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EXECUTION ORIGINAL
EXHIBIT 4.2.2
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
INLAND PRODUCTION COMPANY and INLAND RESOURCES INC.,
TRUST COMPANY OF THE WEST,
and
TCW ASSET MANAGEMENT COMPANY,
in the capacities described below
$75,000,000
September 11, 1998
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS AND REFERENCES..............................................................................1
Section 1.1 Defined Terms...............................................................................1
Section 1.2 Exhibits and Schedules; Additional Definitions..............................................7
Section 1.3 Amendment of Defined Instruments............................................................7
Section 1.4 References and Titles.......................................................................7
Section 1.5 Calculations and Determinations.............................................................7
ARTICLE II THE LOAN ............................................................................................. 8
Section 2.1 Advance; Interest...........................................................................8
Section 2.2 [INTENTIONALLY OMITTED].....................................................................8
Section 2.3 Use of Proceeds.............................................................................8
Section 2.4 Funding Fees................................................................................8
Section 2.5 Principal Payments..........................................................................9
Section 2.6 Principal Payments from ANCF................................................................9
Section 2.7 Optional Prepayments in Whole..............................................................10
Section 2.8 Additional Interest........................................................................10
Section 2.9 General Payment Provisions.................................................................10
ARTICLE III CONDITIONS PRECEDENT TO LENDING......................................................................11
Section 3.1 [INTENTIONALLY OMITTED]....................................................................11
Section 3.2 [INTENTIONALLY OMITTED]....................................................................11
Section 3.3 [INTENTIONALLY OMITTED]....................................................................11
Section 3.4 Conditions Precedent for Additional Bank Loan Advances.....................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................12
Section 4.1 Borrower's and Parent's Representations and Warranties.....................................12
Section 4.2 Representation and Disclosures by Noteholder...............................................12
ARTICLE V COVENANTS OF BORROWER..................................................................................12
Section 5.1 Covenants..................................................................................12
Section 5.2 Coverage Ratio.............................................................................13
ARTICLE VI SECURITY..............................................................................................14
Section 6.1 The Security...............................................................................14
Section 6.2 Agreement to Deliver Security Documents....................................................14
Section 6.3 Perfection and Protection of Security Interests and Liens..................................14
Section 6.4 Production Proceeds........................................................................15
Section 6.5 Appointment of Agent and Collateral Agent..................................................15
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ARTICLE VII EVENTS OF DEFAULT AND REMEDIES.......................................................................18
Section 7.1 Events of Default..........................................................................18
Section 7.2 Remedies...................................................................................18
Section 7.3 Indemnity..................................................................................19
Section 7.4 Substitution of Operator...................................................................19
ARTICLE VIII RIGHT OF FIRST REFUSAL..............................................................................20
Section 8.1 Right of First Refusal.....................................................................20
ARTICLE IX MISCELLANEOUS.........................................................................................21
Section 9.1 Waivers and Amendments; Acknowledgments....................................................21
Section 9.2 Survival of Agreements; Cumulative Nature..................................................22
Section 9.3 Notices....................................................................................23
Section 9.4 Parties in Interest........................................................................24
SECTION 9.5 GOVERNING LAW; SUBMISSION TO PROCESS.......................................................24
Section 9.6 Limitation on Interest.....................................................................24
Section 9.7 Termination; Limited Survival..............................................................25
Section 9.8 Severability...............................................................................25
Section 9.9 Counterparts...............................................................................25
SECTION 9.10 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC................................................26
Section 9.11 Amendment and Restatement..................................................................26
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AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement")
is made as of September 11, 1998, by and among Inland Production Company, a
Texas corporation ("BORROWER"), Inland Resources Inc., a Washington corporation
("PARENT"), Trust Company of the West, in its capacity as holder of the Note
described below (in such capacity, "Noteholder"), and TCW Asset Management
Company, in its capacities as Agent and Collateral Agent (as described below).
In consideration of the mutual covenants and agreements contained herein the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
Section 1.1 Defined Terms. As used in this Agreement, each
capitalized term has the meaning given in this Section 1.1, in Annex A attached
hereto, in the Intercreditor Agreement (as defined in Annex A) if specifically
referred to in this Section 1.1, Annex A or otherwise as being defined the
Intercreditor Agreement (regardless of whether the Intercreditor Agreement is
in effect) or in the sections and subsections referred to below:
"12.5% IRR" has the meaning given such term in Schedule 5.
Schedule 5 also defines when a 12.5% IRR has been achieved by TCW.
"100% QUARTER" means a Fiscal Quarter for which any of the
following applies:
(i) An Event of Default has occurred on or before the
Quarterly Payment Date thereof and has not been waived by the
Agent, Collateral Agent or the Noteholder;
(ii) Borrower is unable to make the Scheduled Minimum
Principal Payment; or
(iii) A Coverage Deficiency exists on the Quarterly
Payment Date.
During a 100% Quarter, 100% of ANCF shall be applied in the
order of the ANCF Hierarchy.
"A NOTE" has the meaning given in Section 2.1.
"ADDITIONAL INTEREST" has the meaning given in Section 2.8.
"ADJUSTED INVESTMENT" means the sum, at the time in question,
of:
(i) the then-outstanding principal amount of the Bank
Debt;
(ii) the then-outstanding principal amount of the
Notes;
(iii) any past due interest owing on the Notes or the
Bank Debt;
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(iv) any outstanding expenses or fees owed to Agent
Bank, Agent, Collateral Agent or Noteholder; and (v) if Working
Capital is a negative number, the absolute value of such Working
Capital.
"ADVANCE" has the meaning given in Section 2.1.
"AGENT" has the meaning given in Section 6.5.
"AGENT BANK" means ING (U.S.) Capital Corporation, as agent
under the Bank Credit Agreement, together with its successors and assigns in
such capacity.
"AGREEMENT" means this Amended and Restated Credit Agreement.
"ALLOWED BANK INDEBTEDNESS" has the meaning given in the
Intercreditor Agreement.
"APPROVAL LETTER" has the meaning given it in the
Intercreditor Agreement.
"APPROVED SALES OR FINANCINGS" has the meaning given in the
Intercreditor Agreement.
"B NOTE" has the meaning given in Section 2.1.
"BANK CREDIT AGREEMENT" means that certain Amended and
Restated Credit Agreement dated as of even date herewith among Borrower,
Parent, Agent Bank and the other financial institutions named therein from time
to time as lenders as the same may be amended, restated or supplemented from
time to time.
"BANK DEBT" means all Debt of Borrower, Parent or any
Subsidiary of Borrower or Parent owing under any Bank Document to Agent Bank or
Banks.
"BANK DOCUMENTS" mean, collectively, (a) the Bank Credit
Agreement, (b) all promissory notes made by Borrower evidencing the Bank Debt,
(c) the Bank Interest Hedge Agreement, (d) all security agreements, deeds of
trust, mortgages, chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements or
instruments now, heretofore, or hereafter delivered by Borrower or Parent in
connection with the Bank Credit Agreement and notes or any transaction
contemplated thereby to secure or guarantee the payment or performance of any
part of the obligations and duties of Borrower under such Loan Agreement and
notes, and (e) all other agreements, certificates, documents, instruments and
writings at any time delivered in connection with any of the foregoing.
"BANKS" means any lender from time to time a party to the
Bank Credit Agreement.
"BORROWER" means Inland Production Company, a Texas
corporation.
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"BUSINESS DAY" means a day, other than a Saturday or Sunday,
on which commercial banks are open for business with the public both in the
State of California and in the State of Colorado.
"CALCULATION QUARTER" has the meaning given in the
Intercreditor Agreement.
"COLLATERAL AGENT" has the meaning given in Section 6.5.
"COVERAGE DEFAULT" has the meaning given in Section 5.3.
"COVERAGE DEFICIENCY" has the meaning given in Section 5.3.
"COVERAGE RATIO" has the meaning given in Section 5.2.
"DEFAULT" means any Coverage Default, any Event of Default,
and any default, event or condition which would, with the giving of any
requisite notices and the passage of any requisite periods of time, constitute
an Event of Default.
"EVENT OF DEFAULT" has the meaning given in Section 7.1.
"HIGHEST LAWFUL RATE" means the maximum nonusurious rate of
interest that Noteholder is permitted under applicable law to contract for,
take, charge, or receive with respect to the Obligation in question.
"INLAND REFINING GUARANTY" means that certain Guaranty dated
as of September 23, 1997, made by Inland Refining for the benefit of
Noteholder, as the same has been or may be amended, supplemented, restated or
ratified from time to time.
"INITIAL AMORTIZATION DATE" means the earliest to occur of
the following: (i) December 31, 2003, the maturity date of the Allowed Bank
Indebtedness; (ii) the date on which all Allowed Bank Indebtedness has been
repaid; (iii) the date of any acceleration of any Allowed Bank Indebtedness;
and (iv) the date of any acceleration of the Obligations.
"INTERCREDITOR AGREEMENT" means that certain Amended and
Restated Intercreditor Agreement of even date herewith executed by Borrower,
Parent, Agent, Noteholder, Agent Bank, and the Banks, as the same may be
amended, supplemented, restated or ratified from time to time.
"LATE PAYMENT RATE" means, at the time in question, twelve
percent (12%) per annum, provided, however, that the Late Payment Rate shall in
no event exceed the Highest Lawful Rate.
"LEASE VALUE AMOUNT" has the meaning given in Section 5.2.
"LENDER" means the Noteholder.
"LOAN" has the meaning given in Section 2.1.
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"LOAN DOCUMENTS" means this Agreement, the Note, the
Intercreditor Agreement, the Security Documents, the Warrant Documents, and all
other agreements, certificates, documents, instruments and writings at any time
delivered in connection herewith or therewith (exclusive of all term sheets,
commitment letters, correspondence and similar documents used in the
negotiation hereof, except to the extent the same contain information about
Borrower or its Affiliates, properties, business or prospects).
"LOAN DOCUMENT DISBURSEMENTS" shall have the meaning given in
Schedule 5.
"LOAN DOCUMENT PAYMENTS" shall have the meaning given in
Schedule 5.
"MATURITY DATE" means December 31, 2006.
"MAXIMUM LOAN AMOUNT" means $75,000,000.
"MODIFIED NPV" means, at the time in question, based on the
then most recent calculations of NPV, the sum of:
(a) the NPV of 90% to 100% (as chosen at such time by Agent
or Collateral Agent in its sole and absolute discretion) of any Proved
Developed Producing Reserves attributable to the Eligible Mortgaged Properties;
(b) the NPV of 80% to 90% (as chosen at such time by Agent or
Collateral Agent in its sole and absolute discretion) of any Proved Developed
Nonproducing Reserves attributable to the Eligible Mortgaged Properties;
(c) the NPV of 60% to 90% (as chosen at such time by Agent or
Collateral Agent in its sole and absolute discretion) of any Proved Undeveloped
Reserves attributable to the Eligible Mortgaged Properties;
provided, however, that:
(i) Modified NPV shall be zero for any such Proved
Developed Nonproducing Reserves or Proved Undeveloped Reserves if
(1) Borrower has not scheduled consistent with the Plan of
Development the capital expenditures necessary to bring such
reserves into production (as contemplated in such Engineering
Report) to be made at or prior to the time contemplated in such
Engineering Report, (2) such capital expenditures have not been
approved by means of an Approval Letter, (3) Noteholder does not
reasonably expect that Borrower will have funds available to make
such capital expenditures, or (4) Noteholder has not concurred
with the amount of such reserves as reflected in the Engineering
Report most recently given prior to the calculation of such
Modified NPV or the engineer in the Engineering Report has
determined that the investment of the scheduled development
expenditures to develop such reserves (i.e., to bring into
production) will not produce on a risked basis (i.e., to the same
extent as the particular reserves are risked in the calculation
of Modified NPV) a fifteen percent (15%) internal rate of return
per annum on such scheduled development expenditures.
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No category of reserves other than Proved Reserves shall be taken into account
in determining Modified NPV.
"MORTGAGE" means that certain Deed of Trust, Mortgage,
Assignment, Security Agreement, Fixture Filing and Financing Statement, dated
as of September 30, 1997 by Borrower in favor of Collateral Agent.
"NOTES" means, collectively, the A Note and the B Note.
"NOTEHOLDER" means Trustco, acting in its capacity as
Sub-Custodian for Mellon Bank for the benefit of Account No. CPFF 873-3032,
together with its successors and assigns as holder of any Note.
"NOTEHOLDER GOVERNING DOCUMENTS" has the meaning given in
Section 6.5.
"OBLIGATIONS" means the sum of (a) all Debt from time to time
owing by any of the Related Persons to Noteholder, Collateral Agent or Agent
under or pursuant to any of the Loan Documents, plus (b) all other Debt from
time to time owing by any of the Related Persons to any of Noteholder,
Collateral Agent, or Agent. "OBLIGATION" means any part of the Obligations.
"OTHER ALLOWED DEBT" means the Bank Debt.
"OTHER LOAN DOCUMENTS" means the Bank Documents.
"PARENT GUARANTY" means that certain Guaranty dated as of
September 30, 1997 by Parent for the benefit of Noteholder, as the same has
been or may be amended, supplemented, restated or ratified from time to time.
"PLAN OF DEVELOPMENT" or "POD" means the Plan of Development
as such is approved annually, beginning with the period from January 1, 1998 to
December 31, 1998, by Borrower, Agent and Agent Bank or is modified or replaced
from time to time by agreement among Borrower, Agent and Agent Bank. The first
such POD must be approved by December 1, 1997.
"PROBABLE RESERVES" means "Probable Reserves" as defined in
the Definitions for Oil and Gas Reserves promulgated by the Society of
Petroleum Engineers (or any generally recognized successor) as in effect at the
time in question.
"QUARTERLY PAYMENT" means that payment of principal to be
made on a Quarterly Payment Date pursuant to Section 2.5.
"REFINING MORTGAGE" that certain Deed of Trust, Mortgage,
Assignment, Security Agreement, Fixture Filing and Financing Statement, dated
as of May 29, 1998 by Inland Refining in favor of Collateral Agent and recorded
with the Davis County Recorder as Instrument No. 1408691, in Book 2299, Page
937.
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"REQUEST FOR ADVANCE" means a written request made by
Borrower which meets the requirements of Section -------- 2.3. ---
"REQUIRED LENDERS" means any one of Agent, Collateral Agent
or any Noteholder or Noteholders holding Notes evidencing 66 2/3% of the
outstanding amount of the Loan.
"SCHEDULED BANK PAYMENTS" has the meaning given in Section
2.6.
"SCHEDULED MINIMUM PRINCIPAL PAYMENT" has the meaning given
in Section 2.5.
"SECURITY DOCUMENTS" means the Mortgage, the Refining
Mortgage, the Parent Guaranty, the Inland Refining Guaranty, any other
instruments listed in the Security Schedule, and all other security agreements,
deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing
statements, continuation statements, extension agreements and other agreements
or instruments now, heretofore, or hereafter delivered by any Related Person to
Noteholder, Agent or Collateral Agent in connection with this Agreement or any
transaction contemplated hereby to secure or guarantee the payment of any part
of the Obligations or the performance of any Related Person's other duties and
obligations under the Loan Documents.
"SECURITY SCHEDULE" means Schedule 2 hereto.
"TAMCO" means TCW Asset Management Company, a California
corporation, provided that as used in Annexes A, B, C and D the term "Tamco"
shall mean Tamco in its capacity as Agent.
"TCW ENTITY" has the meaning given in Section 7.5.
"TRUSTCO" means Trust Company of the West, a California trust
company.
"UNEVALUATED PROPERTY" means any Property owned by Borrower
and located in the Uinta Basin that, at the time in question (a) is not
evaluated in the then most-recent Engineering Report (or supplemental
information) delivered to Noteholder as having Proved Reserves attributed
thereto, and (b) is not otherwise included, or reasonably anticipated to be
included, in the proration unit or drilling and spacing unit allocable to any
Property of Borrower that has been so evaluated as having Proved Reserves
attributed thereto; provided that no Property subject to Liens permitted under
Section C.19(c) of Annex C is to be included herein.
"WARRANT AGREEMENT" means that certain Warrant Agreement
dated as September 23, 1997 between Parent and Warrant Holder.
"WARRANT DOCUMENTS" means, collectively, the Warrant
Agreement and the Warrants.
"WARRANT HOLDER" means, initially, TCW Portfolio No. 1555 DR
V Sub-Custody Partnership, L.P., a California limited partnership, and any
other Person holding the Warrant.
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"WARRANTS" means that certain Warrant to purchase Common
Stock issued by Borrower to Noteholder on September 23, 1997, or any warrants
in substitution or replacement thereof.
"WORKING CAPITAL" has the meaning given in Section C.27 of
Annex C.
Section 1.2 Exhibits and Schedules; Additional Definitions.
All Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Certain additional terms may be defined in the Security Schedule and
used but not defined in the body of this Agreement; reference is hereby made to
the Security Schedule for the meaning of any such terms.
Section 1.3 Amendment of Defined Instruments. Unless the
context otherwise requires or unless otherwise provided herein the terms
defined in this Agreement which refer to a particular agreement, instrument or
document also refer to and include all renewals, ratifications, extensions,
modifications, amendments and restatements of such agreement, instrument or
document, provided that nothing contained in this section shall be construed to
authorize any such renewal, extension, modification, amendment or restatement.
Section 1.4 References and Titles. All references in this
Agreement to Exhibits, Schedules, Annexes, articles, sections, subsections and
other subdivisions refer to the Exhibits, Schedules, Annexes, articles,
sections, subsections and other subdivisions of this Agreement unless expressly
provided otherwise. Titles appearing at the beginning of any subdivisions are
for convenience only and do not constitute any part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
The words "this Agreement", "this instrument", "herein", "hereof", "hereby",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The phrases
"this section" and "this subsection" and similar phrases refer only to the
sections or subsections hereof in which such phrases occur. The word "or" is
not exclusive, and the word "including" (in its various forms) means "including
without limitation." Pronouns in masculine, feminine and neuter genders shall
be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5 Calculations and Determinations. All fees and
interest accruing under the Loan Documents shall be calculated on the basis of
actual days elapsed (including the first day but excluding the last) and a year
of 360 days. Unless otherwise expressly provided herein or unless Noteholder
otherwise consents all financial statements and reports furnished to Noteholder
hereunder shall be prepared and all financial computations and determinations
pursuant hereto shall be made in accordance with GAAP. Each matter to be
determined, consented or agreed to, or accepted by Noteholder, Agent or
Collateral Agent under the Loan Documents (such as the determination of
Modified NPV) shall be made by Noteholder, Agent or Collateral Agent in its
sole and absolute discretion, unless the applicable provision expressly states
that the determination, consent, agreement or acceptance by Noteholder, Agent
or Collateral Agent is to be made in compliance with some express restriction
on Noteholder's, Agent's, or Collateral Agent's discretion (for example, if
Noteholder's consent to a particular matter is required "not to be unreasonably
withheld").
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ARTICLE II
THE LOAN
Section 2.1 Advance; Interest. Subject to the terms and
conditions hereof, Noteholder has made one advance to Borrower (the "ADVANCE")
in the amount of the Maximum Loan Amount. The obligation of Borrower to repay
the aggregate amount of the Advance made by Noteholder (the "LOAN"), together
with interest accruing in connection therewith, is evidenced by (i) that
certain Promissory Note, dated September 23, 1997 by Borrower as Maker made
payable to the order of Noteholder in the original principal amount of
$65,000,000 (the "A NOTE") and (ii) that certain Promissory Note dated
September 23, 1997 by Borrower as Maker made payable to the order of Noteholder
in the original principal amount of $10,000,000 (the "B NOTE"). Amounts
borrowed and repaid on the Notes may not be reborrowed hereunder. Subject to
the terms hereof and of the Notes, the unpaid principal of the Notes (exclusive
of any past due principal or interest) from time to time outstanding shall bear
interest on each day outstanding at the rate of nine and three quarters percent
(9.75%) per annum, payable quarterly on each Quarterly Payment Date, calculated
as of the last day of the Fiscal Quarter then ending. All principal and
interest owed under the Notes and which has not been paid when due shall bear
interest on each day outstanding at the Late Payment Rate in effect on such
day, and such interest shall be due and payable daily as it accrues.
Section 2.2 [INTENTIONALLY OMITTED].
Section 2.3 Use of Proceeds. Borrower shall use or shall have
used the funds from the Advance to (i) purchase of certain Utah oil and gas
properties from Equitable Resources Energy Company and to pay its costs related
to such acquisition; (ii) to provide Borrower working capital (or to pay down
the Bank Debt); and (iii) to pay the costs and expenses related to the Bank
Debt and the Loan. In no event shall the funds from any Advance be used
directly or indirectly by any Person for personal, family, household or
agricultural purposes or for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" or any
"margin securities" (as such terms are defined respectively in Regulation U and
Regulation G promulgated by the Board of Governors of the Federal Reserve
System) or to extend credit to others directly or indirectly for the purpose of
purchasing or carrying any such margin stock or margin securities. Borrower
represents and warrants to Noteholder that Borrower is not engaged principally,
or as one of Borrower's important activities, in the business of extending
credit to others for the purpose of purchasing or carrying such margin stock or
margin securities.
Section 2.4 Funding Fees. On the date on which the Advance
was made, Borrower paid to Noteholder a funding fee in an amount equal to three
percent (3%) of the amount of the Advance.
Section 2.5 Principal Payments.
(a) The outstanding principal balance of the Notes shall be
due and payable in full on the Maturity Date.
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(b) On each Quarterly Payment Date, beginning with the first
Quarterly Payment Date after the Initial Amortization Date and continuing until
the Maturity Date, Borrower will make a payment of principal on account of the
outstanding principal balance of the Loan in an amount equal to the greater of:
(i) ninety percent (90%) of ANCF (less the interest payments made on the Notes
on such Quarterly Payment Date pursuant to Section 2.1 hereof); or (ii) in the
amount (the "SCHEDULED MINIMUM PRINCIPAL PAYMENT") set forth below in the
following table opposite the applicable Quarterly Payment number:
Quarterly Payment Scheduled Minimum
Number Principal Payment
------ -----------------
1-4 $6,250,000
5-8 $8,750,000
9-12 $3,750,000
Section 2.6 Principal Payments from ANCF.
(a) Schedule 4 sets forth the amounts and dates for payment
of all principal payments of Allowed Bank Indebtedness which are required under
the Bank Documents (the "SCHEDULED BANK PAYMENTS"). All parties hereto
acknowledge and agree that, on or before the Quarterly Payment Date following
each Calculation Quarter, all ANCF with respect to such Calculation Quarter
(and any proceeds from Approved Sales or Financings which are used to pay Bank
Debt or the Obligations) shall be applied in the order of the ANCF Hierarchy as
set forth in Section 3 of the Intercreditor Agreement.
(b) Together with each payment made pursuant to this Section
2.6, Borrower shall deliver to Noteholder a report in detail acceptable to
Noteholder setting out a detailed calculation of the ANCF for such Calculation
Quarter. Any principal payments made out of ANCF pursuant to this Section 2.6
will be applied toward the minimum principal payments required under Section
2.5 on the applicable Quarterly Payment Date, but the minimum principal
payments required under Section 2.5 will be required regardless of the amount
of the payments based on ANCF which are required under this Section 2.6 .
(c) So long as no Event of Default has occurred and is then
continuing, Noteholder shall first apply all principal payments on the Loan
made pursuant to the preceding subsection (b) to the payment of any minimum
principal payment then required under Section 2.5 and shall then apply any
remaining payments made pursuant to this Section to the prepayment, without
premium or penalty, of the principal payments thereafter required under Section
2.5 in the inverse order of their maturity.
(d) If any Event of Default has occurred and is continuing,
and if no Bank Debt is then outstanding, then Noteholder may in its sole and
absolute discretion apply the ANCF as it elects to the various Obligations
which are then due and payable.
Section 2.7 Optional Prepayments in Whole. In addition to the
payments required under Sections 2.5 and 2.6, Borrower may, at any time after
October 1, 1999 and after
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Borrower has given at least forty-five (45) days advance notice to Noteholder,
from time to time and without premium or penalty prepay the Notes, in whole but
not in part. Any prepayment of principal made under this Section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Prior to October 1, 1999, Borrower may not prepay any principal of the
Notes without the prior written consent of the Required Lenders, which consent
may be given or withheld in their sole and absolute discretion.
Section 2.8 Additional Interest. Concurrently with the final
payment of all principal and interest on the A Note (whether at its stated
maturity date, as a result of mandatory or optional prepayments, or otherwise)
or, if earlier, upon the acceleration of the A Note, Noteholder shall be
entitled to receive additional payment (the "ADDITIONAL Interest") in cash in
the amount required to give Noteholder a 12.5% IRR on the entire amount of the
Loan Document Disbursements with respect to the A Note, and Borrower shall be
obligated to pay the Additional Interest (it being understood and agreed that
the Additional Interest is in addition to the principal and stated interest
owing on the Loan, represents deferred compensation for the making and
commitment to make the Loan, and in no way constitutes a penalty).
Section 2.9 General Payment Provisions. Borrower will make
each payment which it owes under the Loan Documents such that payment is
received by Noteholder no later than 11:00 a.m., Boston, Massachusetts time, on
the date such payment becomes due and payable, in lawful money of the United
States of America, without set-off, deduction or counterclaim, and in
immediately available funds sent by wire transfer in care of:
Boston Safe Deposit
ABA No. 011001234
Real Estate Wiring No. 039624
Cost Center No. 3137
Re: Mellon Bank / Morgan Stanley / Fund V /Inland
Account No. CPFF 873-3032
(or to such other bank and accounts as Noteholder may from time to time
specify). Any payment received by Noteholder after such time will be deemed to
have been made on the next following Business Day. Should any such payment
become due and payable on a day other than a Business Day, the maturity of such
payment shall be extended to the next succeeding Business Day, and, in the case
of a payment of principal or past due interest, interest shall accrue and be
payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due. Each payment under a Loan Document
shall be due and payable at the place provided therein and, if no specific
place of payment is provided, shall be due and payable at the place of payment
of the Note. When Noteholder collects or receives money on account of the
Obligations which is insufficient to pay all Obligations then due and payable,
Noteholder may apply such money as it elects to the various Obligations which
are then due and payable.
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ARTICLE III
CONDITIONS PRECEDENT TO LENDING
Section 3.1 [INTENTIONALLY OMITTED].
Section 3.2 [INTENTIONALLY OMITTED].
Section 3.3 [INTENTIONALLY OMITTED].
Section 3.4 Conditions Precedent for Additional Bank Loan
Advances. Borrower shall be permitted to obtain additional advances under the
Bank Credit Agreement only if:
(a) no Coverage Deficiency or Default exists or would exist
upon the making of the advance;
(b) such advances are used to develop Eligible Proved
Properties pursuant to the Plan of Development, or to provide financing to
Inland Refining in an aggregate amount not to exceed an amount set forth in
Section C.18(g) below pursuant to the Production/Refining Credit Agreement and
Section 2.4 of the Bank Credit Agreement;
(c) such advance amounts, in the aggregate with the initial
advance, do not exceed the maximum amount of the Allowed Bank Indebtedness; and
(d) Borrower has provided Noteholder with a Notice of Bank
Advance in the form of Exhibit C attached hereto at least one day before
delivered to the Agent Bank, and all representations and warranties made by
Borrower in such Notice of Bank Advance shall be true in all material respects
on and as of the date of such Notice of Bank Advance and as of the date such
advance is to be made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Borrower's and Parent's Representations and
Warranties. To confirm Noteholder's understanding concerning Borrower, Parent
and their business, properties and obligations and to induce Noteholder to
enter into this Agreement and to make the Loan, Borrower and Parent each
represent and warrant to Noteholder that each of the statements in Annex B is
true and correct in all respects.
Section 4.2 Representation and Disclosures by Noteholder.
Noteholder hereby represents that Noteholder will acquire the Note for its own
account in the ordinary course of its business; however, the disposition of
Noteholder's property shall at all times be and remain within its control and,
in particular and without limitation, Noteholder may sell or otherwise transfer
the Note, any participation interest or other interest in the Note, or any of
its other rights and obligations under the Loan Documents.
ARTICLE V
COVENANTS OF BORROWER
Section 5.1 Covenants. To conform with the terms and
conditions under which Noteholder is willing to have credit outstanding to
Borrower, and to induce Noteholder to
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enter into this Agreement and make the Loan, Parent and Borrower each warrant,
covenant and agree that, until the full and final payment of the Obligations
and the termination of this Agreement, unless Noteholder has previously agreed
otherwise:
(a) Payment and Performance. Borrower will pay all amounts
due under the Loan Documents in accordance with the terms thereof and will
observe, perform and comply with every covenant, term and condition expressed
or implied in the Loan Documents. Borrower and Parent will cause each other
Related Person to observe, perform and comply with every such term, covenant
and condition which is applicable to such Related Person.
(b) Payment of Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, Borrower will promptly (and in
any event, within 30 days after any invoice or other statement or notice) pay
(A) Agent's and Collateral Agent's direct out-of-pocket expenses in the amount
of $25,000 and (B) all third-party costs and expenses incurred by or on behalf
of Noteholder, Agent or Collateral Agent (including reasonable attorneys' fees)
in connection with (i) the negotiation, preparation, execution and delivery of
the Loan Documents, and any and all consents, waivers or other documents or
instruments relating thereto, (ii) the filing, recording, refiling and
re-recording of any Loan Documents and any other documents or instruments or
further assurances required to be filed or recorded or refiled or re-recorded
by the terms of any Loan Document, (iii) the borrowings hereunder and other
action reasonably required in the course of administration of the various Loan
Documents, (iv) the defense or enforcement of the Loan Documents or the defense
of Noteholder's or Collateral Agent's exercise of their rights thereunder, (v)
the reviews contemplated by Section C.16 of Annex C, and (vi) a semi-annual
audit by Noteholder, Agent or Collateral Agent of the Related Persons' books
and records.
(c) Engineering Reports. Borrower will pay all costs and
expenses relating to all Engineering Reports.
(d) Board Visitation Rights. Noteholder shall have the right
to appoint two (2) representatives, and such representatives shall: (i) receive
all notice of all meetings (both regular and special) of the respective board
of directors of Borrower and Parent and copies of all unanimous consents
presented to the directors or such board; (ii) be entitled to attend (or, in
the case of telephone meetings, monitor) all such meetings; and (iii) receive
as soon as available (but in any event not later than thirty (30) days after
such meetings) copies of the minutes of all such meetings. If either such board
proposes to take any action by written consent in lieu of a meeting, Borrower
will give written notice to such representatives, which notice shall describe
in reasonable detail the nature and substance of such proposed action. Borrower
will furnish such representatives with a copy of each such written consent not
later than five (5) days after execution. Such representatives shall not be
members of either board and shall not be entitled to vote on any matters
presented at such meetings of the boards or to consent to any matters as to
which the consent of such board has been requested, but shall be entitled to
receive reimbursement for expenses equivalent to that provided members of the
board(s).
(e) Additional Guaranties. Any Subsidiary formed after the
date hereof will execute a Guaranty for the benefit of Noteholder in the form
of the Inland Refining Guaranty.
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(f) Annex C. All of the covenants contained in Annex C will
be observed.
Section 5.2 Coverage Ratio.
(a) On and after July 1, 1998, Borrower shall maintain a
Coverage Ratio (as defined in subsection (b) below) of at least 150% at all
times while any of the Obligations under the Loan Documents remain outstanding.
A Coverage Ratio of 125% or less at any time is herein called a "COVERAGE
DEFAULT", and a Coverage Ratio of more than 125% but less than 150% at any time
is herein called a "COVERAGE DEFICIENCY". If any Coverage Default exists,
Borrower must (or if any Coverage Deficiency exists, Borrower may in its
discretion in order to avoid a 100% Quarter), within thirty (30) days after
obtaining knowledge thereof, cure such Coverage Default (or Coverage
Deficiency), either by furnishing and mortgaging additional engineered
producing oil and gas properties satisfactory to Noteholder in order to
increase Modified NPV or by making payments in order to reduce the Adjusted
Investment; provided that Borrower may not cure more than two (2) Coverage
Defaults by mortgaging additional engineered producing oil and gas properties.
(b) As used in this section, "COVERAGE RATIO" means at any
time in question the quotient obtained by dividing:
(i) the sum of (A) 100% of the Modified NPV as
determined from the Engineering Report most recently prepared as
of such time in question, (B) the Lease Value Amount (as defined
below) and (C) Working Capital,
(ii) by the "ADJUSTED INVESTMENT" at such time.
For purposes of this Section 5.2, the term "LEASE VALUE AMOUNT" means (a) until
July 1, 1998, the working interest of Borrower in each Unevaluated Property
multiplied by $250 per acre, (b) during the period beginning July 1, 1998 and
ending on June 30, 1999, the working interest of Borrower in each Unevaluated
Property multiplied by $150 per acre, (c) during the period beginning July 1,
1999 and ending on June 30, 2000, the working interest of Borrower in each
Unevaluated Property multiplied by $50 per acre, and (d) at all times after
June 30, 2000, zero.
ARTICLE VI
SECURITY
Section 6.1 The Security. The Obligations will be secured by
the Security Documents listed in the Security Schedule and by any additional
Security Documents hereafter delivered by any Related Person and accepted by
Collateral Agent.
Section 6.2 Agreement to Deliver Security Documents. Parent
and Borrower agree to deliver to further secure the Obligations whenever
requested by Collateral Agent in its sole and absolute discretion, deeds of
trust, mortgages, chattel mortgages, security agreements, financing statements
and other Security Documents in form and substance satisfactory to Collateral
Agent for the purpose of granting, confirming, and perfecting first and prior
liens or security interests in any real or personal property of Borrower or
Parent, except Liens permitted under Section C.19 of Annex C. Borrower also
agrees to deliver, whenever requested by
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Collateral Agent in its sole and absolute discretion, favorable title opinions
from legal counsel acceptable to Collateral Agent with respect to Properties
designated by Collateral Agent, based upon abstract or record examinations to
dates acceptable to Collateral Agent and (a) stating that Borrower or Parent
has good and defensible title thereto, free and clear of all Liens other than
Permitted Liens, (b) confirming that such properties and interests are subject
to Security Documents, subject to the provisions of the Bank Documents and
Intercreditor Agreement, securing the Obligations that constitute and create
legal, valid and duly perfected first deed of trust or mortgage liens in such
properties and interests and first priority assignments of and security
interests in the oil and gas attributable thereto and in the proceeds thereof,
and (c) covering such other matters as Collateral Agent may request.
Section 6.3 Perfection and Protection of Security Interests
and Liens. Borrower and Parent will from time to time deliver to Collateral
Agent any financing statements, continuation statements, extension agreements
and other documents, properly completed and executed (and acknowledged when
required) in form and substance satisfactory to Collateral Agent, which
Collateral Agent requests for the purpose of perfecting, confirming, or
protecting any Liens or other rights in Collateral securing any Obligations.
Section 6.4 Production Proceeds. Notwithstanding that, by the
terms of the Mortgage, Borrower and Parent are or will be assigning to
Collateral Agent all of the "Production Proceeds" (as defined therein) accruing
to the property covered thereby, so long as no Default has occurred Borrower
and Parent may continue to receive from the purchasers of production all such
Production Proceeds, subject, however, to the Liens created under the Security
Documents, which Liens are hereby affirmed and ratified. Upon the occurrence of
a Default, Collateral Agent may exercise all rights and remedies granted under
the Security Documents, subject to the provisions of the Bank Documents and
Intercreditor Agreement, including the right to obtain possession of all
Production Proceeds then held by Borrower or Parent and to receive directly
from the purchasers of production all other Production Proceeds. In no case
shall any failure, whether purposed or inadvertent, by Collateral Agent to
collect directly any such Production Proceeds constitute in any way a waiver,
remission or release of any of its rights under the Security Documents, nor
shall any release of any Production Proceeds by Collateral Agent to Borrower or
Parent constitute a waiver, remission, or release of any other Production
Proceeds or of any rights of Collateral Agent to collect other Production
Proceeds thereafter.
Section 6.5 Appointment of Agent and Collateral Agent.
(a) Agent. Noteholder hereby appoints Tamco as agent
(together with its successors in such capacity herein called "AGENT") to act
for and on behalf of Noteholder under or pursuant to this Agreement and the
other Loan Documents, and Tamco hereby accepts such appointment. Agent is
authorized to act on behalf of Noteholder in (i) exercising rights and remedies
with respect to Collateral (which may be delegated to Collateral Agent) or with
respect to any other matter under any of the Loan Documents, (ii) giving
notices or instructions to Borrower, (iii) receiving information from or
notices by Borrower, and (iv) communicating to Borrower determinations required
or permitted to be made under this Agreement or any other Loan Document. Agent
may, on behalf of Noteholder, take any other action which Noteholder is
entitled to take hereunder or under any of the Loan Documents. Borrower and
Parent may rely
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on any action of Agent as binding upon Noteholder. Such appointment of Tamco as
Agent shall not, however, impair or modify any rights, obligations or duties
which Tamco or any Affiliate of Tamco otherwise has with respect to Noteholder.
In its administration of this Agreement and the other Loan Documents, except to
the extent to which another standard applies to Tamco by reason of any other
document between Tamco and Noteholder, Agent will exercise the same care that
it exercises in the administration or handling of transactions for its own
account, subject, however, to subsection (g) below.
(b) Collateral Agent. Noteholder hereby appoints Tamco as
collateral agent (herein, together with its successors and assigns in such
capacity, "COLLATERAL AGENT") under the Loan Documents, to exercise such powers
under the Loan Documents as are delegated to Collateral Agent by the terms
thereof, together with all such powers as are reasonably incidental thereto,
including taking, holding and disposing of the Collateral. Tamco hereby accepts
such appointment. Collateral Agent shall act for and on behalf of Noteholder in
connection with all Collateral and all Security Documents, including serving as
mortgagee under each Mortgage and exercising rights and remedies provided
thereunder. Borrower and Parent may rely on any action of Collateral Agent as
binding upon Noteholder. The Mortgage contemplates that Collateral Agent may
release Collateral in accordance with the terms thereof and Collateral Agent is
hereby authorized to do so if it has received the prior consent of Noteholder,
it being understood that Noteholder itself need not be a party to any such
release. In its administration of this Agreement and the other Loan Documents,
except to the extent to which another standard applies to Tamco by reason of
any other document between Tamco and Noteholder, Collateral Agent will exercise
the same care that it exercises in the administration or handling of
transactions for its own account, subject, however, to subsection (g) below.
(c) Limitation of Duties and Fiduciary Relationship. Neither
Agent nor Collateral Agent shall have any duties or responsibilities, except
those expressly set forth in:
(i) this Agreement;
(ii) the other Loan Documents; and
(iii) the other documents entered into between any of
Trustco, Tamco, Mellon Bank and Morgan Stanley Group, Inc. to
establish their relationship with respect to the funds invested
by Noteholder (in this section called the "NOTEHOLDER GOVERNING
DOCUMENTS").
nor shall Agent or Collateral Agent have any additional fiduciary relationship
with Noteholder arising under this section, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or the other Loan Documents against Agent or Collateral
Agent.
(d) Written Directions. Agent or Collateral Agent may at any
time request written directions from Noteholder with respect to (i) any
interpretation of this Agreement, the Note and the other Loan Documents, or
(ii) any action to be taken or not to be taken hereunder or thereunder, and may
withhold any action until such directions have been received from the
Noteholder. Agent and Collateral Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement in accordance with a
direction of Noteholder under the terms of this Agreement.
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(e) Agents and Attorneys. Each of Agent and Collateral Agent
may execute any of its respective duties under this Agreement, the Note and the
other Loan Documents by or through agents or attorneys selected by Agent or
Collateral Agent, respectively, using reasonable care. Neither Agent nor
Collateral Agent shall be responsible to Noteholder for the negligence or
misconduct of any agents or attorneys so selected. Agent and Collateral Agent
shall be entitled to the advice of counsel concerning all matters pertaining to
their respective duties hereunder.
(f) Limitation of Liability. Agent, Collateral Agent, and
their respective officers, directors, employees, agents, attorneys-in-fact and
affiliates shall not:
(i) be liable to Noteholder for any action taken or
omitted to be taken by any of such Persons or for any error in
judgment under or in connection with this Agreement, the Notes or
any other Loan Documents, except for any such Person's gross
negligence or willful misconduct; or
(ii) be responsible in any manner to Noteholder or any
other Person for any failure of any other party to perform its
obligations under this Agreement, the Note or any other Loan
Document.
Nothing in this subsection, however, shall be deemed to limit or restrict any
liability, fiduciary duty or responsibility of Tamco in any capacity other than
as Agent or Collateral Agent, respectively, including any liability, fiduciary
duty or responsibility under the Noteholder Governing Documents.
(g) Reliance upon Documentation. Each of Agent and Collateral
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or any telephone conversation believed, respectively, by Agent
or Collateral Agent to be genuine and correct and to have been signed, sent,
made or spoken by the proper person or persons, and upon the advice and
statements of legal counsel, independent accountants and other experts
selected, respectively, by Agent or Collateral Agent.
(h) Reliance by Borrower and Parent. Noteholder agrees that,
prior to the delivery to Borrower or Parent of a notice of the removal or
termination of Tamco as Agent as set forth below, Borrower and Parent shall be
entitled to rely on Tamco's or any subsequent Agent's authority to act on
behalf of Noteholder in all dealings with Tamco (or any such subsequent Agent)
with respect to the Loan and the Loan Documents; Borrower and Parent shall be
protected in relying on actions, communications, notices and terminations
relating thereto or required or permitted thereunder by Agent; and Borrower and
Parent shall discharge their respective obligations under this Agreement and
the Loan Documents by delivering payments, notices and other information to
Agent. In the event of the removal of Agent and the appointment of a successor
Agent by Noteholder, Borrower and Parent shall not be required to recognize any
such removal or appointment unless and until Borrower and Parent shall have
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received a writing setting forth such removal and appointment executed by
Noteholder, and Borrower and Parent shall be entitled to rely on such writing
as being genuine and what it purports to be without any necessity of any
investigation whatsoever. Noteholder similarly agrees that, prior to the
delivery to Borrower and Parent of a notice of the removal or termination of
Tamco as Collateral Agent as set forth below, Borrower and Parent shall be
entitled to rely on Tamco's or any subsequent Collateral Agent's authority to
act on behalf of Noteholder in all dealings with Tamco (or any such subsequent
Collateral Agent) with respect to the Loan and the Loan Documents; and Borrower
and Parent shall be protected in relying on actions, communications, notices
and terminations relating thereto or required or permitted thereunder by
Collateral Agent. In the event of the removal of Collateral Agent and the
appointment of a successor Collateral Agent by Noteholder, Borrower and Parent
shall not be required to recognize any such removal or appointment unless and
until Borrower and Parent shall have received a writing setting forth such
removal and appointment executed by Noteholder, and Borrower and Parent shall
be entitled to rely on such writing as being genuine and what it purports to be
without any necessity of any investigation whatsoever.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default.
(a) Each of the following events constitutes an Event of
Default under this Agreement:
(i) Any event listed on Annex D attached hereto.
(ii) Any Material Adverse Change occurs in Borrower's
individual (or Parent's Consolidated) financial condition,
assets, business or operations and such adverse change is not
remedied within sixty (60) days thereafter.
(iii) The occurrence of (A) a total of three (3) 100%
Quarters within a five (5) consecutive Calendar Quarter period,
or (B) a total of four (4) 100% Quarters prior to repayment in
full of the Obligations; and
(iv) The occurrence of a Coverage Default which is not
cured within thirty (30) days as provided in Section 5.2(a).
(b) Upon the occurrence of an Event of Default described in
Section D.10 (a), (b) or (c) of Annex D with respect to Borrower or the
acceleration of the Other Allowed Debt under the Other Loan Documents, all of
the Obligations shall thereupon be immediately due and
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payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of
any kind, all of which are hereby expressly waived by Borrower and each Related
Person who at any time ratifies or approves this Agreement. During the
continuance of any other Event of Default, Noteholder at any time and from time
to time may without notice to Borrower or any other Related Person declare any
or all of the Obligations immediately due and payable, and all such Obligations
shall thereupon be immediately due and payable, without demand, presentment,
notice of demand or of dishonor and nonpayment, protest, notice of protest,
notice of intention to accelerate, declaration or notice of acceleration, or
any other notice or declaration of any kind, all of which are hereby expressly
waived by Borrower and each Related Person who at any time ratifies or approves
this Agreement. After any such acceleration (whether automatic or due to
declaration by Noteholder), any obligation of Noteholder to make any further
loans of any kind under any agreement with Borrower shall be permanently
terminated.
Section 7.2 Remedies. If any Default shall occur and be
continuing, Noteholder may protect and enforce its rights under the Loan
Documents by any appropriate proceedings, including proceedings for specific
performance of any covenant or agreement contained in any Loan Document, and
Noteholder may enforce the payment of any Obligations due or enforce any other
legal or equitable right. All rights, remedies and powers conferred upon
Noteholder, Agent or Collateral Agent under the Loan Documents shall be deemed
cumulative and not exclusive of any other rights, remedies or powers available
under the Loan Documents or at law or in equity.
Section 7.3 Indemnity. Borrower and Parent jointly and
severally agree to indemnify each TCW Entity, upon demand, from and against any
and all liabilities, obligations, claims, losses, damages, penalties, fines,
actions, judgments, suits, settlements, costs, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this section collectively called "LIABILITIES
AND COSTS") which to any extent (in whole or in part) may be imposed on,
incurred by, or asserted against such TCW Entity growing out of, resulting from
or in any other way associated with any of the Collateral, the Loan Documents,
or the transactions and events (including the enforcement or defense thereof)
at any time associated therewith or contemplated therein (including any
violation or noncompliance with any Environmental Laws by any Related Person or
any liabilities or duties of any Related Person or of any TCW Entity with
respect to Hazardous Materials found in or released into the environment). In
furtherance thereof, Borrower and Parent also agree to indemnify each TCW
Entity, upon demand, from and against any all liabilities and costs arising
from their failure to approve the acquisition of the Crysen Refinery and other
related assets located in Woods Cross, Utah.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART,
UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR ARE IN ANY EXTENT CAUSED, IN
WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY TCW
ENTITY,
provided only that no TCW Entity shall be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and costs
which (a) is proximately caused by its own individual gross negligence or
willful misconduct, as determined in a final judgment, or by its own individual
actions with respect to Collateral in its possession, or (b) is owed by it to
Noteholder as a result of such TCW Entity's breach of a duty owed by it to
Noteholder, but only to the extent proximately caused by such breach. As used
in this section the term "TCW ENTITY" refers to each of Noteholder, Agent,
Collateral Agent, Trustco, Tamco, and each director, officer, agent, trustee,
manager, attorney, employee, representative and Affiliate of any such Person.
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Section 7.4 Substitution of Operator. During the continuance
of any Event of Default, Collateral Agent shall (in addition to all of its
other remedies) have the right, exercisable in its sole and absolute
discretion, to demand in writing that Borrower resign as the operator (whether
under an applicable joint operating agreement, in the records of any applicable
regulatory authority, or otherwise) of all or any of the Properties
constituting Collateral. Upon receiving such written demand (in this section
called a "RESIGNATION DEMAND") from Collateral Agent, Borrower shall
immediately take whatever actions are legally available to it in order to
facilitate the succession of a reputable third party, chosen by Collateral
Agent in its sole and absolute discretion, to the position as operator of any
property or group of properties included in the Properties constituting
Collateral and covered by the subject Resignation Demand. Without limitation of
the generality of the foregoing:
(a) In the event Borrower owns one hundred percent (100%) of
the working interest in a Property or group of properties covered by a
Resignation Demand, Borrower shall immediately turn over operation of such
Property or group of Properties to the successor operator chosen by Collateral
Agent, and shall further execute or cause to be executed and filed with the
appropriate regulatory authorities any such instruments as may be requested by
Collateral Agent in order to document or effect such succession.
(b) In the event Borrower owns less than 100% of the working
interest in a Property or group of Properties covered by a Resignation Demand,
Borrower shall:
(i) notify any nonoperators of its resignation, such
notification to be made in writing and otherwise made in
accordance with the provisions of any applicable joint operating
agreement or similar agreement;
(ii) take whatever action is legally available to it in
order to expedite the effective time that a successor operator
shall assume Borrower's duties as operator (by way of example and
not by way of limitation, Borrower shall facilitate the election
and succession of a new operator without waiting for any
applicable grace period to expire under the operative joint
operating agreement or similar agreement); and
(iii) cast its vote under the applicable joint
operating agreement or similar agreement successor operator
chosen by Collateral Agent, and such vote shall be cast by
Borrower for the successor chosen by Collateral Agent both on an
interim basis (if called for under the applicable joint operating
agreement or similar agreement) and on a permanent basis.
ARTICLE VIII
RIGHT OF FIRST REFUSAL
Section 8.1 Right of First Refusal. Noteholder and Parent
hereby agree that Noteholder or its designee or assignee shall have an ongoing
right of first refusal to purchase shares of the next issue or issues of
preferred stock issued by Parent the proceeds of which, in the aggregate, shall
not be less than $15,000,000 (the "PREFERRED SHARES"). Parent shall notify
Agent in writing (the "FIRST REFUSAL NOTICE") in the event Parent receives a
bona fide offer from a third party to purchase the Preferred Shares. For a
period of fifteen (15) days following
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Agent's receipt of the First Refusal Notice (the "ELECTION PERIOD"), Agent
shall have the right to inform Parent in writing (the "ACCEPTABLE NOTICE") that
Noteholder or its designee or assignee desires to purchase the Preferred Shares
on the same basic terms and conditions set forth in the First Refusal Notice.
In the event that Agent delivers an Acceptance Notice prior to the termination
of the Election Period, Parent shall sell the Preferred Shares to Noteholder or
its designee or assignee on the same terms and conditions set forth in the
First Refusal Notice on or prior to the date which is forty-five (45) days
after Parent's receipt of the Approval Notice. If Agent fails to deliver
written notice of Noteholder's or its designee's or assignee's election to
purchase the Preferred Shares prior to the termination of the Election Period,
Parent shall be entitled to sell such Preferred Shares to such third party on
or prior to the date which is forty-five (45) days after the last day of the
Election Period in accordance with the terms and conditions set forth in the
First Refusal Notice. If Parent fails to consummate a sale with such third
party within such forty-five (45) day period, or in the event Parent desires to
sell the Preferred Shares to such third party on terms differing from those set
forth in the First Refusal Notice, the Preferred Shares shall again become
subject to the right of first refusal as set forth in this Article VIII.
Noteholder and Parent hereby agree that upon issuance by Parent of at least
$15,000,000 of preferred stock or other equity securities or the consummation
of farmout transactions which in either case would satisfy all of Parent's
obligations under Section C.42 in accordance with the terms thereof, the right
of first refusal set forth in this Section 8.1 shall terminate and have no
further force or effect.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Waivers and Amendments; Acknowledgments.
(a) Waivers and Amendments. No failure or delay (whether by
course of conduct or otherwise) by Noteholder, Agent or Collateral Agent in
exercising any right, power or remedy which either may have under any of the
Loan Documents shall operate as a waiver thereof or of any other right, power
or remedy, nor shall any single or partial exercise by Noteholder, Agent or
Collateral Agent of any such right, power or remedy preclude any other or
further exercise thereof or of any other right, power or remedy. No waiver of
any provision of any Loan Document and no consent to any departure therefrom
shall ever be effective unless it is in writing and signed by Noteholder, Agent
or Collateral Agent, and then such waiver or consent shall be effective only in
the specific instances and for the purposes for which given and to the extent
specified in such writing. No notice to or demand on any Related Person shall
in any case of itself entitle any Related Person to any other or further notice
or demand in similar or other circumstances. This Agreement and the other Loan
Documents set forth the entire understanding and agreement of the parties
hereto and thereto with respect to the transactions contemplated herein and
therein and supersede all prior discussions and understandings with respect to
the subject matter hereof and thereof, and no modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be valid or
effective unless the same is in writing and signed by the party against whom it
is sought to be enforced.
(b) Acknowledgements and Admissions. Borrower and Parent each
hereby represent, warrant, acknowledge and admit that (i) it has been advised
by counsel in the
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negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement
and the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Noteholder, Agent, or
Collateral Agent whether written, oral or implicit, other than as expressly set
out in this Agreement or in another Loan Document delivered on or after the
date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by Noteholder, Agent, or Collateral Agent as to the
Loan Documents except as expressly set out in this Agreement or in another Loan
Document delivered on or after the date hereof, (iv) neither Noteholder nor
Agent nor Collateral Agent owes any fiduciary duty to Borrower or Parent with
respect to any Loan Document or the transactions contemplated thereby, (v) the
relationship pursuant to the Loan Documents between Borrower, on one hand, and
Noteholder, Agent and Collateral Agent, on the other hand, is and shall be
solely that of debtor and creditor, respectively, (vi) no partnership or joint
venture exists with respect to the Loan Documents between either of Borrower or
Parent and any of Noteholder, Agent, or Collateral Agent, (vii) should an Event
of Default or Default occur or exist each of Noteholder, Agent and Collateral
Agent will determine in its sole and absolute discretion and for its own
reasons what remedies and actions it will or will not exercise or take at that
time, (viii) without limiting any of the foregoing, neither Borrower nor Parent
is relying upon any representation or covenant by Noteholder, Agent, Collateral
Agent, or any representative thereof, and no such representation or covenant
has been made, that Noteholder, Agent, or Collateral Agent will, at the time of
an Event of Default or Default, or at any other time, waive, negotiate,
discuss, or take or refrain from taking any action permitted under the Loan
Documents with respect to any such Event of Default or Default or any other
provision of the Loan Documents, and (ix) Noteholder has relied upon the
truthfulness of the acknowledgements in this section in deciding to execute and
deliver this Agreement and to make the Loan.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 9.2 Survival of Agreements; Cumulative Nature. All of
the various representations, warranties, covenants and agreements in the Loan
Documents shall survive the execution and delivery of this Agreement and the
other Loan Documents and the performance hereof and thereof, including the
making or granting of the Loan and the delivery of the Notes and the other Loan
Documents, and shall further survive until all of the Obligations are paid in
full to Noteholder, Agent and Collateral Agent and all of Noteholder's
obligations to Borrower are terminated. All statements and agreements contained
in any certificate or other instrument delivered by any Related Person to
Noteholder, Agent or Collateral Agent under any Loan Document shall be deemed
representations and warranties by Borrower or agreements and covenants of
Borrower under this Agreement. The representations, warranties, and covenants
made by the Related Persons in the Loan Documents, and the rights, powers, and
privileges granted to Noteholder and Collateral Agent in the Loan Documents,
are cumulative, and, except for expressly specified waivers and consents, no
Loan Document shall be construed in the
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context of another to diminish, nullify, or otherwise reduce the benefit to
Noteholder and Collateral Agent of any such representation, warranty, covenant,
right, power or privilege. In particular and without limitation, no exception
set out in this Agreement to any representation, warranty or covenant herein
contained shall apply to any similar representation, warranty or covenant
contained in any other Loan Document, and each such similar representation,
warranty or covenant shall be subject only to those exceptions which are
expressly made applicable to it by the terms of the various Loan Documents.
Section 9.3 Notices. All notices, requests, consents, demands
and other communications required or permitted under any Loan Document shall be
in writing, unless otherwise specifically provided in such Loan Document, and
shall be deemed sufficiently given or furnished if delivered by personal
delivery, by telecopy, by delivery service with proof of delivery, or by
registered or certified United States mail, postage prepaid, to Borrower and
the Related Persons at the address of Borrower specified on the signature pages
hereto and to Noteholder at both of the addresses specified below (unless
changed by similar notice in writing given by the particular Person whose
address is to be changed). Any such notice or communication shall be deemed to
have been given (a) in the case of personal delivery or delivery service, as of
the date of first attempted delivery at the address and in the manner provided
herein, (b) in the case of telecopy, upon receipt, or (c) in the case of
registered or certified United States mail, three days after deposit in the
mail. Any such notice or communication to Agent or Collateral Agent shall be
given to Noteholder and shall be deemed received by Agent or Collateral Agent
when received by Noteholder. Noteholder's addresses are:
Trust Company of the West
865 South Figueroa
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Telecopy: (213) 244-0604
TCW Asset Management Company
1000 Louisiana Street, Suite 2175
Houston, Texas 77002
Attention: George R. Hutchinson
and Marc MacAluso
Telephone: (713) 615-7410
Telecopy: (713) 615-7460
with a copy to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street
Thirtieth Floor
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Telecopy: (213) 629-5063
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Section 9.4 Parties in Interest. All grants, covenants and
agreements contained in the Loan Documents shall bind and inure to the benefit
of the parties thereto and their respective successors and assigns; provided,
however, that no Related Person may assign or transfer any of its rights or
delegate any of its duties or obligations under any Loan Document without the
prior consent of Noteholder.
SECTION 9.5 GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT TO
THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN
DOCUMENT, THE LOAN DOCUMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES OF
AMERICA (WITHOUT REGARD TO CALIFORNIA PRINCIPLES OF CONFLICTS OF LAW). EACH OF
BORROWER AND PARENT HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER RELATED
PERSON TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
SITTING IN THE STATE OF CALIFORNIA AND THE COUNTY OF LOS ANGELES AND AGREES AND
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT OR ANY OF ITS SUBSIDIARIES
IN ANY LEGAL PROCEEDING RELATING TO THE LOAN DOCUMENTS OR THE OBLIGATIONS BY
ANY MEANS ALLOWED UNDER CALIFORNIA OR FEDERAL LAW. EACH OF BORROWER AND PARENT
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 9.6 Limitation on Interest. Noteholder, Agent,
Collateral Agent, the Related Persons and any other parties to the Loan
Documents intend to contract in strict compliance with applicable usury law
from time to time in effect. In furtherance thereof such Persons stipulate and
agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay, for the use, forbearance
or detention of money, interest in excess of the maximum amount of interest
permitted to be charged by applicable law from time to time in effect. Neither
any Related Person nor any present or future guarantors, endorsers, or other
Persons hereafter becoming liable for payment of any Obligation shall ever be
liable for unearned interest thereon or shall ever be required to pay interest
thereon in excess of the maximum amount that may be lawfully charged under
applicable law from time to time in effect, and the provisions of this section
shall control over all other provisions of the Loan Documents which may be in
conflict or apparent conflict herewith. Noteholder, Agent and Collateral Agent
expressly disavow any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
Noteholder or any other holder of any or all of the Obligations shall otherwise
collect moneys which are determined to constitute interest which would
otherwise increase the interest on any or all of the Obligations to an amount
in excess of that permitted to be charged by applicable law then in effect,
then all such sums determined to constitute interest in excess of such legal
limit shall, without penalty, be promptly applied to
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reduce the then outstanding principal of the related Obligations or, at
Noteholder's or such holder's option, promptly returned to Borrower or the other
payor thereof upon such determination. In determining whether or not the
interest paid or payable, under any specific circumstance, exceeds the maximum
amount permitted under applicable law, Agent, Noteholder, Collateral Agent and
the Related Persons (and any other payors thereof) shall to the greatest extent
permitted under applicable law, (i) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and
spread the total amount of interest throughout the entire contemplated term of
the instruments evidencing the Obligations in accordance with the amounts
outstanding from time to time thereunder and the maximum legal rate of interest
from time to time in effect under applicable law in order to lawfully charge the
maximum amount of interest permitted under applicable law.
Section 9.7 Termination; Limited Survival. In its sole and
absolute discretion Borrower may at any time that no Obligations are owing
under the Loan Documents elect in a notice delivered to Noteholder to terminate
this Agreement and the other Loan Documents. Upon receipt by Noteholder of such
a notice, if no such Obligations are then owing then this Agreement and all
other Loan Documents shall thereupon be terminated, the Liens thereunder
released, and the parties thereto released from all prospective obligations
thereunder. Notwithstanding the foregoing or anything herein to the contrary,
any waivers or admissions made by any Related Person in any Loan Documents, the
obligations of Parent and Borrower under Section 7.3, and any other obligations
which any Person may have to indemnify or compensate Noteholder or any of
Noteholder's Affiliates shall survive any termination of this Agreement or any
other Loan Document. At the request and expense of Borrower, Noteholder shall
prepare and execute all necessary instruments to reflect and effect such
termination of the Loan Documents.
Section 9.8 Severability. If any term or provision of any
Loan Document shall be determined to be illegal or unenforceable all other
terms and provisions of the Loan Documents shall nevertheless remain effective
and shall be enforced to the fullest extent permitted by applicable law.
Section 9.9 Counterparts. This Agreement may be separately
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to
constitute one and the same Agreement.
SECTION 9.10 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.
EACH OF BORROWER, PARENT, AGENT, COLLATERAL AGENT AND NOTEHOLDER HEREBY (A)
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME
ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER
MATURITY; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
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LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
Section 9.11 Amendment and Restatement. This Agreement amends
and restates in its entirety that certain Credit Agreement dated as of
September 23, 1997, by among Borrower, Parent, Noteholder, Agent and Collateral
Agent, as amended, restated, or supplemented to the date hereof (the "ORIGINAL
AGREEMENT"). Borrower and Parent hereby agree that (i) the Loans outstanding
under the Original Agreement and any other Loan Document and all accrued and
unpaid interest thereon, and (ii) all accrued and unpaid fees under the
Original Agreement and any other Loan Document shall be deemed to be
outstanding under and governed by this Agreement.
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IN WITNESS WHEREOF, this Agreement is executed as of the date
first written above.
BORROWER: INLAND PRODUCTION COMPANY
By:
----------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Telecopy: (303) 893-0103
PARENT: INLAND RESOURCES INC.
By:
----------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
410 17th Street, Suite 700
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 893-0102
Telecopy: (303) 893-0103
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NOTEHOLDER: TRUST COMPANY OF THE WEST, a California
trust company, as Sub-Custodian for Mellon
Bank for the benefit of Account No. CPFF
873-3032
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
AGENT: TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager under that certain Agreement dated
as of June 13, 1994, between TCW Asset
Management Company and Morgan Stanley Group,
Inc.
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
COLLATERAL AGENT: TCW ASSET MANAGEMENT COMPANY,
a California corporation
By:
----------------------------------------
Arthur R. Carlson
Managing Director
By:
----------------------------------------
Marc MacAluso
Senior Vice President
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ANNEX A
COMMON DEFINITIONS
"2% Affiliate" means, as to any Person, (a) any Person directly or
indirectly owning, controlling or holding with power to vote 2% or more of the
outstanding voting securities of such Person, (b) any Person 2% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such Person, (c) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, and (d) any officer, director, partner or sanguinal or affinal kin of
such Person or any Person described above in clause (c) of this paragraph.
"Affiliate" means, as to any Person, (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the
outstanding voting securities of such Person, (b) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled or held with power to vote by such Person, (c) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, and (d) any officer, director, partner or sanguinal or affinal kin of
such Person or any Person described above in clause (c) of this paragraph.
Pengo Securities Corp., Randall D. Smith and any Affiliate of Randall D. Smith
including any trusts of which Randall D. Smith or any of his heirs at law is
settlor, trustee or beneficiary shall, for purposes of such 10% test, be
treated as a single Person.
"ANCF," "ANCF Capital Expenditures," "ANCF Hierarchy," "ANCF LOE,"
"ANCF Overhead Costs," "ANCF Transportation Costs," and "Affiliates' ANCF" have
the meanings given to such terms in the Intercreditor Agreement.
"Bank Interest Rate Hedge Agreement" has the meaning given it in the
Intercreditor Agreement.
"Bank Mortgage" means, collectively, that certain Deed of Trust,
Mortgage, Line of Credit Mortgage, Assignment, Security Agreement, Fixture
Filing and Financing Statement from Borrower to Agent dated as of September 30,
1997, as amended, and that certain Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement from Inland Refining to
Agent dated as of May 29, 1998, as amended.
"Change of Control" means the occurrence of either of the following
events: (i) any Person or two or more Persons acting as a group shall acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Act of 1934, as amended, and including
holding proxies to vote for the election of directors other than proxies held
by Parent's management or their designees to be voted in favor of Persons
nominated by Parent's Board of Directors) a larger percentage of the
outstanding voting securities of Parent than the aggregate percentage owned by
Randall D. Smith and Pengo Securities Corp., and the percentage of outstanding
voting securities of Parent owed by such Person or Persons is 35% or more of
the outstanding voting securities of Parent, measured by voting power
(including both common stock and any preferred stock or other equity securities
entitling the holders thereof to vote with the holders of common stock in
elections for directors of Parent) or (ii) one-third or more of the directors
of Parent shall consist of Persons not nominated by Parent's Board of Directors
(including as Board nominees any directors which the Board is obligated to
nominate pursuant to shareholders agreements, voting trust arrangements or
similar arrangements which are in place as of the date hereof, but not those
which arise after the date hereof unless they deal with the same parties or
their Affiliates and no one else).
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"Collateral" means all property of any kind which is subject to a Lien
in favor of Lenders or which, under the terms of any Security Document, is
purported to be subject to such a Lien.
"Consolidated" refers to the consolidation of Parent, Borrower or any
other Related Person, in accordance with GAAP, with its properly consolidated
subsidiaries. References herein to a Person's Consolidated financial
statements, financial position, financial condition, liabilities, etc. refer to
the consolidated financial statements, financial position, financial condition,
liabilities, etc. of such Person and its properly consolidated subsidiaries.
"Consolidating," when used with reference to the financial statements of
Parent, means the financial statements of Parent and its properly consolidated
subsidiaries, presented in a manner acceptable to Agent which (a) shows the net
intercompany transactions between each of Parent and such subsidiaries and (b)
presents substantially the same information with respect to Borrower which
would be presented on individual financial statements of Borrower.
"Consolidated Net Income" means, as to any Person or Persons for any
period, the gross revenues of such Person or Persons for such period, plus any
cash dividends or distributions actually received by such Person or Persons
from any other business entity, minus all expenses and other proper charges
(including taxes on income, to the extent imposed upon such Person or Persons),
determined on a Consolidated basis after eliminating earnings or losses
attributable to outstanding minority interests, but excluding the net earnings
of any other business entity in which such Person or Persons has an ownership
interest.
"Consolidated Tangible Net Worth" means the remainder of all
Consolidated assets of Parent, other than intangible assets (including as
intangible assets such assets as patents, copyrights, licenses, franchises,
goodwill, trade names, trade secrets and leases other than oil, gas or mineral
leases or leases required to be capitalized under GAAP), minus Parent's
Consolidated Debt, provided that for purposes of this definition, Parent's
Series C Convertible Preferred Stock shall not be included in the calculation
of Parent's Consolidated Debt and shall be considered equity.
"Crysen Refinery" means that certain refinery located in Woods Cross,
Utah.
"Debt" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Direct Taxes" has the meaning given it in the Intercreditor Agreement.
"Disclosure Report" means either a notice given by Borrower under
Section C.3 of Annex C or a certificate given by Borrower's chief financial
officer under Section C.1 of Annex C.
"Disclosure Schedule" means Schedule 1 to this Agreement.
"Distribution" means (a) any dividend or other distribution made by a
Related Person on or in respect of any stock, partnership interest, or other
equity interest in such Related Person (including any option or warrant to buy
such an equity interest), or (b) any payment made by a Related Person to
purchase, redeem, acquire or retire any stock, partnership interest, or other
equity interest in such Related Person (including any such option or warrant).
"EBITDA" means, for any four-Fiscal Quarter period, the sum of (1) the
Consolidated Net Income of Parent during such period, plus (2) all cash
interest paid during such period on Restricted
A-2
33
Debt (including amortization of original issue discount and the interest
component of any deferred payment obligations and capital lease obligations)
which was deducted in determining such Consolidated Net Income, plus (3) all
income taxes which were deducted in determining such Consolidated Net Income,
plus (4) all depreciation, amortization (including amortization of good will
and debt issue costs) and other non-cash charges (including any provision for
the reduction in the carrying value of assets recorded in accordance with GAAP)
which were deducted in determining such Consolidated Net Income, minus (5) all
non-cash items of income which were included in determining such Consolidated
Net Income.
"Eligible Mortgaged Properties" means, collectively, those Properties
which (a) are owned by Borrower and mortgaged to secure the Obligations and the
Other Allowed Debt, (b) for which Agent has received title opinions and other
title information concerning such Properties in form, substance and authorship
satisfactory to Agent, and (c) are free and clear of all Liens other than
Permitted Liens.
"Engineering Report" means the Initial Engineering Report and each
engineering report delivered pursuant to Section C.1(d) or C.1(e) of Annex C.
"Environmental Affiliate" means, as to any Person, any other Person
which by virtue of its control of, or common control with, such Person, may
incur any liability with respect to any claims, consent agreements, citations,
complaints, penalty assessments, suits or other proceedings with respect to any
alleged liability under, violation of or non-compliance with any Environmental
Laws.
"Environmental Laws" means any and all Laws relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Affiliate" means Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control that, together with Borrower, are treated as a single
employer under Section 414 of the Internal Revenue Code of 1986, as amended.
"ERISA Plan" means any employee pension benefit plan subject to Title
IV of ERISA maintained by any ERISA Affiliate with respect to which any Related
Person has a fixed or contingent liability.
"Farmout Agreement" means that certain Farmout Agreement by Inland
Production Company and Inland Resources Inc. as Farmor, Smith Management LLC as
Farmee, and Inland Production Company as Operator dated as of June 1, 1998.
"Fiscal Quarter" means a three-month period ending on March 31, June
30, September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
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34
"Floating Rate Debt" means any part of the Obligations which bears
interest at a floating rate.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of Parent
and its Consolidated subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the audited Initial Financial Statements. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for or practice to
continue as a generally accepted accounting principle or practice, all reports
and financial statements required hereunder with respect to Parent or with
respect to Parent and its Consolidated subsidiaries may be prepared in
accordance with such change, but all calculations and determinations to be made
hereunder may be made in accordance with such change only after notice of such
change is given to each Lender and Required Lenders agree to such change
insofar as it affects the accounting of Parent or of Parent and its
Consolidated subsidiaries.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Hedging Contract" means (a) any agreement providing for options,
swaps, floors, caps, collars, forward sales or forward purchases involving
interest rates, commodities or commodity prices, equities, currencies, bonds,
or indexes based on any of the foregoing, (b) any option, futures or forward
contract traded on an exchange, and (c) any other derivative agreement or other
similar agreement or arrangement, including "Permitted Commodity Hedges" (as
defined in the Intercreditor Agreement).
"Hydrocarbons" means crude oil, natural gas or other liquid or gaseous
hydrocarbons.
"ING Pricing" means the pricing assumptions required under Regulations
S-B, S-K or S-X , as applicable, promulgated by the Securities and Exchange
Commission.
"Initial Engineering Report" means the engineering report concerning
oil and gas properties of Related Persons dated July 1, 1997, prepared by Ryder
Scott Company.
"Initial Financial Statements" means (i) the audited annual
Consolidated financial statements of Parent dated as of December 31, 1997, (ii)
the unaudited quarterly Consolidated financial statements of Parent dated as of
June 30, 1998, (iii) the unaudited balance sheet of Inland Refining as of June
30, 1998, and (iv) other financial statements of Inland Refining from date of
incorporation to June 30, 1998.
"Inland Refining" means Inland Refining, Inc. a Utah corporation.
"Inland Refining Contract" means any contract between Borrower and
Inland Refining for the sale of hydrocarbons by Borrower to Inland Refining,
which has been approved by Required Lenders in their sole and absolute
discretion.
"Insurance Schedule" means Schedule 3 to this Agreement.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Debt or other extension of credit or capital
contribution to (by means of any transfer of
A-4
35
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition by such Person of
any capital stock, bonds, notes, debentures or other securities or evidences of
Debt issued by, any other Person.
"Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"Lien" has the meaning given it in the Intercreditor Agreement.
"Material Adverse Change" means a material and adverse change, from
the state of affairs presented in the Initial Financial Statements or in this
Agreement (including the Disclosure Schedule), to (a) Parent's and its
Subsidiaries' Consolidated financial condition, (b) the operations or
properties of Parent and its Subsidiaries, considered as a whole, (c)
Borrower's ability to timely pay the Obligations and perform its other
obligations under the Loan Documents, or (d) the validity and enforceability of
the material terms of any Loan Documents.
"Mortgages" means the Bank Mortgage and the TCW Mortgage.
"NPV" means, with respect to any Proved Reserves expected to be
produced from any Properties, the net present value, discounted at 10% per
annum, of the future net revenues expected to accrue to Borrower's interests in
such reserves during the remaining expected economic lives of such reserves.
Each calculation of such expected future net revenues shall be made in
accordance with the then existing standards of the Society of Petroleum
Engineers, provided that in any event (i) appropriate deductions shall be made
for Direct Taxes, operating, gathering, transportation and marketing costs, and
any capital expenditures required for the production and sale of such reserves,
and (ii) the pricing assumptions and escalations used in determining NPV for
any particular reserves shall be the TCW Pricing. NPV shall be calculated
hereunder in connection with each Engineering Report, either by Borrower, Tamco
or the engineering firm who prepares such Engineering Report; in the event of
any conflict, Tamco's calculation shall be conclusive and final.
"Parent" means Inland Resources Inc., a Washington corporation.
"Pennzoil Refinery" means that certain refinery in Roosevelt, Utah,
presently owned by Pennzoil Products Company which Parent, as of the date of
this Agreement, has under contract to purchase (which contract shall be
assigned to Inland Refining prior to closing of such contract), the closing of
the purchase of which is scheduled to take place on or about September 15,
1998.
"Permitted Investment" means Investments:
(a) in open market commercial paper, maturing within 270 days
after acquisition thereof, which is rated at least A-1 by Standard &
Poor's Ratings Group (a division of McGraw Hill, Inc.)
or P-1 by Moody's Investors Service, Inc.
(b) in marketable obligations, maturing within 12 months
after acquisition thereof, issued or unconditionally guaranteed by the
United States of America or an instrumentality or agency thereof and
entitled to the full faith and credit of the United States of America.
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36
(c) in demand deposits, and time deposits (including
certificates of deposit) maturing within 12 months from the date of
deposit thereof, with any office of any national or state bank or
trust company which is organized under the Laws of the United States
of America or any state therein, which has capital, surplus and
undivided profits of at least $500,000,000, and whose certificates of
deposit are rated at least Aa3 by Standard & Poor's Ratings Group (a
division of McGraw Hill, Inc.) or AA- by Moody's Investors Service,
Inc.
"Permitted Lien" has the meaning given to such term in Section C.19 of
Annex C.
"Person" has the meaning given it in the Intercreditor Agreement.
"Production/Refining Credit Agreement" means that certain Credit
Agreement by and between Borrower and Inland Refining dated as of May 29, 1998,
as amended, supplemented, or restated.
"Production/Refining Loan" means those loans to be extended to Inland
Refining by Borrower pursuant to the Production/Refining Credit Agreement.
"Properties" has the meaning given in the Intercreditor Agreement.
"Proved Reserves" means "Proved Reserves" as defined in the
Definitions for Oil and Gas Reserves (in this paragraph, the "Definitions")
promulgated by the Society of Petroleum Engineers (or any generally recognized
successor) as in effect at the time in question. "Proved Developed Producing
Reserves" means Proved Reserves which are categorized as both "Developed" and
"Producing" in the Definitions, "Proved Developed Nonproducing Reserves" means
Proved Reserves which are categorized as both "Developed" and "Nonproducing" in
the Definitions, and "Proved Undeveloped Reserves" means Proved Reserves which
are categorized as "Undeveloped" in the Definitions.
"Quarterly Payment Date" means the second to last Business Day in each
Fiscal Quarter, beginning with December 29, 1997.
"Rating Agency" means either Standard & Poor's Ratings Group (a
division of McGraw Hill, Inc.) or Moody's Investors Service, Inc. or their
respective successors.
"Related Person" has the meaning given it in the Intercreditor
Agreement.
"Restricted Debt" of any Person means Debt in any of the following
categories:
(a) Debt for borrowed money,
(b) Debt constituting an obligation to pay the deferred purchase price
of property or services,
(c) Debt evidenced by a bond, debenture, note or similar instrument,
(d) Debt which (i) would under GAAP be shown on such Person's balance
sheet as a liability, and (ii) is payable more than one year from the date of
creation thereof (other than reserves for taxes and reserves for contingent
obligations),
(e) Debt arising under futures contracts, forward contracts, swap, cap
or collar contracts, option contracts, hedging contracts, other derivative
contracts, or similar agreements (excluding only option contracts giving such
Person the right - and not the duty - to buy or sell goods expected to be
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bought or sold by such Person in the ordinary course of its business, so long
as such Person has no obligation other than the initial payment in full of the
purchase price for the option),
(f) Debt constituting principal under leases capitalized in accordance
with GAAP,
(g) Debt arising under conditional sales or other title retention
agreements,
(h) Debt owing under direct or indirect guaranties of Debt of any
other Person or constituting obligations to purchase or acquire or to otherwise
protect or insure a creditor against loss in respect of Debt of any other
Person (such as obligations under working capital maintenance agreements,
agreements to keep-well, or agreements to purchase Debt, assets, goods,
securities or services), but excluding endorsements in the ordinary course of
business of negotiable instruments in the course of collection,
(i) Debt (for example, repurchase agreements) consisting of an
obligation to purchase securities or other property, if such Debt arises out of
or in connection with the sale of the same or similar securities or property,
(j) Debt with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Debt with respect to payments received in consideration of oil,
gas, or other minerals yet to be acquired or produced at the time of payment
(including obligations under "take-or-pay" contracts to deliver gas in return
for payments already received and the undischarged balance of any production
payment created by such Person or for the creation of which such Person
directly or indirectly received payment), or
(l) Debt with respect to other obligations to deliver goods or
services in consideration of advance payments therefor;
provided, however, that the "Restricted Debt" of any Person shall not include
Debt that was incurred by such Person on ordinary trade terms to vendors,
suppliers, or other Persons providing goods and services for use by such Person
in the ordinary course of its business, unless and until such Debt is
outstanding more than 90 days past the incurrence thereof, or, if earlier, when
due in accordance with its terms.
"SJCC" means San Jacinto Carbon Company, a Texas corporation.
"Sound Refinery" means that certain refinery located in Tacoma,
Washington.
"Sound Refining Deed of Trust" means that certain Amended and Restated
Deed of Trust (with Security Agreement) dated as of December 24, 1997, executed
by SJCC for the benefit of Inland Refining, encumbering the Crysen Refinery.
"Sound Refining Note" means that certain Amended and Restated
Promissory Note dated as of December 24, 1997, in the original principal amount
of $1,500,000 made by SJCC payable to the order of Inland Refining, which note
has been executed in restatement of that certain Promissory Note dated as of
December 24, 1997, in the original principal amount of $1,500,000, made by
Sound Refining, Inc. payable to the order of Banque Paribas, which note was
assumed by SJCC.
"Subsidiary" has the meaning given it in the Intercreditor Agreement.
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"TCW Mortgage" means, collectively, that certain Deed of Trust,
Mortgage, Line of Credit Mortgage, Assignment, Security Agreement, Fixture
Filing and Financing Statement from Borrower to Tamco dated as of September 30,
1997, as amended, and that certain Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Financing Statement from Inland Refining to
Tamco dated as of May 29, 1998, as amended.
"TCW Pricing" means those prices (a) for anticipated sales of
Hydrocarbons that are hedged by a Hedging Contract with an investment grade
counter party, which Hedging Contract has been approved by
Tamco, equal to the fixed price or prices provided for in such Hedging Contract
during the term thereof, and thereafter the prices provided for in subsection
(b) below; and (b) for anticipated sales of Hydrocarbons, if such sales are not
hedged by a Hedging Contract that has been approved by Tamco, equal to the
lowest of (i) the average price received by Borrower for Hydrocarbons of such
kind produced from the Eligible Mortgaged Properties during the twelve months
preceding the date of calculation, (ii) the average price received by Borrower
for Hydrocarbons of such kind produced from the Eligible Mortgaged Properties
during the six months preceding the date of calculation, and (iii) the average
of the prices on the New York Mercantile Exchange (or any successor
organization), as reported in the Wall Street Journal for the date of
calculation (or, if such date is not a Business Day, for the first Business Day
thereafter) under the twelve forward contracts which are listed therein as the
first to mature after such date of calculation, with any necessary adjustment
specified by Tamco for quality and geographical differentials. The applicable
price determined pursuant to the preceding clause (b) shall be escalated at 3%
per annum for each year after the then current year
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.
"Tribunal" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted and/or existing.
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ANNEX B
COMMON REPRESENTATIONS AND WARRANTIES
Section B.1. No Default. No Related Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section B.2. Organization and Good Standing. Each Related Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Related Person is duly qualified, in good standing, and authorized to do
business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary. Each Related Person has
taken all actions and procedures customarily taken in order to enter, for the
purpose of conducting business or owning property, each jurisdiction outside
the United States, if any, wherein the character of the properties owned or
held by it or the nature of the business transacted by it makes such actions
and procedures desirable.
Section B.3. Authorization. Each Related Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.
Section B.4 No Conflicts or Consents. The execution and delivery by
the various Related Persons of the Loan Documents to which each is a party, the
performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Related Person, or (3) any agreement, judgment,
license, order or permit applicable to or binding upon any Related Person, (ii)
result in the acceleration of any Restricted Debt owed by any Related Person,
or (iii) result in or require the creation of any Lien upon any assets or
properties of any Related Person except as expressly contemplated in the Loan
Documents. Except as expressly contemplated in the Loan Documents no consent,
approval, authorization or order of, and no notice to or filing with, any
Tribunal or third party is required in connection with the execution, delivery
or performance by any Related Person of any Loan Document or to consummate any
transactions contemplated by the Loan Documents.
Section B.5. Enforceable Obligations. This Agreement is, and the other
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Related Person which is a party hereto or thereto,
enforceable in accordance with their terms except as such enforcement may be
limited by bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights.
Section B.6. Initial Financial Statements. Borrower has heretofore
delivered to each Lender true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present each of
Inland Refining's and Parent's Consolidated financial position at the
respective dates thereof, the results of Inland Refining's operations and
Inland Refining's cash flows for the respective periods thereof, and the
Consolidated results of Parent's operations and Parent's Consolidated cash
flows for the respective periods thereof. Since the date of the annual Initial
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Financial Statements no Material Adverse Change has occurred, except as
reflected in the Disclosure Schedule or a Disclosure Report. All Initial
Financial Statements were prepared in accordance with GAAP.
Section B.7. Other Obligations and Restrictions. No Related Person has
any outstanding Debt of any kind (including obligations under farm-in
agreements, other obligations to make capital expenditures, contingent
obligations, tax assessments, and unusual forward or long-term commitments)
which is, in the aggregate, material to Borrower or material with respect to
Parent's Consolidated financial condition and not shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report. All obligations of any Related Person to make capital expenditures to
drill or otherwise develop any oil, gas or mineral properties are specified in
a Disclosure Schedule or Disclosure Report (by well or project, describing the
dollar amount of each such obligation). Except as shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report, no Related Person is subject to or restricted by any franchise,
contract, deed, charter restriction, or other instrument or restriction which
is materially likely to cause a Material Adverse Change.
Section B.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Related Person to any
Lender in connection with the negotiation of this Agreement or in connection
with any transaction contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact known to any Related Person
(other than industry-wide risks normally associated with the types of
businesses conducted by Related Persons) necessary to make the statements
contained herein or therein not misleading as of the date made or deemed made.
There is no fact known to any Related Person (other than industry-wide risks
normally associated with the types of businesses conducted by Related Persons)
that has not been disclosed to each Lender in writing which is materially
likely to cause a Material Adverse Change. There are no statements or
conclusions in any Engineering Report which are based upon or include
misleading information or fail to take into account material information
regarding the matters reported therein, it being understood that each
Engineering Report is necessarily based upon professional opinions, estimates
and projections and that Borrower does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate. Borrower
has heretofore delivered to each Lender true, correct and complete copies of
the Initial Engineering Report.
Section B.9. Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Related Person threatened, against any Related Person before
any Tribunal which could cause a Material Adverse Change, and (ii) there are no
outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Related Person or any Related Person's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
Section B.10. Labor Disputes and Acts of God. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Related Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.
Section B.11. ERISA Plans and Liabilities. All currently existing
ERISA Plans are listed in the Disclosure Schedule or a Disclosure Report.
Except as disclosed in the Initial Financial Statements or in the Disclosure
Schedule or a Disclosure Report, no Termination Event has occurred with respect
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to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all
material respects. No ERISA Affiliate is required to contribute to, or has any
other absolute or contingent liability in respect of, any "multiemployer plan"
as defined in Section 4001 of ERISA. Except as set forth in the Disclosure
Schedule or a Disclosure Report: (i) no "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as amended)
exists with respect to any ERISA Plan, whether or not waived by the Secretary
of the Treasury or his delegate, and (ii) the current value of each ERISA
Plan's benefits does not exceed the current value of such ERISA Plan's assets
available for the payment of such benefits by more than $500,000.
Section B.12. Environmental and Other Laws. As used in this section:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, "CERCLIS" means the Comprehensive
Environmental Response, Compensation and Liability Information System List of
the Environmental Protection Agency, and "Release" has the meaning given such
term in 42 U.S.C. ss. 9601(22). Except as set forth in the Disclosure Schedule
or a Disclosure Report:
(a) Related Persons are conducting their businesses in compliance with
all applicable Laws, including Environmental Laws, and have all permits,
licenses and authorizations required in connection with the conduct of their
businesses, except to the extent failure to have any such permit, license or
authorization could not cause a Material Adverse Change. Each Related Person is
in compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except to
the extent failure to comply could not cause a Material Adverse Change.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed, and no investigation or review is pending or
threatened by any Tribunal or any other Person with respect to (i) any alleged
generation, treatment, storage, recycling, transportation, disposal, or Release
of any Hazardous Materials, either by any Related Person or on any property
owned by any Related Person, (ii) any material remedial action which might be
needed to respond to any such alleged generation, treatment, storage,
recycling, transportation, disposal, or Release, or (1) any alleged failure by
any Related Person to have any permit, license or authorization required in
connection with the conduct of its business or with respect to any such
generation, treatment, storage, recycling, transportation, disposal, or
Release.
(c) No Related Person otherwise has any known material contingent
liability in connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials.
(d) No Related Person has handled any Hazardous Materials, other than
as a generator, on any properties now or previously owned or leased by any
Related Person to an extent that such handling has caused, or could cause, a
Material Adverse Change; and
(i) no PCBs are or have been present at any properties now or
previously owned or leased by any Related Person;
(ii) no asbestos is or has been present at any properties now or
previously owned or leased by any Related Person;
B-3
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(iii) there are no underground storage tanks for Hazardous
Materials, active or abandoned, at any properties now or
previously owned or leased by any Related Person;
(iv) no Hazardous Materials have been Released, in a reportable
quantity, where such a quantity has been established by
statute, ordinance, rule, regulation or order, at, on or
under any properties now or previously owned or leased by any
Related Person;
(v) no Hazardous Materials have been otherwise Released at, on or
under any properties now or previously owned or leased by any
Related Person to an extent that such release has caused, or
could cause, a Material Adverse Change.
(e) No Related Person has transported or arranged for the
transportation of any Hazardous Material to any location which is listed on the
National Priorities List under CERCLA, listed for possible inclusion on the
National Priorities List by the Environmental Protection Agency in CERCLIS, or
listed on any similar state list or which is the subject of federal, state or
local enforcement actions or other investigations which may lead to claims
against any Related Person for clean-up costs, remedial work, damages to
natural resources or for personal injury claims, including, but not limited to,
claims under CERCLA.
(f) No Hazardous Material generated by any Related Person has been
recycled, treated, stored, disposed of or released by any Related Person at any
location other than those listed in Disclosure Schedule.
(g) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of any Related Person (and to the best
knowledge of Borrower, no such notification has been filed with respect to any
Related Person by any other Person), and no property now or previously owned or
leased by any Related Person is listed or proposed for listing on the National
Priority list promulgated pursuant to CERCLA, in CERCLIS, or on any similar
state list of sites requiring investigation or clean-up.
(h) There are no Liens arising under or pursuant to any Environmental
Laws on any of the real properties or properties owned or leased by any Related
Person, and no government actions have been taken or are in process which could
subject any of such properties to such Liens; nor would any Related Person be
required to place any notice or restriction relating to the presence of
Hazardous Materials at any properties owned by it in any deed to such
properties.
(i) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
any Related Person in relation to any properties or facility now or previously
owned or leased by any Related Person which have not been made available to
Agent.
Section B.13. Names and Places of Business. No Related Person has,
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule or a Disclosure Report, the
chief executive office and principal place of business of each Related Person
are (and for the preceding five years have been) located at the address of
Borrower set out in Section 9.3. Except as indicated in the Disclosure Schedule
or a Disclosure Report, no Related Person has any other office or place of
business.
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Section B.14. Subsidiaries. Neither Borrower nor Parent presently has
any Subsidiary or owns any stock in any corporation or association except those
listed in the Disclosure Schedule or a Disclosure Report. Neither Borrower nor
any Related Person is a member of any general or limited partnership, joint
venture or association of any type whatsoever except those listed in the
Disclosure Schedule or a Disclosure Report. Except as otherwise revealed in a
Disclosure Report, Parent owns, directly or indirectly, the equity interest in
each of its Subsidiaries which is indicated in the Disclosure Schedule.
Section B.15. Licenses. Each Related Person possesses all licenses,
permits, franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such
intellectual property without violation of the rights of any other Person)
which are necessary to carry out its business as presently conducted and as
presently proposed to be conducted hereafter, and no Related Person is in
violation in any material respect of the terms under which it possesses such
intellectual property or the right to use such intellectual property.
Section B.16. Government Regulation. Neither Borrower nor any other
Related Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Restricted Debt,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
Section B.17. Ownership of Borrower and Inland Refining. All of the
outstanding shares of Borrower and Inland Refining are owned and shall at all
times be owned by Parent.
Section B.18. Taxes. Each Related Person has filed all United States
Federal income tax returns and all other material tax returns that are required
to be filed by it and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by any Related Person and all other
penalties or charges. The charges, accruals and revenues on the books of each
Related Person in respect of taxes and other governmental charges are, in the
opinion of Parent, adequate. No Related Person has not given or been requested
to give a waiver of the statute of limitations relating to the payment of any
federal or other taxes, except as listed in the Disclosure Schedule or a
Disclosure Report.
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ANNEX C
COMMON COVENANTS
Section C.1. Books, Financial Statements and Reports. Parent, acting
through or on behalf of the Related Persons, will at all times maintain full
and accurate books of account and records and a standard system of accounting,
will maintain its Fiscal Year, and will furnish the following statements and
reports to each Lender at Parent's expense:
(a) As soon as available, and in any event within ninety (90)
days after the end of each Fiscal Year, complete Consolidated and
consolidating financial statements of Parent together with all notes
thereto, prepared in reasonable detail in accordance with GAAP,
together with an unqualified opinion, based on an audit using
generally accepted auditing standards, by Arthur Anderson, L.L.P., or
other independent certified public accountants selected by Parent and
acceptable to Required Lenders, stating that such Consolidated
financial statements have been so prepared. These financial statements
shall contain a Consolidated and consolidating balance sheet as of the
end of such Fiscal Year and Consolidated and consolidating statements
of earnings, of cash flows, and of changes in owners' equity for such
Fiscal Year, each setting forth in comparative form the corresponding
figures for the preceding Fiscal Year. In addition, within ninety (90)
days after the end of each Fiscal Year Parent will furnish a report
signed by such accountants (i) stating that they have read this
Agreement, (ii) containing calculations showing compliance (or
non-compliance) at the end of such Fiscal Year with the requirements
of Sections C.18, C.21, C.23, C.27, C.28, C.29 and C.30 of this Annex
C and (iii) further stating that in making their examination and
reporting on the Consolidated financial statements described above
they did not conclude that any Default existed at the end of such
Fiscal Year or at the time of their report, or, if they did conclude
that a Default existed, specifying its nature and period of existence.
(b) As soon as available, and in any event within fifty (50)
days after the end of each Fiscal Quarter, Parent's Consolidated and
consolidated balance sheet as of the end of such Fiscal Quarter and
Consolidated and consolidating statements of earnings and cash flows
for the period from the beginning of the then current Fiscal Year to
the end of such Fiscal Quarter, all in reasonable detail and prepared
in accordance with GAAP, subject to changes resulting from normal
year-end adjustments. In addition, Parent will, together with each
such set of financial statements and each set of financial statements
furnished under subsection (a) of this section, furnish a certificate
in the form of Exhibit D signed by the chief financial officer of
Parent stating that such financial statements are accurate and
complete (subject to normal year-end adjustments), stating that he has
reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with
the requirements of Sections C.18, C.21, C.23, C.27, C.28, C.29 and
C.30 of this Annex C and stating that no Default or Coverage
Deficiency exists at the end of such Fiscal Quarter or at the time of
such certificate or specifying the nature and period of existence of
any such Default or Coverage Deficiency.
(c) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by
any Related Person to its stockholders and all registration
statements, periodic reports and other statements and schedules filed
by any Related Person with any securities exchange, the Securities and
Exchange Commission or any similar governmental authority.
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(d) By March 1 following the end of each Fiscal Year,
beginning on March 1, 1998, an engineering report prepared as of the
end of such Fiscal Year by Ryder Scott Company or other independent
petroleum engineers chosen by Borrower and acceptable to Required
Lenders, concerning the Properties. The report (1) shall separately
report on Proved Producing Reserves, Proved Developed Nonproducing
Reserves, Proved Undeveloped Reserves and probable reserves and
separately calculate the NPV of each such category of Proved Reserves
(and the similar net present value of such probable reserves), (2)
shall be prepared in two versions, the first using ING Pricing and the
second using TCW Pricing, and each using a 10% discount factor, (3)
shall address the various factors to be taken into account in
calculating ANCF so that projected ANCF can be readily calculated from
the report, (4) shall take into account Borrower's actual experiences
with leasehold operating expenses and other costs in determining
projected leasehold operating expenses and other costs, (5) shall
identify and take into account any "over-produced" or "underproduced"
status under gas balancing arrangements, (6) shall contain information
and analysis comparable in scope to that contained in the Initial
Engineering Reports, and (7) shall otherwise be in form and substance
satisfactory to Required Lenders. The report shall distinguish (or
shall be delivered together with a certificate from an appropriate
officer of Borrower which distinguishes) those Properties treated in
the report which are Eligible Mortgaged Properties from those
properties treated in the report which are not Eligible Mortgaged
Properties. In the event that Borrower and Tamco disagree over whether
or not any workovers or other remedial capital expenditures should be
included in the report for the purposes of calculating NPV, the
engineers preparing such report shall resolve such disagreement by
determining whether such expenditures are likely to be required in
accordance with prudent industry practice and shall include or exclude
such expenditures based on such determination.
(e) By July 15 of each year an engineering report prepared by
in-house petroleum engineers employed by Borrower, concerning all oil
and gas properties and interests owned by any Related Person which are
located in or offshore of the United States and which have
attributable to them proved oil and gas reserves. This report shall be
substantially in the form and substance as the reports delivered under
subsection (d) above and otherwise shall be satisfactory to Required
Lenders.
(f) Within fifty (50) days after the end of each Fiscal
Quarter, a report in detail acceptable to Required Lenders with
respect to the Properties during the Fiscal Quarter immediately prior
thereto:
(1) describing by well and field the net quantities
of oil, gas, natural gas liquids, and water produced (and the
quantities of water injected) during such Fiscal Quarter;
(2) describing by well and field the quantities of
oil, gas and natural gas liquids sold during such Fiscal
Quarter out of production from the Properties and calculating
the average sales prices of such oil, natural gas, and
natural gas liquids;
(3) regardless of whether the same are included in
the calculation of ANCF, specifying any leasehold operating
expenses, overhead charges, gathering costs, transportation
costs, and other costs with respect to the Properties of the
kind chargeable as direct charges or overhead under an
Onshore COPAS Accounting Procedure for Joint Operations (1984
form published by the Council of Petroleum Accountants
Societies);
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(4) setting forth the amount of Direct Taxes on the
Properties during such Fiscal Quarter and the amount of
royalties paid with respect to the Properties during such
Fiscal Quarter;
(5) describing all activities carried out during
such Fiscal Quarter in furtherance of the Plan of
Development, all other capital expenditures during such
Fiscal Quarter, and all projections of capital expenditures
projected to be made on any of the Eligible Mortgaged
Properties; and
(6) describing all workover work and drilling during
such Fiscal Quarter, including the cost and status of each
well drilled or worked over during such Fiscal Quarter, test
reports for each well tested during such Fiscal Quarter,
reports on prices and volumes received for such Fiscal
Quarter, reports for each well completed during such Fiscal
Quarter, and accompanying authorizations for expenditures.
(g) As soon as available, and in any event within forty-five
(45) days after the end of each Fiscal Quarter, a list, by name and
address, of those Persons who have purchased production during such
Fiscal Quarter from the properties described in subsection (d) above,
giving each such purchaser's owner number for Borrower and each such
purchaser's property number for each such property.
(h) As soon as available, and in any event within thirty (30)
days after the end of each Fiscal Year, Borrower shall deliver to
Agent an environmental compliance certificate signed by the president
or chief executive officer of Borrower in the form attached hereto as
Exhibit E. Further, if requested by Agent, Borrower shall permit and
cooperate with an environmental and safety review made in connection
with the operations of Borrower's oil and gas properties one time
during each Fiscal Year beginning with the Fiscal Year 1998, by Pilko
& Associates, Inc. or other consultants selected by Agent which review
shall, if requested by Agent, be arranged and supervised by
environmental legal counsel for Agent, all at Borrower's cost and
expense. The consultant shall render a verbal or written report, as
specified by Agent, based upon such review at Borrower's cost and
expense.
(i) Concurrently with the annual renewal of the Borrower's
insurance policies, Borrower shall, if requested by Agent in writing,
cause a certificate or report to be issued by Agent's professional
insurance consultants or other insurance consultants satisfactory to
Agent certifying that Borrower's insurance for the next succeeding
year after such renewal (or for such longer period for which such
insurance is in effect) complies with the provisions of this Agreement
and the Security Documents.
(i) By November 1 of each year, beginning with November 1,
1998, a proposed Plan of Development for the next succeeding year.
Section C.2. Other Information and Inspections. Each Related Person
will furnish to each Lender any information which Agent may from time to time
request in writing concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with Related Persons' businesses and
operations. Each Related Person will permit representatives appointed by Agent
(including independent accountants, auditors, agents, attorneys, appraisers and
any other Persons) to visit and inspect during normal business hours any of
such Related Person's property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra copies
therefrom and photocopies and photographs thereof, and to write down and record
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any information such representatives obtain, and each Related Person shall
permit Agent or its representatives to investigate and verify the accuracy of
the information furnished to Agent or any Lender in connection with the Loan
Documents and to discuss all such matters with its officers, employees and
representatives.
Section C.3. Notice of Material Events and Change of Address. Borrower
and Parent will promptly notify each Lender in writing, stating that such
notice is being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default or Coverage Deficiency,
(c) the acceleration of the maturity of any Restricted Debt
owed by any Related Person or of any default by any Related Person
under any indenture, mortgage, agreement, contract or other instrument
to which any of them is a party or by which any of them or any of
their properties is bound, if such acceleration or default could cause
a Material Adverse Change,
(d) the occurrence of any Termination Event,
(e) any claim of $50,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount,
or any other material adverse claim asserted against any Related
Person or with respect to any Related Person's properties,
(f) the filing of any suit or proceeding against any Related
Person in which an adverse decision could cause a Material Adverse
Change, and
(g) the receipt by any Related Person of a notice of any
"Event of Default" under the Other Loan Documents.
Upon the occurrence of any of the foregoing Related Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Borrower will also notify
Agent and Agent's counsel in writing at least twenty Business Days prior to the
date that any Related Person changes its name or the location of its chief
executive office or principal place of business or the place where it keeps its
books and records concerning the Collateral, furnishing with such notice any
necessary financing statement amendments or requesting Agent and its counsel to
prepare the same.
Section C.4. Maintenance of Properties. Each Related Person will
maintain, preserve, protect, and keep all Collateral and all other property
used or useful in the conduct of its business in good condition and in
compliance with all applicable Laws, and will from time to time make all
repairs, renewals and replacements needed to enable the business and operations
carried on in connection therewith to be conducted at all times consistent with
prudent industry practices.
Section C.5. Maintenance of Existence and Qualifications. Each Related
Person will maintain and preserve its existence and its rights and franchises
in full force and effect and will qualify to do business in all states or
jurisdictions (a) where Collateral is located and (b) where required by
applicable Law, except where the failure so to qualify will not cause a
Material Adverse Change.
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Section C.6. Payment of Trade Debt, Taxes, etc. Each Related Person
will (a) timely file all required tax returns; (b) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or upon
its income, profits or property; (c) within 90 days past the original invoice
or billing date thereof, or, if earlier, when due in accordance with its terms,
all Debt owed by it on ordinary trade terms to vendors, suppliers and other
Persons providing goods and services used by it in the ordinary course of its
business; (d) pay and discharge when due all other Debt now or hereafter owed
by it; and (e) maintain appropriate accruals and reserves for all of the
foregoing in accordance with GAAP. Each Related Person may, however, delay
paying or discharging any of the foregoing so long as it is in good faith
contesting the validity thereof by appropriate proceedings and has set aside on
its books adequate reserves therefor.
Section C.7. Bonding and Insurance. The Related Persons will maintain
all bonds and letters of credit in lieu of bonds which they are required to
maintain (by law, lease terms, or consistent with prudent industry practices)
in order to carry out development and production operations on, the Properties.
Each Related Person will keep or cause to be kept adequately insured by
financially sound and reputable insurers its and its Subsidiaries' vehicles and
all other property in accordance with Schedule 3. Any insurance policies
covering Collateral shall be endorsed (i) to provide for payment of losses to
Agent, on behalf of Lenders, as their interests may appear, pursuant to a
mortgage clause (without contribution) of standard form made part of the
applicable policy, (ii) to provide that such policies may not be canceled,
reduced or adversely affected in any manner for any reason without fifteen days
prior notice to Agent, (iii) to provide for any other matters specified in any
applicable Security Document or which Agent may reasonably require; and (iv) to
provide for insurance against fire, casualty and any other hazards normally
insured against, in the amount of the full value (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured. (To the extent that the
Mortgages or any other Security Document contains other additional requirements
for such endorsement, each Related Person shall also comply with such
additional requirements.) Each Related Person shall at all times maintain
adequate insurance against its liability for injury to persons or property,
which insurance shall be by financially sound and reputable insurers and shall
without limitation provide the following coverages: comprehensive general
liability (including coverage for damage to underground resources and
equipment, damage caused by blowouts or cratering, damage caused by explosion,
damage to underground minerals or resources caused by saline substances, broad
form property damage coverage, broad form coverage for contractually assumed
liabilities and broad form coverage for acts of independent contractors),
worker's compensation and automobile liability. Each Related Person shall at
all times maintain cost of control of well insurance with respect to all wells
being drilled or deepened, which shall insure against the following costs: cost
of control of well; fires, blowouts, etc.; redrilling expense; and seepage and
pollution expense.
Section C.8. Performance on Borrower's Behalf. If any Related Person
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Agent may pay the same.
Borrower shall immediately reimburse Agent for any such payments and each
amount paid by Agent shall constitute an Obligation owed hereunder which is due
and payable on the date such amount is paid by Agent.
Section C.9. Interest. Borrower hereby promises to each Lender to pay
interest at the Late Payment Rate on all Obligations (including Obligations to
pay fees or to reimburse or indemnify any Lender) which Borrower has in this
Agreement promised to pay to such Lender and which are not paid when due. Such
interest shall accrue from the date such Obligations become due until they are
paid.
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Section C.10. Compliance with Agreements and Law. Each Related Person
will perform all material obligations it is required to perform under the terms
of each indenture, mortgage, deed of trust, security agreement, lease,
franchise, agreement, contract or other instrument or obligation to which it is
a party or by which it or any of its properties is bound. Each Related Person
will conduct its business and affairs in compliance with all Laws applicable
thereto.
Section C.11. Environmental Matters; Environmental Reviews.
(a) Each Related Person will comply in all material respects
with all Environmental Laws now or hereafter applicable to such
Related Person and shall obtain, at or prior to the time required by
applicable Environmental Laws, all environmental, health and safety
permits, licenses and other authorizations necessary for its
operations and will maintain such authorizations in full force and
effect.
(b) Borrower will promptly furnish to Agent all written
notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by Borrower, or of
which it has notice, pending or threatened against Borrower, by any
governmental authority with respect to any alleged violation of or
non-compliance with any Environmental Laws or any permits, licenses or
authorizations in connection with its ownership or use of its
properties or the operation of its business.
(c) Borrower will promptly furnish to Agent all requests for
information, notices of claim, demand letters, and other
notifications, received by Borrower in connection with its ownership
or use of its properties or the conduct of its business, relating to
potential responsibility with respect to any investigation or clean-up
of Hazardous Material at any location.
Section C.12. Evidence of Compliance. Each Related Person will furnish
to each Lender at such Related Person's or Borrower's expense all evidence
which Agent from time to time reasonably requests in writing as to the accuracy
and validity of or compliance with all representations, warranties and
covenants made by any Related Person in the Loan Documents, the satisfaction of
all conditions contained therein, and all other matters pertaining thereto.
Section C.13. Solvency. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and the consummation of
the transactions contemplated hereby, Borrower will be solvent (as such term is
used in applicable bankruptcy, liquidation, receivership, insolvency or similar
laws).
Section C.14. Completion of Activities. Borrower will (1) timely
develop the Eligible Mortgaged Properties in accordance with the Plan of
Development, and (2) except to the extent regulatory approval has not yet been
obtained, have each producing and injection well which is hereafter completed
put into normal operation. Borrower will make capital expenditures for the
drilling and development of the Eligible Mortgaged Properties in accordance
with the Plan of Development. The Plan of Development designates certain
operations as "Primary Phases" and others, which are contingent upon the
success of the "Primary Phases," are designated as "Secondary Phases." Prior to
Borrower making capital expenditures with respect to "Secondary Phase"
operations, if a specific measure of success with respect to the "Primary
Phase" operations is set forth in the Plan of Development, such measure must
have been achieved, or if no specific measure is set forth, Agent and Borrower
must have agreed that the "Primary Phase" operation has been successful.
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Section C.15. Hedging Contracts. No Related Person will be a party to
or in any manner be liable on any forward, future, swap or hedging contract,
other than (a) existing hedging contracts listed in the Disclosure Schedule,
(b) interest rate hedges under the Bank Interest Rate Hedge Agreement required
under Section C.17 of this Annex C, and (c) any other commodity floors approved
by Required Lenders from time to time, including terms, duration and
counterparty.
Section C.16. Reviews. Borrower will meet with Agent, at Borrower's
expense, from time to time (as frequently as monthly and in any event at least
once per Fiscal Quarter), at the offices of Agent or at such other location as
Agent and Borrower may agree, to review all operational activities of Borrower
with respect to the Eligible Mortgaged Properties and all financial reports of
the Related Persons since the date of the prior review. Each review shall be in
scope satisfactory to Agent, but will include at a minimum, an update by
Borrower on the development activities made pursuant to the Plan of
Development, any requests by Borrower that changes be made to the Plan of
Development, any cost or expense overruns or underruns, any mechanical problems
incurred, and any differences in reserves or production estimates.
Section C.17. Interest Hedging Contracts. Until the Floating Rate Debt
is paid in full, Borrower will maintain Hedging Contracts under the Bank
Interest Rate Hedge Agreement with respect to the Floating Rate Debt. Such
Hedging Contracts shall: (i) during that portion of the Commitment Period prior
to December 31, 1998, have notional amounts of not less than 50% of the
principal amount of Floating Rate Debt reasonably projected by Borrower to be
outstanding during the term of such Hedging Contracts, (ii) during that portion
of the Commitment Period on or after December 31, 1998, have notional amounts
of not less than 80% of the principal amount of the Floating Rate Debt
reasonably projected by Borrower to be outstanding during the term of such
Hedging Contracts, (iii) at all times after the Commitment Period, have
notional amounts equal to the principal amount of the Floating Rate Debt
projected by Borrower to be outstanding during the term of such Hedging
Contracts, (iv) fix a cap for Borrower's exposure to increases in the interest
rates payable on the Floating Rate Debt for an initial term of three (3) years,
and (v) effectively fix a cap at eight and one-half percent (8.5%) or less for
Borrower's exposure to increases in the interest rates payable on the Floating
Rate Debt. Borrower shall enter into replacement Hedging Contracts at the end
of each expiring Hedging Contract and, concurrently with any increase in the
amount of the Floating Rate Debt, shall enter into such additional Hedging
Contracts as may be required to keep Borrower in compliance with this Section
C.17.
Section C.18. Restricted Debt. No Related Person will in any manner
owe or be liable for Restricted Debt except:
(a) the Obligations.
(b) the Other Allowed Debt.
(c) Hedging transactions required under Section C.17 or
permitted under Section C.15 of this Annex C.
(d) any Restricted Debt assumed or incurred by any Related
Person after the date hereof to finance all or any part of the
purchase price of property acquired by such Related Person, provided
that:
(i) such Restricted Debt shall be secured only by
the property so acquired and the improvements thereon,
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(ii) each Lien securing such Restricted Debt shall
attach or be existing at the time of acquisition,
(iii) only the Related Person that acquired such
property shall be liable on such Restricted Debt,
(iv) the principal amount of such Restricted Debt in
respect of such property shall not exceed the lower of the
acquisition price of or market value of the property at the
time of acquisition thereof by such Related Person,
(v) the aggregate outstanding principal amount of
such Restricted Debt of the Related Persons incurred for the
purchase of trucks or automobiles does not at any time exceed
$250,000, and the aggregate principal amount of such
Restricted Debt which is incurred for such purpose in any
Fiscal Year does not exceed $100,000, and
(vi) the aggregate outstanding principal amount of
such Restricted Debt of the Related Persons incurred for
purposes other than the purchase of trucks or automobiles,
does not at any time exceed $200,000, and the aggregate
principal amount of such Restricted Debt which is incurred
for such other purposes in any Fiscal Year does not exceed
$50,000.
(e) the Carmen promissory note described in paragraph C.18 of
the Disclosure Schedule, as from time to time extended (but not
increased).
(f) Parent's Series C Convertible Preferred Stock.
(g) the Debt of Inland Refining evidenced by the
Production/Refining Credit Agreement, provided that the principal
amount of such Debt thereof (including without limitation advances and
the face amount of letters of credit) shall not exceed $20,000,000 at
any time outstanding.
(h) guaranties by Parent, in form and substance acceptable to
Required Lenders in their sole discretion, of obligations of Inland
Refining under agreements for the purchase of refinery feed stocks in
the ordinary course of business; provided, however, that each such
guaranty shall specify a maximum aggregate liability for Parent under
such guaranty, and the maximum aggregate amount of such specified
maximum liability of Parent under all such guaranties shall not exceed
$6,000,000 at any one time.
(i) miscellaneous items of Restricted Debt not described in
subsections (a) through (h) which do not in the aggregate (taking into
account all such Restricted Debt of all Related Persons) exceed
$150,000 at any one time outstanding.
Section C.19. Limitation on Liens. No Related Person will create,
assume or permit to exist any Lien upon any of the properties or assets which
it now owns or hereafter acquires, except, to the extent not otherwise
forbidden by the Security Documents the following ("Permitted Liens"):
(a) Liens which secure Obligations only.
(b) Liens which secure the Other Allowed Debt, provided that
such Liens are subject to the Intercreditor Agreement.
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(c) statutory Liens for taxes, statutory mechanics' and
materialmen's Liens incurred in the ordinary course of business, and
other similar Liens incurred in the ordinary course of business,
provided such Liens do not secure Restricted Debt and secure only
Restricted Debt which is not delinquent or which is being contested as
provided in Section C.6.
(d) Liens securing the Restricted Debt permitted by Section
C.18 (d), (e) or (i) of this Annex C.
Section C.20. No Mergers. No Related Person will merge or consolidate
with or into any other business entity. No Subsidiary of Parent will issue any
additional shares of its capital stock or other securities or any options,
warrants or other rights to acquire such additional shares or other securities
except to Parent or another wholly-owned Subsidiary of Parent. No Subsidiary of
Parent which is a partnership will allow any diminution of Parent's interest
(direct or indirect) therein. No Related Person shall create or own any
Subsidiary other than those listed in the Disclosure Schedule.
Section C.21. Limitation on Dividends and Redemptions. No Related
Person will make any Distribution in respect of any class of its capital stock
or any partnership or other interest in it, nor will any Related Person
directly or indirectly make any Distribution in respect of any shares of the
capital stock of or partnership interests in any Related Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Related Person,
except that (a) Parent may at any time make Distributions in the form of
Parent's common stock to the holders of Parent's Series C Convertible Preferred
Stock, (b) Inland Refining may at any time make payments to Borrower pursuant
to the Production/Refining Credit Agreement, and (c) Inland Refining may make
any other Distribution or loan either in favor of or for the benefit of
Borrower or Parent for the purpose of applying such Distribution to Affiliates'
ANCF, as contemplated by Section 3 of the Intercreditor Agreement.
Section C.22. Limitation on Sales of Property. No Related Person will
sell, transfer, lease, exchange, alienate or dispose of any of its material
assets or properties or any material interest therein except, to the extent not
otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or which is
replaced by equipment of equal suitability and value.
(b) personal property inventory (including oil and gas sold
as produced and seismic data) which is sold in the ordinary course of
business on ordinary trade terms.
(c) specific properties not subject to the Mortgages (or
specific portions thereof), provided the same are abandoned and not
otherwise disposed of and further provided that no well situated on
the property to be abandoned, or located on any unit containing all or
any part thereof, is capable (or is subject to being made capable
through commercially feasible operations) of producing oil, gas or
other hydrocarbons or minerals in paying quantities (with such
determination of paying quantities being made taking into account the
prudent operation of any unit in which such property is located).
(d) farmouts on terms and conditions reasonably acceptable to
Required Lenders.
Neither Parent nor any of Parent's Subsidiaries will sell, transfer or
otherwise dispose of capital stock of any of Parent's Subsidiaries except that
any Subsidiary of Parent may sell or issue its own capital stock to the extent
not otherwise prohibited hereunder. No Related Person will discount, sell,
pledge or assign any notes payable to it, accounts receivable or future income
except to the extent expressly permitted under the Loan Documents.
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Section C.23. Limitation on Investments. No Related Person will make
any Investment other than (a) Permitted Investments, (b) Investments in oil and
gas properties, (c) Investments of Parent in (i) Inland Refining and (ii)
Inland Production existing as of the date hereof, (d) Investments in the Sound
Refining Note existing as of the date hereof, (e) normal and prudent extensions
of credit to customers buying goods and services in the ordinary course of
business, which extensions shall not be for longer periods than those extended
by similar businesses operated in a normal and prudent manner, (f) the
Production/Refining Loan permitted under Section C.37, and (g) the purchase by
Inland Refining of the Pennzoil Refinery for a purchase price not to exceed
$2,250,000 exclusive of prorations and expenses.
Section C.24. INTENTIONALLY OMITTED
Section C.25. Transactions with Affiliates. No Related Person will
engage in any material transaction with any of its Affiliates other than (i)
for customary director compensation paid to such Affiliates, (ii) for issuances
of equity to Affiliates for fair value, provided that such issuances are
permitted by Section C.21, (iii) transactions between Borrower or Guarantor and
any Affiliate other than Inland Refining, the terms of which are no less
favorable than those which would have been obtainable at the time in
arm's-length dealings with Persons other than an Affiliate, (iv) the
Production/Refining Loan, (v) the Parent guaranties set forth in Section
C.18(h), (vi) the Inland Refining Contract, and (vii) the Farmout Agreement.
Section C.26. Certain Contracts; Amendments; Multiemployer ERISA
Plans. Except as expressly provided for in the Loan Documents, no Related
Person will, directly or indirectly, enter into, create, or otherwise allow to
exist any contract or other consensual restriction on the ability of any
Subsidiary of Borrower to: (i) make Distributions to Borrower, (ii) to redeem
equity interests held in it by Borrower, (iii) to repay loans and other
indebtedness owing by it to Borrower, or (iv) to transfer any of its assets to
Borrower. No Related Person will enter into any "take-or-pay" contract or other
contract or arrangement for the purchase of goods or services which obligates
it to pay for such goods or service regardless of whether they are delivered or
furnished to it. No Related Person will amend or permit any amendment to any
contract or lease which releases, qualifies, limits, makes contingent or
otherwise detrimentally affects the rights and benefits of any Lender under or
acquired pursuant to any Security Documents. No ERISA Affiliate will incur any
obligation to contribute to any "multiemployer plan" as defined in Section 4001
of ERISA.
Section C.27. Working Capital. Parent's Consolidated Working Capital
will never be less than $1,000,000. As used herein, "Working Capital" means
Parent's Consolidated current assets minus Parent's Consolidated current
liabilities, provided that for the purposes of determining Working Capital: (i)
Consolidated current assets will be calculated without including (1) any
accounts receivable or other Debts owed to Parent by its Affiliates, employees
or shareholders, and (2) any account receivable unpaid more than 120 days after
its original invoice date, and (ii) for so long as no Event of Default exists,
Consolidated current liabilities will be calculated without including any
payments of principal on the Obligations and the Other Allowed Debt which are
required to be made within one year from the time of calculation.
Section C.28. Tangible Net Worth. Parent's Consolidated Tangible Net
Worth plus any contributions made pursuant to the Farmout Agreement to Smith
Management LLC in the form of common stock of Borrower will never be less than
$35,000,000.
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Section C.29. EBITDA. At the end of any Fiscal Quarter, beginning with
the Fiscal Quarter ending September 30, 1998, the ratio of (i) Parent's EBITDA
to (ii) required interest payments on Parent's Consolidated Debt, for the
four-Fiscal Quarter period ending with such Fiscal Quarter will not be less
than (a) 1.30 to 1.00 for any Fiscal Quarter ending on or before December 31,
1998, (b) 1.50 to 1.00 for any Fiscal Quarter ending after December 31, 1998
and on or before March 31, 1999, (c) 1.70 to 1.00 for any Fiscal Quarter ending
after March 31, 1999 and on or before June 30, 1999, and (d) 3.00 to 1.00 for
any Fiscal Quarter thereafter.
Section C.30. General and Administrative Expenses. Parent's
Consolidated general and administrative expenses in any Fiscal Year shall not
exceed the ANCF Overhead Costs for such Fiscal Year.
Section C.31. No Public Announcements. No Related Person may make any
public announcement or disclosure of the transactions contemplated by this
Agreement or any other Loan Document, except as required by law or approved by
Agent, in its sole and absolute discretion prior to the making of any such
public announcement or disclosure.
Section C.32. Refinery Acquisitions. No Related Person will enter into
an acquisition of a refinery (regardless of whether or not the proceeds of any
Loan are used to finance such acquisition), other than such Investments
existing as of September 11, 1998 and the acquisition of the Pennzoil Refinery,
unless all aspects of such acquisition, including the structure of the
acquisition, related documentation, additional Security Documents, liabilities
to be assumed by any Related Person in connection therewith, and environmental
inspections, have been reviewed and approved by Lenders in their absolute
discretion.
Section C.33. Transactions Regarding Pennzoil Refinery. If Inland
Refining does not acquire the Pennzoil Refinery for any reason, but such
Pennzoil Refinery is acquired by any Affiliate or any 2% Affiliate of a Related
Person, then no Related Person shall enter into any contract for the sale,
purchase, processing, refining or treatment of hydrocarbons with the owner,
operator or lessee of such Pennzoil Refinery unless such contract is on terms
and conditions that are no less favorable than those which would have been
obtained in an arms length transaction with Persons other than Affiliates,
which shall be determined by Agent in its reasonable discretion, and unless
Agent has been provided with thirty (30) days prior written notice of the
contract.
Section C.34. Sound Refining Note. Neither Inland Refining nor any
Environmental Affiliate of Inland Refining shall institute any foreclosure
proceedings, take possession of, manage, operate, or exert controlling
influence over any property or facility which secures the Sound Refining Note
and is encumbered by the Sound Refining Deed of Trust, without first obtaining
the prior written consent of Agent, which consent may be granted or withheld in
Agent's sole and absolute discretion.
Section C.35. Inland Refining. As of the date hereof, Inland Refining
shall (a) act solely in its own name and through its duly authorized directors
and officers in the conduct of its business, and shall conduct its business so
as not to mislead others as to the identity of the entity with which they are
concerned, (b) keep in full effect its existence and rights as a corporation
under the laws of the State of Utah by taking all actions required by the
corporation laws of Utah, including convening regular meetings of shareholders
and directors, (c) cause not less than two of its three directors to be
Independent Directors, (d) cause its employees and officers to not be officers,
directors or employees of Borrower or Parent, (e) cause all its actions to be
taken by a duly authorized officer of Inland Refining, (f) maintain corporate
minutes, books and accounts separate from those of Parent, (g) maintain
capitalization adequate to meet its obligations and business objectives and (h)
design and
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implement an environmental management plan to ensure compliance with and manage
liability under Environmental Laws. For purposes of this Section C.34, the term
'Independent Director' means any Person who is not and for the prior five years
has not been an officer, director, or employee of either Parent or Borrower.
Section C.36. Parent's and other Related Persons' Actions Regarding
Inland Refining. With respect to Inland Refining, neither Parent nor Borrower
shall (a) either directly or indirectly, provide any additional funds to Inland
Refining, either through an equity investment, loan, loan guarantee or any
other means, except for (i) the Production/Refining Credit Agreement permitted
pursuant to Section C.37, (ii) the Parent guaranties permitted pursuant to
Section C.18(h), and (iii) funds required to finance the acquisition of the
Pennzoil Refinery, (b) pay the salaries of Inland Refining's employees or
reimburse Inland Refining for any costs, expenses or losses incurred by Inland
Refining, (c) have direct involvement with or direct control over any
environmental management plan and/or remediation program concerning any
property owned by Inland Refining, including the Crysen Refinery, and (d) have
direct control over the day-to-day management and operations or the financial
affairs of Inland Refining.
Section C.37. Inventory and Accounts Receivable. Except for the
inventory and accounts receivable which Inland Refining purchased in connection
with the sale of the Sound Refinery to SJCC, Inland Refining shall not purchase
or have any ownership interest in any inventory or accounts receivable located
on, arising from or associated with the Sound Refinery.
Section C.38. Production/Refining Loan. Borrower shall be permitted to
make loans or advances to Inland Refining, and may cause Letters of Credit to
be issued for the benefit of Inland Refining pursuant to the Bank Agreement, in
each case under the Production/Refining Credit Agreement, provided that the
aggregate principal amount of all loans to Inland Refining plus the aggregate
amount of Letters of Credit issued to or for the account of Inland Refining,
plus any amounts that have been advanced pursuant to any such Letter of Credit
which have not been reimbursed by Inland Refining to Borrower, shall not exceed
$20,000,000 in the aggregate at any one time outstanding.
Section C.39. Inland Refining Contract. Parent and Borrower hereby
agree that they shall not amend the Inland Refining Contract without obtaining
the prior written consent of Required Lenders, which consent may be given or
withheld in Required Lenders' sole and absolute discretion.
Section C.40. Capital Expenditures. Inland Refining agrees that it
will not make any capital expenditures relating to the Crysen Refinery and the
Pennzoil Refinery in an amount exceeding $3,000,000 in the aggregate during any
Fiscal Year ending on or prior to December 31, 1997 or in an amount exceeding
$5,000,000 in the aggregate after January 1, 1998, without first obtaining the
prior written consent of Required Lenders, which consent may be given or
withheld in Required Lenders' sole and absolute discretion; provided, however,
that Inland Refining shall make any capital expenditures with respect to
modifications, repairs or improvements to the Crysen Refinery required to
comply with or address liability under any Law applicable to the Crysen
Refinery, including any Environmental Law, after providing advance written
notice to Agent concerning the applicability of such requirements.
Section C.41. Farmout Transactions. On or before December 31, 1998,
Parent shall have received at least $17,000,000 in proceeds from the Farmout
Agreement which shall have been or shall be applied to drilling, completing and
equipping wells pursuant to the Farmout Agreement. Parent shall not make nor
shall Parent permit any Related Person to make any payment of cash or other
C-12
56
property to the Farmee (as such term is defined in the Farmout Agreement)
pursuant to the Farmout Agreement, whether in respect of production from wells
or otherwise, other than payments in the form of Parent's common stock pursuant
to the Farmout Agreement. Parent shall not allow nor shall Parent permit any
Restricted Person to allow proceeds of production from any Earned Drillsite (as
such term is defined in the Farmout Agreement) or any well thereon or other
cash to be retained by Farmee in lieu of receiving a payment or distribution in
the form of Parent's common stock pursuant to the Farmout Agreement. Parent (i)
shall not amend or modify the Farmout Agreement in any material respect and
(ii) will give prompt notice to Agent of any breach by any Restricted Person or
by Farmee (as such term is defined in the Farmout Agreement) under the Farmout
Agreement.
C-13
57
ANNEX D
COMMON EVENTS OF DEFAULT
Section D.1 Any Related Person fails to pay the principal component of
any Obligation when due and payable, whether at a date for the payment of a
fixed installment or as a contingent or other payment becomes due and payable
or as a result of acceleration or otherwise, and such failure is not remedied
in full within one (1) Business Day thereafter.
Section D.2. Any Related Person fails to pay any Obligation (other
than the Obligations in Section D.1 above) when due and payable, whether at a
date for the payment of a fixed installment or as a contingent or other payment
becomes due and payable or as a result of acceleration or otherwise, within one
(1) Business Day after the same becomes due in the case of interest or fifteen
(15) days thereafter in the case of any other Obligation.
Section D.3. Any "default" or "event of default" occurs under any Loan
Document which defines either such term, and the same is not remedied within
the applicable period of grace (if any) provided in such Loan Document.
Section D.4. Any Related Person fails to duly observe, perform or
comply with any covenant, agreement or provision of Section C.3 or any of
Sections C.17 through and including C.41 of Annex C.
Section D.5. Any Related Person fails (other than as referred to in
Sections D.1, D.2, D.3 or D.4 above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after notice of
such failure is given by Agent to Borrower.
Section D.6. Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Related Person in connection
with any Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made, or any Loan Document at
any time ceases to be valid, binding and enforceable as warranted in Section
B.5 of Annex B for any reason other than its release or subordination by Agent.
Section D.7. Any Related Person fails to duly observe, perform or
comply with (a) any agreement with any Person or any term or condition of any
instrument, if such agreement or instrument is materially significant to
Borrower or to Parent and its Subsidiaries on a Consolidated basis or
materially significant to any Guarantor, or (b) any provision of any Other Loan
Document and, in either case, such failure is not remedied within the
applicable period of grace (if any) provided in such agreement or instrument.
Section D.8. Any Related Person (iii) fails to pay any portion, when
such portion is due, of any of its Restricted Debt in excess of $100,000 (other
than the Obligations, the Other Allowed Debt and Debt described in Section C.6
of Annex C which is not required to be paid so long as the Related Person is in
good faith contesting the validity thereof by appropriate proceedings), or (iv)
breaches or defaults in the performance of any agreement or instrument by which
any such Restricted Debt is issued, evidenced, governed, or secured, and any
such failure, breach or default continues beyond any applicable period of grace
provided therefor.
D-1
58
Section D.9. Either (v) any "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as amended) in
excess of $100,000 exists with respect to any ERISA Plan, whether or not waived
by the Secretary of the Treasury or his delegate, or (vi) any Termination Event
occurs with respect to any ERISA Plan and the then current value of such ERISA
Plan's benefit liabilities exceeds the then current value of such ERISA Plan's
assets available for the payment of such benefit liabilities by more than
$100,000 (or in the case of a Termination Event involving the withdrawal of a
substantial employer, the withdrawing employer's proportionate share of such
excess exceeds such amount).
Section D.10. Any Related Person:
(a) suffers the entry against it of a judgment, decree or
order for relief by a Tribunal of competent jurisdiction in an
involuntary proceeding commenced under any applicable bankruptcy,
insolvency or other similar Law of any jurisdiction now or hereafter
in effect, including the federal Bankruptcy Code, as from time to time
amended, or has any such proceeding commenced against it which remains
undismissed for a period of sixty days; or
(b) commences a voluntary case under any applicable
bankruptcy, insolvency or similar Law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended;
or applies for or consents to the entry of an order for relief in an
involuntary case under any such Law; or makes a general assignment for
the benefit of creditors; or fails generally to pay (or admits in
writing its inability to pay) its debts as such debts become due; or
takes corporate or other action to authorize any of the foregoing; or
(c) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of any
part of the Collateral in a proceeding brought against or initiated by
it, and such appointment or taking possession is neither made
ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it; or
(d) suffers the entry against it of a final judgment for the
payment of money in excess of $100,000 (not covered by insurance
satisfactory to Agent in its discretion), unless the same is
discharged within thirty days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within
such period and a stay of execution pending such appeal is obtained;
or
(e) suffers a writ or warrant of attachment or any similar
process to be issued by any Tribunal against all or any substantial
part of its assets or any part of the Collateral, and such writ or
warrant of attachment or any similar process is not stayed or released
within thirty days after the entry or levy thereof or after any stay
is vacated or set aside.
Section D.11. Any Change in Control occurs.
Section D.12. Any "Event of Default" (as defined in the Other Loan
Documents) occurs under the Other Loan Documents.
D-2
59
SCHEDULE 1
DISCLOSURE SCHEDULE
To supplement the following sections of the Agreement of which this
Schedule is a part, Parent and Borrower hereby make the following disclosures:
1. Section B.6 Initial Financial Statements:
No Material Adverse Change.
2. Section B.7 Other Obligations:
a. Swap Agreement with Joint Energy Development
Investments Limited Partnership, dated November 22,
1994, structured as a costless collar with a floor
price of $18.00 per barrel and a ceiling price of
$20.55 per barrel using the average settlement price
for the prompt month of NYMEX Light Sweet Crude Oil
for the following remaining quantities and periods
of time:
January 1, 1998 through December 31, 1998 12,500 barrels per month
January 1, 1999 through December 31, 1999 14,000 barrels per month
January 1, 2000 through December 31, 2000 14,000 barrels per month
b. Swap Agreement with Koch Oil Company, dated January
1, 1997, structured as a reverse collar with a Put
price of $18.00 per barrel and a Call strike price
of $20.55 per barrel using the average settlement
price for the prompt month of NYMEX Light Sweet
Crude Oil for the following quantities and periods
of time:
January 1, 1998 through December 31, 1998 12,500 barrels per month
January 1, 1999 through December 31, 1999 14,000 barrels per month
January 1, 2000 through December 31, 2000 14,000 barrels per month
c. Swap Agreement with Enron Capital and Trade
Resources dated March 12, 1998, structured as a
costless collar with a floor price of $14.50 per
barrel and a ceiling price of $17.70 per barrel
using the average settlement price for the prompt
month of NYMEX Light Sweet Crude Oil for the
following remaining quantities and periods of time:
April 1, 1998 through December 31, 1998 75,000 barrels per month
3. Section B.9 Litigation:
None.
60
4. Section B.10 Labor Disputes and Acts of God:
None.
5. Section B.11 ERISA Liabilities:
a. Inland Resources Inc. 401(k) Plan.
b. Inland Resources Inc. Section 125 Cafeteria Plan.
c. Inland Resources Inc. Medical Plan through Cigna Healthcare
6. Sections B.12 Environmental Laws and Other:
None. However, upon closing the purchase of the Pennzoil
Refinery, there is an environmental clean-up taking place
which is the contractual responsibility of Pennzoil Products
Company.
7. Sections B.13 Names and Places of Business:
a. On April 28, 1993, the name of Inland Gold and
Silver Corp. was changed to Inland Resources Inc.
for the past five years, Parent's places of business
have been:
February 1998 until Present
410 Seventeenth Street, Suite 700
Denver CO 80202
June 1993 until February 1998
475 Seventeenth Street, Suite 1500
Denver CO 80202
b. On July 1, 1995, the name of Lomax Exploration
Company was changed to Inland Production Company.
For the past five years, Borrower's places of
business have been:
February 1998 until Present
410 Seventeenth Street, Suite 700
Denver CO 80202
October 1994 until February 1998
P.O. Box 1446 Also 475 Seventeenth Street
West Pole Road Suite 1500
Roosevelt UT 80466 Denver CO 80202
2
61
June 1993 through September 1994
77 West, 200 South, Suite 402
Salt Lake City UT 84101
8. Section B.14 Subsidiaries and Stockholdings:
Subsidiaries
a. Borrower is 100% owned by Parent
b. Inland Refining is 100% owned by Parent
Partnership Interest
a. Borrower is a General Partner in the following Limited
Partnerships:
LOEX Properties 1983, LTD, a Texas Limited
Partnership, Borrower has a 0.62% interest
in the partnership. The partnership's
principal place of business is 410
Seventeenth Street, Suite 700, Denver CO
80202.
LOEX Properties 1984, LTD, a Texas Limited
Partnership, Borrower has a 0.57% interest
in the partnership. The partnership's
principal place of business is 410
Seventeenth Street, Suite 700, Denver CO
80202.
b. Borrower is a Managing Partner in the following General
Partnerships:
West Monument Butte Pipeline Company, a
Texas General Partnership, Borrower has an
80.96% interest in the partnership. The
partnership's principal place of business
is 410 Seventeenth Street, Suite 700,
Denver CO 80202.
9. Section C.18. Restricted Debt:
All-Inclusive Promissory note secured by All-Inclusive Deed
of Trust payable to the Carmen Family Investment Company
dated May 1, 1995, for a total of $202,906.67 principal
balance to be paid in fourteen annual installments of
$26,797.54 including interest (interest rate is 9.5% per
annum). The All-Inclusive Deed of Trust includes lands in
Township 8 South, Range 17 East, S.L.M. in Sections 20 (NE
1/4 of the SE 1/4), 21 (SE 1/4) and 28 (N 1/2 of the NW 1/4)
in Duchess County, Utah.
3
62
SCHEDULE 2
Security Schedule
1. Deed of Trust, Mortgage, Line of Credit Mortgage, Assignment,
Security Agreement, Fixture Filing and Financing Statement from Borrower to
Collateral Agent dated as of September 30, 1998.
2. Pledge Agreement from Parent to Collateral Agent, dated as of
September 23, 1997, as amended by that certain First Amendment to Pledge
Agreement dated as of May 29, 1998, as the same may be amended, supplemented,
restated, or ratified from time to time.
3. UCC-1 Financing Statement by Parent filed in the Office of the
Secretary of State of Colorado on October 1, 1997 as Instrument No.
19972083891.
4. UCC-1 Financing Statement by Parent filed in the Office of the
Secretary of State of Texas on October 1, 1997 as Instrument No. 97-203172.
5. UCC-3 Amendment by Parent filed in the Office of the Secretary of
State of Colorado on June 25, 1998 as Instrument No. 1998241245.
6. UCC-3 Amendment by Parent filed in the Office of the Secretary of
State of Texas on June 25, 1998 as 1325979-4.
6. Security Agreement from Borrower to Collateral Agent, dated as of
September 23, 1997, as the same has been or may be amended, supplemented,
restated, or ratified from time to time.
7. UCC-1 Financing Statement by Borrower filed with the Secretary of
State of Colorado on October 1, 1997 , as Instrument No. 19972083890.
8. UCC-1 Financing Statement by Borrower filed with the Secretary of
State of Utah on October 1, 1997 , as Instrument No. 97-580397.
9. Security Agreement from Inland Refining to Collateral Agent, dated
as of May 29, 1998, as the same has been or may be amended, supplemented,
restated, or ratified from time to time.
10. UCC-1 Financing Statement by Inland Refining filed with the
Secretary of State of Colorado on June 25, 1998 , as Instrument No.
19982041247.
11. UCC-1 Financing Statement by Inland Refining filed with the
Secretary of State of Texas on June 25, 1998 , as Instrument No. 98-129065.
12. UCC-1 Financing Statement by Inland Refining filed with the
Secretary of State of Utah on June 25, 1998 , as Instrument No. 8176410010.
63
13. Deed of Trust, Assignment, Security Agreement, Fixture Filing and
Financing Statement from Inland Refining to Collateral Agent, dated as of May
29, 1998 and recorded in the Davis County Recorder Office as Instrument No.
1408691, Book 2299, Page 937.
14. Guaranty from Parent to Agent and Collateral Agent dated as of
September 23, 1997 as the same has been or may be amended, supplemented,
restated, or ratified.
15. Guaranty from Inland Refining to Agent and Collateral Agent dated
as of September 23, 1997 as the same has been or may be amended, supplemented,
restated, or ratified.
- 2 -
64
SCHEDULE 3
Insurance Schedule
Policy Name of Type of Term
Number Insurance Company Policy of Policy
------ ----------------- ------ ---------
A. 37650017 TIG Insurance Co. of Michigan General Liability 6/1/97 - 6/1/98
General Liability:
------------------
a) Limits:
$2,000,000 General Aggregate
$1,000,000 Products/Completed Operations Aggregate
$1,000,000 Each Occurrence
$1,000,000 Personal and Advertising Injury
$1,000,000 Fire Damage
$ 10,000 Medical Expense
b) Coverage:
Commercial General Liability Form
B. CCOPA58396 Security Insurance Company Property 6/1/97 -
of Hartford 6/1/98
a) Limits:
$500,000 Blanket
b) Deductible:
$1,000 per occurrence
C. 1638-00-13682 Wausau Underwriters Automobile 6/1/97 -
Insurance Company 6/1/98
a) Limits:
$1,000,000 Each accident combined single limit
Bodily injury and property damage liability including hired and
non-owned auto liability
$1,000,000 Uninsured/underinsured motorists coverage
Each accident combined single limit
Bodily personal injury protection
Basic Person personal injury protection
65
D. 37650017 TIG Insurance Co. of Michigan Umbrella 6/1/97 -
6/1/98
a) Limits:
$10,000,000 Aggregate
$10,000,000 Each Occurrence
E. 37650017 TIG Insurance Co. of Michigan OEE 6/1/97 -
6/1/98
a) Limits:
$6,000,000 Drilling Limit
$3,000,000 Producing Limit Each Occurrence Combined
b) Deductible:
$ 25,000 Each Incident
-2-
66
SCHEDULE 4
SCHEDULED BANK PAYMENTS
Quarterly Amount
Payment Date of Payment
------------ ----------
June 29, 1999 $6,222,222
Sept 29, 1999 $6,222,222
Dec 30, 1999 $6,222,222
Mar 30, 2000 $4,666,666
June 29, 2000 $4,666,666
Sept 28, 2000 $4,666,666
Dec 28, 2000 $4,666,666
Mar 29, 2001 $3,888,889
June 28, 2001 $3,888,889
Sept 27, 2001 $3,888,889
Dec 28, 2001 $3,888,889
Mar 28, 2002 $3,500,000
June 27, 2002 $3,500,000
Sept 27, 2002 $3,500,000
Dec. 30, 2002 $3,500,000
Mar 28, 2003 $3,111,114
67
SCHEDULE 5
Calculation of 12.5% Internal Rate of Return
Reference is made to the Agreement to which this Schedule is attached
for the meaning of terms defined therein and used herein without further
definition. As used herein, the following additional terms have the following
meanings:
"LOAN DOCUMENT DISBURSEMENTS" means, with respect to the A Note,
$65,000,000 of the Advance and all other amounts advanced or expended by
Noteholder, Agent or Collateral Agent which Borrower is obligated to repay or
reimburse under the Credit Agreement or any Loan Document, and, with respect to
the B Note, $10,000,000 of the Advance.
"LOAN DOCUMENT PAYMENTS" means all payments received by Noteholder,
Agent or Collateral Agent pursuant to any Loan Documents, including all
interest and principal on the Note (excluding any interest in excess of 9.75%
per annum paid on any past due amount), the financing fee payable under Section
2.4 of the Credit Agreement and all reimbursements of other Loan Document
Disbursements.
"12.5% IRR" means a twelve and one-half (12.5%) percent nominal,
cash-on-cash internal rate of return on all Loan Document Disbursements
calculated over the period from the date of the initial Advance to the date in
question. The method of calculating such rate of return is set forth in the
example on page 5-3 of this Schedule (the "Example Calculation"), and the
present value discount factors to be used for calculating such internal rate of
return are set forth on page 5-4 of this Schedule.
The periods referred to in the Example Calculation are calendar
quarters (January through March, April through June, July through September,
and October through December), with the exception of Period 0, which is from
the date of the Advance under the Note to and including September 30, 1997, and
Period 1, which is the period beginning on September 30, 1997 and ending on
December 31, 1997.
All Loan Document Disbursements and all Loan Document Payments will be
treated as shown in the Example Calculation.
The Advance will be discounted by a discount factor of 1.0. The
financing fee will be discounted by a discount factor of 1.0 provided the fee
is received on the date of the Advance. Each subsequent Loan Document
Disbursement will be discounted by the discount factor corresponding to the
period in which it is advanced or disbursed (e.g., a Loan Document Disbursement
made in October 1997 would be discounted by a factor of 0.969365). All Loan
Document Payments will be discounted by the discount factor corresponding to
the period in which they are received (e.g., Loan Document Payments received in
March, 1998 will be discounted by a factor of 0.939991).
If Noteholder elects to have a 12.5% IRR calculated on all but
$10,000,000 of the Loan Document Disbursements (as to which $10,000,000 the
12.5% IRR Calculation shall be made at the time and in the manner set forth in
the Warrant Documents), the last $10,000,000
68
advanced on the Loan will be excluded from the "Advance to Borrower" in
calculating the Additional Interest and "NPV of Cash Proceeds".
When the "NPV of Total Loan Amount" less the "NPV of Cumulative Cash
Proceeds" is less than or equal to zero, after Additional Interest has been
paid Noteholder will have been given a 12.5% IRR. In the Example Calculation,
this occurs in the quarter ending June 2000.
-2-
69
EXHIBIT A
[INTENTIONALLY OMITTED]
70
EXHIBIT B
[INTENTIONALLY OMITTED]
71
EXHIBIT C
NOTICE OF BANK ADVANCE
Reference is made to that certain Amended and Restates Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company ("Borrower"), Inland
Resources Inc., Trust Company of the West, as holder of the Note ("Noteholder")
and TCW Asset Management Company, as Agent and Collateral Agent. Terms which
are defined in the Agreement are used herein with the meanings given them in
the Agreement. Pursuant to the terms of the Agreement, Borrower hereby notifies
Noteholder that it is requesting an advance under the Bank Credit Agreement in
the principal amount of $_________ and has specified __________ ___, 19__, as
the date Borrower desires for the Banks to make such advance.
To induce Noteholder to permit such advance, Borrower hereby
represents, warrants, acknowledges, and agrees that:
(a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below such
officer's signature hereby, having all necessary authority to act for
Borrower in making the request herein contained.
(b) The representations and warranties of Borrower set forth in the
Agreement and the other Loan Documents are true and correct on and as of
the date hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by the extension
of credit under the Agreement or Bank Credit Agreement), with the same
effect as though such representations and warranties had been made on and
as of the date hereof.
(c) There does not exist on the date hereof any condition or event
which constitutes a Default or Coverage Deficiency which has not been
waived in writing as provided in Section 7.1(a) of the Agreement; nor will
any such Default or Coverage Deficiency exist upon Borrower's receipt and
application of the advance being requested.
(d) Except to the extent waived in writing as provided in Section
9.1(a) of the Agreement, Borrower has performed and complied with all
agreements and conditions in the Agreement required to be performed or
complied with by Borrower on or prior to the date hereof, and each of the
conditions precedent to Advances contained in the Agreement remains
satisfied.
(e) The Loan Documents and the Bank Documents have not been modified,
amended or supplemented by any unwritten representations or promises, by
any course of dealing, or by any other means not provided for in Section
9.1 of the Agreement. The Agreement and the other Loan Documents are hereby
ratified, approved, and confirmed in all respects.
72
The person signing this instrument hereby certifies, in his capacity
as an officer of Borrower and in the name and on behalf of Borrower, that, to
the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of _________ ___,
199_.
INLAND PRODUCTION COMPANY
By
--------------------------------------
Name:
Title:
2
73
EXHIBIT D
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain Amended and Restated Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company ("Borrower"), Inland
Resources Inc. ("Parent"), Trust Company of the West, as holder of the Note
("Noteholder") and TCW Asset Management Company, as Agent and Collateral Agent,
which Agreement is in full force and effect on the date hereof. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.
This Certificate is furnished pursuant to Section C.1(b) of Annex C to
the Agreement. Together herewith Parent is furnishing to Noteholder Parent's
*[audited/unaudited] [Consolidated/Consolidating] financial statements (the
"Financial Statements") as at ____________ (the "Reporting Date"). Parent
hereby represents, warrants, and acknowledges to Noteholder that:
a. the officer of Parent signing this instrument is the duly elected,
qualified and acting ____________ of Parent and as such is Parent's chief
financial officer;
b. the Financial Statements fairly present, in accordance with GAAP
and in all material respects, the matters set forth therein and satisfy the
requirements of the Agreement;
c. attached hereto is a schedule of calculations showing Borrower's
and Parent's compliance as of the Reporting Date with the requirements of
Sections ____________ of the Agreement *[and non-compliance as of such date
with the requirements of Section(s) ____________ of the Agreement];
d. on the Reporting Date, Borrower and Parent were, and on the date
hereof Borrower and Parent are, in full compliance with the disclosure
requirements of Section C.3 of Annex C to the Agreement, and no Default
otherwise existed on the Reporting Date or otherwise exists on the date of
this instrument *[except for Default(s) under Section(s) ____________ of
the Agreement, which [is/are] more fully described on a schedule attached
hereto].
The officer of Parent signing this instrument hereby certifies, in his
capacity as an officer of Parent and in the name and on behalf of Parent, that
he has reviewed the Loan Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable him
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of Parent and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and
complete.
74
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19____. INLAND PRODUCTION COMPANY
By
--------------------------------------
Name:
Title:
2
75
EXHIBIT E
ENVIRONMENTAL COMPLIANCE CERTIFICATE
Reference is made to that certain Amended and Restated Credit
Agreement dated as of September 11, 1998 (as from time to time amended, the
"Agreement"), by and among Inland Production Company ("Borrower"), Inland
Resources Inc., and Trust Company of the West and TCW Asset Management Company
(in the capacities described therein). Terms which are defined in the Agreement
are used herein with the meanings given them in the Agreement. The undersigned,
being the *[President/Chief Executive Officer] of Borrower, hereby certifies,
in his capacity as an officer of Borrower and in the name and on behalf of
Borrower, to Agent and Collateral Agent as follows:
1. For the Fiscal Year ending immediately prior to the date hereof,
Borrower has complied and is complying with Section C.11 of Annex C to the
Agreement *[except as set forth in Schedule I attached hereto];
2. To the best knowledge of the undersigned after due inquiry,
Borrower is on the date hereof in compliance with all applicable
Environmental Laws, noncompliance with which could cause a Material Adverse
Change;
3. Borrower has taken (and continues to take) steps to minimize the
generation of potentially harmful effluents;
4. Borrower has established an ongoing program of conducting an
internal audit of each operating facility of Borrower to identify actual or
potential environmental liabilities which could cause a Material Adverse
Change; and
5. Borrower has established an ongoing program of training its
employees in issues of environmental, health and safety compliance, and
Borrower presently has one or more individuals in charge of implementing
such training program.
The officer of Borrower signing this instrument hereby certifies, in
his capacity as an officer of Borrower and in the name and on behalf of
Borrower, that, to the best of his knowledge after due inquiry and consultation
with the operating officers of Borrower, the above representations, warranties,
acknowledgements, and agreements of Borrower are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19____.
INLAND PRODUCTION COMPANY
By
--------------------------------------
Name:
Title:
76
EXHIBIT F
APPROVAL LETTER
[Date]
Inland Production Company
410 Seventeenth Street, Suite 700
Denver, Colorado 80202
Attention: _____________________
Gentlemen:
Reference is made to the Amended and Restated Credit Agreement dated
September 11, 1998, among Inland Production Company, Inland Resources, Inc.,
Trust Company of the West, as Noteholder, and TCW Asset Management Company, as
Agent and Collateral Agent. (Such Credit Agreement, as from time to time
amended, is herein called the "Credit Agreement"). Reference is hereby made to
the Credit Agreement for all purposes, and terms defined therein shall have the
same meanings when used herein.
The Credit Agreement contemplates that certain Approval Letters may be
given from time to time in connection therewith in order to specify certain
ANCF Capital Expenditures, ANCF LOE, ANCF Overhead Costs, or ANCF
Transportation Costs. This letter is such an Approval Letter and is given by
the undersigned in order so to approve the ANCF _____________ which are
specified in the schedule attached hereto.
This letter [is in addition to/supersedes] all previous Approval
Letters dealing with ANCF _______________.
This letter is a Loan Document, and all provisions of the Credit
Agreement which apply to Loan Documents shall apply hereto.
This letter may be separately executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which
when so executed shall be deemed to constitute one and the same Approval
Letter.
77
Please execute a counterpart of this letter in the place provided
below to evidence your agreement to the foregoing and your continuing
ratification of the Credit Agreement and the other Loan Documents in
consideration of the approval herein contained.
Yours truly,
TCW ASSET MANAGEMENT COMPANY,
as Agent under the Credit Agreement
By:
--------------------------------------
Name:
Title:
Accepted and agreed to as
of the date first written
above
INLAND PRODUCTION COMPANY
By:
- -----------------------------------
Name:
Title:
2