SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 5)
INLAND RESOURCES, INC.
(Name of Issuer)
Common Stock, $0.001 Par Value
(Title of Class of Securities)
90336P100
(CUSIP Number)
David A. Persing
885 Third Avenue
New York, NY 10022
(212) 888-5500
(Name, Address and Telephone Number of Person Authorized to
Receive Notices & Communications)
July 31, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject
of this Schedule 13D, and is filing this schedule because of
Rule 13d-1(b)(3) or (4), check the following box. [ ]
Check the following box if a fee is being paid with the
statement. [ ]
(A fee is not required only if the reporting person: (1) has a
previous statement on file reporting beneficial ownership of more
than five percent of the class of securities described in Item 1;
and (2) has filed no amendment subsequent thereto reporting
beneficial ownership of five percent or less of such class. See
Rule 13d-7.)
<PAGE>
SCHEDULE 13D
CUSIP No. 90336P100
1. NAME OF REPORTING PERSON Pengo Industries Inc.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
75-1570640
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS N.A.
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION Texas
__________________
| 7. SOLE VOTING POWER 3,765,632
NUMBER OF |
SHARES |
BENEFICIALLY | 8. SHARED VOTING POWER
OWNED BY |
EACH |
REPORTING | 9. SOLE DISPOSITIVE POWER 3,765,632
PERSON |
WITH |
__________________| 10. SHARED DISPOSITIVE POWER
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 3,765,632
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* (See Instructions) [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 56.7%
14. TYPE OF REPORTING PERSON CO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
CUSIP No. 90336P100
1. NAME OF REPORTING PERSON Pengo Securities Corp.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
13-3776325
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION New York
__________________
| 7. SOLE VOTING POWER 3,765,632
NUMBER OF |
SHARES |
BENEFICIALLY | 8. SHARED VOTING POWER
OWNED BY |
EACH |
REPORTING | 9. SOLE DISPOSITIVE POWER 3,765,632
PERSON |
WITH |
__________________| 10. SHARED DISPOSITIVE POWER
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON 3,765,632
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* (See Instructions) [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 56.7%
14. TYPE OF REPORTING PERSON CO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Item 1. Security and Issuer.
This Schedule 13D relates to shares of Common Stock, par value $.001
per share, of Inland Resources Inc. (the "Issuer"). The principal executive
offices of the Issuer are located at 475 17th Street, Suite 1500, Denver,
Colorado, identified in Item 2 below.
Item 2. Identify and Background
This Schedule 13D is filed by the following persons:
A. Pengo Securities Corp. ("Pengo Securities"). Pengo is a New York
corporation having its principal business address at 885 Third Avenue, 34th
Floor, New York, New York 10022. Pengo Securities' principal business is
making investments.
B. Pengo Industries, Inc. ("Pengo Industries"). Pengo Industries is a
Texas corporation having its principal business address at 885 Third Avenue,
34th Floor, New York, New York 10022. Pengo Industries' principal business is
acting as a holding company.
The following persons are not reporting persons but are identified as they
are intermediate controlling corporations, executive officers or directors of a
reporting person:
A. John W. Adams. Mr. Adams has his business address at 885 Third
Avenue, 34th floor, New York, New York 10022. His principal employment is as
the President of Smith Management.
B. Jeffrey A. Smith. Mr. Smith's business address is 885 Third Avenue,
34th floor, New York, New York 10022. Mr. Smith's principal employment is as
Executive Vice President of Smith Management.
C. Caleb S. Smith. Mr. Smith's principal business address is 885 Third
Avenue, 34th floor, New York, New York 10022.
D. Smith Management Company, Inc. ("Smith Management"). Smith
Management is a New York corporation having its principal business offices at
885 Third Avenue, 34th floor, New York, New York 10022. Smith Management's
principal business is providing private investment advisory services.
None of the individuals or entities identified above, during the last five
years, have been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws. All natural persons identified above are United States citizens.
Item 3. Source and Amount of Funds or Other Consideration.
All of the 3,765,632 shares of Common Stock (which 3,765,632 shares of
Common Stock include 1,515,151 shares of Common Stock issuable upon conversion
of 950,000 shares of Series B Convertible Preferred Stock (the "Preferred
Stock")) owned by Pengo Securities were paid for out of Pengo Securities
working capital. The aggregate purchase price paid by Pengo Securities for the
3,765,632 shares of Common Stock was $20,754,122.95.
Item 4. Purpose of Transaction.
All of the shares of Common Stock and Preferred Stock owned by Pengo
Securities were acquired for investment purposes. Pengo Securities intends to
review its investment in the Issuer on a continuing basis and will take such
actions as it deem appropriate to preserve and enhance the value of its
investment. Depending upon Pengo Securities' evaluation of a variety of
factors and future developments (including, without limitation, the Issuer's
business and prospects, market prices of the Common Stock, availability and
alternative uses of funds, as well as general and economic conditions), Pengo
Securities reserves the right to acquire additional shares of Common Stock, to
dispose of some or all of their shares of Common Stock or to formulate other
purposes, plans or proposals regarding the Issuer to the extent deemed
advisable by Pengo Securities.
Pursuant to the Subscription Agreement between the Issuer and Smith
Management dated May 12, 1994, Smith Management has the right to appoint (and
has appointed) two representatives to the Issuer's Board of Directors.
Except as set forth above, Pengo Securities has no present plans or
proposals which relate to or would result in any matter of the type described
in clauses (a) through (j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
(a) The 3,765,632 shares of Common Stock owned by Pengo Securities (which
3,765,632 shares of Common Stock includes 1,515,151 shares of Common Stock
issuable upon conversion of the 950,000 shares of Preferred Stock owned by
Pengo Securities), constituting approximately 56.7% of the outstanding shares
of Common Stock, may be deemed beneficially owned by each of Pengo Securities
and Pengo Industries.
(b) Each of Pengo Securities and Pengo Industries may be regarded as
having the sole power to vote or to direct the vote to dispose or to direct the
disposition of the shares of Common Stock reported in Item 5(a) above.
(c) Except as set forth in the next sentence, there have been no
transactions by Pengo Securities or Pengo Industries in the Common Stock during
the past sixty days. On July 31, 1996 Pengo Securities acquired 950,000 shares
of Preferred Stock (which 950,000 shares of Preferred Stock are convertible
into 1,515,151 shares of Common Stock) for an aggregate purchase price of
$9,500,000.00 in a private transaction with the Issuer.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the Issuer.
There are no contracts, arrangements, understandings, or relationships
(legal or otherwise) among the reporting persons or between the reporting
persons and any person with respect to any securities of the Issuer other than
the agreements filed as Exhibits pursuant to Item 7 below.
Item 7. Material to be Filed as Exhibits.
1. Subscription Agreement dated May 12, 1994 between Smith Management
Company and the Issuer. (Previously filed)
2. Amendment to Subscription Agreement dated September 16, 1994 between
Smith Management Company and the Issuer. (Previously filed)
3. Registration Rights Agreement dated September 21, 1994 between Energy
Management Corporation and the Issuer. (Previously filed)
4. Subscription Agreement between Inland Resources Inc. and Pengo
Securities Corp. dated October 23, 1995. (Previously filed)
5. Registration Rights Agreement dated as of November 6, 1995 between
Inland Resources, Inc. and Pengo Securities Corp. (Previously filed)
6. Agreement dated June 12, 1996 by and between Smith Management, Farmout
Inc., Randall D. Smith, Jeffrey A. Smith, John W. Adams, the Issuer and Inland
Production Company.
7. Registration Rights Agreement dated as of June 12, 1996 by and between
the Issuer, Smith Management, Randall D. Smith, Jeffrey A. Smith and John W.
Adams.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of the undersigned's knowledge
and belief, the undersigned certify that the information set forth in this
statement is true, correct and complete.
PENGO INDUSTRIES, INC.
Dated: August 14, 1995 By: DAVID A. PERSING
________________________________
Name: David A. Persing
Title: Senior Vice President
PENGO SECURITIES CORP.
Dated: August 14, 1995 By: DAVID A. PERSING
________________________________
Name: David A. Persing
Title: Senior Vice President
Exhibit 6
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into
effective June 12, 1996, by and between SMITH MANAGEMENT COMPANY,
INC., a New York corporation ("Smith Management"), FARMOUT INC., a
Utah corporation ("Farmout"), RANDALL D. SMITH ("R. Smith"),
JEFFREY A. SMITH ("J. Smith"), JOHN W. ADAMS ("Adams") (R. Smith,
J. Smith and Adams are hereinafter referred to as the "Farmout
Stockholders"), INLAND RESOURCES INC. ("Inland") and INLAND
PRODUCTION COMPANY ("Inland Production").
RECITALS:
WHEREAS, Farmout Stockholders own all of the issued and
outstanding capital stock of Farmout ("Farmout Stock") and Farmout
Stockholders desire to sell, transfer and convey to Inland, and
Inland desires to acquire, the Farmout Stock in exchange for the
"Common Shares" (as defined in Section 1.01), in accordance with
the terms of this Agreement; and
WHEREAS, Smith Management (or its designee) desires to acquire
950,000 shares of the 1,000,000 shares of Series B Preferred Stock
(as hereinafter defined) of Inland for $9,500,000 of the total of
$10,000,000 to be received for the Series B Preferred Stock, and
Inland desires to issue such Series B Preferred Stock to Smith
Management; and
WHEREAS, the acquisition of the Farmout Stock by Inland and
the acquisition of the Series B Preferred Stock by Smith Management
are part of a joint transaction that will be closed in two separate
closing, on June 12, 1996 and July 31, 1996, respectively; and
WHEREAS, Inland intends to call its existing Series A
Preferred Stock for redemption or conversion on July 31, 1996 and
to the extent any shares are to be redeemed, the proceeds from the
issuance of the Series B Preferred Stock are intended to be used by
Inland to pay any required redemption amounts.
- 1 -<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual promises, covenants and representations set forth
herein, the parties hereto agree as follows:
A G R E E M E N T S:
I.
SALE AND PURCHASE OF FARMOUT STOCK
1.01 Farmout Stockholders hereby agree to sell, transfer and
convey to Inland at Farmout Closing (herein so called) good,
marketable and indefeasible title to the Farmout Stock free and
clear of any lien, security interest, pledge, encumbrance,
restriction on transferability, defect of title, charge of claim of
any nature whatsoever. In consideration therefor, and on the basis
of and in reliance upon the representations, warranties,
obligations and agreements of Farmout Stockholders set forth
herein, Inland agrees to purchase the Farmout Stock at Farmout
Closing and agrees to deliver to Farmout Stockholders (or to such
persons as the Farmout Stockholders designate) an aggregate of
1,309,880 post-split shares (the "Common Shares") of Inland's
common stock, par value $.001 per share ("Common Stock"), which
shall not be delivered by Inland until January 2, 1997, except
where such delivery is accelerated as hereinafter provided.
Inland's agreement to issue and deliver the Common Shares on
January 2, 1997 shall be secured by a pledge of the Farmout Stock
pursuant to a Security Agreement in the form attached hereto as
Exhibit "A" and incorporated herein for all purposes by this
reference. The Farmout Closing shall take place on June 12, 1996
(the "Farmout Closing Date") at the offices of Inland at 2:00 p.m.
(Denver time). At the Farmout Closing, Farmout Stockholders shall
deliver the stock certificates representing the Farmout Stock to
Inland, duly endorsed for transfer, and Inland and the Farmout
Stockholders will execute the Security Agreement and the
Registration Rights Agreement. As noted above, the Common Shares
shall not be delivered by Inland until January 2, 1997; provided,
however, in the event of the filing of a petition in bankruptcy
against Inland, or the voluntary filing of a bankruptcy petition by
Inland, prior to such date, the Common Shares shall be immediately
issuable by Inland without further demand or action by Farmout
Stockholders. Inland hereby acknowledges and agrees that from and
after the transfer of the Farmout Stock by the Farmout Stockholders
to Inland at the Farmout Closing its obligation to issue and
deliver the Common Shares is fixed, absolute and unconditional, and
Inland shall not be entitled to assert any defenses to such
issuance and delivery including, without limitation, any breach by
Farmout Stockholders or Smith Management of any of their respective
agreements, covenants, warranties or representations herein. The
acquisition by Inland of the Farmout Stock and the issuance by
Inland of the Common Shares are collectively referred to herein as
the "Farmout Transactions".
1.02 Farmout Stockholders and Inland hereby agree that the
effective date of the acquisition of the Farmout Stock by Inland
shall be June 1, 1996 and Farmout Stockholders and Farmout agree
that Farmout shall make no distributions or payments of cash or
other properties (other than a dividend in the amount of $213,700),
or incur any liabilities (other than accrued income tax
liabilities), after June 1, 1996. Farmout Stockholders and Farmout
also represent and
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warrant to Inland and Inland Production that the Farmout Agreement
dated effective July 1, 1995 (the "Farmout Agreement") between
Inland, Inland Production and R. Smith, the Option Agreement
("Option Agreement") between Inland, Inland Production and Smith
dated November 22, 1995, and the Warrant Certificate ("Warrant
Certificate") issued by Inland in favor of Smith dated November 22,
1995 have all been duly and properly assigned to Farmout, and
Farmout is the proper party in interest with respect to each of
said documents. Farmout Stockholders and Farmout further represent
and warrant to Inland and Inland Production that effective as of
June 1, 1996 and effective as of the Farmout Closing, Farmout
owned, and will own, no other assets, and had, and will have, no
other liabilities or obligations, contingent or otherwise (other
than accrued income tax liabilities), other than the assets
represented by the wells covered by the Farmout Agreement and the
warrants represented by the Warrant Certificate, or the liabilities
and obligations encompassed within the Farmout Agreement, Option
Agreement or Warrant Certificate.
1.03 Until the Common Shares are delivered by Inland to the
Farmout Stockholders on January 2, 1997, Inland hereby agrees that
it will not, without the prior written consent of the Farmout
Stockholders, effect a stock split of its Common Stock, issue any
stock dividend on its Common Stock or engage in a recapitalization
or other event that would cause the outstanding shares of Common
Stock to receive additional securities or be converted into other
securities.
II.
SERIES B PREFERRED STOCK
2.01 Subject to the terms and conditions of this Agreement,
at the "Series B Closing" (herein so called) Inland agrees to issue
and sell to Smith Management, and Smith Management (or Smith
Management's designee) agrees to subscribe for and purchase from
Inland, 950,000 shares (the "Series B Shares") of a series of
1,000,000 shares of preferred stock, par value $.001 per share, of
Inland having the relative rights, preferences, privileges and
limitations set forth on the "Certificate of Designation,
Preferences and Rights of Series B Convertible Preferred Stock"
("Certificate of Designation") attached hereto as Exhibit "B" and
incorporated herein for all purposes by this reference (the "Series
B Preferred Stock"), for an aggregate purchase price of $9,500,000
($10.00 per Series B Share) (the "Purchase Price"). The
transactions contemplated to take place at the Series B Closing are
referred to herein as the "Series B Transactions". Smith
Management acknowledges that it is anticipated by Inland that the
remaining 50,000 shares of Series B Stock will be sold to another
purchaser for the price of $10.00 per share and that such sale will
close on or around the Series B Closing, provided, however, Smith
Management (or its designee) shall, whether or not such additional
purchase and sale is made, be obligated to purchase the Series B
Shares at the Series B Closing, and Inland shall be obligated to
issue the Series B Shares to Smith Management (or its designee) at
the Series B Closing.
2.02 Subject to the terms and conditions of this Agreement,
the issuance and purchase of the Series B Shares shall take place
at the "Series B Closing" to be held at the offices of Inland at
10:00 a.m. (Denver time) on July 31, 1996. The date on which the
Series B Closing occurs is referred to herein as the "Series B
Closing Date." On the Series B Closing Date, Inland will deliver
the Series B Shares registered in the name of Smith Management
and/or Smith Management's nominee or designee upon receipt of the
Purchase Price therefor by wire transfer of immediately
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available funds to an account designated by Inland, or by such
other methods as is mutually agreed to by Smith Management and
Inland. Such certificates shall bear appropriate restrictive
legends deemed necessary by Inland to comply with applicable
securities laws. Effective as of the Series B Closing Date, Inland
will file the Secretary of State of Washington the Certificate of
Designation.
III
REPRESENTATIONS AND WARRANTIES OF INLAND
Inland represents and warrants to the Farmout Stockholders and
Smith Management, respectively, as of the date hereof and as of
each of the Farmout Closing Date and Series B Closing Date,
respectively, as follows:
3.01 Inland has all requisite corporate power and authority
to execute and deliver this Agreement, the Security Agreement and
the Registration Rights Agreement (in the form attached hereto as
Exhibit "C" and incorporated herein for all purposes by this
reference) and to consummate the acquisition of the Farmout Stock
as provided herein, the issuance of the Common Shares and the
issuance of the Series B Shares as provided herein (collectively
referred to herein as the "Transactions"). The execution and
delivery of this Agreement, the Security Agreement and the
Registration Rights Agreement and the consummation of the
Transactions to be performed by Inland have been duly and validly
authorized by all necessary action on the part of the Board of
Directors of Inland, and no other corporate proceedings are
necessary to authorize the execution and delivery of this
Agreement, the Security Agreement and the Registration Rights
Agreement by Inland or to consummate the Transactions to be
performed by Inland, other than filing the Certificate of
Designation with the Secretary of State of Washington on the Series
B Closing Date. This Agreement has been, and the Security
Agreement, and the Registration Rights Agreement, when executed at
Farmout Closing, will have been, duly and validly executed and
delivered by Inland and, assuming this Agreement, the Security
Agreement and the Registration Rights Agreement constitutes a valid
and binding obligation of Smith Management, Farmout and Farmout
Stockholders, this Agreement constitutes, and the Security
Agreement and Registration Rights Agreement, when executed at
Farmout Closing, will constitute, a valid and binding agreement of
Inland, enforceable against Inland in accordance with its terms.
Upon receipt by Inland of the Purchase Price and the Farmout Stock,
the Series B Shares and the Common Shares to be issued on January
2, 1997, shall be duly authorized, validly issued (when issued),
fully paid and non-assessable. The Common Shares will have been
reserved for issuance as of the Farmout Closing Date, and the
shares of Common Stock underlying the Series B Shares will have
been reserved for issuance as of the Series B Closing Date.
3.02 Neither the execution and delivery of this Agreement,
the Security Agreement or the Registration Rights Agreement by
Inland, the consummation of the Transactions to be performed by
Inland nor compliance by Inland with any of the provisions hereof
or of the Security Agreement or Registration Rights Agreement will
(i) conflict with or result in any breach of any provisions of the
Articles of Incorporation or by-laws of Inland or any of its
Subsidiaries, assuming, for this purpose, the Certificate of
Designation has been filed with the Secretary of State of
Washington; (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any
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governmental authority, including those of the United States, any
foreign country, state, county, city or other political
subdivision, agency or instrumentality thereof (herein referred to
as a "Governmental Authority"), except for consents, approvals,
authorizations, permits, filings or notifications which have been
obtained or made; (iii) except upon failure to obtain the consent
of Trust Company of the West required to be obtained under that
certain Credit Agreement dated November 29, 1995, result in a
default (with or without due notice or lapse of time or both) or
give rise to any right of termination, cancellation or acceleration
under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, contract, license, agreement or other
instrument or obligation to which Inland or any of its Subsidiaries
is a party or by which Inland or any of its Subsidiaries or any of
their respective assets may be bound, except for such defaults (or
rights of termination, cancellation or acceleration) as to which
requisite waivers or consents have been obtained; (iv) result in
the creation or imposition of any lien, charge or other encumbrance
on the assets of Inland or any of its Subsidiaries; or (v) violate
any order, writ, injunction, decree, statute, rule or regulation
applicable to Inland, any of its Subsidiaries or any of their
respective assets. For purposes of this Agreement, "Subsidiary"
shall mean, when used with reference to an entity, any corporation,
a majority of the outstanding voting securities of which are owned
directly or indirectly by such entity; and such term shall also
refer to any other partnership, limited partnership, joint venture,
trust, or other business entity in which such entity has a material
interest.
3.03 The offer, sale and issuance of the Common Shares or
Series B Shares pursuant to this Agreement do not require
registration of the Common Shares or Series B Shares under the
Securities Act of 1933, as amended (the "Securities Act") or
registration or qualification under any applicable state "blue sky"
or securities laws, based on available non-public offering
exemptions which are based, in part, on the representations of
Smith Management and Farmout Stockholders in Section 4.03. Inland
has not taken, directly or indirectly, nor will it take any action
which will subject the issuance or sale of any of the Common Shares
or Series B Shares to be in violation of the provision of Section
5 of the Securities Act or the provisions of any securities, blue
sky law or similar law of any applicable jurisdiction.
3.04 No broker's or finder's fees or commissions will be
payable by Inland in connection with the issuance and sale of the
Common Shares or Series B Shares or the Transactions.
3.05 The authorized capital stock of the Inland consists of
25,000,000 shares of Common Stock, and 20,000,000 shares of Class
A preferred stock, par value $.001 per share ("Preferred Stock").
As of the date hereof, 4,092,800 shares of Common Stock and 106,850
Series A Preferred Shares were issued and outstanding. Except upon
written notification to Smith Management and Farmout Stockholders,
Inland will not, prior to the Series B Closing, issue any Common
Stock or Preferred Stock (other than upon conversion of Series A
Preferred Shares or exercise of outstanding options or warrants),
and will not repurchase or redeem any Common Stock or Preferred
Stock (other than the anticipated redemption of Series A Preferred
Shares). Other than the Common Shares issuable pursuant to this
Agreement or the shares of Common Stock underlying the Series B
Shares, neither Inland nor any Subsidiary has any shares of its
capital stock reserved for issuance, except for shares of Common
Stock issuable upon conversion of Series A Preferred Shares and
except for 212,800 shares of Common Stock issuable pursuant to
Inland's employee stock option plan, of which options for 184,960
shares are outstanding, and 256,911 shares issuable pursuant to
other outstanding subscriptions, options and warrants. No
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other options, warrants or securities convertible into Common
Stock, other than the Series A Preferred Shares, are outstanding.
All such issued and outstanding shares of capital stock of Inland
are validly issued, fully paid, non-assessable and free of any
preemptive rights.
3.06 The various reports filed by Inland with the Securities
and Exchange Commission do not contain any untrue statement of a
material fact, or omit to state a material fact necessary to make
the statements contained therein not misleading.
IV
REPRESENTATIONS AND WARRANTIES OF
SMITH MANAGEMENT AND FARMOUT STOCKHOLDERS
Smith Management hereby represents and warrants to Inland and
Inland Production as of the date hereof and as of the Series B
Closing Date, and the Farmout Stockholders each severally represent
and warrant to Inland and Inland Production as of the date hereof
and as of the Farmout Closing Date, as follows:
4.01 Each of Smith Management and Farmout has all requisite
corporate power and authority to execute and deliver this Agreement
and to consummate the Transactions to be performed by Smith
Management and Farmout. The execution and delivery of this
Agreement and the consummation of the Transactions to be performed
by Smith Management and Farmout have been duly and validly
authorized by all necessary action on the part of the Boards of
Directors of Smith Management and Farmout, and no other corporate
proceedings are necessary to authorize the execution and delivery
of this Agreement by Smith Management or Farmout or to consummate
the Transactions to be performed by Smith Management or Farmout.
This Agreement has been duly and validly executed and delivered by
each of Smith Management, Farmout and the Farmout Stockholders and,
assuming this Agreement constitutes a valid and binding obligation
of Inland, this Agreement constitutes a valid and binding agreement
of each of Smith Management, Farmout and the Farmout Stockholders,
enforceable against each of Smith Management, Farmout and the
Farmout Stockholders in accordance with its terms.
4.02 Neither the execution and delivery of this Agreement by
Smith Management, Farmout and the Farmout Stockholders, the
consummation of the Transactions to be performed by Smith
Management, Farmout and the Farmout Stockholders, nor compliance by
Smith Management, Farmout and the Farmout Stockholders, with any of
the provisions hereof will (i) conflict with or result in any
breach of any provisions of the Articles of Incorporation or by-laws
of Smith Management or Farmout or any of their Subsidiaries,
(ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority, except
for consents, approvals, authorizations, permits, filings or
notifications which have been obtained or made, (iii) result in a
default (with or without due notice or lapse of time or both) or
give rise to any right of termination, cancellation or acceleration
under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, contract, license, agreement or other
instrument or obligation to which Smith Management, Farmout or the
Farmout Stockholders, or any of the Subsidiaries of Smith
Management or Farmout, is a party or by which Smith Management,
Farmout or the Farmout
- 6 -<PAGE>
Stockholders, or any of the Subsidiaries of Smith Management or
Farmout, or any of their respective assets may be bound, except for
such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been
obtained, or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Smith Management, Farmout
or the Farmout Stockholders, any of the Subsidiaries of Smith
Management or Farmout, or any of their respective assets.
4.03 Each of Smith Management and the Farmout Stockholders
has such knowledge and experience in financial and business matters
as enables it or him to evaluate the merits and risks of an
investment in the Shares. Each of Smith Management and the Farmout
Stockholders is an "accredited investor" as such term is defined in
Rule 501 under the Securities Act. Each of Smith Management and
the Farmout Stockholders is acquiring the Common Shares and Series
B Shares, as applicable, for its or his own account and not with
the view to resale or redistribution thereof in violation of the
Securities Act. Each of Smith Management and the Farmout
Stockholders acknowledges that it or he may not transfer the Common
Shares and Series B Shares, as applicable, except pursuant to an
effective registration statement under the Securities Act or
pursuant to an exemption from the registration requirements of the
Securities Act, and that a legend to such effect shall be included
on the certificate representing the Common Shares and Series B
Shares.
V
COVENANTS
5.01 Between the date hereof and the Series B Closing Date,
Inland will afford to Smith Management and its authorized
representatives reasonable access (subject to tenants' rights) to
the plant, offices, warehouses, or other facilities and properties,
including oil and gas properties) and to the books and records of
Inland and its Subsidiaries, will permit Smith Management and its
representatives to make such reasonable inspections as they may
require and will cause its officers and those of its Subsidiaries
to furnish Smith Management and its representatives with such
financial and operating data, environmental assessment and other
information with respect to the business, assets and properties of
Inland and its Subsidiaries, as applicable, as Smith management and
its representatives may from time to time reasonably request. No
inspection or examination by Smith Management or the Farmout
Stockholders or their representatives will constitute a waiver of
any claim against Inland for misrepresentation or breach of this
Agreement. Smith Management and the Farmout Stockholders shall
hold strictly confidential all information obtained as a result of
any examination or inspection of Inland and its Subsidiaries;
provided, that Smith Management and the Farmout Stockholders shall
not be obligated to hold confidential information which (i) was or
becomes generally available to the public other than as a result of
a disclosure by Smith Management or the Farmout Stockholders or
their representatives or (ii) was or becomes available to Smith
Management and the Farmout Stockholders on a nonconfidential basis
from a source other than Inland or its representatives, provided
that such source is not bound by a confidentiality agreement with
Inland or otherwise prohibited from transmitting the information to
Smith Management and the Farmout Stockholders.
5.02 Subject to the terms and conditions herein provided,
Inland and each of Smith Management and the Farmout Stockholders
agree to use their best efforts to take, or cause to be
- 7 -<PAGE>
taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Transactions.
5.03 Inland and Smith Management will consult with each other
before issuing any press release or otherwise making any public
statements with respect to the existence of this Agreement or the
Transactions and shall not issue any press release or make any
public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing
agreements between Inland and NASDAQ.
5.04 For so long as Smith Management, the Farmout
Stockholders or any of their Affiliates (which term has the meaning
given to it in Rule 405 under the Securities Act) own any of the
Common Shares or Common Stock underlying the Series B Shares or any
other securities of Inland, Inland covenants and agrees that it
will (i) maintain on a current basis the filing of all reports
required to be filed by Inland pursuant to the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder;
(ii) use its reasonable best efforts to maintain its qualification
for the use of Form S-3; and (iii) cooperate with Smith Management
and the Farmout Stockholders whenever Smith Management or the
Farmout Stockholders wish to dispose of any securities of Inland
owned by them or any of their Affiliates under Rule 144 and/or Rule
144A under the Securities Act, to the full extent feasible in order
to consummate such disposition.
VI
CONDITIONS OF SMITH MANAGEMENT
The obligations of Smith Management to effect the closing of
the Series B Shares on the Series B Closing Date are subject to the
satisfaction of the following conditions any one or more of which
may be waived by Smith Management.
6.01 The representations and warranties contained in Article
III hereof shall be true in all material respects on and as of the
Series B Closing Date as if made on and as of the Series B Closing
Date. Inland shall have complied with all of its obligations
contained herein performance of which is required on or prior to
the Series B closing Date. Smith Management shall have received a
certificate to the foregoing effect executed by an officer of
Inland.
6.02 The Certificate of Designation in the form of Exhibit
"B" shall have been filed with the Secretary of State of Washington
on or before the Series B Closing Date.
6.03 Smith Management shall, prior to the Series B Closing
Date, be satisfied, in its sole discretion, with the results of its
legal and business due diligence of Inland.
6.04 There shall have been no Material Adverse Effect from
the end of the quarter covered by Inland's most recently filed Form
10-QSB until the Series B Closing Date with regard to the
obligation of Smith Management (or its designee) to purchase the
Series B Shares.
- 8 -<PAGE>
6.05 Trust Company of the West shall have consented to the
issuance of the Series B Shares by Inland and the redemption of the
Series A Preferred Stock on or before the Series B Closing Date.
6.06 Inland shall send a notice of redemption to all holders
of Series A Preferred Stock simultaneously with the Series B
Closing.
6.07 Smith Management shall have received an opinion of
Inland's counsel at Series B Closing, in the form reasonably
requested by Smith Management.
VII
INLAND'S CONDITIONS
The obligations of Inland to issue and sell the Series B
Shares are subject to the satisfaction of the following conditions
any one or more of which may be waived by Inland:
7.01 The representations and warranties contained in Article
IV hereof shall be true in all material respects on and as of the
Series B Closing Date as if made on and as of the Series B Closing
Date with regard to the issuance of the Series B Shares. Smith
Management shall have complied with all of its obligations
contained herein performance of which is required on or prior to
the Series B Closing Date. Inland shall have received a
certificate to the foregoing effect executed by an officer of Smith
Management, as applicable.
7.02 Trust Company of the West shall have consented to the
issuance of the Series B Shares by Inland and the redemption of the
Series A Preferred Stock on or before the Series B Closing Date.
VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 The Series B Transactions contemplated hereby may be
abandoned at any time prior to the Series B Closing, as follows:
(a) By the mutual written consent of Inland, Inland
Production and Smith Management;
(b) On or after August 1, 1996, by Inland and Inland
Production, on the one hand, or by Smith Management, on the other
hand, if the Series B Closing shall not have occurred prior
thereto; provided, however, that a party shall not have the right
to terminate this Agreement pursuant to this Section 8.01(b) if the
Series B Closing failed to occur on or before such date by reason
of the breach by such party of any of its obligation hereunder; or
- 9 -<PAGE>
(c) by Inland and Inland Production, on one hand, or Smith
Management, on the other hand, if there shall have been a breach by
the other party of any of the covenants contained herein or if any
representation or warranty made by any other party is untrue in any
material respect.
8.02 In the event of the abandonment of the Series B
Transactions pursuant to Section 8.01(a), (b) or (c), this
Agreement shall forthwith become void and have no effect with
respect to the Series B Transactions, without any liability in
respect to the Series B Transactions on the part of any party other
than Section 9.05. In the event of the abandonment of the Series
B Transactions, this Agreement will remain in full force and effect
with respect to the Farmout Transactions and Inland will remain
absolutely and unconditionally obligated to deliver the Common
Shares in accordance with Section 1.01 hereof.
IX
MISCELLANEOUS
9.01 This Agreement (a) constitutes the entire agreement
among the parties with respect to subject matter hereof and
supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or
otherwise.
9.02 All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to
have been duly given when delivered person, by facsimile, or by
registered or certified mail (postage prepaid, return receipt
requested) to respective parties as follows:
If to Inland or Inland Production:
c/o Inland Resources Inc.
475 17th Street
Suite 1500
Denver, Colorado 80202
Fax: 303-296-4070
Attn: Kyle R. Miller
With a copy to:
Glast, Phillips and Murray, P.C.
2200 One Galleria Tower
13355 Noel Road, L.B. 48
Dallas, Texas 75240-6657
Fax: 214-419-8329
Attn: Mike Parsons
- 10 -<PAGE>
If to Smith Management or the Farmout Stockholders:
c/o Smith Management Company, Inc.
885 Third Avenue
34th Floor
New York, New York 10022
Attn: David A. Persing, Senior Vice President and
General Counsel
9.03 This Agreement shall be governed by and construed in
accordance with the laws in the state of New York applicable to
agreements made and wholly performed in the State of New York.
9.04 This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same agreement.
9.05 Except as otherwise provided herein or in the
Registration Rights Agreement, each party shall bear and pay all
costs and expenses incurred by it or on its behalf in connection
with transactions contemplated hereby, including fees and expenses
of its representatives.
9.06 Except as provided in this Section 9.06, neither Smith
Management, the Farmout Stockholders nor Inland may assign its or
his rights or obligations hereunder; provided, however, Smith
Management may assign its rights to acquire the Series B Shares to
an affiliate, provided such assignment shall not relieve Smith
Management of its obligations hereunder; and provided, further,
that the Farmout Stockholders may designate other persons as the
recipients of the Common Shares, as long as they do so in
compliance with applicable securities laws.
IN WITNESS WHEREOF, the parties have caused this agreement to
be executed and delivered as of the day and year first set above.
INLAND RESOURCES INC.
By: KYLE R. MILLER
__________________________
Kyle R. Miller, President
INLAND PRODUCTION COMPANY
By: KYLE R. MILLER
__________________________
Kyle R. Miller, President
- 11 -<PAGE>
SMITH MANAGEMENT COMPANY, INC.
By: DAVID A. PERSING
___________________________
Its: Senior Vice President
FARMOUT INC.
By: BRUCE M. SCHNELWAR
___________________________
Its: Sr. V.P.
RANDALL D. SMITH
______________________________
Randall D. Smith, Individually
JEFFREY A. SMITH
______________________________
Jeffrey A. Smith, Individually
JOHN W. ADAMS
______________________________
John W. Adams, Individually
- 12 -<PAGE>
EXHIBIT "A"
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is made, executed
and entered into this 12th day of June, 1996, between and among
RANDALL D. SMITH, JEFFREY A. SMITH and JOHN W. ADAMS (individually
and collectively referred to herein as the "Secured Party") and
INLAND RESOURCES INC. ("Pledgor").
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SECURITY INTEREST
Pledgor hereby creates and grants to the Secured Party a
security interest in the property described in Article II hereof to
secure the payment and performance of the obligations of Pledgor to
the Secured Party set forth in Article III hereof.
ARTICLE II
COLLATERAL
The property in which the security interest is created is all
of Pledgor's right, title and interest in and to 100 shares of
common stock, par value $1.00 per share, of Farmout Inc., a Utah
corporation (hereinafter referred to as the "Collateral").
ARTICLE III
OBLIGATION SECURED
This Agreement shall secure the performance of the obligation
of Pledgor to Secured Party to issue and deliver to Secured Party
1,309,880 post-split shares of Pledgor's common stock, par value
$.001 per share ("Common Stock"), on January 2, 1997 pursuant to
that certain Agreement executed effective as of June 12, 1996 by
and between Secured Party, Pledgor and other parties named therein,
subject to earlier delivery of such Common Stock as provided in
Section 1.01 of said Agreement upon the terms and conditions
provided in said Section 1.01 (the "Obligation").
ARTICLE IV
WARRANTY AND REPRESENTATION OF PLEDGOR
Pledgor represents and warrants that:
SECURITY AGREEMENT - Page 1<PAGE>
(i) Pledgor has full authority and capacity to execute and
deliver this Agreement;
(ii) no financing statement covering the Collateral, or any
part thereof, has been filed with any filing officer;
(iii) no other security agreement covering the Collateral, or
any part thereof, has been made and no security interest, other
than the one herein created, has attached or been perfected in the
Collateral or in any part thereof;
(iv) no dispute, right of setoff, counter-claim or defense
exists with respect to all or any part of the Collateral;
(v) except for matters arising by reason of state or federal
securities laws, there are no restrictions upon the transfer of any
of the Collateral;
(vi) Pledgor has the right to transfer the Collateral free of
any liens, claims or encumbrances and without obtaining the consent
of any other party which has not already been obtained, and the
transfer of the Collateral will not result in a default under any
agreement to which Pledgor or the Company is a party; and
(vii) Pledgor is the owner of the Collateral.
ARTICLE V
COVENANTS AND OBLIGATIONS OF PLEDGOR
Pledgor covenants and agrees to:
(i) deliver to Randall D. Smith, on behalf of the Secured
Party, the original stock certificate which represents the
Collateral, together with a stock power endorsing the Collateral to
Secured Party in the form attached hereto as Exhibit "A";
(ii) from time to time promptly execute and deliver to Randall
D. Smith, on behalf of the Secured Party, all such other
assignments, certificates, supplemental writings, financing
statements and continuation statements, and do all other acts or
things, as Secured Party may reasonably request in order to more
fully evidence and perfect the security interest herein created;
(iii) promptly furnish Secured Party with any information which
Secured Party may reasonably request concerning the Collateral;
(iv) allow Secured Party to inspect all records of Pledgor
relating to the Collateral, and to make and take away copies of
such records;
SECURITY AGREEMENT - Page 2<PAGE>
(v) promptly notify Secured Party of any change in any fact
or circumstance warranted or represented by Pledgor in this
Agreement or in any other writing furnished by Pledgor to Secured
Party in connection with the Collateral;
(vi) promptly notify secured Party of any claim, action or
proceeding affecting title to the Collateral, or any part thereof,
or the security interest therein, and at the request of Secured
Party, appear in and defend, at Pledgor's expense, any such action
or proceeding;
(vii) promptly notify Secured Party of any change of address of
Pledgor; and
(viii) not merge or consolidate Farmout, Inc. with or into any
other corporation or entity, or enter into any exchange of stock
with any other corporation or entity, prior to delivery of the
Common Stock to Secured Party as required herein.
Pledgor further covenants and agrees that, without the prior
written consent of Secured Party, Pledgor will not: (a) sell,
assign or transfer any of Pledgor's rights in the Collateral; or
(b) create any other security interest in, or otherwise encumber,
the Collateral, or any part thereof, or permit the same to be or
become subject to any lien, attachment, execution, sequestration,
other legal or equitable process, or any encumbrance or security
agreement of any kind or character.
Should the Collateral, or any part thereof, ever be in any
manner converted by the issuer thereof into another type of
property or any money or other proceeds ever be paid or delivered
to Pledgor as a result of Pledgor's rights in the Collateral, then,
in any such event, all such property, money and other proceeds hall
become part of the Collateral, shall beheld by Pledgor in trust for
the benefit of Secured Party, and Pledgor covenants to forthwith
pay or deliver to Randall D. Smith, on behalf of the Secured Party,
all of the same and, at the same time, if Secured Party deems it
necessary and so requests, Pledgor will properly endorse or assign
the same; provided, however, that cash dividends paid on the
Collateral to Pledgor shall be and remain the property of Pledgor,
except any dividends paid during the time after a "default" (as
defined below) has occurred and remains uncured. With respect to
any of such property of a kind requiring an additional security
agreement, financing statement or other writing to perfect a
security interest therein in favor of Secured Party, Pledgor will
forthwith execute and deliver to Randall D. Smith, on behalf of the
Secured Party, whatever the Secured Party shall reasonably deem
necessary or proper for such purpose. Should any covenant or
agreement of Pledgor fail to be performed in accordance with its
terms, Secured Party may, but never shall be obligated to, perform
or attempt to perform such covenant or agreement on behalf of
Pledgor and Pledgor agrees to pay to Secured party any such amount
reasonably expended by Secured Party in such performance or
attempted performance, together with interest thereon at the rate
specified in the Note.
ARTICLE VI
EVENTS OF DEFAULT; RIGHTS OF SECURED PARTY UPON
DEFAULT
The term "default", as used herein, means the occurrence of
any of the following events:
(i) the failure of Pledgor to issue and deliver the 1,309,880
shares of Common Stock to Secured party on January 2, 1997, which
failure continues for fifteen (15) calendar days after notice
thereof from Secured Party to Pledgor; or
SECURITY AGREEMENT - Page 3<PAGE>
(ii) the failure of Pledgor to punctually and properly perform
any material covenant or agreement contained herein, which failure
continues for thirty (30) calendar days after notice thereof from
Secured Party to Pledgor.
Upon the occurrence of a default, in addition to any and all
other rights and remedies which Secured Party may then have
hereunder, or under the Uniform Commercial Code, as adopted in New
York (the "Code"), or otherwise, Secured Party, at Secured Party's
option, may:
(i) bring suit to enforce specific performance of Pledgor's
obligation to issue and deliver the 1,309,880 shares of Common
Stock to Secured Party;
(ii) reduce any claim against Pledgor to judgment and
otherwise enforce collection of the same;
(iii) foreclose or otherwise enforce its security interest in
all or any part of the Collateral by any available judicial
procedure;
(iv) after notification, if any, as provided for herein, sell
or otherwise dispose of, at such location chosen by Secured Party,
all or any part of the Collateral, and any such sale or other
disposition may be as a unit or in parcels, by public or private
proceedings, and for cash or upon credit or otherwise as Secured
Party may reasonably determine, and by way of one or more contracts
(it being agreed that the sale of any part of the Collateral, shall
not exhaust Secured Party's power of sale, but sales may be made
from time to time until all of the Collateral has been sold or
until the Obligation has been paid in full), and at any such sale
it shall not be necessary to exhibit the Collateral;
(v) apply by appropriate judicial proceedings for appointment
of a receiver for the Collateral, or any part thereof, and Pledgor
hereby consents to any such appointment;
(vi) buy the Collateral at any public sale;
(vii) buy the Collateral at any private sale if the Collateral
is of a type customarily sold in a recognized market or is a type
which is the subject of widely distributed standard price
quotations; and
(viii) without notice to Pledgor, either have the Collateral
registered in Secured Party's name, or in the name of a nominee,
and, with or without such registration, (a) exercise as to such
Collateral all the rights, powers and remedies of an owner,
including the right and power to vote, (b) enter into any
extension, reorganization, merger or consolidation agreement, or
any other agreement in any way relating to or affecting the
Collateral, and in connection therewith may deposit or surrender
control of the Collateral and accept other property in exchange
therefor, and (c) demand of the issuer of the Collateral to receive
any and all dividends and other distributions payable in respect
thereof, regardless of the medium in which paid and whether they be
ordinary or extraordinary, and the issuer of the Collateral, in
making payment to Secured Party hereunder, shall
SECURITY AGREEMENT - Page 4<PAGE>
be fully protected in relying on the written statement of Secured
Party that Secured Party then holds a security interest which
entitles it to receive such payment, and the receipt of Secured
Party for such payment shall be full acquittance therefor to the
issuer of the Collateral and the issuer of the Collateral shall not
be required to see the application of such payment; provided,
however, Secured Party shall have no duty to exercise any of the
foregoing rights, privileges or options and shall not be
responsible for any delay or failure to do so.
Secured Party shall have no duty to fix or preserve the rights
against any other party having an interest in the Collateral, and
shall never be liable for its failure to use diligence to collect
any amount payable in respect to the Collateral, but shall be
liable only to account to Pledgor for what Secured Party may
actually collect or receive thereon. Pledgor agrees that the
Secured Party shall have no responsibility for ascertaining any
maturities, calls, conversions, exchanges, offers, tenders or
similar matters relating to any of the Collateral, nor for
informing Pledgor with respect to any thereof.
Secured Party shall be entitled to apply the proceeds of any
sale or other disposition of the Collateral in the following order:
first, to the payment of all of Secured Party's reasonable
expenses, including, without limitation, attorneys' fees and other
legal expenses, incurred in holding and preparing the Collateral,
or any part thereof, for sale or other disposition, in arranging
for such sale or other disposition, and in actually selling the
same; and next, toward payment of the balance of the Obligation in
such order and manner as Secured Party, in its discretion, may deem
advisable. Secured Party shall account to Pledgor for any surplus
after making the foregoing application and, if any Collateral
remains unsold, shall return such Collateral to Pledgor. If the
proceeds are not sufficient to pay the Obligation in full, Pledgor
shall be liable for any deficiency and shall be required to pay the
same to Secured Party.
ARTICLE VII
RIGHTS OF PLEDGOR
Unless and until occurrence of an event of "default" as herein
defined, Pledgor shall have the right to vote the Collateral. If
requested by Pledgor, Secured Party shall execute and deliver to
Pledgor such proxies and authorizations as are reasonably required
to confirm the voting rights of Pledgor.
ARTICLE VIII
SECURITIES LAWS
The Secured Party is authorized, at any sale, if it deems it
desirable so to do, to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are
purchasing for their own account, for investment, and not with a
view to distribution or sale of any of the Collateral.
If any default shall have occurred and if Secured Party
determines to exercise its rights to sell all or any of the
Collateral, upon request the Pledgor shall from time to time
furnish to Secured Party
SECURITY AGREEMENT - Page 5<PAGE>
all such information as Secured Party may request in order to
determine the number of shares included in the Collateral which may
be sold by Pledgor in exempt transactions under Section 4(1) of the
Securities Act of 1933, as amended, and Rule 144 of the Securities
and Exchange Commission thereunder (or any statutory provisions or
rules in effect in lieu thereof), as the same are from time to time
in effect.
Pledgor recognizes and acknowledges that Secured Party may be
unable to effect a public sale of all or a part of the Collateral
(time being of the essence) and may elect to resort to one or more
private sales to purchasers who will be obligated to agree, among
other things, to acquire the Collateral for their own account, for
investment, and not with a view to the distribution or resale
thereof. Pledgor acknowledges that any such private sales may be
at prices and on terms less favorable to Secured Party than those
of public sales, provided such private sales shall be made in a
commercially reasonable manner.
ARTICLE IX
NOTIFICATION OF SALE
Reasonable notification of the time and place of any public
sale of the Collateral, or reasonable notification of the time
after which any private sale or other intended disposition of the
Collateral is to be made, shall be sent to Pledgor at the address
set forth on the signature page hereof, and to any other person
entitled under the Code to notice.
ARTICLE X
FINANCING STATEMENT
Secured Party shall have the right at any time to file this
Agreement, or a photographic or other reproduction hereof, as a
financing statement, and to attach to the same a description of all
Collateral at the time subject to this Agreement, but the failure
of Secured Party to do so shall not impair the validity or
enforceability of this Agreement.
ARTICLE XI
REMEDIES CUMULATIVE
All rights and remedies of Secured Party hereunder are
cumulative of each other and of every other right or remedy which
Secured Party may otherwise have at law or in equity or under any
other contract or other writing for the enforcement of the security
interest herein or the collection of the Obligation, and the
exercise of one or more rights or remedies shall not prejudice or
impair the concurrent or subsequent exercise by Secured Party of
other rights or remedies.
SECURITY AGREEMENT - Page 6<PAGE>
ARTICLE XII
TRANSFER AND ASSIGNMENT BY SECURED PARTY
The rights, powers and interests held by Secured Party
hereunder, together with the Collateral, may be transferred and
assigned by Secured Party, in whole or in part, at such time and
upon such terms as he may deem advisable to any person who shall
acquire any part of the Obligation, and upon any such transfer or
assignment, the transferee or assignee shall succeed to all the
rights and powers of, and be subject to the duties and obligations
of, Secured Party hereunder to the extent of any such transfer and
assignment.
ARTICLE XIII
NO WAIVER OF RIGHTS OR REMEDIES
Should any part of the Obligation be payable in installments,
the acceptance by Secured Party at any time and from time to time
of part payment of the aggregate amount of all installments then
matured shall not be deemed to be a waiver of the default, if any,
then existing. No waiver by Secured Party of any default shall be
deemed to be a waiver of any other subsequent default, nor shall
any such waiver by Secured Party be deemed to be a continuing
waiver. No modification or waiver of any provision of this
agreement or of any promissory note or other security agreement,
mortgage, deed of trust, assignment or contract of any kind
evidencing or securing payment of the Obligation, or any part
thereof, shall be effective unless the same shall be in writing and
signed by Secured Party. No delay or omission by Secured Party in
exercising any right or power hereunder, or under any other
writings executed by Pledgor as security for or in connection with
the Obligation, shall impair any such right or power or be
construed as a waiver thereof or any acquiescence therein, nor
shall any single or partial exercise of any such right or power
preclude other or further exercise thereof, or the exercise of any
other right or power of Secured Party hereunder or under such other
writings.
ARTICLE XIV
BINDING EFFECT
This Agreement shall be binding on Pledgor and Pledgor's
successors and assigns and shall inure to the benefit of Secured
Party and Secured Party's successors and assigns.
ARTICLE XV
LAW GOVERNING
All obligations of Pledgor under this Agreement are
performable in New York, New York. This Agreement shall be deemed
made in New York, New York and shall be governed by, and construed
in accordance with, the laws of the State of New York.
SECURITY AGREEMENT - Page 7<PAGE>
ARTICLE XVI
HEADINGS
All headings set forth in this Agreement are intended for
convenience only and shall not control or affect the meaning,
construction or effect of this Agreement or any of the provisions
hereof.
ARTICLE XVII
SEVERABILITY
All agreements and covenants contained herein are severable
and in the event that any of them shall be held to be invalid by
any court or competent jurisdiction, this Agreement shall be
interpreted as if such invalid agreements or covenants were not
contained herein.
ARTICLE XVIII
TERMINATION OF SECURITY AGREEMENT
Upon the issuance and delivery to Secured Party of the
1,309,880 shares of Common Stock, this Agreement shall terminate.
Upon such termination, Secured Party shall promptly return to
Pledgor the stock certificates representing the Collateral,
together with the stock power executed by Pledgor in favor of
Secured Party.
ARTICLE XIX
NOTICES
Any notice shall be conclusively deemed to have been received
by a party hereto and to be effective on the day on which delivered
to such party at the address set forth below beside each party's
signature hereto (or at such other address as such party shall
specify to the other parties in writing), or if sent by registered
mail, on the third business day after the day on which mailed,
addressed to such party at the same address.
ARTICLE XX
ENTIRE AGREEMENT
This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the
subject matter hereof and contains all of the covenants and
agreements between the parties with respect to the subject matter
hereof.
SECURITY AGREEMENT - Page 8<PAGE>
ARTICLE XXI
WAIVERS AND AMENDMENTS
No term or condition of this Agreement shall be deemed to have
been waived nor shall there be any estoppel to enforce any
provision of this Agreement except by written instrument of the
party charged with such waiver or estoppel. No amendment or
modification of this Agreement shall be deemed effective unless and
until executed in writing by the parties hereto.
ARTICLE XXII
MULTIPLE COUNTERPARTS
This Agreement may be executed in two (2) or more
counterparts, each of which shall constitute an original, but all
of which when taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement
by signing any such counterpart.
EXECUTED by Pledgor and Secured Party effective the date and
year first above written.
ADDRESS AND TELECOPY NUMBER PLEDGOR:
FOR NOTICES TO PLEDGOR:
INLAND RESOURCES INC.
475 17th Street, Suite 1500 KYLE R. MILLER
Denver, Colorado 80202 By: _________________________
Fax: (303) 296-4070 Kyle R. Miller, President
ADDRESS AND TELECOPY NUMBER SECURED PARTY:
FOR NOTICES TO SECURED PARTY:
RANDALL D. SMITH
c/o Smith Management Company, Inc. _________________________
885 Third Avenue Randall D. Smith
34th Floor
New York, New York 10022
Fax: (212) 751-9503
JEFFREY A. SMITH
c/o Smith Management Company, Inc. _________________________
885 Third Avenue Jeffrey A. Smith
34th Floor
New York, New York 10022
Fax: (212) 751-9503
SECURITY AGREEMENT - Page 9<PAGE>
JOHN W. ADAMS
c/o Smith Management Company, Inc. By: _________________________
885 Third Avenue John W. Adams
34th Floor
New York, New York 10022
Fax: (212) 751-9503
SECURITY AGREEMENT - Page 10<PAGE>
EXHIBIT "A"
TO
SECURITY AGREEMENT
STOCK POWER
FOR VALUE RECEIVED, INLAND RESOURCES INC. hereby sells,
assigns and transfers unto Randall D. Smith, Jeffrey A. Smith and
John W. Adams, jointly, _______________ shares of common stock, par
value $__________ per share, of Farmout Inc., a Utah corporation,
in the name of Inland Resources Inc. on the books of said Farmout
Inc. represented by Certificate No. _____, and hereby irrevocably
constitutes and appoints Randall D. Smith, Jeffrey A. Smith and
John W. Adams, jointly, attorney to transfer the said stock on the
books of Farmout Inc. with full power of substitution in the
premises.
DATED: June 12, 1996
INLAND RESOURCES INC.
By:
______________________________
Kyle R. Miller, President
SECURITY AGREEMENT - Page 11<PAGE>
Exhibit "B"
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
INLAND RESOURCES INC.
DESIGNATING A SERIES OF STOCK
Pursuant to RCW 23B.06.020 and RCW 23B.10.020 of the
Washington Business Corporation Act, INLAND RESOURCES INC., a
Washington corporation (the "Corporation"), hereby submits this
Articles of Amendment to its Articles of Incorporation thereby
designating and establishing the following series of stock:
I. The name of the corporation is INLAND RESOURCES INC.
II. The date of filing the original articles of incorporation
with the Secretary of State of Washington is August 12, 1985.
III. The Articles of Incorporation of the Corporation are amended
by amending Article IV to add the following new paragraph 3 to said
Article IV:
"3. 1,000,000 shares of Class A preferred stock, par value
$0.001 per share, shall be designated Series B Convertible
Preferred Stock ("Series B Preferred Stock"). The Series B
Preferred Stock shall have the following voting powers, preferences
and relative, participating, optional and other special rights,
qualifications, limitations and restrictions:
"(i) Dividends. The Series B Preferred Stock shall bear
dividends at the rate of 12% per annum on the Redemption Price
thereof, accumulating daily, whether or not declared, and payable
quarterly in cash or common stock, at the option of the holder, to
the record holders of Series B Preferred Stock on the Corporation's
books on the last day of each calendar quarter in each calendar
year (the "Record Dates"), with the first Record Date on September
30, 1996, subject to the Board's election hereinafter set forth in
this paragraph (i). At the election of the Corporation's Board of
Directors (the "Board"), (a) such dividends may be paid in cash or
(b) such dividends may be accumulated and shall be payable in cash
when and as declared by the Board, provided, the holders of Series
B Preferred Stock may, by written notice to the Corporation
delivered within ten (10) days following each Records Date, elect
to take dividends in the form of Cmmon Stock at the Conversion
Price (defined in paragraph (iv), below). Notwithstanding the
foregoing, in the event that the holder of Series B Preferred Stock
does not elect during such ten day period to receive dividends in
the form of Common Stock, the holder will continue to have the
right to take such accumulated dividends in the form of Common
Stock until such time, if any, as the Board of Directors declares
that such accumulated dividends shall be paid in cash and
establishes a dividend payment date therefor. When paid in cash,
such dividends shall be payable out of funds legally available
therefor within twenty (20) days after the Board's election or
declaration. No dividends shall be paid or declared, and no
distribution (of securities of the Corporation or any other
property) shall be made, on any Junior Securities (as defined
below) while any dividends on the Series B Preferred Stock shall
remain accumulated and unpaid. "Junior Securities" means any of
the Corporation's equity securities other than the Series B
Preferred Stock and the Corporation's Series A Preferred Stock,
which is being called for redemption (or conversion, at the
election of the holders thereof) concurrently with the filing of
these
- 1 -<PAGE>
Articles of Amendment designating the Series B Preferred Stock, it
being understood, therefore, that no shares of Series A Preferred
Stock will be issued and outstanding as of the first Record Date
for Series B Preferred Stock, but until said Series A Preferred
Stock is actually redeemed or converted in accordance with such
call for redemption, the Series A Preferred Stock shall have
preference over the Series B Preferred Stock and the Series B
Preferred Stock shall be deemed subordinate to the Series A
Preferred Stock.
"(ii) Liquidation Rights.
"(a) In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary,
the holder of each share of Series B Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, whether
such assets are capital, surplus or earnings, before any payment or
declaration and setting apart for payment of any amount shall be
made in respect of any Junior Securities (but expressly subordinate
to the rights of the holders of Series A Preferred Stock until it
is redeemed or converted as noted in paragraph (i), above), an
amount in cash equal to ten dollars ($10.00) for each share of such
Series B Preferred Stock, together with any accumulated dividends
thereon, provided, if such liquidation, dissolution or winding up
of the Corporation occurs prior to July 31, 1998, the holders of
Series B Preferred Stock shall be entitled to the full amount of
dividends that would have been accumulated through such date (the
"Liquidation Value").
"(b) After the payment or distribution to the
holders of Series B Preferred Stock of the full preferential
amounts aforesaid, the holders of Common Stock then outstanding
shall together be entitled to receive ratably all the remaining
assets of the Corporation.
"(c) A consolidation or merger of the Corporation
with or into any other corporation or corporations shall not be
deemed to be a liquidation, dissolution or winding up of the
Corporation as those terms are used in this paragraph (ii).
"(d) If upon any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the assets
to be distributed among the holders of Series B Preferred Stock
pursuant to subparagraph (a) shall be insufficient to permit the
payment to such stockholders of the full preferential amounts
required by such subparagraph, then all of the assets of the
Corporation to be distributed shall be distributed ratably to the
holders of outstanding Series B Preferred Stock based on the number
of shares held by each holder, and the holders of Junior Securities
shall receive no distribution upon such liquidation, dissolution or
winding up of the Corporation.
"(iii) Redemption of Series B Preferred Stock. Subject
to the rights of the holders of Series A Preferred Stock until
redeemed or converted as noted in paragraph (i), above, the Series
B Preferred Stock may be redeemed at any time by the Corporation
prior to liquidation, dissolution or winding up of the Corporation
upon fifteen (15) days advance written notice by the Corporation to
the record holders of such Series B Preferred Stock on the books of
the Corporation, by paying to the holders of Series B Preferred
Stock an amount equal to $10.00 per outstanding share (the
"Redemption Price") plus accumulated and unpaid dividends thereon.
The holders of Series B Preferred Stock shall be deemed to have
received written notice of such
- 2 -<PAGE>
redemption five (5) days after the Corporation's mailing of the
notice of redemption by certified or registered mail, return
receipt requested, postage prepaid, and addressed to each holder of
record at such holder's address appearing on the books of the
Corporation. Upon redemption of the Series B Preferred Stock, each
holder shall be entitled to payment of the Redemption Price and any
accumulated dividends, provided, if such redemption occurs prior to
July 31, 1998, the holders of Series B Preferred Stock shall be
entitled to the full amount of dividends that would have been
accumulated through such date. Any record holder of Series B
Preferred Stock may convert all or a portion of its, his or her
Series B Preferred Stock in accordance with the provisions of
paragraph (iv) prior to such date of redemption by delivering
written notice to the Corporation of such holder's election to
convert all or a portion of such shares of Series B Preferred Stock
(and dividends payable thereon) held of record by such holder. The
Redemption Price (and dividends payable thereon) payable to the
holders of Series B Preferred Stock who have not elected to convert
their shares shall be payable by the Corporation within ten (10)
days after expiration of the aforementioned fifteen (15) day notice
period.
Any designee of Smith Management Company, Inc. ("Smith
Management") on the Corporation's Board, or any replacements
thereof or any other subsequent nominees by Smith Management, shall
not be entitled to vote on the redemption of the Series B Preferred
Stock.
The Corporation must exercise its redemption rights granted
pursuant to this paragraph (iii) if a "Corporate Transaction" (as
hereinafter defined) occurs. "Corporate Transaction" means the
occurrence of any of the following: (i) the sale by the
Corporation of all or substantially all of its assets other than in
the ordinary course of business, (ii) a merger of the Corporation
with or into another person or a consolidation of the Corporation
with another person, or (iii) any person or "group" (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) (other than Pengo Securities Corp. and its affiliates),
acquires voting securities of the Corporation representing a
majority of the total votes that may be cast in the election of the
Corporation's directors.
The Corporation shall be prohibited from redeeming any Junior
Securities unless the Corporation shall also redeem all of the
Series B Preferred Stock in conjunction therewith, or holders of at
least a majority of the Series B Preferred Stock outstanding at
such time have voted to allow redemption of such Junior Securities
without redemption of the Series B Preferred Stock.
Notwithstanding the foregoing, the Corporation shall be entitled to
redeem the Series A Preferred Stock without further notice to, or
action by, the holders of Series B Preferred Stock.
"(iv) Conversion. The holders of Series B Preferred
Stock shall have the following conversion rights (the "Conversion
Rights"):
"(a) Right to Convert. Each share of Series B
Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at
the office of the Corporation or any transfer agent for the Series
B Preferred Stock or Common Stock, into the number of shares of
Common Stock which result from dividing the Redemption Price (plus
any accumulated dividends) by the "Conversion Price" per share (as
defined herein) in effect at the time of such conversion; provided,
if the conversion is elected by the holder after the Corporation
has issued a notice of redemption, or in connection with a
liquidation, dissolution or winding up of the Corporation, prior to
July 31, 1998, the accumulated
- 3 -<PAGE>
dividends into which the Conversion Price shall be divided shall
include the full amount of dividends that would have been
accumulated through July 31, 1998. The initial "Conversion Price"
per share shall be $6.27, and such initial Conversion Price shall
be subject to adjustment from time to time as provided herein.
"(b) Mechanics of Conversion. Before any holder of
Series B Preferred Stock shall be entitled to convert the same into
shares of Common Stock, such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series B Preferred
Stock or Common Stock, and shall give written notice to the
Corporation at such office that such holder elects to convert the
same and shall state therein the number of shares of Series B
Preferred Stock being converted. Thereupon the Corporation shall
promptly issue and deliver at such office to such holder of Series
B Preferred Stock a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such
surrender of the shares of Series B Preferred Stock to be
converted, and the person or persons whom the Corporation's records
indicate are entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such
date. The certificate or certificates representing the shares of
Common Stock issued upon such conversion shall contain the same
restrictive legends, if any, included on the certificate or
certificates of Series B Preferred Stock surrendered, unless the
shares of Common Stock issuable upon such conversion have been
registered under the Securities Act of 1933, as amended, and
applicable state securities laws, in which case they will not be
legended.
"(c) Adjustment for Stock Splits and Combinations.
If the Corporation shall at any time or from time to time after the
issuance of the Series B Preferred Stock (the "Commitment Date")
effect a subdivision of the outstanding Common Stock, the
Conversion Price then in effect immediately before the subdivision
shall be proportionately decreased, and conversely, if the
Corporation shall at any time or from time to time after the
Commitment Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this
subparagraph (c) shall become effective at the close of business on
the date the subdivision or combination becomes effective.
"(d) Adjustment for Certain Dividends and
Distributions. In the event the Corporation at any time, or from
time to time, after the Commitment Date shall make or issue, or fix
a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in
shares of Common Stock, then and in each such event the Conversion
Price then in effect shall be decreased as of the time of such
issuance or in the event such a record date shall have been fixed,
as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction:
"(i) the numerator of which shall be the total
number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such
record date; and
- 4 -<PAGE>
"(ii) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefore the Conversion Price shall
be recomputed accordingly as of the close of business on such
record date and thereafter the Conversion Price shall be adjusted
pursuant to this subparagraph (d) as of the time of actual payment
of such dividends or distributions.
"(e) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time or from
time to time after the Commitment Date shall make or issue or fix
a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock,
then and in each such event provision shall be made so that the
holders of Series B Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation
which they would have received had their Series B Preferred Stock
been converted into Common Stock on the date of such event and had
they thereafter, during the period from the date of such event to
and including the Conversion Date, retained such securities
receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under
this paragraph (iv) with respect to the rights of the holders of
the Series B Preferred Stock.
"(f) Adjustment for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon the conversion of
the Series B Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this
paragraph (iv)), then and in each such event the holders of each
share of Series B Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock
and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the
number of shares of Common Stock into which such share of Series B
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or other change, all subject to
further adjustment as provided herein.
"(g) Reorganization, Mergers, Consolidations or
Sales of Assets. Subject to the Corporation's obligation to redeem
the Series B Preferred Stock in connection with the occurrence of
a Corporate Transaction as provided in paragraph (iii), if at any
time or from time to time there shall be a capital reorganization
of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in
this paragraph (iv)) or a merger or consolidation of the
Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any
other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders
of Series B Preferred Stock shall thereafter be entitled to
receive, upon conversion of Series B Preferred Stock, the number of
shares of stock or other securities or property to which
- 5 -<PAGE>
a holder of the Common Stock deliverable upon such conversion would
have been entitled in connection with such reorganization, merger,
consolidation or sale (provided, however, if any such
reorganization, merger, consolidation or sale of assets occurs
prior to July 31,1998, the holders of Series B Preferred Stock
shall be entitled to convert the full amount of dividends that
would have been accumulated through such date). In any such case,
appropriate adjustment shall be made in the application of the
provisions of this paragraph (iv) with respect to the rights of the
holders of Series B Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of
this paragraph (iv) (including provisions for the adjustment of the
Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series B Preferred Stock) shall
be applicable after that event and be as nearly equivalent to the
provisions hereof as is practicable.
"(h) Adjustment for Issuance of Common Stock at Less
than Conversion Price. If the Corporation at any time after the
Commitment Date (i) issues any shares of Common Stock (other than
pursuant to the Agreement dated effective June 12, 1996 between
Smith Management Company, Inc., Farmout Inc., Randall D. Smith,
Jeffrey A. Smith, John W. Adams, Inland Production Company and the
Corporation, or other than pursuant to warrants, options or
convertible securities outstanding as of the Commitment Date, or
other than pursuant to the Corporation's Amended 1988 Option Plan),
for a per share consideration or price less than the Conversion
Price then in effect hereunder, or (ii) issues any rights, warrants
or options to acquire, or securities convertible into, shares of
Common Stock (other than options to purchase Common Stock pursuant
to options which may be granted under the Corporation's Amended
1988 Option Plan and similar benefit plans subsequently adopted by
the Corporation for the benefit of its employees), that permit
exercise or conversion for a per share consideration less than the
Conversion Price then in effect hereunder, then effective
automatically on the date of such issuance the Conversion Price
hereunder shall automatically be adjusted as follows: the number
of shares of the Corporation's Common Stock outstanding (or deemed
to be outstanding as hereinafter provided) immediately prior to
such issue shall be multiplied by the Conversion Price in effect at
the time of such issue and there shall be added to the product so
obtained the aggregate consideration, if any, (a) received by the
Corporation upon such issue of additional shares of Common Stock
pursuant to (i) and (b) received by the Corporation, or which will
be received by the Corporation, pursuant to (ii) upon the issue and
upon the subsequent exercise or conversion of any such additional
rights, warrants, options or convertible securities. The sum so
obtained shall be divided by the number of shares of the
Corporation's Common Stock outstanding (or deemed to be outstanding
as hereinafter provided) immediately after such issue (including,
for this purpose, the shares to be subsequently issued under any
rights, warrants, options or convertible securities which triggered
the requirement to apply this adjustment to the Conversion Price),
and the resulting quotient shall be the adjusted Conversion Price.
For purposes of determining outstanding shares of Common Stock for
applying the foregoing formula, all options, rights, warrants and
securities convertible into Common Stock outstanding as of the date
hereof shall be deemed to be outstanding shares of Common Stock,
and any options, rights, warrants or convertible securities issued
after the date hereof pursuant to (ii) above, which have resulted
in a previous adjustment of the Conversion Price shall be
considered outstanding shares of Common Stock for all subsequent
applications of the formula to arrive at subsequent adjustments of
the Conversion Price.
- 6 -<PAGE>
"(i) Accounts' Certificate of Adjustment. In each
case of an adjustment or readjustment of the Conversion Price or
the number of shares of Common Stock or other securities issuable
upon conversion of Series B Preferred Stock, the Corporation, at
its expense, shall cause independent public accountants of
recognized standing selected by the Corporation (who may be the
independent public accountants then auditing the books of the
Corporation) (or the chief financial officer of the Corporation at
the Board's option) to compute such adjustment or readjustment in
accordance with the Corporation's Articles of Incorporation and
prepare a certificate showing such adjustment or readjustments and
shall mail such certificate, by first class mail, postage prepaid,
to each registered holder of Series B Preferred Stock at the
holder's address as shown in the Corporation's books. The
certificate shall set forth such adjustment or readjustment,
showing in detail the facts upon which such adjustment or
readjustment is based.
"(j) Notices of Record Date. In the event (i) any
taking by the Corporation of a record of the holders of any class
of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or
(ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation or any transfer of all or substantially all of the
assets of the Corporation to, or any merger or consolidation with,
any other corporation, or any other entity or person, or any
voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, the Corporation shall mail to each holder of
Series B Preferred Stock at least thirty (30) days prior to the
record date specified therein, a notice specifying (A) the date on
which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or
distribution, (B) the date on which any such reorganization,
reclassification or recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to
become effective and a description of such transaction, and (C) the
time, if any, that is to be fixed as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities
or other property deliverable upon such reorganization,
reclassification or recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up.
"(k) Fractional Shares. No fractional shares of
Common Stock shall be issued upon conversion of Series B Preferred
Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to the
product of such fraction multiplied by the fair market value of one
share of the Corporation's Common Stock on the date of conversion,
as determined by the closing "bid" price on the day prior to the
date of conversion.
"(l) Reservation of Stock Issuable Upon Conversion
or for Dividends. The Corporation shall at all times reserve and
keep available out of the authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of shares
of Series B Preferred Stock and to cover dividends that may be
issuable in Common Stock pursuant to paragraph (iii), such number
of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of
Series B Preferred Stock and to cover dividends that may be
issuable in Common Stock pursuant to paragraph (iii); and if at any
time thereafter the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of
all then outstanding shares of Series B Preferred Stock or
- 7 -<PAGE>
payment of such dividends, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
"(m) Notices Deemed Given. Any notice required by
the provisions of this paragraph (iv) to be given to the holders of
shares of Series B Preferred Stock shall be deemed given five (5)
business days after the same has been deposited in the United
States mail, certified or registered mail, return receipt
requested, postage prepaid, and addressed to each holder of record
at such holder's address appearing on the books of the Corporation.
"(n) Payment of Taxes. The Corporation will pay all
taxes and other governmental charges, other than income, estate or
gift taxes, that may be imposed in respect of the issue or delivery
of shares of Common Stock upon conversion of shares of Series B
Preferred Stock.
"(v) Voting Rights. Each holder of any share of Series
B Preferred Stock shall be entitled to vote on all matters and
shall be entitled to one vote for each share of Series B Preferred
Stock held. Each holder of shares of any of the Common Stock shall
be entitled to one vote on all matters and shall be entitled to one
vote for each share of Common Stock held. Except as otherwise
expressly provided herein or as mandated by law, the holders of
shares of Common Stock and Series B Preferred Stock shall vote
together and not as separate voting groups or classes. In the
event voting as a separate voting group by the holders of Series B
Preferred Stock is expressly provided herein or mandated and
required by Washington law, any vote by the holders of Series B
Preferred Stock as a separate voting group shall be effective if
approved by a majority of the outstanding shares of Series B
Preferred Stock. Cumulative voting by holders of Series B
Preferred Stock and holders of Common Stock is expressed denied.
"(vi) Preemptive Rights. Except as provided in paragraph
(iv), no holder of any shares of Series B Preferred Stock shall be
entitled as a matter of right to subscribe or receive additional
shares of any class of stock of the Corporation, whether now or
hereafter authorized, or any bonds, debentures or other securities
convertible into such stock, but such additional shares of stock or
other securities convertible into stock may be issued or disposed
of by the Board to such persons and on such terms as in the Board's
discretion the Board shall deem advisable.
"(vii) No Reissuance of Series B Preferred Stock. No
share or shares of Series B Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled,
retired and eliminated from the shares of Series B Preferred Stock
which the Corporation shall be authorized to issue and all such
shares shall be returned to authorized but unissued shares of Class
A preferred stock, par value $0.001 per share, of the Corporation
and may be issued or further designated, as determined by the Board
in accordance with the Articles of Incorporation and applicable
law.
"(viii) Common Stock. The term "Common Stock", as used
herein, means the Corporation's $.001 par value Common Stock and
any capital stock of any class of the Corporation authorized after
the date the Series B Preferred Stock is established which is not
- 8 -<PAGE>
limited to a fixed sum or percentage of par or stated value in
respect of the rights of holders thereof to participate in
dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Corporation.
"(ix) Amendments. There shall be no amendment,
modification or waiver of the terms hereof without the prior
written consent of holders of at least a majority of the Series B
Preferred Stock outstanding at such time. The designation by the
Board of one or more additional series of Class A preferred stock
of the Corporation with dividend, liquidation, voting or conversion
rights pari passu with or having priority over or having greater or
more beneficial rights per share than the Series B Preferred Stock
shall be deemed to constitute an amendment to the Articles of
Incorporation of the Corporation for which the holders of shares of
Series B Preferred Stock are entitled to vote hereunder as a
separate voting group. Except as otherwise expressly provided in
this paragraph (ix), any changes or amendments to the Articles of
Incorporation of the Corporation may be made in accordance with
applicable law."
IV. The foregoing amendment was duly adopted by the Board of
Directors of the Corporation on ________________________ , 1996.
DATED: July _______, 1996.
_________________________________
Kyle R. Miller, President and
CEO
- 9 -
EXHIBIT 7
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of the 12th day of June, 1996 by and between INLAND RESOURCES INC., a
Washington corporation (the "Issuer"), and SMITH MANAGEMENT COMPANY, INC., a
New York corporation ("Smith Management"), RANDALL D. SMITH ("R. Smith"),
JEFFREY A. SMITH ("J. Smith") and JOHN W. ADAMS ("Adams"). R. Smith, J. Smith
and Adams are sometimes referred to herein jointly as "Farmout Stockholders",
and the Farmout Stockholders are sometimes referred to herein jointly with
Smith Management as the "Purchasers".
W I T N E S S E T H:
WHEREAS, the Issuer and Purchasers are parties to that certain Agreement
dated as of June 12, 1996 (the "Purchase Agreement") pursuant to which the
Issuer has agreed to issue to Farmout Stockholders 1,309,880 shares of common
stock, par value $.001 per share ("Common Stock"), of the Issuer (the "Common
Shares"), and to issue to Smith Management 950,000 shares of the 1,000,000
shares of Class A preferred stock, par value $.001 per share to be designated
as "Series B Convertible Preferred Stock" ("Series B Preferred Stock"), of the
Issuer (the "Preferred Shares"), which are convertible into shares of Common
Stock at an initial conversion price of $6.27 per share of Common Stock (the
"Underlying Common Shares"); and
WHEREAS, it is a condition precedent to the Purchasers' obligation to
purchase the Common Shares and Preferred Shares that the Issuer and the
Purchasers shall have entered into this Registration Rights Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter set forth, the Issuer and the Purchaser agree as follows:
1. Shelf Registration Rights.
The Issuer will, as soon as possible following a written request by Smith
Management with regard to the Common Shares, or the Farmout Stockholders with
regard to the Underlying Common Shares, file a shelf registration statement
(the "Shelf Registration Statement") on Form S-3 covering the Common Shares or
Underlying Common Shares, as applicable, and thereafter shall use its best
efforts to cause the Shelf Registration Statement to be declared effective as
soon as practicable following such filing and to take any and all reasonable
action within the Issuer's control (provided that such Registration Statement
may be unusable during periods (which shall not exceed one hundred twenty (120)
consecutive days or an aggregate of one hundred eighty days within any three
hundred sixty five day period) of pending acquisitions or other material events
which would require a post-effective amendment or supplement to the Shelf
Registration Statement, it being agreed that the Issuer shall use its best
efforts to file a post-effective amendment at the earliest practicable date so
that the Shelf Registration Statement will be usable), as may be necessary or
appropriate to maintain such effectiveness until such time as neither the
Purchasers nor any of their assignees own
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any Registerable Securities (as defined in Section 4). Purchasers will
cooperate fully with Issuer by filing consents or other documents with the SEC
which may be required by the SEC, or by providing such documents as may be
reasonably required by the Issuer. If the Purchasers propose to dispose of any
of the Registerable Securities pursuant to an underwritten offering the
Purchasers shall have the right to select the underwriter.
2. Indemnification. In connection with the registration of any of the
Registerable Securities under the Securities Act of 1933, as amended (the
"Act"):
(a) Issuer's Indemnification. The Issuer will indemnify and hold
harmless the Purchasers, each person who controls the Purchasers within the
meaning of the Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Smith Management's officers and directors, against any
losses, claims, expenses, damages or liabilities (including reasonable
attorney's fees), joint or several, to which the Purchasers, their controlling
persons or such officers and directors become subject under the Act, insofar as
such losses, claims, expenses, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Shelf Registration Statement,
in any prospectus forming a part of the Shelf Registration Statement (the
"Prospectus") or any amendment or supplement thereof, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Purchasers, each such controlling person or
such officers and directors for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
expense, damage, liability or action; provided, however, that the Issuer will
not be liable in any such case if but only to the extent that any such loss,
claim, expense, damage or liability arises out of our is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made
in conformity with information furnished in writing to the Issuer by the
Purchaser or Purchaser's underwriter expressly for inclusion in the
Registration Statement.
(b) Purchasers' Indemnification. Each Purchaser will indemnify
and hold harmless the Issuer and each underwriter of the Registerable
Securities and each person who controls the Issuer or any such underwriter
within the meaning of the Act and the Exchange Act, each officer of the Issuer
who signs the Shelf Registration Statement and each director of the Issuer,
against all losses, claims, expenses, damages or liabilities (including
reasonable attorneys, fees), joint or several, to which the Issuer, any such
underwriter or such officer or director or controlling person become subject
under the Act, but only insofar as such losses, claims, expenses, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact made in
reliance on and in conformity with information relating to such Purchaser
furnished in writing to the Issuer expressly for inclusion in the Shelf
Registration Statement.
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(c) Notification. Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof; provided,
however, that any failure to give such notice will not waive any rights of the
indemnified party except to the extent the rights of the indemnifying party are
materially prejudiced. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in the defense thereof.
(d) If the indemnification provided for in this Section 2 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, expenses, damages or liabilities or actions in respect
thereof, then each indemnifying party shall in lieu of indemnifying such
indemnified party contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, expenses, damages, liabilities or
actions in such proportion as is appropriate to reflect the relative fault of
the Issuer, on the one hand, and the applicable Purchaser, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, expenses, damages, liabilities or actions as well as any other relevant
equitable considerations, including the failure to give any required notice.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Issuer, on the one hand, or the applicable Purchaser, on the
other, and the parties, relative intent, knowledge, access to information and
opportunity to correct or present such statement or omission. The Issuer and
the Purchasers agree that it would not be just and equitable if contribution
pursuant to this Section 2 (d) were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 2 (d). The amount paid or
payable to an indemnified party as a result of the losses, claims, expenses,
damages, liabilities or actions in respect thereof referred to above in this
Section 2(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
3. Expenses. In connection with the Shelf Registration Statement,
Issuer shall pay all expenses incident to the Issuer's performance of or
compliance with its obligations hereunder, including, without limitation, all
registration, filing and National Association of Securities Dealers, Inc. fees,
all fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
and the reasonable fees and disbursements of the Issuer's counsel and of its
independent public accountants. Purchasers will be
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responsible for any expenses incurred by them, including for their own counsel,
accountants, underwriters and representatives.
4. Registerable Securities. For purposes of this Agreement, the term
"Registerable Securities" shall mean (i) the Common Shares and Underlying
Common Shares and any Common Shares and Underlying Common Shares sold by any
Purchaser to a permitted assignee pursuant to Section 8 and (ii) any shares of
Common Stock issued or issuable with respect to the shares of Common Stock
described in (i) above, by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganizations. Registerable Securities shall cease to
be Registerable Securities when they have been disposed of pursuant to the
Shelf Registration Statement or pursuant to Rule 144 under the Act.
5. Rule 144 Covenants. The Issuer agrees that for so long as the
Purchasers own any Registerable Securities to (i) file with the SEC, in a
timely manner, all reports required to be filed by the Issuer under the
Exchange Act and (ii) to provide the Purchasers, upon request, information
regarding the number of shares of Common Stock outstanding as shown by the most
recent report or statement published by the Issuer.
6. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the conflict of law principles thereof.
7. Binding Effect. The obligations of this Agreement shall be binding
upon the parties, their heirs, successors and legal representatives.
8. Assignment. This Agreement may not be assigned by any party
without the prior written consent of the other party hereto, except that Smith
Management and the Farmout Stockholders may assign all or any portion of their
rights under this Agreement to a party to which it sells or transfers
Registerable Securities in a private transaction exempt from the registration
and prospectus delivery requirements of the Act, provided, at such time,
Purchaser furnishes an opinion of counsel to such effect reasonably acceptable
to the Issuer.
9. Amendment. Amendments to this Agreement may only be made in
writing signed by each of the parties.
10. Entire Agreement. This Agreement contains the entire
understanding of the parties and there are no other agreements, written or
oral, regarding the subject manner hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
INLAND RESOURCES INC.
KYLE R. MILLER
By: ______________________________
Kyle R. Miller, President
SMITH MANAGEMENT COMPANY, INC.
DAVID A. PERSING
By: ______________________________
Its: Senior Vice President
_________________________
RANDALL D. SMITH
___________________________________
Randall D. Smith, Individually
JEFFREY A. SMITH
___________________________________
Jeffrey A. Smith, Individually
JOHN W. ADAMS
___________________________________
John W. Adams, Individually
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