any Loan or Loan Document (provided each such purchaser or
prospective purchaser first agrees to hold such information in confidence on
the terms provided in this section), or (v) is disclosed in the course of
enforcing its rights and remedies during the existence of an Event of Default.
Section 9.7. Governing Law; Submission to Process. EXCEPT TO THE
EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN
DOCUMENT, THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE
UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS
OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW. BORROWER AND PARENT
33
<PAGE> 38
EACH HEREBY AGREE THAT ANY LEGAL ACTION OR PROCEEDING AGAINST BORROWER OR
PARENT WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OF THE LOAN DOCUMENTS
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES
OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS LENDERS MAY ELECT, AND, BY
EXECUTION AND DELIVERY HEREOF, EACH OF BORROWER AND PARENT ACCEPTS AND CONSENTS
FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS, AND FURTHER AGREES TO A TRANSFER OF ANY
SUCH PROCEEDING TO A FEDERAL COURT SITTING IN THE STATE OF NEW YORK TO THE
EXTENT THAT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE TO A STATE COURT
IN NEW YORK, NEW YORK, AND AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE,
UNLESS WAIVED BY LENDERS IN WRITING, WITH RESPECT TO ANY ACTION OR PROCEEDING
BROUGHT BY IT AGAINST LENDERS AND ANY QUESTIONS RELATING TO USURY. EACH OF
PARENT AND BORROWER AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN DOCUMENTS AND
WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE
SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. IN FURTHERANCE OF THE
FOREGOING, EACH OF PARENT AND BORROWER HEREBY IRREVOCABLY DESIGNATES AND
APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK, AS AGENT OF
BORROWER AND PARENT TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST BORROWER
OR PARENT WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW YORK,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER AND PARENT TO BE EFFECTIVE
AND BINDING SERVICE IN EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED
SHALL ALSO, IF PERMITTED BY LAW, BE SENT BY REGISTERED MAIL TO BORROWER AT ITS
ADDRESS SET FORTH BELOW, BUT THE FAILURE OF BORROWER TO RECEIVE SUCH COPIES
SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID. BORROWER
SHALL FURNISH TO LENDERS A CONSENT OF CT CORPORATION SYSTEM AGREEING TO ACT
HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF LENDERS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF LENDERS TO BRING PROCEEDINGS AGAINST BORROWER
OR PARENT IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON CT
CORPORATION SYSTEM SHALL RESIGN OR OTHERWISE CEASE TO ACT AS BORROWER'S OR
PARENT'S AGENT, BORROWER AND PARENT HEREBY IRREVOCABLY AGREE TO (A) IMMEDIATELY
DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE TO AGENT TO SERVE IN SUCH CAPACITY
AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR CT
CORPORATION SYSTEM FOR ALL PURPOSES HEREOF AND (B) PROMPTLY DELIVER TO LENDERS
THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO AGENT) OF SUCH NEW
AGENT AGREEING TO SERVE IN SUCH CAPACITY.
Section 9.8. Limitation on Interest. Lenders, Related Persons and the
other parties to the Loan Documents intend to contract in strict compliance
with applicable usury Law from time to time in effect. In furtherance thereof
such Persons stipulate and agree that none of the terms and provisions
contained in the Loan Documents shall ever be construed to provide for interest
in excess of the maximum amount of interest permitted to be charged by
applicable Law from time to time in effect. Neither any Related Person nor any
present or future guarantors, endorsers, or other Persons hereafter becoming
liable for payment of any Obligation shall ever be liable for unearned interest
thereon or shall ever be required to pay interest thereon in excess of the
maximum amount that may be lawfully charged under applicable Law from time to
time in effect, and the provisions of this section shall control over all other
provisions of the Loan Documents which may be in conflict or apparent conflict
herewith.
Section 9.9. Termination; Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Agent to terminate this Agreement. Upon receipt by
Agent of such a notice, if no Obligations are then owing this Agreement
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<PAGE> 39
and all other Loan Documents shall thereupon be terminated and the parties
thereto released from all prospective obligations thereunder. Notwithstanding
the foregoing or anything herein to the contrary, any waivers or admissions
made by any Related Person in any Loan Document, any Obligations under Sections
3.2 through 3.6, and any obligations which any Person may have to indemnify or
compensate any Lender shall survive any termination of this Agreement or any
other Loan Document. At the request and expense of Borrower, Agent shall
prepare and execute all necessary instruments to reflect and effect such
termination of the Loan Documents. Agent is hereby authorized to execute all
such instruments on behalf of all Banks, without the joinder of or further
action by any Bank.
Section 9.10. Severability. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.
Section 9.11. Counterparts. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 9.12. Waiver of Jury Trial, Punitive Damages, etc. TO THE
EXTENT PERMITTED BY LAW, LENDERS, PARENT AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF SUCH PERSONS, PARENT OR BORROWER. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR LENDERS' ENTERING INTO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS. PARENT, BORROWER AND EACH LENDER HEREBY FURTHER
(A) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES,"
AS DEFINED BELOW, (B) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR
AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS, AND (C) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, "SPECIAL
DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES
(REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY
PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY
HERETO.
Section 9.13. Amendment and Restatement. This Agreement amends and
restates in its entirety that certain Credit Agreement dated as of September
23, 1997, by among Borrower, Parent, Agent, and Banks, as amended, restated, or
supplemented to the date hereof (the "Existing Agreement"). Borrower and Parent
hereby represent and warrant that as of the date hereof all conditions under
Section 4.1 of this Agreement have been met. Borrower and Parent hereby agree
that (i) the Loans outstanding under the Existing Agreement and all accrued and
unpaid interest thereon, (ii) all Letters of Credit issued and outstanding
under the Existing Agreement, and (iii) all accrued and unpaid fees under the
Existing Agreement shall be deemed to be outstanding under and governed by this
Agreement.
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<PAGE> 40
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
INLAND PRODUCTION COMPANY
Borrower
By:
--------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle R. Miller
Telephone: (303) 893-0102
Telecopy: (303) 893-0103
INLAND RESOURCES INC.
Parent
By:
--------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
475 17th Street, Suite 1500
Denver, Colorado 80202
Attention: Kyle R. Miller
Telephone: (303) 893-0102
Telecopy: (303) 893-0103
36
<PAGE> 41
ING (U.S.) Capital Corporation
Agent and Bank
By:
--------------------------------
Christopher R. Wagner
Vice President
Address:
135 East 57th Street, 8th Floor
New York, New York 10022-2101
Attention: Christopher R. Wagner
Telephone: (212) 409-1717
Telecopy: (212) 832-3616
U.S. BANK NATIONAL ASSOCIATION
By:
--------------------------------
Monte E. Deckerd
Vice President
Address:
918 Seventeenth Street
Denver, Colorado 80202
Attention: Monte Deckerd
Telephone: (303) 585-4212
Telecopy: (303) 585-4362
MEESPIERSON CAPITAL CORPORATION
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
Address:
300 Crescent Court, Suite 1750
Dallas, Texas 75201
Attention: Darrell Holley
Telephone: (214) 754-0009
Telecopy: (212) 754-5981
37
<PAGE> 42
ANNEX A
COMMON DEFINITIONS
"2% Affiliate" means, as to any Person, (a) any Person directly or
indirectly owning, controlling or holding with power to vote 2% or more of the
outstanding voting securities of such Person, (b) any Person 2% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such Person, (c) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, and (d) any officer, director, partner or sanguinal or affinal kin of
such Person or any Person described above in clause (c) of this paragraph.
"Affiliate" means, as to any Person, (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the
outstanding voting securities of such Person, (b) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such Person, (c) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, and (d) any officer, director, partner or sanguinal or affinal kin of
such Person or any Person described above in clause (c) of this paragraph.
Pengo Securities Corp., Randall D. Smith and any Affiliate of Randall D. Smith
including any trusts of which Randall D. Smith or any of his heirs at law is
settlor, trustee or beneficiary shall, for purposes of such 10% test, be
treated as a single Person.
"ANCF," "ANCF Capital Expenditures," "ANCF Hierarchy," "ANCF LOE,"
"ANCF Overhead Costs," "ANCF Transportation Costs," and "Affiliates' ANCF" have
the meanings given to such terms in the Intercreditor Agreement.
"Bank Interest Rate Hedge Agreement" has the meaning given it in the
Intercreditor Agreement.
"Bank Mortgage" means, collectively, that certain Deed of Trust,
Mortgage, Line of Credit Mortgage, Assignment, Security Agreement, Fixture
Filing and Financing Statement from Borrower to Agent dated as of September 30,
1997, as amended, and that certain Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement from Inland Refining to
Agent dated as of May 29, 1998, as amended.
"Change of Control" means the occurrence of either of the following
events: (i) any Person or two or more Persons acting as a group shall acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Act of 1934, as amended, and including
holding proxies to vote for the election of directors other than proxies held
by Parent's management or their designees to be voted in favor of Persons
nominated by Parent's Board of Directors) a larger percentage of the
outstanding voting securities of Parent than the aggregate percentage owned by
Randall D. Smith and Pengo Securities Corp., and the percentage of outstanding
voting securities of Parent owed by such Person or Persons is 35% or more of
the outstanding voting securities of Parent, measured by voting power
(including both common stock and any preferred stock or other equity securities
entitling the holders thereof to vote with the holders of common stock in
elections for directors of Parent) or (ii) one-third or more of the directors
of Parent shall consist of Persons not nominated by Parent's Board of Directors
(including as Board nominees any directors which the Board is obligated to
nominate pursuant to shareholders agreements, voting trust arrangements or
similar arrangements which are in place as of the date hereof, but not those
which arise after the date hereof unless they deal with the same parties or
their Affiliates and no one else).
"Collateral" means all property of any kind which is subject to a Lien
in favor of Lenders or which, under the terms of any Security Document, is
purported to be subject to such a Lien.
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"Consolidated" refers to the consolidation of Parent, Borrower or any
other Related Person, in accordance with GAAP, with its properly consolidated
subsidiaries. References herein to a Person's Consolidated financial
statements, financial position, financial condition, liabilities, etc. refer to
the consolidated financial statements, financial position, financial condition,
liabilities, etc. of such Person and its properly consolidated subsidiaries.
"Consolidating," when used with reference to the financial statements of
Parent, means the financial statements of Parent and its properly consolidated
subsidiaries, presented in a manner acceptable to Agent which (a) shows the net
intercompany transactions between each of Parent and such subsidiaries and (b)
presents substantially the same information with respect to Borrower which
would be presented on individual financial statements of Borrower.
"Consolidated Net Income" means, as to any Person or Persons for any
period, the gross revenues of such Person or Persons for such period, plus any
cash dividends or distributions actually received by such Person or Persons
from any other business entity, minus all expenses and other proper charges
(including taxes on income, to the extent imposed upon such Person or Persons),
determined on a Consolidated basis after eliminating earnings or losses
attributable to outstanding minority interests, but excluding the net earnings
of any other business entity in which such Person or Persons has an ownership
interest.
"Consolidated Tangible Net Worth" means the remainder of all
Consolidated assets of Parent, other than intangible assets (including as
intangible assets such assets as patents, copyrights, licenses, franchises,
goodwill, trade names, trade secrets and leases other than oil, gas or mineral
leases or leases required to be capitalized under GAAP), minus Parent's
Consolidated Debt, provided that for purposes of this definition, Parent's
Series C Convertible Preferred Stock shall not be included in the calculation
of Parent's Consolidated Debt and shall be considered equity.
"Crysen Refinery" means that certain refinery located in Woods Cross,
Utah.
"Debt" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Direct Taxes" has the meaning given it in the Intercreditor Agreement.
"Disclosure Report" means either a notice given by Borrower under
Section C.3 of Annex C or a certificate given by Borrower's chief financial
officer under Section C.1 of Annex C.
"Disclosure Schedule" means Schedule 1 to this Agreement.
"Distribution" means (a) any dividend or other distribution made by a
Related Person on or in respect of any stock, partnership interest, or other
equity interest in such Related Person (including any option or warrant to buy
such an equity interest), or (b) any payment made by a Related Person to
purchase, redeem, acquire or retire any stock, partnership interest, or other
equity interest in such Related Person (including any such option or warrant).
"EBITDA" means, for any four-Fiscal Quarter period, the sum of (1) the
Consolidated Net Income of Parent during such period, plus (2) all cash
interest paid during such period on Restricted Debt (including amortization of
original issue discount and the interest component of any deferred payment
obligations and capital lease obligations) which was deducted in determining
such Consolidated Net Income, plus (3) all income taxes which were deducted in
determining such Consolidated Net
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Income, plus (4) all depreciation, amortization (including amortization of good
will and debt issue costs) and other non-cash charges (including any provision
for the reduction in the carrying value of assets recorded in accordance with
GAAP) which were deducted in determining such Consolidated Net Income, minus
(5) all non-cash items of income which were included in determining such
Consolidated Net Income.
"Eligible Mortgaged Properties" means, collectively, those Properties
which (a) are owned by Borrower and mortgaged to secure the Obligations and the
Other Allowed Debt, (b) for which Agent has received title opinions and other
title information concerning such Properties in form, substance and authorship
satisfactory to Agent, and (c) are free and clear of all Liens other than
Permitted Liens.
"Engineering Report" means the Initial Engineering Report and each
engineering report delivered pursuant to Section C.1(d) or C.1(e) of Annex C.
"Environmental Affiliate" means, as to any Person, any other Person
which by virtue of its control of, or common control with, such Person, may
incur any liability with respect to any claims, consent agreements, citations,
complaints, penalty assessments, suits or other proceedings with respect to any
alleged liability under, violation of or non-compliance with any Environmental
Laws.
"Environmental Laws" means any and all Laws relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Affiliate" means Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control that, together with Borrower, are treated as a single
employer under Section 414 of the Internal Revenue Code of 1986, as amended.
"ERISA Plan" means any employee pension benefit plan subject to Title
IV of ERISA maintained by any ERISA Affiliate with respect to which any Related
Person has a fixed or contingent liability.
"Farmout Agreement" means that certain Farmout Agreement by Inland
Production Company and Inland Resources Inc. as Farmor, Smith Management LLC as
Farmee, and Inland Production Company as Operator dated as of June 1, 1998.
"Fiscal Quarter" means a three-month period ending on March 31, June
30, September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
"Floating Rate Debt" means any part of the Obligations which bears
interest at a floating rate.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of Parent
and its Consolidated subsidiaries, are applied for all periods after the
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<PAGE> 45
date hereof in a manner consistent with the manner in which such principles and
practices were applied to the audited Initial Financial Statements. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for or practice to
continue as a generally accepted accounting principle or practice, all reports
and financial statements required hereunder with respect to Parent or with
respect to Parent and its Consolidated subsidiaries may be prepared in
accordance with such change, but all calculations and determinations to be made
hereunder may be made in accordance with such change only after notice of such
change is given to each Lender and Required Lenders agree to such change
insofar as it affects the accounting of Parent or of Parent and its
Consolidated subsidiaries.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Hedging Contract" means (a) any agreement providing for options,
swaps, floors, caps, collars, forward sales or forward purchases involving
interest rates, commodities or commodity prices, equities, currencies, bonds,
or indexes based on any of the foregoing, (b) any option, futures or forward
contract traded on an exchange, and (c) any other derivative agreement or other
similar agreement or arrangement, including "Permitted Commodity Hedges" (as
defined in the Intercreditor Agreement).
"Hydrocarbons" means crude oil, natural gas or other liquid or gaseous
hydrocarbons.
"ING Pricing" means the pricing assumptions required under Regulations
S-B, S-K or S-X , as applicable, promulgated by the Securities and Exchange
Commission.
"Initial Engineering Report" means the engineering report concerning
oil and gas properties of Related Persons dated July 1, 1997, prepared by Ryder
Scott Company.
"Initial Financial Statements" means (i) the audited annual
Consolidated financial statements of Parent dated as of December 31, 1997, (ii)
the unaudited quarterly Consolidated financial statements of Parent dated as of
June 30, 1998, (iii) the unaudited balance sheet of Inland Refining as of June
30, 1998, and (iv) other financial statements of Inland Refining from date of
incorporation to June 30, 1998.
"Inland Refining" means Inland Refining, Inc. a Utah corporation.
"Inland Refining Contract" means any contract between Borrower and
Inland Refining for the sale of hydrocarbons by Borrower to Inland Refining,
which has been approved by Required Lenders in their sole and absolute
discretion.
"Insurance Schedule" means Schedule 3 to this Agreement.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Debt or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase or acquisition by such Person of any capital stock, bonds, notes,
debentures or other securities or evidences of Debt issued by, any other
Person.
"Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States
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<PAGE> 46
or any state or political subdivision thereof or of any foreign country or any
department, province or other political subdivision thereof.
"Lien" has the meaning given it in the Intercreditor Agreement.
"Material Adverse Change" means a material and adverse change, from
the state of affairs presented in the Initial Financial Statements or in this
Agreement (including the Disclosure Schedule), to (a) Parent's and its
Subsidiaries' Consolidated financial condition, (b) the operations or
properties of Parent and its Subsidiaries, considered as a whole, (c)
Borrower's ability to timely pay the Obligations and perform its other
obligations under the Loan Documents, or (d) the validity and enforceability of
the material terms of any Loan Documents.
"Mortgages" means the Bank Mortgage and the TCW Mortgage.
"NPV" means, with respect to any Proved Reserves expected to be
produced from any Properties, the net present value, discounted at 10% per
annum, of the future net revenues expected to accrue to Borrower's interests in
such reserves during the remaining expected economic lives of such reserves.
Each calculation of such expected future net revenues shall be made in
accordance with the then existing standards of the Society of Petroleum
Engineers, provided that in any event (i) appropriate deductions shall be made
for Direct Taxes, operating, gathering, transportation and marketing costs, and
any capital expenditures required for the production and sale of such reserves,
and (ii) the pricing assumptions and escalations used in determining NPV for
any particular reserves shall be the TCW Pricing. NPV shall be calculated
hereunder in connection with each Engineering Report, either by Borrower, Tamco
or the engineering firm who prepares such Engineering Report; in the event of
any conflict, Tamco's calculation shall be conclusive and final.
"Parent" means Inland Resources Inc., a Washington corporation.
"Pennzoil Refinery" means that certain refinery in Roosevelt, Utah,
presently owned by Pennzoil Products Company which Parent, as of the date of
this Agreement, has under contract to purchase (which contract shall be
assigned to Inland Refining prior to closing of such contract), the closing of
the purchase of which is scheduled to take place on or about September 15,
1998.
"Permitted Investment" means Investments:
(a) in open market commercial paper, maturing within 270 days
after acquisition thereof, which is rated at least A-1 by Standard &
Poor's Ratings Group (a division of McGraw Hill, Inc.) or P-1 by
Moody's Investors Service, Inc.
(b) in marketable obligations, maturing within 12 months
after acquisition thereof, issued or unconditionally guaranteed by the
United States of America or an instrumentality or agency thereof and
entitled to the full faith and credit of the United States of America.
(c) in demand deposits, and time deposits (including
certificates of deposit) maturing within 12 months from the date of
deposit thereof, with any office of any national or state bank or
trust company which is organized under the Laws of the United States
of America or any state therein, which has capital, surplus and
undivided profits of at least $500,000,000, and whose certificates of
deposit are rated at least Aa3 by Standard & Poor's Ratings Group (a
division of McGraw Hill, Inc.) or AA- by Moody's Investors Service,
Inc.
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"Permitted Lien" has the meaning given to such term in Section C.19 of
Annex C.
"Person" has the meaning given it in the Intercreditor Agreement.
"Production/Refining Credit Agreement" means that certain Credit
Agreement by and between Borrower and Inland Refining dated as of May 29, 1998,
as amended, supplemented, or restated.
"Production/Refining Loan" means those loans to be extended to Inland
Refining by Borrower pursuant to the Production/Refining Credit Agreement.
"Properties" has the meaning given in the Intercreditor Agreement.
"Proved Reserves" means "Proved Reserves" as defined in the
Definitions for Oil and Gas Reserves (in this paragraph, the "Definitions")
promulgated by the Society of Petroleum Engineers (or any generally recognized
successor) as in effect at the time in question. "Proved Developed Producing
Reserves" means Proved Reserves which are categorized as both "Developed" and
"Producing" in the Definitions, "Proved Developed Nonproducing Reserves" means
Proved Reserves which are categorized as both "Developed" and "Nonproducing" in
the Definitions, and "Proved Undeveloped Reserves" means Proved Reserves which
are categorized as "Undeveloped" in the Definitions.
"Quarterly Payment Date" means the second to last Business Day in each
Fiscal Quarter, beginning with December 29, 1997.
"Rating Agency" means either Standard & Poor's Ratings Group (a
division of McGraw Hill, Inc.) or Moody's Investors Service, Inc. or their
respective successors.
"Related Person" has the meaning given it in the Intercreditor
Agreement.
"Restricted Debt" of any Person means Debt in any of the following
categories:
(a) Debt for borrowed money,
(b) Debt constituting an obligation to pay the deferred purchase price
of property or services,
(c) Debt evidenced by a bond, debenture, note or similar instrument,
(d) Debt which (i) would under GAAP be shown on such Person's balance
sheet as a liability, and (ii) is payable more than one year from the date of
creation thereof (other than reserves for taxes and reserves for contingent
obligations),
(e) Debt arising under futures contracts, forward contracts, swap, cap
or collar contracts, option contracts, hedging contracts, other derivative
contracts, or similar agreements (excluding only option contracts giving such
Person the right - and not the duty - to buy or sell goods expected to be
bought or sold by such Person in the ordinary course of its business, so long
as such Person has no obligation other than the initial payment in full of the
purchase price for the option),
(f) Debt constituting principal under leases capitalized in accordance
with GAAP,
(g) Debt arising under conditional sales or other title retention
agreements,
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(h) Debt owing under direct or indirect guaranties of Debt of any
other Person or constituting obligations to purchase or acquire or to otherwise
protect or insure a creditor against loss in respect of Debt of any other
Person (such as obligations under working capital maintenance agreements,
agreements to keep-well, or agreements to purchase Debt, assets, goods,
securities or services), but excluding endorsements in the ordinary course of
business of negotiable instruments in the course of collection,
(i) Debt (for example, repurchase agreements) consisting of an
obligation to purchase securities or other property, if such Debt arises out of
or in connection with the sale of the same or similar securities or property,
(j) Debt with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Debt with respect to payments received in consideration of oil,
gas, or other minerals yet to be acquired or produced at the time of payment
(including obligations under "take-or-pay" contracts to deliver gas in return
for payments already received and the undischarged balance of any production
payment created by such Person or for the creation of which such Person
directly or indirectly received payment), or
(l) Debt with respect to other obligations to deliver goods or
services in consideration of advance payments therefor;
provided, however, that the "Restricted Debt" of any Person shall not include
Debt that was incurred by such Person on ordinary trade terms to vendors,
suppliers, or other Persons providing goods and services for use by such Person
in the ordinary course of its business, unless and until such Debt is
outstanding more than 90 days past the incurrence thereof, or, if earlier, when
due in accordance with its terms.
"SJCC" means San Jacinto Carbon Company, a Texas corporation.
"Sound Refinery" means that certain refinery located in Tacoma,
Washington.
"Sound Refining Deed of Trust" means that certain Amended and Restated
Deed of Trust (with Security Agreement) dated as of December 24, 1997, executed
by SJCC for the benefit of Inland Refining, encumbering the Crysen Refinery.
"Sound Refining Note" means that certain Amended and Restated
Promissory Note dated as of December 24, 1997, in the original principal amount
of $1,500,000 made by SJCC payable to the order of Inland Refining, which note
has been executed in restatement of that certain Promissory Note dated as of
December 24, 1997, in the original principal amount of $1,500,000, made by
Sound Refining, Inc. payable to the order of Banque Paribas, which note was
assumed by SJCC.
"Subsidiary" has the meaning given it in the Intercreditor Agreement.
"TCW Mortgage" means, collectively, that certain Deed of Trust,
Mortgage, Line of Credit Mortgage, Assignment, Security Agreement, Fixture
Filing and Financing Statement from Borrower to Tamco dated as of September 30,
1997, as amended, and that certain Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement from Inland Refining to
Tamco dated as of May 29, 1998, as amended.
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"TCW Pricing" means those prices (a) for anticipated sales of
Hydrocarbons that are hedged by a Hedging Contract with an investment grade
counter party, which Hedging Contract has been approved by Tamco, equal to the
fixed price or prices provided for in such Hedging Contract during the term
thereof, and thereafter the prices provided for in subsection (b) below; and
(b) for anticipated sales of Hydrocarbons, if such sales are not hedged by a
Hedging Contract that has been approved by Tamco, equal to the lowest of (i)
the average price received by Borrower for Hydrocarbons of such kind produced
from the Eligible Mortgaged Properties during the twelve months preceding the
date of calculation, (ii) the average price received by Borrower for
Hydrocarbons of such kind produced from the Eligible Mortgaged Properties
during the six months preceding the date of calculation, and (iii) the average
of the prices on the New York Mercantile Exchange (or any successor
organization), as reported in the Wall Street Journal for the date of
calculation (or, if such date is not a Business Day, for the first Business Day
thereafter) under the twelve forward contracts which are listed therein as the
first to mature after such date of calculation, with any necessary adjustment
specified by Tamco for quality and geographical differentials. The applicable
price determined pursuant to the preceding clause (b) shall be escalated at 3%
per annum for each year after the then current year
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.
"Tribunal" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted and/or existing.
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ANNEX B
COMMON REPRESENTATIONS AND WARRANTIES
Section B.1. No Default. No Related Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section B.2. Organization and Good Standing. Each Related Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Related Person is duly qualified, in good standing, and authorized to do
business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary. Each Related Person has
taken all actions and procedures customarily taken in order to enter, for the
purpose of conducting business or owning property, each jurisdiction outside
the United States, if any, wherein the character of the properties owned or
held by it or the nature of the business transacted by it makes such actions
and procedures desirable.
Section B.3. Authorization. Each Related Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.
Section B.4 No Conflicts or Consents. The execution and delivery by
the various Related Persons of the Loan Documents to which each is a party, the
performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Related Person, or (3) any agreement, judgment,
license, order or permit applicable to or binding upon any Related Person, (ii)
result in the acceleration of any Restricted Debt owed by any Related Person,
or (iii) result in or require the creation of any Lien upon any assets or
properties of any Related Person except as expressly contemplated in the Loan
Documents. Except as expressly contemplated in the Loan Documents no consent,
approval, authorization or order of, and no notice to or filing with, any
Tribunal or third party is required in connection with the execution, delivery
or performance by any Related Person of any Loan Document or to consummate any
transactions contemplated by the Loan Documents.
Section B.5. Enforceable Obligations. This Agreement is, and the other
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Related Person which is a party hereto or thereto,
enforceable in accordance with their terms except as such enforcement may be
limited by bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights.
Section B.6. Initial Financial Statements. Borrower has heretofore
delivered to each Lender true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present each of
Inland Refining's and Parent's Consolidated financial position at the
respective dates thereof, the results of Inland Refining's operations and
Inland Refining's cash flows for the respective periods thereof, and the
Consolidated results of Parent's operations and Parent's Consolidated cash
flows for the respective periods thereof. Since the date of the annual Initial
Financial Statements no
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Material Adverse Change has occurred, except as reflected in the Disclosure
Schedule or a Disclosure Report. All Initial Financial Statements were prepared
in accordance with GAAP.
Section B.7. Other Obligations and Restrictions. No Related Person has
any outstanding Debt of any kind (including obligations under farm-in
agreements, other obligations to make capital expenditures, contingent
obligations, tax assessments, and unusual forward or long-term commitments)
which is, in the aggregate, material to Borrower or material with respect to
Parent's Consolidated financial condition and not shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report. All obligations of any Related Person to make capital expenditures to
drill or otherwise develop any oil, gas or mineral properties are specified in
a Disclosure Schedule or Disclosure Report (by well or project, describing the
dollar amount of each such obligation). Except as shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report, no Related Person is subject to or restricted by any franchise,
contract, deed, charter restriction, or other instrument or restriction which
is materially likely to cause a Material Adverse Change.
Section B.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Related Person to any
Lender in connection with the negotiation of this Agreement or in connection
with any transaction contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact known to any Related Person
(other than industry-wide risks normally associated with the types of
businesses conducted by Related Persons) necessary to make the statements
contained herein or therein not misleading as of the date made or deemed made.
There is no fact known to any Related Person (other than industry-wide risks
normally associated with the types of businesses conducted by Related Persons)
that has not been disclosed to each Lender in writing which is materially
likely to cause a Material Adverse Change. There are no statements or
conclusions in any Engineering Report which are based upon or include
misleading information or fail to take into account material information
regarding the matters reported therein, it being understood that each
Engineering Report is necessarily based upon professional opinions, estimates
and projections and that Borrower does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate. Borrower
has heretofore delivered to each Lender true, correct and complete copies of
the Initial Engineering Report.
Section B.9. Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Related Person threatened, against any Related Person before
any Tribunal which could cause a Material Adverse Change, and (ii) there are no
outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Related Person or any Related Person's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
Section B.10. Labor Disputes and Acts of God. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Related Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.
Section B.11. ERISA Plans and Liabilities. All currently existing
ERISA Plans are listed in the Disclosure Schedule or a Disclosure Report.
Except as disclosed in the Initial Financial Statements or in the Disclosure
Schedule or a Disclosure Report, no Termination Event has occurred with respect
to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all
material respects. No ERISA Affiliate is required to contribute to, or has any
other absolute or contingent liability in respect of, any
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"multiemployer plan" as defined in Section 4001 of ERISA. Except as set forth
in the Disclosure Schedule or a Disclosure Report: (i) no "accumulated funding
deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986,
as amended) exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, and (ii) the current value of each
ERISA Plan's benefits does not exceed the current value of such ERISA Plan's
assets available for the payment of such benefits by more than $500,000.
Section B.12. Environmental and Other Laws. As used in this section:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, "CERCLIS" means the Comprehensive
Environmental Response, Compensation and Liability Information System List of
the Environmental Protection Agency, and "Release" has the meaning given such
term in 42 U.S.C. ss. 9601(22). Except as set forth in the Disclosure Schedule
or a Disclosure Report:
(a) Related Persons are conducting their businesses in compliance with
all applicable Laws, including Environmental Laws, and have all permits,
licenses and authorizations required in connection with the conduct of their
businesses, except to the extent failure to have any such permit, license or
authorization could not cause a Material Adverse Change. Each Related Person is
in compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except to
the extent failure to comply could not cause a Material Adverse Change.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed, and no investigation or review is pending or
threatened by any Tribunal or any other Person with respect to (i) any alleged
generation, treatment, storage, recycling, transportation, disposal, or Release
of any Hazardous Materials, either by any Related Person or on any property
owned by any Related Person, (ii) any material remedial action which might be
needed to respond to any such alleged generation, treatment, storage,
recycling, transportation, disposal, or Release, or (1) any alleged failure by
any Related Person to have any permit, license or authorization required in
connection with the conduct of its business or with respect to any such
generation, treatment, storage, recycling, transportation, disposal, or
Release.
(c) No Related Person otherwise has any known material contingent
liability in connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials.
(d) No Related Person has handled any Hazardous Materials, other than
as a generator, on any properties now or previously owned or leased by any
Related Person to an extent that such handling has caused, or could cause, a
Material Adverse Change; and
(i) no PCBs are or have been present at any properties now or
previously owned or leased by any Related Person;
(ii) no asbestos is or has been present at any properties now or
previously owned or leased by any Related Person;
(iii) there are no underground storage tanks for Hazardous
Materials, active or abandoned, at any properties now or
previously owned or leased by any Related Person;
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(iv) no Hazardous Materials have been Released, in a reportable
quantity, where such a quantity has been established by
statute, ordinance, rule, regulation or order, at, on or
under any properties now or previously owned or leased by any
Related Person;
(v) no Hazardous Materials have been otherwise Released at, on or
under any properties now or previously owned or leased by any
Related Person to an extent that such release has caused, or
could cause, a Material Adverse Change.
(e) No Related Person has transported or arranged for the
transportation of any Hazardous Material to any location which is listed on the
National Priorities List under CERCLA, listed for possible inclusion on the
National Priorities List by the Environmental Protection Agency in CERCLIS, or
listed on any similar state list or which is the subject of federal, state or
local enforcement actions or other investigations which may lead to claims
against any Related Person for clean-up costs, remedial work, damages to
natural resources or for personal injury claims, including, but not limited to,
claims under CERCLA.
(f) No Hazardous Material generated by any Related Person has been
recycled, treated, stored, disposed of or released by any Related Person at any
location other than those listed in Disclosure Schedule.
(g) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of any Related Person (and to the best
knowledge of Borrower, no such notification has been filed with respect to any
Related Person by any other Person), and no property now or previously owned or
leased by any Related Person is listed or proposed for listing on the National
Priority list promulgated pursuant to CERCLA, in CERCLIS, or on any similar
state list of sites requiring investigation or clean-up.
(h) There are no Liens arising under or pursuant to any Environmental
Laws on any of the real properties or properties owned or leased by any Related
Person, and no government actions have been taken or are in process which could
subject any of such properties to such Liens; nor would any Related Person be
required to place any notice or restriction relating to the presence of
Hazardous Materials at any properties owned by it in any deed to such
properties.
(i) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
any Related Person in relation to any properties or facility now or previously
owned or leased by any Related Person which have not been made available to
Agent.
Section B.13. Names and Places of Business. No Related Person has,
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule or a Disclosure Report, the
chief executive office and principal place of business of each Related Person
are (and for the preceding five years have been) located at the address of
Borrower set out in Section 9.3. Except as indicated in the Disclosure Schedule
or a Disclosure Report, no Related Person has any other office or place of
business.
Section B.14. Subsidiaries. Neither Borrower nor Parent presently has
any Subsidiary or owns any stock in any corporation or association except those
listed in the Disclosure Schedule or a Disclosure Report. Neither Borrower nor
any Related Person is a member of any general or limited partnership, joint
venture or association of any type whatsoever except those listed in the
Disclosure Schedule or a
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Disclosure Report. Except as otherwise revealed in a Disclosure Report, Parent
owns, directly or indirectly, the equity interest in each of its Subsidiaries
which is indicated in the Disclosure Schedule.
Section B.15. Licenses. Each Related Person possesses all licenses,
permits, franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such
intellectual property without violation of the rights of any other Person)
which are necessary to carry out its business as presently conducted and as
presently proposed to be conducted hereafter, and no Related Person is in
violation in any material respect of the terms under which it possesses such
intellectual property or the right to use such intellectual property.
Section B.16. Government Regulation. Neither Borrower nor any other
Related Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Restricted Debt,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
Section B.17. Ownership of Borrower and Inland Refining. All of the
outstanding shares of Borrower and Inland Refining are owned and shall at all
times be owned by Parent.
Section B.18. Taxes. Each Related Person has filed all United States
Federal income tax returns and all other material tax returns that are required
to be filed by it and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by any Related Person and all other
penalties or charges. The charges, accruals and revenues on the books of each
Related Person in respect of taxes and other governmental charges are, in the
opinion of Parent, adequate. No Related Person has not given or been requested
to give a waiver of the statute of limitations relating to the payment of any
federal or other taxes, except as listed in the Disclosure Schedule or a
Disclosure Report.
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ANNEX C
COMMON COVENANTS
Section C.1. Books, Financial Statements and Reports. Parent, acting
through or on behalf of the Related Persons, will at all times maintain full
and accurate books of account and records and a standard system of accounting,
will maintain its Fiscal Year, and will furnish the following statements and
reports to each Lender at Parent's expense:
(a) As soon as available, and in any event within ninety (90)
days after the end of each Fiscal Year, complete Consolidated and
consolidating financial statements of Parent together with all notes
thereto, prepared in reasonable detail in accordance with GAAP,
together with an unqualified opinion, based on an audit using
generally accepted auditing standards, by Arthur Anderson, L.L.P., or
other independent certified public accountants selected by Parent and
acceptable to Required Lenders, stating that such Consolidated
financial statements have been so prepared. These financial statements
shall contain a Consolidated and consolidating balance sheet as of the
end of such Fiscal Year and Consolidated and consolidating statements
of earnings, of cash flows, and of changes in owners' equity for such
Fiscal Year, each setting forth in comparative form the corresponding
figures for the preceding Fiscal Year. In addition, within ninety (90)
days after the end of each Fiscal Year Parent will furnish a report
signed by such accountants (i) stating that they have read this
Agreement, (ii) containing calculations showing compliance (or
non-compliance) at the end of such Fiscal Year with the requirements
of Sections C.18, C.21, C.23, C.27, C.28, C.29 and C.30 of this Annex
C and (iii) further stating that in making their examination and
reporting on the Consolidated financial statements described above
they did not conclude that any Default existed at the end of such
Fiscal Year or at the time of their report, or, if they did conclude
that a Default existed, specifying its nature and period of existence.
(b) As soon as available, and in any event within fifty (50)
days after the end of each Fiscal Quarter, Parent's Consolidated and
consolidated balance sheet as of the end of such Fiscal Quarter and
Consolidated and consolidating statements of earnings and cash flows
for the period from the beginning of the then current Fiscal Year to
the end of such Fiscal Quarter, all in reasonable detail and prepared
in accordance with GAAP, subject to changes resulting from normal
year-end adjustments. In addition, Parent will, together with each
such set of financial statements and each set of financial statements
furnished under subsection (a) of this section, furnish a certificate
in the form of Exhibit D signed by the chief financial officer of
Parent stating that such financial statements are accurate and
complete (subject to normal year-end adjustments), stating that he has
reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with
the requirements of Sections C.18, C.21, C.23, C.27, C.28, C.29 and
C.30 of this Annex C and stating that no Default or Coverage
Deficiency exists at the end of such Fiscal Quarter or at the time of
such certificate or specifying the nature and period of existence of
any such Default or Coverage Deficiency.
(c) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by
any Related Person to its stockholders and all registration
statements, periodic reports and other statements and schedules filed
by any Related Person with any securities exchange, the Securities and
Exchange Commission or any similar governmental authority.
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(d) By March 1 following the end of each Fiscal Year,
beginning on March 1, 1998, an engineering report prepared as of the
end of such Fiscal Year by Ryder Scott Company or other independent
petroleum engineers chosen by Borrower and acceptable to Required
Lenders, concerning the Properties. The report (1) shall separately
report on Proved Producing Reserves, Proved Developed Nonproducing
Reserves, Proved Undeveloped Reserves and probable reserves and
separately calculate the NPV of each such category of Proved Reserves
(and the similar net present value of such probable reserves), (2)
shall be prepared in two versions, the first using ING Pricing and the
second using TCW Pricing, and each using a 10% discount factor, (3)
shall address the various factors to be taken into account in
calculating ANCF so that projected ANCF can be readily calculated from
the report, (4) shall take into account Borrower's actual experiences
with leasehold operating expenses and other costs in determining
projected leasehold operating expenses and other costs, (5) shall
identify and take into account any "over-produced" or "under-produced"
status under gas balancing arrangements, (6) shall contain information
and analysis comparable in scope to that contained in the Initial
Engineering Reports, and (7) shall otherwise be in form and substance
satisfactory to Required Lenders. The report shall distinguish (or
shall be delivered together with a certificate from an appropriate
officer of Borrower which distinguishes) those Properties treated in
the report which are Eligible Mortgaged Properties from those
properties treated in the report which are not Eligible Mortgaged
Properties. In the event that Borrower and Tamco disagree over whether
or not any workovers or other remedial capital expenditures should be
included in the report for the purposes of calculating NPV, the
engineers preparing such report shall resolve such disagreement by
determining whether such expenditures are likely to be required in
accordance with prudent industry practice and shall include or exclude
such expenditures based on such determination.
(e) By July 15 of each year an engineering report prepared by
in-house petroleum engineers employed by Borrower, concerning all oil
and gas properties and interests owned by any Related Person which are
located in or offshore of the United States and which have
attributable to them proved oil and gas reserves. This report shall be
substantially in the form and substance as the reports delivered under
subsection (d) above and otherwise shall be satisfactory to Required
Lenders.
(f) Within fifty (50) days after the end of each Fiscal
Quarter, a report in detail acceptable to Required Lenders with
respect to the Properties during the Fiscal Quarter immediately prior
thereto:
(1) describing by well and field the net quantities
of oil, gas, natural gas liquids, and water produced (and the
quantities of water injected) during such Fiscal Quarter;
(2) describing by well and field the quantities of
oil, gas and natural gas liquids sold during such Fiscal
Quarter out of production from the Properties and calculating
the average sales prices of such oil, natural gas, and
natural gas liquids;
(3) regardless of whether the same are included in
the calculation of ANCF, specifying any leasehold operating
expenses, overhead charges, gathering costs, transportation
costs, and other costs with respect to the Properties of the
kind chargeable as direct charges or overhead under an
Onshore COPAS Accounting Procedure for Joint Operations (1984
form published by the Council of Petroleum Accountants
Societies);
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(4) setting forth the amount of Direct Taxes on the
Properties during such Fiscal Quarter and the amount of
royalties paid with respect to the Properties during such
Fiscal Quarter;
(5) describing all activities carried out during
such Fiscal Quarter in furtherance of the Plan of
Development, all other capital expenditures during such
Fiscal Quarter, and all projections of capital expenditures
projected to be made on any of the Eligible Mortgaged
Properties; and
(6) describing all workover work and drilling during
such Fiscal Quarter, including the cost and status of each
well drilled or worked over during such Fiscal Quarter, test
reports for each well tested during such Fiscal Quarter,
reports on prices and volumes received for such Fiscal
Quarter, reports for each well completed during such Fiscal
Quarter, and accompanying authorizations for expenditures.
(g) As soon as available, and in any event within forty-five
(45) days after the end of each Fiscal Quarter, a list, by name and
address, of those Persons who have purchased production during such
Fiscal Quarter from the properties described in subsection (d) above,
giving each such purchaser's owner number for Borrower and each such
purchaser's property number for each such property.
(h) As soon as available, and in any event within thirty (30)
days after the end of each Fiscal Year, Borrower shall deliver to
Agent an environmental compliance certificate signed by the president
or chief executive officer of Borrower in the form attached hereto as
Exhibit E. Further, if requested by Agent, Borrower shall permit and
cooperate with an environmental and safety review made in connection
with the operations of Borrower's oil and gas properties one time
during each Fiscal Year beginning with the Fiscal Year 1998, by Pilko
& Associates, Inc. or other consultants selected by Agent which review
shall, if requested by Agent, be arranged and supervised by
environmental legal counsel for Agent, all at Borrower's cost and
expense. The consultant shall render a verbal or written report, as
specified by Agent, based upon such review at Borrower's cost and
expense.
(i) Concurrently with the annual renewal of the Borrower's
insurance policies, Borrower shall, if requested by Agent in writing,
cause a certificate or report to be issued by Agent's professional
insurance consultants or other insurance consultants satisfactory to
Agent certifying that Borrower's insurance for the next succeeding
year after such renewal (or for such longer period for which such
insurance is in effect) complies with the provisions of this Agreement
and the Security Documents.
(i) By November 1 of each year, beginning with November 1,
1998, a proposed Plan of Development for the next succeeding year.
Section C.2. Other Information and Inspections. Each Related Person
will furnish to each Lender any information which Agent may from time to time
request in writing concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with Related Persons' businesses and
operations. Each Related Person will permit representatives appointed by Agent
(including independent accountants, auditors, agents, attorneys, appraisers and
any other Persons) to visit and inspect during normal business hours any of
such Related Person's property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra copies
therefrom and photocopies and photographs thereof, and to write down and record
any information such
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representatives obtain, and each Related Person shall permit Agent or its
representatives to investigate and verify the accuracy of the information
furnished to Agent or any Lender in connection with the Loan Documents and to
discuss all such matters with its officers, employees and representatives.
Section C.3. Notice of Material Events and Change of Address. Borrower
and Parent will promptly notify each Lender in writing, stating that such
notice is being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default or Coverage Deficiency,
(c) the acceleration of the maturity of any Restricted Debt
owed by any Related Person or of any default by any Related Person
under any indenture, mortgage, agreement, contract or other instrument
to which any of them is a party or by which any of them or any of
their properties is bound, if such acceleration or default could cause
a Material Adverse Change,
(d) the occurrence of any Termination Event,
(e) any claim of $50,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount,
or any other material adverse claim asserted against any Related
Person or with respect to any Related Person's properties,
(f) the filing of any suit or proceeding against any Related
Person in which an adverse decision could cause a Material Adverse
Change, and
(g) the receipt by any Related Person of a notice of any
"Event of Default" under the Other Loan Documents.
Upon the occurrence of any of the foregoing Related Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Borrower will also notify
Agent and Agent's counsel in writing at least twenty Business Days prior to the
date that any Related Person changes its name or the location of its chief
executive office or principal place of business or the place where it keeps its
books and records concerning the Collateral, furnishing with such notice any
necessary financing statement amendments or requesting Agent and its counsel to
prepare the same.
Section C.4. Maintenance of Properties. Each Related Person will
maintain, preserve, protect, and keep all Collateral and all other property
used or useful in the conduct of its business in good condition and in
compliance with all applicable Laws, and will from time to time make all
repairs, renewals and replacements needed to enable the business and operations
carried on in connection therewith to be conducted at all times consistent with
prudent industry practices.
Section C.5. Maintenance of Existence and Qualifications. Each Related
Person will maintain and preserve its existence and its rights and franchises
in full force and effect and will qualify to do business in all states or
jurisdictions (a) where Collateral is located and (b) where required by
applicable Law, except where the failure so to qualify will not cause a
Material Adverse Change.
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Section C.6. Payment of Trade Debt, Taxes, etc. Each Related Person
will (a) timely file all required tax returns; (b) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or upon
its income, profits or property; (c) within 90 days past the original invoice
or billing date thereof, or, if earlier, when due in accordance with its terms,
all Debt owed by it on ordinary trade terms to vendors, suppliers and other
Persons providing goods and services used by it in the ordinary course of its
business; (d) pay and discharge when due all other Debt now or hereafter owed
by it; and (e) maintain appropriate accruals and reserves for all of the
foregoing in accordance with GAAP. Each Related Person may, however, delay
paying or discharging any of the foregoing so long as it is in good faith
contesting the validity thereof by appropriate proceedings and has set aside on
its books adequate reserves therefor.
Section C.7. Bonding and Insurance. The Related Persons will maintain
all bonds and letters of credit in lieu of bonds which they are required to
maintain (by law, lease terms, or consistent with prudent industry practices)
in order to carry out development and production operations on, the Properties.
Each Related Person will keep or cause to be kept adequately insured by
financially sound and reputable insurers its and its Subsidiaries' vehicles and
all other property in accordance with Schedule 3. Any insurance policies
covering Collateral shall be endorsed (i) to provide for payment of losses to
Agent, on behalf of Lenders, as their interests may appear, pursuant to a
mortgage clause (without contribution) of standard form made part of the
applicable policy, (ii) to provide that such policies may not be canceled,
reduced or adversely affected in any manner for any reason without fifteen days
prior notice to Agent, (iii) to provide for any other matters specified in any
applicable Security Document or which Agent may reasonably require; and (iv) to
provide for insurance against fire, casualty and any other hazards normally
insured against, in the amount of the full value (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured. (To the extent that the
Mortgages or any other Security Document contains other additional requirements
for such endorsement, each Related Person shall also comply with such
additional requirements.) Each Related Person shall at all times maintain
adequate insurance against its liability for injury to persons or property,
which insurance shall be by financially sound and reputable insurers and shall
without limitation provide the following coverages: comprehensive general
liability (including coverage for damage to underground resources and
equipment, damage caused by blowouts or cratering, damage caused by explosion,
damage to underground minerals or resources caused by saline substances, broad
form property damage coverage, broad form coverage for contractually assumed
liabilities and broad form coverage for acts of independent contractors),
worker's compensation and automobile liability. Each Related Person shall at
all times maintain cost of control of well insurance with respect to all wells
being drilled or deepened, which shall insure against the following costs: cost
of control of well; fires, blowouts, etc.; redrilling expense; and seepage and
pollution expense.
Section C.8. Performance on Borrower's Behalf. If any Related Person
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Agent may pay the same.
Borrower shall immediately reimburse Agent for any such payments and each
amount paid by Agent shall constitute an Obligation owed hereunder which is due
and payable on the date such amount is paid by Agent.
Section C.9. Interest. Borrower hereby promises to each Lender to pay
interest at the Late Payment Rate on all Obligations (including Obligations to
pay fees or to reimburse or indemnify any Lender) which Borrower has in this
Agreement promised to pay to such Lender and which are not paid when due. Such
interest shall accrue from the date such Obligations become due until they are
paid.
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Section C.10. Compliance with Agreements and Law. Each Related Person
will perform all material obligations it is required to perform under the terms
of each indenture, mortgage, deed of trust, security agreement, lease,
franchise, agreement, contract or other instrument or obligation to which it is
a party or by which it or any of its properties is bound. Each Related Person
will conduct its business and affairs in compliance with all Laws applicable
thereto.
Section C.11. Environmental Matters; Environmental Reviews.
(a) Each Related Person will comply in all material respects
with all Environmental Laws now or hereafter applicable to such
Related Person and shall obtain, at or prior to the time required by
applicable Environmental Laws, all environmental, health and safety
permits, licenses and other authorizations necessary for its
operations and will maintain such authorizations in full force and
effect.
(b) Borrower will promptly furnish to Agent all written
notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by Borrower, or of
which it has notice, pending or threatened against Borrower, by any
governmental authority with respect to any alleged violation of or
non-compliance with any Environmental Laws or any permits, licenses or
authorizations in connection with its ownership or use of its
properties or the operation of its business.
(c) Borrower will promptly furnish to Agent all requests for
information, notices of claim, demand letters, and other
notifications, received by Borrower in connection with its ownership
or use of its properties or the conduct of its business, relating to
potential responsibility with respect to any investigation or clean-up
of Hazardous Material at any location.
Section C.12. Evidence of Compliance. Each Related Person will furnish
to each Lender at such Related Person's or Borrower's expense all evidence
which Agent from time to time reasonably requests in writing as to the accuracy
and validity of or compliance with all representations, warranties and
covenants made by any Related Person in the Loan Documents, the satisfaction of
all conditions contained therein, and all other matters pertaining thereto.
Section C.13. Solvency. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and the consummation of
the transactions contemplated hereby, Borrower will be solvent (as such term is
used in applicable bankruptcy, liquidation, receivership, insolvency or similar
laws).
Section C.14. Completion of Activities. Borrower will (1) timely
develop the Eligible Mortgaged Properties in accordance with the Plan of
Development, and (2) except to the extent regulatory approval has not yet been
obtained, have each producing and injection well which is hereafter completed
put into normal operation. Borrower will make capital expenditures for the
drilling and development of the Eligible Mortgaged Properties in accordance
with the Plan of Development. The Plan of Development designates certain
operations as "Primary Phases" and others, which are contingent upon the
success of the "Primary Phases," are designated as "Secondary Phases." Prior to
Borrower making capital expenditures with respect to "Secondary Phase"
operations, if a specific measure of success with respect to the "Primary
Phase" operations is set forth in the Plan of Development, such measure must
have been achieved, or if no specific measure is set forth, Agent and Borrower
must have agreed that the "Primary Phase" operation has been successful.
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Section C.15. Hedging Contracts. No Related Person will be a party to
or in any manner be liable on any forward, future, swap or hedging contract,
other than (a) existing hedging contracts listed in the Disclosure Schedule,
(b) interest rate hedges under the Bank Interest Rate Hedge Agreement required
under Section C.17 of this Annex C, and (c) any other commodity floors approved
by Required Lenders from time to time, including terms, duration and
counterparty.
Section C.16. Reviews. Borrower will meet with Agent, at Borrower's
expense, from time to time (as frequently as monthly and in any event at least
once per Fiscal Quarter), at the offices of Agent or at such other location as
Agent and Borrower may agree, to review all operational activities of Borrower
with respect to the Eligible Mortgaged Properties and all financial reports of
the Related Persons since the date of the prior review. Each review shall be in
scope satisfactory to Agent, but will include at a minimum, an update by
Borrower on the development activities made pursuant to the Plan of
Development, any requests by Borrower that changes be made to the Plan of
Development, any cost or expense overruns or underruns, any mechanical problems
incurred, and any differences in reserves or production estimates.
Section C.17. Interest Hedging Contracts. Until the Floating Rate Debt
is paid in full, Borrower will maintain Hedging Contracts under the Bank
Interest Rate Hedge Agreement with respect to the Floating Rate Debt. Such
Hedging Contracts shall: (i) during that portion of the Commitment Period prior
to December 31, 1998, have notional amounts of not less than 50% of the
principal amount of Floating Rate Debt reasonably projected by Borrower to be
outstanding during the term of such Hedging Contracts, (ii) during that portion
of the Commitment Period on or after December 31, 1998, have notional amounts
of not less than 80% of the principal amount of the Floating Rate Debt
reasonably projected by Borrower to be outstanding during the term of such
Hedging Contracts, (iii) at all times after the Commitment Period, have
notional amounts equal to the principal amount of the Floating Rate Debt
projected by Borrower to be outstanding during the term of such Hedging
Contracts, (iv) fix a cap for Borrower's exposure to increases in the interest
rates payable on the Floating Rate Debt for an initial term of three (3) years,
and (v) effectively fix a cap at eight and one-half percent (8.5%) or less for
Borrower's exposure to increases in the interest rates payable on the Floating
Rate Debt. Borrower shall enter into replacement Hedging Contracts at the end
of each expiring Hedging Contract and, concurrently with any increase in the
amount of the Floating Rate Debt, shall enter into such additional Hedging
Contracts as may be required to keep Borrower in compliance with this Section
C.17.
Section C.18. Restricted Debt. No Related Person will in any manner
owe or be liable for Restricted Debt except:
(a) the Obligations.
(b) the Other Allowed Debt.
(c) Hedging transactions required under Section C.17 or
permitted under Section C.15 of this Annex C.
(d) any Restricted Debt assumed or incurred by any Related
Person after the date hereof to finance all or any part of the
purchase price of property acquired by such Related Person, provided
that:
(i) such Restricted Debt shall be secured only by
the property so acquired and the improvements thereon,
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(ii) each Lien securing such Restricted Debt shall
attach or be existing at the time of acquisition,
(iii) only the Related Person that acquired such
property shall be liable on such Restricted Debt,
(iv) the principal amount of such Restricted Debt in
respect of such property shall not exceed the lower of the
acquisition price of or market value of the property at the
time of acquisition thereof by such Related Person,
(v) the aggregate outstanding principal amount of
such Restricted Debt of the Related Persons incurred for the
purchase of trucks or automobiles does not at any time exceed
$250,000, and the aggregate principal amount of such
Restricted Debt which is incurred for such purpose in any
Fiscal Year does not exceed $100,000, and
(vi) the aggregate outstanding principal amount of
such Restricted Debt of the Related Persons incurred for
purposes other than the purchase of trucks or automobiles,
does not at any time exceed $200,000, and the aggregate
principal amount of such Restricted Debt which is incurred
for such other purposes in any Fiscal Year does not exceed
$50,000.
(e) the Carmen promissory note described in paragraph C.18 of
the Disclosure Schedule, as from time to time extended (but not
increased).
(f) Parent's Series C Convertible Preferred Stock.
(g) the Debt of Inland Refining evidenced by the
Production/Refining Credit Agreement, provided that the principal
amount of such Debt thereof (including without limitation advances and
the face amount of letters of credit) shall not exceed $20,000,000 at
any time outstanding.
(h) guaranties by Parent, in form and substance acceptable to
Required Lenders in their sole discretion, of obligations of Inland
Refining under agreements for the purchase of refinery feed stocks in
the ordinary course of business; provided, however, that each such
guaranty shall specify a maximum aggregate liability for Parent under
such guaranty, and the maximum aggregate amount of such specified
maximum liability of Parent under all such guaranties shall not exceed
$6,000,000 at any one time.
(i) miscellaneous items of Restricted Debt not described in
subsections (a) through (h) which do not in the aggregate (taking into
account all such Restricted Debt of all Related Persons) exceed
$150,000 at any one time outstanding.
Section C.19. Limitation on Liens. No Related Person will create,
assume or permit to exist any Lien upon any of the properties or assets which
it now owns or hereafter acquires, except, to the extent not otherwise
forbidden by the Security Documents the following ("Permitted Liens"):
(a) Liens which secure Obligations only.
(b) Liens which secure the Other Allowed Debt, provided that
such Liens are subject to the Intercreditor Agreement.
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(c) statutory Liens for taxes, statutory mechanics' and
materialmen's Liens incurred in the ordinary course of business, and
other similar Liens incurred in the ordinary course of business,
provided such Liens do not secure Restricted Debt and secure only
Restricted Debt which is not delinquent or which is being contested as
provided in Section C.6.
(d) Liens securing the Restricted Debt permitted by Section
C.18 (d), (e) or (i) of this Annex C.
Section C.20. No Mergers. No Related Person will merge or consolidate
with or into any other business entity. No Subsidiary of Parent will issue any
additional shares of its capital stock or other securities or any options,
warrants or other rights to acquire such additional shares or other securities
except to Parent or another wholly-owned Subsidiary of Parent. No Subsidiary of
Parent which is a partnership will allow any diminution of Parent's interest
(direct or indirect) therein. No Related Person shall create or own any
Subsidiary other than those listed in the Disclosure Schedule.
Section C.21. Limitation on Dividends and Redemptions. No Related
Person will make any Distribution in respect of any class of its capital stock
or any partnership or other interest in it, nor will any Related Person
directly or indirectly make any Distribution in respect of any shares of the
capital stock of or partnership interests in any Related Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Related Person,
except that (a) Parent may at any time make Distributions in the form of
Parent's common stock to the holders of Parent's Series C Convertible Preferred
Stock, (b) Inland Refining may at any time make payments to Borrower pursuant
to the Production/Refining Credit Agreement, and (c) Inland Refining may make
any other Distribution or loan either in favor of or for the benefit of
Borrower or Parent for the purpose of applying such Distribution to Affiliates'
ANCF, as contemplated by Section 3 of the Intercreditor Agreement.
Section C.22. Limitation on Sales of Property. No Related Person will
sell, transfer, lease, exchange, alienate or dispose of any of its material
assets or properties or any material interest therein except, to the extent not
otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or which is
replaced by equipment of equal suitability and value.
(b) personal property inventory (including oil and gas sold
as produced and seismic data) which is sold in the ordinary course of
business on ordinary trade terms.
(c) specific properties not subject to the Mortgages (or
specific portions thereof), provided the same are abandoned and not
otherwise disposed of and further provided that no well situated on
the property to be abandoned, or located on any unit containing all or
any part thereof, is capable (or is subject to being made capable
through commercially feasible
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operations) of producing oil, gas or other hydrocarbons or minerals in
paying quantities (with such determination of paying quantities being
made taking into account the prudent operation of any unit in which
such property is located).
(d) farmouts on terms and conditions reasonably acceptable to
Required Lenders.
Neither Parent nor any of Parent's Subsidiaries will sell, transfer or
otherwise dispose of capital stock of any of Parent's Subsidiaries except that
any Subsidiary of Parent may sell or issue its own capital stock to the extent
not otherwise prohibited hereunder. No Related Person will discount, sell,
pledge or assign any notes payable to it, accounts receivable or future income
except to the extent expressly permitted under the Loan Documents.
Section C.23. Limitation on Investments. No Related Person will make
any Investment other than (a) Permitted Investments, (b) Investments in oil and
gas properties, (c) Investments of Parent in (i) Inland Refining and (ii)
Inland Production existing as of the date hereof, (d) Investments in the Sound
Refining Note existing as of the date hereof, (e) normal and prudent extensions
of credit to customers buying goods and services in the ordinary course of
business, which extensions shall not be for longer periods than those extended
by similar businesses operated in a normal and prudent manner, (f) the
Production/Refining Loan permitted under Section C.37, and (g) the purchase by
Inland Refining of the Pennzoil Refinery for a purchase price not to exceed
$2,250,000 exclusive of prorations and expenses.
Section C.24. INTENTIONALLY OMITTED
Section C.25. Transactions with Affiliates. No Related Person will
engage in any material transaction with any of its Affiliates other than (i)
for customary director compensation paid to such Affiliates, (ii) for issuances
of equity to Affiliates for fair value, provided that such issuances are
permitted by Section C.21, (iii) transactions between Borrower or Guarantor and
any Affiliate other than Inland Refining, the terms of which are no less
favorable than those which would have been obtainable at the time in
arm's-length dealings with Persons other than an Affiliate, (iv) the
Production/Refining Loan, (v) the Parent guaranties set forth in Section
C.18(h), (vi) the Inland Refining Contract, and (vii) the Farmout Agreement.
Section C.26. Certain Contracts; Amendments; Multiemployer ERISA
Plans. Except as expressly provided for in the Loan Documents, no Related
Person will, directly or indirectly, enter into, create, or otherwise allow to
exist any contract or other consensual restriction on the ability of any
Subsidiary of Borrower to: (i) make Distributions to Borrower, (ii) to redeem
equity interests held in it by Borrower, (iii) to repay loans and other
indebtedness owing by it to Borrower, or (iv) to transfer any of its assets to
Borrower. No Related Person will enter into any "take-or-pay" contract or other
contract or arrangement for the purchase of goods or services which obligates
it to pay for such goods or service regardless of whether they are delivered or
furnished to it. No Related Person will amend or permit any amendment to any
contract or lease which releases, qualifies, limits, makes contingent or
otherwise detrimentally affects the rights and benefits of any Lender under or
acquired pursuant to any Security Documents. No ERISA Affiliate will incur any
obligation to contribute to any "multiemployer plan" as defined in Section 4001
of ERISA.
Section C.27. Working Capital. Parent's Consolidated Working Capital
will never be less than $1,000,000. As used herein, "Working Capital" means
Parent's Consolidated current assets minus Parent's Consolidated current
liabilities, provided that for the purposes of determining Working Capital: (i)
Consolidated current assets will be calculated without including (1) any
accounts receivable or other Debts owed to Parent by its Affiliates, employees
or shareholders, and (2) any account receivable unpaid
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more than 120 days after its original invoice date, and (ii) for so long as no
Event of Default exists, Consolidated current liabilities will be calculated
without including any payments of principal on the Obligations and the Other
Allowed Debt which are required to be made within one year from the time of
calculation.
Section C.28. Tangible Net Worth. Parent's Consolidated Tangible Net
Worth plus any contributions made pursuant to the Farmout Agreement to Smith
Management LLC in the form of common stock of Borrower will never be less than
$35,000,000.
Section C.29 EBITDA. At the end of any Fiscal Quarter, beginning with
the Fiscal Quarter ending September 30, 1998, the ratio of (i) Parent's EBITDA
to (ii) required interest payments on Parent's Consolidated Debt, for the
four-Fiscal Quarter period ending with such Fiscal Quarter will not be less
than (a) 1.30 to 1.00 for any Fiscal Quarter ending on or before December 31,
1998, (b) 1.50 to 1.00 for any Fiscal Quarter ending after December 31, 1998
and on or before March 31, 1999, (c) 1.70 to 1.00 for any Fiscal Quarter ending
after March 31, 1999 and on or before June 30, 1999, and (d) 3.00 to 1.00 for
any Fiscal Quarter thereafter.
Section C.30. General and Administrative Expenses. Parent's
Consolidated general and administrative expenses in any Fiscal Year shall not
exceed the ANCF Overhead Costs for such Fiscal Year.
Section C.31. No Public Announcements. No Related Person may make any
public announcement or disclosure of the transactions contemplated by this
Agreement or any other Loan Document, except as required by law or approved by
Agent, in its sole and absolute discretion prior to the making of any such
public announcement or disclosure.
Section C.32. Refinery Acquisitions. No Related Person will enter into
an acquisition of a refinery (regardless of whether or not the proceeds of any
Loan are used to finance such acquisition), other than such Investments
existing as of September 11, 1998 and the acquisition of the Pennzoil Refinery,
unless all aspects of such acquisition, including the structure of the
acquisition, related documentation, additional Security Documents, liabilities
to be assumed by any Related Person in connection therewith, and environmental
inspections, have been reviewed and approved by Lenders in their absolute
discretion.
Section C.33. Transactions Regarding Pennzoil Refinery. If Inland
Refining does not acquire the Pennzoil Refinery for any reason, but such
Pennzoil Refinery is acquired by any Affiliate or any 2% Affiliate of a Related
Person, then no Related Person shall enter into any contract for the sale,
purchase, processing, refining or treatment of hydrocarbons with the owner,
operator or lessee of such Pennzoil Refinery unless such contract is on terms
and conditions that are no less favorable than those which would have been
obtained in an arms length transaction with Persons other than Affiliates,
which shall be determined by Agent in its reasonable discretion, and unless
Agent has been provided with thirty (30) days prior written notice of the
contract.
Section C.34. Sound Refining Note. Neither Inland Refining nor any
Environmental Affiliate of Inland Refining shall institute any foreclosure
proceedings, take possession of, manage, operate, or exert controlling
influence over any property or facility which secures the Sound Refining Note
and is encumbered by the Sound Refining Deed of Trust, without first obtaining
the prior written consent of Agent, which consent may be granted or withheld in
Agent's sole and absolute discretion.
Section C.35. Inland Refining. As of the date hereof, Inland Refining
shall (a) act solely in its own name and through its duly authorized directors
and officers in the conduct of its business, and shall
C-11
<PAGE> 66
conduct its business so as not to mislead others as to the identity of the
entity with which they are concerned, (b) keep in full effect its existence and
rights as a corporation under the laws of the State of Utah by taking all
actions required by the corporation laws of Utah, including convening regular
meetings of shareholders and directors, (c) cause not less than two of its
three directors to be Independent Directors, (d) cause its employees and
officers to not be officers, directors or employees of Borrower or Parent, (e)
cause all its actions to be taken by a duly authorized officer of Inland
Refining, (f) maintain corporate minutes, books and accounts separate from
those of Parent, (g) maintain capitalization adequate to meet its obligations
and business objectives and (h) design and implement an environmental
management plan to ensure compliance with and manage liability under
Environmental Laws. For purposes of this Section C.34, the term 'Independent
Director' means any Person who is not and for the prior five years has not been
an officer, director, or employee of either Parent or Borrower.
Section C.36. Parent's and other Related Persons' Actions Regarding
Inland Refining. With respect to Inland Refining, neither Parent nor Borrower
shall (a) either directly or indirectly, provide any additional funds to Inland
Refining, either through an equity investment, loan, loan guarantee or any
other means, except for (i) the Production/Refining Credit Agreement permitted
pursuant to Section C.37, (ii) the Parent guaranties permitted pursuant to
Section C.18(h), and (iii) funds required to finance the acquisition of the
Pennzoil Refinery, (b) pay the salaries of Inland Refining's employees or
reimburse Inland Refining for any costs, expenses or losses incurred by Inland
Refining, (c) have direct involvement with or direct control over any
environmental management plan and/or remediation program concerning any
property owned by Inland Refining, including the Crysen Refinery, and (d) have
direct control over the day-to-day management and operations or the financial
affairs of Inland Refining.
Section C.37. Inventory and Accounts Receivable. Except for the
inventory and accounts receivable which Inland Refining purchased in connection
with the sale of the Sound Refinery to SJCC, Inland Refining shall not purchase
or have any ownership interest in any inventory or accounts receivable located
on, arising from or associated with the Sound Refinery.
Section C.38. Production/Refining Loan. Borrower shall be permitted to
make loans or advances to Inland Refining, and may cause Letters of Credit to
be issued for the benefit of Inland Refining pursuant to the Bank Agreement, in
each case under the Production/Refining Credit Agreement, provided that the
aggregate principal amount of all loans to Inland Refining plus the aggregate
amount of Letters of Credit issued to or for the account of Inland Refining,
plus any amounts that have been advanced pursuant to any such Letter of Credit
which have not been reimbursed by Inland Refining to Borrower, shall not exceed
$20,000,000 in the aggregate at any one time outstanding.
Section C.39. Inland Refining Contract. Parent and Borrower hereby
agree that they shall not amend the Inland Refining Contract without obtaining
the prior written consent of Required Lenders, which consent may be given or
withheld in Required Lenders' sole and absolute discretion.
Section C.40. Capital Expenditures. Inland Refining agrees that it
will not make any capital expenditures relating to the Crysen Refinery and the
Pennzoil Refinery in an amount exceeding $3,000,000 in the aggregate during any
Fiscal Year ending on or prior to December 31, 1997 or in an amount exceeding
$5,000,000 in the aggregate after January 1, 1998, without first obtaining the
prior written consent of Required Lenders, which consent may be given or
withheld in Required Lenders' sole and absolute discretion; provided, however,
that Inland Refining shall make any capital expenditures with respect to
modifications, repairs or improvements to the Crysen Refinery required to
comply with or address liability under any Law applicable to the Crysen
Refinery, including any Environmental Law, after providing advance written
notice to Agent concerning the applicability of such requirements.
C-12
<PAGE> 67
Section C.41. Farmout Transactions. On or before December 31, 1998,
Parent shall have received at least $17,000,000 in proceeds from the Farmout
Agreement which shall have been or shall be applied to drilling, completing and
equipping wells pursuant to the Farmout Agreement. Parent shall not make nor
shall Parent permit any Related Person to make any payment of cash or other
property to the Farmee (as such term is defined in the Farmout Agreement)
pursuant to the Farmout Agreement, whether in respect of production from wells
or otherwise, other than payments in the form of Parent's common stock pursuant
to the Farmout Agreement. Parent shall not allow nor shall Parent permit any
Restricted Person to allow proceeds of production from any Earned Drillsite (as
such term is defined in the Farmout Agreement) or any well thereon or other
cash to be retained by Farmee in lieu of receiving a payment or distribution in
the form of Parent's common stock pursuant to the Farmout Agreement. Parent (i)
shall not amend or modify the Farmout Agreement in any material respect and
(ii) will give prompt notice to Agent of any breach by any Restricted Person or
by Farmee (as such term is defined in the Farmout Agreement) under the Farmout
Agreement.
C-13
<PAGE> 68
ANNEX D
COMMON EVENTS OF DEFAULT
Section D.1 Any Related Person fails to pay the principal component of
any Obligation when due and payable, whether at a date for the payment of a
fixed installment or as a contingent or other payment becomes due and payable
or as a result of acceleration or otherwise, and such failure is not remedied
in full within one (1) Business Day thereafter.
Section D.2. Any Related Person fails to pay any Obligation (other
than the Obligations in Section D.1 above) when due and payable, whether at a
date for the payment of a fixed installment or as a contingent or other payment
becomes due and payable or as a result of acceleration or otherwise, within one
(1) Business Day after the same becomes due in the case of interest or fifteen
(15) days thereafter in the case of any other Obligation.
Section D.3. Any "default" or "event of default" occurs under any Loan
Document which defines either such term, and the same is not remedied within
the applicable period of grace (if any) provided in such Loan Document.
Section D.4. Any Related Person fails to duly observe, perform or
comply with any covenant, agreement or provision of Section C.3 or any of
Sections C.17 through and including C.41 of Annex C.
Section D.5. Any Related Person fails (other than as referred to in
Sections D.1, D.2, D.3 or D.4 above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after notice of
such failure is given by Agent to Borrower.
Section D.6. Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Related Person in connection
with any Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made, or any Loan Document at
any time ceases to be valid, binding and enforceable as warranted in Section
B.5 of Annex B for any reason other than its release or subordination by Agent.
Section D.7. Any Related Person fails to duly observe, perform or
comply with (a) any agreement with any Person or any term or condition of any
instrument, if such agreement or instrument is materially significant to
Borrower or to Parent and its Subsidiaries on a Consolidated basis or
materially significant to any Guarantor, or (b) any provision of any Other Loan
Document and, in either case, such failure is not remedied within the
applicable period of grace (if any) provided in such agreement or instrument.
Section D.8. Any Related Person (iii) fails to pay any portion, when
such portion is due, of any of its Restricted Debt in excess of $100,000 (other
than the Obligations, the Other Allowed Debt and Debt described in Section C.6
of Annex C which is not required to be paid so long as the Related Person is in
good faith contesting the validity thereof by appropriate proceedings), or (iv)
breaches or defaults in the performance of any agreement or instrument by which
any such Restricted Debt is issued, evidenced, governed, or secured, and any
such failure, breach or default continues beyond any applicable period of grace
provided therefor.
Section D.9. Either (v) any "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as amended) in
excess of $100,000 exists with respect to any ERISA
D-1
<PAGE> 69
Plan, whether or not waived by the Secretary of the Treasury or his delegate,
or (vi) any Termination Event occurs with respect to any ERISA Plan and the
then current value of such ERISA Plan's benefit liabilities exceeds the then
current value of such ERISA Plan's assets available for the payment of such
benefit liabilities by more than $100,000 (or in the case of a Termination
Event involving the withdrawal of a substantial employer, the withdrawing
employer's proportionate share of such excess exceeds such amount).
Section D.10. Any Related Person:
(a) suffers the entry against it of a judgment, decree or
order for relief by a Tribunal of competent jurisdiction in an
involuntary proceeding commenced under any applicable bankruptcy,
insolvency or other similar Law of any jurisdiction now or hereafter
in effect, including the federal Bankruptcy Code, as from time to time
amended, or has any such proceeding commenced against it which remains
undismissed for a period of sixty days; or
(b) commences a voluntary case under any applicable
bankruptcy, insolvency or similar Law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended;
or applies for or consents to the entry of an order for relief in an
involuntary case under any such Law; or makes a general assignment for
the benefit of creditors; or fails generally to pay (or admits in
writing its inability to pay) its debts as such debts become due; or
takes corporate or other action to authorize any of the foregoing; or
(c) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of any
part of the Collateral in a proceeding brought against or initiated by
it, and such appointment or taking possession is neither made
ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it; or
(d) suffers the entry against it of a final judgment for the
payment of money in excess of $100,000 (not covered by insurance
satisfactory to Agent in its discretion), unless the same is
discharged within thirty days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within
such period and a stay of execution pending such appeal is obtained;
or
(e) suffers a writ or warrant of attachment or any similar
process to be issued by any Tribunal against all or any substantial
part of its assets or any part of the Collateral, and such writ or
warrant of attachment or any similar process is not stayed or released
within thirty days after the entry or levy thereof or after any stay
is vacated or set aside.
Section D.11. Any Change in Control occurs.
Section D.12. Any "Event of Default" (as defined in the Other Loan
Documents) occurs under the Other Loan Documents.
D-2
<PAGE> 70
SCHEDULE 1
DISCLOSURE SCHEDULE
To supplement the following sections of the Agreement of which this
Schedule is a part, Parent and Borrower hereby make the following disclosures:
1. Section B.6 Initial Financial Statements:
No Material Adverse Change.
2. Section B.7 Other Obligations:
a. Swap Agreement with Joint Energy Development
Investments Limited Partnership, dated November 22,
1994, structured as a costless collar with a floor
price of $18.00 per barrel and a ceiling price of
$20.55 per barrel using the average settlement price
for the prompt month of NYMEX Light Sweet Crude Oil
for the following remaining quantities and periods
of time:
<TABLE>
<S> <C>
January 1, 1998 through December 31, 1998 12,500 barrels per month
January 1, 1999 through December 31, 1999 14,000 barrels per month
January 1, 2000 through December 31, 2000 14,000 barrels per month
</TABLE>
b. Swap Agreement with Koch Oil Company, dated January
1, 1997, structured as a reverse collar with a Put
price of $18.00 per barrel and a Call strike price
of $20.55 per barrel using the average settlement
price for the prompt month of NYMEX Light Sweet
Crude Oil for the following quantities and periods
of time:
<TABLE>
<S> <C>
January 1, 1998 through December 31, 1998 12,500 barrels per month
January 1, 1999 through December 31, 1999 14,000 barrels per month
January 1, 2000 through December 31, 2000 14,000 barrels per month
</TABLE>
c. Swap Agreement with Enron Capital and Trade
Resources dated March 12, 1998, structured as a
costless collar with a floor price of $14.50 per
barrel and a ceiling price of $17.70 per barrel
using the average settlement price for the prompt
month of NYMEX Light Sweet Crude Oil for the
following remaining quantities and periods of time:
<TABLE>
<S> <C>
April 1, 1998 through December 31, 1998 75,000 barrels per month
</TABLE>
3. Section B.9 Litigation:
None.
4. Section B.10 Labor Disputes and Acts of God:
None.
1
<PAGE> 71
5. Section B.11 ERISA Liabilities:
a. Inland Resources Inc. 401(k) Plan.
b. Inland Resources Inc. Section 125 Cafeteria Plan.
c. Inland Resources Inc. Medical Plan through Cigna Healthcare
6. Sections B.12 Environmental Laws and Other:
None. However, upon closing the purchase of the Pennzoil
Refinery, there is an environmental clean-up taking place
which is the contractual responsibility of Pennzoil Products
Company.
7. Sections B.13 Names and Places of Business:
a. On April 28, 1993, the name of Inland Gold and Silver Corp.
was changed to Inland Resources Inc. for the past five
years, Parent's places of business have been:
February 1998 until Present
410 Seventeenth Street,
Suite 700 Denver CO 80202
June 1993 until February 1998
475 Seventeenth Street, Suite 1500
Denver CO 80202
b. On July 1, 1995, the name of Lomax Exploration Company was
changed to Inland Production Company. For the past five
years, Borrower's places of business have been:
February 1998 until Present
410 Seventeenth Street,
Suite 700 Denver CO 80202
October 1994 until February 1998
P.O. Box 1446 Also 475 Seventeenth Street
West Pole Road Suite 1500
Roosevelt UT 80466 Denver CO 80202
2
<PAGE> 72
June 1993 through September 1994
77 West, 200 South, Suite 402
Salt Lake City UT 84101
8. Section B.14 Subsidiaries and Stockholdings:
Subsidiaries
a. Borrower is 100% owned by Parent
b. Inland Refining is 100% owned by Parent
Partnership Interest
a. Borrower is a General Partner in the following Limited
Partnerships:
LOEX Properties 1983, LTD, a Texas Limited
Partnership, Borrower has a 0.62% interest in the
partnership. The partnership's principal place of
business is 410 Seventeenth Street, Suite 700, Denver
CO 80202.
LOEX Properties 1984, LTD, a Texas Limited
Partnership, Borrower has a 0.57% interest in the
partnership. The partnership's principal place of
business is 410 Seventeenth Street, Suite 700, Denver
CO 80202.
b. Borrower is a Managing Partner in the following General
Partnerships:
West Monument Butte Pipeline Company, a Texas General
Partnership, Borrower has an 80.96% interest in the
partnership. The partnership's principal place of
business is 410 Seventeenth Street, Suite 700, Denver
CO 80202.
9. Section C.18. Restricted Debt:
All-Inclusive Promissory note secured by All-Inclusive Deed
of Trust payable to the Carmen Family Investment Company
dated May 1, 1995, for a total of $202,906.67 principal
balance to be paid in fourteen annual installments of
$26,797.54 including interest (interest rate is 9.5% per
annum). The All-Inclusive Deed of Trust includes lands in
Township 8 South, Range 17 East, S.L.M. in Sections 20 (NE
1/4 of the SE 1/4), 21 (SE 1/4) and 28 (N 1/2 of the NW 1/4)
in Duchess County, Utah.
3
<PAGE> 73
SCHEDULE 2
SECURITY SCHEDULE
1. First Amendment to Deed of Trust, Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement from Borrower to
Agent dated of even date with the Agreement
2. First Amendment to Deed of Trust, Assignment of Rents and Leases,
Security Agreement and Financing Statement from Inland Refining to
Agent of even date with the Agreement
3. First Amendment to Security Agreement by Borrower
4. First Amendment to Security Agreement by Inland Refining
5. First Amendment to Guaranty by Parent
6. First Amendment to Guaranty by Inland Refining
7. Second Amendment to Pledge Agreement by Parent
1
<PAGE> 74
SCHEDULE 3
INSURANCE SCHEDULE
2
<PAGE> 75
SCHEDULE 4
BANK SCHEDULE
<TABLE>
<CAPTION>
Bank Percentage of Note Amount
- ---- Borrowing Base -----------
--------------
<S> <C> <C>
ING (U.S.) Capital Corporation 38.5714286% $30,857,142.86
135 East 57th Street
New York, New York 10022
U.S. Bank National Association 30.7142857% $24,571,428.57
950 Seventeenth Street, Suite 300
Denver, Colorado 80202
MeesPierson Capital Corp. 30.7142857% $24,571,428.57
300 Crescent Court, Suite 1750
Dallas, Texas 75201
</TABLE>
1
<PAGE> 76
EXHIBIT A
PROMISSORY NOTE
$_________________ New York, New York *[Date]
FOR VALUE RECEIVED, the undersigned, Inland Production Company, a
Texas corporation (herein called "Borrower"), hereby promises to pay to the
order of ________________________________________________, a *[____________
state banking corporation] *[national banking association] (herein called
"Bank"), the principal sum of
__________________________________________________________________ Dollars
($__________), or, if greater or less, the aggregate unpaid principal amount of
the Loan made under this Note by Bank to Borrower pursuant to the terms of the
Credit Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America at
the offices of the Agent under the Credit Agreement, 135 East 57th Street, New
York, New York or at such other place as from time to time may be designated by
the holder of this Note.
This Note (a) is issued and delivered under that certain Amended and
Restated Credit Agreement of even date herewith among Borrower, Inland
Resources Inc., ING (U.S.) Capital Corporation, as Agent, and the Banks
(including Bank) referred to therein (herein, as from time to time
supplemented, amended or restated, called the "Credit Agreement"), and is a
"Note" as defined therein, (b) is subject to the terms and provisions of the
Credit Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events, and (c) is secured by and entitled to the benefits of certain
Security Documents (as identified and defined in the Credit Agreement).
Payments on this Note shall be made and applied as provided herein and in the
Credit Agreement. Reference is hereby made to the Credit Agreement for a
description of certain rights, limitations of rights, obligations and duties of
the parties hereto and for the meanings assigned to terms used and not defined
herein and to the Security Documents for a description of the nature and extent
of the security thereby provided and the rights of the parties thereto.
For the purposes of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) each Quarterly Payment
Date, beginning September 29, 1998, and (ii) any day on which past due
interest or principal is owed hereunder and is unpaid. If the terms
hereof or of the Credit Agreement provide that payments of interest or
principal hereon shall be deferred from one Base Rate Payment Date to
another day, such other day shall also be a Base Rate Payment Date.
"Eurodollar Rate Payment Date" means, with respect to any
Eurodollar Loan: (i) the day on which the related Interest Period ends
(and, if such Interest Period is three months or longer, the
three-month anniversary of the first day of such Interest Period), and
(ii) any day on which past due interest or past due principal is owed
hereunder with respect to such Eurodollar Loan and is unpaid. If the
terms hereof or of the Credit Agreement provide that payments of
interest or principal with respect to such Eurodollar Loan shall be
deferred from one Eurodollar Rate Payment Date to another day, such
other day shall also be a Eurodollar Rate Payment Date.
1
<PAGE> 77
The principal amount of this Note shall be due and payable quarterly
as provided in the Credit Agreement. On March 28, 2003, the unpaid principal
balance of this Note and all interest accrued hereon shall be due and payable
in full.
Base Rate Loans (exclusive of any past due principal or interest) from
time to time outstanding shall bear interest on each day outstanding at the
Base Rate in effect on such day. On each Base Rate Payment Date Borrower shall
pay to the holder hereof all unpaid interest which has accrued on the Base Rate
Loans to but not including such Base Rate Payment Date. Each Eurodollar Loan
(exclusive of any past due principal or interest) shall bear interest on each
day during the related Interest Period at the related Eurodollar Rate in effect
on such day. On each Eurodollar Rate Payment Date relating to such Eurodollar
Loan, Borrower shall pay to the holder hereof all unpaid interest which has
accrued on such Eurodollar Loan to but not including such Eurodollar Rate
Payment Date. All past due principal of and past due interest on the Loan shall
bear interest on each day outstanding at the Late Payment Rate in effect on
such day, and such interest shall be due and payable daily as it accrues.
Notwithstanding the foregoing paragraph and all other provisions of
this Note, in no event shall the interest payable hereon, whether before or
after maturity, exceed the maximum interest which, under applicable Law, may be
charged on this Note, and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how
interest accrues hereon.
If this Note is placed in the hands of an attorney for collection
after default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally agree
to pay reasonable attorneys' fees and collection costs to the holder hereof in
addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note
hereby severally waive demand, presentment, notice of demand and of dishonor
and nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in
any of its terms, provisions and covenants, or any releases or substitutions of
any security, or any delay, indulgence or other act of any trustee or any
holder hereof, whether before or after maturity.
This Note is in renewal and extension, but not in extinguishment or
novation, of that certain promissory note dated as of April 22, 1998, made by
Borrower payable to the order of Bank in the original principal amount of
$30,769,230.76.
2
<PAGE> 78
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE
FEDERAL LAW.
INLAND PRODUCTION COMPANY
By:
----------------------------------
Name:
Title:
3
<PAGE> 79
EXHIBIT B
BORROWING NOTICE
Reference is made to that certain Amended and Restated Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company, as Borrower, Inland
Resources Inc., ING (U.S.) Capital Corporation, as Agent, and certain financial
institutions, as Banks. Terms which are defined in the Agreement are used
herein with the meanings given them in the Agreement.
Borrower hereby requests a Borrowing of new Loans to be advanced
pursuant to Section 2.2 of the Agreement as follows:
<TABLE>
<S> <C>
Aggregate amount of Borrowing: $
------------------
Type of Loans in Borrowing:
------------------
Date on which Loans are to be advanced:
------------------
Length of Interest Period for Eurodollar
Loans (1, 2, 3 or 6 months): months
-----------
</TABLE>
Borrower hereby represents, warrants, acknowledges, and agrees to and
with each Lender that:
(a) The officer of Borrower signing this instrument is the
duly elected, qualified and acting officer of Borrower as indicated
below such officer's signature hereto having all necessary authority
to act for Borrower in making the request herein contained.
(b) The representations and warranties of Borrower set forth
in the Agreement and the other Loan Documents are true and correct on
and as of the date hereof (except to the extent that the facts on
which such representations and warranties are based have been changed
by the extension of credit under the Agreement), with the same effect
as though such representations and warranties had been made on and as
of the date hereof.
(c) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in writing
as provided in Section 9.1(a) of the Agreement; nor will any such
Default exist upon Borrower's receipt and application of the Loans
requested hereby. Borrower will use the Loans hereby requested in
compliance with Section 2.4 of the Agreement.
(d) Except to the extent waived in writing as provided in
Section 9.1(a) of the Agreement, Borrower has performed and complied
with all agreements and conditions in the Agreement required to be
performed or complied with by Borrower on or prior to the date hereof,
and each of the conditions precedent to Loans contained in the
Agreement remains satisfied.
(e) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any
course of dealing, or by any other means not provided for in Section
9.1(a) of the Agreement. The Agreement and the other Loan Documents
are hereby ratified, approved, and confirmed in all respects.
1
<PAGE> 80
The officer of Borrower signing this instrument hereby certifies in
his capacity as an officer of Borrower and in the name and on behalf of
Borrower, that to the best of his knowledge after due inquiry, the above
representations, warranties, acknowledgements, and agreements of Borrower are
true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
199__.
INLAND PRODUCTION COMPANY
By:
----------------------------------
Name:
Title:
2
<PAGE> 81
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
Reference is made to that certain Amended and Restated Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company, as Borrower, Inland
Resources Inc., ING (U.S.) Capital Corporation, as Agent, and certain financial
institutions, as Banks. Terms which are defined in the Agreement are used
herein with the meanings given them in the Agreement.
Borrower hereby requests a conversion or continuation of existing
Loans into a new Borrowing pursuant to Section 2.3 of the Agreement as follows:
Existing Borrowing(s) to be continued or converted:
$________ of Eurodollar Loans with Interest Period ending _________
$________ of Base Rate Loans
<TABLE>
<S> <C>
Aggregate amount of new Borrowing: $
------------------
Type of Loans in new Borrowing:
------------------
Date of continuation or conversion:
------------------
Length of Interest Period for Eurodollar
Loans (1, 2, 3 or 6 months): months
-----------
</TABLE>
Borrower hereby represents, warrants, acknowledges, and agrees to and
with each Lender that:
(a) The officer of Borrower signing this instrument is the
duly elected, qualified and acting officer of Borrower as indicated
below such officer's signature hereto having all necessary authority
to act for Borrower in making the request herein contained.
(b) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in writing
as provided in Section 9.1(a) of the Agreement; nor will any such
Default exist upon Borrower's receipt and application of the Loans
requested hereby.
(c) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any
course of dealing, or by any other means not provided for in Section
9.1(a) of the Agreement. The Agreement and the other Loan Documents
are hereby ratified, approved, and confirmed in all respects.
The officer of Borrower signing this instrument hereby certifies in
his capacity as an officer of Borrower and in the name and on behalf of
Borrower, that to the best of his knowledge after due inquiry, the above
representations, warranties, acknowledgements, and agreements of Borrower are
true, correct and complete.
1
<PAGE> 82
IN WITNESS WHEREOF, this instrument is executed as of ____________,
199__.
INLAND PRODUCTION COMPANY
By:
----------------------------------
Name:
Title:
2
<PAGE> 83
EXHIBIT D
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain Amended and Restated Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company ("Borrower"), Inland
Resources Inc., ING (U.S.) Capital Corporation, as Agent, and certain financial
institutions ("Banks"), which Agreement is in full force and effect on the date
hereof. Terms which are defined in the Agreement are used herein with the
meanings given them in the Agreement.
This Certificate is furnished pursuant to Section C.2(b) of Annex C of
the Agreement. Together herewith Borrower is furnishing to Agent and each Bank
Parent's *[audited/unaudited] financial statements (the "Financial Statements")
as at ____________ (the "Reporting Date"). Borrower hereby represents,
warrants, and acknowledges to Agent and each Bank that:
(a) the officer of Parent signing this instrument is the duly
elected, qualified and acting ____________ of Parent and as such is
Parent's chief financial officer;
(b) the Financial Statements are accurate and complete and
satisfy the requirements of the Agreement;
(c) attached hereto is a schedule of calculations showing
Parent's compliance as of the Reporting Date with the requirements of
Sections ____________ of the Agreement *[and Parent's non-compliance
as of such date with the requirements of Section(s) ____________ of
the Agreement];
(d) on the Reporting Date Parent and Borrower were, and on
the date hereof Parent and Borrower are, in full compliance with the
disclosure requirements of Section C.4 of Annex C of the Agreement,
and no Default otherwise existed on the Reporting Date or otherwise
exists on the date of this instrument *[except for Default(s) under
Section(s) ____________ of the Agreement, which *[is/are] more fully
described on a schedule attached hereto].
(e) *[Unless otherwise disclosed on a schedule attached
hereto,] The representations and warranties of Borrower and Parent set
forth in the Agreement and the other Loan Documents are true and
correct on and as of the date hereof (except to the extent that the
facts on which such representations and warranties are based have been
changed by the extension of credit under the Agreement), with the same
effect as though such representations and warranties had been made on
and as of the date hereof.
The officer of Parent signing this instrument hereby certifies in his
capacity as an officer of Borrower and in the name and on behalf of Borrower,
that he has reviewed the Loan Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable him
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of Parent and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and
complete.
1
<PAGE> 84
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19__.
INLAND RESOURCES INC.
By:
----------------------------------
Name:
Title:
2
<PAGE> 85
EXHIBIT E
ENVIRONMENTAL COMPLIANCE CERTIFICATE
Reference is made to that certain Amended and Restated Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company ("Borrower"), Inland
Resources Inc., ING (U.S.) Capital Corporation as Agent, and certain financial
institutions. Terms which are defined in the Agreement are used herein with the
meanings given them in the Agreement. The undersigned, being the
*[President/Chief Executive Officer] of Borrower, hereby certifies to Agent and
Banks as follows:
1. For the Fiscal Year ending immediately prior to the date
hereof, Borrower has complied and is complying with Section C.12 of
Annex C of the Credit Agreement *[except as set forth in Schedule I
attached hereto];
2. To the best knowledge of the undersigned after due
inquiry, Borrower is on the date hereof in compliance with all
applicable Environmental Laws, noncompliance with which could cause a
Material Adverse Change;
3. Borrower has taken (and continues to take) steps to
minimize the generation of potentially harmful effluents;
4. Borrower has established an ongoing program of conducting
an internal audit of each operating facility of Borrower to identify
actual or potential environmental liabilities which could cause a
Material Adverse Change; and
5. Borrower has established an ongoing program of training
its employees in issues of environmental, health and safety
compliance, and Borrower presently has one or more individuals in
charge of implementing such training program.
The officer of Borrower signing this instrument hereby certifies in
his capacity as an officer of Borrower and in the name and on behalf of
Borrower, that to the best of his knowledge after due inquiry and consultation
with the operating officers of Borrower, the above representations, warranties,
acknowledgements, and agreements of Borrower are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19__.
INLAND PRODUCTION COMPANY
By:
----------------------------------
Name:
Title:
1
<PAGE> 86
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
Date _______________, 199__
Reference is made to that certain Amended and Restated Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among by and among Inland Production Company, as Borrower,
Inland Resources Inc., ING (U.S.) Capital Corporation, as Agent, and certain
financial institutions, as Banks, which Agreement is in full force and effect
on the date hereof. Terms which are defined in the Agreement are used herein
with the meanings given them in the Agreement.
_________________ ("Assignor") and _________________ ("Assignee")
hereby agree as follows:
1. Assignor hereby sells and assigns to Assignee without recourse and
without representation or warranty (other than as expressly provided herein),
and Assignee hereby purchases and assumes from Assignor, that interest in and
to all of Assignor's rights and duties under the Agreement as of the date
hereof which represents the percentage interest specified in Item 3 of Annex I
hereto (the "Assigned Share") of all of the outstanding rights and obligations
of all Banks under the Agreement, including, without limitation, all rights and
obligations with respect to the Assigned Share in Assignor's Loans and Note.
After giving effect to such sale and assignment, Assignee's Percentage Share
(and Assignor's remaining Percentage Share) will be as set forth in Item 3 of
Annex I hereto.
2. Assignor: (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Agreement, the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement, the other Loan Documents or
any other instrument or document furnished pursuant thereto; and (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of Borrower, any other Related Person or the performance or
observance by any of them of any of their respective obligations under the
Agreement, the other Loan Documents, or any other instrument or document
furnished pursuant thereto.
3. Assignee: (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements most recently
delivered thereunder and such other Loan Documents and other documents and
information as it has deemed appropriate to make its own analysis of Borrower
and the transactions contemplated by the Agreement and its own independent
decision to enter into this Assignment and Assumption Agreement; (ii) agrees
that it will, independently and without reliance upon Assignor or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Agreement; (iii) confirms that it is a an Eligible Transferee
under the Agreement; (iv) appoints and authorizes Agent to take such action as
agent on its behalf and to exercise such powers under the Agreement and the
other Loan Documents as are specifically delegated to them, together with all
other powers reasonably incidental thereto; and (v) agrees that it will perform
in accordance with their terms all of the obligations which by the terms of the
Agreement are required to be performed by it as a Bank (including the
1
<PAGE> 87
obligation to make future Loans). [; and (vi) attaches the "Prescribed Forms"
described in Section 3.6(d) of the Agreement.]
4. Following the execution of this Assignment and Assumption Agreement
by Assignor and Assignee, an executed original hereof (together with all
attachments) will be delivered to Agent. The effective date of this Assignment
and Assumption Agreement (the "Settlement Date") shall be the date specified in
Item 4 of Annex I hereto; provided that this Assignment and Assumption
Agreement shall not be deemed to have taken effect unless (i) the consent
hereto of Agent and Borrower has been obtained (to the extent required in the
Agreement), (ii) Agent has received a fully executed original hereof, and (iii)
Agent has received the processing fee referred to in Section 9.5(c)(ii) of the
Agreement.
5. Upon the satisfaction of the foregoing conditions, then as of the
Settlement Date: (i) Assignee shall be a party to the Agreement and, to the
extent provided in this Assignment and Assumption Agreement, have the rights
and obligations of a Bank thereunder and under the other Loan Documents and
(ii) Assignor shall, to the extent provided in this Assignment and Assumption
Agreement, relinquish its rights and be released from its duties under the
Agreement and the other Loan Documents.
6. All interest, fees and other amounts that would otherwise accrue
pursuant to the Agreement and Assignor's Note for the account of Assignor from
and after the Settlement Date shall, instead accrue for the account of, and be
payable to, Assignor and Assignee, as the case may be, in accordance with their
respective interests as reflected in Item 3 to Annex I hereto. All payments of
principal that would otherwise be payable from and after the Settlement Date to
or for the account of Assignor pursuant to the Agreement and Assignor's Note
shall, instead, be payable to or for the account of Assignor and Assignee, as
the case may be, in accordance with their respective interests as reflected in
Item 3 to Annex I hereto. On the Settlement Date, Assignee shall pay to
Assignor an amount specified by Assignor in writing which represents the
portion of Assignor's Loans which is being assigned and which is outstanding on
the Settlement Date, net of any closing costs. Assignor and Assignee shall make
all appropriate adjustments in payments under the Agreement for periods prior
to the Settlement Date directly between themselves on the Settlement Date.
7. Each of the parties to this Assignment and Assumption Agreement
agrees that at any time and from time to time upon the written request of any
other party, it will execute and deliver such further documents and do such
further acts and things as such other party may reasonably request in order to
effect the purposes of this Assignment and Assumption Agreement.
8. This Assignment and Assumption Agreement shall be governed by, and
construed in accordance with, the Laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Assignment and Assumption
Agreement, as of the date first above written, such execution also being made
on Annex I hereto.
[NAME OF ASSIGNOR]
as Assignor
By:
---------------------
Title:
2
<PAGE> 88
[NAME OF ASSIGNEE]
By:
---------------------
Title:
CONSENTED TO AND ACKNOWLEDGED:
ING (U.S.) CAPITAL CORPORATION
as Agent
By:
---------------------------
Title:
3
<PAGE> 89
ANNEX FOR ASSIGNMENT AND ASSUMPTION AGREEMENT
ANNEX I
1. Borrower: Inland Production Company
2. Date of Assignment Agreement:
3. Amounts (as of date of item #2 above):
<TABLE>
<CAPTION>
Assignor Assignee
(as Revised) (New)
----------- --------
<S> <C> <C>
a. Percentage Share(1) % %
-------- --------
b. Percentage Share of
Borrowing Base: $ $
---------- ----------
</TABLE>
4. Settlement Date:
5. Notices:
ASSIGNEE:
--------------------
--------------------
--------------------
Attention:
Telephone:
Telecopy:
6. Wiring Instructions:
--------------------
--------------------
--------------------
- -----------------------------
(1) Percentage taken to 12 decimal places.
<PAGE> 1
EXHIBIT 4.1.3
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (herein
called this "Amendment") made as of the 5th day of March, 1999 by and among
Inland Production Company, a Texas corporation, (herein called "Borrower"),
Inland Resources Inc., a Washington corporation (herein called "Parent"), and
ING (U.S.) Capital LLC (successor to ING (U.S.) Capital Corporation), as Agent
(herein called "Agent") and as a Bank, and the other Banks,
W I T N E S S E T H:
WHEREAS, Borrower, Parent, Agent, and the Banks have entered into that
certain Amended and Restated Credit Agreement dated as of September 11, 1998,
(as amended, restated, or supplemented to the date hereof, the "Amended
Agreement"), for the purposes and consideration therein expressed, pursuant to
which the Banks became obligated to make loans to Borrower as therein provided;
WHEREAS, Borrower, Parent, Trust Company of the West, in its capacity
as noteholder ("Noteholder"), and TCW Asset Management Company, in its
capacities as Agent and Collateral Agent (in its capacity as Agent, "Tamco"),
have entered into that certain Amended and Restated Credit Agreement dated as
of September 11, 1998 (as amended, restated, or supplemented to the date
hereof, the "Amended TCW Agreement");
WHEREAS, Borrower, Parent, Noteholder, Tamco, Banks and Agent have
entered into that certain Amended and Restated Intercreditor Agreement dated as
of September 11, 1998, as amended, restated, or supplemented to the date
hereof;
WHEREAS, Borrower, Parent and Banks desire to amend the Amended
Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Amended Agreement, in
consideration of the loans which may hereafter be made by Banks to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Amended Agreement. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Amended Agreement shall have the same meanings whenever
used in this Amendment.
<PAGE> 2
ARTICLE II.
Amendments to Amended Agreement
Section 2.1. Scheduled Principal Payments. Section 2.8 of the Amended
Agreement is hereby amended to read as follows:
"Section 2.8. Scheduled Principal Payments. Beginning on
June 29, 1999, and on each Quarterly Payment Date thereafter, Borrower
will, in addition to paying any interest then due on the Loans, make a
principal payment in accordance with the following schedule:
<TABLE>
<CAPTION>
Quarterly Amount
Payment Date of Payment
------------ ----------
<S> <C>
June 29, 1999 $9,472,222
Sept 29, 1999 $6,222,222
Dec 30, 1999 $6,222,222
Mar 30, 2000 $4,666,666
June 29, 2000 $4,666,666
Sept 28, 2000 $4,666,666
Dec 28, 2000 $4,666,666
Mar 29, 2001 $3,888,889
June 28, 2001 $3,888,889
Sept 27, 2001 $3,888,889
Dec 28, 2001 $3,888,889
Mar 28, 2002 $3,500,000
June 27, 2002 $3,500,000
Sept 27, 2002 $3,500,000
Dec 30, 2002 $3,500,000
Mar 28, 2003 $3,111,114
</TABLE>
The principal installments required by this Section 2.8 are in
addition to all other principal payments required by the terms of
this Agreement."
Section 2.2. Facility for LC Obligations. Section 2.17 of the Amended
Agreement is hereby added to read as follows:
"Section 2.17. Minimum LC Obligations. At no time during the
Commitment Period may the aggregate amount of Loans outstanding exceed
the remainder of (i) the Borrowing Base minus (ii) $1,000,000, such
$1,000,000 to be reserved solely for LC Obligations."
<PAGE> 3
Section 2.3. Requesting Letters of Credit. Section 2.12 of the Amended
Agreement is hereby amended by deleting the first two sentences thereof, and
insert the following in place thereof:
"Borrower must make written application for any Letter of
Credit at least three Business Days before the date on which Borrower
desires such Letter of Credit to be issued, by delivering such
application to Agent. Agent shall promptly deliver such application to
LC Issuer."
Section 2.4. Additional Covenant. Section 6.8 of the Amended Agreement
is hereby added as follows:
"Section 6.8. LockBox Management. Parent and Borrower shall,
and shall cause Inland Refining to, direct all proceeds from the sales
of crude oil and natural gas ("E&P revenue") and petroleum products
("refining revenue") to be deposited into one or more lockboxes in the
name of Parent, Borrower or Inland Refining, as the case may be, and
administered by U.S. Bank National Association subject to a first
priority security interest securing the Obligations. Parent and
Borrower agree that if the proceeds of any E&P revenue or refining
revenue shall be received by it or by any other, Parent shall as
promptly as possible deposit such proceeds into the lockbox account,
such account to be administered by and held at U.S. Bank, National
Association referred to below. Until so deposited, all such E&P
revenue and refining revenue proceeds shall be held in trust by Parent
and shall not be commingled with any other funds or property of
Parent."
Section 2.5. Borrowing Base. At the effective date of this Amendment,
and continuing until the next redetermination pursuant to the Credit Agreement
the borrowing base shall be 73,250,000."
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become effective as
of the date first above written when and only when Banks shall have received,
at Agent's office,
(i) a counterpart of this Amendment executed and delivered by
Borrower,
(ii) a certificate of a duly authorized officer of Borrower
to the effect that all of the representations and warranties set forth
in Article IV hereof are true and correct at and as of the time of
such effectiveness,
(iii) evidence acceptable to Agent in its sole discretion
that all of the conditions of effectiveness to the First Amendment of
the Amended TCW Agreement in the form of Exhibit 1 hereto have been
satisfied,
<PAGE> 4
(iv) lockbox agreement executed and delivered by Parent,
Borrower and Refining, form and substance acceptable for U.S. Bank
National Association and Agent,
(v) Warrants issued to each Bank to purchase its percentage
share of Fifty-thousand (50,000) shares of common stock of Inland
Resources, Inc., in the form of Exhibit 2 hereto,
(vi) Registration rights agreement in the form of Exhibit 3
hereto, and
(vii) a First Amendment to the Amended and Restated
Intercreditor Agreement in the form of Exhibit 4 hereto executed by
all parties named therein.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower. In order to
induce Banks to enter into this Amendment, Borrower represents and warrants to
Banks that:
(a) The representations and warranties contained in Article V
of the Amended Agreement are true and correct at and as of the time of
the effectiveness hereof.
(b) Borrower is duly authorized to execute and deliver this
Amendment and the other Amendment Documents and is and will continue
to be duly authorized to borrow and to perform its obligations under
the Amended Agreement. Borrower has duly taken all action necessary to
authorize the execution and delivery of this Amendment and the other
Amendment Documents and to authorize the performance of the
obligations of Borrower hereunder and thereunder.
(c) The execution and delivery by Borrower of this Amendment
and the other Amendment Documents, the performance by Borrower of its
obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby do not and will not
conflict with any provision of law, statute, rule or regulation or of
the articles of organization and regulations of Borrower, or of any
material agreement, judgment, license, order or permit applicable to
or binding upon Borrower, or result in the creation of any lien,
charge or encumbrance upon any assets or properties of Borrower.
Except for those which have been duly obtained, no consent, approval,
authorization or order of any court or governmental authority or third
party is required in connection with the execution and delivery by
Borrower of this Amendment and the other Amendment Documents or to
consummate the transactions contemplated hereby and thereby.
(d) When duly executed and delivered, each of this Amendment,
the Amended Agreement and the other Amendment Documents will be a
legal and binding instrument and agreement of Borrower, enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency
and similar laws applying to creditors' rights generally and by
principles of equity applying to creditors' rights
<PAGE> 5
generally. No setoff, defense or counterclaim exists with respect to
any of the Obligations or otherwise with respect to any of the
obligations or duties of any Restricted Person under or in respect of
any of the Loan Documents.
(e) The unaudited quarterly financial statements of Borrower
dated as of December 31, 1998 fairly present the financial position at
such date and the statement of operations and the changes in financial
position for the period ending on such date for Borrower. Copies of
such financial statements have heretofore been delivered to Banks.
Since December 31, 1998, no material adverse change has occurred in
the financial condition or businesses of Borrower.
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements; Release. The Amended Agreement
as hereby amended is hereby ratified and confirmed in all respects. Any
reference to the Note in any other Loan Document shall be deemed to include the
Notes issued and delivered pursuant to this Amendment. The execution, delivery
and effectiveness of this Amendment and the other Amendment Documents shall
not, except as expressly provided herein or therein, operate as a waiver of any
right, power or remedy of Banks under the Amended Agreement or any other Loan
Document nor constitute a waiver of any provision of the Amended Agreement or
any other Loan Document. As further consideration and to induce the
Administrative Agent and the Lenders to enter into and grant the accommodations
contained in this Fifth Amendment, the Borrower hereby also compromises,
releases and discharges the Lenders, the Administrative Agent and their
respective directors, officers, shareholders, agents, employees,
representatives, attorneys, and their respective heirs, legal representatives,
successors and assigns (collectively, the "Lending Parties") from any and all
claims, demands, causes of action, remedies, suits, judgments, damages,
expenses and liabilities (collectively, "Claims") of any nature whatsoever,
whether now know, suspected or claimed, whether arising under common law, in
equity, or under statute, which the Borrower has against the Lending Parties
which may have arisen at any time on or prior to the date hereof in connection
with, arising out of or related to the Loans, the Credit Agreement and all
Security Instruments executed in connection therewith, or the enforcement or
attempted enforcement by the Lenders or the Administrative Agent of any of
their rights, remedies, or recourse related thereto.
Section 5.2. Survival of Agreements. All representations, warranties,
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the issuance and delivery of the Notes, and shall further survive
until all of the Obligations are paid in full. All representations, warranties,
acknowledgments and agreements contained in Section 9.1 of the Amended
Agreement are hereby reconfirmed on and as of the date hereof. All statements
and agreements contained in any certificate or instrument delivered by Borrower
hereunder or under the Amended Agreement to Banks shall be deemed to constitute
representations and warranties by, or agreements and covenants of, Borrower
under this Amendment and under the Amended Agreement.
<PAGE> 6
Section 5.3. Loan Documents. This Amendment and the other Amendment
Documents are each a Loan Document, and all provisions in the Amended Agreement
pertaining to Loan Documents apply hereto and thereto.
Section 5.4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York and any
applicable laws of the United States of America in all respects, including
construction, validity and performance.
Section 5.5. Counterparts. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
INLAND PRODUCTION COMPANY
By:
-------------------------
Bill I. Pennington
Chief Financial Officer
INLAND RESOURCES INC.
By:
-------------------------
Bill I. Pennington
Chief Financial Officer
ING (U.S.) CAPITAL LLC (successor to ING
(U.S) Capital Corporation), as a Bank and
as Agent
By:
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
MEESPIERSON CAPITAL CORP.
By:
Name:
Title:
<PAGE> 7
CONSENT AND AGREEMENT
Pursuant to the terms of that certain Amended and Restated
Intercreditor Agreement dated September 11, 1998, among Borrower, Parent,
Agent, the Banks, the Noteholder named therein, and the undersigned Agent
Noteholder, the undersigned hereby consent to the foregoing First Amendment to
Amended and Restated Credit Agreement:
Agent Noteholder: TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager under that
certain Agreement dated as of June 13, 1994,
between TCW Asset Management and Morgan Stanley
Group, Inc.
By:
-------------------------
Art Carlson
Managing Director
By:
-------------------------
Marc MacAluso
Senior Vice President
<PAGE> 8
CONSENT AND AGREEMENT
Parent and Inland Refining hereby consent to the provision of this
Amendment and the transactions contemplated herein, and hereby ratify and
confirm their respective Guaranty dated as of September 11, 1998, made by them
for the benefit of Agent, and agree that their obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
INLAND RESOURCES, INC.
By:
----------------------------
Bill I. Pennington
Chief Financial Officer
INLAND REFINING, INC.
By:
----------------------------
Bill Fink
President
<PAGE> 1
EXECUTION ORIGINAL
EXHIBIT 4.2.2
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
INLAND PRODUCTION COMPANY and INLAND RESOURCES INC.,
TRUST COMPANY OF THE WEST,
and
TCW ASSET MANAGEMENT COMPANY,
in the capacities described below
$75,000,000
September 11, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS AND REFERENCES..............................................................................1
Section 1.1 Defined Terms...............................................................................1
Section 1.2 Exhibits and Schedules; Additional Definitions..............................................7
Section 1.3 Amendment of Defined Instruments............................................................7
Section 1.4 References and Titles.......................................................................7
Section 1.5 Calculations and Determinations.............................................................7
ARTICLE II THE LOAN ............................................................................................. 8
Section 2.1 Advance; Interest...........................................................................8
Section 2.2 [INTENTIONALLY OMITTED].....................................................................8
Section 2.3 Use of Proceeds.............................................................................8
Section 2.4 Funding Fees................................................................................8
Section 2.5 Principal Payments..........................................................................9
Section 2.6 Principal Payments from ANCF................................................................9
Section 2.7 Optional Prepayments in Whole..............................................................10
Section 2.8 Additional Interest........................................................................10
Section 2.9 General Payment Provisions.................................................................10
ARTICLE III CONDITIONS PRECEDENT TO LENDING......................................................................11
Section 3.1 [INTENTIONALLY OMITTED]....................................................................11
Section 3.2 [INTENTIONALLY OMITTED]....................................................................11
Section 3.3 [INTENTIONALLY OMITTED]....................................................................11
Section 3.4 Conditions Precedent for Additional Bank Loan Advances.....................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................12
Section 4.1 Borrower's and Parent's Representations and Warranties.....................................12
Section 4.2 Representation and Disclosures by Noteholder...............................................12
ARTICLE V COVENANTS OF BORROWER..................................................................................12
Section 5.1 Covenants..................................................................................12
Section 5.2 Coverage Ratio.............................................................................13
ARTICLE VI SECURITY..............................................................................................14
Section 6.1 The Security...............................................................................14
Section 6.2 Agreement to Deliver Security Documents....................................................14
Section 6.3 Perfection and Protection of Security Interests and Liens..................................14
Section 6.4 Production Proceeds........................................................................15
Section 6.5 Appointment of Agent and Collateral Agent..................................................15
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES.......................................................................18
Section 7.1 Events of Default..........................................................................18
Section 7.2 Remedies...................................................................................18
Section 7.3 Indemnity..................................................................................19
Section 7.4 Substitution of Operator...................................................................19
ARTICLE VIII RIGHT OF FIRST REFUSAL..............................................................................20
Section 8.1 Right of First Refusal.....................................................................20
ARTICLE IX MISCELLANEOUS.........................................................................................21
Section 9.1 Waivers and Amendments; Acknowledgments....................................................21
Section 9.2 Survival of Agreements; Cumulative Nature..................................................22
Section 9.3 Notices....................................................................................23
Section 9.4 Parties in Interest........................................................................24
SECTION 9.5 GOVERNING LAW; SUBMISSION TO PROCESS.......................................................24
Section 9.6 Limitation on Interest.....................................................................24
Section 9.7 Termination; Limited Survival..............................................................25
Section 9.8 Severability...............................................................................25
Section 9.9 Counterparts...............................................................................25
SECTION 9.10 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC................................................26
Section 9.11 Amendment and Restatement..................................................................26
</TABLE>
-ii-
<PAGE> 4
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement")
is made as of September 11, 1998, by and among Inland Production Company, a
Texas corporation ("BORROWER"), Inland Resources Inc., a Washington corporation
("PARENT"), Trust Company of the West, in its capacity as holder of the Note
described below (in such capacity, "Noteholder"), and TCW Asset Management
Company, in its capacities as Agent and Collateral Agent (as described below).
In consideration of the mutual covenants and agreements contained herein the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
Section 1.1 Defined Terms. As used in this Agreement, each
capitalized term has the meaning given in this Section 1.1, in Annex A attached
hereto, in the Intercreditor Agreement (as defined in Annex A) if specifically
referred to in this Section 1.1, Annex A or otherwise as being defined the
Intercreditor Agreement (regardless of whether the Intercreditor Agreement is
in effect) or in the sections and subsections referred to below:
"12.5% IRR" has the meaning given such term in Schedule 5.
Schedule 5 also defines when a 12.5% IRR has been achieved by TCW.
"100% QUARTER" means a Fiscal Quarter for which any of the
following applies:
(i) An Event of Default has occurred on or before the
Quarterly Payment Date thereof and has not been waived by the
Agent, Collateral Agent or the Noteholder;
(ii) Borrower is unable to make the Scheduled Minimum
Principal Payment; or
(iii) A Coverage Deficiency exists on the Quarterly
Payment Date.
During a 100% Quarter, 100% of ANCF shall be applied in the
order of the ANCF Hierarchy.
"A NOTE" has the meaning given in Section 2.1.
"ADDITIONAL INTEREST" has the meaning given in Section 2.8.
"ADJUSTED INVESTMENT" means the sum, at the time in question,
of:
(i) the then-outstanding principal amount of the Bank
Debt;
(ii) the then-outstanding principal amount of the
Notes;
(iii) any past due interest owing on the Notes or the
Bank Debt;
<PAGE> 5
(iv) any outstanding expenses or fees owed to Agent
Bank, Agent, Collateral Agent or Noteholder; and (v) if Working
Capital is a negative number, the absolute value of such Working
Capital.
"ADVANCE" has the meaning given in Section 2.1.
"AGENT" has the meaning given in Section 6.5.
"AGENT BANK" means ING (U.S.) Capital Corporation, as agent
under the Bank Credit Agreement, together with its successors and assigns in
such capacity.
"AGREEMENT" means this Amended and Restated Credit Agreement.
"ALLOWED BANK INDEBTEDNESS" has the meaning given in the
Intercreditor Agreement.
"APPROVAL LETTER" has the meaning given it in the
Intercreditor Agreement.
"APPROVED SALES OR FINANCINGS" has the meaning given in the
Intercreditor Agreement.
"B NOTE" has the meaning given in Section 2.1.
"BANK CREDIT AGREEMENT" means that certain Amended and
Restated Credit Agreement dated as of even date herewith among Borrower,
Parent, Agent Bank and the other financial institutions named therein from time
to time as lenders as the same may be amended, restated or supplemented from
time to time.
"BANK DEBT" means all Debt of Borrower, Parent or any
Subsidiary of Borrower or Parent owing under any Bank Document to Agent Bank or
Banks.
"BANK DOCUMENTS" mean, collectively, (a) the Bank Credit
Agreement, (b) all promissory notes made by Borrower evidencing the Bank Debt,
(c) the Bank Interest Hedge Agreement, (d) all security agreements, deeds of
trust, mortgages, chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements or
instruments now, heretofore, or hereafter delivered by Borrower or Parent in
connection with the Bank Credit Agreement and notes or any transaction
contemplated thereby to secure or guarantee the payment or performance of any
part of the obligations and duties of Borrower under such Loan Agreement and
notes, and (e) all other agreements, certificates, documents, instruments and
writings at any time delivered in connection with any of the foregoing.
"BANKS" means any lender from time to time a party to the
Bank Credit Agreement.
"BORROWER" means Inland Production Company, a Texas
corporation.
2
<PAGE> 6
"BUSINESS DAY" means a day, other than a Saturday or Sunday,
on which commercial banks are open for business with the public both in the
State of California and in the State of Colorado.
"CALCULATION QUARTER" has the meaning given in the
Intercreditor Agreement.
"COLLATERAL AGENT" has the meaning given in Section 6.5.
"COVERAGE DEFAULT" has the meaning given in Section 5.3.
"COVERAGE DEFICIENCY" has the meaning given in Section 5.3.
"COVERAGE RATIO" has the meaning given in Section 5.2.
"DEFAULT" means any Coverage Default, any Event of Default,
and any default, event or condition which would, with the giving of any
requisite notices and the passage of any requisite periods of time, constitute
an Event of Default.
"EVENT OF DEFAULT" has the meaning given in Section 7.1.
"HIGHEST LAWFUL RATE" means the maximum nonusurious rate of
interest that Noteholder is permitted under applicable law to contract for,
take, charge, or receive with respect to the Obligation in question.
"INLAND REFINING GUARANTY" means that certain Guaranty dated
as of September 23, 1997, made by Inland Refining for the benefit of
Noteholder, as the same has been or may be amended, supplemented, restated or
ratified from time to time.
"INITIAL AMORTIZATION DATE" means the earliest to occur of
the following: (i) December 31, 2003, the maturity date of the Allowed Bank
Indebtedness; (ii) the date on which all Allowed Bank Indebtedness has been
repaid; (iii) the date of any acceleration of any Allowed Bank Indebtedness;
and (iv) the date of any acceleration of the Obligations.
"INTERCREDITOR AGREEMENT" means that certain Amended and
Restated Intercreditor Agreement of even date herewith executed by Borrower,
Parent, Agent, Noteholder, Agent Bank, and the Banks, as the same may be
amended, supplemented, restated or ratified from time to time.
"LATE PAYMENT RATE" means, at the time in question, twelve
percent (12%) per annum, provided, however, that the Late Payment Rate shall in
no event exceed the Highest Lawful Rate.
"LEASE VALUE AMOUNT" has the meaning given in Section 5.2.
"LENDER" means the Noteholder.
"LOAN" has the meaning given in Section 2.1.
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<PAGE> 7
"LOAN DOCUMENTS" means this Agreement, the Note, the
Intercreditor Agreement, the Security Documents, the Warrant Documents, and all
other agreements, certificates, documents, instruments and writings at any time
delivered in connection herewith or therewith (exclusive of all term sheets,
commitment letters, correspondence and similar documents used in the
negotiation hereof, except to the extent the same contain information about
Borrower or its Affiliates, properties, business or prospects).
"LOAN DOCUMENT DISBURSEMENTS" shall have the meaning given in
Schedule 5.
"LOAN DOCUMENT PAYMENTS" shall have the meaning given in
Schedule 5.
"MATURITY DATE" means December 31, 2006.
"MAXIMUM LOAN AMOUNT" means $75,000,000.
"MODIFIED NPV" means, at the time in question, based on the
then most recent calculations of NPV, the sum of:
(a) the NPV of 90% to 100% (as chosen at such time by Agent
or Collateral Agent in its sole and absolute discretion) of any Proved
Developed Producing Reserves attributable to the Eligible Mortgaged Properties;
(b) the NPV of 80% to 90% (as chosen at such time by Agent or
Collateral Agent in its sole and absolute discretion) of any Proved Developed
Nonproducing Reserves attributable to the Eligible Mortgaged Properties;
(c) the NPV of 60% to 90% (as chosen at such time by Agent or
Collateral Agent in its sole and absolute discretion) of any Proved Undeveloped
Reserves attributable to the Eligible Mortgaged Properties;
provided, however, that:
(i) Modified NPV shall be zero for any such Proved
Developed Nonproducing Reserves or Proved Undeveloped Reserves if
(1) Borrower has not scheduled consistent with the Plan of
Development the capital expenditures necessary to bring such
reserves into production (as contemplated in such Engineering
Report) to be made at or prior to the time contemplated in such
Engineering Report, (2) such capital expenditures have not been
approved by means of an Approval Letter, (3) Noteholder does not
reasonably expect that Borrower will have funds available to make
such capital expenditures, or (4) Noteholder has not concurred
with the amount of such reserves as reflected in the Engineering
Report most recently given prior to the calculation of such
Modified NPV or the engineer in the Engineering Report has
determined that the investment of the scheduled development
expenditures to develop such reserves (i.e., to bring into
production) will not produce on a risked basis (i.e., to the same
extent as the particular reserves are risked in the calculation
of Modified NPV) a fifteen percent (15%) internal rate of return
per annum on such scheduled development expenditures.
4
<PAGE> 8
No category of reserves other than Proved Reserves shall be taken into account
in determining Modified NPV.
"MORTGAGE" means that certain Deed of Trust, Mortgage,
Assignment, Security Agreement, Fixture Filing and Financing Statement, dated
as of September 30, 1997 by Borrower in favor of Collateral Agent.
"NOTES" means, collectively, the A Note and the B Note.
"NOTEHOLDER" means Trustco, acting in its capacity as
Sub-Custodian for Mellon Bank for the benefit of Account No. CPFF 873-3032,
together with its successors and assigns as holder of any Note.
"NOTEHOLDER GOVERNING DOCUMENTS" has the meaning given in
Section 6.5.
"OBLIGATIONS" means the sum of (a) all Debt from time to time
owing by any of the Related Persons to Noteholder, Collateral Agent or Agent
under or pursuant to any of the Loan Documents, plus (b) all other Debt from
time to time owing by any of the Related Persons to any of Noteholder,
Collateral Agent, or Agent. "OBLIGATION" means any part of the Obligations.
"OTHER ALLOWED DEBT" means the Bank Debt.
"OTHER LOAN DOCUMENTS" means the Bank Documents.
"PARENT GUARANTY" means that certain Guaranty dated as of
September 30, 1997 by Parent for the benefit of Noteholder, as the same has
been or may be amended, supplemented, restated or ratified from time to time.
"PLAN OF DEVELOPMENT" or "POD" means the Plan of Development
as such is approved annually, beginning with the period from January 1, 1998 to
December 31, 1998, by Borrower, Agent and Agent Bank or is modified or replaced
from time to time by agreement among Borrower, Agent and Agent Bank. The first
such POD must be approved by December 1, 1997.
"PROBABLE RESERVES" means "Probable Reserves" as defined in
the Definitions for Oil and Gas Reserves promulgated by the Society of
Petroleum Engineers (or any generally recognized successor) as in effect at the
time in question.
"QUARTERLY PAYMENT" means that payment of principal to be
made on a Quarterly Payment Date pursuant to Section 2.5.
"REFINING MORTGAGE" that certain Deed of Trust, Mortgage,
Assignment, Security Agreement, Fixture Filing and Financing Statement, dated
as of May 29, 1998 by Inland Refining in favor of Collateral Agent and recorded
with the Davis County Recorder as Instrument No. 1408691, in Book 2299, Page
937.
5
<PAGE> 9
"REQUEST FOR ADVANCE" means a written request made by
Borrower which meets the requirements of Section -------- 2.3. ---
"REQUIRED LENDERS" means any one of Agent, Collateral Agent
or any Noteholder or Noteholders holding Notes evidencing 66 2/3% of the
outstanding amount of the Loan.
"SCHEDULED BANK PAYMENTS" has the meaning given in Section
2.6.
"SCHEDULED MINIMUM PRINCIPAL PAYMENT" has the meaning given
in Section 2.5.
"SECURITY DOCUMENTS" means the Mortgage, the Refining
Mortgage, the Parent Guaranty, the Inland Refining Guaranty, any other
instruments listed in the Security Schedule, and all other security agreements,
deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing
statements, continuation statements, extension agreements and other agreements
or instruments now, heretofore, or hereafter delivered by any Related Person to
Noteholder, Agent or Collateral Agent in connection with this Agreement or any
transaction contemplated hereby to secure or guarantee the payment of any part
of the Obligations or the performance of any Related Person's other duties and
obligations under the Loan Documents.
"SECURITY SCHEDULE" means Schedule 2 hereto.
"TAMCO" means TCW Asset Management Company, a California
corporation, provided that as used in Annexes A, B, C and D the term "Tamco"
shall mean Tamco in its capacity as Agent.
"TCW ENTITY" has the meaning given in Section 7.5.
"TRUSTCO" means Trust Company of the West, a California trust
company.
"UNEVALUATED PROPERTY" means any Property owned by Borrower
and located in the Uinta Basin that, at the time in question (a) is not
evaluated in the then most-recent Engineering Report (or supplemental
information) delivered to Noteholder as having Proved Reserves attributed
thereto, and (b) is not otherwise included, or reasonably anticipated to be
included, in the proration unit or drilling and spacing unit allocable to any
Property of Borrower that has been so evaluated as having Proved Reserves
attributed thereto; provided that no Property subject to Liens permitted under
Section C.19(c) of Annex C is to be included herein.
"WARRANT AGREEMENT" means that certain Warrant Agreement
dated as September 23, 1997 between Parent and Warrant Holder.
"WARRANT DOCUMENTS" means, collectively, the Warrant
Agreement and the Warrants.
"WARRANT HOLDER" means, initially, TCW Portfolio No. 1555 DR
V Sub-Custody Partnership, L.P., a California limited partnership, and any
other Person holding the Warrant.
6
<PAGE> 10
"WARRANTS" means that certain Warrant to purchase Common
Stock issued by Borrower to Noteholder on September 23, 1997, or any warrants
in substitution or replacement thereof.
"WORKING CAPITAL" has the meaning given in Section C.27 of
Annex C.
Section 1.2 Exhibits and Schedules; Additional Definitions.
All Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Certain additional terms may be defined in the Security Schedule and
used but not defined in the body of this Agreement; reference is hereby made to
the Security Schedule for the meaning of any such terms.
Section 1.3 Amendment of Defined Instruments. Unless the
context otherwise requires or unless otherwise provided herein the terms
defined in this Agreement which refer to a particular agreement, instrument or
document also refer to and include all renewals, ratifications, extensions,
modifications, amendments and restatements of such agreement, instrument or
document, provided that nothing contained in this section shall be construed to
authorize any such renewal, extension, modification, amendment or restatement.
Section 1.4 References and Titles. All references in this
Agreement to Exhibits, Schedules, Annexes, articles, sections, subsections and
other subdivisions refer to the Exhibits, Schedules, Annexes, articles,
sections, subsections and other subdivisions of this Agreement unless expressly
provided otherwise. Titles appearing at the beginning of any subdivisions are
for convenience only and do not constitute any part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
The words "this Agreement", "this instrument", "herein", "hereof", "hereby",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The phrases
"this section" and "this subsection" and similar phrases refer only to the
sections or subsections hereof in which such phrases occur. The word "or" is
not exclusive, and the word "including" (in its various forms) means "including
without limitation." Pronouns in masculine, feminine and neuter genders shall
be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5 Calculations and Determinations. All fees and
interest accruing under the Loan Documents shall be calculated on the basis of
actual days elapsed (including the first day but excluding the last) and a year
of 360 days. Unless otherwise expressly provided herein or unless Noteholder
otherwise consents all financial statements and reports furnished to Noteholder
hereunder shall be prepared and all financial computations and determinations
pursuant hereto shall be made in accordance with GAAP. Each matter to be
determined, consented or agreed to, or accepted by Noteholder, Agent or
Collateral Agent under the Loan Documents (such as the determination of
Modified NPV) shall be made by Noteholder, Agent or Collateral Agent in its
sole and absolute discretion, unless the applicable provision expressly states
that the determination, consent, agreement or acceptance by Noteholder, Agent
or Collateral Agent is to be made in compliance with some express restriction
on Noteholder's, Agent's, or Collateral Agent's discretion (for example, if
Noteholder's consent to a particular matter is required "not to be unreasonably
withheld").
7
<PAGE> 11
ARTICLE II
THE LOAN
Section 2.1 Advance; Interest. Subject to the terms and
conditions hereof, Noteholder has made one advance to Borrower (the "ADVANCE")
in the amount of the Maximum Loan Amount. The obligation of Borrower to repay
the aggregate amount of the Advance made by Noteholder (the "LOAN"), together
with interest accruing in connection therewith, is evidenced by (i) that
certain Promissory Note, dated September 23, 1997 by Borrower as Maker made
payable to the order of Noteholder in the original principal amount of
$65,000,000 (the "A NOTE") and (ii) that certain Promissory Note dated
September 23, 1997 by Borrower as Maker made payable to the order of Noteholder
in the original principal amount of $10,000,000 (the "B NOTE"). Amounts
borrowed and repaid on the Notes may not be reborrowed hereunder. Subject to
the terms hereof and of the Notes, the unpaid principal of the Notes (exclusive
of any past due principal or interest) from time to time outstanding shall bear
interest on each day outstanding at the rate of nine and three quarters percent
(9.75%) per annum, payable quarterly on each Quarterly Payment Date, calculated
as of the last day of the Fiscal Quarter then ending. All principal and
interest owed under the Notes and which has not been paid when due shall bear
interest on each day outstanding at the Late Payment Rate in effect on such
day, and such interest shall be due and payable daily as it accrues.
Section 2.2 [INTENTIONALLY OMITTED].
Section 2.3 Use of Proceeds. Borrower shall use or shall have
used the funds from the Advance to (i) purchase of certain Utah oil and gas
properties from Equitable Resources Energy Company and to pay its costs related
to such acquisition; (ii) to provide Borrower working capital (or to pay down
the Bank Debt); and (iii) to pay the costs and expenses related to the Bank
Debt and the Loan. In no event shall the funds from any Advance be used
directly or indirectly by any Person for personal, family, household or
agricultural purposes or for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" or any
"margin securities" (as such terms are defined respectively in Regulation U and
Regulation G promulgated by the Board of Governors of the Federal Reserve
System) or to extend credit to others directly or indirectly for the purpose of
purchasing or carrying any such margin stock or margin securities. Borrower
represents and warrants to Noteholder that Borrower is not engaged principally,
or as one of Borrower's important activities, in the business of extending
credit to others for the purpose of purchasing or carrying such margin stock or
margin securities.
Section 2.4 Funding Fees. On the date on which the Advance
was made, Borrower paid to Noteholder a funding fee in an amount equal to three
percent (3%) of the amount of the Advance.
Section 2.5 Principal Payments.
(a) The outstanding principal balance of the Notes shall be
due and payable in full on the Maturity Date.
8
<PAGE> 12
(b) On each Quarterly Payment Date, beginning with the first
Quarterly Payment Date after the Initial Amortization Date and continuing until
the Maturity Date, Borrower will make a payment of principal on account of the
outstanding principal balance of the Loan in an amount equal to the greater of:
(i) ninety percent (90%) of ANCF (less the interest payments made on the Notes
on such Quarterly Payment Date pursuant to Section 2.1 hereof); or (ii) in the
amount (the "SCHEDULED MINIMUM PRINCIPAL PAYMENT") set forth below in the
following table opposite the applicable Quarterly Payment number:
<TABLE>
<CAPTION>
Quarterly Payment Scheduled Minimum
Number Principal Payment
------ -----------------
<S> <C>
1-4 $6,250,000
5-8 $8,750,000
9-12 $3,750,000
</TABLE>
Section 2.6 Principal Payments from ANCF.
(a) Schedule 4 sets forth the amounts and dates for payment
of all principal payments of Allowed Bank Indebtedness which are required under
the Bank Documents (the "SCHEDULED BANK PAYMENTS"). All parties hereto
acknowledge and agree that, on or before the Quarterly Payment Date following
each Calculation Quarter, all ANCF with respect to such Calculation Quarter
(and any proceeds from Approved Sales or Financings which are used to pay Bank
Debt or the Obligations) shall be applied in the order of the ANCF Hierarchy as
set forth in Section 3 of the Intercreditor Agreement.
(b) Together with each payment made pursuant to this Section
2.6, Borrower shall deliver to Noteholder a report in detail acceptable to
Noteholder setting out a detailed calculation of the ANCF for such Calculation
Quarter. Any principal payments made out of ANCF pursuant to this Section 2.6
will be applied toward the minimum principal payments required under Section
2.5 on the applicable Quarterly Payment Date, but the minimum principal
payments required under Section 2.5 will be required regardless of the amount
of the payments based on ANCF which are required under this Section 2.6 .
(c) So long as no Event of Default has occurred and is then
continuing, Noteholder shall first apply all principal payments on the Loan
made pursuant to the preceding subsection (b) to the payment of any minimum
principal payment then required under Section 2.5 and shall then apply any
remaining payments made pursuant to this Section to the prepayment, without
premium or penalty, of the principal payments thereafter required under Section
2.5 in the inverse order of their maturity.
(d) If any Event of Default has occurred and is continuing,
and if no Bank Debt is then outstanding, then Noteholder may in its sole and
absolute discretion apply the ANCF as it elects to the various Obligations
which are then due and payable.
Section 2.7 Optional Prepayments in Whole. In addition to the
payments required under Sections 2.5 and 2.6, Borrower may, at any time after
October 1, 1999 and after
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<PAGE> 13
Borrower has given at least forty-five (45) days advance notice to Noteholder,
from time to time and without premium or penalty prepay the Notes, in whole but
not in part. Any prepayment of principal made under this Section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Prior to October 1, 1999, Borrower may not prepay any principal of the
Notes without the prior written consent of the Required Lenders, which consent
may be given or withheld in their sole and absolute discretion.
Section 2.8 Additional Interest. Concurrently with the final
payment of all principal and interest on the A Note (whether at its stated
maturity date, as a result of mandatory or optional prepayments, or otherwise)
or, if earlier, upon the acceleration of the A Note, Noteholder shall be
entitled to receive additional payment (the "ADDITIONAL Interest") in cash in
the amount required to give Noteholder a 12.5% IRR on the entire amount of the
Loan Document Disbursements with respect to the A Note, and Borrower shall be
obligated to pay the Additional Interest (it being understood and agreed that
the Additional Interest is in addition to the principal and stated interest
owing on the Loan, represents deferred compensation for the making and
commitment to make the Loan, and in no way constitutes a penalty).
Section 2.9 General Payment Provisions. Borrower will make
each payment which it owes under the Loan Documents such that payment is
received by Noteholder no later than 11:00 a.m., Boston, Massachusetts time, on
the date such payment becomes due and payable, in lawful money of the United
States of America, without set-off, deduction or counterclaim, and in
immediately available funds sent by wire transfer in care of:
Boston Safe Deposit
ABA No. 011001234
Real Estate Wiring No. 039624
Cost Center No. 3137
Re: Mellon Bank / Morgan Stanley / Fund V /Inland
Account No. CPFF 873-3032
(or to such other bank and accounts as Noteholder may from time to time
specify). Any payment received by Noteholder after such time will be deemed to
have been made on the next following Business Day. Should any such payment
become due and payable on a day other than a Business Day, the maturity of such
payment shall be extended to the next succeeding Business Day, and, in the case
of a payment of principal or past due interest, interest shall accrue and be
payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due. Each payment under a Loan Document
shall be due and payable at the place provided therein and, if no specific
place of payment is provided, shall be due and payable at the place of payment
of the Note. When Noteholder collects or receives money on account of the
Obligations which is insufficient to pay all Obligations then due and payable,
Noteholder may apply such money as it elects to the various Obligations which
are then due and payable.
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<PAGE> 14
ARTICLE III
CONDITIONS PRECEDENT TO LENDING
Section 3.1 [INTENTIONALLY OMITTED].
Section 3.2 [INTENTIONALLY OMITTED].
Section 3.3 [INTENTIONALLY OMITTED].
Section 3.4 Conditions Precedent for Additional Bank Loan
Advances. Borrower shall be permitted to obtain additional advances under the
Bank Credit Agreement only if:
(a) no Coverage Deficiency or Default exists or would exist
upon the making of the advance;
(b) such advances are used to develop Eligible Proved
Properties pursuant to the Plan of Development, or to provide financing to
Inland Refining in an aggregate amount not to exceed an amount set forth in
Section C.18(g) below pursuant to the Production/Refining Credit Agreement and
Section 2.4 of the Bank Credit Agreement;
(c) such advance amounts, in the aggregate with the initial
advance, do not exceed the maximum amount of the Allowed Bank Indebtedness; and
(d) Borrower has provided Noteholder with a Notice of Bank
Advance in the form of Exhibit C attached hereto at least one day before
delivered to the Agent Bank, and all representations and warranties made by
Borrower in such Notice of Bank Advance shall be true in all material respects
on and as of the date of such Notice of Bank Advance and as of the date such
advance is to be made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Borrower's and Parent's Representations and
Warranties. To confirm Noteholder's understanding concerning Borrower, Parent
and their business, properties and obligations and to induce Noteholder to
enter into this Agreement and to make the Loan, Borrower and Parent each
represent and warrant to Noteholder that each of the statements in Annex B is
true and correct in all respects.
Section 4.2 Representation and Disclosures by Noteholder.
Noteholder hereby represents that Noteholder will acquire the Note for its own
account in the ordinary course of its business; however, the disposition of
Noteholder's property shall at all times be and remain within its control and,
in particular and without limitation, Noteholder may sell or otherwise transfer
the Note, any participation interest or other interest in the Note, or any of
its other rights and obligations under the Loan Documents.
ARTICLE V
COVENANTS OF BORROWER
Section 5.1 Covenants. To conform with the terms and
conditions under which Noteholder is willing to have credit outstanding to
Borrower, and to induce Noteholder to
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<PAGE> 15
enter into this Agreement and make the Loan, Parent and Borrower each warrant,
covenant and agree that, until the full and final payment of the Obligations
and the termination of this Agreement, unless Noteholder has previously agreed
otherwise:
(a) Payment and Performance. Borrower will pay all amounts
due under the Loan Documents in accordance with the terms thereof and will
observe, perform and comply with every covenant, term and condition expressed
or implied in the Loan Documents. Borrower and Parent will cause each other
Related Person to observe, perform and comply with every such term, covenant
and condition which is applicable to such Related Person.
(b) Payment of Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, Borrower will promptly (and in
any event, within 30 days after any invoice or other statement or notice) pay
(A) Agent's and Collateral Agent's direct out-of-pocket expenses in the amount
of $25,000 and (B) all third-party costs and expenses incurred by or on behalf
of Noteholder, Agent or Collateral Agent (including reasonable attorneys' fees)
in connection with (i) the negotiation, preparation, execution and delivery of
the Loan Documents, and any and all consents, waivers or other documents or
instruments relating thereto, (ii) the filing, recording, refiling and
re-recording of any Loan Documents and any other documents or instruments or
further assurances required to be filed or recorded or refiled or re-recorded
by the terms of any Loan Document, (iii) the borrowings hereunder and other
action reasonably required in the course of administration of the various Loan
Documents, (iv) the defense or enforcement of the Loan Documents or the defense
of Noteholder's or Collateral Agent's exercise of their rights thereunder, (v)
the reviews contemplated by Section C.16 of Annex C, and (vi) a semi-annual
audit by Noteholder, Agent or Collateral Agent of the Related Persons' books
and records.
(c) Engineering Reports. Borrower will pay all costs and
expenses relating to all Engineering Reports.
(d) Board Visitation Rights. Noteholder shall have the right
to appoint two (2) representatives, and such representatives shall: (i) receive
all notice of all meetings (both regular and special) of the respective board
of directors of Borrower and Parent and copies of all unanimous consents
presented to the directors or such board; (ii) be entitled to attend (or, in
the case of telephone meetings, monitor) all such meetings; and (iii) receive
as soon as available (but in any event not later than thirty (30) days after
such meetings) copies of the minutes of all such meetings. If either such board
proposes to take any action by written consent in lieu of a meeting, Borrower
will give written notice to such representatives, which notice shall describe
in reasonable detail the nature and substance of such proposed action. Borrower
will furnish such representatives with a copy of each such written consent not
later than five (5) days after execution. Such representatives shall not be
members of either board and shall not be entitled to vote on any matters
presented at such meetings of the boards or to consent to any matters as to
which the consent of such board has been requested, but shall be entitled to
receive reimbursement for expenses equivalent to that provided members of the
board(s).
(e) Additional Guaranties. Any Subsidiary formed after the
date hereof will execute a Guaranty for the benefit of Noteholder in the form
of the Inland Refining Guaranty.
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(f) Annex C. All of the covenants contained in Annex C will
be observed.
Section 5.2 Coverage Ratio.
(a) On and after July 1, 1998, Borrower shall maintain a
Coverage Ratio (as defined in subsection (b) below) of at least 150% at all
times while any of the Obligations under the Loan Documents remain outstanding.
A Coverage Ratio of 125% or less at any time is herein called a "COVERAGE
DEFAULT", and a Coverage Ratio of more than 125% but less than 150% at any time
is herein called a "COVERAGE DEFICIENCY". If any Coverage Default exists,
Borrower must (or if any Coverage Deficiency exists, Borrower may in its
discretion in order to avoid a 100% Quarter), within thirty (30) days after
obtaining knowledge thereof, cure such Coverage Default (or Coverage
Deficiency), either by furnishing and mortgaging additional engineered
producing oil and gas properties satisfactory to Noteholder in order to
increase Modified NPV or by making payments in order to reduce the Adjusted
Investment; provided that Borrower may not cure more than two (2) Coverage
Defaults by mortgaging additional engineered producing oil and gas properties.
(b) As used in this section, "COVERAGE RATIO" means at any
time in question the quotient obtained by dividing:
(i) the sum of (A) 100% of the Modified NPV as
determined from the Engineering Report most recently prepared as
of such time in question, (B) the Lease Value Amount (as defined
below) and (C) Working Capital,
(ii) by the "ADJUSTED INVESTMENT" at such time.
For purposes of this Section 5.2, the term "LEASE VALUE AMOUNT" means (a) until
July 1, 1998, the working interest of Borrower in each Unevaluated Property
multiplied by $250 per acre, (b) during the period beginning July 1, 1998 and
ending on June 30, 1999, the working interest of Borrower in each Unevaluated
Property multiplied by $150 per acre, (c) during the period beginning July 1,
1999 and ending on June 30, 2000, the working interest of Borrower in each
Unevaluated Property multiplied by $50 per acre, and (d) at all times after
June 30, 2000, zero.
ARTICLE VI
SECURITY
Section 6.1 The Security. The Obligations will be secured by
the Security Documents listed in the Security Schedule and by any additional
Security Documents hereafter delivered by any Related Person and accepted by
Collateral Agent.
Section 6.2 Agreement to Deliver Security Documents. Parent
and Borrower agree to deliver to further secure the Obligations whenever
requested by Collateral Agent in its sole and absolute discretion, deeds of
trust, mortgages, chattel mortgages, security agreements, financing statements
and other Security Documents in form and substance satisfactory to Collateral
Agent for the purpose of granting, confirming, and perfecting first and prior
liens or security interests in any real or personal property of Borrower or
Parent, except Liens permitted under Section C.19 of Annex C. Borrower also
agrees to deliver, whenever requested by
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Collateral Agent in its sole and absolute discretion, favorable title opinions
from legal counsel acceptable to Collateral Agent with respect to Properties
designated by Collateral Agent, based upon abstract or record examinations to
dates acceptable to Collateral Agent and (a) stating that Borrower or Parent
has good and defensible title thereto, free and clear of all Liens other than
Permitted Liens, (b) confirming that such properties and interests are subject
to Security Documents, subject to the provisions of the Bank Documents and
Intercreditor Agreement, securing the Obligations that constitute and create
legal, valid and duly perfected first deed of trust or mortgage liens in such
properties and interests and first priority assignments of and security
interests in the oil and gas attributable thereto and in the proceeds thereof,
and (c) covering such other matters as Collateral Agent may request.
Section 6.3 Perfection and Protection of Security Interests
and Liens. Borrower and Parent will from time to time deliver to Collateral
Agent any financing statements, continuation statements, extension agreements
and other documents, properly completed and executed (and acknowledged when
required) in form and substance satisfactory to Collateral Agent, which
Collateral Agent requests for the purpose of perfecting, confirming, or
protecting any Liens or other rights in Collateral securing any Obligations.
Section 6.4 Production Proceeds. Notwithstanding that, by the
terms of the Mortgage, Borrower and Parent are or will be assigning to
Collateral Agent all of the "Production Proceeds" (as defined therein) accruing
to the property covered thereby, so long as no Default has occurred Borrower
and Parent may continue to receive from the purchasers of production all such
Production Proceeds, subject, however, to the Liens created under the Security
Documents, which Liens are hereby affirmed and ratified. Upon the occurrence of
a Default, Collateral Agent may exercise all rights and remedies granted under
the Security Documents, subject to the provisions of the Bank Documents and
Intercreditor Agreement, including the right to obtain possession of all
Production Proceeds then held by Borrower or Parent and to receive directly
from the purchasers of production all other Production Proceeds. In no case
shall any failure, whether purposed or inadvertent, by Collateral Agent to
collect directly any such Production Proceeds constitute in any way a waiver,
remission or release of any of its rights under the Security Documents, nor
shall any release of any Production Proceeds by Collateral Agent to Borrower or
Parent constitute a waiver, remission, or release of any other Production
Proceeds or of any rights of Collateral Agent to collect other Production
Proceeds thereafter.
Section 6.5 Appointment of Agent and Collateral Agent.
(a) Agent. Noteholder hereby appoints Tamco as agent
(together with its successors in such capacity herein called "AGENT") to act
for and on behalf of Noteholder under or pursuant to this Agreement and the
other Loan Documents, and Tamco hereby accepts such appointment. Agent is
authorized to act on behalf of Noteholder in (i) exercising rights and remedies
with respect to Collateral (which may be delegated to Collateral Agent) or with
respect to any other matter under any of the Loan Documents, (ii) giving
notices or instructions to Borrower, (iii) receiving information from or
notices by Borrower, and (iv) communicating to Borrower determinations required
or permitted to be made under this Agreement or any other Loan Document. Agent
may, on behalf of Noteholder, take any other action which Noteholder is
entitled to take hereunder or under any of the Loan Documents. Borrower and
Parent may rely
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on any action of Agent as binding upon Noteholder. Such appointment of Tamco as
Agent shall not, however, impair or modify any rights, obligations or duties
which Tamco or any Affiliate of Tamco otherwise has with respect to Noteholder.
In its administration of this Agreement and the other Loan Documents, except to
the extent to which another standard applies to Tamco by reason of any other
document between Tamco and Noteholder, Agent will exercise the same care that
it exercises in the administration or handling of transactions for its own
account, subject, however, to subsection (g) below.
(b) Collateral Agent. Noteholder hereby appoints Tamco as
collateral agent (herein, together with its successors and assigns in such
capacity, "COLLATERAL AGENT") under the Loan Documents, to exercise such powers
under the Loan Documents as are delegated to Collateral Agent by the terms
thereof, together with all such powers as are reasonably incidental thereto,
including taking, holding and disposing of the Collateral. Tamco hereby accepts
such appointment. Collateral Agent shall act for and on behalf of Noteholder in
connection with all Collateral and all Security Documents, including serving as
mortgagee under each Mortgage and exercising rights and remedies provided
thereunder. Borrower and Parent may rely on any action of Collateral Agent as
binding upon Noteholder. The Mortgage contemplates that Collateral Agent may
release Collateral in accordance with the terms thereof and Collateral Agent is
hereby authorized to do so if it has received the prior consent of Noteholder,
it being understood that Noteholder itself need not be a party to any such
release. In its administration of this Agreement and the other Loan Documents,
except to the extent to which another standard applies to Tamco by reason of
any other document between Tamco and Noteholder, Collateral Agent will exercise
the same care that it exercises in the administration or handling of
transactions for its own account, subject, however, to subsection (g) below.
(c) Limitation of Duties and Fiduciary Relationship. Neither
Agent nor Collateral Agent shall have any duties or responsibilities, except
those expressly set forth in:
(i) this Agreement;
(ii) the other Loan Documents; and
(iii) the other documents entered into between any of
Trustco, Tamco, Mellon Bank and Morgan Stanley Group, Inc. to
establish their relationship with respect to the funds invested
by Noteholder (in this section called the "NOTEHOLDER GOVERNING
DOCUMENTS").
nor shall Agent or Collateral Agent have any additional fiduciary relationship
with Noteholder arising under this section, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or the other Loan Documents against Agent or Collateral
Agent.
(d) Written Directions. Agent or Collateral Agent may at any
time request written directions from Noteholder with respect to (i) any
interpretation of this Agreement, the Note and the other Loan Documents, or
(ii) any action to be taken or not to be taken hereunder or thereunder, and may
withhold any action until such directions have been received from the
Noteholder. Agent and Collateral Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement in accordance with a
direction of Noteholder under the terms of this Agreement.
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(e) Agents and Attorneys. Each of Agent and Collateral Agent
may execute any of its respective duties under this Agreement, the Note and the
other Loan Documents by or through agents or attorneys selected by Agent or
Collateral Agent, respectively, using reasonable care. Neither Agent nor
Collateral Agent shall be responsible to Noteholder for the negligence or
misconduct of any agents or attorneys so selected. Agent and Collateral Agent
shall be entitled to the advice of counsel concerning all matters pertaining to
their respective duties hereunder.
(f) Limitation of Liability. Agent, Collateral Agent, and
their respective officers, directors, employees, agents, attorneys-in-fact and
affiliates shall not:
(i) be liable to Noteholder for any action taken or
omitted to be taken by any of such Persons or for any error in
judgment under or in connection with this Agreement, the Notes or
any other Loan Documents, except for any such Person's gross
negligence or willful misconduct; or
(ii) be responsible in any manner to Noteholder or any
other Person for any failure of any other party to perform its
obligations under this Agreement, the Note or any other Loan
Document.
Nothing in this subsection, however, shall be deemed to limit or restrict any
liability, fiduciary duty or responsibility of Tamco in any capacity other than
as Agent or Collateral Agent, respectively, including any liability, fiduciary
duty or responsibility under the Noteholder Governing Documents.
(g) Reliance upon Documentation. Each of Agent and Collateral
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or any telephone conversation believed, respectively, by Agent
or Collateral Agent to be genuine and correct and to have been signed, sent,
made or spoken by the proper person or persons, and upon the advice and
statements of legal counsel, independent accountants and other experts
selected, respectively, by Agent or Collateral Agent.
(h) Reliance by Borrower and Parent. Noteholder agrees that,
prior to the delivery to Borrower or Parent of a notice of the removal or
termination of Tamco as Agent as set forth below, Borrower and Parent shall be
entitled to rely on Tamco's or any subsequent Agent's authority to act on
behalf of Noteholder in all dealings with Tamco (or any such subsequent Agent)
with respect to the Loan and the Loan Documents; Borrower and Parent shall be
protected in relying on actions, communications, notices and terminations
relating thereto or required or permitted thereunder by Agent; and Borrower and
Parent shall discharge their respective obligations under this Agreement and
the Loan Documents by delivering payments, notices and other information to
Agent. In the event of the removal of Agent and the appointment of a successor
Agent by Noteholder, Borrower and Parent shall not be required to recognize any
such removal or appointment unless and until Borrower and Parent shall have
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received a writing setting forth such removal and appointment executed by
Noteholder, and Borrower and Parent shall be entitled to rely on such writing
as being genuine and what it purports to be without any necessity of any
investigation whatsoever. Noteholder similarly agrees that, prior to the
delivery to Borrower and Parent of a notice of the removal or termination of
Tamco as Collateral Agent as set forth below, Borrower and Parent shall be
entitled to rely on Tamco's or any subsequent Collateral Agent's authority to
act on behalf of Noteholder in all dealings with Tamco (or any such subsequent
Collateral Agent) with respect to the Loan and the Loan Documents; and Borrower
and Parent shall be protected in relying on actions, communications, notices
and terminations relating thereto or required or permitted thereunder by
Collateral Agent. In the event of the removal of Collateral Agent and the
appointment of a successor Collateral Agent by Noteholder, Borrower and Parent
shall not be required to recognize any such removal or appointment unless and
until Borrower and Parent shall have received a writing setting forth such
removal and appointment executed by Noteholder, and Borrower and Parent shall
be entitled to rely on such writing as being genuine and what it purports to be
without any necessity of any investigation whatsoever.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default.
(a) Each of the following events constitutes an Event of
Default under this Agreement:
(i) Any event listed on Annex D attached hereto.
(ii) Any Material Adverse Change occurs in Borrower's
individual (or Parent's Consolidated) financial condition,
assets, business or operations and such adverse change is not
remedied within sixty (60) days thereafter.
(iii) The occurrence of (A) a total of three (3) 100%
Quarters within a five (5) consecutive Calendar Quarter period,
or (B) a total of four (4) 100% Quarters prior to repayment in
full of the Obligations; and
(iv) The occurrence of a Coverage Default which is not
cured within thirty (30) days as provided in Section 5.2(a).
(b) Upon the occurrence of an Event of Default described in
Section D.10 (a), (b) or (c) of Annex D with respect to Borrower or the
acceleration of the Other Allowed Debt under the Other Loan Documents, all of
the Obligations shall thereupon be immediately due and
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payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of
any kind, all of which are hereby expressly waived by Borrower and each Related
Person who at any time ratifies or approves this Agreement. During the
continuance of any other Event of Default, Noteholder at any time and from time
to time may without notice to Borrower or any other Related Person declare any
or all of the Obligations immediately due and payable, and all such Obligations
shall thereupon be immediately due and payable, without demand, presentment,
notice of demand or of dishonor and nonpayment, protest, notice of protest,
notice of intention to accelerate, declaration or notice of acceleration, or
any other notice or declaration of any kind, all of which are hereby expressly
waived by Borrower and each Related Person who at any time ratifies or approves
this Agreement. After any such acceleration (whether automatic or due to
declaration by Noteholder), any obligation of Noteholder to make any further
loans of any kind under any agreement with Borrower shall be permanently
terminated.
Section 7.2 Remedies. If any Default shall occur and be
continuing, Noteholder may protect and enforce its rights under the Loan
Documents by any appropriate proceedings, including proceedings for specific
performance of any covenant or agreement contained in any Loan Document, and
Noteholder may enforce the payment of any Obligations due or enforce any other
legal or equitable right. All rights, remedies and powers conferred upon
Noteholder, Agent or Collateral Agent under the Loan Documents shall be deemed
cumulative and not exclusive of any other rights, remedies or powers available
under the Loan Documents or at law or in equity.
Section 7.3 Indemnity. Borrower and Parent jointly and
severally agree to indemnify each TCW Entity, upon demand, from and against any
and all liabilities, obligations, claims, losses, damages, penalties, fines,
actions, judgments, suits, settlements, costs, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this section collectively called "LIABILITIES
AND COSTS") which to any extent (in whole or in part) may be imposed on,
incurred by, or asserted against such TCW Entity growing out of, resulting from
or in any other way associated with any of the Collateral, the Loan Documents,
or the transactions and events (including the enforcement or defense thereof)
at any time associated therewith or contemplated therein (including any
violation or noncompliance with any Environmental Laws by any Related Person or
any liabilities or duties of any Related Person or of any TCW Entity with
respect to Hazardous Materials found in or released into the environment). In
furtherance thereof, Borrower and Parent also agree to indemnify each TCW
Entity, upon demand, from and against any all liabilities and costs arising
from their failure to approve the acquisition of the Crysen Refinery and other
related assets located in Woods Cross, Utah.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART,
UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR ARE IN ANY EXTENT CAUSED, IN
WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY TCW
ENTITY,
provided only that no TCW Entity shall be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and costs
which (a) is proximately caused by its own individual gross negligence or
willful misconduct, as determined in a final judgment, or by its own individual
actions with respect to Collateral in its possession, or (b) is owed by it to
Noteholder as a result of such TCW Entity's breach of a duty owed by it to
Noteholder, but only to the extent proximately caused by such breach. As used
in this section the term "TCW ENTITY" refers to each of Noteholder, Agent,
Collateral Agent, Trustco, Tamco, and each director, officer, agent, trustee,
manager, attorney, employee, representative and Affiliate of any such Person.
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Section 7.4 Substitution of Operator. During the continuance
of any Event of Default, Collateral Agent shall (in addition to all of its
other remedies) have the right, exercisable in its sole and absolute
discretion, to demand in writing that Borrower resign as the operator (whether
under an applicable joint operating agreement, in the records of any applicable
regulatory authority, or otherwise) of all or any of the Properties
constituting Collateral. Upon receiving such written demand (in this section
called a "RESIGNATION DEMAND") from Collateral Agent, Borrower shall
immediately take whatever actions are legally available to it in order to
facilitate the succession of a reputable third party, chosen by Collateral
Agent in its sole and absolute discretion, to the position as operator of any
property or group of properties included in the Properties constituting
Collateral and covered by the subject Resignation Demand. Without limitation of
the generality of the foregoing:
(a) In the event Borrower owns one hundred percent (100%) of
the working interest in a Property or group of properties covered by a
Resignation Demand, Borrower shall immediately turn over operation of such
Property or group of Properties to the successor operator chosen by Collateral
Agent, and shall further execute or cause to be executed and filed with the
appropriate regulatory authorities any such instruments as may be requested by
Collateral Agent in order to document or effect such succession.
(b) In the event Borrower owns less than 100% of the working
interest in a Property or group of Properties covered by a Resignation Demand,
Borrower shall:
(i) notify any nonoperators of its resignation, such
notification to be made in writing and otherwise made in
accordance with the provisions of any applicable joint operating
agreement or similar agreement;
(ii) take whatever action is legally available to it in
order to expedite the effective time that a successor operator
shall assume Borrower's duties as operator (by way of example and
not by way of limitation, Borrower shall facilitate the election
and succession of a new operator without waiting for any
applicable grace period to expire under the operative joint
operating agreement or similar agreement); and
(iii) cast its vote under the applicable joint
operating agreement or similar agreement successor operator
chosen by Collateral Agent, and such vote shall be cast by
Borrower for the successor chosen by Collateral Agent both on an
interim basis (if called for under the applicable joint operating
agreement or similar agreement) and on a permanent basis.
ARTICLE VIII
RIGHT OF FIRST REFUSAL
Section 8.1 Right of First Refusal. Noteholder and Parent
hereby agree that Noteholder or its designee or assignee shall have an ongoing
right of first refusal to purchase shares of the next issue or issues of
preferred stock issued by Parent the proceeds of which, in the aggregate, shall
not be less than $15,000,000 (the "PREFERRED SHARES"). Parent shall notify
Agent in writing (the "FIRST REFUSAL NOTICE") in the event Parent receives a
bona fide offer from a third party to purchase the Preferred Shares. For a
period of fifteen (15) days following
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Agent's receipt of the First Refusal Notice (the "ELECTION PERIOD"), Agent
shall have the right to inform Parent in writing (the "ACCEPTABLE NOTICE") that
Noteholder or its designee or assignee desires to purchase the Preferred Shares
on the same basic terms and conditions set forth in the First Refusal Notice.
In the event that Agent delivers an Acceptance Notice prior to the termination
of the Election Period, Parent shall sell the Preferred Shares to Noteholder or
its designee or assignee on the same terms and conditions set forth in the
First Refusal Notice on or prior to the date which is forty-five (45) days
after Parent's receipt of the Approval Notice. If Agent fails to deliver
written notice of Noteholder's or its designee's or assignee's election to
purchase the Preferred Shares prior to the termination of the Election Period,
Parent shall be entitled to sell such Preferred Shares to such third party on
or prior to the date which is forty-five (45) days after the last day of the
Election Period in accordance with the terms and conditions set forth in the
First Refusal Notice. If Parent fails to consummate a sale with such third
party within such forty-five (45) day period, or in the event Parent desires to
sell the Preferred Shares to such third party on terms differing from those set
forth in the First Refusal Notice, the Preferred Shares shall again become
subject to the right of first refusal as set forth in this Article VIII.
Noteholder and Parent hereby agree that upon issuance by Parent of at least
$15,000,000 of preferred stock or other equity securities or the consummation
of farmout transactions which in either case would satisfy all of Parent's
obligations under Section C.42 in accordance with the terms thereof, the right
of first refusal set forth in this Section 8.1 shall terminate and have no
further force or effect.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Waivers and Amendments; Acknowledgments.
(a) Waivers and Amendments. No failure or delay (whether by
course of conduct or otherwise) by Noteholder, Agent or Collateral Agent in
exercising any right, power or remedy which either may have under any of the
Loan Documents shall operate as a waiver thereof or of any other right, power
or remedy, nor shall any single or partial exercise by Noteholder, Agent or
Collateral Agent of any such right, power or remedy preclude any other or
further exercise thereof or of any other right, power or remedy. No waiver of
any provision of any Loan Document and no consent to any departure therefrom
shall ever be effective unless it is in writing and signed by Noteholder, Agent
or Collateral Agent, and then such waiver or consent shall be effective only in
the specific instances and for the purposes for which given and to the extent
specified in such writing. No notice to or demand on any Related Person shall
in any case of itself entitle any Related Person to any other or further notice
or demand in similar or other circumstances. This Agreement and the other Loan
Documents set forth the entire understanding and agreement of the parties
hereto and thereto with respect to the transactions contemplated herein and
therein and supersede all prior discussions and understandings with respect to
the subject matter hereof and thereof, and no modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be valid or
effective unless the same is in writing and signed by the party against whom it
is sought to be enforced.
(b) Acknowledgements and Admissions. Borrower and Parent each
hereby represent, warrant, acknowledge and admit that (i) it has been advised
by counsel in the
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negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement
and the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Noteholder, Agent, or
Collateral Agent whether written, oral or implicit, other than as expressly set
out in this Agreement or in another Loan Document delivered on or after the
date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by Noteholder, Agent, or Collateral Agent as to the
Loan Documents except as expressly set out in this Agreement or in another Loan
Document delivered on or after the date hereof, (iv) neither Noteholder nor
Agent nor Collateral Agent owes any fiduciary duty to Borrower or Parent with
respect to any Loan Document or the transactions contemplated thereby, (v) the
relationship pursuant to the Loan Documents between Borrower, on one hand, and
Noteholder, Agent and Collateral Agent, on the other hand, is and shall be
solely that of debtor and creditor, respectively, (vi) no partnership or joint
venture exists with respect to the Loan Documents between either of Borrower or
Parent and any of Noteholder, Agent, or Collateral Agent, (vii) should an Event
of Default or Default occur or exist each of Noteholder, Agent and Collateral
Agent will determine in its sole and absolute discretion and for its own
reasons what remedies and actions it will or will not exercise or take at that
time, (viii) without limiting any of the foregoing, neither Borrower nor Parent
is relying upon any representation or covenant by Noteholder, Agent, Collateral
Agent, or any representative thereof, and no such representation or covenant
has been made, that Noteholder, Agent, or Collateral Agent will, at the time of
an Event of Default or Default, or at any other time, waive, negotiate,
discuss, or take or refrain from taking any action permitted under the Loan
Documents with respect to any such Event of Default or Default or any other
provision of the Loan Documents, and (ix) Noteholder has relied upon the
truthfulness of the acknowledgements in this section in deciding to execute and
deliver this Agreement and to make the Loan.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 9.2 Survival of Agreements; Cumulative Nature. All of
the various representations, warranties, covenants and agreements in the Loan
Documents shall survive the execution and delivery of this Agreement and the
other Loan Documents and the performance hereof and thereof, including the
making or granting of the Loan and the delivery of the Notes and the other Loan
Documents, and shall further survive until all of the Obligations are paid in
full to Noteholder, Agent and Collateral Agent and all of Noteholder's
obligations to Borrower are terminated. All statements and agreements contained
in any certificate or other instrument delivered by any Related Person to
Noteholder, Agent or Collateral Agent under any Loan Document shall be deemed
representations and warranties by Borrower or agreements and covenants of
Borrower under this Agreement. The representations, warranties, and covenants
made by the Related Persons in the Loan Documents, and the rights, powers, and
privileges granted to Noteholder and Collateral Agent in the Loan Documents,
are cumulative, and, except for expressly specified waivers and consents, no
Loan Document shall be construed in the
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context of another to diminish, nullify, or otherwise reduce the benefit to
Noteholder and Collateral Agent of any such representation, warranty, covenant,
right, power or privilege. In particular and without limitation, no exception
set out in this Agreement to any representation, warranty or covenant herein
contained shall apply to any similar representation, warranty or covenant
contained in any other Loan Document, and each such similar representation,
warranty or covenant shall be subject only to those exceptions which are
expressly made applicable to it by the terms of the various Loan Documents.
Section 9.3 Notices. All notices, requests, consents, demands
and other communications required or permitted under any Loan Document shall be
in writing, unless otherwise specifically provided in such Loan Document, and
shall be deemed sufficiently given or furnished if delivered by personal
delivery, by telecopy, by delivery service with proof of delivery, or by
registered or certified United States mail, postage prepaid, to Borrower and
the Related Persons at the address of Borrower specified on the signature pages
hereto and to Noteholder at both of the addresses specified below (unless
changed by similar notice in writing given by the particular Person whose
address is to be changed). Any such notice or communication shall be deemed to
have been given (a) in the case of personal delivery or delivery service, as of
the date of first attempted delivery at the address and in the manner provided
herein, (b) in the case of telecopy, upon receipt, or (c) in the case of
registered or certified United States mail, three days after deposit in the
mail. Any such notice or communication to Agent or Collateral Agent shall be
given to Noteholder and shall be deemed received by Agent or Collateral Agent
when received by Noteholder. Noteholder's addresses are:
Trust Company of the West
865 South Figueroa
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Telecopy: (213) 244-0604
TCW Asset Management Company
1000 Louisiana Street, Suite 2175
Houston, Texas 77002
Attention: George R. Hutchinson
and Marc MacAluso
Telephone: (713) 615-7410
Telecopy: (713) 615-7460
with a copy to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street
Thirtieth Floor
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Telecopy: (213) 629-5063
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Section 9.4 Parties in Interest. All grants, covenants and
agreements contained in the Loan Documents shall bind and inure to the benefit
of the parties thereto and their respective successors and assigns; provided,
however, that no Related Person may assign or transfer any of its rights or
delegate any of its duties or obligations under any Loan Document without the
prior consent of Noteholder.
SECTION 9.5 GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT TO
THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN
DOCUMENT, THE LOAN DOCUMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES OF
AMERICA (WITHOUT REGARD TO CALIFORNIA PRINCIPLES OF CONFLICTS OF LAW). EACH OF
BORROWER AND PARENT HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER RELATED
PERSON TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
SITTING IN THE STATE OF CALIFORNIA AND THE COUNTY OF LOS ANGELES AND AGREES AND
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT OR ANY OF ITS SUBSIDIARIES
IN ANY LEGAL PROCEEDING RELATING TO THE LOAN DOCUMENTS OR THE OBLIGATIONS BY
ANY MEANS ALLOWED UNDER CALIFORNIA OR FEDERAL LAW. EACH OF BORROWER AND PARENT
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 9.6 Limitation on Interest. Noteholder, Agent,
Collateral Agent, the Related Persons and any other parties to the Loan
Documents intend to contract in strict compliance with applicable usury law
from time to time in effect. In furtherance thereof such Persons stipulate and
agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay, for the use, forbearance
or detention of money, interest in excess of the maximum amount of interest
permitted to be charged by applicable law from time to time in effect. Neither
any Related Person nor any present or future guarantors, endorsers, or other
Persons hereafter becoming liable for payment of any Obligation shall ever be
liable for unearned interest thereon or shall ever be required to pay interest
thereon in excess of the maximum amount that may be lawfully charged under
applicable law from time to time in effect, and the provisions of this section
shall control over all other provisions of the Loan Documents which may be in
conflict or apparent conflict herewith. Noteholder, Agent and Collateral Agent
expressly disavow any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
Noteholder or any other holder of any or all of the Obligations shall otherwise
collect moneys which are determined to constitute interest which would
otherwise increase the interest on any or all of the Obligations to an amount
in excess of that permitted to be charged by applicable law then in effect,
then all such sums determined to constitute interest in excess of such legal
limit shall, without penalty, be promptly applied to
23
<PAGE> 27
reduce the then outstanding principal of the related Obligations or, at
Noteholder's or such holder's option, promptly returned to Borrower or the other
payor thereof upon such determination. In determining whether or not the
interest paid or payable, under any specific circumstance, exceeds the maximum
amount permitted under applicable law, Agent, Noteholder, Collateral Agent and
the Related Persons (and any other payors thereof) shall to the greatest extent
permitted under applicable law, (i) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and
spread the total amount of interest throughout the entire contemplated term of
the instruments evidencing the Obligations in accordance with the amounts
outstanding from time to time thereunder and the maximum legal rate of interest
from time to time in effect under applicable law in order to lawfully charge the
maximum amount of interest permitted under applicable law.
Section 9.7 Termination; Limited Survival. In its sole and
absolute discretion Borrower may at any time that no Obligations are owing
under the Loan Documents elect in a notice delivered to Noteholder to terminate
this Agreement and the other Loan Documents. Upon receipt by Noteholder of such
a notice, if no such Obligations are then owing then this Agreement and all
other Loan Documents shall thereupon be terminated, the Liens thereunder
released, and the parties thereto released from all prospective obligations
thereunder. Notwithstanding the foregoing or anything herein to the contrary,
any waivers or admissions made by any Related Person in any Loan Documents, the
obligations of Parent and Borrower under Section 7.3, and any other obligations
which any Person may have to indemnify or compensate Noteholder or any of
Noteholder's Affiliates shall survive any termination of this Agreement or any
other Loan Document. At the request and expense of Borrower, Noteholder shall
prepare and execute all necessary instruments to reflect and effect such
termination of the Loan Documents.
Section 9.8 Severability. If any term or provision of any
Loan Document shall be determined to be illegal or unenforceable all other
terms and provisions of the Loan Documents shall nevertheless remain effective
and shall be enforced to the fullest extent permitted by applicable law.
Section 9.9 Counterparts. This Agreement may be separately
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to
constitute one and the same Agreement.
SECTION 9.10 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.
EACH OF BORROWER, PARENT, AGENT, COLLATERAL AGENT AND NOTEHOLDER HEREBY (A)
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME
ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER
MATURITY; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
24
<PAGE> 28
LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
Section 9.11 Amendment and Restatement. This Agreement amends
and restates in its entirety that certain Credit Agreement dated as of
September 23, 1997, by among Borrower, Parent, Noteholder, Agent and Collateral
Agent, as amended, restated, or supplemented to the date hereof (the "ORIGINAL
AGREEMENT"). Borrower and Parent hereby agree that (i) the Loans outstanding
under the Original Agreement and any other Loan Document and all accrued and
unpaid interest thereon, and (ii) all accrued and unpaid fees under the
Original Agreement and any other Loan Document shall be deemed to be
outstanding under and governed by this Agreement.
25
<PAGE> 29
IN WITNESS WHEREOF, this Agreement is executed as of the date
first written above.
BORROWER: INLAND PRODUCTION COMPANY
By:
----------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Telecopy: (303) 893-0103
PARENT: INLAND RESOURCES INC.
By:
----------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Telecopy: (303) 893-0103
26
<PAGE> 30
NOTEHOLDER: TRUST COMPANY OF THE WEST, a California
trust company, as Sub-Custodian for Mellon
Bank for the benefit of Account No. CPFF
873-3032
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
AGENT: TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager under that certain Agreement dated
as of June 13, 1994, between TCW Asset
Management Company and Morgan Stanley Group,
Inc.
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
COLLATERAL AGENT: TCW ASSET MANAGEMENT COMPANY,
a California corporation
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
27
<PAGE> 31
ANNEX A
COMMON DEFINITIONS
"2% Affiliate" means, as to any Person, (a) any Person directly or
indirectly owning, controlling or holding with power to vote 2% or more of the
outstanding voting securities of such Person, (b) any Person 2% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such Person, (c) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, and (d) any officer, director, partner or sanguinal or affinal kin of
such Person or any Person described above in clause (c) of this paragraph.
"Affiliate" means, as to any Person, (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the
outstanding voting securities of such Person, (b) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such Person, (c) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, and (d) any officer, director, partner or sanguinal or affinal kin of
such Person or any Person described above in clause (c) of this paragraph.
Pengo Securities Corp., Randall D. Smith and any Affiliate of Randall D. Smith
including any trusts of which Randall D. Smith or any of his heirs at law is
settlor, trustee or beneficiary shall, for purposes of such 10% test, be
treated as a single Person.
"ANCF," "ANCF Capital Expenditures," "ANCF Hierarchy," "ANCF LOE,"
"ANCF Overhead Costs," "ANCF Transportation Costs," and "Affiliates' ANCF" have
the meanings given to such terms in the Intercreditor Agreement.
"Bank Interest Rate Hedge Agreement" has the meaning given it in the
Intercreditor Agreement.
"Bank Mortgage" means, collectively, that certain Deed of Trust,
Mortgage, Line of Credit Mortgage, Assignment, Security Agreement, Fixture
Filing and Financing Statement from Borrower to Agent dated as of September 30,
1997, as amended, and that certain Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement from Inland Refining to
Agent dated as of May 29, 1998, as amended.
"Change of Control" means the occurrence of either of the following
events: (i) any Person or two or more Persons acting as a group shall acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Act of 1934, as amended, and including
holding proxies to vote for the election of directors other than proxies held
by Parent's management or their designees to be voted in favor of Persons
nominated by Parent's Board of Directors) a larger percentage of the
outstanding voting securities of Parent than the aggregate percentage owned by
Randall D. Smith and Pengo Securities Corp., and the percentage of outstanding
voting securities of Parent owed by such Person or Persons is 35% or more of
the outstanding voting securities of Parent, measured by voting power
(including both common stock and any preferred stock or other equity securities
entitling the holders thereof to vote with the holders of common stock in
elections for directors of Parent) or (ii) one-third or more of the directors
of Parent shall consist of Persons not nominated by Parent's Board of Directors
(including as Board nominees any directors which the Board is obligated to
nominate pursuant to shareholders agreements, voting trust arrangements or
similar arrangements which are in place as of the date hereof, but not those
which arise after the date hereof unless they deal with the same parties or
their Affiliates and no one else).
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"Collateral" means all property of any kind which is subject to a Lien
in favor of Lenders or which, under the terms of any Security Document, is
purported to be subject to such a Lien.
"Consolidated" refers to the consolidation of Parent, Borrower or any
other Related Person, in accordance with GAAP, with its properly consolidated
subsidiaries. References herein to a Person's Consolidated financial
statements, financial position, financial condition, liabilities, etc. refer to
the consolidated financial statements, financial position, financial condition,
liabilities, etc. of such Person and its properly consolidated subsidiaries.
"Consolidating," when used with reference to the financial statements of
Parent, means the financial statements of Parent and its properly consolidated
subsidiaries, presented in a manner acceptable to Agent which (a) shows the net
intercompany transactions between each of Parent and such subsidiaries and (b)
presents substantially the same information with respect to Borrower which
would be presented on individual financial statements of Borrower.
"Consolidated Net Income" means, as to any Person or Persons for any
period, the gross revenues of such Person or Persons for such period, plus any
cash dividends or distributions actually received by such Person or Persons
from any other business entity, minus all expenses and other proper charges
(including taxes on income, to the extent imposed upon such Person or Persons),
determined on a Consolidated basis after eliminating earnings or losses
attributable to outstanding minority interests, but excluding the net earnings
of any other business entity in which such Person or Persons has an ownership
interest.
"Consolidated Tangible Net Worth" means the remainder of all
Consolidated assets of Parent, other than intangible assets (including as
intangible assets such assets as patents, copyrights, licenses, franchises,
goodwill, trade names, trade secrets and leases other than oil, gas or mineral
leases or leases required to be capitalized under GAAP), minus Parent's
Consolidated Debt, provided that for purposes of this definition, Parent's
Series C Convertible Preferred Stock shall not be included in the calculation
of Parent's Consolidated Debt and shall be considered equity.
"Crysen Refinery" means that certain refinery located in Woods Cross,
Utah.
"Debt" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Direct Taxes" has the meaning given it in the Intercreditor Agreement.
"Disclosure Report" means either a notice given by Borrower under
Section C.3 of Annex C or a certificate given by Borrower's chief financial
officer under Section C.1 of Annex C.
"Disclosure Schedule" means Schedule 1 to this Agreement.
"Distribution" means (a) any dividend or other distribution made by a
Related Person on or in respect of any stock, partnership interest, or other
equity interest in such Related Person (including any option or warrant to buy
such an equity interest), or (b) any payment made by a Related Person to
purchase, redeem, acquire or retire any stock, partnership interest, or other
equity interest in such Related Person (including any such option or warrant).
"EBITDA" means, for any four-Fiscal Quarter period, the sum of (1) the
Consolidated Net Income of Parent during such period, plus (2) all cash
interest paid during such period on Restricted
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<PAGE> 33
Debt (including amortization of original issue discount and the interest
component of any deferred payment obligations and capital lease obligations)
which was deducted in determining such Consolidated Net Income, plus (3) all
income taxes which were deducted in determining such Consolidated Net Income,
plus (4) all depreciation, amortization (including amortization of good will
and debt issue costs) and other non-cash charges (including any provision for
the reduction in the carrying value of assets recorded in accordance with GAAP)
which were deducted in determining such Consolidated Net Income, minus (5) all
non-cash items of income which were included in determining such Consolidated
Net Income.
"Eligible Mortgaged Properties" means, collectively, those Properties
which (a) are owned by Borrower and mortgaged to secure the Obligations and the
Other Allowed Debt, (b) for which Agent has received title opinions and other
title information concerning such Properties in form, substance and authorship
satisfactory to Agent, and (c) are free and clear of all Liens other than
Permitted Liens.
"Engineering Report" means the Initial Engineering Report and each
engineering report delivered pursuant to Section C.1(d) or C.1(e) of Annex C.
"Environmental Affiliate" means, as to any Person, any other Person
which by virtue of its control of, or common control with, such Person, may
incur any liability with respect to any claims, consent agreements, citations,
complaints, penalty assessments, suits or other proceedings with respect to any
alleged liability under, violation of or non-compliance with any Environmental
Laws.
"Environmental Laws" means any and all Laws relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Affiliate" means Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control that, together with Borrower, are treated as a single
employer under Section 414 of the Internal Revenue Code of 1986, as amended.
"ERISA Plan" means any employee pension benefit plan subject to Title
IV of ERISA maintained by any ERISA Affiliate with respect to which any Related
Person has a fixed or contingent liability.
"Farmout Agreement" means that certain Farmout Agreement by Inland
Production Company and Inland Resources Inc. as Farmor, Smith Management LLC as
Farmee, and Inland Production Company as Operator dated as of June 1, 1998.
"Fiscal Quarter" means a three-month period ending on March 31, June
30, September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
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<PAGE> 34
"Floating Rate Debt" means any part of the Obligations which bears
interest at a floating rate.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of Parent
and its Consolidated subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the audited Initial Financial Statements. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for or practice to
continue as a generally accepted accounting principle or practice, all reports
and financial statements required hereunder with respect to Parent or with
respect to Parent and its Consolidated subsidiaries may be prepared in
accordance with such change, but all calculations and determinations to be made
hereunder may be made in accordance with such change only after notice of such
change is given to each Lender and Required Lenders agree to such change
insofar as it affects the accounting of Parent or of Parent and its
Consolidated subsidiaries.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Hedging Contract" means (a) any agreement providing for options,
swaps, floors, caps, collars, forward sales or forward purchases involving
interest rates, commodities or commodity prices, equities, currencies, bonds,
or indexes based on any of the foregoing, (b) any option, futures or forward
contract traded on an exchange, and (c) any other derivative agreement or other
similar agreement or arrangement, including "Permitted Commodity Hedges" (as
defined in the Intercreditor Agreement).
"Hydrocarbons" means crude oil, natural gas or other liquid or gaseous
hydrocarbons.
"ING Pricing" means the pricing assumptions required under Regulations
S-B, S-K or S-X , as applicable, promulgated by the Securities and Exchange
Commission.
"Initial Engineering Report" means the engineering report concerning
oil and gas properties of Related Persons dated July 1, 1997, prepared by Ryder
Scott Company.
"Initial Financial Statements" means (i) the audited annual
Consolidated financial statements of Parent dated as of December 31, 1997, (ii)
the unaudited quarterly Consolidated financial statements of Parent dated as of
June 30, 1998, (iii) the unaudited balance sheet of Inland Refining as of June
30, 1998, and (iv) other financial statements of Inland Refining from date of
incorporation to June 30, 1998.
"Inland Refining" means Inland Refining, Inc. a Utah corporation.
"Inland Refining Contract" means any contract between Borrower and
Inland Refining for the sale of hydrocarbons by Borrower to Inland Refining,
which has been approved by Required Lenders in their sole and absolute
discretion.
"Insurance Schedule" means Schedule 3 to this Agreement.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Debt or other extension of credit or capital
contribution to (by means of any transfer of
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<PAGE> 35
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition by such Person of
any capital stock, bonds, notes, debentures or other securities or evidences of
Debt issued by, any other Person.
"Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"Lien" has the meaning given it in the Intercreditor Agreement.
"Material Adverse Change" means a material and adverse change, from
the state of affairs presented in the Initial Financial Statements or in this
Agreement (including the Disclosure Schedule), to (a) Parent's and its
Subsidiaries' Consolidated financial condition, (b) the operations or
properties of Parent and its Subsidiaries, considered as a whole, (c)
Borrower's ability to timely pay the Obligations and perform its other
obligations under the Loan Documents, or (d) the validity and enforceability of
the material terms of any Loan Documents.
"Mortgages" means the Bank Mortgage and the TCW Mortgage.
"NPV" means, with respect to any Proved Reserves expected to be
produced from any Properties, the net present value, discounted at 10% per
annum, of the future net revenues expected to accrue to Borrower's interests in
such reserves during the remaining expected economic lives of such reserves.
Each calculation of such expected future net revenues shall be made in
accordance with the then existing standards of the Society of Petroleum
Engineers, provided that in any event (i) appropriate deductions shall be made
for Direct Taxes, operating, gathering, transportation and marketing costs, and
any capital expenditures required for the production and sale of such reserves,
and (ii) the pricing assumptions and escalations used in determining NPV for
any particular reserves shall be the TCW Pricing. NPV shall be calculated
hereunder in connection with each Engineering Report, either by Borrower, Tamco
or the engineering firm who prepares such Engineering Report; in the event of
any conflict, Tamco's calculation shall be conclusive and final.
"Parent" means Inland Resources Inc., a Washington corporation.
"Pennzoil Refinery" means that certain refinery in Roosevelt, Utah,
presently owned by Pennzoil Products Company which Parent, as of the date of
this Agreement, has under contract to purchase (which contract shall be
assigned to Inland Refining prior to closing of such contract), the closing of
the purchase of which is scheduled to take place on or about September 15,
1998.
"Permitted Investment" means Investments:
(a) in open market commercial paper, maturing within 270 days
after acquisition thereof, which is rated at least A-1 by Standard &
Poor's Ratings Group (a division of McGraw Hill, Inc.)
or P-1 by Moody's Investors Service, Inc.
(b) in marketable obligations, maturing within 12 months
after acquisition thereof, issued or unconditionally guaranteed by the
United States of America or an instrumentality or agency thereof and
entitled to the full faith and credit of the United States of America.
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<PAGE> 36
(c) in demand deposits, and time deposits (including
certificates of deposit) maturing within 12 months from the date of
deposit thereof, with any office of any national or state bank or
trust company which is organized under the Laws of the United States
of America or any state therein, which has capital, surplus and
undivided profits of at least $500,000,000, and whose certificates of
deposit are rated at least Aa3 by Standard & Poor's Ratings Group (a
division of McGraw Hill, Inc.) or AA- by Moody's Investors Service,
Inc.
"Permitted Lien" has the meaning given to such term in Section C.19 of
Annex C.
"Person" has the meaning given it in the Intercreditor Agreement.
"Production/Refining Credit Agreement" means that certain Credit
Agreement by and between Borrower and Inland Refining dated as of May 29, 1998,
as amended, supplemented, or restated.
"Production/Refining Loan" means those loans to be extended to Inland
Refining by Borrower pursuant to the Production/Refining Credit Agreement.
"Properties" has the meaning given in the Intercreditor Agreement.
"Proved Reserves" means "Proved Reserves" as defined in the
Definitions for Oil and Gas Reserves (in this paragraph, the "Definitions")
promulgated by the Society of Petroleum Engineers (or any generally recognized
successor) as in effect at the time in question. "Proved Developed Producing
Reserves" means Proved Reserves which are categorized as both "Developed" and
"Producing" in the Definitions, "Proved Developed Nonproducing Reserves" means
Proved Reserves which are categorized as both "Developed" and "Nonproducing" in
the Definitions, and "Proved Undeveloped Reserves" means Proved Reserves which
are categorized as "Undeveloped" in the Definitions.
"Quarterly Payment Date" means the second to last Business Day in each
Fiscal Quarter, beginning with December 29, 1997.
"Rating Agency" means either Standard & Poor's Ratings Group (a
division of McGraw Hill, Inc.) or Moody's Investors Service, Inc. or their
respective successors.
"Related Person" has the meaning given it in the Intercreditor
Agreement.
"Restricted Debt" of any Person means Debt in any of the following
categories:
(a) Debt for borrowed money,
(b) Debt constituting an obligation to pay the deferred purchase price
of property or services,
(c) Debt evidenced by a bond, debenture, note or similar instrument,
(d) Debt which (i) would under GAAP be shown on such Person's balance
sheet as a liability, and (ii) is payable more than one year from the date of
creation thereof (other than reserves for taxes and reserves for contingent
obligations),
(e) Debt arising under futures contracts, forward contracts, swap, cap
or collar contracts, option contracts, hedging contracts, other derivative
contracts, or similar agreements (excluding only option contracts giving such
Person the right - and not the duty - to buy or sell goods expected to be
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<PAGE> 37
bought or sold by such Person in the ordinary course of its business, so long
as such Person has no obligation other than the initial payment in full of the
purchase price for the option),
(f) Debt constituting principal under leases capitalized in accordance
with GAAP,
(g) Debt arising under conditional sales or other title retention
agreements,
(h) Debt owing under direct or indirect guaranties of Debt of any
other Person or constituting obligations to purchase or acquire or to otherwise
protect or insure a creditor against loss in respect of Debt of any other
Person (such as obligations under working capital maintenance agreements,
agreements to keep-well, or agreements to purchase Debt, assets, goods,
securities or services), but excluding endorsements in the ordinary course of
business of negotiable instruments in the course of collection,
(i) Debt (for example, repurchase agreements) consisting of an
obligation to purchase securities or other property, if such Debt arises out of
or in connection with the sale of the same or similar securities or property,
(j) Debt with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Debt with respect to payments received in consideration of oil,
gas, or other minerals yet to be acquired or produced at the time of payment
(including obligations under "take-or-pay" contracts to deliver gas in return
for payments already received and the undischarged balance of any production
payment created by such Person or for the creation of which such Person
directly or indirectly received payment), or
(l) Debt with respect to other obligations to deliver goods or
services in consideration of advance payments therefor;
provided, however, that the "Restricted Debt" of any Person shall not include
Debt that was incurred by such Person on ordinary trade terms to vendors,
suppliers, or other Persons providing goods and services for use by such Person
in the ordinary course of its business, unless and until such Debt is
outstanding more than 90 days past the incurrence thereof, or, if earlier, when
due in accordance with its terms.
"SJCC" means San Jacinto Carbon Company, a Texas corporation.
"Sound Refinery" means that certain refinery located in Tacoma,
Washington.
"Sound Refining Deed of Trust" means that certain Amended and Restated
Deed of Trust (with Security Agreement) dated as of December 24, 1997, executed
by SJCC for the benefit of Inland Refining, encumbering the Crysen Refinery.
"Sound Refining Note" means that certain Amended and Restated
Promissory Note dated as of December 24, 1997, in the original principal amount
of $1,500,000 made by SJCC payable to the order of Inland Refining, which note
has been executed in restatement of that certain Promissory Note dated as of
December 24, 1997, in the original principal amount of $1,500,000, made by
Sound Refining, Inc. payable to the order of Banque Paribas, which note was
assumed by SJCC.
"Subsidiary" has the meaning given it in the Intercreditor Agreement.
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"TCW Mortgage" means, collectively, that certain Deed of Trust,
Mortgage, Line of Credit Mortgage, Assignment, Security Agreement, Fixture
Filing and Financing Statement from Borrower to Tamco dated as of September 30,
1997, as amended, and that certain Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement from Inland Refining to
Tamco dated as of May 29, 1998, as amended.
"TCW Pricing" means those prices (a) for anticipated sales of
Hydrocarbons that are hedged by a Hedging Contract with an investment grade
counter party, which Hedging Contract has been approved by
Tamco, equal to the fixed price or prices provided for in such Hedging Contract
during the term thereof, and thereafter the prices provided for in subsection
(b) below; and (b) for anticipated sales of Hydrocarbons, if such sales are not
hedged by a Hedging Contract that has been approved by Tamco, equal to the
lowest of (i) the average price received by Borrower for Hydrocarbons of such
kind produced from the Eligible Mortgaged Properties during the twelve months
preceding the date of calculation, (ii) the average price received by Borrower
for Hydrocarbons of such kind produced from the Eligible Mortgaged Properties
during the six months preceding the date of calculation, and (iii) the average
of the prices on the New York Mercantile Exchange (or any successor
organization), as reported in the Wall Street Journal for the date of
calculation (or, if such date is not a Business Day, for the first Business Day
thereafter) under the twelve forward contracts which are listed therein as the
first to mature after such date of calculation, with any necessary adjustment
specified by Tamco for quality and geographical differentials. The applicable
price determined pursuant to the preceding clause (b) shall be escalated at 3%
per annum for each year after the then current year
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.
"Tribunal" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted and/or existing.
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ANNEX B
COMMON REPRESENTATIONS AND WARRANTIES
Section B.1. No Default. No Related Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section B.2. Organization and Good Standing. Each Related Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Related Person is duly qualified, in good standing, and authorized to do
business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary. Each Related Person has
taken all actions and procedures customarily taken in order to enter, for the
purpose of conducting business or owning property, each jurisdiction outside
the United States, if any, wherein the character of the properties owned or
held by it or the nature of the business transacted by it makes such actions
and procedures desirable.
Section B.3. Authorization. Each Related Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.
Section B.4 No Conflicts or Consents. The execution and delivery by
the various Related Persons of the Loan Documents to which each is a party, the
performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Related Person, or (3) any agreement, judgment,
license, order or permit applicable to or binding upon any Related Person, (ii)
result in the acceleration of any Restricted Debt owed by any Related Person,
or (iii) result in or require the creation of any Lien upon any assets or
properties of any Related Person except as expressly contemplated in the Loan
Documents. Except as expressly contemplated in the Loan Documents no consent,
approval, authorization or order of, and no notice to or filing with, any
Tribunal or third party is required in connection with the execution, delivery
or performance by any Related Person of any Loan Document or to consummate any
transactions contemplated by the Loan Documents.
Section B.5. Enforceable Obligations. This Agreement is, and the other
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Related Person which is a party hereto or thereto,
enforceable in accordance with their terms except as such enforcement may be
limited by bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights.
Section B.6. Initial Financial Statements. Borrower has heretofore
delivered to each Lender true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present each of
Inland Refining's and Parent's Consolidated financial position at the
respective dates thereof, the results of Inland Refining's operations and
Inland Refining's cash flows for the respective periods thereof, and the
Consolidated results of Parent's operations and Parent's Consolidated cash
flows for the respective periods thereof. Since the date of the annual Initial
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Financial Statements no Material Adverse Change has occurred, except as
reflected in the Disclosure Schedule or a Disclosure Report. All Initial
Financial Statements were prepared in accordance with GAAP.
Section B.7. Other Obligations and Restrictions. No Related Person has
any outstanding Debt of any kind (including obligations under farm-in
agreements, other obligations to make capital expenditures, contingent
obligations, tax assessments, and unusual forward or long-term commitments)
which is, in the aggregate, material to Borrower or material with respect to
Parent's Consolidated financial condition and not shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report. All obligations of any Related Person to make capital expenditures to
drill or otherwise develop any oil, gas or mineral properties are specified in
a Disclosure Schedule or Disclosure Report (by well or project, describing the
dollar amount of each such obligation). Except as shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report, no Related Person is subject to or restricted by any franchise,
contract, deed, charter restriction, or other instrument or restriction which
is materially likely to cause a Material Adverse Change.
Section B.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Related Person to any
Lender in connection with the negotiation of this Agreement or in connection
with any transaction contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact known to any Related Person
(other than industry-wide risks normally associated with the types of
businesses conducted by Related Persons) necessary to make the statements
contained herein or therein not misleading as of the date made or deemed made.
There is no fact known to any Related Person (other than industry-wide risks
normally associated with the types of businesses conducted by Related Persons)
that has not been disclosed to each Lender in writing which is materially
likely to cause a Material Adverse Change. There are no statements or
conclusions in any Engineering Report which are based upon or include
misleading information or fail to take into account material information
regarding the matters reported therein, it being understood that each
Engineering Report is necessarily based upon professional opinions, estimates
and projections and that Borrower does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate. Borrower
has heretofore delivered to each Lender true, correct and complete copies of
the Initial Engineering Report.
Section B.9. Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Related Person threatened, against any Related Person before
any Tribunal which could cause a Material Adverse Change, and (ii) there are no
outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Related Person or any Related Person's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
Section B.10. Labor Disputes and Acts of God. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Related Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.
Section B.11. ERISA Plans and Liabilities. All currently existing
ERISA Plans are listed in the Disclosure Schedule or a Disclosure Report.
Except as disclosed in the Initial Financial Statements or in the Disclosure
Schedule or a Disclosure Report, no Termination Event has occurred with respect
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to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all
material respects. No ERISA Affiliate is required to contribute to, or has any
other absolute or contingent liability in respect of, any "multiemployer plan"
as defined in Section 4001 of ERISA. Except as set forth in the Disclosure
Schedule or a Disclosure Report: (i) no "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as amended)
exists with respect to any ERISA Plan, whether or not waived by the Secretary
of the Treasury or his delegate, and (ii) the current value of each ERISA
Plan's benefits does not exceed the current value of such ERISA Plan's assets
available for the payment of such benefits by more than $500,000.
Section B.12. Environmental and Other Laws. As used in this section:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, "CERCLIS" means the Comprehensive
Environmental Response, Compensation and Liability Information System List of
the Environmental Protection Agency, and "Release" has the meaning given such
term in 42 U.S.C. ss. 9601(22). Except as set forth in the Disclosure Schedule
or a Disclosure Report:
(a) Related Persons are conducting their businesses in compliance with
all applicable Laws, including Environmental Laws, and have all permits,
licenses and authorizations required in connection with the conduct of their
businesses, except to the extent failure to have any such permit, license or
authorization could not cause a Material Adverse Change. Each Related Person is
in compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except to
the extent failure to comply could not cause a Material Adverse Change.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed, and no investigation or review is pending or
threatened by any Tribunal or any other Person with respect to (i) any alleged
generation, treatment, storage, recycling, transportation, disposal, or Release
of any Hazardous Materials, either by any Related Person or on any property
owned by any Related Person, (ii) any material remedial action which might be
needed to respond to any such alleged generation, treatment, storage,
recycling, transportation, disposal, or Release, or (1) any alleged failure by
any Related Person to have any permit, license or authorization required in
connection with the conduct of its business or with respect to any such
generation, treatment, storage, recycling, transportation, disposal, or
Release.
(c) No Related Person otherwise has any known material contingent
liability in connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials.
(d) No Related Person has handled any Hazardous Materials, other than
as a generator, on any properties now or previously owned or leased by any
Related Person to an extent that such handling has caused, or could cause, a
Material Adverse Change; and
(i) no PCBs are or have been present at any properties now or
previously owned or leased by any Related Person;
(ii) no asbestos is or has been present at any properties now or
previously owned or leased by any Related Person;
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(iii) there are no underground storage tanks for Hazardous
Materials, active or abandoned, at any properties now or
previously owned or leased by any Related Person;
(iv) no Hazardous Materials have been Released, in a reportable
quantity, where such a quantity has been established by
statute, ordinance, rule, regulation or order, at, on or
under any properties now or previously owned or leased by any
Related Person;
(v) no Hazardous Materials have been otherwise Released at, on or
under any properties now or previously owned or leased by any
Related Person to an extent that such release has caused, or
could cause, a Material Adverse Change.
(e) No Related Person has transported or arranged for the
transportation of any Hazardous Material to any location which is listed on the
National Priorities List under CERCLA, listed for possible inclusion on the
National Priorities List by the Environmental Protection Agency in CERCLIS, or
listed on any similar state list or which is the subject of federal, state or
local enforcement actions or other investigations which may lead to claims
against any Related Person for clean-up costs, remedial work, damages to
natural resources or for personal injury claims, including, but not limited to,
claims under CERCLA.
(f) No Hazardous Material generated by any Related Person has been
recycled, treated, stored, disposed of or released by any Related Person at any
location other than those listed in Disclosure Schedule.
(g) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of any Related Person (and to the best
knowledge of Borrower, no such notification has been filed with respect to any
Related Person by any other Person), and no property now or previously owned or
leased by any Related Person is listed or proposed for listing on the National
Priority list promulgated pursuant to CERCLA, in CERCLIS, or on any similar
state list of sites requiring investigation or clean-up.
(h) There are no Liens arising under or pursuant to any Environmental
Laws on any of the real properties or properties owned or leased by any Related
Person, and no government actions have been taken or are in process which could
subject any of such properties to such Liens; nor would any Related Person be
required to place any notice or restriction relating to the presence of
Hazardous Materials at any properties owned by it in any deed to such
properties.
(i) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
any Related Person in relation to any properties or facility now or previously
owned or leased by any Related Person which have not been made available to
Agent.
Section B.13. Names and Places of Business. No Related Person has,
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule or a Disclosure Report, the
chief executive office and principal place of business of each Related Person
are (and for the preceding five years have been) located at the address of
Borrower set out in Section 9.3. Except as indicated in the Disclosure Schedule
or a Disclosure Report, no Related Person has any other office or place of
business.
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Section B.14. Subsidiaries. Neither Borrower nor Parent presently has
any Subsidiary or owns any stock in any corporation or association except those
listed in the Disclosure Schedule or a Disclosure Report. Neither Borrower nor
any Related Person is a member of any general or limited partnership, joint
venture or association of any type whatsoever except those listed in the
Disclosure Schedule or a Disclosure Report. Except as otherwise revealed in a
Disclosure Report, Parent owns, directly or indirectly, the equity interest in
each of its Subsidiaries which is indicated in the Disclosure Schedule.
Section B.15. Licenses. Each Related Person possesses all licenses,
permits, franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such
intellectual property without violation of the rights of any other Person)
which are necessary to carry out its business as presently conducted and as
presently proposed to be conducted hereafter, and no Related Person is in
violation in any material respect of the terms under which it possesses such
intellectual property or the right to use such intellectual property.
Section B.16. Government Regulation. Neither Borrower nor any other
Related Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Restricted Debt,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
Section B.17. Ownership of Borrower and Inland Refining. All of the
outstanding shares of Borrower and Inland Refining are owned and shall at all
times be owned by Parent.
Section B.18. Taxes. Each Related Person has filed all United States
Federal income tax returns and all other material tax returns that are required
to be filed by it and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by any Related Person and all other
penalties or charges. The charges, accruals and revenues on the books of each
Related Person in respect of taxes and other governmental charges are, in the
opinion of Parent, adequate. No Related Person has not given or been requested
to give a waiver of the statute of limitations relating to the payment of any
federal or other taxes, except as listed in the Disclosure Schedule or a
Disclosure Report.
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ANNEX C
COMMON COVENANTS
Section C.1. Books, Financial Statements and Reports. Parent, acting
through or on behalf of the Related Persons, will at all times maintain full
and accurate books of account and records and a standard system of accounting,
will maintain its Fiscal Year, and will furnish the following statements and
reports to each Lender at Parent's expense:
(a) As soon as available, and in any event within ninety (90)
days after the end of each Fiscal Year, complete Consolidated and
consolidating financial statements of Parent together with all notes
thereto, prepared in reasonable detail in accordance with GAAP,
together with an unqualified opinion, based on an audit using
generally accepted auditing standards, by Arthur Anderson, L.L.P., or
other independent certified public accountants selected by Parent and
acceptable to Required Lenders, stating that such Consolidated
financial statements have been so prepared. These financial statements
shall contain a Consolidated and consolidating balance sheet as of the
end of such Fiscal Year and Consolidated and consolidating statements
of earnings, of cash flows, and of changes in owners' equity for such
Fiscal Year, each setting forth in comparative form the corresponding
figures for the preceding Fiscal Year. In addition, within ninety (90)
days after the end of each Fiscal Year Parent will furnish a report
signed by such accountants (i) stating that they have read this
Agreement, (ii) containing calculations showing compliance (or
non-compliance) at the end of such Fiscal Year with the requirements
of Sections C.18, C.21, C.23, C.27, C.28, C.29 and C.30 of this Annex
C and (iii) further stating that in making their examination and
reporting on the Consolidated financial statements described above
they did not conclude that any Default existed at the end of such
Fiscal Year or at the time of their report, or, if they did conclude
that a Default existed, specifying its nature and period of existence.
(b) As soon as available, and in any event within fifty (50)
days after the end of each Fiscal Quarter, Parent's Consolidated and
consolidated balance sheet as of the end of such Fiscal Quarter and
Consolidated and consolidating statements of earnings and cash flows
for the period from the beginning of the then current Fiscal Year to
the end of such Fiscal Quarter, all in reasonable detail and prepared
in accordance with GAAP, subject to changes resulting from normal
year-end adjustments. In addition, Parent will, together with each
such set of financial statements and each set of financial statements
furnished under subsection (a) of this section, furnish a certificate
in the form of Exhibit D signed by the chief financial officer of
Parent stating that such financial statements are accurate and
complete (subject to normal year-end adjustments), stating that he has
reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with
the requirements of Sections C.18, C.21, C.23, C.27, C.28, C.29 and
C.30 of this Annex C and stating that no Default or Coverage
Deficiency exists at the end of such Fiscal Quarter or at the time of
such certificate or specifying the nature and period of existence of
any such Default or Coverage Deficiency.
(c) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by
any Related Person to its stockholders and all registration
statements, periodic reports and other statements and schedules filed
by any Related Person with any securities exchange, the Securities and
Exchange Commission or any similar governmental authority.
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(d) By March 1 following the end of each Fiscal Year,
beginning on March 1, 1998, an engineering report prepared as of the
end of such Fiscal Year by Ryder Scott Company or other independent
petroleum engineers chosen by Borrower and acceptable to Required
Lenders, concerning the Properties. The report (1) shall separately
report on Proved Producing Reserves, Proved Developed Nonproducing
Reserves, Proved Undeveloped Reserves and probable reserves and
separately calculate the NPV of each such category of Proved Reserves
(and the similar net present value of such probable reserves), (2)
shall be prepared in two versions, the first using ING Pricing and the
second using TCW Pricing, and each using a 10% discount factor, (3)
shall address the various factors to be taken into account in
calculating ANCF so that projected ANCF can be readily calculated from
the report, (4) shall take into account Borrower's actual experiences
with leasehold operating expenses and other costs in determining
projected leasehold operating expenses and other costs, (5) shall
identify and take into account any "over-produced" or "underproduced"
status under gas balancing arrangements, (6) shall contain information
and analysis comparable in scope to that contained in the Initial
Engineering Reports, and (7) shall otherwise be in form and substance
satisfactory to Required Lenders. The report shall distinguish (or
shall be delivered together with a certificate from an appropriate
officer of Borrower which distinguishes) those Properties treated in
the report which are Eligible Mortgaged Properties from those
properties treated in the report which are not Eligible Mortgaged
Properties. In the event that Borrower and Tamco disagree over whether
or not any workovers or other remedial capital expenditures should be
included in the report for the purposes of calculating NPV, the
engineers preparing such report shall resolve such disagreement by
determining whether such expenditures are likely to be required in
accordance with prudent industry practice and shall include or exclude
such expenditures based on such determination.
(e) By July 15 of each year an engineering report prepared by
in-house petroleum engineers employed by Borrower, concerning all oil
and gas properties and interests owned by any Related Person which are
located in or offshore of the United States and which have
attributable to them proved oil and gas reserves. This report shall be
substantially in the form and substance as the reports delivered under
subsection (d) above and otherwise shall be satisfactory to Required
Lenders.
(f) Within fifty (50) days after the end of each Fiscal
Quarter, a report in detail acceptable to Required Lenders with
respect to the Properties during the Fiscal Quarter immediately prior
thereto:
(1) describing by well and field the net quantities
of oil, gas, natural gas liquids, and water produced (and the
quantities of water injected) during such Fiscal Quarter;
(2) describing by well and field the quantities of
oil, gas and natural gas liquids sold during such Fiscal
Quarter out of production from the Properties and calculating
the average sales prices of such oil, natural gas, and
natural gas liquids;
(3) regardless of whether the same are included in
the calculation of ANCF, specifying any leasehold operating
expenses, overhead charges, gathering costs, transportation
costs, and other costs with respect to the Properties of the
kind chargeable as direct charges or overhead under an
Onshore COPAS Accounting Procedure for Joint Operations (1984
form published by the Council of Petroleum Accountants
Societies);
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(4) setting forth the amount of Direct Taxes on the
Properties during such Fiscal Quarter and the amount of
royalties paid with respect to the Properties during such
Fiscal Quarter;
(5) describing all activities carried out during
such Fiscal Quarter in furtherance of the Plan of
Development, all other capital expenditures during such
Fiscal Quarter, and all projections of capital expenditures
projected to be made on any of the Eligible Mortgaged
Properties; and
(6) describing all workover work and drilling during
such Fiscal Quarter, including the cost and status of each
well drilled or worked over during such Fiscal Quarter, test
reports for each well tested during such Fiscal Quarter,
reports on prices and volumes received for such Fiscal
Quarter, reports for each well completed during such Fiscal
Quarter, and accompanying authorizations for expenditures.
(g) As soon as available, and in any event within forty-five
(45) days after the end of each Fiscal Quarter, a list, by name and
address, of those Persons who have purchased production during such
Fiscal Quarter from the properties described in subsection (d) above,
giving each such purchaser's owner number for Borrower and each such
purchaser's property number for each such property.
(h) As soon as available, and in any event within thirty (30)
days after the end of each Fiscal Year, Borrower shall deliver to
Agent an environmental compliance certificate signed by the president
or chief executive officer of Borrower in the form attached hereto as
Exhibit E. Further, if requested by Agent, Borrower shall permit and
cooperate with an environmental and safety review made in connection
with the operations of Borrower's oil and gas properties one time
during each Fiscal Year beginning with the Fiscal Year 1998, by Pilko
& Associates, Inc. or other consultants selected by Agent which review
shall, if requested by Agent, be arranged and supervised by
environmental legal counsel for Agent, all at Borrower's cost and
expense. The consultant shall render a verbal or written report, as
specified by Agent, based upon such review at Borrower's cost and
expense.
(i) Concurrently with the annual renewal of the Borrower's
insurance policies, Borrower shall, if requested by Agent in writing,
cause a certificate or report to be issued by Agent's professional
insurance consultants or other insurance consultants satisfactory to
Agent certifying that Borrower's insurance for the next succeeding
year after such renewal (or for such longer period for which such
insurance is in effect) complies with the provisions of this Agreement
and the Security Documents.
(i) By November 1 of each year, beginning with November 1,
1998, a proposed Plan of Development for the next succeeding year.
Section C.2. Other Information and Inspections. Each Related Person
will furnish to each Lender any information which Agent may from time to time
request in writing concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with Related Persons' businesses and
operations. Each Related Person will permit representatives appointed by Agent
(including independent accountants, auditors, agents, attorneys, appraisers and
any other Persons) to visit and inspect during normal business hours any of
such Related Person's property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra copies
therefrom and photocopies and photographs thereof, and to write down and record
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any information such representatives obtain, and each Related Person shall
permit Agent or its representatives to investigate and verify the accuracy of
the information furnished to Agent or any Lender in connection with the Loan
Documents and to discuss all such matters with its officers, employees and
representatives.
Section C.3. Notice of Material Events and Change of Address. Borrower
and Parent will promptly notify each Lender in writing, stating that such
notice is being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default or Coverage Deficiency,
(c) the acceleration of the maturity of any Restricted Debt
owed by any Related Person or of any default by any Related Person
under any indenture, mortgage, agreement, contract or other instrument
to which any of them is a party or by which any of them or any of
their properties is bound, if such acceleration or default could cause
a Material Adverse Change,
(d) the occurrence of any Termination Event,
(e) any claim of $50,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount,
or any other material adverse claim asserted against any Related
Person or with respect to any Related Person's properties,
(f) the filing of any suit or proceeding against any Related
Person in which an adverse decision could cause a Material Adverse
Change, and
(g) the receipt by any Related Person of a notice of any
"Event of Default" under the Other Loan Documents.
Upon the occurrence of any of the foregoing Related Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Borrower will also notify
Agent and Agent's counsel in writing at least twenty Business Days prior to the
date that any Related Person changes its name or the location of its chief
executive office or principal place of business or the place where it keeps its
books and records concerning the Collateral, furnishing with such notice any
necessary financing statement amendments or requesting Agent and its counsel to
prepare the same.
Section C.4. Maintenance of Properties. Each Related Person will
maintain, preserve, protect, and keep all Collateral and all other property
used or useful in the conduct of its business in good condition and in
compliance with all applicable Laws, and will from time to time make all
repairs, renewals and replacements needed to enable the business and operations
carried on in connection therewith to be conducted at all times consistent with
prudent industry practices.
Section C.5. Maintenance of Existence and Qualifications. Each Related
Person will maintain and preserve its existence and its rights and franchises
in full force and effect and will qualify to do business in all states or
jurisdictions (a) where Collateral is located and (b) where required by
applicable Law, except where the failure so to qualify will not cause a
Material Adverse Change.
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Section C.6. Payment of Trade Debt, Taxes, etc. Each Related Person
will (a) timely file all required tax returns; (b) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or upon
its income, profits or property; (c) within 90 days past the original invoice
or billing date thereof, or, if earlier, when due in accordance with its terms,
all Debt owed by it on ordinary trade terms to vendors, suppliers and other
Persons providing goods and services used by it in the ordinary course of its
business; (d) pay and discharge when due all other Debt now or hereafter owed
by it; and (e) maintain appropriate accruals and reserves for all of the
foregoing in accordance with GAAP. Each Related Person may, however, delay
paying or discharging any of the foregoing so long as it is in good faith
contesting the validity thereof by appropriate proceedings and has set aside on
its books adequate reserves therefor.
Section C.7. Bonding and Insurance. The Related Persons will maintain
all bonds and letters of credit in lieu of bonds which they are required to
maintain (by law, lease terms, or consistent with prudent industry practices)
in order to carry out development and production operations on, the Properties.
Each Related Person will keep or cause to be kept adequately insured by
financially sound and reputable insurers its and its Subsidiaries' vehicles and
all other property in accordance with Schedule 3. Any insurance policies
covering Collateral shall be endorsed (i) to provide for payment of losses to
Agent, on behalf of Lenders, as their interests may appear, pursuant to a
mortgage clause (without contribution) of standard form made part of the
applicable policy, (ii) to provide that such policies may not be canceled,
reduced or adversely affected in any manner for any reason without fifteen days
prior notice to Agent, (iii) to provide for any other matters specified in any
applicable Security Document or which Agent may reasonably require; and (iv) to
provide for insurance against fire, casualty and any other hazards normally
insured against, in the amount of the full value (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured. (To the extent that the
Mortgages or any other Security Document contains other additional requirements
for such endorsement, each Related Person shall also comply with such
additional requirements.) Each Related Person shall at all times maintain
adequate insurance against its liability for injury to persons or property,
which insurance shall be by financially sound and reputable insurers and shall
without limitation provide the following coverages: comprehensive general
liability (including coverage for damage to underground resources and
equipment, damage caused by blowouts or cratering, damage caused by explosion,
damage to underground minerals or resources caused by saline substances, broad
form property damage coverage, broad form coverage for contractually assumed
liabilities and broad form coverage for acts of independent contractors),
worker's compensation and automobile liability. Each Related Person shall at
all times maintain cost of control of well insurance with respect to all wells
being drilled or deepened, which shall insure against the following costs: cost
of control of well; fires, blowouts, etc.; redrilling expense; and seepage and
pollution expense.
Section C.8. Performance on Borrower's Behalf. If any Related Person
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Agent may pay the same.
Borrower shall immediately reimburse Agent for any such payments and each
amount paid by Agent shall constitute an Obligation owed hereunder which is due
and payable on the date such amount is paid by Agent.
Section C.9. Interest. Borrower hereby promises to each Lender to pay
interest at the Late Payment Rate on all Obligations (including Obligations to
pay fees or to reimburse or indemnify any Lender) which Borrower has in this
Agreement promised to pay to such Lender and which are not paid when due. Such
interest shall accrue from the date such Obligations become due until they are
paid.
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Section C.10. Compliance with Agreements and Law. Each Related Person
will perform all material obligations it is required to perform under the terms
of each indenture, mortgage, deed of trust, security agreement, lease,
franchise, agreement, contract or other instrument or obligation to which it is
a party or by which it or any of its properties is bound. Each Related Person
will conduct its business and affairs in compliance with all Laws applicable
thereto.
Section C.11. Environmental Matters; Environmental Reviews.
(a) Each Related Person will comply in all material respects
with all Environmental Laws now or hereafter applicable to such
Related Person and shall obtain, at or prior to the time required by
applicable Environmental Laws, all environmental, health and safety
permits, licenses and other authorizations necessary for its
operations and will maintain such authorizations in full force and
effect.
(b) Borrower will promptly furnish to Agent all written
notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by Borrower, or of
which it has notice, pending or threatened against Borrower, by any
governmental authority with respect to any alleged violation of or
non-compliance with any Environmental Laws or any permits, licenses or
authorizations in connection with its ownership or use of its
properties or the operation of its business.
(c) Borrower will promptly furnish to Agent all requests for
information, notices of claim, demand letters, and other
notifications, received by Borrower in connection with its ownership
or use of its properties or the conduct of its business, relating to
potential responsibility with respect to any investigation or clean-up
of Hazardous Material at any location.
Section C.12. Evidence of Compliance. Each Related Person will furnish
to each Lender at such Related Person's or Borrower's expense all evidence
which Agent from time to time reasonably requests in writing as to the accuracy
and validity of or compliance with all representations, warranties and
covenants made by any Related Person in the Loan Documents, the satisfaction of
all conditions contained therein, and all other matters pertaining thereto.
Section C.13. Solvency. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and the consummation of
the transactions contemplated hereby, Borrower will be solvent (as such term is
used in applicable bankruptcy, liquidation, receivership, insolvency or similar
laws).
Section C.14. Completion of Activities. Borrower will (1) timely
develop the Eligible Mortgaged Properties in accordance with the Plan of
Development, and (2) except to the extent regulatory approval has not yet been
obtained, have each producing and injection well which is hereafter completed
put into normal operation. Borrower will make capital expenditures for the
drilling and development of the Eligible Mortgaged Properties in accordance
with the Plan of Development. The Plan of Development designates certain
operations as "Primary Phases" and others, which are contingent upon the
success of the "Primary Phases," are designated as "Secondary Phases." Prior to
Borrower making capital expenditures with respect to "Secondary Phase"
operations, if a specific measure of success with respect to the "Primary
Phase" operations is set forth in the Plan of Development, such measure must
have been achieved, or if no specific measure is set forth, Agent and Borrower
must have agreed that the "Primary Phase" operation has been successful.
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Section C.15. Hedging Contracts. No Related Person will be a party to
or in any manner be liable on any forward, future, swap or hedging contract,
other than (a) existing hedging contracts listed in the Disclosure Schedule,
(b) interest rate hedges under the Bank Interest Rate Hedge Agreement required
under Section C.17 of this Annex C, and (c) any other commodity floors approved
by Required Lenders from time to time, including terms, duration and
counterparty.
Section C.16. Reviews. Borrower will meet with Agent, at Borrower's
expense, from time to time (as frequently as monthly and in any event at least
once per Fiscal Quarter), at the offices of Agent or at such other location as
Agent and Borrower may agree, to review all operational activities of Borrower
with respect to the Eligible Mortgaged Properties and all financial reports of
the Related Persons since the date of the prior review. Each review shall be in
scope satisfactory to Agent, but will include at a minimum, an update by
Borrower on the development activities made pursuant to the Plan of
Development, any requests by Borrower that changes be made to the Plan of
Development, any cost or expense overruns or underruns, any mechanical problems
incurred, and any differences in reserves or production estimates.
Section C.17. Interest Hedging Contracts. Until the Floating Rate Debt
is paid in full, Borrower will maintain Hedging Contracts under the Bank
Interest Rate Hedge Agreement with respect to the Floating Rate Debt. Such
Hedging Contracts shall: (i) during that portion of the Commitment Period prior
to December 31, 1998, have notional amounts of not less than 50% of the
principal amount of Floating Rate Debt reasonably projected by Borrower to be
outstanding during the term of such Hedging Contracts, (ii) during that portion
of the Commitment Period on or after December 31, 1998, have notional amounts
of not less than 80% of the principal amount of the Floating Rate Debt
reasonably projected by Borrower to be outstanding during the term of such
Hedging Contracts, (iii) at all times after the Commitment Period, have
notional amounts equal to the principal amount of the Floating Rate Debt
projected by Borrower to be outstanding during the term of such Hedging
Contracts, (iv) fix a cap for Borrower's exposure to increases in the interest
rates payable on the Floating Rate Debt for an initial term of three (3) years,
and (v) effectively fix a cap at eight and one-half percent (8.5%) or less for
Borrower's exposure to increases in the interest rates payable on the Floating
Rate Debt. Borrower shall enter into replacement Hedging Contracts at the end
of each expiring Hedging Contract and, concurrently with any increase in the
amount of the Floating Rate Debt, shall enter into such additional Hedging
Contracts as may be required to keep Borrower in compliance with this Section
C.17.
Section C.18. Restricted Debt. No Related Person will in any manner
owe or be liable for Restricted Debt except:
(a) the Obligations.
(b) the Other Allowed Debt.
(c) Hedging transactions required under Section C.17 or
permitted under Section C.15 of this Annex C.
(d) any Restricted Debt assumed or incurred by any Related
Person after the date hereof to finance all or any part of the
purchase price of property acquired by such Related Person, provided
that:
(i) such Restricted Debt shall be secured only by
the property so acquired and the improvements thereon,
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(ii) each Lien securing such Restricted Debt shall
attach or be existing at the time of acquisition,
(iii) only the Related Person that acquired such
property shall be liable on such Restricted Debt,
(iv) the principal amount of such Restricted Debt in
respect of such property shall not exceed the lower of the
acquisition price of or market value of the property at the
time of acquisition thereof by such Related Person,
(v) the aggregate outstanding principal amount of
such Restricted Debt of the Related Persons incurred for the
purchase of trucks or automobiles does not at any time exceed
$250,000, and the aggregate principal amount of such
Restricted Debt which is incurred for such purpose in any
Fiscal Year does not exceed $100,000, and
(vi) the aggregate outstanding principal amount of
such Restricted Debt of the Related Persons incurred for
purposes other than the purchase of trucks or automobiles,
does not at any time exceed $200,000, and the aggregate
principal amount of such Restricted Debt which is incurred
for such other purposes in any Fiscal Year does not exceed
$50,000.
(e) the Carmen promissory note described in paragraph C.18 of
the Disclosure Schedule, as from time to time extended (but not
increased).
(f) Parent's Series C Convertible Preferred Stock.
(g) the Debt of Inland Refining evidenced by the
Production/Refining Credit Agreement, provided that the principal
amount of such Debt thereof (including without limitation advances and
the face amount of letters of credit) shall not exceed $20,000,000 at
any time outstanding.
(h) guaranties by Parent, in form and substance acceptable to
Required Lenders in their sole discretion, of obligations of Inland
Refining under agreements for the purchase of refinery feed stocks in
the ordinary course of business; provided, however, that each such
guaranty shall specify a maximum aggregate liability for Parent under
such guaranty, and the maximum aggregate amount of such specified
maximum liability of Parent under all such guaranties shall not exceed
$6,000,000 at any one time.
(i) miscellaneous items of Restricted Debt not described in
subsections (a) through (h) which do not in the aggregate (taking into
account all such Restricted Debt of all Related Persons) exceed
$150,000 at any one time outstanding.
Section C.19. Limitation on Liens. No Related Person will create,
assume or permit to exist any Lien upon any of the properties or assets which
it now owns or hereafter acquires, except, to the extent not otherwise
forbidden by the Security Documents the following ("Permitted Liens"):
(a) Liens which secure Obligations only.
(b) Liens which secure the Other Allowed Debt, provided that
such Liens are subject to the Intercreditor Agreement.
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(c) statutory Liens for taxes, statutory mechanics' and
materialmen's Liens incurred in the ordinary course of business, and
other similar Liens incurred in the ordinary course of business,
provided such Liens do not secure Restricted Debt and secure only
Restricted Debt which is not delinquent or which is being contested as
provided in Section C.6.
(d) Liens securing the Restricted Debt permitted by Section
C.18 (d), (e) or (i) of this Annex C.
Section C.20. No Mergers. No Related Person will merge or consolidate
with or into any other business entity. No Subsidiary of Parent will issue any
additional shares of its capital stock or other securities or any options,
warrants or other rights to acquire such additional shares or other securities
except to Parent or another wholly-owned Subsidiary of Parent. No Subsidiary of
Parent which is a partnership will allow any diminution of Parent's interest
(direct or indirect) therein. No Related Person shall create or own any
Subsidiary other than those listed in the Disclosure Schedule.
Section C.21. Limitation on Dividends and Redemptions. No Related
Person will make any Distribution in respect of any class of its capital stock
or any partnership or other interest in it, nor will any Related Person
directly or indirectly make any Distribution in respect of any shares of the
capital stock of or partnership interests in any Related Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Related Person,
except that (a) Parent may at any time make Distributions in the form of
Parent's common stock to the holders of Parent's Series C Convertible Preferred
Stock, (b) Inland Refining may at any time make payments to Borrower pursuant
to the Production/Refining Credit Agreement, and (c) Inland Refining may make
any other Distribution or loan either in favor of or for the benefit of
Borrower or Parent for the purpose of applying such Distribution to Affiliates'
ANCF, as contemplated by Section 3 of the Intercreditor Agreement.
Section C.22. Limitation on Sales of Property. No Related Person will
sell, transfer, lease, exchange, alienate or dispose of any of its material
assets or properties or any material interest therein except, to the extent not
otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or which is
replaced by equipment of equal suitability and value.
(b) personal property inventory (including oil and gas sold
as produced and seismic data) which is sold in the ordinary course of
business on ordinary trade terms.
(c) specific properties not subject to the Mortgages (or
specific portions thereof), provided the same are abandoned and not
otherwise disposed of and further provided that no well situated on
the property to be abandoned, or located on any unit containing all or
any part thereof, is capable (or is subject to being made capable
through commercially feasible operations) of producing oil, gas or
other hydrocarbons or minerals in paying quantities (with such
determination of paying quantities being made taking into account the
prudent operation of any unit in which such property is located).
(d) farmouts on terms and conditions reasonably acceptable to
Required Lenders.
Neither Parent nor any of Parent's Subsidiaries will sell, transfer or
otherwise dispose of capital stock of any of Parent's Subsidiaries except that
any Subsidiary of Parent may sell or issue its own capital stock to the extent
not otherwise prohibited hereunder. No Related Person will discount, sell,
pledge or assign any notes payable to it, accounts receivable or future income
except to the extent expressly permitted under the Loan Documents.
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Section C.23. Limitation on Investments. No Related Person will make
any Investment other than (a) Permitted Investments, (b) Investments in oil and
gas properties, (c) Investments of Parent in (i) Inland Refining and (ii)
Inland Production existing as of the date hereof, (d) Investments in the Sound
Refining Note existing as of the date hereof, (e) normal and prudent extensions
of credit to customers buying goods and services in the ordinary course of
business, which extensions shall not be for longer periods than those extended
by similar businesses operated in a normal and prudent manner, (f) the
Production/Refining Loan permitted under Section C.37, and (g) the purchase by
Inland Refining of the Pennzoil Refinery for a purchase price not to exceed
$2,250,000 exclusive of prorations and expenses.
Section C.24. INTENTIONALLY OMITTED
Section C.25. Transactions with Affiliates. No Related Person will
engage in any material transaction with any of its Affiliates other than (i)
for customary director compensation paid to such Affiliates, (ii) for issuances
of equity to Affiliates for fair value, provided that such issuances are
permitted by Section C.21, (iii) transactions between Borrower or Guarantor and
any Affiliate other than Inland Refining, the terms of which are no less
favorable than those which would have been obtainable at the time in
arm's-length dealings with Persons other than an Affiliate, (iv) the
Production/Refining Loan, (v) the Parent guaranties set forth in Section
C.18(h), (vi) the Inland Refining Contract, and (vii) the Farmout Agreement.
Section C.26. Certain Contracts; Amendments; Multiemployer ERISA
Plans. Except as expressly provided for in the Loan Documents, no Related
Person will, directly or indirectly, enter into, create, or otherwise allow to
exist any contract or other consensual restriction on the ability of any
Subsidiary of Borrower to: (i) make Distributions to Borrower, (ii) to redeem
equity interests held in it by Borrower, (iii) to repay loans and other
indebtedness owing by it to Borrower, or (iv) to transfer any of its assets to
Borrower. No Related Person will enter into any "take-or-pay" contract or other
contract or arrangement for the purchase of goods or services which obligates
it to pay for such goods or service regardless of whether they are delivered or
furnished to it. No Related Person will amend or permit any amendment to any
contract or lease which releases, qualifies, limits, makes contingent or
otherwise detrimentally affects the rights and benefits of any Lender under or
acquired pursuant to any Security Documents. No ERISA Affiliate will incur any
obligation to contribute to any "multiemployer plan" as defined in Section 4001
of ERISA.
Section C.27. Working Capital. Parent's Consolidated Working Capital
will never be less than $1,000,000. As used herein, "Working Capital" means
Parent's Consolidated current assets minus Parent's Consolidated current
liabilities, provided that for the purposes of determining Working Capital: (i)
Consolidated current assets will be calculated without including (1) any
accounts receivable or other Debts owed to Parent by its Affiliates, employees
or shareholders, and (2) any account receivable unpaid more than 120 days after
its original invoice date, and (ii) for so long as no Event of Default exists,
Consolidated current liabilities will be calculated without including any
payments of principal on the Obligations and the Other Allowed Debt which are
required to be made within one year from the time of calculation.
Section C.28. Tangible Net Worth. Parent's Consolidated Tangible Net
Worth plus any contributions made pursuant to the Farmout Agreement to Smith
Management LLC in the form of common stock of Borrower will never be less than
$35,000,000.
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Section C.29. EBITDA. At the end of any Fiscal Quarter, beginning with
the Fiscal Quarter ending September 30, 1998, the ratio of (i) Parent's EBITDA
to (ii) required interest payments on Parent's Consolidated Debt, for the
four-Fiscal Quarter period ending with such Fiscal Quarter will not be less
than (a) 1.30 to 1.00 for any Fiscal Quarter ending on or before December 31,
1998, (b) 1.50 to 1.00 for any Fiscal Quarter ending after December 31, 1998
and on or before March 31, 1999, (c) 1.70 to 1.00 for any Fiscal Quarter ending
after March 31, 1999 and on or before June 30, 1999, and (d) 3.00 to 1.00 for
any Fiscal Quarter thereafter.
Section C.30. General and Administrative Expenses. Parent's
Consolidated general and administrative expenses in any Fiscal Year shall not
exceed the ANCF Overhead Costs for such Fiscal Year.
Section C.31. No Public Announcements. No Related Person may make any
public announcement or disclosure of the transactions contemplated by this
Agreement or any other Loan Document, except as required by law or approved by
Agent, in its sole and absolute discretion prior to the making of any such
public announcement or disclosure.
Section C.32. Refinery Acquisitions. No Related Person will enter into
an acquisition of a refinery (regardless of whether or not the proceeds of any
Loan are used to finance such acquisition), other than such Investments
existing as of September 11, 1998 and the acquisition of the Pennzoil Refinery,
unless all aspects of such acquisition, including the structure of the
acquisition, related documentation, additional Security Documents, liabilities
to be assumed by any Related Person in connection therewith, and environmental
inspections, have been reviewed and approved by Lenders in their absolute
discretion.
Section C.33. Transactions Regarding Pennzoil Refinery. If Inland
Refining does not acquire the Pennzoil Refinery for any reason, but such
Pennzoil Refinery is acquired by any Affiliate or any 2% Affiliate of a Related
Person, then no Related Person shall enter into any contract for the sale,
purchase, processing, refining or treatment of hydrocarbons with the owner,
operator or lessee of such Pennzoil Refinery unless such contract is on terms
and conditions that are no less favorable than those which would have been
obtained in an arms length transaction with Persons other than Affiliates,
which shall be determined by Agent in its reasonable discretion, and unless
Agent has been provided with thirty (30) days prior written notice of the
contract.
Section C.34. Sound Refining Note. Neither Inland Refining nor any
Environmental Affiliate of Inland Refining shall institute any foreclosure
proceedings, take possession of, manage, operate, or exert controlling
influence over any property or facility which secures the Sound Refining Note
and is encumbered by the Sound Refining Deed of Trust, without first obtaining
the prior written consent of Agent, which consent may be granted or withheld in
Agent's sole and absolute discretion.
Section C.35. Inland Refining. As of the date hereof, Inland Refining
shall (a) act solely in its own name and through its duly authorized directors
and officers in the conduct of its business, and shall conduct its business so
as not to mislead others as to the identity of the entity with which they are
concerned, (b) keep in full effect its existence and rights as a corporation
under the laws of the State of Utah by taking all actions required by the
corporation laws of Utah, including convening regular meetings of shareholders
and directors, (c) cause not less than two of its three directors to be
Independent Directors, (d) cause its employees and officers to not be officers,
directors or employees of Borrower or Parent, (e) cause all its actions to be
taken by a duly authorized officer of Inland Refining, (f) maintain corporate
minutes, books and accounts separate from those of Parent, (g) maintain
capitalization adequate to meet its obligations and business objectives and (h)
design and
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implement an environmental management plan to ensure compliance with and manage
liability under Environmental Laws. For purposes of this Section C.34, the term
'Independent Director' means any Person who is not and for the prior five years
has not been an officer, director, or employee of either Parent or Borrower.
Section C.36. Parent's and other Related Persons' Actions Regarding
Inland Refining. With respect to Inland Refining, neither Parent nor Borrower
shall (a) either directly or indirectly, provide any additional funds to Inland
Refining, either through an equity investment, loan, loan guarantee or any
other means, except for (i) the Production/Refining Credit Agreement permitted
pursuant to Section C.37, (ii) the Parent guaranties permitted pursuant to
Section C.18(h), and (iii) funds required to finance the acquisition of the
Pennzoil Refinery, (b) pay the salaries of Inland Refining's employees or
reimburse Inland Refining for any costs, expenses or losses incurred by Inland
Refining, (c) have direct involvement with or direct control over any
environmental management plan and/or remediation program concerning any
property owned by Inland Refining, including the Crysen Refinery, and (d) have
direct control over the day-to-day management and operations or the financial
affairs of Inland Refining.
Section C.37. Inventory and Accounts Receivable. Except for the
inventory and accounts receivable which Inland Refining purchased in connection
with the sale of the Sound Refinery to SJCC, Inland Refining shall not purchase
or have any ownership interest in any inventory or accounts receivable located
on, arising from or associated with the Sound Refinery.
Section C.38. Production/Refining Loan. Borrower shall be permitted to
make loans or advances to Inland Refining, and may cause Letters of Credit to
be issued for the benefit of Inland Refining pursuant to the Bank Agreement, in
each case under the Production/Refining Credit Agreement, provided that the
aggregate principal amount of all loans to Inland Refining plus the aggregate
amount of Letters of Credit issued to or for the account of Inland Refining,
plus any amounts that have been advanced pursuant to any such Letter of Credit
which have not been reimbursed by Inland Refining to Borrower, shall not exceed
$20,000,000 in the aggregate at any one time outstanding.
Section C.39. Inland Refining Contract. Parent and Borrower hereby
agree that they shall not amend the Inland Refining Contract without obtaining
the prior written consent of Required Lenders, which consent may be given or
withheld in Required Lenders' sole and absolute discretion.
Section C.40. Capital Expenditures. Inland Refining agrees that it
will not make any capital expenditures relating to the Crysen Refinery and the
Pennzoil Refinery in an amount exceeding $3,000,000 in the aggregate during any
Fiscal Year ending on or prior to December 31, 1997 or in an amount exceeding
$5,000,000 in the aggregate after January 1, 1998, without first obtaining the
prior written consent of Required Lenders, which consent may be given or
withheld in Required Lenders' sole and absolute discretion; provided, however,
that Inland Refining shall make any capital expenditures with respect to
modifications, repairs or improvements to the Crysen Refinery required to
comply with or address liability under any Law applicable to the Crysen
Refinery, including any Environmental Law, after providing advance written
notice to Agent concerning the applicability of such requirements.
Section C.41. Farmout Transactions. On or before December 31, 1998,
Parent shall have received at least $17,000,000 in proceeds from the Farmout
Agreement which shall have been or shall be applied to drilling, completing and
equipping wells pursuant to the Farmout Agreement. Parent shall not make nor
shall Parent permit any Related Person to make any payment of cash or other
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property to the Farmee (as such term is defined in the Farmout Agreement)
pursuant to the Farmout Agreement, whether in respect of production from wells
or otherwise, other than payments in the form of Parent's common stock pursuant
to the Farmout Agreement. Parent shall not allow nor shall Parent permit any
Restricted Person to allow proceeds of production from any Earned Drillsite (as
such term is defined in the Farmout Agreement) or any well thereon or other
cash to be retained by Farmee in lieu of receiving a payment or distribution in
the form of Parent's common stock pursuant to the Farmout Agreement. Parent (i)
shall not amend or modify the Farmout Agreement in any material respect and
(ii) will give prompt notice to Agent of any breach by any Restricted Person or
by Farmee (as such term is defined in the Farmout Agreement) under the Farmout
Agreement.
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ANNEX D
COMMON EVENTS OF DEFAULT
Section D.1 Any Related Person fails to pay the principal component of
any Obligation when due and payable, whether at a date for the payment of a
fixed installment or as a contingent or other payment becomes due and payable
or as a result of acceleration or otherwise, and such failure is not remedied
in full within one (1) Business Day thereafter.
Section D.2. Any Related Person fails to pay any Obligation (other
than the Obligations in Section D.1 above) when due and payable, whether at a
date for the payment of a fixed installment or as a contingent or other payment
becomes due and payable or as a result of acceleration or otherwise, within one
(1) Business Day after the same becomes due in the case of interest or fifteen
(15) days thereafter in the case of any other Obligation.
Section D.3. Any "default" or "event of default" occurs under any Loan
Document which defines either such term, and the same is not remedied within
the applicable period of grace (if any) provided in such Loan Document.
Section D.4. Any Related Person fails to duly observe, perform or
comply with any covenant, agreement or provision of Section C.3 or any of
Sections C.17 through and including C.41 of Annex C.
Section D.5. Any Related Person fails (other than as referred to in
Sections D.1, D.2, D.3 or D.4 above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after notice of
such failure is given by Agent to Borrower.
Section D.6. Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Related Person in connection
with any Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made, or any Loan Document at
any time ceases to be valid, binding and enforceable as warranted in Section
B.5 of Annex B for any reason other than its release or subordination by Agent.
Section D.7. Any Related Person fails to duly observe, perform or
comply with (a) any agreement with any Person or any term or condition of any
instrument, if such agreement or instrument is materially significant to
Borrower or to Parent and its Subsidiaries on a Consolidated basis or
materially significant to any Guarantor, or (b) any provision of any Other Loan
Document and, in either case, such failure is not remedied within the
applicable period of grace (if any) provided in such agreement or instrument.
Section D.8. Any Related Person (iii) fails to pay any portion, when
such portion is due, of any of its Restricted Debt in excess of $100,000 (other
than the Obligations, the Other Allowed Debt and Debt described in Section C.6
of Annex C which is not required to be paid so long as the Related Person is in
good faith contesting the validity thereof by appropriate proceedings), or (iv)
breaches or defaults in the performance of any agreement or instrument by which
any such Restricted Debt is issued, evidenced, governed, or secured, and any
such failure, breach or default continues beyond any applicable period of grace
provided therefor.
D-1
<PAGE> 58
Section D.9. Either (v) any "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as amended) in
excess of $100,000 exists with respect to any ERISA Plan, whether or not waived
by the Secretary of the Treasury or his delegate, or (vi) any Termination Event
occurs with respect to any ERISA Plan and the then current value of such ERISA
Plan's benefit liabilities exceeds the then current value of such ERISA Plan's
assets available for the payment of such benefit liabilities by more than
$100,000 (or in the case of a Termination Event involving the withdrawal of a
substantial employer, the withdrawing employer's proportionate share of such
excess exceeds such amount).
Section D.10. Any Related Person:
(a) suffers the entry against it of a judgment, decree or
order for relief by a Tribunal of competent jurisdiction in an
involuntary proceeding commenced under any applicable bankruptcy,
insolvency or other similar Law of any jurisdiction now or hereafter
in effect, including the federal Bankruptcy Code, as from time to time
amended, or has any such proceeding commenced against it which remains
undismissed for a period of sixty days; or
(b) commences a voluntary case under any applicable
bankruptcy, insolvency or similar Law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended;
or applies for or consents to the entry of an order for relief in an
involuntary case under any such Law; or makes a general assignment for
the benefit of creditors; or fails generally to pay (or admits in
writing its inability to pay) its debts as such debts become due; or
takes corporate or other action to authorize any of the foregoing; or
(c) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of any
part of the Collateral in a proceeding brought against or initiated by
it, and such appointment or taking possession is neither made
ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it; or
(d) suffers the entry against it of a final judgment for the
payment of money in excess of $100,000 (not covered by insurance
satisfactory to Agent in its discretion), unless the same is
discharged within thirty days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within
such period and a stay of execution pending such appeal is obtained;
or
(e) suffers a writ or warrant of attachment or any similar
process to be issued by any Tribunal against all or any substantial
part of its assets or any part of the Collateral, and such writ or
warrant of attachment or any similar process is not stayed or released
within thirty days after the entry or levy thereof or after any stay
is vacated or set aside.
Section D.11. Any Change in Control occurs.
Section D.12. Any "Event of Default" (as defined in the Other Loan
Documents) occurs under the Other Loan Documents.
D-2
<PAGE> 59
SCHEDULE 1
DISCLOSURE SCHEDULE
To supplement the following sections of the Agreement of which this
Schedule is a part, Parent and Borrower hereby make the following disclosures:
<TABLE>
<S> <C> <C>
1. Section B.6 Initial Financial Statements:
No Material Adverse Change.
2. Section B.7 Other Obligations:
a. Swap Agreement with Joint Energy Development
Investments Limited Partnership, dated November 22,
1994, structured as a costless collar with a floor
price of $18.00 per barrel and a ceiling price of
$20.55 per barrel using the average settlement price
for the prompt month of NYMEX Light Sweet Crude Oil
for the following remaining quantities and periods
of time:
January 1, 1998 through December 31, 1998 12,500 barrels per month
January 1, 1999 through December 31, 1999 14,000 barrels per month
January 1, 2000 through December 31, 2000 14,000 barrels per month
b. Swap Agreement with Koch Oil Company, dated January
1, 1997, structured as a reverse collar with a Put
price of $18.00 per barrel and a Call strike price
of $20.55 per barrel using the average settlement
price for the prompt month of NYMEX Light Sweet
Crude Oil for the following quantities and periods
of time:
January 1, 1998 through December 31, 1998 12,500 barrels per month
January 1, 1999 through December 31, 1999 14,000 barrels per month
January 1, 2000 through December 31, 2000 14,000 barrels per month
c. Swap Agreement with Enron Capital and Trade
Resources dated March 12, 1998, structured as a
costless collar with a floor price of $14.50 per
barrel and a ceiling price of $17.70 per barrel
using the average settlement price for the prompt
month of NYMEX Light Sweet Crude Oil for the
following remaining quantities and periods of time:
April 1, 1998 through December 31, 1998 75,000 barrels per month
3. Section B.9 Litigation:
None.
</TABLE>
<PAGE> 60
<TABLE>
<S> <C> <C>
4. Section B.10 Labor Disputes and Acts of God:
None.
5. Section B.11 ERISA Liabilities:
a. Inland Resources Inc. 401(k) Plan.
b. Inland Resources Inc. Section 125 Cafeteria Plan.
c. Inland Resources Inc. Medical Plan through Cigna Healthcare
6. Sections B.12 Environmental Laws and Other:
None. However, upon closing the purchase of the Pennzoil
Refinery, there is an environmental clean-up taking place
which is the contractual responsibility of Pennzoil Products
Company.
7. Sections B.13 Names and Places of Business:
a. On April 28, 1993, the name of Inland Gold and
Silver Corp. was changed to Inland Resources Inc.
for the past five years, Parent's places of business
have been:
February 1998 until Present
410 Seventeenth Street, Suite 700
Denver CO 80202
June 1993 until February 1998
475 Seventeenth Street, Suite 1500
Denver CO 80202
b. On July 1, 1995, the name of Lomax Exploration
Company was changed to Inland Production Company.
For the past five years, Borrower's places of
business have been:
February 1998 until Present
410 Seventeenth Street, Suite 700
Denver CO 80202
October 1994 until February 1998
P.O. Box 1446 Also 475 Seventeenth Street
West Pole Road Suite 1500
Roosevelt UT 80466 Denver CO 80202
</TABLE>
2
<PAGE> 61
<TABLE>
<S> <C>
June 1993 through September 1994
77 West, 200 South, Suite 402
Salt Lake City UT 84101
8. Section B.14 Subsidiaries and Stockholdings:
Subsidiaries
a. Borrower is 100% owned by Parent
b. Inland Refining is 100% owned by Parent
Partnership Interest
a. Borrower is a General Partner in the following Limited
Partnerships:
LOEX Properties 1983, LTD, a Texas Limited
Partnership, Borrower has a 0.62% interest
in the partnership. The partnership's
principal place of business is 410
Seventeenth Street, Suite 700, Denver CO
80202.
LOEX Properties 1984, LTD, a Texas Limited
Partnership, Borrower has a 0.57% interest
in the partnership. The partnership's
principal place of business is 410
Seventeenth Street, Suite 700, Denver CO
80202.
b. Borrower is a Managing Partner in the following General
Partnerships:
West Monument Butte Pipeline Company, a
Texas General Partnership, Borrower has an
80.96% interest in the partnership. The
partnership's principal place of business
is 410 Seventeenth Street, Suite 700,
Denver CO 80202.
9. Section C.18. Restricted Debt:
All-Inclusive Promissory note secured by All-Inclusive Deed
of Trust payable to the Carmen Family Investment Company
dated May 1, 1995, for a total of $202,906.67 principal
balance to be paid in fourteen annual installments of
$26,797.54 including interest (interest rate is 9.5% per
annum). The All-Inclusive Deed of Trust includes lands in
Township 8 South, Range 17 East, S.L.M. in Sections 20 (NE
1/4 of the SE 1/4), 21 (SE 1/4) and 28 (N 1/2 of the NW 1/4)
in Duchess County, Utah.
</TABLE>
3
<PAGE> 62
SCHEDULE 2
Security Schedule
1. Deed of Trust, Mortgage, Line of Credit Mortgage, Assignment,
Security Agreement, Fixture Filing and Financing Statement from Borrower to
Collateral Agent dated as of September 30, 1998.
2. Pledge Agreement from Parent to Collateral Agent, dated as of
September 23, 1997, as amended by that certain First Amendment to Pledge
Agreement dated as of May 29, 1998, as the same may be amended, supplemented,
restated, or ratified from time to time.
3. UCC-1 Financing Statement by Parent filed in the Office of the
Secretary of State of Colorado on October 1, 1997 as Instrument No.
19972083891.
4. UCC-1 Financing Statement by Parent filed in the Office of the
Secretary of State of Texas on October 1, 1997 as Instrument No. 97-203172.
5. UCC-3 Amendment by Parent filed in the Office of the Secretary of
State of Colorado on June 25, 1998 as Instrument No. 1998241245.
6. UCC-3 Amendment by Parent filed in the Office of the Secretary of
State of Texas on June 25, 1998 as 1325979-4.
6. Security Agreement from Borrower to Collateral Agent, dated as of
September 23, 1997, as the same has been or may be amended, supplemented,
restated, or ratified from time to time.
7. UCC-1 Financing Statement by Borrower filed with the Secretary of
State of Colorado on October 1, 1997 , as Instrument No. 19972083890.
8. UCC-1 Financing Statement by Borrower filed with the Secretary of
State of Utah on October 1, 1997 , as Instrument No. 97-580397.
9. Security Agreement from Inland Refining to Collateral Agent, dated
as of May 29, 1998, as the same has been or may be amended, supplemented,
restated, or ratified from time to time.
10. UCC-1 Financing Statement by Inland Refining filed with the
Secretary of State of Colorado on June 25, 1998 , as Instrument No.
19982041247.
11. UCC-1 Financing Statement by Inland Refining filed with the
Secretary of State of Texas on June 25, 1998 , as Instrument No. 98-129065.
12. UCC-1 Financing Statement by Inland Refining filed with the
Secretary of State of Utah on June 25, 1998 , as Instrument No. 8176410010.
<PAGE> 63
13. Deed of Trust, Assignment, Security Agreement, Fixture Filing and
Financing Statement from Inland Refining to Collateral Agent, dated as of May
29, 1998 and recorded in the Davis County Recorder Office as Instrument No.
1408691, Book 2299, Page 937.
14. Guaranty from Parent to Agent and Collateral Agent dated as of
September 23, 1997 as the same has been or may be amended, supplemented,
restated, or ratified.
15. Guaranty from Inland Refining to Agent and Collateral Agent dated
as of September 23, 1997 as the same has been or may be amended, supplemented,
restated, or ratified.
- 2 -
<PAGE> 64
SCHEDULE 3
Insurance Schedule
<TABLE>
<CAPTION>
Policy Name of Type of Term
Number Insurance Company Policy of Policy
------ ----------------- ------ ---------
<S> <C> <C> <C> <C>
A. 37650017 TIG Insurance Co. of Michigan General Liability 6/1/97 - 6/1/98
General Liability:
------------------
a) Limits:
$2,000,000 General Aggregate
$1,000,000 Products/Completed Operations Aggregate
$1,000,000 Each Occurrence
$1,000,000 Personal and Advertising Injury
$1,000,000 Fire Damage
$ 10,000 Medical Expense
b) Coverage:
Commercial General Liability Form
B. CCOPA58396 Security Insurance Company Property 6/1/97 -
of Hartford 6/1/98
a) Limits:
$500,000 Blanket
b) Deductible:
$1,000 per occurrence
C. 1638-00-13682 Wausau Underwriters Automobile 6/1/97 -
Insurance Company 6/1/98
a) Limits:
$1,000,000 Each accident combined single limit
Bodily injury and property damage liability including hired and
non-owned auto liability
$1,000,000 Uninsured/underinsured motorists coverage
Each accident combined single limit
Bodily personal injury protection
Basic Person personal injury protection
</TABLE>
<PAGE> 65
<TABLE>
<S> <C> <C> <C> <C>
D. 37650017 TIG Insurance Co. of Michigan Umbrella 6/1/97 -
6/1/98
a) Limits:
$10,000,000 Aggregate
$10,000,000 Each Occurrence
E. 37650017 TIG Insurance Co. of Michigan OEE 6/1/97 -
6/1/98
a) Limits:
$6,000,000 Drilling Limit
$3,000,000 Producing Limit Each Occurrence Combined
b) Deductible:
$ 25,000 Each Incident
</TABLE>
-2-
<PAGE> 66
SCHEDULE 4
SCHEDULED BANK PAYMENTS
<TABLE>
<CAPTION>
Quarterly Amount
Payment Date of Payment
------------ ----------
<S> <C>
June 29, 1999 $6,222,222
Sept 29, 1999 $6,222,222
Dec 30, 1999 $6,222,222
Mar 30, 2000 $4,666,666
June 29, 2000 $4,666,666
Sept 28, 2000 $4,666,666
Dec 28, 2000 $4,666,666
Mar 29, 2001 $3,888,889
June 28, 2001 $3,888,889
Sept 27, 2001 $3,888,889
Dec 28, 2001 $3,888,889
Mar 28, 2002 $3,500,000
June 27, 2002 $3,500,000
Sept 27, 2002 $3,500,000
Dec. 30, 2002 $3,500,000
Mar 28, 2003 $3,111,114
</TABLE>
<PAGE> 67
SCHEDULE 5
Calculation of 12.5% Internal Rate of Return
Reference is made to the Agreement to which this Schedule is attached
for the meaning of terms defined therein and used herein without further
definition. As used herein, the following additional terms have the following
meanings:
"LOAN DOCUMENT DISBURSEMENTS" means, with respect to the A Note,
$65,000,000 of the Advance and all other amounts advanced or expended by
Noteholder, Agent or Collateral Agent which Borrower is obligated to repay or
reimburse under the Credit Agreement or any Loan Document, and, with respect to
the B Note, $10,000,000 of the Advance.
"LOAN DOCUMENT PAYMENTS" means all payments received by Noteholder,
Agent or Collateral Agent pursuant to any Loan Documents, including all
interest and principal on the Note (excluding any interest in excess of 9.75%
per annum paid on any past due amount), the financing fee payable under Section
2.4 of the Credit Agreement and all reimbursements of other Loan Document
Disbursements.
"12.5% IRR" means a twelve and one-half (12.5%) percent nominal,
cash-on-cash internal rate of return on all Loan Document Disbursements
calculated over the period from the date of the initial Advance to the date in
question. The method of calculating such rate of return is set forth in the
example on page 5-3 of this Schedule (the "Example Calculation"), and the
present value discount factors to be used for calculating such internal rate of
return are set forth on page 5-4 of this Schedule.
The periods referred to in the Example Calculation are calendar
quarters (January through March, April through June, July through September,
and October through December), with the exception of Period 0, which is from
the date of the Advance under the Note to and including September 30, 1997, and
Period 1, which is the period beginning on September 30, 1997 and ending on
December 31, 1997.
All Loan Document Disbursements and all Loan Document Payments will be
treated as shown in the Example Calculation.
The Advance will be discounted by a discount factor of 1.0. The
financing fee will be discounted by a discount factor of 1.0 provided the fee
is received on the date of the Advance. Each subsequent Loan Document
Disbursement will be discounted by the discount factor corresponding to the
period in which it is advanced or disbursed (e.g., a Loan Document Disbursement
made in October 1997 would be discounted by a factor of 0.969365). All Loan
Document Payments will be discounted by the discount factor corresponding to
the period in which they are received (e.g., Loan Document Payments received in
March, 1998 will be discounted by a factor of 0.939991).
If Noteholder elects to have a 12.5% IRR calculated on all but
$10,000,000 of the Loan Document Disbursements (as to which $10,000,000 the
12.5% IRR Calculation shall be made at the time and in the manner set forth in
the Warrant Documents), the last $10,000,000
<PAGE> 68
advanced on the Loan will be excluded from the "Advance to Borrower" in
calculating the Additional Interest and "NPV of Cash Proceeds".
When the "NPV of Total Loan Amount" less the "NPV of Cumulative Cash
Proceeds" is less than or equal to zero, after Additional Interest has been
paid Noteholder will have been given a 12.5% IRR. In the Example Calculation,
this occurs in the quarter ending June 2000.
-2-
<PAGE> 69
EXHIBIT A
[INTENTIONALLY OMITTED]
<PAGE> 70
EXHIBIT B
[INTENTIONALLY OMITTED]
<PAGE> 71
EXHIBIT C
NOTICE OF BANK ADVANCE
Reference is made to that certain Amended and Restates Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company ("Borrower"), Inland
Resources Inc., Trust Company of the West, as holder of the Note ("Noteholder")
and TCW Asset Management Company, as Agent and Collateral Agent. Terms which
are defined in the Agreement are used herein with the meanings given them in
the Agreement. Pursuant to the terms of the Agreement, Borrower hereby notifies
Noteholder that it is requesting an advance under the Bank Credit Agreement in
the principal amount of $_________ and has specified __________ ___, 19__, as
the date Borrower desires for the Banks to make such advance.
To induce Noteholder to permit such advance, Borrower hereby
represents, warrants, acknowledges, and agrees that:
(a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below such
officer's signature hereby, having all necessary authority to act for
Borrower in making the request herein contained.
(b) The representations and warranties of Borrower set forth in the
Agreement and the other Loan Documents are true and correct on and as of
the date hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by the extension
of credit under the Agreement or Bank Credit Agreement), with the same
effect as though such representations and warranties had been made on and
as of the date hereof.
(c) There does not exist on the date hereof any condition or event
which constitutes a Default or Coverage Deficiency which has not been
waived in writing as provided in Section 7.1(a) of the Agreement; nor will
any such Default or Coverage Deficiency exist upon Borrower's receipt and
application of the advance being requested.
(d) Except to the extent waived in writing as provided in Section
9.1(a) of the Agreement, Borrower has performed and complied with all
agreements and conditions in the Agreement required to be performed or
complied with by Borrower on or prior to the date hereof, and each of the
conditions precedent to Advances contained in the Agreement remains
satisfied.
(e) The Loan Documents and the Bank Documents have not been modified,
amended or supplemented by any unwritten representations or promises, by
any course of dealing, or by any other means not provided for in Section
9.1 of the Agreement. The Agreement and the other Loan Documents are hereby
ratified, approved, and confirmed in all respects.
<PAGE> 72
The person signing this instrument hereby certifies, in his capacity
as an officer of Borrower and in the name and on behalf of Borrower, that, to
the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of _________ ___,
199_.
INLAND PRODUCTION COMPANY
By
--------------------------------------
Name:
Title:
2
<PAGE> 73
EXHIBIT D
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain Amended and Restated Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company ("Borrower"), Inland
Resources Inc. ("Parent"), Trust Company of the West, as holder of the Note
("Noteholder") and TCW Asset Management Company, as Agent and Collateral Agent,
which Agreement is in full force and effect on the date hereof. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.
This Certificate is furnished pursuant to Section C.1(b) of Annex C to
the Agreement. Together herewith Parent is furnishing to Noteholder Parent's
*[audited/unaudited] [Consolidated/Consolidating] financial statements (the
"Financial Statements") as at ____________ (the "Reporting Date"). Parent
hereby represents, warrants, and acknowledges to Noteholder that:
a. the officer of Parent signing this instrument is the duly elected,
qualified and acting ____________ of Parent and as such is Parent's chief
financial officer;
b. the Financial Statements fairly present, in accordance with GAAP
and in all material respects, the matters set forth therein and satisfy the
requirements of the Agreement;
c. attached hereto is a schedule of calculations showing Borrower's
and Parent's compliance as of the Reporting Date with the requirements of
Sections ____________ of the Agreement *[and non-compliance as of such date
with the requirements of Section(s) ____________ of the Agreement];
d. on the Reporting Date, Borrower and Parent were, and on the date
hereof Borrower and Parent are, in full compliance with the disclosure
requirements of Section C.3 of Annex C to the Agreement, and no Default
otherwise existed on the Reporting Date or otherwise exists on the date of
this instrument *[except for Default(s) under Section(s) ____________ of
the Agreement, which [is/are] more fully described on a schedule attached
hereto].
The officer of Parent signing this instrument hereby certifies, in his
capacity as an officer of Parent and in the name and on behalf of Parent, that
he has reviewed the Loan Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable him
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of Parent and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and
complete.
<PAGE> 74
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19____. INLAND PRODUCTION COMPANY
By
--------------------------------------
Name:
Title:
2
<PAGE> 75
EXHIBIT E
ENVIRONMENTAL COMPLIANCE CERTIFICATE
Reference is made to that certain Amended and Restated Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company ("Borrower"), Inland
Resources Inc., and Trust Company of the West and TCW Asset Management Company
(in the capacities described therein). Terms which are defined in the Agreement
are used herein with the meanings given them in the Agreement. The undersigned,
being the *[President/Chief Executive Officer] of Borrower, hereby certifies,
in his capacity as an officer of Borrower and in the name and on behalf of
Borrower, to Agent and Collateral Agent as follows:
1. For the Fiscal Year ending immediately prior to the date hereof,
Borrower has complied and is complying with Section C.11 of Annex C to the
Agreement *[except as set forth in Schedule I attached hereto];
2. To the best knowledge of the undersigned after due inquiry,
Borrower is on the date hereof in compliance with all applicable
Environmental Laws, noncompliance with which could cause a Material Adverse
Change;
3. Borrower has taken (and continues to take) steps to minimize the
generation of potentially harmful effluents;
4. Borrower has established an ongoing program of conducting an
internal audit of each operating facility of Borrower to identify actual or
potential environmental liabilities which could cause a Material Adverse
Change; and
5. Borrower has established an ongoing program of training its
employees in issues of environmental, health and safety compliance, and
Borrower presently has one or more individuals in charge of implementing
such training program.
The officer of Borrower signing this instrument hereby certifies, in
his capacity as an officer of Borrower and in the name and on behalf of
Borrower, that, to the best of his knowledge after due inquiry and consultation
with the operating officers of Borrower, the above representations, warranties,
acknowledgements, and agreements of Borrower are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19____.
INLAND PRODUCTION COMPANY
By
--------------------------------------
Name:
Title:
<PAGE> 76
EXHIBIT F
APPROVAL LETTER
[Date]
Inland Production Company
410 Seventeenth Street, Suite 700
Denver, Colorado 80202
Attention: _____________________
Gentlemen:
Reference is made to the Amended and Restated Credit Agreement dated
September 11, 1998, among Inland Production Company, Inland Resources, Inc.,
Trust Company of the West, as Noteholder, and TCW Asset Management Company, as
Agent and Collateral Agent. (Such Credit Agreement, as from time to time
amended, is herein called the "Credit Agreement"). Reference is hereby made to
the Credit Agreement for all purposes, and terms defined therein shall have the
same meanings when used herein.
The Credit Agreement contemplates that certain Approval Letters may be
given from time to time in connection therewith in order to specify certain
ANCF Capital Expenditures, ANCF LOE, ANCF Overhead Costs, or ANCF
Transportation Costs. This letter is such an Approval Letter and is given by
the undersigned in order so to approve the ANCF _____________ which are
specified in the schedule attached hereto.
This letter [is in addition to/supersedes] all previous Approval
Letters dealing with ANCF _______________.
This letter is a Loan Document, and all provisions of the Credit
Agreement which apply to Loan Documents shall apply hereto.
This letter may be separately executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which
when so executed shall be deemed to constitute one and the same Approval
Letter.
<PAGE> 77
Please execute a counterpart of this letter in the place provided
below to evidence your agreement to the foregoing and your continuing
ratification of the Credit Agreement and the other Loan Documents in
consideration of the approval herein contained.
Yours truly,
TCW ASSET MANAGEMENT COMPANY,
as Agent under the Credit Agreement
By:
--------------------------------------
Name:
Title:
Accepted and agreed to as
of the date first written
above
INLAND PRODUCTION COMPANY
By:
- -----------------------------------
Name:
Title:
2
<PAGE> 1
EXHIBIT 4.2.3
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(herein called this "Amendment") made as of the 5th day of March, 1999 by and
among Inland Production Company, a Texas corporation, (herein called
"Borrower"), Inland Resources Inc., a Washington corporation (herein called
"Parent"), and Trust Company of the West, in its capacity as holder of the Note
(in such capacity, "Noteholder"), and TCW Asset Management Company, in its
capacities as Agent and Collateral Agent ("Agent").
W I T N E S S E T H:
WHEREAS, Borrower, Parent, Noteholder, and Agent, have entered
into that certain Amended and Restated Credit Agreement dated as of September
11, 1998 (as amended, restated, or supplemented to the date hereof, the "Amended
Agreement");
WHEREAS, Borrower, Parent, Agent Bank, and the Banks have
entered into that certain Amended and Restated Credit Agreement dated as of
September 11, 1998, (as amended, restated, or supplemented to the date hereof,
the "Amended Bank Agreement'), for the purposes and consideration therein
expressed, pursuant to which the Banks became obligated to make loans to
Borrower as therein provided:
WHEREAS, Borrower, Parent, Noteholder, Agent, Agent Bank and
Banks have entered into that certain Amended and Restated Intercreditor
Agreement dated as of September 11, 1998, as amended, restated, or supplemented
to the date hereof;
WHEREAS, Borrower, Parent, Noteholder and Agent desire to
amend the Amended Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the Amended Agreement,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
Article I.
Definitions and References
Section 1.1. Terms Defined in the Amended Agreement. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Amended Agreement shall have the same meaning whenever used in
this Agreement.
Article II.
Amendments to Amended Agreement
Section 2.1. Deferral of Scheduled Interest Payments. Notwithstanding
Section 2.1 of the Amended Agreement, the interest accruing on the Notes for the
period beginning on January 1, 1999 and ending June 30, 1999 and otherwise due
on the Quarterly Payment Dates in March 1999
1
<PAGE> 2
and June 1999 (the "Deferred Interest") shall be deferred and be payable on the
Initial Amortization Date. The Deferred Interest shall bear interest at the Late
Payment Rate, compounded quarterly, from the Quarterly Payment Dates on which it
was originally due until paid.
Section 2.2. Additional Covenant. Subsection 5.1(g) is hereby added to
Section 5.1 of the Amended Agreement immediately after Subsection 5.1(f) thereof
as follows:
(g) Hedging Contracts. Within ten (10) days of receipt of a
written request from Agent, on behalf of the Noteholder, Borrower shall
enter into, or cause any other Related Person to enter into, any
forward, swap or hedging contract with respect to projected hydrocarbon
production or refined product production of any Related Person that
Agent requests such Related Person enter into. Borrower, and by their
consent hereto Parent and Inland Refining, hereby waive and release any
claim against Agent, Noteholder or Collateral Agent arising from any
loss, cost, expense, claim or liability incurred by any Related Person
arising from any forward, swap or hedging agreement or contract entered
into by any Related Person pursuant to the request of Agent as provided
herein.
Section 2.3. Additional Covenant. Section 6.6 of the Amended Agreement
is hereby added as follows:
"Section 6.6. LockBox Management. Parent and Borrower shall,
and shall cause Inland Refining to, direct all proceeds from the sales
of crude oil and natural gas ("E&P revenue") and petroleum products
("refining revenue") to be deposited into one or more lockboxes in the
name of Parent, Borrower or Inland Refining, as the case may be, and
administered by U.S. Bank National Association subject to a first
priority security interest securing the Bank Debt and a second priority
security interest securing the Obligations. Parent and Borrower agree
that if the proceeds of any E&P revenue or refining revenue shall be
received by it or by any other Related Person, Parent shall as promptly
as possible deposit such proceeds into the lockbox account, such
account to be administered by and held at U.S. Bank, National
Association. Until so deposited, all such E&P revenue and refining
revenue proceeds shall be held in trust by Parent and shall not be
commingled with any other funds or property of Parent."
Article III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become effective as
of the date first above written when and only when Agent shall have received, at
Agent's office.
(i) a counterpart of this Amendment executed and delivered
by Borrower,
(ii) a certificate of a duly authorized officer of
Borrower to the effect that all of the representations and warranties
set forth in Article IV hereof are true and correct at and as of the
time of such effectiveness,
2
<PAGE> 3
(iii) evidence acceptable to Agent in its sole discretion
that all of the conditions of effectiveness to the First Amendment of
the Amended Bank Agreement in the form of Exhibit 1 hereto have been
satisfied,
(iv) lockbox agreement executed and delivered by Parent,
Borrower and Refining, in form and substance acceptable for U.S. Bank
National Association and Agent,
(v) Warrants issued to purchase Fifty-Eight Thousand Five
Hundred Twelve (58,512) shares of common stock of Inland Resources,
Inc., in the form of Exhibit 2 hereto,
(vi) Warrant Agreement in the form of Exhibit 3 hereto,
and
(vii) a First Amendment to the Amended and Restated
Intercreditor Agreement in the form of Exhibit 4 hereto executed by all
parties named therein.
Article IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower. In order to
induce Agent and Noteholder to enter into this Amendment, Borrower represents
and warrants to Agent and Noteholder that:
(a) The representations and warranties contained in
Article V of the Amended Agreement are true and correct at and as of
the time of the effectiveness hereof.
(b) Each of Borrower, Parent and Inland Refining is duly
authorized to execute and deliver this Amendment and the documents
listed in Sections 3.1(iv), (v), (vi) and (vii) (collectively, with
this Amendment, the "Amendment Documents") to which it is a party and
is and will continue to be duly authorized to perform its obligations
under the Amended Agreement and the other Amendment Documents. Each of
Borrower, Parent and Inland Refining has duly taken all action
necessary to authorize the execution and delivery of this Amendment and
the other Amendment Documents to which it is a party and to authorize
the performance of the obligations of Borrower, Parent and Inland
Refining hereunder and thereunder.
(c) The execution and delivery by each of Borrower, Parent
and Inland Refining of this Amendment and the other Amendment Documents
to which it is a party, the performance by each of Borrower, Parent and
Inland Refining of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby do not
and will not conflict with any provision of law, statute, rule or
regulation or of the articles of organization and regulations of
Borrower, Parent or Inland Refining, or of any material agreement,
judgment, license, order or permit applicable to or binding upon
Borrower, Parent or Inland Refining or result in the creation of any
lien, charge or encumbrance upon any assets or properties of Borrower,
Parent or Inland Refining. Except for those which have been duly
obtained, no consent, approval,
3
<PAGE> 4
authorization or order of any court or governmental authority or this
party is required in connection with the execution and delivery by each
of Borrower, Parent or Inland Refining of this Amendment and the other
Amendment Documents to which it is a party or to consummate the
transaction contemplated hereby and thereby.
(d) When duly executed and delivered, each of this
Amendment, the Amended Agreement and the other Amendment Documents will
be a legal and binding instrument and agreement of Borrower, Parent and
Inland Refining, enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency and similar laws applying to
creditors' rights generally and by principles of equity applying to
creditors' rights generally. No setoff, defense or counterclaim exists
with respect to any of the Obligations or otherwise with respect to any
of the obligations or duties of any Related Person under or in respect
of any of the Loan Documents.
(e) The unaudited quarterly financial statements of
Borrower, Parent and Inland Refining dated as of December 31, 1998
fairly present the financial position at such date and the statement of
operations and the changes in financial position for the period ending
on such date for Borrower, Parent and Inland Refining. Copies of such
financial statements have heretofore been delivered to Agent. Since
December 31, 1998, no material adverse change has occurred in the
financial condition or businesses of Borrower, Parent or Inland
Refining.
Article V.
Miscellaneous
Section 5.1. Ratification of Agreements; Release. The Amended Agreement
as hereby amended is hereby ratified and confirmed in all respects. The
execution, delivery and effectiveness of this Amendment and the other Amendment
Documents shall not, except as expressly provided herein or therein, operate as
a waiver of any right, power or remedy of Agent under the Amended Agreement or
any other Loan Document nor constitute a waiver of any provision of the Amended
Agreement or any other Loan Document. As further consideration and to induce the
Agent and the Collateral Agent to enter into and grant the accommodations
contained in this First Amendment, Borrower and by their consent hereto each of
Parent and Inland Refining, hereby also compromises, releases and discharges the
Noteholder, the Agent, Collateral Agent and their respective directors,
officers, shareholders, agents, employees, representatives, attorneys, and their
respective heirs, legal representatives, successors and assigns (collectively,
the "Lending Parties") from any and all claims, demands, causes of action,
remedies, suites, judgments, damages, expenses and liabilities (collectively,
"Claims") of any nature whatsoever, whether now know, suspected or claimed,
whether arising under common law, in equity, or under statute, which the
Borrower, Parent or Inland Refining has against the Lending Parties which may
have arisen at any time on or prior to the date hereof in connection with,
arising out of or related to the Loans, the Agreement and all Loan Documents
executed in connection therewith, or the enforcement or attempted enforcement by
the Noteholder, Collateral Agent or Agent of any of their rights, remedies, or
recourse related thereto.
Section 5.2. Survival of Agreements. All representations, warranties,
covenants and agreements of Borrower or any other Related Person herein shall
survive the execution and
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<PAGE> 5
delivery of this Amendment and the performance hereof and shall further survive
until all of the Obligations are paid in full. All representations, warranties,
acknowledgments and agreements contained in the Amended Agreement are hereby
reconfirmed on and as of the date hereof. All statements and agreements
contained in any certificate or instrument delivered by Borrower hereunder or
under the Amended Agreement to Noteholder shall be deemed to constitute
representations and warranties by, or agreements and covenants of, Borrower
under this Amendment and under the Amended Agreement.
Section 5.3. Loan Documents. This Amendment and the other Amendment
Documents are each a Loan Document, and all provisions in the Amended Agreement
pertaining to Loan Documents apply hereto and thereto.
Section 5.4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California and any
applicable laws of the United States of America in all respects, including
construction, validity and performance.
Section 5.5. Counterparts. This Amendment may be separately executed
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES.
5
<PAGE> 6
IN WITNESS WHEREOF, this Amendment is executed as of the date
first above written.
BORROWER: INLAND PRODUCTION COMPANY
By:
----------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Telecopy: (303) 893-0103
PARENT: INLAND RESOURCES INC.
By:
----------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Telecopy: (303) 893-0103
6
<PAGE> 7
NOTEHOLDER: TRUST COMPANY OF THE WEST, a California
trust company, as Sub-Custodian for Mellon
Bank for the benefit of Account No.
CPFF 873-3032
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
AGENT: TCW ASSET MANAGEMENT
COMPANY, a California
corporation, as Investment
Manager under that certain
Agreement dated as of June
13, 1994, between TCW Asset
Management Company and
Morgan Stanley Group, Inc.
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
COLLATERAL AGENT: TCW ASSET MANAGEMENT COMPANY, a California
corporation
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
7
<PAGE> 8
CONSENT AND AGREEMENT
Pursuant to the terms of that certain Amended and Restated
Intercreditor Agreement dated September 11, 1998, among Borrower, Parent, Agent,
the Banks, the Noteholder named therein, and the undersigned hereby consent to
the foregoing First Amendment to Amended and Restated Credit Agreement.
Bank and Agent ING (U.S.) CAPITAL LLC (successor to ING
(U.S.) Capital Corporation), as a Bank
and as Agent
By:
-------------------------------------
Christopher R. Wagner
Vice President
Banks U.S. BANK AND NATIONAL ASSOCIATION
By:
-------------------------------------
Name:
Title:
MEESPIERSON CAPITAL CORP.
By:
-------------------------------------
Name:
Title:
8
<PAGE> 9
CONSENT AND AGREEMENT
Parent and Inland Refining hereby consent to the provision of
this Amendment and the transactions contemplated herein, and hereby ratify and
confirm their respective Guaranty dated as of September 11, 1998, made by them
for the benefit of Agent, and agree that their obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and effect.
INLAND RESOURCES, INC.
By:
-------------------------------------
Bill I. Pennington
Chief Financial Officer
INLAND REFINING, INC.
By:
-------------------------------------
Bill Fink
President
9
<PAGE> 1
EXHIBIT 4.3.2
Execution
AMENDED AND RESTATED INTERCREDITOR AGREEMENT
This Amended and Restated Intercreditor Agreement (this
"Agreement") is made as of September 11, 1998, by the signatories hereto.
RECITALS:
1. Inland Production Company, a Texas corporation
("Borrower"), and Parent (as defined below) have entered into a Credit
Agreement dated as of September 23, 1997 (as amended, supplemented, or restated
to the date hereof, the "Original Bank Agreement") with the Banks (as defined
below), pursuant to which the Banks have agreed to extend credit to Borrower.
2. Borrower and Parent have also entered into a Credit
Agreement dated as of September 23, 1997 (as amended, supplemented, or restated
to the date hereof, the "Original TCW Agreement") with Trust Company of the
West ("Trustco") and TCW Asset Management Company ("Tamco"), each acting in
various capacities, pursuant to which the Noteholders (as defined below) have
agreed to extend credit to Borrower.
3. Borrower, Parent, Agent Lender (as defined below), Banks,
Agent Noteholder (as defined below), and Noteholders have entered into that
certain Intercreditor Agreement dated as of September 23, 1997 (as amended,
supplemented, or restated to the date hereof, the "Original Intercreditor
Agreement").
4. Borrower and Parent are entering into an Amended and
Restated Credit Agree ment of even date herewith which amends and restates the
Original Bank Agreement in its entirety (as from time to time supplemented or
amended in compliance with the terms hereof, the "Bank Agreement") with Agent
Lender and Banks, pursuant to which the Banks have agreed to extend credit to
Borrower.
5. Borrower and Parent are entering into an Amended and
Restated Credit Agree ment of even date herewith which amends and restates the
Original TCW Agreement in its entirety (as from time to time supplemented or
amended in compliance with the terms hereof, the "TCW Agreement") with Agent
Noteholder and Noteholders.
6. The execution and delivery of the Original Intercreditor
Agreement were conditions precedent to the extension of credit under both the
Original Bank Agreement and the Original TCW Agreement and the execution and
delivery of this Agreement are conditions precedent to the extension of credit
under the Bank Agreement and the TCW Agreement.
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and in
<PAGE> 2
order to induce the Banks and the Noteholders to extend credit to Borrower, the
parties hereto hereby agree as follows:
Section 1. Definitions and References.
(a) Specific Definitions. As used herein, the terms "Bank
Agreement," "Borrower," "Tamco," "TCW Agreement" and "Trustco" have the
meanings indicated above, and the following additional terms have the following
meanings:
"100% Dedication Quarter" means any Calculation Quarter
during which a "Coverage Deficiency" (as defined in the TCW Agreement), a TCW
Default or a Bank Default exists or in which Borrower is unable to make the
Scheduled Minimum Principal Payment (as defined in the TCW Agreement).
"Affiliates' ANCF" means, with respect to any Calculation
Quarter, the remainder of:
(a) the sum of all revenues and receipts of Parent and any
Subsidiary of Parent (including Inland Refining but excluding Borrower
and any Subsidiary of Borrower) from any source or activity (excluding
any funds received by Parent or any of its Subsidiaries from Approved
Sales or Financings or from sales of equity of Parent or from advances
under the Production/Refining Credit Agreement) accounted for under
GAAP during any Calculation Quarter, beginning with the Calculation
Quarter which starts April 1, 1998
less,
(b) the sum of all expenses and expenditures of Parent and
any Subsidiary of Parent (including Inland Refining but excluding
Borrower and any Subsidiary of Borrower), which expenditures shall be
approved by all Banks and Noteholders in their sole discretion,
accounted for under GAAP during such Calculation Quarter (excluding
any payments financed by funds described in the parenthetical phrase
contained in the immediately preceding subparagraph (a) above) for:
(i) applicable federal, state, or local income, ad
valorem, or franchise or other taxes;
(ii) operating expenses;
(iii) capital expenditures;
(iv) general and administrative expenses; and
2
<PAGE> 3
(v) amounts necessary for working capital purposes in the
ordinary course of business;
provided, however, that with respect to any Calculation Quarter for which
Affiliates' ANCF is less than zero, Affiliates' ANCF for such Calculation
Quarter shall be deemed to be zero and any such negative amount shall be
included in the calculation of Affiliate ANCF for the next Calculation Quarter.
"Agent Lender" means ING (U.S.) Capital Corporation, in its
capacity as Agent under the Bank Agreement, together with its successors in
such capacity.
"Agent Noteholder" means Tamco, in its capacity as Agent
under the TCW Agreement, together with its successors in such capacity.
"Allowed Bank Indebtedness" means:
(i) all principal indebtedness for loans made by, and letters
of credit issued by, the Banks under the Bank Documents, provided that
if loans made and letters of credit issued under the Bank Documents
during any applicable period set forth in the following table, when
added to loans outstanding and the undrawn amount of outstanding
letters of credit, exceed the amount set out opposite such period in
the following table, then (unless otherwise expressly agreed by Agent
Noteholder) the amount of such excess shall be excluded from Allowed
Bank Indebtedness:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Prior to January 1, 1998 $45,000,000
January 1, 1998 through December 31, 1998 $70,000,000
January 1, 1999 through March 31, 2000 $80,000,000
April 1, 2000 through June 30, 2000 $77,500,000
July 1, 2000 through September 30, 2000 $75,000,000
October 1, 2000 through December 31, 2000 $72,500,000
January 1, 2001 through March 31, 2001 $70,000,000
April 1, 2001 through June 30, 2001 $66,250,000
July 1, 2001 through September 30, 2001 $62,500,000
October 1, 2001 through December 31, 2001 $58,750,000
January 1, 2002 through March 31, 2002 $55,000,000
April 1, 2002 through June 30, 2002 $51,250,000
July 1, 2002 through September 30, 2002 $47,500,000
October 1, 2002 through December 31, 2002 $43,750,000
January 1, 2003 through March 31, 2003 $40,000,000
April 1, 2003 through June 30, 2003 $30,000,000
July 1, 2003 through September 30, 2003 $20,000,000
October 1, 2003 through December 31, 2003 $10,000,000;
</TABLE>
3
<PAGE> 4
it being expressly understood and agreed that (A) any conversion
between loans accruing interest based upon a prime or base rate of
interest and loans accruing interest based upon a eurodollar or
interbank offered rate or between loans with different eurodollar or
interbank offered rate interest periods, shall not be treated as a
funding of a new loan, (B) loans which constitute Allowed Bank
Indebtedness and are outstanding on the date of a decrease in the
amount of Allowed Bank Indebtedness in the foregoing table (as
contrasted with a new funding after such date) shall continue to be
Allowed Bank Indebtedness, and (C) the obligation of the Borrower to
make reimbursement under a drawing of any letter of credit and any
loan for the purpose of reimbursing any Bank for any amount drawn upon
a letter of credit (to the extent the loan does not exceed such amount
drawn) shall not be treated as a funding of a new loan and shall
continue to be treated as Allowed Bank Indebtedness,
and
(ii) all interest, fees, indemnifications, and expenses owing
by Borrower to any Bank under the Bank Documents, provided that there
shall be excluded from Allowed Bank Indebtedness any interest owing on
any loans which are themselves excluded from Allowed Bank Indebtedness
under the immediately preceding subsection (i) and any fees,
indemnifications, and expenses relating to any such excluded loans or
excluded interest,
and
(iii) obligations and liabilities in respect of Permitted
Interest Rate Hedges.
Any allowed claim in an Insolvency Proceeding of Borrower for any of
the foregoing Allowed Bank Indebtedness shall also constitute 'Allowed
Bank Indebtedness', but any disallowed claim in such a proceeding
shall cease to constitute 'Allowed Bank Indebtedness'.
"ANCF" means the sum of Borrower's ANCF plus Affiliates'
ANCF; provided, however, that no particular item of revenue, receipt, expense,
or expenditure is intended to be accounted for more than one time in the
calculation of Borrower's ANCF and Affiliates' ANCF for any Calculation
Quarter.
"ANCF Capital Expenditures" means capital expenditures made
or to be made in cash during the Calculation Quarter by Borrower on the
Eligible Mortgaged Properties to the extent the same have been included in the
Plan of Development as then in effect or approved at the time in question by
means of an Approval Letter, in either case, only if the expenditures are
4
<PAGE> 5
specified in such Plan of Development or Approval Letter as being payable from
ANCF rather than from advances under the TCW Agreement or the Bank Agreement.
"ANCF Hierarchy" has the meaning given in Section 3(a) hereof.
"ANCF LOE" means leasehold operating expenses and other field
level or lease level charges for operations on the Eligible Mortgaged
Properties, other than capital expenditures, to the extent the same have been
approved at the time in question by means of an Approval Letter.
"ANCF Overhead Costs" means general and administrative costs
of Borrower and Parent, and up front costs of or premium paid for Permitted
Commodity Hedges, to the extent the same have been approved at the time in
question by means of an Approval Letter.
"ANCF Transportation Costs" means (i) the actual costs of
gathering, processing, transporting and marketing production from the Eligible
Mortgaged Properties from the wellhead to the point of sale, provided that all
such costs are negotiated with, and payable to, third parties in arms' length
transactions on terms which are reasonable in the area of operations at the
time such prices are agreed to, and (ii) any other gathering, processing,
transportation or marketing costs, to the extent the same have been approved at
the time in question by means of an Approval Letter.
"Approval Letter" means, until the end of the Revolver Period
and the Bank Indebtedness is paid in full, any letter agreement substantially
in the form of Exhibit A hereto which is from time to time entered into by (a)
the Agent Noteholder, acting on behalf of the Noteholders, (b) the Agent
Lender, acting on behalf of the Banks, and (c) Borrower, and after the Bank
Indebtedness has been paid in full, any letter agreement substantially in the
form of Exhibit F to the TCW Agreement which is from time to time entered into
by the Agent Noteholder, acting on behalf of the Noteholders and Borrower . It
is anticipated that ANCF LOE, ANCF Overhead Costs and ANCF Transportation Costs
will be submitted by Borrower and approved in such Approval Letter in a
calendar year budget format (i) for the period from September 30, 1997 through
December 31, 1998 and (ii) thereafter for each succeeding calendar year,
subject to the right of Borrower to seek approval for modifications from time
to time by means of another Approval Letter.
"Approved Sales or Financings" means any sale of Properties
or other assets owned by Borrower, Parent or any Related Person or any
borrowing by Borrower, Parent or any Related Person (with Noteholders, Banks or
a third party) which is from time to time approved by the Agent Noteholder and
the Agent Lender and which is designated as an "Approved Sale or Financing" in
such approvals.
"Bank Default" means any "Event of Default" under the Bank
Agreement and any other event which causes or allows the acceleration of the
Allowed Bank Indebtedness.
5
<PAGE> 6
"Bank Documents" means the Bank Agreement, any Commodity
Hedge Agreement entered into with a Bank, the Bank Interest Rate Hedge
Agreement, and each note, mortgage, security agreement, pledge agreement,
guarantee or other agreement, certificate, document, instrument and writing at
any time delivered in connection therewith or pursuant thereto.
"Bank Interest Rate Hedge Agreement" means an ISDA Master
Agreement or other agreement and related confirmations providing for swaps,
caps, floors or other hedges of interest rates entered into from time to time
between Borrower and one or more of the Banks.
"Bank Indebtedness" means all Allowed Bank Indebtedness and
any Excess Bank Indebtedness.
"Banks" means (a) the Agent Lender, and (b) all Persons which
now or hereafter constitute "Banks" under the Bank Agreement.
"Borrower's ANCF" means, with respect to any Calculation
Quarter, the remainder of:
(a) the sum of (i) all revenues and receipts of Borrower and
any Subsidiary of Borrower from any source or activity (excluding any
funds received by Borrower from Approved Sales or Financings or by
Borrower under the TCW Agreement or from advances under the Bank
Agreement or receipts from sales of equity of Parent) accounted for
under GAAP during any Calculation Quarter (and specifically including,
without limiting the generality of the foregoing, receipts from
Permitted Interest Rate Hedges and Permitted Commodity Hedges),
beginning with the Calculation Quarter which starts April 1, 1998 and
(ii) after the occurrence of two (2) consecutive 100% Dedication
Quarters, any of Borrower's Working Capital which exceeds the minimum
Working Capital required under the TCW Agreement or under the Bank
Agreement,
less,
(b) the sum of all expenses and expenditures of Borrower and
any Subsidiary of Borrower, net to the interest of Borrower and any
Subsidiary of Borrower, accounted for under GAAP during such
Calculation Quarter (excluding any payments financed by funds
described in the parenthetical phrase contained in the immediately
preceding subparagraph (a) above) for:
(i) Direct Taxes on the Borrower's Properties;
(ii) ANCF LOE;
(iii) ANCF Transportation Costs;
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<PAGE> 7
(iv) ANCF Capital Expenditures;
(v) ANCF Overhead Costs; and
(vi) Delay rentals payable with respect to Borrower's
Properties.
"Calculation Quarter" means the three-month period (December
through February, March through May, June through August, or September through
November) immediately prior to each Quarterly Payment Date. The initial
calculation quarter shall be the period from September 1, 1997 through November
30, 1997.
"Commodity Hedge Agreement" means an ISDA Master Agreement or
other agreement and related confirmations providing for swaps, caps, floors or
other hedges of hydrocarbon prices entered into from time to time by Borrower.
"Direct Taxes" means any severance, ad valorem, or other
direct taxes on the Properties or the production therefrom or the proceeds of
such production; provided that federal, state or local income or franchise
taxes shall in no event be considered to be Direct Taxes.
"Enforcement Action" means any acceleration of any or all of
the TCW Indebtedness or the Bank Indebtedness, any enforcement or foreclosure
of Liens granted by Borrower, Parent or any Related Person to secure any or all
of the TCW Indebtedness or the Bank Indebtedness, the institution of any
Insolvency Proceeding with respect to Borrower, Parent or any Related Person,
or any other effort of any kind (whether by set-off, by self-help, in court, or
otherwise) to collect the TCW Indebtedness or the Bank Indebtedness from
Borrower, Parent or any Related Person or from the assets or properties of
Borrower, Parent or any Related Person; provided, however, that none of the
following shall constitute an Enforcement Action: (i) collection of any of the
TCW Indebtedness or any of the Allowed Bank Indebtedness from ANCF in
accordance with Section 3 hereof, (ii) the filing of proofs of claim or other
pleadings in any Insolvency Proceeding (other than an Insolvency Proceeding
brought in contravention hereof by or on behalf of the Person filing such
proofs of claim or other pleadings), (iii) actions to obtain possession of
Permitted Junior Securities in exchange for or on account of TCW Indebtedness,
(iv) enforcement of Liens, guaranties, or other rights granted by Persons other
than Borrower, Parent or any Related Person, or (v) notifying Borrower, Parent
or any other Person of any amounts which are due and owing under the Bank
Documents or the TCW Documents, making demand with respect to any such amounts
due and owing, and giving any other notice or taking other actions in respect
to any future remedy or to preserve any rights or remedies.
"Excess Bank Indebtedness" means all indebtedness and
obligations owing by Borrower to any Bank other than Allowed Bank Indebtedness.
"Initial TCW Amortization Date" means the earliest to occur
of the following: (i) the Quarterly Payment Date in December, 2003, (ii) the
first date on which all Allowed Bank
7
<PAGE> 8
Indebtedness has been paid (and if paid in full before the end of the Revolver
Period, all commitments to extend credit under the Bank Documents have been
terminated), (iii) the date of any acceleration of any Allowed Bank
Indebtedness, and (iv) the date of any acceleration of TCW Indebtedness which
is made in accordance herewith.
"Inland Refining" means Inland Refining, Inc., a Utah
corporation.
"Insolvency Proceeding" means any voluntary or involuntary
liquidation, dissolution, sale of all or substantially all assets, marshaling
of assets or liabilities, receivership, conservatorship, general assignment for
the benefit of creditors, insolvency, bankruptcy, reorganization, arrangement
or composition of Borrower, Parent or any Related Person which is either a
guarantor of any obligation of Borrower to the Noteholders or the Banks or a
mortgagor or encumbrancer of any property to secure any such obligation.
"Lien" means, with respect to any property or assets, any
right or interest therein of a creditor to secure indebtedness owed to him or
any other arrangement with such creditor which provides for the payment of such
indebtedness out of such property or assets or which allows him to have such
indebtedness satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under any
title retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of
uncertificated securities), or any other arrangement or action which would
serve to perfect a Lien described in the preceding sentence, regardless of
whether such financing statement is filed, such registration is made, or such
arrangement or action is undertaken before or after such Lien exists.
"Noteholders" means (a) the Agent Noteholder, and (b) all
Persons which now or hereafter constitute "Noteholder" under the TCW Agreement.
Trustco, acting as Sub-Custodian for Mellon Bank for the benefit of Account No.
CPFF 873-3032, is initially the only Noteholders, but the parties hereto
recognize and agree that future assignees and successors thereof will also be
"Noteholders" hereunder.
"Parent" means Inland Resources, Inc., a Washington
corporation, which owns 100% of the outstanding shares of common stock of
Borrower.
"Quarterly Payment Date" means the second to last business
day of each March, June, September and December, beginning with December 29,
1997.
"Permitted Commodity Hedges" means any transaction under a
Commodity Hedge Agreement except to the extent prohibited by the TCW Agreement
and not otherwise
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approved by the Agent Noteholder or prohibited by the Bank Agreement and not
otherwise approved by the Agent Lender.
"Permitted Interest Rate Hedges" means any transaction under
a Bank Interest Rate Hedge Agreement.
"Permitted Junior Securities" means any equity securities or
subordinated debt securities of Borrower or any successor obligor with respect
to the TCW Indebtedness provided for by a plan of reorganization or
readjustment that, in the case of any such subordinated debt securities, are
subordinated in right of payment to all Allowed Bank Indebtedness that may at
the time be outstanding to the same degree as, or to a greater extent than, the
TCW Indebtedness is so subordinated under this Agreement.
"Person" means an individual, corporation, partnership,
limited liability company, association, joint stock company, trust or trustee
thereof, estate or executor thereof, unincorporated organization or joint
venture, court or governmental unit or any agency or subdivision thereof, or
any other legally recognizable entity.
"Production/Refining Credit Agreement" means that certain
Credit Agreement by and between Borrower and Parent dated as of May 29, 1998,
as amended, supplemented, or restated.
"Properties" means, collectively, those undivided interests
in oil and gas properties and interests in other real and personal property
which are, at the time in question, owned by Borrower, Parent or any Related
Person.
"Related Person" means any of Parent, Borrower or any
Subsidiary of Parent, whether now existing or hereafter formed or acquired.
"Revolver Period" means the period from the date hereof until
March 31, 1999 or such earlier date on which the commitment of the Banks to
make revolving credit available to the Borrower is terminated pursuant to the
Bank Agreement.
"Scheduled Bank Payments" has the meaning given to such term
in Section 3 hereof.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture, or other business or
corporate entity, enterprise or organization which is directly or indirectly
(through one or more intermediaries) controlled by or owned fifty percent or
more by such Person, provided that associations, joint ventures or other
relationships (a) which are established pursuant to a standard form operating
agreement or similar agreement or which are partnerships for purposes of
federal income taxation only, (b) which are not corporations or partnerships
(or subject to the Uniform Partnership Act) under applicable state
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<PAGE> 10
law, and (c) whose businesses are limited to the exploration, development and
operation of oil, gas or mineral properties and interests owned directly by the
parties in such associations, joint ventures or relationships, shall not be
deemed to be "Subsidiaries" of such Person.
"TCW Default" means any "Event of Default" under the TCW
Agreement and any other event which causes or allows the acceleration of the
TCW Indebtedness.
"TCW Documents" means the TCW Agreement and each note,
mortgage, security agreement, pledge agreement, guarantee, or other agreement,
certificate, document instrument and writing at any time delivered in
connection therewith or pursuant thereto.
"TCW Indebtedness" means any and all indebtedness (whether
for principal, interest, fees, indemnifications, expenses, or otherwise) owing
by Borrower to any Noteholder under any TCW Document, provided that (unless
otherwise expressly agreed by the Agent Lender) there shall be excluded from
TCW Indebtedness (i) any loans made by the Noteholders to Borrower on or after
the date hereof which in the aggregate exceed $75,000,000 and (ii) all interest
owing on any loans which are themselves excluded from TCW Indebtedness and any
fees, indemnifications, and expenses relating to any such excluded loans or
excluded interest.
(b) References and Headings. Unless the context otherwise
requires or unless otherwise provided herein, references in this Agreement to a
particular agreement, instrument or document (including references to
promissory notes, loan agreements, guaranties and security documents) also
refer to and include all renewals, extensions, amendments, modifications,
supplements or restatements of any such agreement, instrument or document which
are made in writing by the parties thereto, provided that nothing contained in
this Section shall be construed to authorize any party hereto to execute or
enter into any such renewal, extension, amendment, modification, supplement or
restatement. The headings used herein are for purposes of convenience only and
shall not be used in construing the provisions hereof. The words "this
Agreement," "this instrument," "herein," "hereof," "hereby" and words of
similar import refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. The word "or" is not exclusive, and
the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires. Use of the terms "Bank" is for ease of reference only, it being
understood that ING (U.S.) Capital Corporation is not a commercial bank and the
other "Banks" under the Bank Agreement may or may not be commercial banks.
Section 2. Subordination of Liens.
All Liens granted by Borrower, Parent or any Related Person
which at any time secure any TCW Indebtedness are hereby made -- and will at
all times prior to the full payment or discharge of all Allowed Bank
Indebtedness be -- subject and subordinate to all Liens at any time granted by
Borrower, Parent, or any Related Person to secure Allowed Bank Indebtedness
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<PAGE> 11
(but only to the extent that such Liens granted to or for the benefit of the
Banks secure Allowed Bank Indebtedness). All Liens granted by Borrower, Parent
or any Related Person which at any time secure any Excess Bank Indebtedness are
hereby made -- and will at all times prior to the full payment or discharge of
all TCW Indebtedness be -- subject and subordinate to all Liens granted by
Borrower, Parent or any Related Person which at any time secure any TCW
Indebtedness (but only to the extent that such Liens granted to or for the
benefit of the Banks secure Excess Bank Indebtedness and such Liens granted to
or for the benefit of TCW secure TCW Indebtedness). The foregoing
subordinations shall be to the same extent as if (i) all such Liens securing
Allowed Bank Indebtedness had been properly recorded, filed and otherwise
perfected prior to all such Liens securing TCW Indebtedness and (ii) all such
Liens securing TCW Indebtedness had been properly recorded, filed and otherwise
perfected prior to all such Liens securing Excess Bank Indebtedness, all
regardless of the relative priority of any such Liens as determined without
regard to this Agreement. In furtherance of the foregoing, any and all proceeds
of any policies of title insurance with respect to any Collateral shall be
treated as proceeds of recourse against the Lien on such Collateral.
Section 3. Required Payments from ANCF; Limitations on
Indebtedness.
(a) Schedule 1 attached hereto sets forth the amounts and
dates for payment of all principal payments of Allowed Bank Indebtedness which
are required under the Bank Documents (herein called the "Scheduled Bank
Payments"). All parties hereto acknowledge and agree that on or before the
Quarterly Payment Date following each Calculation Quarter, all ANCF with
respect to such Calculation Quarter (and any proceeds from Approved Sales or
Financings, proceeds from sales of equity of Parent and any other sources of
funds received by Borrower, Parent or any other Related Person, in each case to
the extent used to pay, redeem, purchase or discharge Bank Indebtedness or TCW
Indebtedness) shall be applied in the following order (the "ANCF Hierarchy"):
(i) first, to any Scheduled Bank Payments, payments in
respect of Permitted Interest Rate Hedges and any interest or fees on,
or other non-principal items of, Allowed Bank Indebtedness, to the
extent such Scheduled Bank Payments, payments in respect of Permitted
Interest Rate Hedges, interest, fees or other non-principal items are
due on or before such Quarterly Payment Date,
(ii) second, to any Allowed Bank Indebtedness which has been
accelerated and become due in accordance with the terms of both this
Agreement and the Bank Documents,
(iii) third, to any interest or fees on, or other
non-principal items of, TCW Indebtedness, to the extent such interest,
fees or other items are due (whether due to acceleration thereof or
otherwise) on or before such Quarterly Payment Date,
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(iv) fourth, to any payments of principal (other than those
described in subsections (i) and (ii) above) which are due on the
Allowed Bank Indebtedness on or before such Quarterly Payment Date,
(v) fifth (but only on or after the Initial TCW Amortization
Date), to any payments of principal which are due on the TCW
Indebtedness (whether due to acceleration thereof or otherwise) on or
before such Quarterly Payment Date,
(vi) sixth, except during any 100% Dedication Quarter, up to
ten percent (10%) of the ANCF for such Calculation Quarter may be
retained by Borrower and used in Borrower's business,
(vii) seventh, (x) if made during the Revolver Period to
prepay Allowed Bank Indebtedness, subject to the Borrower's ability to
obtain subsequent advance pursuant to the terms of the Bank Documents
or the TCW Documents or (y) if made after the Revolver Period to
prepay any Scheduled Bank Payments (other than those described in
subsection (i), (ii) or (iv) above), in inverse order of maturity,
(viii) eighth, after all Scheduled Bank Payments and other
Allowed Bank Indebtedness have been paid (or if the Banks elect not to
accept any prepayments under the preceding subsection (vii)), to
prepay or repay any TCW Indebtedness,
(ix) ninth, after all TCW Indebtedness has been paid (or if
the Noteholders elect, in their sole and absolute discretion not to
accept any prepayments under the preceding section (viii)), to repay
any Excess Bank Indebtedness, to the extent Excess Bank Indebtedness
is due (whether due to acceleration or otherwise), and
(x) tenth, the remainder may be retained by Borrower and used
in Borrower's business.
This Section 3(a) is intended only to create an obligation of Borrower to pay
and apply ANCF and other amounts described therein in the order and the
respective amounts set forth therein, and to create an obligation on the Banks
and the Noteholders to turnover funds improperly received or collected as more
particularly set forth in Section 9. No failure of Borrower to make payment or
application of ANCF or any other amount to the Indebtedness in the manner
provided in Section 3(a), and no failure of the Banks or Agent Lender to
enforce such payment or application nor any other act or omission by Borrower
or Banks or Agent Lender shall cause any Allowed Bank Indebtedness to be deemed
to have been paid nor to otherwise no longer be entitled to the priority of
payment set forth in this Section 3(a) nor affect any other right or privilege
of the Banks or the Agent Lender. No failure of Borrower to make payment or
application of ANCF or any other amount to the Indebtedness in the manner
provided in Section 3(a), and no failure of the Noteholders or the Agent
Noteholder to enforce such payment or application nor any other act or omission
by Borrower or the Noteholders or the Agent Noteholder shall cause any TCW
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<PAGE> 13
Indebtedness to be deemed paid nor to otherwise no longer be entitled to the
priority of payment set forth in this Section 3(a) nor affect any other right
or privilege of the Noteholders or the Agent Noteholder.
(b) As further provided in Sections 5 and 6, (i) neither the
amount nor the date for payment of any Scheduled Bank Payment may be modified
and no provision of the Bank Documents may be amended or modified to increase
the rate or the manner of determining interest, fees, expenses or other
non-principal items due on the Allowed Bank Indebtedness, without the prior
consent of the Agent Noteholder, and (ii) the scheduled dates for payment of
the principal of the TCW Indebtedness shall not be modified to occur prior to
the Initial TCW Amortization Date and no provision of the TCW Documents may be
amended or modified to increase the rate or the manner of determining interest,
fees, expenses or other non-principal items due on the TCW Indebtedness,
without the consent of the Agent Lender, if either the Revolver Period has not
ended or there is any outstanding Allowed Bank Indebtedness . No Excess Bank
Indebtedness shall be lent to or incurred by Borrower, Parent or any Related
Person without the consent of the Agent Noteholder until all TCW Indebtedness
has been paid in full, and no loans in excess of $75,000,000 shall be made to
Borrower, Parent or any Related Person or borrowed by Borrower under the TCW
Documents without the consent of the Agent Lender until all Allowed Bank
Indebtedness has been paid in full.
(c) Interest on each Eurodollar Loan, as defined and provided
for under the Bank Agreement, is payable on the last day of the Interest Period
for such Eurodollar Loan and, in the case of any Interest Period in excess of
90 days, on the 90th day of such Interest Period. Payments on Permitted
Interest Rate Hedges may come due on a day other than a Quarterly Payment Date.
Notwithstanding Section 3(a), such Interest on each Eurodollar Loan shall be
paid when due under the Bank Agreement and payments on Permitted Interest Rate
Hedges shall be paid when due under the Bank Interest Rate Hedge Agreement and
each shall, for purposes of the ANCF Hierarchy, be accounted for out of ANCF as
if paid on the next succeeding Quarterly Payment Date.
Section 4. Rights to Cure Defaults.
(a) Within two Business days after determining that any Bank
Default has occurred, the Borrower will give notice of such Bank Default to the
Agent Noteholder. Agent Lender may, but is not obligated to, give notice of any
Bank Default to the Agent Noteholder. Although no Noteholder has any obligation
to cure any Bank Default, Borrower hereby authorizes each Noteholder to make
any such cure, if any Noteholder so elects, and the Banks hereby agree that
they will allow such Noteholder to make any such cure on behalf of Borrower,
provided such cure is in compliance with the Bank Agreement and does not
otherwise cause a Bank Default. The Banks further agree that without the
consent of the Agent Noteholder no Bank shall commence or continue any
Enforcement Action with respect to any Bank Default until the earlier to occur
of (i) the ninetieth (90th) day after the date upon which the Agent Lender
receives notice of such Bank Default from the Borrower or the Agent Noteholder
(and
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<PAGE> 14
then only if such Bank Default remains uncured and otherwise continues to
exist) and (ii) any acceleration of the TCW Indebtedness or any enforcement by
any Noteholder of any Lien upon assets of Borrower in compliance with the terms
hereof.
(b) Within two Business days after determining that any TCW
Default has occurred, the Borrower will give notice of such TCW Default to the
Agent Lender. Agent Noteholder may, but is not obligated to, give notice of any
TCW Default to the Agent Lender. Although no Bank has any obligation to cure
any TCW Default, Borrower hereby authorizes each Bank to make any such cure, if
any Bank so elects, and the Noteholders hereby agree that they will allow such
Bank to make any such cure on behalf of Borrower, provided such cure is in
compliance with the TCW Agreement and does not otherwise cause a TCW Default.
The Noteholders further agree that without the consent of the Agent Lender, no
Noteholder shall commence or continue any TCW Enforcement Action with respect
to any TCW Default until the earlier to occur of (i) the ninetieth (90th) day
after the date upon which the Agent Noteholder receives notice of such TCW
Default from the Borrower or the Agent Lender (and then only if such TCW
Default remains uncured and otherwise continues to exist) and (ii) any
acceleration of the Bank Indebtedness or any enforcement by any Bank of any
Lien upon assets of Borrower in compliance with the terms hereof.
Section 5. Amendments to Bank Documents. No provision of the
Bank Documents shall, without the prior written consent of the Agent
Noteholder, be amended, supplemented, modified or waived if the effect of such
amendment, supplement, modification or wavier would be to (a) increase the rate
of interest or the manner of determining prepayment charges, fees, expenses or
other amounts payable with respect to (or constituting items of) the Allowed
Bank Indebtedness (provided that the foregoing shall not prevent the interest
rate applicable to any past due Allowed Bank Indebtedness from increasing by up
to two percent per annum as presently provided in the Bank Agreement), (b)
change the date on which any Scheduled Bank Payment becomes due or change the
amount thereof, (c) change the scheduled payment date of any other Allowed Bank
Indebtedness, (d) add new covenants or events of default, (e) extend the
Commitment Period or allow a loan under the Bank Documents after March 31,
1999, or (f) otherwise change the terms of the Bank Documents in any way which
is more onerous to Borrower, Parent or any Related Person or causes, or
increases the likelihood of, the occurrence of a Bank Default The parties
recognize that the Bank Agreement is a revolving credit agreement until March
31, 1999, with floating interest rate options, and neither (i) the borrowing of
loans under such revolving credit feature (provided the aggregate outstanding
amounts thereof do not exceed the limits set forth above in the definition of
"Allowed Bank Indebtedness") nor (ii) any fluctuations in the underlying
eurodollar rate or prime rate on which are based the interest rate provisions
of the Bank Agreement, nor (iii) the occurrence of any event triggering
Eurodollar Rate costs or a late payment rate, shall be deemed to be a violation
of this Section 5.
Nothing to the contrary contained in this Agreement shall (i)
restrict, prohibit or regulate the determinations which may be made from time
to time by the Banks or the Agent
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<PAGE> 15
Lender under the Bank Agreement, including specifically, but without
limitation, the right of the Banks and/or Agent Lender to determine the
Borrowing Base from time to time in accordance with the provisions of the Bank
Agreement. Any amount required to be repaid under the Bank Agreement as a
result of a Borrowing Base determination shall be paid pursuant to clause (iv)
of Section 3(a) of this Agreement. Such required payment shall not be
considered a modification within the meaning of Section 3(b). Borrower
acknowledges and agrees that the Scheduled Bank Payments are based upon the
Borrowing Base currently in existence under the Bank Agreement and the Banks
will not increase the Borrowing Base under the Bank Agreement (i) without an
amendment to such Scheduled Bank Payments as determined by the Banks in
connection with such Borrowing Base increase and (ii) the consent of the Agent
Noteholder to such amendment to such Scheduled Bank Payments.
Section 6. Amendments to TCW Documents. No provision of the
TCW Documents shall, without the prior written consent of the Agent Lender, be
amended, supplemented, modified or waived if the effect of such amendment,
supplement, modification or wavier would be to (a) increase the rate of
interest, prepayment charges, fees, expenses or other amounts payable with
respect to (or constituting items of) the TCW Indebtedness (provided that the
foregoing shall not prevent the interest rate applicable to any past due TCW
Indebtedness from increasing to twelve percent per annum as presently provided
in the TCW Agreement), (b) provide for scheduled principal payments on the TCW
Indebtedness prior to the Initial TCW Amortization Date, (c) change the
scheduled payment date of any non- principal items of TCW Indebtedness, (d) add
new covenants or events of default, or (e) otherwise change the terms of the
TCW Documents in any way which causes, or increases the likelihood of, the
occurrence of a TCW Default. The parties further recognize that, pursuant to
the TCW Agreement, Parent and Warrantholder entered into that certain Warrant
Agreement and Parent issued to Warrantholder certain Warrants as described in
the Warrant Agreement and that any exercise by Warrantholder of such Warrants
or any rights under the TCW Warrant Documents or any enforcement thereof shall
not be deemed to be a violation of this Section 6.
Section 7. Insolvency Proceedings. Upon any distribution of
properties or assets of Borrower in any Insolvency Proceeding, or upon any
payment on behalf of Borrower in any Insolvency Proceeding:
(a) The Banks shall be entitled to receive payment in full in
cash of the Allowed Bank Indebtedness, or provision must be made for immediate
payment in full in cash of the Allowed Bank Indebtedness, before the
Noteholders are entitled to receive any direct or indirect payment or
distribution of properties or assets of Borrower of any kind or character
(whether in cash, property or securities and by set-off or otherwise), other
than Permitted Junior Securities, on account of the TCW Indebtedness.
(b) Any direct or indirect payment or distribution of
properties or assets of Borrower of any kind or character, other than a payment
or distribution in the form of Permitted Junior Securities, to which the
Noteholders would be entitled but for the provisions of this
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Agreement shall be paid by Borrower or by any liquidating trustee or agent or
other Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
Banks or their representative or representatives, ratably according to the
aggregate unpaid amounts of Allowed Bank Indebtedness held or represented by
each, to the extent necessary to make payment in full of all Allowed Bank
Indebtedness after giving effect to any concurrent payment or distribution to
the Banks.
(c) If, notwithstanding the foregoing provisions of this
Section 7, any Noteholder shall receive any payment or distribution of
properties or assets of Borrower of any kind or character, other than a payment
or distribution in the form of Permitted Junior Securities, on account of the
TCW Indebtedness before all Allowed Bank Indebtedness is paid or provided for
in full, then such payment or distribution shall be received and held in trust
for and shall be paid over or delivered forthwith to the Banks remaining unpaid
or their representatives, to the extent necessary to pay all Allowed Bank
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the Banks.
(d) Except as provided in subsections (a), (b) and (c) of
this Section 7, the Banks and the Noteholders will be entitled to freely
exercise all rights and remedies available to them in any Insolvency
Proceeding. Furthermore, nothing in this Section 7 or any other provision of
this Agreement shall be deemed or construed to constitute a waiver by Agent
Noteholder or any Noteholder of any right to vote for or against or to propose
any plan of reorganization in any Insolvency Proceeding, all of which are
expressly reserved and retained by Agent Noteholder and the Noteholders.
Section 8. Notice of Acceleration; Right to Purchase
Indebtedness.
(a) Within one business day after any acceleration of the
maturity of any Allowed Bank Indebtedness, the Agent Lender will give notice
thereof to the Agent Noteholder. Within one business day after any acceleration
of the maturity of any TCW Indebtedness, the Agent Noteholder will give notice
thereof to the Agent Lender.
(b) The Banks will at any time during the continuance of any
Bank Default or Insolvency Proceeding, upon request by the Agent Noteholder,
assign all of the Allowed Bank Indebtedness and all appurtenant Liens, rights,
documents and instruments to the Noteholders for a price equal to 100% of the
Allowed Bank Indebtedness.
(c) Before any Noteholder sells any TCW Indebtedness, it
shall first give written offer to the Agent Lender to sell such TCW
Indebtedness, specifying the amount of TCW Indebtedness to be sold and all
material terms of such sale. The Banks shall have the right to purchase such
TCW Indebtedness on such offered terms for a period of 45 days ("Offer Period")
after receipt by the Agent Lender of such notice. If the Banks do not purchase
such TCW Indebtedness during such Offer Period, the Noteholder may sell the TCW
Indebtedness to any third party on the same terms which were offered to the
Banks for a period of 180 days following
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the end of such Offer Period. Such Noteholder must again provide the Banks an
offer to sell TCW Indebtedness as a condition to (i) any sale of TCW
Indebtedness after such 180 day period or (ii) any sale of TCW Indebtedness on
terms more favorable to the proposed purchaser than the terms offered the
Banks; provided that such offer on more favorable terms to a proposed purchaser
within such 180 day period shall be limited to an Offer Period of 15 days after
receipt by Agent Lender of notice of such offer. The provisions of this Section
8(c) does not apply to any sale by a Noteholder to an Affiliate or to any
transfer by a Noteholder to any party having a beneficial interest in such
Noteholder or in any Note or to any custodian, sub-custodian, investment
manager or designee of such beneficial owner.
Section 9. Turnover of Payments Wrongly Received. If Borrower
shall make any payment to a Noteholder which is prohibited hereby or any
Noteholder shall collect any payment as a result of an Enforcement Action which
is prohibited hereby, then such payment shall be paid over and delivered
forthwith by such Noteholder to the Agent Lender. If Borrower shall make any
payment to a Bank which is prohibited hereby or any Bank shall collect any
payment as a result of an Enforcement Action which is prohibited hereby, then
such payment shall be paid over and delivered by such Bank to the Agent
Noteholder.
Section 10. Payments and Enforcement Actions Otherwise
Permitted. Except as expressly provided herein, nothing shall prevent Borrower
from making, or any Noteholder or Bank from receiving, any payments on the TCW
Indebtedness or Allowed Bank Indebtedness, as applicable, or limit the rights
of the Banks or the Noteholders to take Enforcement Actions.
Section 11. Subrogation to Rights of Banks. After the payment
in full of all Allowed Bank Indebtedness, the Noteholders shall be subrogated
to the rights of the Banks to receive payments and distributions of cash,
property and securities applicable to Allowed Bank Indebtedness and the Liens
securing the Allowed Bank Indebtedness until all amounts owing on the TCW
Indebtedness shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of Allowed Bank Indebtedness by or on
behalf of Borrower or by or on behalf of the Noteholders by virtue of this
Agreement which otherwise would have been made to the Noteholders shall, as
between Borrower, its creditors other than the Banks, and the Noteholders, be
deemed to be a payment or distribution by Borrower to or on account of the
Allowed Bank Indebtedness.
Section 12. Provisions Solely to Define Relative Rights. The
provisions of this Agreement are, and are intended solely, for the purpose of
defining the relative rights of the Noteholders on the one hand and of the
Banks on the other hand. Nothing contained in this Agreement is intended to or
shall (a) impair, as between Borrower and the Noteholders, the obligation of
Borrower, which is absolute and unconditional, to pay all TCW Indebtedness as
and when the same shall become due and payable in accordance with its terms;
(b) affect the relative rights against Borrower of the Noteholders and any
creditors of Borrower other than the Banks; or (c) prevent the Noteholders from
exercising all remedies otherwise permitted by applicable law upon default
under the TCW Agreement, subject to the rights of the Banks, if
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applicable, under this Agreement. Nothing contained in this Agreement is
intended to or shall (a) impair, as between Borrower and the Banks, the
obligation of Borrower, which is absolute and unconditional, to pay all Bank
Indebtedness as and when the same shall become due and payable in accordance
with its terms; (b) affect the relative rights against Borrower of the Banks
and any creditors of Borrower other than the Noteholders; or (c) prevent the
Banks from exercising all remedies otherwise permitted by applicable law upon
default under the Bank Agreement, subject to the rights of the Noteholders, if
applicable, under this Agreement. Without the consent of the Borrower, the
provisions of this Agreement defining the relative rights of the Noteholders
and the Banks may be modified by the Noteholders and the Banks without
modifying the rights of the Borrower, provided that Agent Noteholder and Agent
Lender shall give notice thereof to the Borrower.
Section 13. Possession of Stock and other Collateral. ING
(U.S.) Capital Corporation ("ING") acknowledges that it holds the stock of each
of Borrower and Inland Refining and the Sound Refining Deed of Trust and Sound
Refining Note (collectively, the "Pledged Collateral") pursuant to certain
Security Documents (as such term is defined in both the TCW Agreement and the
Bank agreement) for ING, as Agent for the Banks, and for the Collateral Agent
(as defined in the TCW Agreement), as agent for the Noteholders, to perfect the
security interest granted in each relevant Security Document. ING shall have no
obligation or duty to such Collateral Agent or Noteholders as a result thereof;
provided that upon payment in full of the Allowed Bank Indebtedness and the end
of the Revolving Period, ING shall not surrender such Pledged Collateral to
Parent or Inland Refining, as applicable, but shall deliver the same to
Collateral Agent.
Section 14. No Waiver. No right of any Bank or Noteholder to
enforce its rights as herein provided shall at any time or in any way be
prejudiced or impaired by any act or failure to act on the part of any other
party hereto or by any non-compliance by any other party with the terms of this
Agreement, regardless of any knowledge thereof which any such Bank or
Noteholder may have or otherwise be charged with (provided that in all events
the Noteholders may conclusively rely on the authority of the Agent Lender to
act for the Banks and that the Banks may conclusively rely on the authority of
the Agent Noteholder to act for the Noteholders). The rights and duties of the
parties hereto shall continue in effect and apply to the Bank Indebtedness and
the TCW Indebtedness and to the Bank Documents and the TCW Documents, as each
is from time to time amended or modified or waived, subject to the provisions
of Sections 3, 5 and 6.
Section 15. No Oral Change. No amendment of any provision of
this Agreement shall be effective unless it is in writing and signed by
Borrower, the Agent Noteholder and the Agent Lender. No waiver of any provision
of this Agreement, and no consent to any departure by Borrower, any Noteholder
or any Bank therefrom, shall be effective unless it is in writing and signed by
both the Agent Noteholder and the Agent Lender, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
18
<PAGE> 19
Section 16. Governing Law. This Agreement shall be deemed a
contract and instrument made under the laws of the State of New York and shall
be construed and enforced in accordance with and governed by the laws of such
state and the laws of the United States of America, without regard to
principles of conflicts of law.
Section 17. Invalidity of Particular Provisions. If any term
or provision of this Agreement shall be determined to be illegal or
unenforceable, all other terms and provisions hereof shall nevertheless remain
effective and shall be enforced to the fullest extent permitted by applicable
law.
Section 18. Notices. All notices, requests, consents, demands
and other communications to Borrower, any Noteholder or any Bank which are
required or permitted under this Agreement shall be in writing and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy, by delivery service with proof of delivery, or by registered or
certified United States mail, postage prepaid, at the addresses listed below
(unless changed by similar notice in writing given by the particular Person
whose address is to be changed). Any such notice or communication shall be
deemed to have been given (a) in the case of personal delivery or delivery
service, as of the date of first attempted delivery at the address and in the
manner provided herein, (b) in the case of telecopy, upon receipt, or (c) in
the case of registered or certified United States mail, three days after
deposit in the mail. Any such notice to any Noteholder may be delivered in care
of the Agent Noteholder, and any such notice to any Bank may be delivered in
care of the Agent Lender.
Borrower's Address:
Inland Production Company
470 17th Street, Suite 700
Denver, Colorado
Attention: Kyle Miller
Telecopy: 303-893-0103
Agent Noteholder's Addresses:
TCW Asset Management Company
865 South Figueroa
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telecopy: 213/244-0604
19
<PAGE> 20
with a copy to:
TCW Asset Management Company
1000 Louisiana, Suite 2175
Houston, Texas 77002
Attention: George Hutchinson
Telecopy: 713/615-7460
Agent Lender's Address:
ING (U.S.) Capital Corporation
135 East 57th Street, 8th Floor
New York, New York 10022-2101
Attention: Christopher R. Wagner
Telecopy: (212) 832-3616
Section 19. Successors and Assigns. This Agreement shall pass
to and be fully binding upon and inure to the benefit of the successors and
assigns of each party hereto.
Section 20. Agent Lender and Agent Noteholder Consents.
References to consent by Agent Lender means such consent with such approval or
concurrence of the Banks except as otherwise provided in the Bank Agreement.
References to consent by Agent Noteholder means such consent with such approval
or concurrence of the Noteholders as may be required or permitted from time to
time under the TCW Agreement.
Section 21. Consent. Agent Noteholder hereby consents to the
execution by Agent Lender, Banks, Borrower, and Parent of that certain Amended
and Restated Credit Agreement of even date herewith. Agent Lender hereby
consents to the execution by Agent Noteholder, Noteholders, Borrower, and
Parent of that certain Amended and Restated Credit Agreement of even date
herewith.
Section 22. Amendment and Restatement. This Agreement amends
and restates in its entirety the Original Intercreditor Agreement.
Section 23. Counterparts. This Agreement may be separately
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to
constitute one and the same Agreement.
20
<PAGE> 21
IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
Borrower: INLAND PRODUCTION COMPANY
By:
----------------------------------------
Bill I. Pennington
Chief Financial Officer
Parent: INLAND RESOURCES, INC.
By:
----------------------------------------
Bill I. Pennington
Chief Financial Officer
Agent Noteholder: TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager under that certain Agreement
dated as of June 13, 1994, between TCW
Asset Management and Morgan Stanley
Group, Inc.
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
21
<PAGE> 22
Noteholders: TRUST COMPANY OF THE WEST, acting in its
capacity as sub-custodian for Mellon Bank
for the benefit of Account No. CPFF873-3032
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
Agent Lender: ING (U.S.) CAPITAL CORPORATION, in its
capacity as Agent
By:
----------------------------------------
Christopher R. Wagner
Senior Vice President
Banks: ING (U.S.) CAPITAL CORPORATION
By:
----------------------------------------
Christopher R. Wagner
Senior Vice President
U.S. BANK NATIONAL ASSOCIATION
By:
----------------------------------------
Name:
Title:
22
<PAGE> 23
MEESPIERSON CAPITAL CORP.
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
23
<PAGE> 24
SCHEDULE 1
SCHEDULED BANK PAYMENTS
<TABLE>
<CAPTION>
Quarterly Amount
Payment Date of Payment
------------ ----------
<S> <C>
June 29, 1999 $6,222,222
Sept 29, 1999 $6,222,222
Dec 30, 1999 $6,222,222
Mar 30, 2000 $4,666,666
June 29, 2000 $4,666,666
Sept 28, 2000 $4,666,666
Dec 28, 2000 $4,666,666
Mar 29, 2001 $3,888,889
June 28, 2001 $3,888,889
Sept 27, 2001 $3,888,889
Dec 28, 2001 $3,888,889
Mar 28, 2002 $3,500,000
June 27, 2002 $3,500,000
Sept 27, 2002 $3,500,000
Dec 30, 2002 $3,500,000
Mar 28, 2003 $3,111,114
</TABLE>
24
<PAGE> 25
EXHIBIT A
APPROVAL LETTER
[Date]
Inland Production Company
470 17th Street, Suite 700
Denver, Colorado 80202
Attention:
------------------------------
Gentlemen:
Reference is made to the Amended and Restated Intercreditor Agreement
dated September 11, 1998, among Inland Production Company, Inland Resources,
Inc., Trust Company of the West, as Noteholder, TCW Asset Management Company,
as Agent and Collateral Agent and ING (US) Capital Corporation, as Agent and
Banks. (Such Intercreditor Agreement, as from time to time amended, is herein
called the "Intercreditor Agreement"). Reference is hereby made to the
Intercreditor Agreement for all purposes, and terms defined therein shall have
the same meanings when used herein.
The Intercreditor Agreement contemplates that certain Approval Letters
may be given from time to time in connection therewith in order to specify
certain ANCF Capital Expenditures, ANCF LOE, ANCF Overhead Costs, or ANCF
Transportation Costs. This letter is such an Approval Letter and is given by
the undersigned in order so to approve the ANCF _____________ which are
specified in the schedule attached hereto.
This letter [is in addition to/supersedes] all previous Approval
Letters dealing with ANCF _____________.
This letter is a Loan Document under the TCW Agreement and the Bank
Agreement, and all provisions of the TCW Agreement and the Bank Agreement which
apply to Loan Documents shall apply hereto.
This letter may be separately executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which
when so executed shall be deemed to constitute one and the same Approval
Letter.
1
<PAGE> 26
Please execute a counterpart of this letter in the place provided
below to evidence your agreement to the foregoing and your continuing
ratification of the TCW Agreement and the Bank Agreement and the other TCW
Documents and Bank Documents in consideration of the approval herein contained.
Yours truly,
TCW ASSET MANAGEMENT COMPANY, as
Agent under the TCW Agreement
By:
----------------------------------------
Name:
Title:
ING (U.S.) CAPITAL CORPORATION, as Agent
under the Bank Agreement
By:
----------------------------------------
Name:
Title:
Accepted and agreed to as
of the date first written
above
INLAND PRODUCTION COMPANY
By:
-----------------------------------
Name:
Title:
2
<PAGE> 1
EXHIBIT 4.3.3
FIRST AMENDMENT TO AMENDED
AND RESTATED INTERCREDITOR AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED INTERCREDITOR AGREEMENT
(herein called this "Amendment") made as of the ____ day of March, 1999 by and
among Inland Production Company, a Texas corporation, (herein called
"Borrower"), Inland Resources Inc., a Washington corporation (herein called
"Parent"), and ING (U.S.) Capital LLC (successor to ING (U.S.) Capital
Corporation), as Agent (herein called "Agent Lender"), the Banks signatory
hereto, TCW Asset Management Company ("Tamco"), as Agent (herein called "Agent
Noteholder"), and Trust Company of the West ("Trustco") on behalf of the
Noteholders named below.
W I T N E S S E T H:
WHEREAS, Borrower, Parent, Agent Lender, the Banks, Agent Noteholder
and Noteholders have entered into that certain Amended and Restated
Intercreditor Agreement dated as of September 11, 1998 (the "Amended
Agreement"); and
WHEREAS, the parties hereto desire to amend the Amended Agreement as
provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Amended Agreement, the
parties hereto do hereby agree as follows:
1. Definitions. The definition of "Enforcement Action" in Section 1 of
the Amended Agreement is hereby amended to delete the word "or" immediately
preceding clause (v) thereof and adding the following immediately after clause
(v) thereof: "or (vi) the automatic acceleration of TCW Indebtedness or Bank
Indebtedness upon the occurrence of a TCW Default described in Section D.10(a),
(b) or (c) or Annex D of the TCW Agreement or a Bank Default described in
Section D.10(a), (b) or (c) of Annex D to the Bank Agreement.
2. Scheduled Bank Payments. Schedule 1 of the Amended Agreement is
hereby amended to read as Schedule 1 attached hereto.
3. Deferral of Accrued Interest. Tamco and Trustco hereby agree that
the interest on TCW Indebtedness accruing for the period beginning January 1,
1999 and ending June 29, 1999 shall be deferred and shall be due and payable,
together with interest accrued thereon at the Late Payment Rate (as defined in
the TCW Agreement), on the date that the first payment of principal due on the
TCW Indebtedness shall be payable pursuant to the TCW Agreement, as more
particularly provided in the First Amendment to the TCW Agreement.
4. Rights to Cure Defaults.
(a) Subsection 4(a) of the Amended Agreement is hereby amended
by replacing the last sentence of such Subsection 4(a) with the
following during the period
<PAGE> 2
from the effective date hereof to the later of September 30, 1999 or
the date of the cure or waiver of all defaults under the Bank Documents
or TCW Documents outstanding on September 30, 1999: "The Banks further
agree that without the consent of Agent Noteholder no Bank shall
commence or continue any Enforcement Action with respect to any Bank
Default until the earlier to occur of (i) the tenth (10th) day after
the date upon which the Agent Lender shall deliver a notice of intent
to accelerate the Bank Indebtedness (and then only if such Bank Default
remains uncured and otherwise continues to exist) and (ii) any
acceleration of the TCW Indebtedness or any enforcement by any
Noteholder of any Lien upon assets of Borrower or any Related Party in
compliance with the terms hereof."
(b) Subsection 4(b) of the Amended Agreement is hereby amended
by replacing the last sentence of such Subsection 4(b) with the
following during the period from the effective date hereof to the later
of September 30, 1999 or the date of the cure or waiver of all defaults
under the Bank Documents or TCW Documents outstanding on September 30,
1999: "The Noteholders further agree that without the consent of Agent
Lender no Noteholder shall commence or continue any Enforcement Action
with respect to any TCW Default until the earlier to occur of (i) the
tenth (10th) day after the date upon which the Agent Noteholder shall
deliver a notice of intent to accelerate the TCW Indebtedness (and then
only if such TCW Default remains uncured and otherwise continues to
exist) and (ii) any acceleration of the Bank Indebtedness or any
enforcement by any Bank of any Lien upon assets of Borrower or any
Related Party in compliance with the terms hereof."
5. Hedging Contracts. Agent Lender and the Banks hereby agree that
notwithstanding Section C.15 of Annex C of the Bank Agreement, any Related
Person may, without the consent of the Agent Lender or Banks, enter into any
forward, swap or hedging contract or agreement with respect to projected
hydrocarbon production or refined product production of any Related Person which
Agent Noteholder requests such Related Person(s) to enter into pursuant to
Subsection 5.1(g) of the TCW Agreement.
6. Counterparts. This Agreement may be separately executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
agreement.
7. Effective Date. This Agreement shall be effective concurrently with
the effective time of the First Amendment to the Bank Agreement and the First
Amendment to the TCW Agreement.
2
<PAGE> 3
IN WITNESS WHEREOF, this Agreement is executed as of the date first
above written.
Borrower: INLAND PRODUCTION COMPANY
By:
---------------------------------------
Bill I. Pennington
Chief Financial Officer
Parent: INLAND RESOURCES INC.
By:
---------------------------------------
Bill I. Pennington
Chief Financial Officer
Agent Noteholder: TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager under
that certain Agreement dated as of June
13, 1994, between TCW Asset Management and
Morgan Stanley Group, Inc.
By:
---------------------------------------
Arthur R. Carlson
Managing Director
By:
---------------------------------------
Marc MacAluso
Senior Vice President
3
<PAGE> 4
Noteholders: TRUST COMPANY OF THE WEST, acting in its
capacity as sub-custodian for Mellon Bank
for the benefit of Account No.
CPFF873-3032
By:
---------------------------------------
Arthur R. Carlson
Managing Director
By:
---------------------------------------
Marc MacAluso
Senior Vice President
Agent Lender: ING (U.S.) CAPITAL LLC (successor to ING
(U.S.) Capital Corporation), in its
capacity as Agent
By:
---------------------------------------
Christopher R. Wagner
Banks: ING (U.S.) CAPITAL LLC (successor to ING
(U.S.) Capital Corporation)
By:
---------------------------------------
Christopher R. Wagner
U.S. BANK NATIONAL ASSOCIATION
By:
---------------------------------------
Name:
Title:
4
<PAGE> 5
MEESPIERSON CAPITAL CORP.
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
5
<PAGE> 6
SCHEDULE 1
SCHEDULED BANK PAYMENTS
<TABLE>
<CAPTION>
Quarterly Amount
Payment Date of Payment
------------ ----------
<S> <C>
June 29, 1999 $9,472,222
Sept 29, 1999 $6,222,222
Dec 30, 1999 $6,222,222
Mar 30, 2000 $4,666,666
June 29, 2000 $4,666,666
Sept 28, 2000 $4,666,666
Dec 28, 2000 $4,666,666
Mar 29, 2001 $3,888,889
June 28, 2001 $3,888,889
Sept 27, 2001 $3,888,889
Dec 28, 2001 $3,888,889
Mar 28, 2002 $3,500,000
June 27, 2002 $3,500,000
Sept 27, 2002 $3,500,000
Dec 30, 2002 $3,500,000
Mar 28, 2003 $3,111,114
</TABLE>
<PAGE> 1
EXHIBIT 10.20
WARRANT AGREEMENT
by and between
INLAND RESOURCES INC.,
a Washington corporation
and
TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY PARTNERSHIP, L.P.,
a California limited partnership
Dated as of March 5, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
RECITALS........................................................................................ 1
DEFINITIONS..................................................................................... 1
SECTION 1. Issuance of Warrants............................................................ 4
1.01 Authorization and Issuance of Shares and Warrants............................... 4
1.02 Closing; Subsequent Issuances................................................... 4
1.03 TCW Investment Representation................................................... 5
SECTION 2. [Intentionally Left Blank]...................................................... 5
SECTION 3. Representations, Warranties and Covenants of the Company........................ 5
3.01 Sale is Legal, etc.............................................................. 5
3.02 Governmental Consent............................................................ 6
3.03 Private Offering................................................................ 7
SECTION 4. Additional Covenants of the Company............................................. 7
4.01 Delivery Expenses............................................................... 7
4.02 Taxes........................................................................... 7
4.03 Replacement of Instruments...................................................... 7
4.04 Information, etc................................................................ 8
4.05 Inspection...................................................................... 8
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 5. Registration Rights............................................................. 8
5.01 Demand Registration............................................................. 8
5.02 Piggyback Registration.......................................................... 10
5.03 Registration Procedures......................................................... 11
5.04 Expenses; Limitations on Registration........................................... 13
5.05 Termination of Restrictions..................................................... 14
5.06 Rule 144 and 144A............................................................... 15
5.07 Indemnification................................................................. 15
5.08 Miscellaneous Registration Provisions........................................... 17
SECTION 6. Transfer Restrictions........................................................... 17
6.01 Transfers of Securities......................................................... 17
SECTION 7. Miscellaneous................................................................... 18
7.01 Successors and Assigns.......................................................... 18
7.02 Governing Law................................................................... 18
7.03 Headings........................................................................ 18
7.04 Entire Agreement................................................................ 18
7.05 Counterparts.................................................................... 18
7.06 Notices......................................................................... 18
7.07 Accounting Terms................................................................ 18
7.08 Brokers; Information............................................................ 19
7.09 Jurisdiction and Service of Process............................................. 19
</TABLE>
ii
<PAGE> 4
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement"), dated as of March
5, 1999, by and between Inland Resources Inc., a Washington corporation (the
"Company"), and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P., a
California limited partnership ("TCW").
RECITALS
1. Pursuant to the Amended and Restated Credit Agreement (as
amended from time to time, the "Credit Agreement"), dated as of September 11,
1998, among the Company, Inland Production Company, a Texas corporation (the
"Borrower"), and TCW Asset Management Company, a California corporation, in its
capacities set forth in the Credit Agreement ("TAMCO"), Trust Company of the
West, in its capacity as holder of the Notes described therein ("Trustco"), and
TCW (together with TAMCO and Trustco, the "TCW Entities"), the TCW Entities have
made loans or other advances of credit to the Borrower for the benefit of the
Company.
2. In consideration of the TCW Entities' agreement to make
certain concessions to the Borrower for the benefit of the Company in connection
with the Credit Agreement, the Company shall issue the Warrants (as defined
below) to TCW.
AGREEMENT
In consideration of the premises and of the terms and
conditions herein contained, the parties hereto mutually agree as follows:
DEFINITIONS
As used herein, the following terms shall have the following
respective meanings:
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under
common control with such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under
common control with") shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise). Notwithstanding the
foregoing, (i) no individual shall be deemed to be an Affiliate of a
corporation solely by reason of his or her being an officer or director
of such corporation and (ii) neither TCW nor TCW shall be deemed to be
an Affiliate of the Company or its Affiliates.
"Board" shall have the meaning specified in Section 2.01
below.
"Board of Advisors" shall mean the individuals appointed from
time to time by management of the Company to provide nonbinding
informal advice and direction to the Company and management of the
Company.
1
<PAGE> 5
"Business Day" shall mean any day, other than a Saturday, a
Sunday or a legal holiday on which commercial banks are authorized or
obligated by law or executive order to close, in the State of
California.
"Closing" shall have the meaning specified in Section 1.02(a)
below.
"Commission" shall mean the Securities and Exchange
Commission.
"Common Stock" shall have the meaning ascribed to such term in
the form of Warrant attached hereto as Annex 1.
"Company" shall have the meaning specified in the introductory
paragraph to this Agreement.
"Credit Agreement" shall have the meaning specified in the
recitals to this Agreement.
"Current Market Price" shall have the meaning assigned to such
term in the form of Warrant attached hereto as Annex 1.
"Current Warrant Price" shall have the meaning assigned to
such term in the form of Warrant attached hereto as Annex 1.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"Governmental Body" shall mean any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Lien" shall mean with respect to any property or assets, any
right or interest therein of a creditor to secure debt owed to him or
any other arrangement with such creditor which provides for the payment
of such debt out of such property or assets or which allows him to have
such debt satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under
any title retention or conditional sale agreement or lease
substantially equivalent thereto, tax lien, mechanic's or materialman's
lien, or any other charge or encumbrance for security purposes, whether
arising by law or agreement or otherwise, but excluding any right of
offset which arises without agreement in the ordinary course of
business. "Lien" also means any filed financing statement, any
registration of a pledge (such as with an issuer of unregistered
securities), or any other arrangement or action which would serve to
perfect a Lien described in the preceding sentence, regardless of
whether such financing statement is filed, such registration is made,
or such arrangement or action is undertaken before or after such Lien
exists.
2
<PAGE> 6
"Notes" shall mean an aggregate amount of $75,000,000 of the
Company's Senior Subordinated Secured Amortizing Term Notes due
December 31, 2006.
"Person" shall mean any individual, corporation, partnership,
association, joint stock company, trust or trustee thereof, estate or
executor thereof, unincorporated organization or joint venture, court
or governmental unit or any agency subdivision thereof, or any other
legally recognizable entity.
"Recommended Number" shall have the meaning ascribed thereto
in Section 5.01(a).
"Restricted Certificate" shall mean a certificate for Common
Stock or a Warrant bearing the restrictive legend set forth in Section
1.03 of this Agreement.
"Restricted Securities" shall mean Restricted Stock and
Restricted Warrants.
"Restricted Stock" shall mean Warrant Stock evidenced by a
Restricted Certificate or otherwise restricted from transfer pursuant
to the Securities Act or Exchange Act.
"Restricted Warrant" shall mean a Warrant evidenced by a
Restricted Certificate.
"Rule 144" shall mean Rule 144 promulgated by the Commission
under the Securities Act, and any successor provision thereto.
"Securities" shall mean any of the Warrants and Warrant Stock.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and all rules and regulations thereunder.
"Seller" shall mean a holder of Restricted Stock of the
Company for which the Company shall be required to file a registration
statement or which shall be registered under the Securities Act at the
request of such holder pursuant to any of the provisions of Section 5.
Neither the Company nor any of its Affiliates shall be deemed a
"Seller" for any purposes of this Agreement.
"Subsidiary" shall mean, with respect to any Person, any
corporation, association, partnership, joint venture, or other business
or corporate entity, enterprise or organization which is directly or
indirectly (through one or more intermediaries) controlled by or owned
fifty percent or more by such Person, provided that associations, joint
ventures, partnership or other relationships (a) which are established
pursuant to a standard form operating agreement or similar agreement or
which are partnerships for purposes of federal income taxation, (b)
which are not corporations or partnerships (or subject to the Uniform
Partnership Act) under applicable state law, and (c) whose businesses
are limited to the exploration, development and operation of oil, gas
or mineral properties and interests owned directly by the parties in
such associations, partnerships, joint ventures or relationships, shall
not be deemed to be "Subsidiaries" of such Person.
3
<PAGE> 7
"TCW" shall have the meaning specified in the introductory
paragraph to this Agreement.
"Warrant" and "Warrants" shall have the meanings specified in
Section 1.01 below.
"Warrant Stock" shall mean the shares of Common Stock
purchasable by the holder of a Warrant upon exercise of such Warrant.
SECTION 1. Issuance of Warrants.
1.01 Authorization and Issuance of Shares and Warrants. The
Company has authorized: (a) the issue of one or more warrant certificates
covering the purchase of shares of Common Stock in the form of the Warrant
certificate issued to TCW at the Closing in the form set forth as Annex 1 to
this Agreement (herein, together with the rights to purchase Common Stock
provided thereby, sometimes called, individually, a "Warrant" and, collectively,
the "Warrants") pursuant to this Agreement and (b) the issue of such number of
shares of Common Stock as will permit the compliance by the Company with its
obligations to issue Common Stock pursuant to the Warrants.
1.02 Closing; Subsequent Issuances.
(a) At a closing (the "Closing") held on the date hereof
the Company issued to TCW Warrants to purchase an aggregate of 58,512 shares of
Common Stock of the Company (representing approximately 0.7% of the outstanding
shares of Common Stock of the Company, on a fully diluted basis as of the date
hereof) and subject to adjustment as provided in the Warrants.
(b) No later than five (5) Business Days after the
agreement by any TCW Entity to defer the payment by the Company, Borrower or any
Affiliates (or forebear from taking enforcement actions with respect to the
nonpayment or delinquent payment) of any amounts owing under the Credit
Agreement or any other Loan Document (as defined therein) (the "Deferred
Amount"), the Company shall issue to TCW (in each case, a "Subsequent Issuance")
Warrants to purchase the number of shares of Common Stock of the Company
(subject to adjustment as provided in the Warrant) equal to the product of (i)
sixteen (16) multiplied by (ii) the quotient (rounding up to the next integer in
the case of any fractional amount) of (x) the Deferred Amount divided by (y) one
thousand (1,000).
(c) At the Closing and each Subsequent Issuance, the
Company delivered to TCW:
(i) a certificate for the Warrants issued in
TCW's name; and
(ii) certified resolutions of the Board
authorizing the execution and delivery of
this Agreement and all related documents and
the consummation of the transactions
contemplated hereby and thereby.
4
<PAGE> 8
1.03 TCW Investment Representation. In connection with the
purchase of the Warrants, TCW represents and warrants to the Company that (a)
TCW acquired the Warrants solely for TCW's own account with no intention to
resell or distribute the Warrants or any Warrant Stock or any portion thereof,
(b) TCW is an "accredited investor," as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act. TCW is a sophisticated
investor with such knowledge and experience in financial matters as is necessary
to enable it to evaluate the merits and risks of an investment in the Warrants
and in the Common Stock, and is capable of bearing the economic risks of such
investment. TCW acknowledges that (a) the sale of the Securities has not been
registered under the Securities Act or registered or qualified under applicable
state securities or blue sky laws and TCW agrees that the Securities will not be
sold, conveyed, transferred or disposed of by TCW except in compliance with the
Securities Act and applicable state securities or blue sky law and (b) that in
making the representations set forth in Sections 3.01, 3.02 and 3.03, the
Company is relying, to the extent applicable, upon the representations and
warranties of TCW made in this Section 1.03. The certificates for the Securities
shall bear a legend to the effect of clause (a) of the preceding sentence until
transferred pursuant to an effective registration statement under the Securities
Act or Rule 144.
SECTION 2. [Intentionally Left Blank]
SECTION 3. Representations, Warranties and Covenants of the Company.
The Company represents and warrants, as set forth below in this Section 3.
3.01 Sale is Legal, etc.
(a) Upon the issuance of the Warrants the total
number of shares of capital stock which the Company had authority to issue was
25,000,000 shares of Common Stock. The Company has the power and authority and
has taken all actions necessary to authorize it to enter into and perform its
obligations and undertakings under this Agreement and the Warrants. Immediately
prior to the issuance of the Warrants, 8,529,765 shares of Common Stock were
issued and outstanding. Upon the issuance of the Warrants, the Company did not
have outstanding any (i) stock or securities convertible into or exchangeable
for any shares of capital stock except for the Warrants or (ii) rights to
subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, any capital stock or
stock or securities convertible into or exchangeable for any capital stock,
other than (a) the Warrants; (b) the 127,400 outstanding unexercised options
issued pursuant to the Amended 1988 Stock Option Plan of the Company; (c) the
500,000 options issued or to be issued under the Company's 1997 Stock Option
Plan; (d) 100,000 shares of the Company's Series C Cumulative Convertible
Preferred Stock issued as of the date hereof; and (e) warrants and/or options to
purchase an aggregate of 1,376,911 shares of Common Stock issued to the parties
and in the amount indicated on Schedule 3.01(a) hereto. There are no preemptive
rights or rights of first refusal to purchase any capital stock of the Company,
other than the anti-dilution rights of the Series C Cumulative Convertible
Preferred Stock upon conversion.
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(b) The Company will at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of the exercise of the Warrants, such number and class of shares of
Common Stock issuable upon the exercise of all outstanding Warrants. All shares
of Common Stock which are so issuable will, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens, charges and
preemptive rights. The Company will take all such actions as may be necessary to
assure that all such shares of Common Stock may be so issued without violation
of any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Common Stock may be listed.
(c) None of the execution and delivery of this Agreement
or the issue and sale of the Warrants and the Warrant Stock, or the consummation
of the transactions herein or therein contemplated or compliance with the terms
and provisions hereof and thereof will violate or result in a breach of, or
require any consent under, the Charter or Bylaws of the Company, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or Governmental Body (other than (i) filings that have been made by the
Company to the extent required pursuant to applicable securities laws and (ii)
filings that may be required hereafter in connection with matters set forth in
Section 5 hereof), or any material agreement or material instrument to which the
Company or any of its Subsidiaries is a party or by which any of them is bound
or to which any of them is subject, or constitute a default (or an event which,
with notice or the passage of time or both, would be a default) under any such
material agreement or material instrument, or result in the creation or
imposition of any Lien upon any of the revenues or assets of the Company or any
of its Subsidiaries pursuant to the terms of any such agreement or instrument.
(d) There is not in effect on the date hereof any
agreement by the Company (other than this Agreement) pursuant to which any
holders of securities of the Company have a right to cause the Company to
register such securities under the Securities Act, except as disclosed on
Schedule 3.01 to this Agreement.
(e) The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Washington. The
Company has the corporate power and authority to execute and deliver this
Agreement and the Warrants and to perform the terms hereof and thereof,
including the issuance of Warrant Stock upon exercise of the Warrants. The
Company has taken all action necessary to authorize the execution, delivery and
performance of this Agreement, the issuance of the Warrants and the issuance of
the Warrant Stock upon exercise of the Warrants. This Agreement and the Warrants
have been duly authorized and executed and constitute the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with their terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors', rights generally.
3.02 Governmental Consent. Neither the nature of the Company
or of any of the Company's Subsidiaries, or of any of their respective
businesses or properties, nor any relationship between the Company or any of the
Company's Subsidiaries and any other Person, nor (except as expressly provided
for in this Agreement) any circumstance in connection with the offer, issue or
sale of the Warrants, or the issue to TCW of Warrant Stock upon exercise of the
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Warrants, is such as to require consent, approval or authorization of, or
filing, registration or qualification with, any Governmental Body on the part of
the Company as a condition to the execution, delivery and performance of this
Agreement, and the issue of the Warrants or the issue of Warrant Stock upon
exercise of the Warrants.
3.03 Private Offering. Neither the Company nor any Person
acting on its behalf has offered or will offer the Warrants, the Warrant Stock,
or any part thereof or any similar securities for issue or sale to, or has
solicited or will solicit any offer to acquire any of the same from, anyone so
as to cause the Warrants or the Warrant Stock to be required to be registered
pursuant to the provisions of Section 5 of the Securities Act.
SECTION 4. Additional Covenants of the Company.
4.01 Delivery Expenses. If TCW surrenders any certificate for
Warrants or Warrant Stock to the Company or a transfer agent of the Company for
exchange for instruments of other denominations, the Company will cause such new
instruments to be issued (provided that such issuance does not violate any
applicable securities laws) and will pay the cost of delivering to or from the
office of TCW from or to the Company or its transfer agent, duly insured, the
surrendered instrument and any new instruments issued in substitution or
replacement for the surrendered instrument.
4.02 Taxes. The Company will pay all taxes (other than
federal, state or local income taxes) which may be payable in connection with
the execution and delivery of this Agreement or the issuance and sale of the
Warrants or Warrant Stock hereunder or in connection with any modification of
the Warrants and will save TCW harmless without limitation as to time against
any and all liabilities with respect to or resulting from any delay in paying,
or omission to pay such taxes, except as provided otherwise in the Warrant. The
obligations of the Company under this Section 4.02 shall survive any redemption,
repurchase or acquisition of Warrants or Warrant Stock by the Company and the
termination of this Agreement.
4.03 Replacement of Instruments. Upon receipt by the Company
of evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any certificate or instrument evidencing any
Warrants or Warrant Stock, and
(a) in the case of loss, theft or destruction, on receipt
of indemnity reasonably satisfactory to the Company (provided that, if the owner
of the same is TCW or a commercial bank, its own agreement of indemnity shall be
deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation thereof, the Company, at the holder's expense, will execute,
register and deliver, in lieu thereof, a new certificate or instrument for (or
covering the purchase of) an equal number of Warrants or Warrant Stock.
4.04 Information, etc. The Company covenants and agrees that,
it will, to the extent not already provided to TCW or its Affiliates pursuant to
the Credit Agreement, deliver to TCW at the Company's expense the information
specified below:
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(a) promptly after the same are available, copies of all
such proxy statements, financial statements and reports as the Company shall
send or make available generally to any of its security holders or as any
Subsidiary of the Company shall send or make available generally to any of its
security holders other than the Company or another Subsidiary, and copies of all
regular and periodic reports on Forms 10-KSB, 10-QSB or 8-K and of all final
registration statements (other than those on Form S-8) and prospectuses which
the Company or any Subsidiary of the Company may file with the Commission, or
with any securities exchange; and
(b) such other information, including financial
statements and computations, relating to the performance of the provisions of
this Agreement and the affairs of the Company or any of the Company's
Subsidiaries as TCW may from time to time reasonably request.
4.05 Inspection. The Company covenants and agrees that it
shall afford one or more representatives chosen by TCW reasonable access, at
reasonable times and at TCW's sole expense, upon reasonable prior notice and for
a proper purpose, to inspect the books and records of the Company and to discuss
with management the business and affairs of the Company.
SECTION 5. Registration Rights.
5.01 Demand Registration. At any time after the Warrants
become exercisable and so long as the Company continues to have a class of
securities registered in accordance with Section 12 or Section 15A of the
Exchange Act, the holders of Restricted Securities may request the Company to
register for sale under the Securities Act and any applicable state securities
or "blue sky" laws all or any portion of the Restricted Stock that is then
outstanding. From and after December 31, 2007, the holders of Restricted Stock
shall have no further rights to require the Company to register Restricted Stock
pursuant to this Section 5.01. The Company shall be obligated to effect
registration pursuant to this Section 5.01 no more than one time,
notwithstanding the fact that Restricted Stock may be held by more than one
person. Whenever the Company shall have received a request to effect
registration pursuant to this Section 5.01, the Company shall promptly give
written notice to all other holders of outstanding Restricted Securities of such
proposed registration. Any such holder of Restricted Securities may, within 30
days after receipt of such notice, request that all of such holders' Restricted
Stock, or any portion thereof designated by such holder, be included in the
offering. In connection therewith, the Company shall file a registration
statement covering the Restricted Stock sought to be registered by such holder
with the Commission within 60 days of such request by such holder, unless such
request is withdrawn. The managing underwriter in any such offering will be
designated by the Seller and shall be reasonably satisfactory to the Company.
Except as permitted in the next succeeding paragraph, the Company agrees not to
effect any public or private sale or distribution of its equity securities
during the 10-day period prior to, and during the 30-day period beginning on,
the effective date of the registration statement relating to such offering.
The Company, and any other shareholder of the Company entitled
to participate in such registration, may participate in such registration (i)
subject to the limitations set forth in
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the last paragraph of this Section 5.01 and (ii) only if the Company or such
other shareholder agrees (x) to sell any shares being registered on their behalf
on the same basis as provided in any underwriting agreement to which the Seller
or Sellers are a party, (y) to timely complete and execute all questionnaires,
powers of attorney, indemnities, hold-back agreements and other documents
reasonably required under the terms of such underwriting agreement or by the
Commission or any state securities regulatory body, and (z) to withdraw any
shares from such registration which they may desire to withdraw only on terms
and at a time agreed to by the Sellers which agreement will not be unreasonably
withheld. If the Company participates in such registration and registers a
number of shares of Common Stock equal to or greater than the number being
registered by the Sellers, then the Company may specify a co-managing
underwriter for the offering which is reasonably acceptable to the Sellers and
the managing underwriter selected by the Sellers.
If the managing underwriter for the offering advises that the
registration of the number of shares of Restricted Stock sought to be registered
by the Sellers, together with the number of shares of Common Stock sought to be
registered by the Company and any other shareholder of the Company entitled to
participate in such registration, if any, in its opinion will have a material
adverse impact on the offering (including without limitation causing the
proceeds or the price per share the Sellers will derive from such registration
to be reduced or causing the number of securities to be registered to be too
large a number to be reasonably sold), the number of securities sought to be
registered shall be reduced as follows:
(a) first, the number of shares of Common Stock sought to
be registered by the Company or any holders of Common Stock, other than
Restricted Stock, shall be reduced pro rata, to the extent necessary to reduce
the total number of shares of Common Stock sought to be registered to the number
recommended by the managing underwriter (the "Recommended Number"); and
(b) second, if the reduction provided for in clause (a)
above does not reduce the number of shares of Common Stock sought to be
registered to the Recommended Number, then the remaining number of shares of
Restricted Stock sought to be registered shall be reduced pro rata to the extent
necessary to reduce the number of securities to be registered to the Recommended
Number.
5.02 Piggyback Registration. If the Company at any time
proposes to register any of its equity securities under the Securities Act on
Form S-1, S-2, S-3 or SB-2, or the equivalent, whether of its own accord or at
the request of any holder or holders of such securities, it will each such time
(so long as any holder of Restricted Securities has registration rights under
this Section 5.02) give written notice to all holders of outstanding Restricted
Securities of its intention so to do not less than 30 days prior to the filing
of such registration statement, stating in such notice the number and type of
equity securities proposed to be registered and the name of the managing
underwriter.
Upon the written request of a holder or holders of any
Restricted Securities given within 20 days after receipt of any such notice
(stating the intended method of disposition of such securities by the
prospective Seller or Sellers), the Company will use its best efforts to cause
all Restricted Stock, the holders of which shall have so requested registration
thereof, to be
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registered under the Securities Act, all to the extent requisite to permit the
sale or other disposition (in accordance with the intended methods thereof as
aforesaid) by the prospective Seller or Sellers of the Restricted Stock so
registered; provided, however, the Company may elect not to file a registration
statement pursuant to this Section 5.02 or may withdraw any registration
statement filed pursuant to this Section 5.02 at any time prior to the effective
date thereof. In the case of an underwritten public equity offering by the
Company, (i) each holder of Restricted Securities shall, if requested by the
managing underwriter, agree not to sell publicly any equity securities of the
Company held by such holder of Restricted Securities (other than the Restricted
Stock so registered) during the 15-day period prior to, and during the 90-day
period beginning on, the effective date of the registration statement relating
to such offering (and the Company may issue stop transfer instructions with
respect to the Restricted Stock to enforce the foregoing covenant), and (ii)
each Seller agrees (x) to sell any shares being registered on his behalf on the
same basis as provided in any underwriting agreement to which the Company is a
party, (y) to timely complete and execute all questionnaires, powers of
attorney, indemnities, hold-back agreements, and other documents reasonably
required under the terms of such underwriting agreement or by the Commission or
any state securities regulatory body, and (z) to withdraw any shares from such
registration which they may desire to withdraw only on terms and at a time
agreed to by the Company, which agreement will not be unreasonably withheld.
If the managing underwriter for the offering advises that the
inclusion in such registration of the Restricted Stock sought to be registered
by the Seller or Sellers, together with the shares sought to be registered by
the Company and any other shareholder of the Company participating in such
registration, in its opinion will have a material adverse impact on the offering
(including without limitation causing the proceeds or the price per share which
the Company or the holders of securities will derive from such registration to
be materially reduced or causing the number of securities to be registered to be
too large a number to be reasonably sold), the number of securities sought to be
registered shall be reduced as set forth below:
(a) first, the number of shares of Restricted Stock
sought to be registered by the Sellers shall be reduced pro rata along with
other sellers selling pursuant to similar piggyback registration rights (subject
only to the terms of agreements in effect dated prior to the date hereof, if
any, providing piggyback registration rights to holders of the Company's capital
stock), to the extent necessary to reduce the total number of shares of Common
Stock sought to be registered to the Recommended Number; and
(b) second, if the reduction provided for in clause (a)
above does not reduce the number of shares of Common Stock sought to be
registered to the Recommended Number, then the number of shares of Common Stock
sought to be registered by the Company or other persons exercising demand
registration rights, as the case may be, shall be reduced, in the manner that
the Company and such other persons may agree, to the extent necessary to reduce
the number of shares of Common Stock sought to be registered to the Recommended
Number.
Without the prior written consent of the holders of at least a
majority of the Restricted Stock, the Company will not grant to any person at
any time on or after the date hereof the right to request the Company to
register any securities of the Company under the Securities Act unless such
right provides that such securities shall not be registered and sold at the same
time as any Restricted Stock is being sold in a registered offering pursuant to
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Sections 5.02 or 5.01 if the managing underwriter for the respective Sellers
believes that sale of such securities would materially and adversely affect the
amount of, or price at which, the respective Restricted Stock being registered
under Sections 5.01 or 5.02 can be sold.
5.03 Registration Procedures. If and whenever the Company is
required by the provisions of this Section 5 to use its best efforts to effect
the registration of any of the Restricted Stock under the Securities Act, the
Company will (except as otherwise provided in this Agreement), as expeditiously
as possible,
(a) cooperate with any underwriters for, and the Sellers
of, such Restricted Stock, and will enter into a usual and customary
underwriting agreement (containing indemnification provisions and procedures no
less favorable to the Sellers and the underwriters, if any, than those set forth
in Section 5.07) with respect thereto and take all such other reasonable actions
as are necessary to permit the disposition of such Restricted Stock in the
manner contemplated by the related registration statement, and the Company will
provide to any Seller of Restricted Stock, any underwriter participating in any
distribution thereof, pursuant to a registration statement, and any attorney,
accountant or other agent retained by any Seller or underwriter, reasonable
access solely for the purpose of permitting appropriate "due diligence" for the
avoidance of liability under applicable securities laws to appropriate Company
officers and employees to answer questions and to supply information reasonably
requested by any such Seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(b) use its best efforts to furnish or cause to be
furnished to each Seller of Restricted Stock covered by such registration
statement, addressed to such Sellers and to the underwriters, a copy of the
opinion of counsel for the Company, and a copy of the "comfort" letter signed by
the independent public accountants who have certified the Company's financial
statements included in the registration statement, delivered on the closing date
to the underwriters of such Restricted Stock;
(c) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective; and prepare and file with
the Commission such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective (subject to the terms of this Section 5) and to
comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the Seller or Sellers of such securities shall desire to sell or
otherwise dispose of the same; provided that no such registration statement will
be filed by the Company until counsel for the Sellers of securities included
therein shall have had a reasonable opportunity (of no more than 7 days) to
review the same and to exercise their rights under clause (a) above with respect
thereto and no amendment to any such registration statement naming such Sellers
as selling shareholders shall be filed with the Commission until such Sellers
shall have had at least one day to review such registration statement as
originally filed and theretofore amended (to the extent reasonably practicable)
and to exercise their rights under clause (a) above;
(d) furnish to each Seller and the underwriters (i) such
numbers of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in
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conformity with the requirements of the Securities Act, and such other
documents, as such Seller or underwriters may reasonably request in order to
facilitate the public sale or other disposition of the securities owned by such
Seller and (ii) at least one signed copy of the registration statement and any
post-effective amendment thereto, including all financial statements, schedules
and exhibits (including any exhibits incorporated by reference);
(e) use its best efforts to register or qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each Seller or the managing underwriter
shall reasonably request, and do any and all other acts and things which may be
necessary to enable such Seller to consummate the public sale or other
disposition in such jurisdictions of the securities owned by such Seller, except
that the Company shall not for any such purpose be required to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified or to file therein any general consent to service or submit to the
general taxation of any jurisdiction;
(f) in the event of the issuance of any stop order
suspending the effectiveness of any registration statement or of any order
suspending or preventing the use of any prospectus or suspending the
qualification of any Restricted Stock for sale in any jurisdiction, use its best
efforts promptly to obtain its withdrawal;
(g) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, beginning with the first fiscal
quarter beginning after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(h) list such securities on any securities exchange,
national market system or automated quotation system on which any stock of the
Company is then listed, if the listing of such securities is then permitted
under the rules of such exchange or system; provided, however, that
notwithstanding any other provision of this Section 5, the Company shall not be
required to maintain the effectiveness of any registration statement for a
period in excess of the earlier of 120 days or the disposition of the Warrant
Stock as described therein (plus any period during which the effectiveness of
such registration has been suspended).
Notwithstanding anything to the contrary contained herein, the
Company shall not be required to cause a registration statement previously filed
pursuant to this Section 5 to become effective, and may suspend sales by any of
the Sellers under any registration that has previously become effective, at any
time when, in the good faith judgment of the board of directors, it reasonably
believes that the effectiveness of such registration statement or the offering
of securities pursuant thereto, would materially and adversely affect a pending
or proposed material acquisition, merger, recapitalization, reorganization or
similar transaction or negotiations, discussions or pending proposals with
respect thereto.
From time to time after a transfer of Warrant Stock pursuant
to a registration statement, the Company will file all reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder, and will
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take such further action as any holder or holders of Restricted Stock may
reasonably request, all to the extent required to enable such holders to sell
Restricted Stock pursuant to such laws and regulations thereunder and subject to
the terms hereof; and promptly notify the Seller or Sellers and the managing
underwriters (i) when any prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to the registration
statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission for amendments or supplements to the
registration statement or any prospectus or for additional information, (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the registration statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Restricted Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (v) of the happening of any event which makes any statement made in
the registration statement, any prospectus or any document incorporated therein
by reference untrue in any material respect or which requires the making of any
changes in the registration statement in order to make the statements therein
not misleading in any material respect.
5.04 Expenses; Limitations on Registration. All expenses
incident to the Company's performance of its obligations in connection with any
registration of the Sellers' Restricted Stock, pursuant to Section 5.01 or
Section 5.02, under this Agreement including, without limitation, printing
expenses, fees and disbursements of counsel for the Company, fees of the
National Association of Securities Dealers, Inc. in connection with its review
of any offering contemplated in any registration statement and expenses of any
special audits to which the Company shall agree or which shall be necessary to
comply with governmental requirements in connection with any such registration
shall be paid by the Company. In addition, the Company shall pay (i) all
registration and filing fees for the Sellers' Restricted Stock under federal and
state securities laws and (ii) expenses of registering or qualifying under or
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 5.03(e), unless otherwise required by the securities administrators of
each such jurisdiction. The Sellers shall pay, in connection with the exercise
of their registration rights pursuant to Sections 5.01 or 5.02, all underwriting
discounts and selling commissions allocable to the sale of Restricted Stock
incurred for or on behalf of the Sellers and expenses of Seller's counsel and
other experts.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 5 in respect of the
Securities which are to be registered at the request of any prospective Seller
that (i) subject to the immediately preceding paragraph, the Company shall have
received an undertaking satisfactory to it from such prospective Seller to pay
all expenses to be incurred by or for the account of and required to be paid by
such Seller, and (ii) such prospective Seller shall furnish to the Company such
information regarding the securities held by such Seller and the intended method
of disposition thereof as the Company shall reasonably request and as shall be
required in connection with the action to be taken by the Company.
The holders of Warrants and Warrant Stock shall be entitled to
an aggregate of one effective registration pursuant to requests made under
Section 5.01 and an unlimited number of registrations pursuant to requests made
under Section 5.02, each subject to the provisions of Section 5.05 below;
provided that any such registration request made by the requisite number of
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holders specified in Section 5.01 which request shall be withdrawn (other than
by reason of the Company's failure to perform its obligations hereunder or a
material adverse change in its financial position, business or business
prospects) by the holders of a majority in number of shares evidenced or covered
by the Restricted Stock sought to be so registered, after the respective
registration statement shall have become effective, shall be treated as an
"effective" registration for purposes of this Agreement.
5.05 Termination of Restrictions. Notwithstanding the
foregoing provisions of this Section 5, the restrictions imposed upon the
transferability of the Restricted Stock shall cease and terminate as to any
particular Restricted Security when such Restricted Security shall have been
effectively registered under the Securities Act and sold by the holder thereof
in accordance with such registration or the holder of such Restricted Security
has delivered to the Company an opinion of counsel in form and substance
reasonably satisfactory to the Company that all of the Restricted Stock may
simultaneously be sold in accordance with the safe harbor provisions of Rule
144(k). No request for registration may be made by a holder of Restricted Stock
pursuant to this Section 5, nor may any registration be required to be
maintained if such holder of Restricted Stock is advised by the Company, and
promptly furnished an opinion of the Company's counsel reasonably satisfactory
to such holder, to the effect that all of the shares of Restricted Stock subject
to registration under this Agreement are eligible for simultaneous sale under
the conditions of Rule 144 as promulgated by the Commission, and no request for
registration may be made with respect to such shares of Restricted Stock to
which such opinion is applicable, and no registration need be maintained in
respect thereof under either such circumstance. Whenever the restrictions
imposed shall terminate as to a Restricted Certificate, as hereinabove provided,
the holder thereof shall be entitled to receive from the Company, without
expense, a new certificate not bearing the restrictive legend otherwise required
to be borne thereby.
5.06 Rule 144 and 144A. In order to permit the holders of
Restricted Securities to sell the same, if they so desire, pursuant to Rule 144
or Rule 144A promulgated by the Commission (or any successors to such rules),
the Company will comply with all rules and regulations of the Commission
applicable in connection with use of each of Rule 144 and Rule 144A (or any
successors thereto), including the timely filing of all reports with the
Commission and the provision of any information regarding the Company in order
to enable such holders, if they so elect, to utilize Rule 144 or Rule 144A, and
the Company will cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to any sale of Warrant Stock which is
exempt from registration under the Securities Act pursuant to Rule 144 or Rule
144A. Upon the request of any holder of Restricted Securities, the Company will
deliver to such holder a written statement verifying that it has complied with
such requirements.
5.07 Indemnification.
(a) In the event of any registration of any of its
securities under the Securities Act pursuant to this Section 5, the Company
shall indemnify and hold harmless the Seller of such Restricted Stock, its
directors and officers, and each other Person, if any, who controls such Seller
within the meaning of the Securities Act ("Controlling Person"), against any
losses, claims, damages or liabilities, joint or several, to which such Seller
or any such director or
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officer or Controlling Person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any registration statement under which such securities were
registered under the Securities Act, or in any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, (ii) any
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or (iii) any
violation by the Company of any rule or regulation promulgated under the
Securities Act or the Exchange Act, or other federal or state law applicable to
the Company and relating to any action or inaction required of the Company in
connection with such registration, and shall reimburse such Seller or such
director, officer or Controlling Person for any reasonable legal or any other
expenses reasonably incurred by such Seller or such director, officer or
Controlling Person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any alleged untrue statement or
alleged omission made in such registration statement, preliminary prospectus,
prospectus, or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Seller, by any underwriter
in the transaction or by such Controlling Person specifically for use therein;
and provided further, however, that the Company shall not be liable hereunder to
any underwriter or any person who controls an underwriter within the meaning of
the Securities Act and the Exchange Act for any claim, damage or liability that
is based upon any untrue statement or alleged untrue statement or any omission
contained in any preliminary prospectus that was corrected by any subsequent
prospectus, and the underwriter was required to deliver but failed to deliver
such prospectus as required by the Securities Act. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such Seller or such director, officer or Controlling Person, and shall survive
the transfer of such securities by such Seller.
(b) Each holder of any Restricted Stock shall, by
acceptance thereof, severally and not jointly, indemnify and hold harmless the
Company, its directors and officers and each other Person, if any, who controls
the Company against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director or officer or any such Person
may become subject under the Securities Act or any other statute or at common
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any alleged untrue statement
of any material fact contained, on the effective date thereof, in any
registration statement under which Restricted Stock was registered under the
Securities Act, or in any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent that such alleged untrue statement or alleged omission was contained
in written information furnished to the Company by such holder specifically for
use therein, and shall reimburse the Company or such director, officer or other
Person for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such loss, claim, damage, liability or
action. Notwithstanding the foregoing, obligations of any holder shall be
limited to an amount equal to the proceeds to such holder from the Restricted
Stock sold pursuant to the registration statement to which the losses, claims,
liabilities or damages related.
15
<PAGE> 19
(c) Indemnification similar to that specified in clauses
(a) and (b) of this Section 5.07 shall be given by the Company and each holder
of any Restricted Certificate (with such modifications as shall be appropriate)
to each other and to any underwriter with respect to any required registration
or other qualification of any Restricted Stock under any federal or state law or
regulation of governmental authority other than the Securities Act. The
indemnity and expense reimbursement obligations of the Company under clause (a)
of this Section 5.07 shall be in addition to any liability the Company may
otherwise have.
(d) Each Person ("Indemnitor") who under the preceding
provisions of this Section 5.07 agrees to indemnify another Person
("Indemnitee") shall have the right, subject to the provisions hereto, to
designate counsel (reasonably acceptable to the Indemnitee) to defend any case
or proceeding against the Indemnitee arising in respect of any claim of
liability for which such indemnification may be claimed, to the end that
duplication of legal expense may be minimized; provided that, if the Indemnitee
notifies the Indemnitor that the Indemnitee has reasonably concluded and has
been advised by its counsel that any single counsel in such case or proceeding
would have a conflict of interest in representing both the Indemnitor and the
Indemnitee, the Indemnitee may designate its own counsel in such case or
proceeding and, to the extent so provided above in this Section 5.07, shall be
entitled to be reimbursed by the Indemnitor for the Indemnitee's legal expenses
reasonably incurred in connection with defending itself in such case or
proceeding. Each Indemnitee may engage legal counsel at the Indemnitor's expense
if the Indemnitor shall fail to perform hereunder.
5.08 Miscellaneous Registration Provisions.
(a) Without limiting in any way any of the rights the
holders of the Restricted Securities may otherwise have at law or in equity, for
damages or otherwise, the Company hereby agrees to indemnify and hold harmless
each holder of Restricted Securities from and against any loss or expense that
may be incurred or suffered by such holder which arises from any of the
following: (i) a registration statement is not filed with the Commission on or
before the time required in Section 5.01 or (ii) the Company does not use its
best efforts to cause such registration statement to be declared effective by
the Commission at the time reasonably requested by the underwriters and to
remain effective until completion of the offering of the Restricted Securities,
or to cause the Restricted Securities to be qualified or registered for sale in
all appropriate jurisdictions as provided in Section 5.03(e) and to remain so
qualified or registered thereafter during the applicable period under applicable
law.
(b) Each holder of Restricted Securities, in addition to
being entitled to exercise all rights provided herein or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by the Company
hereof and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(c) The Company will not on or after the date hereof
enter into, any agreement with respect to its securities which is inconsistent
with the terms hereof, including any agreement which impairs or limits the
registration rights granted to the holder of Restricted Securities or which
otherwise conflicts with the provisions hereof or would preclude the
16
<PAGE> 20
Company from discharging its obligations hereunder, without the prior written
consent of the holders of at least a majority of the Restricted Stock.
SECTION 6. Transfer Restrictions.
6.01 Transfers of Securities. Prior to any sale, assignment or
other transfer (a "Transfer") or attempted Transfer of any Warrants or any
Warrant Stock, the holder of such Warrants or Warrant Stock shall give at least
ten (10) days prior written notice ("Transfer Notice") to the Company of such
holder's intention to effect such Transfer, such Transfer Notice describing the
manner and circumstances of the proposed Transfer, and shall obtain from legal
counsel to such holder, an opinion that the proposed Transfer of such Warrants
or such Warrant Stock may be effected without registration under the Securities
Act or any other federal or state securities laws. After receipt of the Transfer
Notice and legal opinion, the Company shall, within five (5) days thereof,
notify the holder of such Warrants or such Warrant Stock as to whether such
opinion is reasonably satisfactory, or if the Company does not so notify such
holder within such five (5) day period, such holder shall thereupon be entitled
to effect such Transfer of such Warrants or such Warrant Stock, in accordance
with the terms of the Transfer Notice. The Company shall have no obligation to
register any Warrants under the Securities Act or any other federal or state
securities laws.
Each Warrant certificate shall be imprinted with the legend on
the face of the Warrant certificate attached hereto. Each share of Common Stock
issued upon the exercise of a Warrant shall be subject to the legend prescribed
in Section 1.03 of this Agreement.
SECTION 7. Miscellaneous.
7.01 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties, and their respective
successors and assigns.
7.02 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
excluding principles of conflicts of laws.
7.03 Headings. Section headings are inserted herein for
convenience only and do not form a part of this Agreement.
7.04 Entire Agreement. This Agreement contains the entire
agreement among the parties hereto with respect to the transactions contemplated
herein, supersedes all prior written agreements and negotiations and oral
understandings, if any, and may not be amended, supplemented or discharged
except by performance or by an instrument in writing signed by the parties
hereto.
7.05 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17
<PAGE> 21
7.06 Notices. All notices, statements, instructions or other
documents required to be given hereunder, shall be in writing and shall be given
personally, by courier, by mailing the same in a sealed envelope, first-class
mail, postage prepaid and either certified or registered, return receipt
requested, or by confirmed telecopy addressed to the Company at its principal
office located at 475 17th Street, Suite 1500, Denver, Colorado 80202 and to TCW
at its address reflected in the stock records of the Company. Each party hereto,
by written notice given to the other party hereto accordance with this Section
7.06, may change the address to which notices, statements, instructions or other
documents are to be sent to such party. All notices, statements, instructions
and other documents hereunder that are mailed shall be deemed to have been given
when actually received or five days after deposited in the United States mails.
7.07 Accounting Terms. Unless otherwise specified, all
accounting terms used in this Agreement shall be interpreted in accordance with
GAAP.
7.08 Brokers; Information. Neither party hereto nor any of
their Affiliates has dealt with any broker, finder, commission agent or other
Person in connection with the Warrants or Warrant Stock or any other securities
or aspects of the transactions contemplated by this Agreement; and no party
hereto is under any obligation to pay any broker's fee or other commission in
connection therewith. No party hereto has willfully misrepresented or willfully
provided incomplete or inaccurate information to anyone with respect to any
transactions contemplated by this Agreement.
7.09 Jurisdiction and Service of Process. Any suit, action or
proceeding against the Company arising from or in connection with this Agreement
may be brought in the Superior Court of the County of Los Angeles, California or
in the United States District Court for the Central District of California, and
the Company irrevocably submits to the jurisdiction of each such court for the
purpose of any such suit, action or proceeding. The Company hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any such suit, action or proceeding brought in any of such courts, and hereby
irrevocably waives any claim that any such suit, action or proceeding in any
such court has been brought in an inconvenient forum.
18
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed as of the date first written above.
INLAND RESOURCES INC.,
a Washington corporation
By:
------------------------------------
Bill I. Pennington
Chief Financial Officer
TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P., a California
limited partnership
By: TCW Royalty Company V, a
California corporation, Managing
General Partner
By:
------------------------------------
Arthur R. Carlson
Vice-President
<PAGE> 23
INLAND RESOURCES INC.
Non-Plan Options and Warrants
Schedule 3.01(a)
Prepared 3/8/99
<TABLE>
<CAPTION>
Description Grant Date Expiration Date Exercise Price Shares
12/31/98
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dwight Moorhead 10/16/93 4/30/99 $ 5.00 30,000
Dave Donegan 1/23/97 1/23/02 $ 10.00 25,000
Tim Trawick 7/7/97 7/7/07 $ 9.00 20,000
TCW 9/23/97 9/23/07 $ 10.00 100,000
MIKE STEVENS
Mike Stevens 11/10/97 11/10/07 $ 11.00 50,000
Mike Stevens 11/10/97 11/10/07 $ 16.00 50,000
--------------
100,000
--------------
BILL PENNINGTON
Bill Pennington 5/22/96 5/22/06 $ 6.27 50,000
Bill Pennington 1/23/97 1/23/02 $ 10.00 60,000
Bill Pennington 11/10/97 11/10/07 $ 11.00 62,500
Bill Pennington 11/10/97 11/10/07 $ 16.00 62,500
--------------
235,000
--------------
JOHN DYER
John Dyer 5/22/96 5/22/06 $ 6.27 50,000
John Dyer 1/23/97 1/23/02 $ 10.00 70,000
John Dyer 11/10/97 11/10/07 $ 11.00 75,000
John Dyer 11/10/97 11/10/07 $ 16.00 75,000
--------------
270,000
--------------
KYLE MILLER
Kyle Miller 2/23/93 6/1/03 $ 4.375 46,963
Kyle Miller 10/15/93 6/1/03 $ 3.30 3,150
Kyle Miller 3/22/94 6/1/03 $ 3.50 2,857
Kyle Miller 3/22/94 6/2/03 $ 3.50 2,857
Kyle Miller 9/21/94 6/1/03 $ 3.125 38,523
Kyle Miller 9/21/94 6/1/03 $ 3.50 30,000
Kyle Miller 9/21/94 6/1/03 $ 6.00 44,811
Kyle Miller 11/16/93 6/1/03 $ 5.00 1,500
Kyle Miller 2/1/95 6/1/03 $ 6.50 1,250
Kyle Miller 11/6/95 6/1/03 $ 5.00 30,000
Kyle Miller 5/22/96 5/22/06 $ 6.27 100,000
Kyle Miller 1/23/97 1/23/02 $ 10.00 70,000
Kyle Miller 11/10/97 11/10/07 $ 11.00 112,500
Kyle Miller 11/10/97 11/10/07 $ 16.00 112,500
--------------
596,911
--------------
GRAND TOTAL 1,376,911
==============
</TABLE>
<PAGE> 1
EXHIBIT 10.21
WARRANT
TO PURCHASE COMMON STOCK OF
INLAND RESOURCES INC.
A WASHINGTON CORPORATION
ISSUED ON MARCH 5, 1999
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED (EXCEPT AS PERMITTED
PURSUANT TO THAT CERTAIN WARRANT AGREEMENT DATED AS OF MARCH 5, 1999
AMONG INLAND RESOURCES INC. (THE "COMPANY") AND TCW PORTFOLIO NO. 1555
DR V SUB-CUSTODY PARTNERSHIP, L.P. (AS AMENDED FROM TIME TO TIME, THE
"WARRANT AGREEMENT"), TO THE EFFECT THAT THE PROPOSED TRANSACTION DOES
NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER FEDERAL OR STATE
SECURITIES LAWS. THE WARRANT EVIDENCED BY THIS CERTIFICATE IS SUBJECT
TO CERTAIN RESTRICTIONS AS SET FORTH IN THE WARRANT AGREEMENT.
THIS IS TO CERTIFY THAT:
TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P., a California
limited partnership ("HOLDER"), or registered assigns, is entitled to purchase
from the Company at any time on and after the earlier of (i) third (3rd)
anniversary of the date of issuance of this Warrant or (ii) the date on which
the Company prepays in full the Notes prior to their maturity, but in no event
later than 5:00 p.m., Los Angeles Time, on the tenth (10th) anniversary of the
date of issuance of this Warrant (the "EXPIRATION DATE"), FIFTY-EIGHT THOUSAND
FIVE HUNDRED TWELVE (58,512) Stock Units, in whole or in part, at a per Stock
Unit purchase price at any date equal to the Purchase Price (as defined below),
all on the terms and conditions hereinbelow provided.
1. Certain Definitions. Initially capitalized terms not otherwise
defined herein shall have the meanings ascribed to such terms in the Warrant
Agreement. As used in this Warrant:
"5-DAY AVERAGE PRICE" per share of Common Stock, for purposes of any
provision herein at the date specified in such provision, shall mean the average
closing price of the Common Stock on the securities exchange or a national
market system on which the Common Stock is then listed, or the average of the
closing "bid" and "ask" prices if quoted on The Nasdaq Stock Market or a similar
quotation system, over the 5-trading day period immediately prior to such date.
<PAGE> 2
"30-DAY AVERAGE PRICE" per share of Common Stock, for purposes of any
provision herein at the date specified in such provision, shall mean the average
closing price of the Common Stock on the securities exchange or a national
market system on which the Common Stock is then listed, or the average of the
closing "bid" and "ask" prices if quoted on The Nasdaq Stock Market or a similar
quotation system, over the 30-trading day period immediately prior to such date.
"ADDITIONAL SHARES OF NONPREFERRED STOCK" shall mean all shares of
Nonpreferred Stock issued by the Company after the Closing Date other than (i)
the Common Stock issued pursuant to the Warrants, (ii) an aggregate of 127,400
shares of Common Stock issued upon exercise of options granted pursuant to the
Company's Amended 1988 Stock Option Plan or the Company's 1997 Stock Option
Plan, (iii) so long as the Company remains a Public Company, all shares of
Common Stock issued for the benefit of officers, key employees, directors and
consultants of the Company, which issuances have been approved in advance by the
Board of Directors of the Company, a committee thereof or the shareholders of
the Company and which grants (A) have been issued as bonus stock to such persons
after the date hereof, or (B) have been or are to be issued upon exercise of
options or warrants issued after the date hereof, (iv) the shares of Common
Stock issued pursuant to the conversion of the Company's Series C Cumulative
Convertible Preferred Stock outstanding as of the date hereof; (v) 1,376,911
shares of Common Stock issued pursuant to warrants and options granted by the
Company to certain of its employees and consultants as more fully described on
Schedule 3.01(a) to the Warrant Agreement, (vi) the shares of Common Stock
issued in a public offering of Common Stock at a price per share of Common Stock
which is not less than the Current Warrant Price thereof on the earlier of the
date on which the Company shall enter into a firm commitment or contract for the
issuance of such Common Stock and the date such Common Stock is issued; (vii)
the shares of Common Stock issuable on exercise of the terms of any Convertible
Securities issued in a public or private offering where the aggregate of the
consideration received or receivable by the Company on the issuance of such
Convertible Securities and upon the issuance of Common Stock pursuant to the
terms of such Convertible Securities is not less than the Current Warrant Price
on the earlier of the date on which the Company enters into a firm commitment or
contract for the issuance of such Convertible Securities and the date on which
such Convertible Securities are issued; or (viii) shares of Common Stock issued
at a cash price, or fair market value of property, per share equal to or in
excess of the Current Warrant Price.
"AGGREGATE PURCHASE PRICE" shall have the meaning given in Section 2
below.
"APPRAISED VALUE" shall mean the fair market value of all outstanding
Common Stock, as determined by a written appraisal (the "APPRAISAL") prepared by
a national or major regional investment bank acceptable to the Board of
Directors of the Company and the Holders of the Warrants exercisable for a
majority of the Warrant Stock then unissued. "Fair market value" is defined for
this purpose as the price in a single transaction determined on a going-concern
basis that would be agreed upon by the most likely hypothetical buyer for one
hundred percent (100%) of the equity capital of the Company. In the event that
the Company and said Holders cannot, in good faith, agree upon an investment
bank, then the Company, on the one hand, and said
2
<PAGE> 3
Holders, on the other hand, shall each select an investment bank, the two
investment banks so selected shall select a third investment bank who shall be
directed to prepare the Appraisal and the term Appraised Value shall mean the
appraised value set forth in the Appraisal prepared in accordance with this
definition. The Company and the Holders shall each pay for one-half of the cost
of any such Appraisal.
"BOARD OF DIRECTORS" shall mean the duly appointed board of directors
of the Company.
"BUSINESS DAY" shall mean a day, other than a Saturday, Sunday or legal
holiday on which commercial banks are authorized or obligated by law or
executive order to close in the State of California.
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMMON STOCK" shall mean the Company's authorized common stock, $0.001
par value, irrespective of class unless otherwise specified, as constituted on
the date of original issuance of this Warrant, and any stock into which such
common stock may thereafter be changed, and shall also include stock of the
Company of any other class, which is not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption, issued to the holders of shares of Common Stock upon any
reclassification thereof.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable for
Additional Shares of Nonpreferred Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event.
"CURRENT MARKET PRICE" per share of Common Stock for the purposes of
any provision of this Warrant at a date herein specified, shall mean the greater
of (i) the 30-Day Average Price of the Common Stock or (ii) the 5-Day Average
Price of the Common Stock; provided, that if the Current Market Price per share
of Common Stock cannot be ascertained by such methods, then the Current Market
Price per share of Common Stock shall be the price agreed upon by the Company
and the Holders of Warrants exercisable for a majority of the Warrant Shares
then unissued, and if they cannot so agree within 30 days, then the Current
Market Price of Common Stock shall be deemed to be the greater of (i) the net
book value per share of Common Stock, determined in accordance with generally
accepted accounting principles, or (ii) the fair value per share of Common Stock
determined pursuant to the Appraised Value.
"CURRENT WARRANT PRICE" per share of Common Stock, for the purpose of
any provision of this Warrant at the date herein specified, shall mean the
amount equal to the quotient resulting from dividing the Purchase Price per
Stock Unit in effect on such date by the number of shares (including any
fractional share) of Common Stock comprising a Stock Unit on such date.
"NONPREFERRED STOCK" shall mean the Common Stock and shall also include
stock of the Company of any other class which is not preferred as to dividends
or rights in assets over any other class of stock of the Company and which is
not subject to redemption.
3
<PAGE> 4
"NOTES" shall mean the Senior Subordinated Amortizing Term Notes due
December 31, 2006 of the Company issued pursuant to the Credit Agreement.
"OBLIGATIONS" shall have the meaning set forth therefor in the Credit
Agreement.
"PERSON" shall mean any individual, corporation, partnership,
association, joint stock company, trust or trustee thereof, estate or executor
thereof, unincorporated organization or joint venture, court or governmental
unit or any agency or subdivision thereof, or any other legally recognizable
entity.
"PUBLIC COMPANY" shall mean a company with one or more classes of
securities subject to the registration requirements of Section 12 or 15A of the
Securities Exchange Act of 1934, as amended.
"PURCHASE PRICE" initially shall be $1.75, as adjusted from time to
time pursuant to Section 4.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"STOCK UNIT" shall mean one share of Common Stock, as such Common Stock
was constituted on the date of original issue of this Warrant and thereafter
shall mean such number of shares (including any fractional shares) of Common
Stock as shall result from the adjustments specified in Section 4.
"WARRANTS" shall mean the Warrants originally issued by the Company
pursuant to the Warrant Agreement, of which this Warrant is one, evidencing
rights to purchase shares of Common Stock, and all Warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the Common Stock for which they may be exercised.
"WARRANT STOCK" shall mean the shares of Common Stock purchasable by
the holder of a Warrant upon the exercise of such Warrant.
2. Exercise Of Warrant. The holder of this Warrant may, at any time on
or after the date hereof but not later than the Expiration Date, exercise this
Warrant in whole or in part for the number of Stock Units which such holder is
then entitled to purchase hereunder. In order to exercise this Warrant, in whole
or in part, the holder hereof shall deliver to the Company at its office
maintained for such purpose pursuant to Section 16 (i) a written notice of such
holder's election to exercise this Warrant, (ii) this Warrant, and (iii) the
total purchase price for the shares being purchased upon such exercise (a) by
delivery of immediately available funds in an amount equal to the product of the
Purchase Price multiplied by the number of Stock Units being purchased upon such
exercise (the "Aggregate Purchase Price"), (b) upon notification to the holder
at least 45 days prior to the prepayment of the Notes in full by the Company, by
credit of a portion of the prepayment amount to be paid to the holder of any
Note by the Company pursuant to the terms of the Credit Agreement (the
"Prepayment Amount") in an aggregate
4
<PAGE> 5
amount equal to the Aggregate Purchase Price, such credit being conditional upon
receipt by the Company of a written release, satisfaction or acknowledgement of
credit delivered to the Company executed by the holder of such Note, being
released or credited in payment of the Aggregate Purchase Price and setting
forth the amount of the Prepayment Amount so released or credited, (c) any
combination of the foregoing clauses (a) and (b), or (d) to the extent permitted
by applicable law, the delivery of a notice to the Company that the Holder is
exercising the Warrant without payment of the Purchase Price by authorizing the
Company to deliver the number of shares of Warrant Stock issuable upon exercise
of the Warrant to be determined based upon the following formula:
((MP - WP) x WS)/MP = the number of shares of Warrant
Stock issuable upon exercise of this Warrant without
payment of the Purchase Price
WHERE:
MP = Current Market Price
WP = Current Warrant Price
WS = The number of shares of Warrant Stock issuable upon
exercise of this Warrant (in whole or in part).
Such notice may be in the form of the Subscription set out at the end
of this Warrant. Upon receipt thereof, the Company shall, as promptly as
practicable and in any event within ten (10) Business Days thereafter, cause to
be executed and delivered to such holder a certificate or certificates
representing the aggregate number of fully paid and nonassessable shares of
Warrant Stock issuable upon such exercise.
The stock certificate or certificates for Warrant Stock so delivered
shall be endorsed with a legend as set forth in Section 1.03 to the Warrant
Agreement and shall be in such denominations as may be specified in said notice
and shall be registered in the name of such holder or such other name or names
as shall be designated in said notice. Such certificate or certificates shall be
deemed to have been issued and such holder or any other Person so designated to
be named therein shall be deemed to have become a holder of record of such
shares, including to the extent permitted by law the right to vote such shares
or to consent or to receive notice as a stockholder, as of the time said notice
is received by the Company as aforesaid.
Except as otherwise provided in Section 8 hereof, the Company shall pay
all expenses, transfer taxes and other charges payable in connection with the
preparation, issue and delivery of stock certificates under this Section 2,
except that, in case such stock certificates shall be registered in a name or
names other than the name of the holder of this Warrant, funds sufficient to pay
all stock transfer taxes which shall be payable upon the issuance of such stock
certificate or certificates shall be paid by the holder hereof at the time of
delivering the notice of exercise mentioned above.
5
<PAGE> 6
All shares of Warrant Stock issuable upon the exercise of this Warrant
shall be validly issued, fully paid and nonassessable, and free from all liens
and other encumbrances thereon.
The Company will not close its books against the transfer of this
Warrant or of any share of Warrant Stock in any manner which interferes with the
timely exercise of this Warrant. With the consent of the holder of this Warrant,
the Company will from time to time take all such action as may be necessary to
assure that the par value per share of the unissued Common Stock acquirable upon
exercise of this Warrant is at all times equal to or less than the Current
Warrant Price per share of Common Stock then in effect.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. If the exercise of this Warrant
results in a required issuance of a fraction of a share, an amount equal to such
fraction multiplied by the Current Market Price per share of Common Stock on the
day of delivery of notice of exercise to the Company shall be paid to the holder
of this Warrant in cash by the Company.
3. Transfer, Division And Combination. Subject to Section 11, this
Warrant and all rights hereunder are transferable, in whole or in part, on the
books of the Company to be maintained for such purpose, upon surrender of this
Warrant at the office of the Company maintained for such purpose pursuant to
Section 16, together with a written assignment of this Warrant duly executed by
the holder hereof or its agent or attorney and payment of funds sufficient to
pay any stock transfer taxes payable upon the making of such transfer. Upon such
surrender and payment the Company shall, subject to Section 11, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denominations specified in such instrument of assignment, and this
Warrant shall promptly be cancelled. If and when this Warrant is assigned in
blank (in case the restrictions on transferability in Section 11 shall have been
terminated), the Company may (but shall not be obliged to) treat the bearer
hereof as the absolute owner of this Warrant for all purposes and the Company
shall not be affected by any notice to the contrary. This Warrant, if properly
assigned in compliance with this Section 3 and Section 11, may be exercised by
an assignee for the purchase of shares of Common Stock without having a new
Warrant issued.
This Warrant may, subject to Section 11, be divided or combined with
other Warrants upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the holder hereof or its agent or
attorney. Subject to compliance with the preceding paragraph and with Section
11, as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in exchange for
the Warrant or Warrants to be divided or combined in accordance with such
notice.
The Company shall pay all expenses, taxes (other than income taxes, if
any, of the transferee) and other charges incurred by the Company in the
performance of its obligations in connection with the preparation, issue and
delivery of Warrants under this Section 3.
The Company agrees to maintain at its aforesaid office books for the
registration and transfer of the Warrants.
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4. Adjustment Of Stock Unit. The number of shares of Common Stock
comprising a Stock Unit shall be subject to adjustment from time to time as set
forth in this Section 4 with respect to any fact or event described herein
occurring after the date hereof. The Company will not take any action with
respect to its Nonpreferred Stock of any class requiring an adjustment pursuant
to any of the following Section 4(a), Section 4(b), Section 4(h) below without
at the same time taking like action with respect to its Nonpreferred Stock of
each other class; and the Company will not create any class of Nonpreferred
Stock which carries any rights to dividends or assets differing in any respect
from the rights of the Common Stock on the date hereof. Anything contained in
this Section 4 notwithstanding, any adjustment made pursuant to any provision of
this Section 4 shall be made without duplication of an adjustment otherwise
required by and made pursuant to another provision of this Section 4 on account
of the same facts or events.
(a) Stock Dividends, Subdivisions and Combinations. In case at
any time or from time to time the Company shall:
(i) Take a record of the holders of its Nonpreferred
Stock for the purpose of entitling them to receive a dividend payable in, or
other distribution of, Nonpreferred Stock, or
(ii) subdivide its outstanding shares of Nonpreferred
Stock into a larger number of shares of Nonpreferred Stock, or
(iii) combine its outstanding shares of Nonpreferred
Stock into a smaller number of shares of Nonpreferred Stock,
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any event described in clauses (i) through (iii) above
shall be adjusted so as to consist of the number of shares of Common Stock which
a record holder of the number of shares of Common Stock constituting a Stock
Unit immediately prior to the happening of such event would own or be entitled
to receive after the happening of event described in clauses (i) through (iii)
above.
(b) Certain Other Dividends and Distributions. In case at any
time or from time to time the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive any dividend or
other distribution of:
(i) cash (other than a cash distribution made as a
dividend and payable out of earnings or earned surplus legally available for the
payment of dividends under the laws of the jurisdiction of incorporation of the
Company), or
(ii) any evidence of its indebtedness (other than
Convertible Securities) or any other property of any nature whatsoever (other
than cash and other than Convertible Securities or Additional Shares of
Nonpreferred Stock), or
(iii) any warrants, options or other rights to
subscribe for or purchase (i) any evidences of its indebtedness (other than
Convertible Securities), (ii) any shares of its
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<PAGE> 8
stock (other than Additional Shares of Nonpreferred Stock) or (iii) any other
property of any nature whatsoever (other than cash and other than Convertible
Securities or Additional Shares of Nonpreferred Stock), then the number of
shares of Common Stock thereafter comprising a Stock Unit shall be adjusted to
that number determined by multiplying the number of shares of Common Stock
comprising a Stock Unit immediately prior to such adjustment by a fraction (i)
the numerator of which shall be the Current Market Price per share of Common
Stock at the date of taking such record, and (ii) the denominator of which shall
be such Current Market Price per share of Common Stock minus the portion
applicable to one share of Common Stock of any such cash so distributable (if
any) and of the fair value of any and all such evidences of indebtedness, other
property, or warrants, options or other subscription or purchase rights, so
distributable (if any). Such fair value shall be determined in good faith by the
Board of Directors of the Company, provided that if such determination is
objected to by the holders of Warrants entitled to purchase a majority of the
Stock Units covered thereby, such determination shall be made by an independent
appraiser selected by such Board of Directors and not objected to by such
holders. The Company and the Holders shall each pay one-half of the fees and
expenses of such appraiser. A reclassification (other than a change in par
value) of the Nonpreferred Stock into shares of Nonpreferred Stock and shares of
any other class of stock shall be deemed a distribution by the Company to the
holders of its Nonpreferred Stock of such shares of such other class of stock
within the meaning of this Section 4(b) and, if the outstanding shares of
Nonpreferred Stock shall be changed into a larger or smaller number of shares of
Nonpreferred Stock as a part of such reclassification, shall be deemed a
subdivision or combination, as the case may be, of the outstanding shares of
Nonpreferred Stock within the meaning of Section 4(a) above.
(c) Issuance of Additional Shares of Nonpreferred Stock. In
case at any time or from time to time the Company shall (except as hereinafter
provided) issue, whether in connection with the merger of a corporation into the
Company or otherwise, any Additional Shares of Nonpreferred Stock for a
consideration per share less than the Current Warrant Price per share of Common
Stock, then the number of shares of Common Stock thereafter comprising a Stock
Unit shall be adjusted to be the greater of (A) that number determined by
multiplying the number of shares of Common Stock comprising a Stock Unit
immediately prior to such adjustment by a fraction (i) the numerator of which
shall be the Current Warrant Price per share of Common Stock, and (ii) the
denominator of which shall be the consideration per share received by the
Company for such Additional Shares of Nonpreferred Stock or (B) that number
determined by multiplying the number of shares of Common Stock comprising a
Stock Unit immediately prior to such adjustment by a fraction (i) the numerator
of which shall be the number of shares of Nonpreferred Stock outstanding
immediately prior to such issuance, plus the number of such Additional Shares of
Nonpreferred Stock so issued, and (ii) the denominator of which shall be the
number of shares of Nonpreferred Stock immediately prior to such issuance, plus
the number of shares of Nonpreferred Stock which the aggregate consideration for
the total number of such Additional Shares of Nonpreferred Stock would purchase
at the Current Warrant Price. For purposes of this Section 4(c), the date as of
which the Current Warrant Price shall be computed shall be the earlier of (a)
the date on which the Company shall enter into a firm contract for the issuance
of such Additional Shares of Nonpreferred Stock, or (b) the date of actual
issuance of such Additional Shares of Nonpreferred Stock. The provisions of this
Section 4(c) shall not apply to any issuance of Additional Shares of
Nonpreferred Stock for which an
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<PAGE> 9
adjustment is provided under this Section 4(a). No adjustment of the number of
shares of Common Stock comprising a Stock Unit shall be made under this Section
4(c) upon the issuance of any Additional Shares of Nonpreferred Stock which are
issued pursuant to the exercise of any warrants, options or other subscription
or purchase rights or pursuant to the exercise of any conversion or exchange
rights in any Convertible Securities, if any such adjustment shall previously
have been made upon the issuance of such warrants, options or other rights or
upon the issuance of such Convertible Securities (or upon the issuance of any
warrants, options or other rights therefor) pursuant to Section 4(d) or Section
4(e).
(d) Issuance of Warrants, Options or Other Rights. In case at
any time or from time to time the Company shall take a record of the holders of
its Nonpreferred Stock for the purpose of entitling them to receive a
distribution of, or shall otherwise issue, any warrants, options or other rights
to subscribe for or purchase any Additional Shares of Nonpreferred Stock or any
Convertible Securities and the consideration per share for which Additional
Shares of Nonpreferred Stock may at any time thereafter be issuable pursuant to
such warrants, options or other rights or pursuant to the terms of such
Convertible Securities shall be less than the Current Warrant Price per share of
Common Stock, then the number of shares of Common Stock thereafter comprising a
Stock Unit shall be adjusted to be the number determined pursuant to the first
sentence of Section 4(c) above. All adjustments made pursuant to this Section
4(d) shall be made on the basis that (i) the maximum number of Additional Shares
of Nonpreferred Stock issuable pursuant to all such warrants, options or other
rights or necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued as of the date specified in the
last sentence of this Section 4(d), (ii) the aggregate consideration for such
maximum number of Additional Shares of Nonpreferred Stock shall be deemed to be
the consideration received and receivable by the Company for the issuance of
such Additional Shares of Nonpreferred Stock pursuant to such warrants, options
or other rights or pursuant to the terms of such Convertible Securities and
(iii) the consideration per share received by the Company for such Additional
Shares of Nonpreferred Stock shall be that number determined by dividing (x) the
aggregate consideration for such maximum number of Additional Shares of
Nonpreferred Stock (determined as set forth in clause (ii) of this sentence) by
(y) the maximum number of Additional Shares of Nonpreferred Stock issuable
pursuant to all such warrants, options or other rights or necessary to effect
the conversion or exchange of all such Convertible Securities (determined as set
forth in clause (i) of this sentence). For purposes of this Section 4(d), the
computation date for subclause (i) above and as of which the Current Warrant
Price shall be computed shall be the earliest of (a) the date on which the
Company shall take a record of the holders of its Nonpreferred Stock for the
purpose of entitling them to receive any such warrants, options or other rights,
(b) the date on which the Company shall enter into a firm contract for the
issuance of such warrants, options or other rights, and (c) the date of actual
issuance of such warrants, options or other rights.
(e) Issuance of Convertible Securities. In case at any time or
from time to time the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive a distribution
of, or shall otherwise issue, any Convertible Securities and the consideration
per share for which Additional Shares of Nonpreferred Stock may at any time
thereafter be issuable pursuant to the terms of such Convertible Securities
shall be less than the Current Warrant Price per share of Common Stock, then the
number of shares of Common
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<PAGE> 10
Stock thereafter comprising a Stock Unit shall be adjusted to be the number
determined pursuant to the first sentence of Section 4(c) above. All adjustments
made pursuant to this Section 4(e) shall be made on the basis that (i) the
maximum number of Additional Shares of Nonpreferred Stock necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the computation date specified in the penultimate
sentence of this Section 4(e), (ii) the aggregate consideration for such maximum
number of Additional Shares of Nonpreferred Stock shall be deemed to be the
consideration received and receivable by the Company for the issuance of such
Additional Shares of Nonpreferred Stock pursuant to the terms of such
Convertible Securities and (iii) the consideration per share received by the
Company for such Additional Shares of Nonpreferred Stock shall be that number
determined by dividing (x) the aggregate consideration for such maximum number
of Additional Shares of Nonpreferred Stock (determined as set forth in clause
(ii) of this sentence) by (y) the maximum number of Additional Shares of
Nonpreferred Stock necessary to effect the conversion or exchange of all such
Convertible Securities (determined as set forth in clause (i) of this sentence).
For purposes of this Section 4(e), the computation date for clause (i) above and
as of which the Current Warrant Price shall be computed shall be the earliest of
(a) the date on which the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive any such
Convertible Securities, (b) the date on which the Company shall enter into a
firm contract for the issuance of such Convertible Securities, and (c) the date
of actual issuance of such Convertible Securities. No adjustment of the number
of shares of Common Stock comprising a Stock Unit shall be made under this
Section 4(e) upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants, options or other subscription or
purchase rights therefor, if any such adjustment shall previously have been made
upon the issuance of such warrants, options or other rights pursuant to Section
4(d) above.
(f) Superseding Adjustment of Stock Unit. If, at any time
after any adjustment of the number of shares of Common Stock comprising a Stock
Unit shall have been made pursuant to Section 4(d) or Section 4(e) above on the
basis of the issuance of warrants, options or other rights or the issuance of
other Convertible Securities, or after any new adjustment of the number of
shares of Common Stock comprising a Stock Unit shall have been made pursuant to
this Section 4(h),
(i) such warrants, options or rights or the right of
conversion or exchange in such other Convertible Securities shall expire, and a
portion or all of such warrants, options or rights, or the right of conversion
or exchange in respect of a portion of such other Convertible Securities, as the
case may be, shall not have been exercised, or
(ii) the consideration per share for which Additional
Shares of Nonpreferred Stock are issuable pursuant to such warrants, options or
rights or the terms of such other Convertible Securities, shall be increased
solely by virtue of provisions therein contained for an automatic increase in
such consideration per share upon the arrival of a specified date or the
happening of a specified event, such previous adjustment shall be rescinded and
annulled and the Additional Shares of Nonpreferred Stock which were deemed to
have been issued by virtue of the computation made in connection with the
adjustment so rescinded and annulled shall no longer be deemed to have been
issued by virtue of such computation. Thereupon, a
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<PAGE> 11
recomputation shall be made of the effect of such warrants, options or rights or
other Convertible Securities on the basis of:
(iii) treating the number of Additional Shares of
Nonpreferred Stock, if any, theretofore actually issued or issuable pursuant to
the previous exercise of such warrants, options or rights or such right of
conversion or exchange, as having been issued on the date or dates of such
issuance as determined for purposes of such previous adjustment and for the
consideration actually received and receivable therefor, and
(iv) treating any such warrants, options or rights or
any such other Convertible Securities which then remain outstanding as having
been granted or issued immediately after the time of such expiration or of such
increase of the consideration per share for which such Additional Shares of
Nonpreferred Stock are issuable under such warrants, options or rights or other
Convertible Securities, at the increased per share consideration, and, if and to
the extent called for by the foregoing provisions of this Section 4 on the basis
aforesaid, a new adjustment of the number of shares of Common Stock comprising a
Stock Unit shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.
(g) Other Provisions Applicable to Adjustments Under this
Section. The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock comprising a Stock Unit
hereinbefore provided for in this Section 4:
(i) Treasury Stock. The sale or other disposition of
any issued shares of Nonpreferred Stock, other than any Additional Shares of
Nonpreferred Stock, owned or held by or for the account of the Company shall be
deemed an issuance thereof for purposes of this Section 4.
(ii) Computation of Consideration. To the extent that
any Additional Shares of Nonpreferred Stock or any Convertible Securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Nonpreferred Stock or any Convertible Securities shall be issued
solely for cash consideration, the consideration received by the Company
therefor shall be deemed to be the amount of cash received by the Company
therefor, or, if such Additional Shares of Nonpreferred Stock or Convertible
Securities are offered by the Company for subscription, the subscription price,
or, if such Additional Shares of Nonpreferred Stock or Convertible Securities
are sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price, in any such case excluding any
amounts paid or receivable for accrued interest or accrued dividends and without
deduction of any compensation, discounts or expenses paid or incurred by the
Company for and in the underwriting of, or otherwise in connection with, the
issue thereof. To the extent that such issuance shall be for a consideration
other than solely for cash, then, except as herein otherwise expressly provided,
the amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by the
Board of Directors of the Company, provided that if such determination is
objected to by the holders of Warrants entitled to purchase a majority of the
Stock Units covered thereby, such determination shall be made by an independent
appraiser selected by such Board of Directors and not objected to by such
holder. The Company, on the one hand, and the holders of Warrants, on the other,
shall each pay one-half of the fees and expenses of such appraiser. The
consideration for any Additional Shares of Nonpreferred Stock issuable pursuant
to any warrants, options or other rights to subscribe for or purchase the same
shall be the consideration received or receivable by the Company for issuing
such warrant, options or other rights, plus the additional consideration payable
to the Company upon the exercise of such warrants, options or other rights. The
consideration for any
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Additional Shares of Nonpreferred Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received or receivable by the
Company for issuing any warrants, options or other rights to subscribe for or
purchase such Convertible Securities (if any), plus the consideration paid or
payable to the Company in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any, payable to
the Company upon the exercise of the right of conversion or exchange in such
Convertible Securities.
(iii) When Adjustments To Be Made. The adjustments
required by this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that no adjustment of the
number of shares of Common Stock comprising a Stock Unit that would otherwise be
required shall be made (except in the case of a subdivision or combination of
shares of the Nonpreferred Stock, as provided for in Section 4(a) above) unless
and until such adjustment, either by itself or with other adjustments not
previously made, adds or subtracts at least $0.005 to the Current Warrant Price
per share of Common Stock, as determined in good faith by the Board of Directors
of the Company, provided that, in any event such adjustment shall be made if
such adjustment either by itself or with other adjustments not previously made
adds or subtracts at least 1/20th of a share to or from the number of shares of
Common Stock comprising a Stock Unit immediately prior to the making of such
adjustment. Any adjustment representing a change of less than such minimum
amount (except as aforesaid) shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section 4 and not
previously made, would result in a minimum adjustment. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(iv) Fractional Interests. In computing adjustments
under this Section, fractional interests in Nonpreferred Stock shall be taken
into account to the nearest 1/100th of a share.
(v) When Adjustment Not Required. If the Company
shall take a record of the holders of its Nonpreferred Stock for the purpose of
entitling them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution thereof to
shareholders, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no adjustment
shall be required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(h) Merger, Consolidation or Disposition of Assets. In case
the Company shall merge or consolidate into another corporation and the Company
is not the surviving entity, or the Company shall sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business to
another corporation, then each holder of a Warrant (regardless of whether this
Warrant is then exercisable) shall have the right to receive notice from the
Company of such merger, consolidation or disposition at least forty-five (45)
days prior to the closing of such
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merger, consolidation or disposition, which notice shall include a copy of the
operative merger, consolidation or disposition documents or a summary of their
operative terms and shall include a statement from the surviving or acquiring
entity that it does not wish to assume the Company's obligations under this
Warrant. Thereafter, the holder of this Warrant shall have until ten (10) days
prior to the closing date of the merger, consolidation or disposition, to
exercise this Warrant and participate in such merger, consolidation or
disposition on the terms negotiated by the Company, regardless of whether this
Warrant had yet become exercisable in accordance with its terms. If this Warrant
is not then exercised, it shall terminate effective as of the closing date of
such merger, consolidation or disposition.
(i) Other Action Affecting Nonpreferred Stock. In case at any
time or from time to time the Company shall take any action affecting its
Nonpreferred Stock, other than an action described in any of the foregoing
Sections 4(a) to Section 4(h), inclusive, and the actions described in clauses
(i) through (viii) of the definition of Additional Shares of Nonpreferred Stock,
then, unless in the reasonable opinion of the Board of Directors of the Company
such action will not have a materially adverse effect upon the rights of the
holders of the Warrants, the number of shares of Common Stock or other stock
comprising a Stock Unit, or the purchase price thereof, shall be adjusted in
such manner and at such time as the Board of Directors of the Company may in
good faith determine to be equitable in the circumstances.
(j) No Adjustments for Certain Transactions. Anything
contained in this Warrant notwithstanding, the number of shares of Common Stock
comprising a Stock Unit and the Purchase Price per Stock Unit shall not be
adjusted, nor be subject to adjustment, on account of the granting of any rights
under a phantom stock plan, stock appreciation rights plan or other deferred
compensation plan to officers, directors or employees of the Company or its
affiliates, and (i) no shares of Nonpreferred Stock are issued or required to be
issued under any such plan and (ii) the only consideration paid or payable to
any participant in such plan is cash.
(k) Special Adjustments for Certain Transactions. Anything
contained in this Warrant notwithstanding, if any Affiliate of the Company that
owns ten percent (10%) or more of the Common Stock of the Company (calculated on
a fully-diluted basis) sells or otherwise transfers (other than to a family
member or trust for tax planning purposes or to an Affiliate of such Person) in
the aggregate more than 1,000,000 shares of Common Stock or an equivalent number
of shares of the Company's capital stock which is convertible into Common Stock
(in such case based on the number of shares of Common Stock for which such share
is then convertible) at a price less than the Current Warrant Price, then such
sale or transfer shall be deemed an issuance by the Company of Additional Shares
of Nonpreferred Stock under Section 4(c) hereof and shall be subject to the
adjustments set forth therein. The consideration for such sale or transfer under
this Section 4(k), for purposes of the adjustments to be made pursuant to
Section 4(c), shall be equal to the average weighted sale price per share of
Common Stock sold (or in the case of shares of the Company's capital stock other
than Common Stock, on the sale price per share of Common Stock then underlying
such share sold).
5. Notice To Warrant Holders.
(a) Notice of Adjustment of Stock Unit or Purchase Price.
Whenever the number of shares of Warrant Stock comprising a Stock Unit or the
Purchase Price per Stock Unit
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shall be adjusted pursuant to Section 4, the Company shall forthwith obtain a
certificate signed by the president of the Company, the principal financial
officer of the Company and independent accountants, of recognized national
standing, then engaged by the Company and reasonably acceptable to the holders
of a majority of the Warrants, setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a statement of the fair value, as determined by the Board of
Directors of the Company, of any evidences of indebtedness, shares of stock,
other securities or property or warrants, options or other subscription or
purchase rights referred to in Section 4(b), Section 4(g)(ii) or Section 4(h)
and specifying the number of shares of Common Stock comprising a Stock Unit and
(if such adjustment was made pursuant to Section 4(h) or Section 4(i) describing
the number and kind of any other shares of stock comprising a Stock Unit, and
any change in the Purchase Price thereof after giving effect to such adjustment
or change. The Company shall promptly, and in any case within 30 days after the
making of such adjustment, cause a signed copy of such certificate to be
delivered to each holder of a Warrant in accordance with Section 16. The Company
shall keep at its office or agency, maintained for the purpose pursuant to
Section 16, copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by any holder of a
Warrant or any prospective purchaser of a Warrant designated by a holder
thereof.
(b) Notice of Certain Corporate Action. In case the Company
shall propose (a) to pay any dividend payable in cash or in stock of any class
to the holders of its Nonpreferred Stock or to make any other distribution to
the holders of its Nonpreferred Stock, or (b) to offer to the holders of its
Nonpreferred Stock rights to subscribe for or to purchase any Additional Shares
of Nonpreferred Stock or shares of stock of any class or any other securities,
rights or options, or (c) to effect any reclassification of its Nonpreferred
Stock (other than a reclassification involving only the subdivision or
combination of outstanding shares of Nonpreferred Stock), or (d) to effect any
capital reorganization, or (e) to effect any consolidation, merger or sale,
change to the Company's charter, transfer or other disposition of all or
substantially all of its property, assets or business, or (f) to effect the
liquidation, dissolution or winding up of the Company, then in each such case,
the Company shall give to each holder of a Warrant, in accordance with Section
17, a notice, certified by the president of the Company and the principal
financial officer of the Company, of such proposed action, which shall specify
the date on which a record is to be taken for the purposes of such stock
dividend, distribution or rights, or the date on which such reclassification,
reorganization, consolidation, merger, sale, change to the Company's charter,
transfer, disposition, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of Nonpreferred Stock, if
any such date is to be fixed, and shall also set forth such facts with respect
thereto as shall be reasonably necessary to indicate the effect of such action
on the Nonpreferred Stock and the number and kind of any other shares of stock
which will comprise a Stock Unit, and the purchase price or prices thereof,
after giving effect to any adjustment which will be required as a result of such
action. Such notice shall be so given in the case of any action covered by
clause (a) or (b) above at least ten days prior to the record date for
determining holders of the Nonpreferred Stock for purposes of such action, and
in the case of any other such action, at least twenty days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of Nonpreferred Stock, whichever shall be the earlier.
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6. Reservation And Authorization Of Nonpreferred Stock; Registration
With Or Approval Of Any Governmental Authority. The Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant or
upon such conversion, as the case may be, shall be duly and validly issued and
fully-paid and nonassessable.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price per share of Common Stock below the then par value, if
any, of the shares of Common Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully-paid and nonassessable shares of Common Stock at such adjusted Current
Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock comprising a Stock Unit or in the Current
Warrant Price per share of Common Stock, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof (except
that nothing contained in this Warrant certificate shall require the Company to
register the Warrants under the Securities Act or any similar federal or state
equivalent).
7. Taking Of Record; Stock And Warrant Transfer Books. In the case of
all dividends or other distributions by the Company to the holders of its
Nonpreferred Stock with respect to which any provision of Section 4 refers to
the taking of a record of such holders, the Company will in each such case take
such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except (i) upon dissolution,
liquidation or winding up, or (ii) for purposes of declaring and paying a
dividend or matters related to voting by shareholders of the Company, close its
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
8. Transfer Taxes. The Company will pay any and all transfer taxes that
may be payable in respect of the issuance or delivery of shares of Common Stock
on exercise of this Warrant. The Company shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that in which this
Warrant is registered, and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Company the amount of any
such tax, or has established, to the satisfaction of the Company, that such tax
has been paid.
9. [Intentionally omitted]]
10. Voting Rights. This Warrant shall not entitle the holder hereof to
voting rights with respect to the underlying Warrant Stock or to any rights as a
stockholder of the Company with respect to such underlying Warrant Stock until
this Warrant has been exercised in accordance with its terms.
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11. Restrictions On Transferability. The Warrants and the Warrant Stock
shall be transferable only (i) in accordance with the provisions of Section 6 of
the Warrant Agreement and (ii) upon compliance with the conditions specified in
this Warrant and in compliance with the provisions of the Securities Act and
applicable state securities laws in respect of the transfer of any Warrant or
any Warrant Stock, and any holder of this Warrant shall be bound by the
provisions of (and entitled to the benefits of) Section 3.
12. Limitation Of Liability. No provision hereof, in the absence of
affirmative action by the holder hereof to purchase shares of Common Stock, and
no mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the purchase price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
13. Loss, Destruction Of Warrant Certificates. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security satisfactory to the Company (the original holder's or any
other institutional holder's indemnity being satisfactory indemnity in the event
of loss, theft or destruction of any Warrant owned by such institutional
holder), or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant, the Company will make and deliver, in lieu of such lost,
stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of shares of Common
Stock.
14. Furnish Information. The Company agrees that it shall deliver to
the holder of record hereof promptly after their becoming available copies of
all financial statements, reports and proxy statements which the Company shall
have sent to its stockholders generally.
15. Amendments. The terms of this Warrant and all other Warrants may be
amended, and the observance of any term therein may be waived, but only with the
written consent of the holders of Warrants evidencing 66-2/3% in number of the
total number of Stock Units at the time purchasable upon the exercise of all
then outstanding Warrants, provided that no such action may change the number of
shares of stock comprising a Stock Unit or the Current Warrant Price, without
the written consent of the holders of Warrants representing at least 66-2/3% in
number of the total number of Stock Units at the time purchasable upon the
exercise of all then outstanding Warrants.
16. Office Of The Company. So long as any of the Warrants remains
outstanding, the Company shall maintain an office in Denver, Colorado where the
Warrants may be presented for exercise, transfer, division or combination as in
this Warrant provided. Such office shall be at 475 17th Street, Suite 1500,
Denver, Colorado 80202 unless and until the Company shall designate and maintain
some other office for such purposes and give written notice thereof to the
holders of all outstanding Warrants.
17. Notices Generally. Any notice, demand or delivery pursuant to the
provisions hereof shall be sufficiently given or made if given or made as set
forth in Section 7.06 of the Warrant Agreement, which is incorporated herein by
reference.
16
<PAGE> 17
18. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. NOTWITHSTANDING SUCH CHOICE OF LAW, THE COMPANY
HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER RELATED PERSON TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE
OF CALIFORNIA AND THE COUNTY OF LOS ANGELES AND AGREES AND CONSENTS THAT SERVICE
OF PROCESS MAY BE MADE UPON IT OR ANY OF ITS SUBSIDIARIES IN ANY LEGAL
PROCEEDING RELATING TO THE OPERATIVE DOCUMENTS OR THE OBLIGATIONS BY ANY MEANS
ALLOWED UNDER CALIFORNIA OR FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
19. Subject To Other Agreements. This Warrant Certificate evidences a
"Warrant" referred to in Section 1 of the Warrant Agreement, and this Warrant,
and all Warrant Stock issued upon the exercise hereof, is entitled to the
benefits of, and subject to all of the restrictions set forth in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed in its name by its Chief Financial Officer, such signature to be
attested to by the Company's Secretary or Assistant Secretary, and the Company's
corporate seal to be impressed hereon.
Dated: March 5, 1999
[SEAL] INLAND RESOURCES INC.,
a Washington corporation
By:
--------------------------------------
Bill I. Pennington
Chief Financial Officer
Attested to by:
- -------------------------
Michael J. Stevens
Secretary
17
<PAGE> 18
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases ___________ Stock Units of Inland Resources Inc.,
a Washington corporation, purchasable with this Warrant, herewith makes payment
therefor on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to __________________________________ whose address is _______________
____________________________________________________________.
.
Dated:
-------------------------------------
------------------------------------------
(Signature of Registered Owner)
------------------------------------------
(Street Address)
------------------------------------------
(City) (State) (Zip Code)
<PAGE> 19
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
Stock Units set forth below:
No. of Stock
Name and Address of Assignee Units
and does hereby irrevocably constitute and appoint _____________________
attorney to make sure transfer on the books of Inland Resources Inc., a
Washington corporation, maintained for the purpose, with full power of
substitution in the premises.
Dated:
---------------------
Signature
---------------------
Witness
NOTICE: The signature to the assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
The signature to this assignment must be guaranteed by an Eligible
Guarantor Institution as defined in Rule 17Ad-15 promulgated under the
Securities Exchange Act of 1934, as amended, or any successor thereto.
<PAGE> 1
EXHIBIT 10.22
Deal No. EU7841.1
[ENRON LETTERHEAD]
CONFIRMATION
(SWAP)
Date: March 10, 1999
To: Inland Production Company ("Party B")
Attention: Bill Pennington
Fax No.: (303) 893-0113
From: Enron Capital & Trade Resources Corp. ("ECT") ("Party A")
Re: Commodity Swap EU7841.1
The purpose of this letter is to confirm the terms and conditions of
the Transaction entered into between us on the Trade Date specified below (the
"Transaction"). This letter constitutes a "Confirmation" as referred to in the
ISDA Master Agreement specified below.
1. This Confirmation supplements, forms part of, and is subject to,
the ISDA Master Agreement dated as of May 17, 1996, as amended and supplemented
from time to time (the "Agreement"), between you and us. All provisions
contained in the Agreement govern this Confirmation except as expressly
modified below.
2. The terms of the particular Transaction to which this Confirmation
relates are as follows:
GENERAL TERMS:
Notional Quantity per
Calculation Period: 40,000 Barrels per month
Commodity: Crude Oil
Commodity Unit: Barrels (BBL) (42 U.S. Gallons)
Trade Date: March 10, 1999
Effective Date: April 01, 1999
Termination Date: December 31, 1999
Calculation Period(s): Each calendar month beginning With
April 01, 1999 and ending on December
31, 1999.
Payment Date(s): The fifth (5th) Business Day
succeeding the last Pricing Date for
the applicable Calculation Period
FIXED AMOUNT DETAILS:
Fixed Price Payer: Party A
<PAGE> 2
Deal No. EU7841.1
Fixed Price: US Dollars $14.02000 per Barrel
FLOATING AMOUNT DETAILS:
Floating Price Payer: Party B
Floating Price and
Pricing Date(s): The average of the daily settlement
prices for the prompt month of
the NYMEX Light Sweet Crude Oil
Futures Contract for each NYMEX
Trading Day for the applicable
Calculation Period
For the purposes of the calculations of the Floating Price(s), all
numbers shall be rounded as follows: Floating Price(s) relating to commodities
quoted in (i) gallons shall be rounded to five places, (ii) MMBtu's shall be
rounded to four places, (iii) barrels shall be rounded to three places and (iv)
gigajoules shall be rounded to four places. If the number after the final
number is five (5) or greater then the final number shall be increased by one
(1), and if the number after the final number is less than five (5) then the
final number shall remain unchanged.
In accordance with the procedures set forth in the Agreement, please
confirm that the foregoing correctly sets forth the terms of our agreement by
executing the copy of this Confirmation enclosed for that purpose and returning
it to us or by sending to us a letter substantially similar to this letter,
which letter sets forth the material terms of the Transaction to which this
Confirmation relates and indicates agreement to those terms.
Yours sincerely, Deal No. EU7841.1
Confirmed as of the date first above
written:
Enron Capital & Trade Resources Corp. Inland Production Company
By: /s/ BILL I. PENNINGTON
------------------------------
By: /s/ MARY G. GOSNELL Name: Bill I. Pennington
Name: Mary G. Gosnell ----------------------------
Title: Agent and Attorney-in-Fact Title: Vice President/CFO
---------------------------
/s/ Kyle R. Miller
Co-CEO
/s/ Arthur J. Pasmas
Co-CEO
<PAGE> 1
EXHIBIT 10.23
Deal No. EU8289.1
[ENRON LETTERHEAD]
CONFIRMATION
(SWAP)
Date: March 10, 1999
To: Inland Production Company ("Party B")
Attention: Bill Pennington
Fax No.: (303) 893-0113
From: Enron Capital & Trade Resources Corp. ("ECT") ("Party A")
Re: Commodity Swap EU8289.1
The purpose of this letter is to confirm the terms and conditions of
The Transaction entered into between us on the Trade Date specified below (the
"Transaction"). This letter constitutes a "Confirmation" as referred to in the
ISDA Mister Agreement specified below.
1. This Confirmation supplements, forms part of, and is subject to,
the ISDA Master Agreement dated as of May 17, 1996, as amended and supplemented
from time to time (the "Agreement"), between you and us. All provisions
contained in the Agreement govern this Confirmation except as expressly
modified below.
2. The terms of the particular Transaction to which this Confirmation
relates are as follows:
GENERAL TERMS:
Notional Quantity per
Calculation Period: 40,000 Barrels per month
Commodity: Crude Oil
Commodity Unit: Barrels (BBL) ( 42 U.S. Gallons)
Trade Date: March 10, 1999
Effective Date: April 01, 1999
Termination Date: December 31, 1999
Calculation Period(s): Each calendar month beginning with
April 01, 1999 and ending December 31,
1999.
Payment Date(s): The fifth (5th) Business Day
succeeding the last Pricing Date for
the applicable Calculation Period
FIXED AMOUNT DETAILS:
Fixed Price Payer: Party A
<PAGE> 2
Deal No. EU8289.1
Fixed Price: US Dollars $14.54000 per Barrel
FLOATING AMOUNT DETAILS:
Floating Price Payer: Party B
Floating Price and
Pricing Date(s): The average of the daily settlement
prices for the prompt month of the
NYMEX Light Sweet Crude Oil Futures
Contract for each NYMEX Trading Day
for the applicable Calculation Period
For the purposes of the calculations of the Floating Price(s), all
numbers shall be rounded as follows: Floating Price(s) relating to commodities
quoted in (i) gallons shall be rounded to five places, (ii) MMBtu's shall be
rounded to four places, (iii) barrels shall be rounded to three places and (iv)
gigajoules shall be rounded to four places. If the number after the final
number is five (5) or greater then the final number shall be increased by one
(1), and if the number after the final number is less than five (5) then the
final number shall remain unchanged.
In accordance with the procedures set forth in the Agreement, please
confirm that the foregoing correctly sets forth the terms of our agreement by
executing the copy of this Confirmation enclosed for that purpose and returning
it to us or by sending to us a letter substantially similar to this letter,
which letter sets forth the material terms of the Transaction to which this
Confirmation relates and indicates agreement to those terms.
Yours sincerely, Deal No. EU8289.1
Confirmed as of the date first above
written:
Enron Capital & Trade Resources Corp. Inland Production Company
By: /s/ BILL I. PENNINGTON
------------------------------
By: /s/ MARY G. GOSNELL Name: Bill I. Pennington
Name: Mary G. Gosnell ---------------------------
Title: Agent And Attorney-in-Fact Title: Vice President/CFO
---------------------------
OK /s/ Kyle R. Miller
Co-CEO
OK /s/ Arthur J. Pasmas
Co-CEO
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF INLAND RESOURCES INC.
<TABLE>
<CAPTION>
STATE OF
PERCENTAGE INCORPORATION
NAME OWNERSHIP OR ORGANIZATION
<S> <C> <C>
Inland Production Company 100.00% Texas
Inland Refining, Inc. 100.00% Utah
West Monument Butte Pipeline Company 83.86% Utah
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into Inland Resource Inc.'s previously filed
Registration Statement on Form S-8 (File No. 33-41662), Form S-8 (File No.
333-27449), Form S-8 (File No. 33-84640) and Form S-3 (File No. 33-84766).
/s/ ARTHUR ANDERSEN LLP
---------------------------------
ARTHUR ANDERSEN LLP
Denver, Colorado
March 30, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
To Inland Resources Inc.:
We consent to the incorporation by reference in this Form 10-K of our
reserve report and all schedules, exhibits, and attachments thereto, to any
reference made to us in Form 10-K as a result of such incorporation and to the
incorporation by reference thereof into Inland's registration statements on Form
S-8 (File No. 33-41662), Form S-8 (File No. 333-27449), Form S-8 (File No.
33-84640) and Form S-3 (File No. 33-84766).
/s/ RYDER SCOTT COMPANY PETROLEUM ENGINEERS
----------------------------------------------
RYDER SCOTT COMPANY PETROLEUM ENGINEERS
Denver, Colorado
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENTS
OF OPERATIONS AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,627
<SECURITIES> 0
<RECEIVABLES> 5,682
<ALLOWANCES> 0
<INVENTORY> 5,353
<CURRENT-ASSETS> 13,362
<PP&E> 200,750
<DEPRECIATION> 21,433
<TOTAL-ASSETS> 195,829
<CURRENT-LIABILITIES> 158,399
<BONDS> 17,114
9,568
0
<COMMON> 42,767
<OTHER-SE> (35,728)
<TOTAL-LIABILITY-AND-EQUITY> 195,829
<SALES> 83,397
<TOTAL-REVENUES> 83,397
<CGS> 70,582
<TOTAL-COSTS> 91,668
<OTHER-EXPENSES> (321)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,290
<INCOME-PRETAX> (23,240)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,240)
<DISCONTINUED> 0
<EXTRAORDINARY> (212)
<CHANGES> 0
<NET-INCOME> (23,452)
<EPS-PRIMARY> (2.93)
<EPS-DILUTED> (2.93)
</TABLE>
