EXHIBIT 10.1
EXCHANGE AGREEMENT
Among
INLAND RESOURCES INC.
INLAND PRODUCTION COMPANY
INLAND REFINING, INC.
and
TRUST COMPANY OF THE WEST,
a California trust company,
as Sub-Custodian for Mellon Bank
for the benefit of Account No. CPFF 873-3032
INLAND HOLDINGS LLC,
a California limited liability company
TCW PORTFOLIO NO. 1555 DR V
SUB-CUSTODY PARTNERSHIP, L.P.,
a California limited partnership
and
JOINT ENERGY DEVELOPMENT INVESTMENTS II LIMITED PARTNERSHIP
Dated as of September 21, 1999
TABLE OF CONTENTS
SECTION 1. DEFINITIONS......................................................... 1
SECTION 2. EXCHANGE OF SECURITIES.............................................. 6
2.1 Authorization and Issuance of the Preferred Stock and Common Stock.. 6
2.2 Exchange............................................................ 7
2.3 The Closing......................................................... 7
2.4 Consent to Exchange................................................. 8
2.5 Simultaneous Transactions........................................... 8
SECTION 3. WARRANTIES, REPRESENTATIONS AND COVENANTS OF THE COMPANIES.......... 8
3.1 Organization and Authorization of the Issuer........................ 8
3.2 Capital Stock....................................................... 9
3.3 Information Regarding the Issuer.................................... 10
3.4 Independent Engineering Report...................................... 10
3.5 Litigation.......................................................... 11
3.6 Absence of Undisclosed Liability.................................... 11
3.7 Governmental Consent................................................ 11
3.8 Compliance with Laws and Other Instruments of the Companies......... 11
3.9 No Affiliate Ownership.............................................. 12
3.10 Compliance with Laws................................................ 12
3.11 Hedging............................................................. 12
3.12 Absence of Certain Changes or Events................................ 12
3.13 Licenses and Permits................................................ 12
3.14 Taxes............................................................... 13
3.15 ERISA Plans and Liabilities......................................... 13
3.16 Private Offering.................................................... 13
3.17 Investment Companies Act and Public Utility Holding Companies Act... 13
3.18 Environmental Laws.................................................. 14
3.19 Labor Relations..................................................... 15
3.20 No Broker's or other Fees........................................... 15
3.21 Bona Fide Debt Work-out............................................. 15
SECTION 4. WARRANTIES, REPRESENTATIONS AND COVENANTS OF PURCHASERS and TCW..... 15
4.1 Acquisition for Purchaser's Account................................. 15
4.2 Investment Experience............................................... 15
4.3 Securities not Registered........................................... 16
4.4 Qualified Institutional Buyer; Accredited Investor.................. 16
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4.5 Acknowledgement of Risk............................................. 16
4.6 No Public Market.................................................... 16
4.7 Reliance by the Issuer.............................................. 16
4.8 No Public Solicitation.............................................. 16
4.9 Legal Holder........................................................ 16
4.10 Consent to Farmout.................................................. 16
4.11 Bona Fide Debt Work-out............................................. 16
4.12 Value of JEDI New Securities........................................ 17
SECTION 5. PURCHASER AND TCW CONDITIONS TO CLOSING............................. 17
5.1 TCW's and Holdings' Conditions to Closing........................... 17
5.2 JEDI's Conditions to Closing........................................ 18
5.3 Closing Deliveries of the Companies................................. 20
SECTION 6. ISSUER'S CONDITIONS TO CLOSING; REQUIRED DELIVERIES................. 21
SECTION 7. TRANSFERABILITY OF NEW SECURITIES................................... 22
7.1 Restrictive Legend.................................................. 22
7.2 Rule 144 and 144A................................................... 22
SECTION 8. AFFIRMATIVE COVENANTS OF THE COMPANIES.............................. 23
8.1 Financial Statements................................................ 23
8.2 Management's Discussion and Results of Operations................... 23
8.3 Certificates; Other Information..................................... 23
8.4 Independent Engineering Report...................................... 24
8.5 Inspection of Property; Books and Records; Discussions.............. 24
8.6 Conduct of Business and Maintenance of Existence.................... 24
8.7 Maintenance of Property; Insurance.................................. 24
8.8 Directors' and Officers' Insurance.................................. 24
8.9 Taxes............................................................... 24
8.10 Replacement of Instruments.......................................... 25
8.11 Costs and Expenses.................................................. 25
8.12 Contingent Issuance of Options to Holdings and JEDI................. 25
8.13 Bank Compliance Certificates........................................ 26
8.14 Management Controls................................................. 26
SECTION 9. Indemnity........................................................... 28
SECTION 10. MISCELLANEOUS....................................................... 28
10.1 Notices............................................................. 28
10.2 Survival............................................................ 29
10.3 Successors and Assigns.............................................. 29
10.4 Amendment and Waiver, etc........................................... 29
10.5 Counterparts........................................................ 29
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10.6 Severability........................................................ 29
10.7 Governing Law....................................................... 30
10.8 Expenses............................................................ 30
10.9 Specific Performance................................................ 30
10.10 Arbitration......................................................... 30
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TABLE OF EXHIBITS AND SCHEDULES
Schedule 3.1 - Subsidiaries and Liens thereon
Schedule 3.2(b) - Convertible Securities and Options
Schedule 3.2(c) - Registration Rights
Schedule 3.4 - Initial Independent Engineering Report
Schedule 3.5 - Litigation
Schedule 3.6 - Liabilities
Schedule 3.7 - Governmental Consents
Schedule 3.8 - Required Consents
Schedule 3.10 - Compliance with Oil and Gas Laws
Schedule 3.12 - Hedging
Schedule 3.15 - ERISA
Schedule 3.18 - Environmental Laws
Schedule 5.1 - Deferred Trade Payables
Schedule 8.12 - Contingent Issuance of Options
Exhibit A - Preferred Stock Designation
Exhibit B - Form of Shareholders Agreement
Exhibit C - Form of Registration Rights Agreement
Exhibit D - Form of Opinion of Washington counsel to the Issuer
Exhibit E - Form of Opinion of New York counsel to the Companies
Exhibit F - Amendment to Farmout Agreement
Exhibit G - Form of Opinion of Utah counsel to the Companies
Exhibit H - [Intentionally Omitted]
Exhibit I - Form of Purchaser Adjustment Option
Exhibit J - Form of JEDI Release Agreement
Exhibit K - Form of TCW Release Agreement
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EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this "Agreement") is dated as of September
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21, 1999 among INLAND RESOURCES INC., a Washington corporation (the "Issuer"),
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INLAND PRODUCTION COMPANY, a Texas corporation ("IPC"), INLAND REFINING, INC., a
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Utah corporation ("Refining" and together with Issuer and IPC, the "Companies"),
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TRUST COMPANY OF THE WEST, a California trust company, as Sub-Custodian for
Mellon Bank for the benefit of Account No. CPFF 873-3032 ("Fund V"), TCW
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PORTFOLIO NO. 1555 DR V SUB-CUSTODY PARTNERSHIP, L.P., a California limited
partnership ("Portfolio," and collectively with Fund V, "TCW"), INLAND HOLDINGS
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LLC, a California limited liability company ("Holdings") and Joint Energy
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Development Investments II Limited Partnership, a Delaware limited partnership
("JEDI", and together with Holdings, the "Purchasers").
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WHEREAS, Fund V is presently the holder of $75 million in principal
amount of junior secured debt of IPC (plus accrued and unpaid interest to the
Closing Date, the "Fund V Debt") and Portfolio is the holder of warrants (the
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"Portfolio Warrants," and together with the Fund V Debt, the "TCW Securities")
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to purchase 158,512 shares of the Issuer's common stock, $.001 par value per
share (the "Common Stock");
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WHEREAS, JEDI is presently the holder of 100,000 shares of Series C
Preferred Stock (as defined below), plus accumulated dividends to the Closing
Date;
WHEREAS, Fund V and Portfolio are members of Holdings;
WHEREAS, the Companies, TCW, Holdings and JEDI desire to consummate a
transaction (the "Exchange") whereby (i) TCW will exchange its entire interest
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in the TCW Securities for the issuance to Holdings of (a) 10,757,747 shares (the
"D Preferred Shares Number") of Series D Redeemable Preferred Stock of the
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Issuer, (b) 5,882,901 shares (the "Z Preferred Shares Number") of Series Z
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Preferred Stock of the Issuer and (c) 11,642,949 shares of the Issuer's Common
Stock and (ii) JEDI will exchange its entire interest in 100,000 shares of the
Series C Preferred Stock (and any accumulated dividends thereon, if any) for (a)
121,973 shares (the "E Preferred Shares Number") of the Series E Redeemable
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Preferred Stock of the Issuer and (b) 2,920,975 shares of the Issuer's Common
Stock, all subject to the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, conditions and agreements contained
herein, the parties hereto, intending to be legally bound by the terms hereof,
agree as follows:
SECTION 1. DEFINITIONS
As used herein, the following terms shall have the following meanings.
"10-Q Filing Date" shall have the meaning set forth in Section 3.3(a)
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hereof.
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"1935 Act" shall have the meaning set forth in Section 3.17 hereof.
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"Agreement" shall have the meaning set forth in the preamble hereto.
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"Annual Budget Plan" shall have the meaning ascribed to such term in
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Section 8.14 hereof.
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"Approved Annual Budget" shall have the meaning ascribed to such term
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in Section 8.14 hereof.
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"Approved Budgets" shall have the meaning ascribed to such term in
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Section 8.14 hereof.
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"Approved Updated Budget" shall have the meaning ascribed to such term
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in Section 8.14 hereof.
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"Akin Opinion" shall have the meaning set forth in Section 5.1(m)
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hereof.
"Articles of Incorporation" shall mean the Articles of Incorporation
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of the Issuer, as amended from time to time.
"Board of Directors" shall mean, with respect to a party, the board of
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directors of such party.
"Closing" shall have the meaning ascribed to such term in Section 2.3
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hereof.
"Closing Date" shall have the meaning ascribed to such term in Section
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2.3(c) hereof.
"Commission" shall mean the United States Securities and Exchange
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Commission or any other similar or successor agency of the federal government
administering the Securities Act.
"Common Stock" shall have the meaning set forth in the recitals
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hereto.
"Companies" shall have the meaning set forth in the preamble hereto.
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"Credit Agreement" shall mean the Second Amended and Restated Credit
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Agreement, among IPC, the Issuer, ING, as agent, and U.S. Bank National
Association and MeesPierson Capital Corp., as lenders party thereto, dated as of
the date hereof.
"D Preferred Shares Number" shall have the meaning set forth in the
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recitals hereto.
"E Preferred Shares Number" shall have the meaning set forth in the
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recitals
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hereto.
"Environmental Laws" shall mean any and all Laws relating to the
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environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface water,
ground water, or land.
"ERISA" shall mean the Employee Retirement Income Security Act of
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1974, as amended from time to time, together with all rules and regulations
promulgated with respect thereto.
"ERISA Affiliate" shall mean each of the Companies and all members of
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a controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control that, together with each of the Companies,
are treated as a single employer under Section 414 of the Internal Revenue Code
of 1986, as amended.
"ERISA Plan" means any employee pension benefit plan subject to Title
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IV of ERISA maintained by any ERISA Affiliate with respect to which any of the
Companies or the Subsidiaries has a fixed or contingent liability.
"Evaluated Properties" shall have the meaning set forth in Section 3.4
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hereof.
"Exchange" shall have the meaning set forth in the recitals hereto.
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"Exchange Act" shall have the meaning set forth in Section 3.3(a)
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hereof.
"Farmout Agreement" shall mean that certain Farmout Agreement dated as
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of June 1, 1998 between IPC, the Issuer and Smith Management, LLC, as assigned
to Smith Energy Partnership effective October 1, 1998 and as amended by
Amendment No. One dated as of November 25, 1998.
"Farmout Restructurings" shall have the meaning set forth in Section
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5.1(f) hereof.
"Financial Statements" shall have the meaning set forth in Section
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3.3(a) hereof.
"Fund V" shall have the meaning set forth in the preamble hereto.
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"Fund V Debt" shall have the meaning set forth in the recitals hereto.
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"GAAP" shall mean generally accepted accounting principles in the
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United States of America in effect from time to time consistent with those
utilized in preparing the audited Financial Statements.
"Governmental Body" shall mean any Federal, state, municipal or other
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governmental department, commission, court, tribunal, board, bureau, agency or
instrumentality, domestic or foreign (including, without limitation, any bank
regulatory authority).
"Hazardous Materials" shall mean any substances regulated under any
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Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Holdings New Securities" shall have the meaning set forth in Section
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2.2(a) hereof.
"Indemnified Party" shall have the meaning set forth in Section 9.
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"Independent Engineer" shall mean Ryder Scott Company or such other
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independent engineering consultant firm acceptable to the Purchasers.
"Independent Engineering Report" shall mean each engineering report
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prepared by an Independent Engineer, which shall be (i) effective as of January
1/st/ of each year, (ii) in a form satisfactory to the Purchasers and (iii)
prepared in accordance with the then existing standards of the Society of
Petroleum Engineers.
"ING" shall mean ING (U.S.) Capital Corporation.
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"Initial Independent Engineering Report" shall mean the engineering
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report prepared by Ryder Scott Company dated as of January 1, 1999 acceptable to
the Purchasers and prepared in accordance with the then existing standards of
the Society of Petroleum Engineers.
"IPC" shall have the meaning set forth in the preamble hereto.
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"Issuer" shall have the meaning set forth in the preamble hereto.
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"JEDI" shall have the meaning set forth in the preamble hereto.
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"JEDI New Securities" shall have the meaning set forth in Section
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2.2(b) hereof.
"JEDI Release" shall mean a release of the Companies' obligations with
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respect to JEDI's 100,000 shares of Series C Preferred Stock, plus accumulated
dividends thereon to the Closing Date, and any documents related thereto,
including without limitation, that certain Securities Purchase Agreement dated
July 21, 1997 between JEDI and Issuer, that certain Registration Rights
Agreement dated July 21, 1997 between JEDI and Issuer and that certain Tagalong
Agreement dated July 21, 1997 between JEDI and Pengo, pursuant to the Release
Agreement in the form attached hereto as Exhibit J.
"Law" shall mean any applicable statute, law, regulation, ordinance,
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rule, treaty, judgment, order, decree, permit, concession, license or other
governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any
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department, province or other political subdivision thereof.
"Liability" shall have the meaning set forth in Section 3.6 hereof.
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"Lien" shall mean, with respect to any Person, any mortgage, lien,
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pledge, adverse claim, charge, security interest or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale or other title retention agreement or
capital lease, upon or with respect to any property or asset of such Person, or
the signing or filing by or with the consent of such Person of a financing
statement that names such Person as debtor, or the signing of any security
agreement authorizing any other Person as the secured party to file any
financing statement.
"Material Adverse Effect" shall mean, with respect to any Person, a
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material adverse effect on the business, properties, financial condition or
operations of such Person.
"New Securities" shall have the meaning set forth in Section 2.2(b)
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hereof.
"Order" means any order, writ, injunction, decree, judgment, award,
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determination, direction or demand.
"Person" shall mean any individual, corporation, partnership, limited
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liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof.
"Portfolio Warrants" shall have the meaning set forth in the recitals
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hereto.
"Preferred Stock Designation" shall mean the amendment to the Articles
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of Incorporation of the Issuer, setting forth the terms of the Series D
Preferred Stock, Series E Preferred Stock and Series Z Preferred Stock, in the
form attached hereto as Exhibit A or with such changes thereto as approved by
the Purchasers and the Issuer.
"Purchaser Adjustment Options" shall have the meaning set forth in
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Section 8.12 hereof.
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"Purchasers" shall have the meaning set forth in the preamble hereto.
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"Randall Opinion" shall have the meaning set forth in Section 5.1(1)
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hereof.
"Refining" shall have the meaning set forth in the preamble hereto.
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"Registration Rights Agreement" shall have the meaning set forth in
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Section 5.1(h) hereof.
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"Related Person" shall mean any of the Companies, their subsidiaries
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or affiliates, whether now existing or hereafter formed or acquired.
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"Requisite Ownership" shall have the meaning set forth in Section 8
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hereof.
"Responsible Officer" shall mean all officers of the Companies.
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"Restricted Securities" shall have the meaning set forth under Rule
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144 of the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
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any successor Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Senior Creditors" shall mean the lenders under the Credit Agreement.
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"Series C Preferred Stock" shall mean the Issuer's Series C Cumulative
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Convertible Preferred Stock, par value $.001 per share, all of the issued and
outstanding shares of which are owned by JEDI.
"Series D Preferred Stock" shall mean the Series D Redeemable
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Preferred Stock of the Issuer, par value $.001 per share, with the terms
described in Exhibit A hereto.
"Series E Preferred Stock" shall mean the Series E Redeemable
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Preferred Stock of the Issuer, par value $.001 per share, with the terms
described in Exhibit A hereto.
"Series Z Preferred Stock" shall mean the Series Z Convertible
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Preferred Stock of the Issuer, par value $.001 per share, with the terms
described in Exhibit A hereto.
"Shareholders Agreement" shall have the meaning set forth in Section
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5.1(g) hereof.
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"Smith Group" shall mean Pengo Securities Corp., Smith Energy
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Partnership, Randall D. Smith, Barbara Stovall Smith, Jeffrey A. Smith, John W.
Adams, Arthur J. Pasmas, and their respective affiliates.
"Subsidiary" shall mean any entity in which any of the Companies has a
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50% or greater direct or indirect equity interest.
"TCW" shall have the meaning set forth in the preamble hereto.
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"TCW Release" shall mean a release of the Companies' obligations under
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or with respect to the outstanding principal of and accrued interest on the Fund
V Debt and any obligation with respect to the Portfolio Warrants pursuant to the
Release Agreement in the form attached hereto as Exhibit K.
"TCW Securities" shall have the meaning set forth in the recitals
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hereto.
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"Termination Event" shall mean (a) the occurrence with respect to any
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ERISA Plan of (i) a reportable event described in Sections 4043(c)(5) or (6) of
ERISA or (ii) any other reportable event described in Section 4043(c) of ERISA
other than a reportable event not subject to the provision for 30-day notice to
the Pension Benefit Guaranty Corporation pursuant to a waiver by the Pension
Benefit Guaranty Corporation under Section 4043(a) of ERISA, or (b) the
withdrawal of any ERISA Affiliate from an ERISA Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or
(c) the filing of a notice of intent to terminate any ERISA Plan or the
treatment of any ERISA Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the
Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) any
other event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
ERISA Plan.
"Updated Budget" shall have the meaning set forth in Section 8.14
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hereof.
"Utah Opinion" shall have the meaning set forth in Section 5.1(n)
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hereof.
"Z Preferred Shares Number" shall have the meaning set forth in the
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recitals hereto.
SECTION 2. EXCHANGE OF SECURITIES
2.1 Authorization and Issuance of the Preferred Stock and Common Stock.
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The Issuer has duly authorized the issuance of (a) a number of shares of the
Series D Preferred Stock equal to the D Preferred Shares Number, (b) a number of
shares of the Series E Preferred Stock equal to the E Preferred Shares Number,
(c) shares of Series Z Preferred Stock equal to the Z Preferred Shares Number
and (d) 14,563,924 shares of Common Stock, pursuant to the terms of this
Agreement.
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2.2 Exchange.
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(a) Holdings. Upon the terms and conditions set forth herein, the Issuer
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agrees to issue to Holdings, and Holdings agrees to accept, (i) the D Preferred
Shares Number of Series D Preferred Stock, (ii) the Z Preferred Shares Number of
Series Z Preferred Stock and (iii) 11,642,949 shares of Common Stock
(collectively, the "Holdings New Securities") upon delivery to the Issuer of the
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TCW Release and the notes and certificates evidencing the TCW Securities; TCW
agrees to deliver and the Issuer agrees to accept the TCW Release and the notes
and certificates evidencing the TCW Securities upon delivery to Holdings of the
Holdings New Securities.
(b) JEDI. Upon the terms and conditions set forth herein, the Issuer
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agrees to issue to JEDI, and JEDI agrees to accept, (i) the E Preferred Shares
Number of Series E Preferred Stock and (ii) 2,920,975 shares of Common Stock
(collectively, the "JEDI New Securities" and, together with the Holdings New
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Securities, the "New Securities") upon delivery to the Issuer of the JEDI
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Release and certificates evidencing JEDI's entire interest in 100,000 shares of
the Series C Preferred Stock plus accumulated and unpaid dividends through the
Closing Date; JEDI agrees to deliver and the Issuer agrees to accept the JEDI
Release and the certificates evidencing JEDI's entire interest in 100,000 shares
of Series C Preferred Stock, plus accumulated and unpaid dividends through the
Closing Date, upon delivery to JEDI of the JEDI New Securities.
2.3 The Closing.
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At the closing of the transactions described herein (the "Closing"),
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(a) (i) TCW shall deliver to the Issuer the notes and certificates
evidencing the TCW Securities, (ii) the Issuer shall accept and cancel the notes
representing the Fund V Debt (including accrued and unpaid interest through the
Closing Date) and the certificates representing the Portfolio Warrants, (iii)
TCW shall deliver to the Issuer the TCW Release and (iv) the Issuer shall
deliver to Holdings certificates representing the Holdings New Securities,
registered in the denominations and names specified by Holdings.
(b) (i) JEDI shall deliver to the Issuer the certificate(s) evidencing
JEDI's entire interest in 100,000 shares of Series C Preferred Stock and accrued
and unpaid dividends through the Closing Date, (ii) the Issuer shall accept and
cancel such certificate(s), (iii) JEDI shall deliver to the Issuer the JEDI
Release and (iv) the Issuer shall deliver to JEDI certificates representing the
JEDI New Securities, registered in the denominations and names specified by
JEDI.
(c) The Closing shall be held at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., Houston, Texas, on the business day following satisfaction
of the conditions set
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forth herein or at such other time and place as all parties to this Agreement
may mutually agree (the "Closing Date").
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2.4 Consent to Exchange.
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(a) Prior to giving effect to the Exchange, JEDI is the record holder of
100,000 shares of Series C Preferred Stock, representing all of the issued and
outstanding Series C Preferred Stock of the Issuer. By entering into this
Agreement, JEDI hereby consents and agrees to the transactions constituting the
Exchange as the sole holder of the Issuer's Series C Preferred Stock. Upon
consummation of the transactions constituting the Exchange, no shares of the
Issuer's Series C Preferred Stock will be outstanding.
(b) Prior to giving effect to the Exchange, Fund V is the holder of the
Fund V Debt and Portfolio is the holder of the Portfolio V Warrants. By entering
into this Agreement, Fund V and Portfolio hereby consent and agree to the
transactions constituting the Exchange. Upon consummation of such transactions,
neither the Fund V Debt nor the Portfolio Warrants will be outstanding.
2.5 Simultaneous Transactions.
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All transactions set forth as part of the Exchange and the transactions
contemplated by Sections 5.1(d) and 5.2(e) hereof shall be deemed to take place
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simultaneously and each transaction shall be contingent upon the consummation of
all such transactions.
SECTION 3. WARRANTIES, REPRESENTATIONS AND COVENANTS OF THE COMPANIES.
Each of the Companies hereby represent, warrant and covenant to each
of the Purchasers that, as of the date hereof;
3.1 Organization and Authorization of the Issuer.
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(a) Each of the Companies, and their respective Subsidiaries (i) is a
duly organized and validly existing corporation in good standing under the laws
of its jurisdiction of organization, (ii) has all requisite power and authority
to own or hold under lease the property it purports to own or hold under lease
and to transact the business in which it is presently engaged or presently
proposes to engage and (iii) is duly qualified as a foreign corporation and is
in good standing in each jurisdiction in which the character of the properties
owned or held under lease by it or the nature of the business transacted by it
requires such qualification except where failure to so qualify could not
reasonably be expected to have a Material Adverse Effect on the Companies taken
as a whole.
(b) Each of the Companies has all requisite power and authority to
execute and deliver this Agreement, and any other documents or agreements
contemplated hereby and thereby to which it is a party, to perform its
obligations hereunder and thereunder and to
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consummate the transactions contemplated hereunder and thereunder. The Issuer
has all requisite power and authority to issue the New Securities. The execution
and delivery of this Agreement and the issuance of New Securities, the
performance of this Agreement, and the execution, delivery and performance of
any other documents or agreements to which any of the Companies is a party
contemplated hereby and thereby, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized and approved by the
Board of Directors of the respective Companies. Each of this Agreement, and any
other document or agreement to which any of the Companies is a party
contemplated hereby or thereby has been (or on the Closing Date will have been)
duly authorized, executed and delivered by, and each is (or, when duly executed
and delivered on the Closing Date, will be) the valid and binding obligation of,
such Company, enforceable in accordance with its terms, except as may be limited
by applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws or by legal or equitable principles relating to or limiting
creditors' rights generally.
(c) Schedule 3.1 hereof contains a true and correct list of the
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Subsidiaries and their respective partnership interests. Neither the Companies
nor the Subsidiaries own, directly or indirectly, any capital stock, joint
venture or partnership interests in or other equity interest in any other Person
other than those Subsidiaries set forth on Schedule 3.1 hereof. Except as set
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forth on Schedule 3.1, each of the Companies has good and valid title to all the
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outstanding stock of each of its respective Subsidiaries, in each case, free and
clear of all liens and encumbrances.
3.2 Capital Stock.
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(a) Upon the issuance of the New Securities under this Agreement and
after the filing of the Preferred Stock Designation, the total number of shares
of capital stock which the Issuer will have authority to issue under the
Articles of Incorporation is a maximum of (i) 25,000,000 shares of Common Stock,
of which 23,093,689 will be issued and outstanding, all of which outstanding
shares will have been duly and validly issued and will be fully paid and
nonassessable, and (ii) 20,000,000 shares of Class A preferred stock, of which
the D Preferred Shares Number will be designated as Series D Preferred Stock,
the E Preferred Shares Number will be designated as Series E Preferred Stock and
the Z Preferred Shares Number will be designated as Series Z Preferred Stock and
all of which shares will be issued and outstanding, duly and validly issued and
fully paid and nonassessable. Immediately prior to the issuance of the New
Securities under this Agreement, 25,000,000 shares of Common Stock were
authorized, of which 8,529,765 shares were issued and outstanding, and
20,000,000 shares of Class A preferred stock were authorized, of which 100,000
shares, designated as Series C Preferred Stock, were issued and outstanding.
(b) As of the date hereof, the Issuer does not, and as of the Closing
Date, each without giving effect to the Exchange, the Issuer will not, have
outstanding any capital stock or other securities convertible into or
exchangeable for any of its capital stock or any rights to subscribe for or to
purchase, or any options for the purchase of, or any agreements (contingent or
otherwise) providing for the issuance of, or any calls, commitments or claims of
any character relating to, any of its capital stock or any securities
convertible into or exchangeable for any of
10
its capital stock, other than as set forth on Schedule 3.2(b) hereto (which
---------------
schedule shall include the exercise price (except for the warrants of ING, US
Bank and MeesPierson post-Closing) and number of shares on a pre-Closing and
post-Closing basis).
(c) As of the date hereof, the Issuer does not have any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any of
its capital stock or obligation evidencing the right of the holder thereof to
purchase any of its capital stock. There is not in effect on the date hereof
any agreement by the Issuer (other than this Agreement) or any of its
Subsidiaries pursuant to which any holders of securities of the Issuer or any of
its Subsidiaries have a right to cause the Issuer to register such securities
under the Securities Act other than as set forth on Schedule 3.2(c) hereto.
---------------
(d) The New Securities will, when issued in accordance with this
Agreement, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges.
3.3 Information Regarding the Issuer.
--------------------------------
(a) The audited consolidated financial statements of the Issuer and its
Subsidiaries as filed with the Commission in accordance with the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), for the three most recent fiscal years (and the unaudited interim periods
- ---
reported therein and through the date hereof) (collectively, the "Financial
---------
Statements") fairly present in all material respects the financial position of
- ----------
the Issuer and its Subsidiaries as of the respective dates of such balance
sheets and the results of the Issuer and its Subsidiaries operations for the
respective periods covered by such statements of operations, stockholders'
equity and cash flows, and have been prepared in accordance with GAAP
consistently applied throughout the periods involved. There are no material
liabilities, contingent or otherwise, of the Issuer and its Subsidiaries as of
the date hereof and as of the Closing Date required to be reflected in a balance
sheet prepared in accordance with GAAP which are not reflected in such balance
sheets. Since the date of the Issuer's most recent quarterly report on form 10-
Q (the "10-Q Filing Date"), there have been no changes in the assets,
----------------
liabilities or financial position of the Issuer and its Subsidiaries from that
set forth in the balance sheet as of such date, other than changes in the
ordinary course of business which have not, either individually or in the
aggregate, had a Material Adverse Effect on the Companies taken as a whole.
(b) As of their respective dates, the Financial Statements did not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Since the 10-Q Filing Date, there
has been no change in the business, properties, financial condition or
operations which has had a Material Adverse Effect on the Companies taken as a
whole.
3.4 Independent Engineering Report.
------------------------------
11
The Companies have delivered to the Purchasers, in form satisfactory to the
Purchasers, results of the Initial Independent Engineering Report on the fields
and properties listed therein or attached thereto (the "Evaluated Properties")
--------------------
in which the Companies will have interests as of the Closing Date. The Initial
Independent Engineering Report is the latest engineering report available to the
Companies relating to the Evaluated Properties. To the knowledge of the
Responsible Officers, the Companies have provided no materially false or
misleading information to and have not withheld from the engineer preparing or
who prepared the Initial Independent Engineering Report any material information
with respect to the preparation of the Independent Engineering Report. The
Responsible Officers and the officers of Refining are not aware of any facts or
circumstances that should reasonably cause the Companies to conclude that (i)
any of the information that was supplied by the Companies to the Independent
Engineer in connection with its preparation of the Independent Engineering
Report was not correct or (ii) the Independent Engineering Report is incorrect
in any material respect.
3.5 Litigation.
----------
Except as set forth in Schedule 3.5, (i) there are no actions, suits,
------------
investigations or legal, equitable, arbitrative or administrative proceedings
pending or, to the knowledge of any Responsible Officer of the Companies,
currently threatened against the Companies or the Subsidiaries before any
Governmental Body which could cause a Material Adverse Effect on the Companies,
either individually or in the aggregate; and (ii) there are no outstanding
judgments, injunctions, writs, rulings or orders by any Governmental Body
against any of the Companies, the Subsidiaries or their respective directors or
officers which could have a Material Adverse Effect on the Companies, either
individually or in the aggregate.
3.6 Absence of Undisclosed Liability.
--------------------------------
None of the Companies nor any of the Subsidiaries has any material direct or
indirect liability, indebtedness, obligation, expense, claim, deficiency,
guarantee or endorsement of or by any person (other than endorsements of notes,
bills and checks presented to banks for collection deposit in the ordinary
course of business) of any type, whether accrued, absolute, contingent, matured,
unmatured or otherwise (a "Liability"), other than the Liabilities (i) that are
---------
reflected, accrued or reserved for in the most recent quarterly balance sheet of
the Issuer filed pursuant to the Exchange Act with the Commission, or (ii)
arising in the ordinary course of the Companies' or the Subsidiaries' businesses
consistent with past practice which would not result in a Material Adverse
Effect on the Companies taken as a whole or (iii) that are disclosed in Schedule
--------
3.6. Except as shown in the notes to the Issuer's most recent annual and
- ---
quarterly financial statements filed pursuant to the Exchange Act with the
Commission or disclosed on Schedule 3.6 hereof, none of the Companies nor any of
------------
the Subsidiaries is subject to or restricted by any franchise, contract, deed,
charter restriction or other instrument or restriction which could reasonably be
expected to have a Material Adverse Effect on the Companies taken as a whole.
3.7 Governmental Consent.
--------------------
12
Other than the filing of the Preferred Stock Designation and filings required
by applicable state securities laws and any other consents or approvals listed
in Schedule 3.7 hereof, which shall be made or obtained prior to Closing by the
------------
Companies, neither the nature of the Companies, the Subsidiaries, their
respective businesses or properties, nor any relationship between the Companies
or any Subsidiary and any other Person, nor (except as expressly provided for in
this Agreement) any circumstance in connection with the offer, issue or sale of
the New Securities, is such as to require consent, approval or authorization of,
or filing, registration or qualification with, any Governmental Body on the part
of the Companies as a condition to the execution, delivery and performance of
this Agreement and any other documents or agreements contemplated hereby.
3.8 Compliance with Laws and Other Instruments of the Companies.
-----------------------------------------------------------
The consummation of the transactions contemplated by this Agreement and the
execution, delivery and performance of the terms and provisions of this
Agreement, the New Securities, or any other document or agreement contemplated
hereby or thereby will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Companies or the Subsidiaries under, any corporate charter
or bylaws, or material indenture, mortgage, deed of trust, bank loan or credit
agreement, or other material agreement or instrument to which the Companies or
the Subsidiaries are a party or by which the Companies or the Subsidiaries or
any of their properties may be bound or affected (taking into consideration the
required consents set forth on Schedule 3.8 hereof), (ii) conflict with or
------------
result in a breach of any of the terms, conditions or provisions of any Order of
any court, arbitrator or Governmental Body applicable to the Companies, or (iii)
violate any provision of any statute or other rule or regulation of any
Governmental Body applicable to the Companies or the Subsidiaries.
3.9 No Affiliate Ownership.
----------------------
Except as set forth in the Issuer's most recent Annual Report on Form 10-K,
as amended, its most recent proxy statement, or its Quarterly Reports filed on
Form 10-Q after such Annual Report on file with the Commission, no Person
controlled by, controlling or under common control with any of the Companies
(other than the Subsidiaries) owns any interest in any of the Evaluated
Properties or any other material asset of the Companies or the Subsidiaries.
3.10 Compliance with Laws.
--------------------
Except as set forth in Schedule 3.10, to the knowledge of the Companies, the
-------------
Companies and the Subsidiaries have complied with all applicable laws relating
to the production of oil and gas from their properties, leases or assets and any
of their assets, rights or interests relating thereto, the conduct of drilling
and production operations with respect to their oil and gas properties, leases,
or assets and any of their assets, rights or interests relating thereto and the
regulation thereof, except where the failure to comply could not reasonably be
expected to have a Material Adverse Effect on the Companies taken as a whole.
13
3.11 Hedging
-------
Except as set forth in Schedule 3.11, as of the date of this Agreement,
-------------
neither the Companies nor any of the Subsidiaries is bound by futures, hedge,
swap, collar, put, call, floor, cap, option or other contracts that are intended
to benefit from or reduce or eliminate the risk or fluctuations in the price of
commodities, including hydrocarbons, or securities.
3.12 Absence of Certain Changes or Events
------------------------------------
Except for events contemplated by this Agreement or disclosed in any schedule
hereto, since the filing date of the Issuer's most recent quarterly report on
Form 10-Q with the Commission no event has occurred with respect to the
Companies or the Subsidiaries, or the condition of their material assets or the
Evaluated Properties, that has resulted in or could reasonably be expected to
result in a Material Adverse Effect on the Companies taken as a whole, except as
has been publicly disclosed in the Issuer's filings with the Commission. The
Issuer has reported on the appropriate form all events or happenings with
respect to the Companies or the Subsidiaries or the condition of their material
assets or the Evaluated Properties that are required to be disclosed under the
Exchange Act.
3.13 Licenses and Permits
--------------------
The Companies and the Subsidiaries have obtained and hold in full force and
effect all licenses, permits, franchises, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other rights,
patents, copyrights, trademarks and trade names, or rights thereto, consents and
approvals required to conduct their business substantially as it is now
conducted and as it is currently proposed to be conducted, without known
conflict with the rights of others, except as has been disclosed in the Issuer's
filings with the Commission or except for such failures to obtain or hold or
such conflicts as would not have a Material Adverse Effect on the Companies
taken as a whole.
3.14 Taxes
-----
The Companies and the Subsidiaries have (i) filed all tax returns with all
appropriate Federal, state, local and foreign taxing authorities that are
required to have been filed by or with respect to the Companies and the
Subsidiaries as of the date of this Agreement, and such tax returns are true,
correct and complete in all material respects; and (ii) paid all taxes shown to
be due and payable on such returns and all other taxes and assessments payable
by the Companies and the Subsidiaries to the extent the same have become due and
payable and before they have become delinquent, except for any taxes and
assessments the amount, applicability or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which the
Companies have set aside on its books reserves (segregated to the extent
required by GAAP) deemed by it to be adequate. The Companies know of no
proposed material tax assessment against the Companies or the Subsidiaries and
in the opinion of the Companies all tax liabilities are adequately provided for
on the books of the Companies.
3.15 ERISA Plans and Liabilities
---------------------------
All currently existing ERISA Plans are listed on Schedule 3.15 hereof.
Except as disclosed in the Issuer's most recent annual and quarterly financial
statements filed under the Exchange Act with the Commission or on Schedule 3.15
-------------
hereof, no Termination Event has occurred with respect to any ERISA Plan and all
ERISA Plans are in compliance with ERISA in all material respects. No ERISA
Affiliate is required to contribute to, or has any other absolute or contingent
liability in respect of, any "multiemployer plan" as defined in Section 4001 of
ERISA. Except as set forth in Schedule 3.15: (i) no "accumulated funding
-------------
deficiency" (as defined in Section 412(a) of the Internal Revenue Code of 1986,
as amended) exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, and (ii) the current value of each
ERISA Plan's benefit obligations does not exceed the current value of such ERISA
Plan's assets available for the payment of such benefits by more than $500,000.
3.16 Private Offering
----------------
During the six months prior to the Closing Date, neither the Companies nor
any other Person acting on behalf of the Companies has offered any of the New
Securities or any other securities of the Companies (excluding options or
warrants to employees and shares issuable upon exercise or conversion of
securities outstanding prior to the date hereof) for sale to, or solicited
offers to buy any thereof from, or otherwise approached or negotiated with
respect thereto with, any Person other than prospective purchasers who are
"accredited investors", as defined in Rule 501 of Regulation D promulgated under
the Securities Act. The Companies agree that neither the Companies nor anyone
acting on their behalf has offered or will offer the New Securities or any part
thereof or any similar securities for issue or sale to, or has solicited or will
solicit any offer to acquire any of the same from, anyone so as to bring the
issuance and sale of the New Securities under Section 5 of the Securities Act.
Based in part on the representations of the Purchasers set forth herein and on
the Preferred Stock Designation, the offer, sale and issuance of the New
Securities in conformity with the terms of this Agreement are exempt from the
registration requirements of the Securities Act and any applicable state
securities laws.
3.17 Investment Companies Act and Public Utility Holding Companies Act
-----------------------------------------------------------------
None of the Companies or the Subsidiaries is considered an "investment
company" or a person directly or indirectly controlled by or acting on behalf of
an "investment company" within the meaning of the Investment Company Act of
1940, as amended. None of the Companies or the Subsidiaries owns or operates
any facility used for the generation, transmission or distribution for sale of
electrical energy or any facility used for the retail distribution of natural or
manufactured gas, each within the meaning of the Public Utility Holding Company
Act of 1935, as amended (the "1935 Act"). None of the Companies or the
--------
Subsidiaries is an "electrical utility company" within the meaning of the 1935
Act. None of the Companies or the Subsidiaries is (i) a "holding company," (ii)
a "subsidiary company," an "affiliate" or "associate company" of a "holding
company" or (iii) an "affiliate" of a "subsidiary company" of a "holding
company," each within the meaning of the 1935 Act. None of the Companies or the
Subsidiaries is subject to
regulation as a public utility or public service company (or similar
designation) by any state in the United States, by the United States, by any
foreign country or by any agency or instrumentality of any of the foregoing.
3.18 Environmental Laws
------------------
The sole representations of the Companies with respect to environmental
matters are set forth in this Section 3.18. To the extent representations in
------------
other sections of this Agreement also could apply to environmental matters,
including, but not limited to Environmental Laws, such representations shall be
construed to exclude environmental matters and to apply only to matters other
than environmental matters. Except (a) as to matters not within the Companies'
knowledge, (b) as could not reasonably be expected to have a Material Adverse
Effect on the Companies taken as a whole, or (c) as set forth on Schedule 3.18
-------------
hereto,
(a) The Companies and the Subsidiaries are conducting their
businesses in compliance in all material respects with all applicable
Environmental Laws, and have all permits, licenses and authorizations required
under Environmental Laws in connection with the conduct of their businesses, and
each of the Companies and the Subsidiaries is in compliance in all material
respects with the terms and conditions of all such permits, licenses and
authorizations, and with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed, and no investigation or review is pending or to the
knowledge of any of the Companies threatened, by any Governmental Body or any
other Person with respect to (i) any actual or alleged treatment, storage,
transportation, disposal, or release of any Hazardous Materials, either by any
of the Companies or the Subsidiaries or on any property owned by any of the
Companies or the Subsidiaries, (ii) any material remedial action which might be
needed to respond to any such alleged treatment, storage, transportation,
disposal, or release, or (iii) any alleged failure by any of the Companies or
the Subsidiaries to have any permit, license or authorization required in
connection with the conduct of its business or with respect to any such
treatment, storage, transportation, disposal, or release.
(c) No Hazardous Materials have been released or disposed of, in a
quantity or manner required to be reported under or otherwise in violation of
applicable law, by any of the Companies or the Subsidiaries at, on or under any
properties owned or leased by any of the Companies or the Subsidiaries.
(d) There are no Liens existing under or pursuant to any
Environmental Laws on any of the real properties or properties owned or leased
by any of the Companies or the Subsidiaries, and to the knowledge of the
Companies no government actions have been taken or are in process which could
subject any of such properties to such Liens.
3.19 Labor Relations
---------------
No material unfair labor practice complaint or sex, age, race or other
discrimination claim has been brought during the five years prior to the Closing
Date against the Companies or any of the Subsidiaries before the National Labor
Relations Board, the Equal Employment Opportunity Commission or any other
Governmental Body. During that period, each of the Companies and the
Subsidiaries has complied in all material respects with all applicable laws,
ordinances, regulations, statutes, rules and restrictions relating to the
employment of labor, including, without limitation, those relating to hiring,
promotion, employment and pay practices, terms and conditions of employment,
federal and state wages and hours laws, immigration, and collective bargaining.
During the five years prior to the Closing Date, no strike, slowdown, picketing
or work stoppage by any union or other group of employees against the Companies,
any Subsidiary or any of their properties wherever located, and no secondary
boycott with respect to their products, lockout by them of any of their
employees or any other labor trouble or other occurrence, event or condition of
a similar character, has occurred or, to the knowledge of the Responsible
Officers, been threatened which has had or could be expected to have a Material
Adverse Effect on the Companies taken as a whole.
3.20 No Broker's or other Fees
-------------------------
Other than with respect to the fairness opinion required pursuant to Section
-------
5.1(i), no broker, finder or investment banker is entitled to any fee or
- ------
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of the Companies.
3.21 Bona Fide Debt Work-out
-----------------------
Within the meaning of 16 C.F.R. sec 802.63(a), the acquisition by Holdings of
the voting securities of the Issuer pursuant to the Exchange will be an
acquisition of voting securities in connection with a bona fide debt work-out by
a creditor of the Companies.
SECTION_4. WARRANTIES, REPRESENTATIONS AND COVENANTS OF PURCHASERS
AND TCW.
Other than with respect to Sections 4.10, 4.11 and 4.12 (which
provisions apply only to the parties specified), each of the Purchasers and TCW,
severally and not jointly, hereby represents, warrants and covenants to the
Issuer with respect to such party, as follows:
4.1 Acquisition for Purchaser's Account
-----------------------------------
Each Purchaser, severally and not jointly, represents and warrants to the
Issuer that it is acquiring and will acquire its New Securities for its own
account, with no present intention of distributing or reselling such securities
or any part thereof in violation of applicable securities laws.
4.2 Investment Experience
---------------------
Each Purchaser and TCW has such knowledge and experience in financial and
business matters, including investing in securities of new and speculative
companies, as to be able to evaluate the merits and risks of an investment in
its New Securities.
4.3 Securities not Registered
-------------------------
Each Purchaser acknowledges that its New Securities have not been registered
under the Securities Act or the securities laws of any state in the United
States or any other jurisdiction and may not be offered or sold by such
Purchaser unless subsequently registered under the Securities Act (if applicable
to the transaction) and any other securities laws or unless exemptions from the
registration or other requirements thereof are available for the transaction.
4.4 Qualified Institutional Buyer; Accredited Investor
--------------------------------------------------
Each Purchaser represents that it is a Qualified Institutional Buyer (as
defined in Rule 144A promulgated under the Securities Act) and/or an Accredited
Investor within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act, as presently in effect.
4.5 Acknowledgement of Risk
-----------------------
Each Purchaser acknowledges that an investment in its New Securities involves
a high degree of risk and represents that it understands the economic risk of
such investment. Each Purchaser is prepared to bear the economic risk of
retaining its New Securities for an indefinite period, all without prejudice,
however, to the rights of such Purchaser, in accordance with this Agreement,
lawfully to sell or otherwise dispose of all or any part of any New Securities
held by it.
4.6 No Public Market
----------------
Each Purchaser understands that no public market now exists for its New
Securities and that the Issuer has made no assurances with respect to any
secondary market for such securities.
4.7 Reliance by the Issuer
----------------------
Each Purchaser understands and acknowledges that the Issuer will be relying
upon its respective representations and warranties set forth in this Agreement
in issuing Purchaser's New Securities to such Purchaser.
4.8 No Public Solicitation
----------------------
The issuing of each Purchaser's New Securities to such Purchaser was made
through direct, personal communication between such Purchaser and a
representative of the Issuer and not through public solicitation and
advertising.
4.9 Legal Holder
------------
Each of JEDI and TCW is the sole legal and beneficial holder of its
Securities to be exchanged by such party hereunder and is conveying its
Securities to the Issuer, free and clear of any liens, claims, interests,
charges and encumbrances. Each of JEDI and TCW has neither previously sold,
assigned, conveyed, transferred or otherwise disposed of, in whole or in part,
its securities to be exchanged hereunder, nor entered into any agreement to
sell, assign, convey, transfer or otherwise dispose of, in whole or in part, its
securities to be exchanged hereunder.
4.10 Consent to Farmout
------------------
TCW and each Purchaser consents to the terms of the restructuring or
amendment to the terms of the existing Farmout Agreement described in Sections
5.1(f) and 5.2(g) below.
4.11 Bona Fide Debt Work-out
-----------------------
TCW and Holdings each warrant and represent that, within the meaning of 16
C.F.R. sec 802.63(a), Holding's acquisition of voting securities pursuant to the
Exchange will be an acquisition in connection with a bona fide debt work-out by
a creditor in a bona fide credit transaction entered into in the ordinary course
of the creditor's business.
4.12 Value of JEDI New Securities
----------------------------
JEDI represents and warrants that it has determined that the fair market
value of the JEDI New Securities is less than $15,000,000.
SECTION 5. PURCHASER AND TCW CONDITIONS TO CLOSING.
5.1 TCW 's and Holdings' Conditions to Closing
------------------------------------------
As a condition to the obligations of TCW and Holdings hereunder and prior to
the issuance of the New Securities, the following conditions precedent shall be
satisfied (in form and substance reasonably satisfactory to TCW, Holdings and
their counsel):
(a) Each of the representations and warranties of the Companies
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date, as though made on
and as of the Closing. TCW and Holdings shall have received one or more
certificates of the Companies signed by the Chief Executive Officer or President
and the Chief Financial Officer or Secretary of such Company to that effect.
(b) The internal Investment Committee of TCW shall have approved the
terms of this Agreement, the Exchange, the New Securities and any other
transactions related hereto or thereto.
(c) Since the date of this Agreement, there shall not have occurred
any event or
events which, individually or in the aggregate, would have, or
could be reasonably expected to have a Material Adverse Effect on the financial
condition, business or prospects of the Companies, the Subsidiaries, or any of
them or their properties.
(d) The Senior Creditors shall have agreed to a restructuring and
commitment with respect to the outstanding indebtedness of the Companies under
the Credit Agreement on terms acceptable to TCW and Holdings including, but not
limited to, a restructuring of the amortization of such debt and a provision for
additional borrowing capacity under the Credit Agreement.
(e) Creditors of the Companies listed on Schedule 5.1 hereto shall
------------
either (i) if such debt is evidenced by a promissory note, deferral agreement,
or other similar document providing for extended payment terms, not be in
default under such promissory note, deferral agreement, or other similar
document or (ii) if such debt is not evidenced by such a document, the holder of
such debt has not commenced any action for the collection of such debt or in
respect of any lien or encumbrance securing such debt.
(f) The Companies and Smith Management LLC (and its affiliates party
thereto) shall have agreed to a restructuring or amendment to the terms of the
existing Farmout Agreement (the "Farmout Restructurings"), such amendment
----------------------
substantially in the form attached hereto as Exhibit F.
(g) The Smith Group and the Purchasers shall have executed a
shareholders agreement (the "Shareholders Agreement") substantially in the form
----------------------
attached hereto as Exhibit B.
(h) The Issuer, the Smith Group and the Purchasers shall have
executed a registration rights agreement (the "Registration Rights Agreement"),
-----------------------------
in the form attached hereto as Exhibit C.
(i) The Board of Directors of the Issuer and each of IPC's and
Refining's Boards of Directors shall have approved, as applicable, the terms of
this Agreement, the Exchange, the New Securities and any other transactions
related thereto, and the Board of Directors of the Issuer shall have received an
opinion of an investment bank that the Exchange is fair, from a financial point
of view, to the existing public holders of the Issuer's Common Stock.
(j) All consents, approvals and authorizations, including
shareholder, regulatory and other approvals shall have been obtained in form and
in substance reasonably satisfactory to TCW and Holdings.
(k) All other documents required by this Agreement, relating to the
Exchange, the New Securities or any transaction related thereto or as may be
requested by TCW and Holdings, shall have been prepared and shall contain
representations, warranties, and indemnities in form and in substance reasonably
satisfactory to TCW, Holdings and their counsel.
(l) TCW and Holdings shall have received the opinion of Randall &
Danskin P.S., counsel to the Issuer, substantially in the form attached hereto
as Exhibit D (the "Randall Opinion") as to matters of Washington law.
---------------
(m) TCW and Holdings shall have received the opinion of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., counsel to the Companies, substantially in the
form attached hereto as Exhibit E (the "Akin Opinion").
------------
(n) TCW and Holdings shall have received the opinion of Van Cott,
Bagley, Cornwall & McCarthy, counsel to Refining, substantially in the form
attached hereto as Exhibit G (the "Utah Opinion") as to matters of Utah law.
------------
(o) Each of the Closing Conditions of JEDI set forth in Section 5.2
-----------
hereof shall have been satisfied or waived by JEDI.
(p) Each of the Companies, at Closing, shall have executed the TCW
Release.
(q) Holdings shall have received certificates representing the
Holdings New Securities.
5.2 JEDI's Conditions to Closing
----------------------------
As a condition to the obligations of JEDI hereunder and prior to the issuance
of the New Securities, the following conditions precedent shall be satisfied (in
form and substance reasonably satisfactory to JEDI and its counsel):
(a) Each of the representations and warranties of the Companies
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date, as though made on
and as of the Closing. JEDI shall have received one or more certificates of the
Companies signed by the President or Chief Executive Officer and the Chief
Financial Officer or Secretary of such Company to that effect.
(b) JEDI shall have completed a satisfactory due diligence review of
the Companies including, but not limited to, a review of the engineering,
economics and projections of all properties owned or leased by the Companies,
including the refinery, all environmental documents, financial projections and
accounting and control systems of the Companies.
(c) The general partner of JEDI shall have approved the terms of this
Agreement, the Exchange, the New Securities and any other transactions related
hereto or thereto.
(d) Since the date of this Agreement, there shall not have occurred
any event or events which, individually or in the aggregate, would have, or
could be reasonably expected to have a Material Adverse Effect on the financial
condition, business or prospects of the Companies, the Subsidiaries or any of
them or their properties.
(e) The Senior Creditors shall have agreed to a restructuring and
commitment with respect to the outstanding indebtedness of the Companies under
the Credit Agreement on terms acceptable to JEDI including, but not limited to,
a restructuring of the amortization of such debt and a provision for additional
borrowing capacity under the Credit Agreement.
(f) Creditors of the Companies listed on Schedule 5.1 hereto shall
------------
either (i) if such debt is evidenced by a promissory note, deferral agreement,
or other similar document providing for extended payment terms, not be in
default under such promissory note, deferral agreement, or other similar
document or (ii) if such debt is not evidenced by such a document, the holder of
such debt has not commenced any action for the collection of such debt or in
respect of any lien or encumbrance securing such debt.
(g) The Companies and Smith Management LLC (and its affiliates party
thereto) shall have agreed to a restructuring or amendment to the terms of the
Farmout Agreement, such amendment substantially in the form attached hereto as
Exhibit F.
(h) The Smith Group and the Purchasers shall have executed the
Shareholders Agreement.
(i) The Issuer, the Smith Group and the Purchasers shall have
executed the Registration Rights Agreement.
(j) The Board of Directors of the Issuer and each of IPC's and
Refining's Boards of Directors shall approve, as applicable, the terms of this
Agreement, the Exchange, the New Securities and any other transactions related
thereto, and the Board of Directors of the Issuer shall receive an opinion of an
investment bank that the Exchange is fair, from a financial point of view, to
the existing public holders of the Issuer's Common Stock.
(k) All consents, approvals and authorizations, including
shareholder, regulatory and other approvals shall have been obtained in form and
in substance reasonably satisfactory to JEDI.
(l) All other documents required by this Agreement, relating to the
Exchange, the New Securities or any transaction related thereto or as may be
requested by JEDI, shall have been prepared and shall contain representations,
warranties, and indemnities in form and in substance reasonably satisfactory to
JEDI and its counsel.
(m) JEDI shall have received the Randall Opinion.
(n) JEDI shall have received the Akin Opinion.
(o) JEDI shall have received the Utah Opinion.
(p) Each of the Closing Conditions of TCW and Holdings under Section
-------
5.1 hereof shall have been satisfied or waived by TCW
- ---
and Holdings and the closing of the TCW
and Holdings transactions in the Exchange shall occur simultaneously with the
closing of the JEDI transactions.
(q) Each of the Companies, at Closing, shall have executed the JEDI
Release.
(r) JEDI shall have received certificates representing the JEDI New
Securities.
5.3 Closing Deliveries of the Companies
-----------------------------------
As a condition to the obligations of TCW and the Purchasers hereunder and
prior to the issuance of the New Securities, the Companies shall have delivered
to the Purchasers (in form and substance satisfactory to TCW, the Purchasers and
their counsel):
(a) A certificate, dated as of the Closing Date, of the Secretary or
an Assistant Secretary of each of IPC and Refining,
(i) attaching a true and complete copy of the resolutions
of the Boards of Directors of each of IPC and Refining, and of all
documents evidencing other necessary corporate or shareholder action
taken by each of IPC and Refining in connection with the matters
contemplated by this Agreement;
(ii) attaching a true and complete copy of the bylaws of
each of IPC and Refining; and
(iii) setting forth the incumbency of the officer or officers
of IPC and Refining who sign this Agreement or any other documents
related hereto, including therein a signature specimen of such officer
or officers.
(b) A certificate, dated as of the Closing Date, of the Secretary or
an Assistant Secretary of the Issuer,
(i) attaching a true and complete copy of the resolutions
of the Board of Directors of the Issuer, and of all documents
evidencing other necessary corporate or shareholder action (in form
and substance reasonably satisfactory to the Purchasers and to their
counsel) taken by the Issuer in connection with the matters
contemplated by this Agreement;
(ii) attaching a true and complete copy of the Preferred
Stock Designation;
(iii) attaching a true and complete copy of the bylaws of the
Issuer; and
(iv) setting forth the incumbency of the officer or officers
of IPC and Refining who sign this Agreement, the New Securities or any
other document related hereto or thereto, including therein a
signature specimen of such officer or
officers.
(c) Certificates of good standing (including tax status, if
applicable) of the each of the Companies under the laws of their respective
states of incorporation and as foreign corporations in every state in which
their ownership of property or their conduct of business requires qualification
or registration as a foreign corporation, except for jurisdictions wherein the
failure to be so qualified would not have a Material Adverse Effect on the
Companies and the Subsidiaries, taken as a whole.
(d) A copy of the Initial Independent Engineering Report, certified
or otherwise approved by the engineer preparing such report.
(e) Such other documents, agreements, instruments, certificates and
evidence relating to the matters necessary to undertake the Exchange as
contemplated by this Agreement as the Purchasers or their counsel shall
reasonably require.
SECTION 6. ISSUER'S CONDITIONS TO CLOSING; REQUIRED DELIVERIES
As a condition to the obligations of the Companies hereunder and prior to the
issuance of the New Securities, the following conditions precedent shall be
satisfied (in form and substance reasonably satisfactory to the Companies and
their counsel):
(a) Each of the representations and warranties of TCW, Holdings and
JEDI contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date, as though
made on and as of the Closing. The Companies shall have received a certificate
from each of TCW, Holdings, Portfolio and JEDI to that effect.
(b) All consents, approvals and authorizations, including
shareholder, regulatory and other approvals shall have been obtained in form and
in substance reasonably satisfactory to the Companies.
(c) TCW shall, at Closing, execute and deliver the TCW Release and
JEDI shall, at Closing, execute and deliver the JEDI Release.
(d) The Senior Creditors shall have released all security interests
or similar interests with respect to the property or assets under or related to
the Farmout Agreement.
(e) The Board of Directors of the Issuer shall have received an
opinion of an investment bank that the Exchange is fair, from a financial point
of view, to the existing public holders of the Issuer's Common Stock.
(f) The Issuer shall have received from Fund V cancelled notes
representing the Fund V Debt.
24
(g) The Issuer shall have received from Portfolio cancelled
certificates representing the Portfolio Warrants.
(h) The Issuer shall have received from JEDI cancelled certificates
evidencing JEDI's entire interest in 100,000 shares of Series C Preferred Stock.
(i) The Senior Creditors shall have agreed to a restructuring and
commitment with respect to the outstanding indebtedness of the Companies under
the Credit Agreement on terms acceptable to the Issuer and IPC including, but
not limited to, a restructuring of the amortization of such debt and a provision
for additional borrowing capacity under the Credit Agreement.
SECTION 7. TRANSFERABILITY OF NEW SECURITIES.
7.1 Restrictive Legend
------------------
. Each certificate for Series D Preferred Stock, Series E Preferred Stock,
Series Z Preferred Stock and Common Stock issued under this Agreement shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may be transferred only if registered pursuant to the
provisions of such Securities Act or if an exemption from
registration is available."
provided, that such restrictive legend shall not be required after the date on
- --------
which the securities evidenced by a certificate bearing such restrictive legend
no longer constitute Restricted Securities, and upon the request of the holder
of such certificate, the Issuer, without expense to the holder, shall issue a
new certificate not bearing the restrictive legend otherwise required to be
borne thereby. In addition, each New Security shall bear the legends required
under the Shareholders Agreement.
7.2 Rule 144 and 144A
-----------------
. At all times, in order to permit the holders of Series D Preferred Stock,
Series E Preferred Stock, Series Z Preferred Stock and Common Stock, to transfer
if they so desire, pursuant to Rule 144 or 144A promulgated by the Commission
(or any successor to such rule), the Issuer will comply with all rules and
regulations of the Commission applicable in connection with use of Rule 144 and
144A (or any successor rules thereto), including the provision of information
concerning the Issuer to such holders and the timely filing of all reports with
the Commission in order to enable such holders, if they so elect, to utilize
Rule 144 or 144A, and the Issuer will cause any restrictive legends to be
removed and any transfer restrictions to be rescinded with respect to any sale
of Series D Preferred Stock, Series E Preferred Stock, Series Z Preferred Stock
or Common Stock which is exempt from registration under the Securities Act
pursuant to
25
Rule 144 or 144A.
SECTION 8 AFFIRMATIVE COVENANTS OF THE COMPANIES
The Companies hereby warrant, covenant and agree that, so long as a
Purchaser beneficially owns either (i) five percent (5%) of the outstanding
Common Stock and Series Z Preferred Stock or (ii) 10% of the outstanding shares
of Series D Preferred Stock or Series E Preferred Stock, as applicable, acquired
under this Agreement (except with respect to Sections 8.9, 8.10, 8.11, 8.12 and
------------------------------
8.14 below for which no threshold or different ownership thresholds as specified
- ----
therein shall apply) (the "Requisite Ownership"):
-------------------
8.1 Financial Statements
--------------------
. The Companies shall furnish and deliver to the Purchasers, at the
Companies' expense:
(a) as soon as available, but in any event within one hundred twenty
(120) days after the end of each fiscal year, a copy of the consolidated balance
sheet of the Companies and its consolidated Subsidiaries as at the end of such
year and the related consolidated statements of income and retained earnings and
of cash flows for such year, audited by Arthur Anderson LLP or another
independent certified public accountants of nationally recognized standing
reasonably acceptable to the Purchasers; and
(b) as soon as available, but in any event within fifty (50) days
after the end of each of the first three quarterly periods of each fiscal year,
the unaudited consolidated balance sheet of the Companies and their consolidated
Subsidiaries as at the end of such quarter and the related unaudited
consolidated statements of income and retained earnings and of cash flows for
such quarter and the portion of the fiscal year through the end of such quarter,
certified by the chief financial officer of the Issuer as being fairly stated in
all material respects when considered in relation to the consolidated financial
statements of the Companies and their consolidated Subsidiaries (subject to
normal year-end adjustments).
(c) The requirements of this Section 8.1 shall be satisfied without
-----------
further action on the part of the Companies if the Issuer is timely filing all
reports with the Commission under the Exchange Act.
8.2 Management's Discussion and Results of Operations
-------------------------------------------------
. The Companies shall furnish and deliver to the Purchasers, at the
Companies' expense, as soon as available, but in any event within fifty (50)
days after the end of each calendar quarter, a quarterly management's discussion
and results of operations as compared to the budget for such quarter. The
requirements of this Section 8.2 shall be satisfied without further action on
-----------
the part of the Companies if the Issuer is timely filing all reports with the
Commission under the Exchange Act.
8.3 Certificates; Other Information
-------------------------------
26
. The Issuer shall deliver, not more than thirty (30) days prior to the end
of each fiscal year of the Companies, a copy of the projections by the Companies
of the monthly operating budget and cash flow budget of the Companies and the
Subsidiaries for the succeeding fiscal year, such projections to be accompanied
by a certificate of the chief financial officer to the effect that such
projections have been prepared on the basis of sound financial planning practice
and that such officer has no reason to believe they are incorrect or misleading
in any material respect.
8.4 Independent Engineering Report
------------------------------
. As soon as available after the end of each calendar year, but in any event no
later than March 1 of each such year, the Companies, at their expense, shall
promptly furnish, or cause to be promptly furnished, to the Purchasers, an
annual Independent Engineering Report.
8.5 Inspection of Property; Books and Records; Discussions
------------------------------------------------------
. The Companies shall keep proper books of records and account in which full,
true and correct entries in conformity with GAAP and all requirements of law
shall be made of all dealings and transactions in relation to their business and
activities; and permit representatives of the Purchasers to visit and inspect
any of its properties and examine and make abstracts from any of their books and
records at any reasonable time and as often as may reasonably be desired and to
discuss the business, operations, properties and financial and other condition
of the Companies and the Subsidiaries with officers and employees of the
Companies and the Subsidiaries and with their independent certified public
accountants and attorneys.
8.6 Conduct of Business and Maintenance of Existence
------------------------------------------------
. The Companies shall continue to engage in business of the same general type
as now conducted by it and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business. Each of the Companies shall perform all material obligations it is
required to perform under the terms of each indenture, mortgage, deed of trust,
security agreement, lease, franchise, agreement, contract or other instrument
or obligation to which it is a party or by which it or any of its properties is
bound.
8.7 Maintenance of Property; Insurance
----------------------------------
. The Companies shall keep all property useful and necessary in its business in
good working order and condition; maintain with financially sound and reputable
insurance companies insurance on all their property in at least such amounts and
against at least such risks (but including in any event public liability,
product liability and business interruption) as are usually insured against in
the same general area by companies engaged in the same or a similar business;
and furnish to the Purchasers, upon written request, full information as to the
insurance carried.
8.8 Directors' and Officers' Insurance
----------------------------------
27
. The Companies shall maintain, with financially sound and reputable insurance
companies, insurance on all their directors and officers in at least such
amounts and against at least such risks as are in effect as of the date hereof
and on or before October 1, 1999, the Companies shall have increased the amount
of such policy to an amount not less than $10 million and furnish to the
Purchasers, upon written request, full information as to the insurance carried.
8.9 Taxes
-----
. The Companies will pay all taxes (other than Federal, State or local income
taxes) which may be payable in connection with the execution and delivery of
this Agreement or the issuance and sale of the New Securities hereunder or in
connection with any modification of the New Securities and will save the
Purchasers harmless without limitation as to time against any and all
liabilities with respect to or resulting from any delay in paying, or omission
to pay such taxes. The obligations of the Companies under this Section 8.9 shall
survive any redemption, repurchase or acquisition of the New Securities by the
Companies and the termination of this Agreement.
8.10 Replacement of Instruments
--------------------------
. Upon receipt by the Issuer of evidence reasonably satisfactory to it of the
ownership of and the loss, theft, destruction or mutilation of any certificate
or instrument evidencing any of the New Securities, and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that, if the owner of the same is a
commercial bank or an institutional lender or investor, its own agreement of
indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof, the Issuer, at its expense, will execute, register and deliver, in lieu
thereof, a new certificate or instrument for (or covering the purchase of) an
equal number of shares of the New Securities.
8.11 Costs and Expenses
------------------
. So long as Holdings holds any shares of Series D Preferred Stock, the
Companies shall pay the reasonable legal, engineering and other out-of-pocket
costs and expenses of Holdings and its affiliates relating to their dealings
with, for or on behalf of the Companies. So long as JEDI holds any shares of
Series E Preferred Stock, the Companies shall pay the reasonable legal costs and
expenses of JEDI and its affiliates relating to their dealings with, for or on
behalf of the Companies
8.12 Contingent Issuance of Options to Holdings and JEDI
---------------------------------------------------
. The parties hereto acknowledge and agree that the numbers of shares of Series
Z Preferred Stock and Common Stock of Issuer to be issued to Holdings and JEDI
in the Exchange have been agreed to by Holdings and JEDI based upon certain
understandings and agreements that
28
such shares would represent certain percentages of the fully diluted ownership
of the Series Z Preferred Stock and Common Stock of the Issuer which percentages
would change if any of the options or warrants listed on Schedule 8.12
(individually, a "Schedule 8.12 Option" and collectively, the "Schedule 8.12
-------------------- -------------
Options") are exercised. In consideration of the agreement of Holdings and JEDI
- -------
not to require an increase in the number of shares of Series Z Preferred Stock
and Common Stock to be issued in the Exchange, the parties hereto agree that if
at any time any Schedule 8.12 Option is exercised by the holder thereof (an
"Exercised 8.12 Option"), then within twenty (20) days after the date notice of
---------------------
such exercise is received by the Issuer, the Issuer shall issue to Holdings and
JEDI options to purchase shares of Common Stock in the form attached hereto as
Exhibit I (the "Purchaser Adjustment Options") having the same per share
----------------------------
exercise price and termination date as the Exercised 8.12 Option, except that
(a) the Purchaser Adjustment Option issued to Holdings shall be for a number of
shares equal to 200% of the number of shares issued with respect to the
Exercised 8.12 Option, (b) the Purchaser Adjustment Option issued to JEDI shall
be for a number of shares equal to 33.33% (rounding to the nearest whole number
of shares) of the number of shares issued with respect to the Exercised 8.12
Option, and (c) the Purchaser Adjustment Options shall have a minimum term of
not less than sixty (60) days. In the event that any Schedule 8.12 Option is
hereafter amended or otherwise modified, then the Purchaser Adjustment Options
issuable upon the exercise thereof shall be similarly amended or modified;
provided, that no amendments to the Schedule 8.12 Options or the Purchaser
Adjustment Options may be made as to per share exercise price or shares
issuable upon conversion thereof. In addition, the voluntary cancellation or
termination of any Schedule 8.12 Option either concurrently with or
substantially contemporaneously with the issuance to the holders of such
cancelled or terminated Schedule 8.12 Options of new options or rights to
purchase securities of Issuer hereafter approved by the Issuer's Board shall
not be deemed or construed to be an amendment or modification of the Schedule
8.12 Options for purposes of this section.
8.13 Bank Compliance Certificates
----------------------------
. The Companies shall deliver to Purchasers at the same time as the Companies
deliver to the agent under the Credit Agreement or the agent under any
replacement credit agreement all compliance certificates pursuant to Section
6.13 of the Credit Agreement delivered to the agent under the Credit Agreement
and any other similar notices or reports pursuant to the Credit Agreement or a
replacement credit agreement.
8.14 Management Controls
-------------------
. The failure by the Issuer to comply with any of the covenants set forth
below, unless specifically waived in writing by Holdings, shall entitle Holdings
to a right to specific performance, other equitable remedies or damages
available under applicable law. The holders of the Series E Preferred Stock
shall have no rights or remedies under this Section 8.14 other than the right to
------------
receive copies of the Annual Budget Plan, Approved Annual Budget, Updated Budget
and Approved Updated Budget pursuant to subsections (a) and (b) hereof.
29
(a) The Issuer hereby agrees that, so long as Holdings controls or
holds Series D Preferred Stock with a liquidation preference of $25 million or
more, the Issuer shall within thirty (30) days prior to the fiscal year end
deliver to Holdings, a proposed detailed budget plan (the "Annual Budget Plan"),
------------------
on both a consolidated and consolidating basis, for the operations of the
Companies and the Subsidiaries for the next fiscal year, prepared by the
Issuer's officers and employees and certified by the chief financial officer of
the Issuer, which Holdings shall have the right, in its sole discretion to
approve, modify or disapprove in whole or in part, including on a "line item"
basis. Any Annual Budget Plan (or any portion thereof) approved in writing by
Holdings is herein referred to as an "Approved Annual Budget". A copy of the
----------------------
Annual Budget Plan and the Approved Annual Budget shall be provided to holders
of the Series E Preferred Stock holding in excess of 49% of the outstanding
Series E Preferred Stock, unless such holders request not to receive copies of
such budgets.
(b) The Issuer hereby agrees that, so long as Holdings controls or
holds Series D Preferred Stock with a liquidation preference of $25 million or
more, the Issuer shall deliver on or immediately prior to June 10 of each year
to Holdings, an update of the Approved Annual Budget for that year (the "Updated
-------
Budget"), on both a consolidated and consolidating basis, for the operations of
- ------
the Companies and the Subsidiaries for that year, prepared by the Issuer's
officers and employees and certified by the chief financial officer of the
Issuer, which Holdings shall have the right, in its sole discretion to approve,
modify or disapprove in whole or in part, including on a "line item" basis. Any
Updated Budget (or any items therein or portion thereof) approved in writing by
Holdings is herein referred to as an "Approved Updated Budget" and together with
-----------------------
the Approved Annual Budget, the "Approved Budgets." A copy of the Updated
----------------
Budget and the Approved Updated Budget shall be provided to the holders of the
Series E Preferred Stock holding in excess of 49% of the outstanding Series E
Preferred Stock, unless such holders request not to receive copies of such
budgets. No actions on the part of the Issuer's Board or its officers or
employees shall be permitted without prior approval of Holdings after June 30 of
each year for which an Updated Budget for such year has not been approved (until
such time as an Updated Budget for such year has been approved in accordance
herewith).
(c) The Issuer hereby agrees that, so long as Holdings controls or
holds Series D Preferred Stock with a liquidation preference of $25 million,
without the prior written approval of Holdings, the Issuer shall not, and shall
not permit any of its subsidiaries to, directly or indirectly:
(i) Make or commit to make any individual expenditures over
$25,000 for any purpose that is not set forth or otherwise expressly
contemplated in the latest Approved Budget;
(ii) Convey, sell, lease, assign, transfer or otherwise
dispose of any property, business or assets (including, without
limitation, receivables and leasehold interests) with a value that
exceeds $25,000 individually whether now owned or hereafter acquired;
30
(iii) Approve the annual or other compensation for any
officer or director, or any salary increases or bonus payments,
benefit packages, form of employment agreements, expense reimbursement
guidelines (and exceptions thereto) or any other adjustment to the
compensation for any officer or director;
(iv) Change any of its accounting practices or procedures;
(v) Create, incur, assume or suffer to exist any
indebtedness for borrowed money or any other indebtedness in an
individual amount in excess of $25,000, except indebtedness under
hedging contracts approved by the Board in compliance with the senior
debt of the Issuer;
(vi) Assume any liabilities or issue any guarantees for any
amount, except in the case of any liabilities or guarantees in an
individual amount that does not exceed $25,000;
(vii) Commence or settle any litigation where the amount in
controversy exceeds $25,000 or injunctive relief is sought;
(viii) Transfer, loan, assign or otherwise convey any assets
or monies to subsidiaries of the Companies;
(ix) Amend or alter the Credit Agreement or any documents
relating to other indebtedness in an individual amount in excess of
$25,000;
(x) Approve any reimbursements to the senior officers of
the Companies for expense accounts, travel expenses or any other
reimbursable out-of-pocket expenses in excess of $3,000 in any
calendar month with respect to any officer; and
(xi) Approve the hiring or termination of management
employees.
provided, however, that nothing in this Section 8.14 shall be
-------- ------- ------------
construed to require the approval of Holdings for, or otherwise render
invalid, any action by any Company, taken or directed by an officer or
other employee of any Company in good faith in or in response to
explosion, fire, flood or other emergency or exigent circumstances to
prevent loss of life or injury to persons or property or to comply
with applicable governmental or regulatory requirements including
without limitation Environmental Laws, but the Companies shall, as
promptly as possible, report such emergency or exigent circumstances
and the actions taken with respect thereto to Holdings.
SECTION 9. INDEMNITY
31
. The Companies jointly and severally agree to indemnify each Indemnified
Party, upon demand, from and against any and all liabilities, obligations,
claims, losses, damages, penalties, fines, actions, judgments, suits,
settlements, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this section collectively called "liabilities and costs") which to any
---------------------
extent (in whole or in part) may be imposed on, incurred by, or asserted against
such Indemnified Party growing out of, resulting from or in any other way
associated with this Agreement, the Exchange or any of the transactions and
events (including the enforcement or defense thereof) at any time associated
therewith or contemplated therein (including any violation or noncompliance with
any Environmental Laws by any Related Person or any liabilities or duties of any
Related Person or of any Indemnified Party with respect to Hazardous Materials
found in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART,
UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR ARE IN ANY EXTENT CAUSED, IN
WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY
INDEMNIFIED PARTY,
provided only that no Indemnified Party shall be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and costs
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment. As used in this section the term"
Indemnified Party" refers to each of Fund V, Portfolio, TCW Asset Management
- -----------------
Company, a California corporation, Trust Company of the West, a California trust
company, Holdings, JEDI (and each of their affiliates) and each director,
officer, agent, trustee, manager, member, partner, shareholder, principal,
attorney, employee, representative and affiliate of any such Person.
SECTION_10. MISCELLANEOUS
10.1 Notices
-------
(a) All communications under this Agreement shall be in writing and
shall be effective (a) upon hand delivery or delivery by telecopy or facsimile,
if delivered on a business day during normal business hours where such notice is
to be received or the first business day following such delivery if delivered
other than on a business day during normal business hours where such notice is
to be received or (b) on the second business day following the date of mailing
by first class mail, postage prepaid or by express courier service, fully
prepaid or upon actual receipt of such mailing, whichever shall first occur:
(i) if to any party hereto, at its address for notices
specified beneath its
32
name on the signature page hereof, or at such other address as it may
have furnished in writing to the Issuer, or
(ii) if to any other Person who is the registered holder of
any New Securities, to the address for the purpose of such holder as
it appears in the stock ledger of the Issuer.
10.2 Survival
--------
. All representations and warranties and covenants made by the Companies herein
or in any certificate or other instrument delivered by them or on their behalf
under this Agreement shall be considered to have been relied upon by TCW and the
Purchasers and shall survive the issuance of the New Securities regardless of
any investigation made by or on behalf of TCW and/or the Purchasers.
10.3 Successors and Assigns
----------------------
. Except as otherwise expressly provided herein, this Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties whether so expressed or not; provided, that the benefits of Section 8
-------- ---------
shall inure to the benefit of affiliates of the Purchasers or their transferees
holding the Requisite Ownership.
10.4 Amendment and Waiver, etc
-------------------------
. This Agreement may be amended, but only with the written consent of each of
the Companies, TCW and the Purchasers. No failure or delay on the part of any
of TCW, the Purchasers or the Companies in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to TCW and/or the Purchasers at law or in equity
or otherwise. No waiver of or consent to any departure by the Companies from
any provision of this Agreement shall be effective unless signed in writing by
each of the Purchasers who then holds either five percent (5%) of the
outstanding Common Stock and Series Z Preferred Stock or any Series D Preferred
Stock or Series E Preferred Stock.
10.5 Counterparts
------------
. Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
10.6 Severability
------------
. In the event that any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable, the validity, legality and
33
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
10.7 Governing Law.
-------------
This Agreement shall be construed in accordance with and governed by the law
of the State of New York as applicable to contracts.
10.8 Expenses.
--------
Whether or not the transactions contemplated by this Agreement close, the
Companies will pay all costs and expenses incurred by the Purchasers (a)
relating to the negotiation, execution and delivery of this Agreement and the
issuance of the New Securities (including, without limitation, reasonable fees,
office charges and expenses of counsel to TCW, Milbank, Tweed, Hadley & McCloy
LLP, and counsel to JEDI, Vinson & Elkins), (b) relating to printing the
instruments evidencing the New Securities, (c) relating to any amendments,
waivers or consents under this Agreement to the same extent as set forth in
clause (a) and (b) above incident to the enforcement by the Purchasers of, or
the protection or preservation of any right or remedy of the Purchasers under,
this Agreement, or any other document or agreement furnished pursuant hereto or
thereto or in connection herewith or therewith (including, without limitation,
reasonable fees and expenses of counsel), (d) relating to third party
engineering and outside accounting costs, and (e) relating to any future
dealings associated with the transactions relating to this Agreement and the
Exchange (including any engineering, legal, and outside accounting costs). The
Companies shall pay such costs and expenses, to the extent then payable, on the
date of issuance of the New Securities or, with respect to those matters
described in clauses (b), (c), (d) and (e) above thereafter from time to time
upon demand by the Purchasers upon presentation, in each such case, of a
statement thereof. Additionally, the Companies shall pay an additional $25,000
to each of TCW and JEDI (in addition to any payments made for each party's costs
and expenses as set forth herein) at Closing.
10.9 Specific Performance.
--------------------
The Companies recognize that money damages may be inadequate to compensate
the Purchasers for a breach by the Companies of their obligations hereunder, and
the Companies irrevocably agree that the Purchasers shall be entitled to the
remedy of specific performance or the granting of such other equitable remedies
as may be awarded pursuant to the arbitration described in Section 10.10 below
or by a court of competent jurisdiction after the arbitration in Section 10.10
below in order to afford the Purchasers the benefits of this Agreement and that
the Companies shall not object and hereby waive any right to object to such
remedy or such granting of other equitable remedies on the grounds that money
damages will not be sufficient to compensate the Purchasers.
10.10 Arbitration.
-----------
34
THE PARTIES AGREE THAT IF ANY DISPUTE SHOULD ARISE UNDER THE TERMS AND
PROVISIONS OF THIS AGREEMENT, EACH PARTY WAIVES ANY RIGHT TO COMMENCE LEGAL
ACTION OR ARBITRATION OTHER THAN AS PROVIDED UNDER THE TERMS OF THIS AGREEMENT,
AND THIS AGREEMENT SHALL PROVIDE THE SOLE AND EXCLUSIVE REMEDY FOR RESOLUTION OF
DISPUTES.
(a) THE DETERMINATION OF THE ARBITRATOR WILL BE FINAL AND BINDING UPON
EACH PARTY AND EACH PARTY SPECIFICALLY WAIVES ANY RIGHT TO CLAIM THAT THE
ARBITRATOR HAS EXCEEDED THE SCOPE OF THE ARBITRATION, HAS DISREGARDED EVIDENCE
OR PRINCIPLES OF LAW, AND FURTHER WAIVES ANY RIGHT TO DISCLAIM THE QUALIFICATION
OR FUNCTION OF THE ARBITRATOR IN ANY MANNER OR FASHION.
(b) IF SUCH A DISPUTE HAS ONLY TWO PARTIES, EACH PARTY SHALL SELECT
ONE ARBITRATOR, AND THOSE ARBITRATORS SHALL SELECT A THIRD ARBITRATOR. IF THE
PARTIES DISPUTE THE SELECTION OF THE ARBITRATOR(S) AND CANNOT AGREE UPON THE
IDENTIFICATION OF THE ARBITRATOR(S) WITHIN THIRTY (30) DAYS FROM THE MAILING OF
THE OBJECTION, A PETITION FOR APPOINTMENT OF ARBITRATOR SHALL BE FILED WITH THE
SUPERIOR COURT OF THE COUNTY OF LOS ANGELES, CALIFORNIA. IF SUCH A DISPUTE HAS
MORE THAN TWO PARTIES, ALL SUCH PARTIES SHALL WITHIN THIRTY (30) DAYS (i)
APPOINT TWO ARBITRATORS UPON AGREEMENT OF ALL SUCH PARTIES OR IF SUCH PARTIES
CANNOT SO AGREE (ii) APPROVE TWO ARBITRATOR'S SELECTED BY THE AMERICAN
ARBITRATION ASSOCIATION. THE TWO ARBITRATORS SELECTED SHALL THEN SELECT A THIRD
ARBITRATOR. THE ARBITRATION SHALL BE HELD IN LOS ANGELES, CALIFORNIA PURSUANT
TO THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION AND
THE NEW YORK CODE OF CIVIL PROCEDURE.
(c) THE ARBITRATOR'S FEES AND FEES AND COSTS OF PETITIONING FOR THE
APPOINTMENT OF THE ARBITRATOR SHALL BE PAID BY THE COMPANIES. THE ARBITRATOR,
UPON RENDERING ITS AWARD, SHALL DETERMINE THE PARTY THAT PREVAILED BASED UPON
WRITTEN STATEMENTS MADE BY EACH PARTY AT THE COMMENCEMENT OF THE ARBITRATION AS
TO THE POSITION OF THE PARTIES AND THEIR ALTERNATIVES FOR SETTLING THE MATTER
AND THEREAFTER IN ACCORDANCE WITH THE RULES FOR THE FURTHER PRESENTATION OF
EVIDENCE AS SET FORTH BY THE ARBITRATOR. A STATEMENT OF A PROPOSED SETTLEMENT
SHALL NOT BE BINDING UPON ANY PARTY AND SHALL NOT BE CONSIDERED AS EVIDENCE BY
THE ARBITRATOR EXCEPT TO THE EXTENT THAT THE ARBITRATOR UPON MAKING ITS SOLE AND
INDEPENDENT DETERMINATION SHALL DETERMINE THE PARTY WHICH PREVAILED BASED UPON
THE PROPOSALS FOR SETTLEMENT OF THE MATTER MADE BY EACH PARTY AND SHALL
DETERMINE THAT THE NON-PREVAILING PARTY SHALL PAY SOME OR ALL OF THE COSTS OF
ARBITRATION INCLUDING
35
ANY COSTS INCURRED BY THE ARBITRATOR IN EMPLOYING EXPERTS TO ADVISE THE
ARBITRATOR IN REGARD TO SPECIFIC SUBJECTS OR QUESTIONS. THE ARBITRATOR MAY
FURTHER AWARD THE COST OF ATTORNEYS' FEES OR EXPERT WITNESSES CONSULTED OR
EMPLOYED IN THE PREPARATION OR PRESENTATION OF EVIDENCE TO THE ARBITRATOR BY THE
PREVAILING PARTY IF, IN THE ARBITRATOR'S DETERMINATION, THE POSITION OF THE
NONPREVAILING PARTY WAS NOT REASONABLY TAKEN OR MAINTAINED OR WAS BASED UPON A
FAILURE TO PROPERLY EXCHANGE OR COMMUNICATE INFORMATION WITH THE PREVAILING
PARTY IN REGARD TO THE SUBJECT SUBMITTED TO ARBITRATION.
(d) THE ARBITRATOR'S DETERMINATION MAY FURTHER PROVIDE FOR PROSPECTIVE
ENFORCEMENT AND DIRECTIONS FOR THE PARTIES TO COMPLY WITH INCLUDING WITHOUT
LIMITATION PERMANENT INJUNCTIVE RELIEF. UNDER SUCH CIRCUMSTANCES, THE
ARBITRATOR'S AWARD SHALL BE BINDING UPON THE PARTIES AND SHALL BE UNDERTAKEN AND
PERFORMED BY EACH OF THE PARTIES UNTIL SUCH TIME AS THE ARBITRATOR'S DIRECTIONS
TO THE PARTY SHALL LAPSE BY THEIR TERM, OR THE ARBITRATOR SHALL NOTIFY THE
PARTIES THAT THOSE TERMS ARE NO LONGER IN FORCE OR EFFECT OR SHALL MODIFY THOSE
TERMS.
36
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Exchange Agreement as of the date first above written.
INLAND RESOURCES INC.,
a Washington corporation
By: /s/ Kyle R. Miller
----------------------------
Kyle R. Miller
Co-Chief Executive Officer
410 17/th/ Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
INLAND PRODUCTION COMPANY,
a Texas corporation
By: /s/ Kyle R. Miller
----------------------
Kyle R. Miller
Chief Executive Officer
Address for Notices:
410 17/th/ Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
INLAND REFINING, INC.,
a Utah corporation
By: /s/ Tim H. Trawick
----------------------
Tim H. Trawick
Title:
Address for Notices:
410 17/th/ Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Facsimile: (303) 893-0103
TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for the
benefit of Account No. CPFF 873-3032,
By: /s/ Thomas F. Mehlberg
-----------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Marc MacAluso
----------------------
Marc MacAluso
Senior Vice President
Address for Notices:
865 S. Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Facsimile: (213) 244-0604
With copies to:
TCW Asset Management Company
1000 Louisana
Suite 2175
Houston, Texas 77002
Attention: Marc MacAluso
Telephone: (713) 615-7415
Facsimile: (713) 615-7460
Milbank, Tweed, Hadley & McCloy LLP
601 S. Figueroa Street
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
INLAND HOLDINGS LLC, a California limited liability company,
By: TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for the
benefit of Account No. CPFF 873-3032, Member
By: /s/ Thomas F. Mehlberg
-------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Marc MacAluso
-------------------------
Marc MacAluso
Senior Vice President
By: TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P., a California limited
partnership, Member
By: TCW ROYALTY COMPANY V, a California
corporation, Managing General Partner
By: /s/ Thomas F. Mehlberg
------------------------
Thomas F. Mehlberg
Vice President
Address for Notices:
865 S. Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Facsimile: (213) 244-0604
With copies to:
TCW Asset Management Company
1000 Louisana
Suite 2175
Houston, Texas 77002
Attention: Marc MacAluso
Telephone: (713) 615-7415
Facsimile: (713) 615-7460
Milbank, Tweed, Hadley & McCloy LLP
601 S. Figueroa Street
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063
JOINT ENERGY DEVELOPMENT INVESTMENTS II LIMITED PARTNERSHIP, a Delaware limited
partnership
By: Enron Capital Management II Limited
Partnership, its General Partner
By: Enron Capital II Corp., its General Partner
By: /s/ John Hopley
--------------------------
John Hopley
Vice President
Address for Notices:
Enron North America Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telephone: (713) 853-6161
Facsimile: (713) 646-4039/4946
TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P., a California limited
partnership
By: TCW ROYALTY COMPANY V, a California
corporation, Managing General Partner
By: /s/ Thomas F. Mehlberg
--------------------------
Thomas F. Mehlberg
Vice President
Address for Notices:
865 S. Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Facsimile: (213) 244-0604
With copies to:
TCW Asset Management Company
1000 Louisana
Suite 2175
Houston, Texas 77002
Attention: Marc MacAluso
Telephone: (713) 615-7415
Facsimile: (713) 615-7460
Milbank, Tweed, Hadley & McCloy LLP
601 S. Figueroa Street
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Facsimile: (213) 629-5063