<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________________ to _________________
Commission file number 0-16487
INLAND RESOURCES INC.
(Exact name of small business issuer as specified in its charter)
WASHINGTON 91-1307042
(State of incorporation or organization) (IRS Employer Identification No.)
475 17TH STREET, SUITE 1500, DENVER, COLORADO 80202
(Address of principal executive offices) (ZIP Code)
Issuer's telephone number, including area code: (303) 292-0900
(Former name, address and fiscal year, if changed, since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes XX No
---- ----
Number of shares of common stock, par value $.001 per share, outstanding as of
November 1, 1996: 6,306,056
Traditional Small Business Disclosure Format:
Yes XX No
---- ----
<PAGE>
PART 1. FINANCIAL INFORMATION
INLAND RESOURCES INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
September 30, December 31,
1996 1995
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,782,838 $ 2,970,305
Accounts receivable and accrued sales 1,832,579 701,956
Inventory 704,272 417,665
Other current assets 399,279 19,338
------------ ------------
Total current assets 16,718,968 4,109,264
------------ ------------
Property and equipment, at cost:
Oil and gas properties (successful efforts method) 44,768,415 17,404,280
Accumulated depletion, depreciation and amortization (2,688,193) (585,590)
------------ ------------
42,080,222 16,818,690
Other property and equipment, net 782,241 593,106
Debt issue costs, net 370,980 401,803
------------ ------------
Total assets $ 59,952,411 $ 21,922,863
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,111,766 $ 2,859,775
Current portion of long-term debt 900,000 48,021
Property reclamation costs, short-term 511,446 200,000
------------ ------------
Total current liabilities 5,523,212 3,107,796
------------ ------------
Long-term debt 20,174,273 4,436,225
Deferred income taxes 600,000
Property reclamation costs, long-term 399,433
Stockholders' equity (see Notes 4,5,6):
Preferred Class A stock, par value $.001, 20,000,000 shares
authorized;
Series A: 0 and 106,850 shares issued and outstanding 107
Series B: 1,000,000 and 0 shares issued and outstanding,
liquidation preference of $12,400,000 1,000
Additional paid-in capital - preferred 9,999,000 4,100,261
Common stock, par value $.001; 25,000,000 shares
authorized; issued and outstanding 6,306,056 and
4,092,800, respectively 6,306 4,093
Additional paid-in capital - common 31,549,400 19,183,119
Accrued preferred Series B dividends 300,000
Accumulated deficit (8,200,780) (9,308,171)
------------ ------------
Total stockholders' equity 33,654,926 13,979,409
------------ ------------
Total liabilities and stockholders' equity $ 59,952,411 $ 21,922,863
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements
1
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales of oil and gas $3,553,484 $ 464,647 $6,798,180 $ 1,593,292
Management fee 158,356 158,356
---------- ---------- ---------- -----------
Total revenues 3,553,484 623,003 6,798,180 1,751,648
---------- ---------- ---------- -----------
Operating expenses:
Lease operating expenses 432,765 145,003 887,473 881,700
Production taxes 141,551 26,619 264,414 115,654
Exploration 154,152 143,401 167,355 157,993
Depletion, depreciation and amortization 1,339,341 192,182 2,224,603 702,891
General and administrative, net 397,479 194,662 1,069,023 974,447
---------- ---------- ---------- -----------
Total operating expenses 2,465,288 701,867 4,612,868 2,832,685
---------- ---------- ---------- -----------
Operating income (loss) 1,088,196 (78,864) 2,185,312 (1,081,037)
Interest expense (515,908) (167,571) (1,023,171) (588,979)
Other income, net 153,730 29,376 245,250 97,062
Gain on sale of the Duchesne County Fields 850,000 850,000
---------- ---------- ---------- -----------
Net income (loss) $ 726,018 $ 632,941 $1,407,391 $ (722,954)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Net income (loss) per share - Primary $ 0.12 $ 0.22 $ 0.29 $ (0.25)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average common and common
equivalent shares outstanding - Primary 5,948,745 2,892,800 4,845,703 2,892,800
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Net income (loss) per share - Fully diluted $ 0.10 $ 0.17 $ 0.23 $ (0.25)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average common and common
equivalent shares outstanding - Fully diluted 7,506,124 3,793,631 6,000,768 2,892,800
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Dividends per common share NONE NONE NONE NONE
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
2
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,407,391 $ (722,954)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Net cash used by discontinued operations (87,987) (209,725)
Depletion, depreciation and amortization 2,224,603 702,891
Gain on sale of the Duchesne County Fields (850,000)
Amortization of debt issue costs and debt discount 56,467
Effect of changes in current assets and liabilities:
Accounts receivable and accrued sales (1,130,623) 660,615
Inventory (286,607) 57,188
Other current assets (349,118) (33,814)
Accounts payable and accrued expenses 1,251,991 600,608
----------- -----------
Net cash provided by operating activities 3,086,117 204,809
----------- -----------
Cash flows from investing activities:
Development expenditures and equipment purchases (18,075,270) (4,142,433)
Change in restricted cash (124,342)
Net proceeds from sale of the Duchesne County Fields 2,946,765
----------- -----------
Net cash used by investing activities (18,075,270) (1,320,010)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of stock 10,008,750
Redemption of Series A preferred stock (740,624)
Proceeds from issuance of long-term debt 16,584,993 2,600,000
Payments of long-term debt (51,433) (120,397)
----------- -----------
Net cash provided by financing activities 25,801,686 2,479,603
----------- -----------
Net increase in cash and cash equivalents 10,812,533 1,364,402
Cash and cash equivalents at beginning of period 2,970,305 1,691,156
----------- -----------
Cash and cash equivalents at end of period $13,782,838 $ 3,055,558
----------- -----------
----------- -----------
Noncash financing and investing activity:
Purchase of Farmout Inc. for common stock $9,600,000
-----------
-----------
Issuance of note payable for land purchase $ 203,000
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
3
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. COMPANY ORGANIZATION:
Inland Resources Inc. (the "Company") was incorporated on August 12,
1985 in the State of Washington for the purpose of acquiring, exploring and
developing interests in mining properties. In 1987 the Company developed a
leased property (the "Toiyabe Mine") and began production of gold and
silver. Operations at the Toiyabe Mine have included open-pit mining,
crushing, agglomerations, heap leaching and gold and silver recovery
processes. Since 1993, the Company's mining operations have been limited to
the final detoxification, reclamation and closure of the Toiyabe Mine in
compliance with Nevada and federal laws.
Effective March 1, 1993, the Company acquired an undivided 50% interest in
certain oil and gas leases and other assets located in the Uinta Basin in
Duchesne County, Utah (the "Duchesne County Fields"). Accordingly, the
Company's business emphasis changed from precious metals mining to oil and
gas development and production.
Effective September 21, 1994, the Company acquired all the outstanding
common and preferred stock of Lomax Exploration Company, now known as
Inland Production Company ("IPC"). IPC is also engaged primarily in oil and
gas development and production activities in the Uinta Basin area of
Northeastern Utah, in the oil and gas field known as the Monument Butte
Field. IPC operates as a wholly-owned subsidiary of the Company.
Effective July 1, 1995, the Company sold its undivided interest in the
Duchesne County Fields. As a result, the Company is now focused on the
development of the Monument Butte Field where the Company controls
operations for the majority of its holdings and has a significant
infrastructure in place to conduct secondary recovery water flood
operations.
2. BASIS OF PRESENTATION:
The preceding financial information has been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in the opinion of the Company, includes all normal
and recurring adjustments necessary for a fair statement of the results of
each period shown. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
SEC rules and regulations. Management believes the disclosures made are
adequate to ensure that the financial information is not misleading, and
suggests that these financial statements be read in conjunction with the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1995.
3. RECLASSIFICATIONS:
Certain amounts for 1995 have been reclassified to conform with the 1996
financial statement presentation. The reclassifications had no impact on
net income or the accumulated deficit.
4
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
4. REVERSE STOCK SPLIT:
On May 22, 1996, the Company's shareholders approved a 1-for-10 reverse
stock split of the Company's common stock. The effect of the stock split
was to lower the authorized common shares from 100,000,000 to 10,000,000
shares and reduce outstanding common shares from 40,927,999 to 4,092,800
shares. The shareholders further approved an increase in the number of
post-split authorized shares from 10,000,000 to 25,000,000 shares. All
earnings per share amounts and weighted average common and common
equivalent shares outstanding as reported on the Consolidated Statement of
Operations have been calculated based on post-reverse split share amounts.
5. PURCHASE OF FARMOUT INC.:
Effective July 1, 1995, Randall D. Smith ("Smith"), the Company and IPC
entered into a Farmout Agreement pursuant to which IPC agreed to farmout to
Smith its interest in certain 40-acre drill sites and Smith agreed to drill
wells on such drill sites between July 1, 1995 and December 31, 1995.
Pursuant to the Farmout Agreement, 21 wells were drilled and funded by
Smith, 20 of which were producing wells and one of which was a
developmental dry hole.
Prior to June 1, 1996, Smith transferred a portion of his interests in the
farmout wells and the Farmout Agreement to two individuals (collectively,
with Smith, the "Farmout Stockholders"). The Farmout Stockholders
transferred all of said interests to Farmout Inc. prior to June 1, 1996.
On June 12, 1996, Smith Management Company, Inc., an affiliate of Smith,
Farmout Inc., the Farmout Stockholders, the Company and IPC entered into an
agreement pursuant to which the Farmout Stockholders transferred one
hundred percent (100%) of the outstanding capital stock of Farmout Inc. to
the Company in exchange for 1,309,880 shares of the Company's common stock.
Under the terms of the agreement, Inland will not issue or deliver the
common stock until January 2, 1997. Since no contingencies exist as to
their issuance, the 1,309,880 shares of common stock are considered
outstanding for purposes of reporting in the accompanying consolidated
financial statements of the Company. The purchase was valued at $9.6
million for accounting purposes, including the recognition of $0.6 million
of deferred taxes. Farmout Inc. is a Utah corporation whose assets include
only the twenty producing farmout wells drilled and operated by IPC during
the period July 1, 1995 to May 31, 1996. Farmout Inc. had no liabilities at
the purchase date. Income tax liabilities arising prior to June 12, 1996
are the responsibility of the Farmout Stockholders and income tax
liabilities from June 12, 1996 forward are the responsibility of the
Company. Smith and affiliated entities are collectively majority
shareholders of the Company. The acquisition of Farmout Inc. was accounted
for as a purchase, therefore, the assets and results of operations of
Farmout Inc. are included in the Company's consolidated financial
statements from the acquisition date forward. Farmout Inc. operates as a
wholly-owned subsidiary of the Company.
5
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
6. PREFERRED STOCK:
On July 31, 1996, the Company sold an affiliate of Smith 950,000 shares of
a newly designated series of preferred stock of the Company (the "Series B
Stock") which has 1,000,000 shares designated in the series. A director of
the Company who is also a Vice President of Smith Management Company, Inc.,
entered into a similar agreement pursuant to which he agreed to purchase
the remaining 50,000 shares of Series B Stock. The Series B Stock was
issued by the Company for cash of $10 per share (an aggregate of $10.0
million). Concurrently with the closing of the sale and issuance of the
Series B Stock, the Company called for redemption its outstanding Series A
Convertible Preferred Stock (the "Series A Stock"). Each record holder of
Series A Stock had the right to elect to receive either (i) cash in the
amount of $54.00, or (ii) 9.6726 shares of Common Stock, for each share of
Series A Stock. Of the 99,318 Series A Stock shares outstanding, holders of
85,605 shares elected to convert their shares into 828,002 shares of Common
Stock. The remaining 13,713 shares of Series A Stock were redeemed for
$740,624.
The Series B Stock bears a dividend of 12% per annum on the Redemption
Price (defined below); has a liquidation preference over Common Stock equal
to $10.00 per share plus any accumulated and unpaid dividends; is
redeemable at a "Redemption Price" equal to $10.00 per share, plus
accumulated and unpaid dividends; is convertible at a "conversion price" of
$6.27 per share (divided into the Redemption Price) subject to certain
anti-dilution adjustments; and is entitled to one vote per share of Series
B Stock on all matters submitted to the stockholders of the Company and
will vote with the Common Stock as one voting group or class, and not as a
separate voting group or class, except where required by law or except with
regard to various amendments to the Company's Articles of Incorporation
affecting the Series B Stock or creating another series of preferred stock
with rights equal to or greater than the rights of the Series B Stock. In
addition, if at any time prior to July 31, 1998, (i) the Company sells all
or substantially all of its assets other than in the ordinary course of
business, (ii) the Company merges or consolidates with or into another
person, (iii) a change of control of the Company occurs or (iv) the Company
is liquidated or dissolved, the holders of Series B Preferred Stock will be
entitled to a full two years of accumulated dividends in calculating
amounts payable upon liquidation, redemption or the number of shares of
Common Stock issuable upon conversion, as the case may be.
7. EARNINGS PER SHARE:
The computation of earnings per common and common equivalent share is based
upon the weighted average number of common shares outstanding during the
period plus the dilutive effect of shares issuable from the exercise of
stock options and warrants less the number of treasury shares assumed to be
purchased using the average market price for the period. The fully diluted
per share computation reflects additional dilution assuming full conversion
of the Series A Stock or Series B Stock, as applicable, and the additional
dilution related to the exercise of stock options and warrants less the
number of treasury shares assumed to be purchased using the market price at
the end of the period.
6
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
----------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
GENERAL:
Effective March 1, 1993, the Company acquired an undivided 50% interest in the
Duchesne County Fields. This purchase changed the Company's business emphasis
from precious metals mining to oil and gas development and production. Effective
September 21, 1994, the Company further increased its oil and gas holdings by
acquiring all the outstanding common and preferred stock of IPC, a company with
significant oil and gas development and production activities in the Monument
Butte Field of Northeastern Utah. Effective July 1, 1995, the Company sold its
undivided interest in the Duchesne County Fields. As a result, the Company is
now focused on the development of the Monument Butte Field where the Company
controls operations for the majority of its holdings and has a significant
infrastructure in place to conduct secondary recovery water flood operations. On
June 12, 1996, the Company further increased its holdings in the Monument Butte
Field by acquiring Farmout Inc.; a company with twenty producing wells in the
Monument Butte Field.
The Company's strategy to build upon the profitability experienced in 1996 is to
increase oil and gas production through acquisition of leases and existing oil
and gas production in developed fields, and further developing such acquisitions
through development drilling, reworking existing wells and engaging in secondary
recovery enhancement operations. Increased production levels allow for more
efficient operations at the field level which in turn has a positive impact on
the Company's equivalent per barrel lifting costs. In addition, increased
production lowers general and administrative costs on a per equivalent barrel
basis since fixed general and administrative costs do not increase proportionate
to production. The Company also protects the price it receives for a portion of
its oil production by entering into hedging arrangements. The ultimate success
of the Company's plan to continue to operate profitably is primarily dependent
on locating and purchasing properties on terms acceptable to the Company,
continuing to secure sufficient capital to acquire target properties and fund
extensive development and secondary recovery operations, then successfully
implementing development and secondary recovery plans.
The Company does not generally intend to pursue exploratory drilling in
undeveloped oil and gas properties due to the industry's relatively high
historical failure rate relating to exploratory drilling and the resulting
higher associated finding costs. However, from time to time the Company may for
various reasons determine to drill exploratory wells in certain areas considered
strategic by the Company.
RESULTS OF OPERATIONS:
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995:
OIL AND GAS SALES - Oil and gas sales during the third quarter of 1996
exceeded the previous year third quarter by approximately $3.1 million, or 665%.
The increase was attributable to increased oil and gas sales volumes and
increased average oil and gas sales prices as summarized below:
(OIL SALES IN BBLS, GAS SALES IN MCF) 1996 1995
- ------------------------------------- ---- ----
Oil sales - Monument Butte Field 164,669 28,054
Average oil price per barrel sold $ 19.92 $16.45
Gas sales - Monument Butte Field 291,971 18,468
Average gas price per Mcf sold $ 1.35 $ 0.80
7
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
-----------------------------------------
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------
The increase in oil and gas sales volumes in the Monument Butte Field is
attributable to the Farmout Inc. purchase and the forty-seven new wells that
IPC drilled and put on production since September 30, 1995. Crude oil
accounted for 89% of total oil and gas sales during the third quarter of 1996
and is expected to continue as the predominant product produced from the
Monument Butte Field.
As further discussed in "Liquidity and Capital Resources" below, the Company
has entered into price protection agreements to hedge against the volatility
in crude oil prices. Although hedging activities do not affect the Company's
actual sales price for crude oil in the field, the financial impact of
hedging transactions is reported as an adjustment to crude oil revenue in the
period in which the related oil is sold. Oil and gas sales were decreased by
$122,000 during the third quarter of 1996 to recognize hedging contract
settlement losses and contract purchase cost amortization.
LEASE OPERATING EXPENSES - Lease operating expense per barrel of oil
equivalent ("BOE") sold decreased from $4.66 during the third quarter of 1995
to $2.03 during the third quarter of 1996. This reduction is primarily
attributable to increased sales volumes that allow for wider allocation of
operating costs. The Company's policy is to expense the costs of water
injection operations during the start-up phase of secondary recovery water
flood operations. These expenses include the costs of purchasing water and
operating water source wells, water injection wells and water injection
stations. As a result of this policy, the Company's per barrel lifting costs
will be higher during the start-up phase than if the Company would capitalize
and deplete these costs as part of secondary recovery enhancement projects.
Of the Company's six water flood projects, five are in the start-up phase.
Lease operating expense in the Monument Butte Field benefits from certain of
the Company's gas transportation contracts. Under the terms of the applicable
contracts, the Company is allowed to use natural gas produced from the
Monument Butte, Gilsonite and Boundary Units to power field operations
throughout the Monument Butte Field. As a result of this provision, the
Company does not recognize lease operating expense for natural gas used as
lease fuel since their is no charge to the Company for such usage and, if
sold, the related gas proceeds would not inure to the benefit of the Company.
The Company estimates the amount of natural gas used as lease fuel, net to
the Company's interest, was 50,000 Mcf and 13,500 Mcf during the third
quarters of 1996 and 1995, respectively. The Company does not intend to renew
these contracts when they expire on October 31, 1997. After expiration of the
contracts, natural gas production from these areas will be the property of
the Company causing natural gas used as lease fuel to have a direct impact on
the Company's natural gas sales.
PRODUCTION TAXES - Production taxes as a percentage of sales decreased
from 5.7% during the third quarter of 1995 to 3.8% during 1996. The
percentage decrease results from an increase in sales from newly drilled
wells which are exempt from Utah state severance tax during their initial six
months of production.
EXPLORATION - Exploration expense represents the Company's share of
costs to retain unproved acreage. In addition, during the third quarter of
both 1996 and 1995 the Company drilled an uneconomic exploration well.
DEPLETION, DEPRECIATION AND AMORTIZATION - The increase in depletion,
depreciation and amortization resulted from increased sales volumes.
Depletion, which is based on the units-of-production method, comprises the
majority of the total charge. The depletion rate is a function of capitalized
costs and related underlying reserves in the periods presented. The Company's
average depletion rate was $5.96 per BOE sold during the third quarter of
1996 compared to $5.75 per BOE sold during the third quarter of 1995.
8
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
-----------------------------------------
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------
GENERAL AND ADMINISTRATIVE, NET - General and administrative expense
increased $203,000 on a net basis between quarters. General and
administrative expense is reported net of operator fees and reimbursements
which were $512,000 and $295,000 during the third quarters of 1996 and 1995,
respectively. The increase in reimbursements is primarily a function of the
level of operated drilling activity. During the third quarter of 1996, the
Company operated the drilling of 17 wells while in the same period of 1995
the Company operated the drilling of 12 wells. Gross general and
administrative expense increased from $489,000 in 1995 to $909,000 in 1996.
The increase is related to increased salaries, payroll taxes and employee
benefits as the Company's employee base grew from twenty-two employees at
January 1, 1995 to forty-six employees at September 30, 1996. The remaining
increase is associated with the cost of operating with a larger employee base.
INTEREST EXPENSE - Borrowings during the third quarter of 1996 averaged
approximately $18.7 million at an average effective interest rate of 11.0%.
Borrowings during the third quarter of 1995 averaged approximately $4.0
million at an average effective interest rate of 17.0%. The change in the
effective interest rate resulted from the debt refinancing performed on
November 29, 1995 as further explained in "Liquidity and Capital Resources",
below.
OTHER INCOME - Other income represents interest earned on the investment
of surplus cash balances.
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995:
GENERAL - The Company sold the Duchesne County Fields effective July 1, 1995.
Accordingly, the results of operations for the nine months ended September
30, 1996 does not include any activity from the Duchesne County Fields while
the results of operations for the same period in 1995 includes six full
months of activity.
OIL AND GAS SALES - Oil and gas sales during the initial nine months of
1996 exceeded the comparable period in 1995 by approximately $5.2 million, or
326%. The increase was attributable to increased oil and gas sales and
increased average oil sales prices as summarized below:
(Oil sales in Bbls, gas sales in Mcf) 1996 1995
------------------------------------ ------- ------
Oil sales - Monument Butte Field 334,067 64,952
Oil sales - Duchesne County Fields - 22,116
------- ------
Total oil sales 334,067 87,068
------- ------
Average oil price per barrel sold $19.77 $17.00
Gas sales - Monument Butte Field 424,309 31,926
Gas sales - Duchesne County Fields - 55,097
------- ------
Total gas sales 424,309 87,023
------- ------
Average gas price per Mcf sold $1.29 $1.30
The increase in oil and gas sales volumes in the Monument Butte Field is
attributable to the Farmout Inc. purchase and the forty-seven new wells that
IPC drilled and put on production since September 30, 1995. Oil and gas sales
were decreased by $352,000 and $5,400 during 1996 and 1995, respectively, due
to the recognition of hedging contract settlement losses and contract
purchase cost amortization.
9
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
-----------------------------------------
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------
LEASE OPERATING EXPENSES - Lease operating expense per barrel of oil
equivalent ("BOE") sold decreased from $8.68 during the first nine months of
1995 to $2.19 during the same period in 1996. This reduction is primarily
attributable to increased sales volumes that allow for wider allocation of
operating costs. The sale of the Duchesne County Fields has also contributed
to the reduction of lease operating expenses.
1996 1995
-------- --------
MONUMENT BUTTE FIELD
Lease operating expense $887,473 $478,145
Lease operating expense per BOE $ 2.19 $ 6.80
DUCHESNE COUNTY FIELDS
Lease operating expense $403,555
Lease operating expense per BOE $ 12.89
As previously discussed, lease operating expense in the Monument Butte Field
benefits from certain of the Company's gas transportation contracts. The
Company estimates the amount of natural gas used as lease fuel, net to the
Company's interest, was 125,000 Mcf and 40,500 Mcf during the first nine
months of 1996 and 1995, respectively. Until October 1997, this usage will
not lower the Company's share of gas sales and will not impact lease
operating expense.
PRODUCTION TAXES - Production taxes as a percentage of sales decreased
from 7.3% during 1995 to 3.7% during 1996. The decrease was caused by the
sale of the Duchesne County Fields where the effective production tax rate
was 12.6%. The higher tax rate for the Duchesne County Fields is due to their
location on the Reservation of the Ute Indian Tribe where an additional Ute
Indian severance tax is imposed. In addition, new wells drilled by the
Company in Utah are allowed a six month exemption from state severance taxes.
EXPLORATION - Exploration expense represents the Company's share of
costs to retain unproved acreage. In addition, during the third quarter of
both 1996 and 1995 the Company drilled an uneconomic exploration well.
DEPLETION, DEPRECIATION AND AMORTIZATION - The increase in depletion,
depreciation and amortization resulted from increased sales volumes.
Depletion, which is based on the units-of-production method, comprises the
majority of the total charge. The depletion rate is a function of capitalized
costs and related underlying reserves in the periods presented. The Company's
average depletion rate was $5.19 per BOE sold year-to-date in 1996 compared
to $6.00 per BOE sold in 1995. The decreased rate was due to the sale of the
Duchesne County Fields.
GENERAL AND ADMINISTRATIVE, NET - General and administrative expense
increased $94,500 or 9.7% between nine month periods. General and
administrative expense is reported net of operator fees and reimbursements
which were $1,389,000 and $758,000 during the nine month periods of 1996 and
1995, respectively. The increase in reimbursements is primarily a function of
the level of operated drilling activity. During 1996, the Company operated
the drilling of 52 wells while in the same period of 1995 the Company
operated the drilling of only 19 wells. Gross general and administrative
expense increased from $1,732,000 in 1995 to $2,457,000 in 1996. The increase
is related to increased salaries, payroll taxes and employee benefits as the
Company's employee base grew from twenty-two employees at January 1, 1995 to
forty-six employees at September 30, 1996. The remaining increase is
associated with the cost of operating with a larger employee base.
10
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
----------
INTEREST EXPENSE - Borrowings during 1996 have averaged approximately $12.4
million at an average effective interest rate of 11.0%. Borrowings during 1995
averaged approximately $4.8 million at an average effective interest rate of
16.3%. The change in the effective interest rate resulted from the debt
refinancing performed on November 29, 1995 as further explained in "Liquidity
and Capital Resources", below.
OTHER INCOME - Other income represents interest earned on the investment of
surplus cash balances.
INCOME TAXES - No income tax provision or benefit has been recognized due
to past net operating losses incurred and the recording of a full valuation
allowance. The Company expects to begin to record deferred income tax expense
during the fourth quarter of 1996.
DISCONTINUED OPERATIONS. The Company classifies all mining operations as
discontinued operations. The only mining operation remaining is ongoing
reclamation activities at the Toiyabe Mine located near Crescent Valley, Nevada.
Since July 1992, reclamation activities have focused on rinsing the leach pads
with fresh water and recycled leaching solution. The goal of the rinsing
activity is to reduce concentrations of certain constituents to state drinking
water standards and to achieve "stabilization" of certain other elements, such
that their concentration would not be lowered with further rinsing. Based upon
ongoing testing results, the Company believes it has achieved its rinsing goals.
As a result, 1996 operations have focused on evaporation of all solutions
remaining in the contained circulation system, the submission of a Final Closure
Report to the Nevada Department of Environmental Protection (the "NDEP") and
certain other reclamation tasks. Assuming that the NDEP agrees Toiyabe's leach
pads are stabilized and that the Company's method to treat future stormwater
filtration through the leach pads is sufficient, among other items, the Company
could be in a post-closure monitoring mode at the Toiyabe Mine by October 1997.
Based on the foregoing assumptions, the Company has established a current
reserve for reclamation activities of $511,000 at September 30, 1996. Although
the ultimate future reclamation cost is dependent upon certain events which
cannot be precisely predicted, the Company believes that based on factors
presently known or anticipated, the current reserve will be adequate to fully
reclaim the Toiyabe Mine in compliance with Nevada and federal laws. However,
should unforeseen circumstances arise that that cause the closure timetable to
be delayed or additional labor, material and holding costs to be incurred,
future reclamation exposure could exceed $511,000.
On September 12, 1996, the Company entered into an Option Agreement with Placer
Dome U.S. Inc. ("PDUS") whereby PDUS has the option, until December 11, 1996, to
purchase all of the Company's mining claims and property rights in the Toiyabe
Mine area. If PDUS elects to exercise their option under the Option Agreement,
the Company will pay PDUS $240,000 to assume all past, present and future
environmental and reclamation liabilities associated with the Toiyabe Mine,
whether known or unknown at the time of delivery of title. In order for the
Company to achieve this level of release of environmental responsibility, the
Company has allowed PDUS to perform environmental due diligence on the property
in the form of water quality drill testing. At the time of filing this Form
10-QSB, PDUS had completed the drilling portion of the water quality drill
testing and was awaiting chemical analysis of samples taken from each water
zone encountered.
11
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
----------
LIQUIDITY AND CAPITAL RESOURCES:
TCW LOAN AGREEMENT - On November 29, 1995, the Company entered into a
Credit Agreement (the "TCW Loan Agreement") with Trust Company of the West and
affiliated entities (collectively "TCW"), which provides a recourse loan
facility to the Company of up to $25.0 million for the development of the
Monument Butte Field. The TCW Loan Agreement bears interest at 10% per annum
payable quarterly. Commencing in March 1997, minimum payments of principal are
required in the following amounts per quarter: $275,000 in 1997, $550,000 in
1998, $1,300,000 in 1999, $1,400,000 in 2000, $1,200,000 in 2001, $750,000 in
2002, $425,000 in 2003, and $350,000 in 2004. Additional principal payments may
be due in certain circumstances out of excess cash flow, as defined in the TCW
Loan Agreement. The Company also granted TCW an initial 7% overriding royalty
interest, proportionately reduced by the Company's working interest in the oil
and gas properties, which continues until TCW earns a 16% rate of return at
which time it reduces to 3%, proportionately reduced by the Company's interest
in the oil and gas properties, until TCW earns a 22% rate of return. The TCW
Loan Agreement also subjects the Company to penalties on the overriding royalty
interests to achieve a 16% and 22% rate of return if the loan is prepaid prior
to November 29, 1997. The Company is required to meet certain minimum ratios, is
subject to covenants not to engage in various activities without TCW's prior
consent, and may not pay any dividends or make any other distributions without
TCW's prior written consent. The agreement also contains a provision that if any
material adverse change occurs in the Company's financial condition that is not
remedied within 60 days, TCW has the right to declare the Company in default.
The TCW Loan Agreement is collateralized by substantially all the Company's
interest in its oil and gas and other properties.
During the first nine months of 1996, the Company borrowed $16.5 million under
the TCW Loan Agreement increasing total advanced funds to $21.5 million at
September 30, 1996. The additional $16.5 million was used to drill and complete
52 gross (47 net) wells within the Monument Butte Field and further expand the
water delivery and gas gathering infrastructures. The Company intends on
drilling an additional 15 gross (13 net) wells in 1996 with the remaining
availability under the TCW Loan Agreement and cash on hand. Development will
also include the conversion of existing producing wells to water injection
wells, the expansion of the water delivery infrastructure and the expansion of
the gas gathering infrastructure, among other things. Based on results to date,
the Company believes it will be able to meet the terms of the TCW Loan Agreement
and advance the remaining availability of $3.5 million by December 31, 1996.
WORKING CAPITAL AND CASH HOLDINGS - During the third quarter the Company
increased its cash holdings by $8.9 million and working capital by $7.6 million.
The increases were caused by the Company's sale of $10.0 million of preferred
Series B Stock which closed on July 31, 1996. The timing of advances under the
TCW Loan Agreement and payment of drilling obligations also impact the Company's
cash and working capital positions. The Company is required to cover reclamation
costs of the Toiyabe Mine, net general and administrative expenses, lease
operating expenses, production taxes, undeveloped acreage holding costs,
discretionary capital expenditures and principal and interest payments out of
cash generated from operations and its current cash holdings. The Company
believes that cash sources and holdings will be sufficient to cover such costs
and payments and meet its working capital needs throughout 1997.
12
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
----------
HEDGING ACTIVITY - The Company has entered into price protection
agreements to hedge against the volatility in crude oil prices and to help
insure the repayment of indebtedness. The Company has a hedge in place with
Enron Capital and Trade Resources Corp. (an affiliate of Enron Corp.) (the
"Enron Hedge") to hedge crude oil production over a five year period
beginning January 1, 1996 in monthly amounts escalating from 8,500 Bbls in
January 1996 to 14,000 Bbls in December 2000. The hedge is structured as a
cost free collar whereby if the average monthly price (based on NYMEX Light
Sweet Crude Oil Futures Contracts) (the "Average Price") is between $18.00
and $20.55 per barrel, no payment is due under the contract. If the Average
Price is less than $18.00, the Company is paid the difference between $18.00
and the Average Price, multiplied by the barrels of crude oil hedged that
month. Similarly, should the Average Price exceed $20.55 per barrel, the
Company is required to pay the difference between $20.55 and the Average
Price, multiplied by the barrels of crude oil hedged that month.
In order to further protect the price the Company receives for crude oil
production, on January 18, 1996 the Company entered into three additional
contracts with Enron Capital and Trade Resources Corp. The effect of two of the
contracts was to lower the floor under the Enron Hedge from $18.00 to $16.50
during the eleven month period from February 1996 to December 31, 1996. The
Company received $52,400 as a result of this restructuring. Under the third
contract, the Company purchased for $149,000 an additional 257,000 put options
with a strike price of $16.50 covering the period February 1996 through December
1996 in monthly amounts escalating from 10,000 barrels to 35,000 during the
contract period. On July 8, 1996, the Company purchased for $133,200 an
additional 720,000 put options with a strike price of $15.00 covering the period
January 1997 through December 1997 which settles in monthly amounts of 60,000
barrels during the contract period. The net amortized cost of these additional
contracts and the monthly settlement net gain or loss is included as an
adjustment to crude oil revenue in the period the related oil is sold.
MARKETS - The availability of a ready market and the prices obtained for
the Company's oil and gas depend on many factors beyond the Company's
control, including the extent of domestic production, imports of oil and gas,
the proximity and capacity of oil and natural gas pipelines and other
transportation facilities, fluctuating demands for oil and gas, the marketing
of competitive fuels, and the effects of governmental regulation of oil and
gas production and sales. Crude oil produced from the Monument Butte Field is
called "Black Wax" and is sold at the posted field price (an industry term
for the fair market value of oil in a particular field) less a deduction of
approximately $.85 to a $1.00 per barrel for oil quality adjustments. The
posted field price for the Monument Butte Field has ranged from $17.50 to
$22.79 per barrel during the first nine months of 1996. As the quantity of
Black Wax produced within the Monument Butte Field grows, physical limitations
within the regional refineries, located in Salt Lake City, Utah, will limit
the amount of Black Wax that can be processed. The Company is conducting
discussions with each refinery to inform them of the outlook for Black Wax
production in this region such that they can propose solutions to existing
plant configurations. While the outcome of these talks is unknown, the
Company expects to negotiate a long-term marketing arrangement that will be
beneficial to the Company. Until such an arrangement is reached and the
refinery modifications are accomplished, there may be short-term downward
pressure on Black Wax pricing.
ACQUISITION FINANCING - The Company continues to aggressively seek other
opportunities to acquire existing oil and gas production in developed fields.
The Company will attempt to finance such acquisitions through (i) seller
financing, whenever possible; (ii) joint operating agreements with industry
partners where the Company may sell part of its position to provide acquisition
and development funds; (iii) sales of equity or debt of the Company; or (iv)
traditional bank lines of credit, although the Company currently has no existing
bank lines of credit or arrangements with any bank to loan funds.
13
<PAGE>
PART 1. FINANCIAL INFORMATION (CONTINUED)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
----------
ENVIRONMENTAL DISCUSSION - The Company is subject to numerous federal and
state laws and regulations relating to environmental matters. These laws and
regulations require the acquisition of a permit before drilling commences,
restrict the types, quantities and concentration of various substances that can
be released into the environment in connection with drilling and production
activities, limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas, and impose substantial
liabilities for pollution. Increasing focus on environmental issues nationally
has lead the Company to continue to evaluate its responsibilities to the
environment. Currently, the Vernal, Utah office of the Bureau of Land Management
("BLM") is preparing an Environmental Assessment ("EA") relating to certain
lands within the Monument Butte Field. Due to this process, the Company has
reduced its activities on these lands until the EA is approved by the BLM. The
Company currently employs one drilling rig on a full time basis. The Company
anticipates the EA to be approved in the fourth quarter of 1996. Although the
impact on future drilling is not certain, the Company expects to employ two
drilling rigs on a full time basis by the first quarter of 1997. The Company
believes it is in compliance in all material respects with applicable federal,
state and local environmental regulations. There are no environmental
proceedings pending against the Company. At September 30, 1996, the Company has
recognized a liability of $511,000 to cover the future costs of reclaiming the
Toiyabe Mine.
FORWARD LOOKING STATEMENTS - Certain statements included in this
Management's Discussion and Analysis are forward looking statements that
predict the future development of the Company. The realization of these
predictions is subject to a number of variable contingencies, and there is no
assurance that they will occur in the time frame proposed. The risks
associated with the potential actualization of the Company's plans include;
contractor delays, regulatory approvals, the availability and cost of
financing, to name a few.
14
<PAGE>
PART II. OTHER INFORMATION
INLAND RESOURCES INC.
------
Items 1, 3, 4 and 5 are omitted from this report as inapplicable.
ITEM 2. CHANGES IN SECURITIES
SALE OF SERIES B PREFERRED STOCK - On July 31, 1996, the Company sold
a newly designated series of preferred stock of the Company (the
"Series B Stock") which has 1,000,000 shares designated in the
series. The Series B Stock was issued by the Company for cash of $10
per share (an aggregate of $10.0 million). Concurrently with the
closing of the sale and issuance of the Series B Stock, the Company
called for redemption its outstanding Series A Convertible Preferred
Stock (the "Series A Stock"). Each record holder of Series A Stock
had the right to elect to receive either (i) cash in the amount of
$54.00, or (ii) 9.6726 shares of Common Stock, for each share of
Series A Stock. Of the 99,318 Series A Stock shares outstanding,
holders of 85,605 shares elected to convert their shares into 828,002
shares of Common Stock. The remaining 13,713 shares of Series A Stock
were redeemed for $740,624.
The Series B Stock bears a dividend of 12% per annum on the
Redemption Price (defined below); has a liquidation preference over
Common Stock equal to $10.00 per share plus any accumulated and
unpaid dividends; is redeemable at a "Redemption Price" equal to
$10.00 per share, plus accumulated and unpaid dividends; is
convertible at a "conversion price" of $6.27 per share (divided into
the Redemption Price) subject to certain anti-dilution adjustments;
and is entitled to one vote per share of Series B Stock on all
matters submitted to the stockholders of the Company and will vote
with the Common Stock as one voting group or class, and not as a
separate voting group or class, except where required by law or
except with regard to various amendments to the Company's Articles of
Incorporation affecting the Series B Stock or creating another series
of preferred stock with rights equal to or greater than the rights of
the Series B Stock. In addition, if at any time prior to July 31,
1998, (i) the Company sells all or substantially all of its assets
other than in the ordinary course of business, (ii) the Company
merges or consolidates with or into another person, (iii) a change of
control of the Company occurs or (iv) the Company is liquidated or
dissolved, the holders of Series B Preferred Stock will be entitled
to a full two years of accumulated dividends in calculating amounts
payable upon liquidation, redemption or the number of shares of
Common Stock issuable upon conversion, as the case may be. Dividends
under the Series B Preferred Stock accrue at the rate of 12% until
declared by the Board of Directors. Although no dividend declaration
has been made by the Board of Directors, $300,000 of dividends have
accrued through September 30, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Quarterly Report on
Form 10-QSB.
Exhibit
Number Description of Exhibits
- ------- -----------------------
3.1 Amended and Restated Articles of Incorporation, as amended through
July 31, 1996. (filed as Exhibit 3.1 to the Company's Form 10-QSB
for the quarter ended June 30, 1996, and incorporated herein by
reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement of Form S-18, Registration No. 33-11870-F,
and incorporated herein by reference).
15
<PAGE>
PART II. OTHER INFORMATION
INLAND RESOURCES INC.
------
Exhibit
Number Description of Exhibits (cont.)
- ------- -------------------------------
3.2.1 Amendment to Article IV, Section 1 of the Bylaws of the Company
adopted February 23, 1993 (filed as Exhibit 3.2.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992, and incorporated herein by reference).
3.2.2 Amendment to the Bylaws of the Company adopted April 8, 1994 (filed
as Exhibit 3.2.2 to the Company's Registration Statement of Form S-4,
Registration No. 33-80392, and incorporated herein by reference).
3.2.3 Amendment to the Bylaws of the Company adopted April 27, 1994 (filed
as Exhibit 3.2.3 to the Company's Registration Statement of Form S-4,
Registration No. 33-80392, and incorporated herein by reference).
4.1 First Amendment to Credit Agreement between the Company, IPC, and
Trust Company of the West and various affiliated entities dated as
of June 12, 1996 (exclusive of all exhibits).*
10.1 Warrant Certificate between the Company and Kyle R. Miller dated
May 22, 1996.*
10.2 Warrant Certificate between the Company and John E. Dyer dated
May 22, 1996.*
10.3 Warrant Certificate between the Company and Bill I. Pennington dated
May 22, 1996.*
10.4 Agreement - Option to Purchase Inland's Toiyabe Property, Lander
County, Nevada (without exhibits).*
10.5 Swap Agreement dated July 8, 1996 between Inland Production Company
and Koch Gas Services Company.*
27.1 Financial Data Schedule required by Item 601 of Regulation S-B.*
- ----------------------
* Filed herewith.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K dated October 4, 1996, under
Item 4, reporting a Change in Registrant's Certifying Accountant.
16
<PAGE>
INLAND RESOURCES INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INLAND RESOURCES INC.
---------------------
(Registrant)
Date: November 11, 1996 By: /s/ Kyle R. Miller
----------------- -----------------------
Kyle R. Miller
Chief Executive Officer
Date: November 11, 1996 By: /s/ Michael J. Stevens
----------------- -----------------------
Michael J. Stevens
Controller (Principal
Accounting Officer)
17
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (herein called this "Amendment")
made as of June 12, 1996, by and among INLAND PRODUCTION COMPANY, a Texas
corporation ("Borrower"), INLAND RESOURCES, INC., a Washington corporation
("Parent"), TRUST COMPANY OF THE WEST, as Agent, TCW ASSET MANAGEMENT COMPANY,
as Collateral Agent ("Collateral Agent"), and TCW (as defined in the Original
Agreement, as defined below),
W I T N E S S E T H:
WHEREAS, Borrower, Parent, Agent, Collateral Agent and TCW have entered
into that certain Credit Agreement dated as of November 29, 1995 ("Original
Agreement") for the purposes and consideration therein expressed, whereby TCW
made loans to Borrower as therein provided; and
WHEREAS, Borrower, Parent, Agent, Collateral Agent and TCW desire to amend
the Original Agreement for the purposes expressed herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement and in
consideration of the loans which have been made and the loans which may
hereafter be made by TCW to Borrower, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS AND REFERENCES
Section I.1. TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section I.2. OTHER DEFINED TERMS. Various terms are defined throughout
this Amendment. Unless the context otherwise requires, the following additional
terms when used in this Amendment shall have the meanings assigned to them in
this Section 1.2.
"Amendment" shall mean this First Amendment to Credit Agreement.
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<PAGE>
"Amendment Documents" shall mean this Amendment, the Farmout Mortgage,
and the Farmout Royalty Conveyance.
"Credit Agreement" shall mean the Original Agreement as amended
hereby.
ARTICLE II.
AMENDMENTS TO ORIGINAL AGREEMENT; CONSENT; NO WAIVERS
Section II.1. DEFINITIONS.
The definition of "Commitment Period" in Section 1.1 of the Original
Agreement is hereby amended in its entirety to read as follows:
"COMMITMENT PERIOD" means the period from and including the date
hereof until and including the earliest to occur of: (a) December 31,
1996, (b) a Coverage Deficiency which is not cured within the 30 day period
required in Section 5.3, (c) the election by TCW, made during the
continuance of an Event of Default by notice given to Borrower, to
terminate the Commitment Period, or (d) the day on which any Note first
becomes due and payable in full.
The definition of "Farmout" is hereby added to Section 1.1 of the Original
Agreement immediately following the definition of "Event of Default":
"FARMOUT" means Farmout, Inc., a Utah corporation.
The definition of "Related Person" in Section 1.1 of the Original Agreement
is hereby amended in its entirety to read as follows:
"RELATED PERSON" means any of Parent, Borrower, Farmout, and each
Subsidiary of Parent.
Section II.2. REPRESENTATIONS AND WARRANTIES. Section 4.1(n) of the
Original Agreement is hereby amended in its entirety to read as follows:
(n) OWNERSHIP OF BORROWER AND FARMOUT. All of the outstanding shares
of each of Borrower and Farmout are owned by Parent and shall at all times
until the repayment of the Obligations be owned by Parent, provided that
Parent may merge Farmout into Borrower.
Section II.3. AFFIRMATIVE COVENANTS. The following Section 5.1(t) is
hereby added to the Original Agreement immediately following Section 5.1(s):
(t) SERIES B PROCEEDS. Borrower shall use, and has heretofore used,
the proceeds from the Series B Transaction
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<PAGE>
only to pay (i) any redemption amounts required on the Series A
Redemption, (ii) up to $350,000 for environmental remediation of the
Toiyabe Mine, and (iii) capital costs and other costs of Borrower which
are approved by TCW. For purposes of this Section 5.1(t) the term
"SERIES A REDEMPTION" means the redemption by Parent of all of its
existing Series A Preferred Stock, to be accomplished by (a) Parent's
call of its Series A Preferred Stock for redemption on or about July 31,
1996, and (b) Parent's payment or delivery to the holders of its Series
A Preferred Stock, in accordance with Parent's Articles of
Incorporation, of either cash or shares of Parent's common stock (but no
other consideration), as elected by each such holder. "SERIES B
TRANSACTION" means Borrower's issuance and sale of 1,000,000 shares of
Parent's Series B Preferred Stock to Pengo Securities Corp. and Arthur
J. Pasmas, on or about July 31, 1996, for a cash purchase price of
$10,000,000, as more fully described in that certain Agreement dated as
of June 12, 1996, among Smith Management Company, Inc., Farmout, Inc.,
Randall D. Smith, Jeffrey A. Smith, John W. Adams, Parent and Borrower
and that certain agreement dated as of June 12, 1996, among Arthur J.
Pasmas and Parent.
Section II.4. NEGATIVE COVENANTS. Section 5.2(b)(iii)(4) of the Original
Agreement is hereby amended in its entirety to read as follows:
(4) the aggregate outstanding principal amount of Debt of the Related
Persons which is secured by such Liens and incurred for the purchase of
trucks or automobiles does not at any time after January 1, 1996, exceed
$250,000, and the aggregate principal amount of such Debt which is incurred
in any Fiscal Year does not exceed $100,000.
The foregoing amendment to Section 5.2(b) shall be deemed to have taken effect
as of January 1, 1996.
Section 5.2(e) of the Original Agreement is hereby amended by adding the
following additional sentence to the end thereof:
Notwithstanding the foregoing, Parent may at any time pay dividends in the
form of Parent's common stock to the holders of Parent's Series B Preferred
Stock.
Section II.5. AMENDMENT TO APPROVAL LETTER. The line item for Office
Equipment and Furniture in that certain Approval Letter dated November 29, 1995
for ANCF Overhead is hereby amended in its entirety to read as follows:
$150,000 for the calendar year 1996, and $50,000 for each calendar
year thereafter.
Section II.6. SECURITY. Sections 6.2 and 6.3 of the Original Agreement
obligate Borrower and Parent to deliver
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<PAGE>
various Security Documents and other items upon request by Collateral Agent.
Borrower and Parent hereby agree to cause Farmout to deliver any similar
Security Documents and other items from time to time requested by Collateral
Agent.
Section II.7. SCHEDULES. Item number 7 on Schedule 1 to the Original
Agreement is hereby deemed to be amended to provide (in addition to the
disclosures currently made therein) that Parent owns 100% of the outstanding
common stock of Farmout.
ARTICLE III.
CONDITIONS OF EFFECTIVENESS
Section III.1. EFFECTIVE DATE. This Amendment shall become effective as of
the date first above written when, and only when, Collateral Agent shall have
received, at Collateral Agent's office:
(a) a counterpart of this Amendment executed and delivered by
Borrower, Parent and TCW,
(b) evidence, satisfactory to Lender in all respects, that Farmout
has acquired and then conveyed to Borrower full beneficial and equitable
title in and to all of the wells and leases (the "Farmout Properties")
farmed out to Randall D. Smith by Parent or Borrower pursuant to that
certain Farmout Agreement dated effective July 1, 1995, among Parent,
Borrower, and Randall D. Smith,
(c) a Royalty Conveyance from Borrower covering the Farmout
Properties and such other properties of Borrower as Lender may specify (the
"Farmout Royalty Conveyance"),
(d) a Mortgage from Borrower covering the Farmout Properties and such
other properties of Borrower as Lender may specify (the "Farmout
Mortgage"),
(e) a certificate of the secretary of Borrower, which shall contain
the names and true signatures of Borrower authorized to sign this Amendment
and the other Amendment Documents and which shall certify as to the truth,
correctness and completeness of the attached copy of resolutions
authorizing the execution, delivery and performance of this Amendment and
the other Amendment Documents,
(f) a written opinion of Glast, Phillips & Murray, P.C., addressed to
Agent and Collateral Agent to the effect that this Amendment and each other
Amendment Document has been duly authorized, executed and delivered by
Borrower, Parent and Farmout and that the Credit Agreement and each
Amendment Document constitutes the legal, valid and binding
-4-
<PAGE>
obligations of Borrower, Parent, and Farmout enforceable in accordance
with their terms (subject, as to enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency and similar loans and to
moratorium laws and other laws affecting creditors' rights generally
from time to time in effect).
Upon satisfaction of the conditions set out in Section 3.1(b), (c) and (d)
above, a "Smith Transfer" shall have occurred under the Royalty Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section IV.1. REPRESENTATIONS AND WARRANTIES OF BORROWER, PARENT AND
FARMOUT. In order to induce TCW to enter into this Amendment, Borrower and
Parent represent and warrant to TCW that:
(a) The representations and warranties contained in Section 4.1 of
the Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
(b) Borrower, Parent and Farmout are each duly authorized to execute
and deliver this Amendment and the other Amendment Documents and Borrower
is and will continue to be duly authorized to borrow monies and to perform
its obligations under the Credit Agreement. Each of Borrower, Parent and
Farmout has duly taken all corporate action necessary to authorize the
execution and delivery of this Amendment and the other Amendment Documents
and to authorize the performance of its obligations hereunder and
thereunder.
(c) The execution and delivery by each of Borrower, Parent and
Farmout of this Amendment and the other Amendment Documents, the
performance by each of Borrower, Parent and Farmout of its obligations
hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the articles of
incorporation or bylaws of Borrower, Parent or Farmout, or of any material
agreement, judgment, license, order or permit applicable to or binding upon
any Related Person, or result in the creation of any lien, charge or
encumbrance upon any assets or properties of any Related Person. Except
for those which have been obtained, no consent, approval, authorization or
order of any court or governmental authority or third party is required in
connection with the execution and delivery by each of Borrower, Parent and
Farmout of this Amendment and the other Amendment Documents or otherwise to
consummate the transactions contemplated hereby and thereby.
-5-
<PAGE>
(d) When duly executed and delivered, each of this Amendment and the
Credit Agreement and the other Amendment Documents will be a legal and
binding obligation of each of Borrower, Parent and Farmout enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of
creditors' rights and by equitable principles of general application.
ARTICLE V.
MISCELLANEOUS
Section V.1. RATIFICATION OF AGREEMENTS. The Original Agreement as
hereby amended, together with the Parent Guaranty and each other Loan Document
heretofore executed, are hereby ratified and confirmed in all respects. Any
reference to the Credit Agreement in any Loan Document shall be deemed to be a
reference to the Original Agreement as hereby amended. The execution, delivery
and effectiveness of this Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy of TCW under the
Credit Agreement, the Notes, or any other Loan Document nor constitute a waiver
of any provision of the Credit Agreement, the Notes or any other Loan Document.
Section V.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Borrower and Parent herein shall survive the
execution and delivery of this Amendment and the performance hereof, including
without limitation the making or granting of the Loans, and shall further
survive until all of the Obligations are paid in full. All statements and
agreements contained in any certificate or instrument delivered by any Related
Person hereunder or under the Credit Agreement to TCW shall be deemed to
constitute representations and warranties by, and/or agreements and covenants
of, Borrower under this Amendment and under the Credit Agreement.
Section V.3. LOAN DOCUMENTS. This Amendment and each other Amendment
Document is a Loan Document, and all provisions in the Credit Agreement
pertaining to Loan Documents (including without limitation Section 8.10 of the
Credit Agreement, which provides for waiver without limitations of jury trial)
apply hereto and thereto.
Section V.4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance the laws of the State of California and any applicable
laws of the United States of America in all respects, including construction,
validity and performance.
Section V.5. COUNTERPARTS. This Amendment may be separately executed in
counterparts and by the different parties
-6-
<PAGE>
hereto in separate counterparts, each of which when so executed shall be
deemed to constitute one and the same Amendment.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
INLAND PRODUCTION COMPANY
By:
------------------------------------
Kyle R. Miller, President and
Chief Executive Officer
INLAND RESOURCES INC.
By:
------------------------------------
Kyle R. Miller, President and
Chief Executive Officer
TRUST COMPANY OF THE WEST, a California trust
company, as Trustee of TCW Debt & Royalty Fund IVA
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
-7-
<PAGE>
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of June 1, 1993, with The Trustees of Columbia
University in the City of New York and Trust
Company of the West
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager under the
Investment Management Agreement dated as of March
1, 1993 with The Board of Trustees of The Leland
Stanford Junior University
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
-8-
<PAGE>
TCW ASSET MANAGEMENT COMPANY, as Investment
Manager under the Investment Management Agreement
dated as of June 8, 1993 between the Searle Trusts
Limited Partnership X, Harris Trust and Savings
Bank, and TCW Asset Management Company
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
April 26, 1994, with The City and County
Employees' Retirement System of San Francisco, TCW
Asset Management Company and Trust Company of the
West
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
-9-
<PAGE>
TCW DEBT AND ROYALTY FUND IVB, a California
limited partnership
By: TCW Asset Management Company, a California
corporation, as General Partner
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
TCW ASSET MANAGEMENT COMPANY, as Investment
Manager under the Investment Management Agreement
dated as of June 8, 1993 between the John G.
Searle Charitable Trusts Partnership, Harris Trust
and Savings Bank, and TCW Asset Management Company
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
-10-
<PAGE>
TCW ASSET MANAGEMENT COMPANY, as Investment
Manager under the Investment Management Agreement
dated as of December 31, 1993 with Delta Air
Lines, Inc.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
TCW DEBT AND ROYALTY FUND IVC, a California
limited partnership
By: TCW Asset Management Company, a California
corporation, as General Partner
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
AGENT:
TRUST COMPANY OF THE WEST,
a California trust company, as Agent
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
-11-
<PAGE>
COLLATERAL AGENT:
TCW ASSET MANAGEMENT COMPANY,
a California corporation, as Collateral Agent
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
-12-
<PAGE>
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
INLAND RESOURCES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
CERTIFICATE EVIDENCING THE NUMBER OF WARRANTS
SET FORTH IN SECTION 1
1. BASIC TERMS. This certifies that, for good and valuable
consideration, Kyle R. Miller (the "Holder"), is entitled, subject to the terms
and conditions of this Warrant Certificate (the "Certificate"), to purchase
100,000 shares of the common stock, $.001 par value (the "Common Stock"), of
Inland Resources Inc. (the "Company"), subject to adjustment as provided in this
Certificate, from the Company at the Exercise Price (as defined below), on
delivery of this Certificate to the Company with the exercise form duly executed
and payment of the Exercise Price payable to the Company by cashier's check or
other immediately available funds, for all shares purchased. One Warrant
(herein so called) is required for the purchase of one share of Common Stock,
subject to adjustment as provided herein.
2. EXPIRATION DATE. The right to exercise the Warrants evidenced by this
Certificate shall expire at 12:00 a.m. PST on the tenth (10th) anniversary of
the effective date of this Certificate, provided, however, that if Holder's
employment by the Company as an executive officer is terminated for any reason
other than death or disability then the Warrants evidenced by this Certificate
shall expire ninety (90) days after such termination, but if termination is as a
result of death or disability then the Warrants may be exercised at any time
within one year after the termination of employment for such reason (the
"Expiration Date").
3. EXERCISE PRICE. The purchase price per share of the Common Stock upon
exercise of the Warrants (the "Exercise Price") shall be equal to $6.27 per
share, which is equal to or greater than the fair market value per share on the
date hereof. The Exercise Price may be adjusted from time to time pursuant to
the terms of this Certificate.
4. COMPANY'S WARRANTIES, REPRESENTATIONS AND COVENANTS. The Company
warrants, represents and covenants to the Holder that:
(a) The Company has been duly incorporated and organized and is
validly existing as a corporation in good standing under the laws of
its state of organization.
(b) The Warrants have been duly authorized and are the validly
issued, fully paid and binding obligation of the Company. The Common
Stock of the Company issuable upon exercise of the Warrants are
validly authorized and upon payment of the Exercise Price shall be
validly issued, fully paid and nonassessable
-1-
<PAGE>
Common Stock of the Company.
(c) Common Stock deliverable on the exercise of the Warrants
shall, at delivery, be fully paid and nonassessable, free from all
taxes, liens, and charges with respect to the purchase.
(d) The Company shall take any necessary steps to assure that
the par value per share of the Common Stock is at all times equal to
or less than the then current Exercise Price of the Common Stock
issuable pursuant to this Certificate.
(e) The Company shall at all times reserve and hold available
sufficient shares of its Common Stock to satisfy the Common Stock
issuable upon exercise of this Warrant.
(f) The Company shall maintain its books and records in
accordance with generally accepted accounting principles applied on a
consistent basis.
(g) The Company shall permit the Holder through his designated
representatives to visit and inspect any of the properties of the
Company, to examine its books and records, and to discuss its affairs,
finances and accounts with and be advised as to the same by the
officers of the Company at reasonable times and intervals, on the same
basis as any other shareholder.
The provisions of this Section shall continue for so long as the Holder
owns this Certificate.
5. METHOD OF EXERCISE; SHARES ISSUED UPON EXERCISE. Exercise may be made
of all or any part of the Warrants evidenced by this Certificate by surrendering
it, with the exercise form provided for herein duly executed by or on behalf of
the Holder, at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants being exercised.
The Warrants are exercisable at the option of the Holder in whole or in part at
any time prior to the Expiration Date. If less than all of the Warrants
evidenced by this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate (dated the date
hereof) evidencing the Warrants not so exercised. Unless the Common Stock
issuable upon exercise of the Warrants has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), the certificates evidencing the Common
Stock issuable on exercise of the Warrants will bear the following legend:
-2-
<PAGE>
"The shares of stock of Inland Resources Inc. (the "Company") represented by
this certificate have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), or under the securities laws of any state, and the
Holder hereof cannot make any sale, assignment, or other transfer of any shares
of such stock except pursuant to an offering of such shares duly registered
under the 1933 Act and the applicable state securities laws, or under such other
circumstances that, in the opinion of counsel of the Holder hereof, does not
require registration under the 1933 Act and any state securities laws. Said
shares are restricted securities within the meaning of Rule 144 promulgated
under the 1933 Act and may be subject to the limitations upon resale set forth
therein or in other rules and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the shares of Common
Stock issuable upon exercise or conversion of this Warrant shall have been
beneficially held for three (3) years within the meaning of Rule 144(k) of the
1933 Act or any successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is not an affiliate
of the Company within the meaning of Rule 144, if required by Rule 144 or such
successor rule or statute, then the Company shall remove all restrictive legends
and stop transfer restrictions at the written request of the owner of the shares
of Common Stock issuable on exercise or conversion of this Warrant.
6. INVESTMENT REPRESENTATION OF HOLDER. Holder represents and warrants
that the Warrants evidenced by this Certificate, and any Warrant Shares (herein
so called) purchased upon exercise of the Warrants, have been, or will be,
acquired or purchased as an investment for Holder's own account and not with a
view toward further distribution thereof. It is expressly understood that the
Warrants cannot be transferred except pursuant to Section 9 hereof, and that the
Warrant Shares cannot be sold or transferred except pursuant to an effective
registration statement or an exemption from applicable securities laws.
7. ADJUSTMENT OF SHARES PURCHASABLE. The number of shares of Common
Stock purchasable hereunder and the Exercise Price per share are subject to
adjustment from time to time as specified in this Certificate.
8. EXCHANGE FOR OTHER DENOMINATIONS. This Certificate is exchangeable,
on its surrender by the Holder to the Company, for new Certificates of like
tenor and date representing in the aggregate the number of Warrants and the
right to purchase the number of shares of Common Stock purchasable hereunder in
denominations designated by the Holder at the time of surrender.
-3-
<PAGE>
9. RESTRICTIONS ON TRANSFER. During the lifetime of Holder, this
Certificate shall be exercisable only by the Holder in person, by attorney or
by mail, on surrender of this Certificate, properly endorsed. Neither this
Certificate nor the Warrants are transferable by Holder by operation of law
or otherwise, except that in the event of death or disability of Holder while
employed by the Company or a subsidiary, the Warrants may be exercised at any
time within one year after such death or disability by the duly appointed
personal representative of Holder, or by any person or persons who shall
acquire the Warrants directly from Holder by bequest or inheritance.
10. ADJUSTMENT OF SHARES. Wherever this Certificate specifies a number of
shares of Common Stock or an Exercise Price per share, the specified number of
shares of Common Stock to be received on exercise and the Exercise Price per
share shall be changed to reflect adjustments (which may require that additional
securities or other property be delivered on exercise) required by this section,
as follows:
(a) If a stock or property dividend is declared to the holders
of shares of the same class of securities of the Company as is
issuable upon exercise of Warrants, there shall be added with respect
to each share of Common Stock issuable upon exercise of Warrants the
amount of the dividend, stock or property, which would have been
issued to the Holder had the Holder been the holder of record of such
issuable share at the dividend record date. Such additional stock or
property resulting from such dividend shall be delivered without
additional cost upon the exercise of Warrants. Any distribution to
the holders of Common Stock of the Company of any kind, other than a
distribution of cash as a dividend out of profits of the Company for
the current year of the dividend, shall be treated as a stock or
property dividend for purposes of this Subsection 10(a). If the
Holder is entitled to receive cash upon exercise of Warrants under
this Subsection 10(a), the Holder may, at the Holder's option, elect
to reduce the Exercise Price by all or part of the cash to be received
by the Holder upon exercise under this Subsection 10(a).
(b) If an increase has been effected in the number of
outstanding shares of the same class of securities of the Company as
is issuable upon exercise of Warrants by reason of a subdivision of
such shares, the number of shares which may thereafter be purchased
upon exercise of Warrants shall be increased with respect to each
share issuable upon exercise of Warrants by the number of shares which
could have been received by the Holder at the time of such subdivision
had it been the holder of record of such issuable shares at the record
and/or effective date of the subdivision. In such event, the Exercise
Price per share of Warrants shall be proportionately reduced.
-4-
<PAGE>
(c) If a decrease has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable
upon exercise of Warrants by reason of a reverse stock split, the
number of shares which may thereafter be purchased upon exercise of
Warrants shall be changed with respect to each share issuable upon
exercise of Warrants to the number of shares which would have been
held by the Holder at the time of said reverse stock split had the
Holder been the holder of such issuable share at the record and/or
effective date of the reverse stock split. In such event, the
Exercise Price per share shall be proportionately increased.
(d) If there is a capital reorganization, reclassification of
the capital stock of the Company, or any consolidation or merger of
the Company with any other corporation or corporations, or if there is
a sale or distribution of all or substantially all of the Company's
property and assets, the Company shall make adequate provision so that
there shall remain and be substituted under this Certificate with
respect to each share issuable upon exercise of Warrants the stock,
securities and/or assets which would have been issuable or payable in
respect of or in exchange for such issuable shares if the Holder had
been the owner of such share on the applicable record date. All other
provisions of this Certificate shall remain in full force and effect.
11. NOTICE OF ADJUSTMENT. On the happening of any event requiring an
adjustment of the Exercise Price or the shares purchasable hereunder, the
Company shall immediately give written notice to the Holder stating the adjusted
Exercise Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in reasonable
detail the method of calculation and the facts upon which the calculation is
based.
12. NOTICE REQUIREMENT. If at any time the Company proposes or is aware
of any of the following transactions, the Company shall give written notice to
the Holder at least 30 days prior to the proposed transaction: an anticipated
voluntary or involuntary dissolution, liquidation or winding up of the Company;
a merger or consolidation of the Company; the payment or declaration of a
dividend or distribution to shareholders of the Company; or the vote of
shareholders of the Company to amend the certificate or articles of
incorporation of the Company. Such notice shall contain: (a) the date on which
the proposed transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed transaction;
(c) a brief description of the proposed transaction; (d) a brief description of
any dividends or other distributions to be made to holders of Common Stock as a
result of the proposed transaction; (e) a brief description of any other effect
of the proposed transaction on holders of Common Stock or this Certificate; and
(f) an estimate of the fair value of any dividends or other distributions to be
made to shareholders.
-5-
<PAGE>
13. FRACTIONAL SHARES. The Company shall not be required upon the
exercise of any of the Warrants evidenced hereby to issue any fractional shares,
but shall make an adjustment therefore in cash on the basis of the mean between
the low bid and high asked prices on the over-the-counter market as reported by
the NASD Automated Quotation System or the closing market price on a national
securities exchange on the trading day immediately prior to exercise, whichever
is applicable, or if neither is applicable, then on the basis of the market
value of any such fractional interest as shall be reasonably determined by the
Company.
14. NOTICE. Any notice required or permitted by any party to this
Certificate shall be in writing and may be delivered personally to the party
being given notice or to the person in charge of the office of the party being
given notice or by facsimile, national overnight courier service or by mail, at
the party's address indicated below, and any notice will be effective only upon
actual receipt by the party. The addresses of the parties are as follows:
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
The names and addresses of persons to receive notice as stated in this Section
may be changed by notice given in accordance with this Section.
15. PARTIES. This Certificate shall bind the respective successors and
assigns of the parties.
16. ENTIRE AGREEMENT. This Certificate represents the entire agreement of
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous oral or written agreements or understandings. The terms of
this Certificate may be amended only by a written instrument executed by the
Company and the Holder.
WITNESS the signature of the Company's authorized representative and the
acceptance of the terms hereof by the signature of the Holder dated effective
May 22, 1996.
COMPANY:
INLAND RESOURCES INC.
By:
-----------------------------------
John E. Dyer, Vice President
HOLDER:
-----------------------------------
-6-
<PAGE>
KYLE R. MILLER
-7-
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
- -------------------------------
- -------------------------------
- -------------------------------
The undersigned hereby: (1) irrevocably elects to purchase ______ shares
of the Company's Common Stock issuable upon the exercise of the within Warrants,
and encloses payment of $________________ therefor; (2) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address below; and (3) if such number of
shares is not all of the shares purchasable hereunder, that a new Certificate of
like tenor for the balance of the remaining Warrants be issued in the name of
the undersigned and delivered to the undersigned at the address below.
Date:
--------------------- ---------------------------------------
(Please sign exactly as name appears on
Warrant Certificate)
---------------------------------------
Address
---------------------------------------
-8-
<PAGE>
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
INLAND RESOURCES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
CERTIFICATE EVIDENCING THE NUMBER OF WARRANTS
SET FORTH IN SECTION 1
1. BASIC TERMS. This certifies that, for good and valuable
consideration, John E. Dyer (the "Holder"), is entitled, subject to the terms
and conditions of this Warrant Certificate (the "Certificate"), to purchase
50,000 shares of the common stock, $.001 par value (the "Common Stock"), of
Inland Resources Inc. (the "Company"), subject to adjustment as provided in this
Certificate, from the Company at the Exercise Price (as defined below), on
delivery of this Certificate to the Company with the exercise form duly executed
and payment of the Exercise Price payable to the Company by cashier's check or
other immediately available funds, for all shares purchased. One Warrant
(herein so called) is required for the purchase of one share of Common Stock,
subject to adjustment as provided herein.
2. EXPIRATION DATE. The right to exercise the Warrants evidenced by this
Certificate shall expire at 12:00 a.m. PST on the tenth (10th) anniversary of
the effective date of this Certificate, provided, however, that if Holder's
employment by the Company as an executive officer is terminated for any reason
other than death or disability then the Warrants evidenced by this Certificate
shall expire ninety (90) days after such termination, but if termination is as a
result of death or disability then the Warrants may be exercised at any time
within one year after the termination of employment for such reason (the
"Expiration Date").
3. EXERCISE PRICE. The purchase price per share of the Common Stock upon
exercise of the Warrants (the "Exercise Price") shall be equal to $6.27 per
share, which is equal to or greater than the fair market value per share on the
date hereof. The Exercise Price may be adjusted from time to time pursuant to
the terms of this Certificate.
4. COMPANY'S WARRANTIES, REPRESENTATIONS AND COVENANTS. The Company
warrants, represents and covenants to the Holder that:
(a) The Company has been duly incorporated and organized and is
validly existing as a corporation in good standing under the laws of
its state of organization.
(b) The Warrants have been duly authorized and are the validly
issued, fully paid and binding obligation of the Company. The Common
Stock of the Company issuable upon exercise of the Warrants are
validly authorized and upon payment of the Exercise Price shall be
validly issued, fully paid and nonassessable
-1-
<PAGE>
Common Stock of the Company.
(c) Common Stock deliverable on the exercise of the Warrants
shall, at delivery, be fully paid and nonassessable, free from all
taxes, liens, and charges with respect to the purchase.
(d) The Company shall take any necessary steps to assure that
the par value per share of the Common Stock is at all times equal to
or less than the then current Exercise Price of the Common Stock
issuable pursuant to this Certificate.
(e) The Company shall at all times reserve and hold available
sufficient shares of its Common Stock to satisfy the Common Stock
issuable upon exercise of this Warrant.
(f) The Company shall maintain its books and records in
accordance with generally accepted accounting principles applied on a
consistent basis.
(g) The Company shall permit the Holder through his designated
representatives to visit and inspect any of the properties of the
Company, to examine its books and records, and to discuss its affairs,
finances and accounts with and be advised as to the same by the
officers of the Company at reasonable times and intervals, on the same
basis as any other shareholder.
The provisions of this Section shall continue for so long as the Holder
owns this Certificate.
5. METHOD OF EXERCISE; SHARES ISSUED UPON EXERCISE. Exercise may be made
of all or any part of the Warrants evidenced by this Certificate by surrendering
it, with the exercise form provided for herein duly executed by or on behalf of
the Holder, at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants being exercised.
The Warrants are exercisable at the option of the Holder in whole or in part at
any time prior to the Expiration Date. If less than all of the Warrants
evidenced by this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate (dated the date
hereof) evidencing the Warrants not so exercised. Unless the Common Stock
issuable upon exercise of the Warrants has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), the certificates evidencing the Common
Stock issuable on exercise of the Warrants will bear the following legend:
-2-
<PAGE>
"The shares of stock of Inland Resources Inc. (the "Company")
represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"), or under the
securities laws of any state, and the Holder hereof cannot make any
sale, assignment, or other transfer of any shares of such stock except
pursuant to an offering of such shares duly registered under the 1933
Act and the applicable state securities laws, or under such other
circumstances that, in the opinion of counsel of the Holder hereof,
does not require registration under the 1933 Act and any state
securities laws. Said shares are restricted securities within the
meaning of Rule 144 promulgated under the 1933 Act and may be subject
to the limitations upon resale set forth therein or in other rules and
regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the shares of Common
Stock issuable upon exercise or conversion of this Warrant shall have been
beneficially held for three (3) years within the meaning of Rule 144(k) of the
1933 Act or any successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is not an affiliate
of the Company within the meaning of Rule 144, if required by Rule 144 or such
successor rule or statute, then the Company shall remove all restrictive legends
and stop transfer restrictions at the written request of the owner of the shares
of Common Stock issuable on exercise or conversion of this Warrant.
6. INVESTMENT REPRESENTATION OF HOLDER. Holder represents and warrants
that the Warrants evidenced by this Certificate, and any Warrant Shares (herein
so called) purchased upon exercise of the Warrants, have been, or will be,
acquired or purchased as an investment for Holder's own account and not with a
view toward further distribution thereof. It is expressly understood that the
Warrants cannot be transferred except pursuant to Section 9 hereof, and that the
Warrant Shares cannot be sold or transferred except pursuant to an effective
registration statement or an exemption from applicable securities laws.
7. ADJUSTMENT OF SHARES PURCHASABLE. The number of shares of Common
Stock purchasable hereunder and the Exercise Price per share are subject to
adjustment from time to time as specified in this Certificate.
8. EXCHANGE FOR OTHER DENOMINATIONS. This Certificate is exchangeable,
on its surrender by the Holder to the Company, for new Certificates of like
tenor and date representing in the aggregate the number of Warrants and the
right to purchase the number of shares of Common Stock purchasable hereunder in
denominations designated by the Holder at the time of surrender.
-3-
<PAGE>
9. RESTRICTIONS ON TRANSFER. During the lifetime of Holder, this
Certificate shall be exercisable only by the Holder in person, by attorney or by
mail, on surrender of this Certificate, properly endorsed. Neither this
Certificate nor the Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of Holder while
employed by the Company or a subsidiary, the Warrants may be exercised at any
time within one year after such death or disability by the duly appointed
personal representative of Holder, or by any person or persons who shall acquire
the Warrants directly from Holder by bequest or inheritance.
10. ADJUSTMENT OF SHARES. Wherever this Certificate specifies a number of
shares of Common Stock or an Exercise Price per share, the specified number of
shares of Common Stock to be received on exercise and the Exercise Price per
share shall be changed to reflect adjustments (which may require that additional
securities or other property be delivered on exercise) required by this section,
as follows:
(a) If a stock or property dividend is declared to the holders
of shares of the same class of securities of the Company as is
issuable upon exercise of Warrants, there shall be added with respect
to each share of Common Stock issuable upon exercise of Warrants the
amount of the dividend, stock or property, which would have been
issued to the Holder had the Holder been the holder of record of such
issuable share at the dividend record date. Such additional stock or
property resulting from such dividend shall be delivered without
additional cost upon the exercise of Warrants. Any distribution to
the holders of Common Stock of the Company of any kind, other than a
distribution of cash as a dividend out of profits of the Company for
the current year of the dividend, shall be treated as a stock or
property dividend for purposes of this Subsection 10(a). If the
Holder is entitled to receive cash upon exercise of Warrants under
this Subsection 10(a), the Holder may, at the Holder's option, elect
to reduce the Exercise Price by all or part of the cash to be received
by the Holder upon exercise under this Subsection 10(a).
(b) If an increase has been effected in the number of
outstanding shares of the same class of securities of the Company as
is issuable upon exercise of Warrants by reason of a subdivision of
such shares, the number of shares which may thereafter be purchased
upon exercise of Warrants shall be increased with respect to each
share issuable upon exercise of Warrants by the number of shares which
could have been received by the Holder at the time of such subdivision
had it been the holder of record of such issuable shares at the record
and/or effective date of the subdivision. In such event, the Exercise
Price per share of Warrants shall be proportionately reduced.
-4-
<PAGE>
(c) If a decrease has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable
upon exercise of Warrants by reason of a reverse stock split, the
number of shares which may thereafter be purchased upon exercise of
Warrants shall be changed with respect to each share issuable upon
exercise of Warrants to the number of shares which would have been
held by the Holder at the time of said reverse stock split had the
Holder been the holder of such issuable share at the record and/or
effective date of the reverse stock split. In such event, the
Exercise Price per share shall be proportionately increased.
(d) If there is a capital reorganization, reclassification of
the capital stock of the Company, or any consolidation or merger of
the Company with any other corporation or corporations, or if there is
a sale or distribution of all or substantially all of the Company's
property and assets, the Company shall make adequate provision so that
there shall remain and be substituted under this Certificate with
respect to each share issuable upon exercise of Warrants the stock,
securities and/or assets which would have been issuable or payable in
respect of or in exchange for such issuable shares if the Holder had
been the owner of such share on the applicable record date. All other
provisions of this Certificate shall remain in full force and effect.
11. NOTICE OF ADJUSTMENT. On the happening of any event requiring an
adjustment of the Exercise Price or the shares purchasable hereunder, the
Company shall immediately give written notice to the Holder stating the adjusted
Exercise Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in reasonable
detail the method of calculation and the facts upon which the calculation is
based.
12. NOTICE REQUIREMENT. If at any time the Company proposes or is aware
of any of the following transactions, the Company shall give written notice to
the Holder at least 30 days prior to the proposed transaction: an anticipated
voluntary or involuntary dissolution, liquidation or winding up of the Company;
a merger or consolidation of the Company; the payment or declaration of a
dividend or distribution to shareholders of the Company; or the vote of
shareholders of the Company to amend the certificate or articles of
incorporation of the Company. Such notice shall contain: (a) the date on which
the proposed transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed transaction;
(c) a brief description of the proposed transaction; (d) a brief description of
any dividends or other distributions to be made to holders of Common Stock as a
result of the proposed transaction; (e) a brief description of any other effect
of the proposed transaction on holders of Common Stock or this Certificate; and
(f) an estimate of the fair value of any dividends or other distributions to be
made to shareholders.
-5-
<PAGE>
13. FRACTIONAL SHARES. The Company shall not be required upon the
exercise of any of the Warrants evidenced hereby to issue any fractional shares,
but shall make an adjustment therefore in cash on the basis of the mean between
the low bid and high asked prices on the over-the-counter market as reported by
the NASD Automated Quotation System or the closing market price on a national
securities exchange on the trading day immediately prior to exercise, whichever
is applicable, or if neither is applicable, then on the basis of the market
value of any such fractional interest as shall be reasonably determined by the
Company.
14. NOTICE. Any notice required or permitted by any party to this
Certificate shall be in writing and may be delivered personally to the party
being given notice or to the person in charge of the office of the party being
given notice or by facsimile, national overnight courier service or by mail, at
the party's address indicated below, and any notice will be effective only upon
actual receipt by the party. The addresses of the parties are as follows:
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
The names and addresses of persons to receive notice as stated in this Section
may be changed by notice given in accordance with this Section.
15. PARTIES. This Certificate shall bind the respective successors and
assigns of the parties.
16. ENTIRE AGREEMENT. This Certificate represents the entire agreement of
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous oral or written agreements or understandings. The terms of
this Certificate may be amended only by a written instrument executed by the
Company and the Holder.
WITNESS the signature of the Company's authorized representative and the
acceptance of the terms hereof by the signature of the Holder dated effective
May 22, 1996.
COMPANY:
INLAND RESOURCES INC.
By:
-----------------------------------
Kyle R. Miller, President
HOLDER:
-----------------------------------
-6-
<PAGE>
JOHN E. DYER
-7-
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
- -------------------------------
- -------------------------------
- -------------------------------
The undersigned hereby: (1) irrevocably elects to purchase ______ shares
of the Company's Common Stock issuable upon the exercise of the within Warrants,
and encloses payment of $________________ therefor; (2) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address below; and (3) if such number of
shares is not all of the shares purchasable hereunder, that a new Certificate of
like tenor for the balance of the remaining Warrants be issued in the name of
the undersigned and delivered to the undersigned at the address below.
Date:
--------------------- ---------------------------------------
(Please sign exactly as name appears on
Warrant Certificate)
---------------------------------------
Address
---------------------------------------
-8-
<PAGE>
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
INLAND RESOURCES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
CERTIFICATE EVIDENCING THE NUMBER OF WARRANTS
SET FORTH IN SECTION 1
1. BASIC TERMS. This certifies that, for good and valuable
consideration, Bill I. Pennington (the "Holder"), is entitled, subject to the
terms and conditions of this Warrant Certificate (the "Certificate"), to
purchase 50,000 shares of the common stock, $.001 par value (the "Common
Stock"), of Inland Resources Inc. (the "Company"), subject to adjustment as
provided in this Certificate, from the Company at the Exercise Price (as defined
below), on delivery of this Certificate to the Company with the exercise form
duly executed and payment of the Exercise Price payable to the Company by
cashier's check or other immediately available funds, for all shares purchased.
One Warrant (herein so called) is required for the purchase of one share of
Common Stock, subject to adjustment as provided herein.
2. EXPIRATION DATE. The right to exercise the Warrants evidenced
by this Certificate shall expire at 12:00 a.m. PST on the tenth (10th)
anniversary of the effective date of this Certificate, provided, however, that
if Holder's employment by the Company as an executive officer is terminated
for any reason other than death or disability then the Warrants evidenced by
this Certificate shall expire ninety (90) days after such termination, but if
termination is as a result of death or disability then the Warrants may be
exercised at any time within one year after the termination of employment for
such reason (the "Expiration Date").
3. EXERCISE PRICE. The purchase price per share of the Common
Stock upon exercise of the Warrants (the "Exercise Price") shall be equal to
$6.27 per share, which is equal to or greater than the fair market value per
share on the date hereof. The Exercise Price may be adjusted from time to
time pursuant to the terms of this Certificate.
4. COMPANY'S WARRANTIES, REPRESENTATIONS AND COVENANTS. The Company
warrants, represents and covenants to the Holder that:
(a) The Company has been duly incorporated and organized and is
validly existing as a corporation in good standing under the laws of
its state of organization.
(b) The Warrants have been duly authorized and are the validly
issued, fully paid and binding obligation of the Company. The Common
Stock of the Company issuable upon exercise of the Warrants are
validly authorized and upon payment of the Exercise Price shall be
validly issued, fully paid and nonassessable
-1-
<PAGE>
Common Stock of the Company.
(c) Common Stock deliverable on the exercise of the Warrants
shall, at delivery, be fully paid and nonassessable, free from all
taxes, liens, and charges with respect to the purchase.
(d) The Company shall take any necessary steps to assure that
the par value per share of the Common Stock is at all times equal to
or less than the then current Exercise Price of the Common Stock
issuable pursuant to this Certificate.
(e) The Company shall at all times reserve and hold available
sufficient shares of its Common Stock to satisfy the Common Stock
issuable upon exercise of this Warrant.
(f) The Company shall maintain its books and records in
accordance with generally accepted accounting principles applied on a
consistent basis.
(g) The Company shall permit the Holder through his designated
representatives to visit and inspect any of the properties of the
Company, to examine its books and records, and to discuss its affairs,
finances and accounts with and be advised as to the same by the
officers of the Company at reasonable times and intervals, on the same
basis as any other shareholder.
The provisions of this Section shall continue for so long as the
Holder owns this Certificate.
5. METHOD OF EXERCISE; SHARES ISSUED UPON EXERCISE. Exercise may
be made of all or any part of the Warrants evidenced by this Certificate by
surrendering it, with the exercise form provided for herein duly executed by
or on behalf of the Holder, at the executive office of the Company,
accompanied by payment in full of the Exercise Price payable in respect of
the Warrants being exercised. The Warrants are exercisable at the option of
the Holder in whole or in part at any time prior to the Expiration Date. If
less than all of the Warrants evidenced by this Certificate are exercised,
the Company will, upon such exercise, execute and deliver to the Holder a new
certificate (dated the date hereof) evidencing the Warrants not so exercised.
Unless the Common Stock issuable upon exercise of the Warrants has been
registered under the Securities Act of 1933, as amended (the "1933 Act"), the
certificates evidencing the Common Stock issuable on exercise of the Warrants
will bear the following legend:
-2-
<PAGE>
"The shares of stock of Inland Resources Inc. (the "Company")
represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"), or under the
securities laws of any state, and the Holder hereof cannot make any
sale, assignment, or other transfer of any shares of such stock except
pursuant to an offering of such shares duly registered under the 1933
Act and the applicable state securities laws, or under such other
circumstances that, in the opinion of counsel of the Holder hereof,
does not require registration under the 1933 Act and any state
securities laws. Said shares are restricted securities within the
meaning of Rule 144 promulgated under the 1933 Act and may be subject
to the limitations upon resale set forth therein or in other rules and
regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the shares of Common
Stock issuable upon exercise or conversion of this Warrant shall have been
beneficially held for three (3) years within the meaning of Rule 144(k) of the
1933 Act or any successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is not an affiliate
of the Company within the meaning of Rule 144, if required by Rule 144 or such
successor rule or statute, then the Company shall remove all restrictive legends
and stop transfer restrictions at the written request of the owner of the shares
of Common Stock issuable on exercise or conversion of this Warrant.
6. INVESTMENT REPRESENTATION OF HOLDER. Holder represents and
warrants that the Warrants evidenced by this Certificate, and any Warrant
Shares (herein so called) purchased upon exercise of the Warrants, have been,
or will be, acquired or purchased as an investment for Holder's own account
and not with a view toward further distribution thereof. It is expressly
understood that the Warrants cannot be transferred except pursuant to Section
9 hereof, and that the Warrant Shares cannot be sold or transferred except
pursuant to an effective registration statement or an exemption from
applicable securities laws.
7. ADJUSTMENT OF SHARES PURCHASABLE. The number of shares of Common
Stock purchasable hereunder and the Exercise Price per share are subject to
adjustment from time to time as specified in this Certificate.
8. EXCHANGE FOR OTHER DENOMINATIONS. This Certificate is
exchangeable, on its surrender by the Holder to the Company, for new
Certificates of like tenor and date representing in the aggregate the number
of Warrants and the right to purchase the number of shares of Common Stock
purchasable hereunder in denominations designated by the Holder at the time
of surrender.
-3-
<PAGE>
9. RESTRICTIONS ON TRANSFER. During the lifetime of Holder, this
Certificate shall be exercisable only by the Holder in person, by attorney or by
mail, on surrender of this Certificate, properly endorsed. Neither this
Certificate nor the Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of Holder while
employed by the Company or a subsidiary, the Warrants may be exercised at any
time within one year after such death or disability by the duly appointed
personal representative of Holder, or by any person or persons who shall acquire
the Warrants directly from Holder by bequest or inheritance.
10. ADJUSTMENT OF SHARES. Wherever this Certificate specifies a
number of shares of Common Stock or an Exercise Price per share, the
specified number of shares of Common Stock to be received on exercise and the
Exercise Price per share shall be changed to reflect adjustments (which may
require that additional securities or other property be delivered on
exercise) required by this section, as follows:
(a) If a stock or property dividend is declared to the holders
of shares of the same class of securities of the Company as is
issuable upon exercise of Warrants, there shall be added with respect
to each share of Common Stock issuable upon exercise of Warrants the
amount of the dividend, stock or property, which would have been
issued to the Holder had the Holder been the holder of record of such
issuable share at the dividend record date. Such additional stock or
property resulting from such dividend shall be delivered without
additional cost upon the exercise of Warrants. Any distribution to
the holders of Common Stock of the Company of any kind, other than a
distribution of cash as a dividend out of profits of the Company for
the current year of the dividend, shall be treated as a stock or
property dividend for purposes of this Subsection 10(a). If the
Holder is entitled to receive cash upon exercise of Warrants under
this Subsection 10(a), the Holder may, at the Holder's option, elect
to reduce the Exercise Price by all or part of the cash to be received
by the Holder upon exercise under this Subsection 10(a).
(b) If an increase has been effected in the number of
outstanding shares of the same class of securities of the Company as
is issuable upon exercise of Warrants by reason of a subdivision of
such shares, the number of shares which may thereafter be purchased
upon exercise of Warrants shall be increased with respect to each
share issuable upon exercise of Warrants by the number of shares which
could have been received by the Holder at the time of such subdivision
had it been the holder of record of such issuable shares at the record
and/or effective date of the subdivision. In such event, the Exercise
Price per share of Warrants shall be proportionately reduced.
-4-
<PAGE>
(c) If a decrease has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable
upon exercise of Warrants by reason of a reverse stock split, the
number of shares which may thereafter be purchased upon exercise of
Warrants shall be changed with respect to each share issuable upon
exercise of Warrants to the number of shares which would have been
held by the Holder at the time of said reverse stock split had the
Holder been the holder of such issuable share at the record and/or
effective date of the reverse stock split. In such event, the
Exercise Price per share shall be proportionately increased.
(d) If there is a capital reorganization, reclassification of
the capital stock of the Company, or any consolidation or merger of
the Company with any other corporation or corporations, or if there is
a sale or distribution of all or substantially all of the Company's
property and assets, the Company shall make adequate provision so that
there shall remain and be substituted under this Certificate with
respect to each share issuable upon exercise of Warrants the stock,
securities and/or assets which would have been issuable or payable in
respect of or in exchange for such issuable shares if the Holder had
been the owner of such share on the applicable record date. All other
provisions of this Certificate shall remain in full force and effect.
11. NOTICE OF ADJUSTMENT. On the happening of any event requiring an
adjustment of the Exercise Price or the shares purchasable hereunder, the
Company shall immediately give written notice to the Holder stating the adjusted
Exercise Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in reasonable
detail the method of calculation and the facts upon which the calculation is
based.
12. NOTICE REQUIREMENT. If at any time the Company proposes or is
aware of any of the following transactions, the Company shall give written
notice to the Holder at least 30 days prior to the proposed transaction: an
anticipated voluntary or involuntary dissolution, liquidation or winding up
of the Company; a merger or consolidation of the Company; the payment or
declaration of a dividend or distribution to shareholders of the Company; or
the vote of shareholders of the Company to amend the certificate or articles
of incorporation of the Company. Such notice shall contain: (a) the date on
which the proposed transaction is to take place; (b) the record date (which
shall be at least 30 days after the giving of the notice) of the proposed
transaction; (c) a brief description of the proposed transaction; (d) a brief
description of any dividends or other distributions to be made to holders of
Common Stock as a result of the proposed transaction; (e) a brief description
of any other effect of the proposed transaction on holders of Common Stock or
this Certificate; and (f) an estimate of the fair value of any dividends or
other distributions to be made to shareholders.
-5-
<PAGE>
13. FRACTIONAL SHARES. The Company shall not be required upon the
exercise of any of the Warrants evidenced hereby to issue any fractional shares,
but shall make an adjustment therefore in cash on the basis of the mean between
the low bid and high asked prices on the over-the-counter market as reported by
the NASD Automated Quotation System or the closing market price on a national
securities exchange on the trading day immediately prior to exercise, whichever
is applicable, or if neither is applicable, then on the basis of the market
value of any such fractional interest as shall be reasonably determined by the
Company.
14. NOTICE. Any notice required or permitted by any party to this
Certificate shall be in writing and may be delivered personally to the party
being given notice or to the person in charge of the office of the party being
given notice or by facsimile, national overnight courier service or by mail, at
the party's address indicated below, and any notice will be effective only upon
actual receipt by the party. The addresses of the parties are as follows:
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
The names and addresses of persons to receive notice as stated in this Section
may be changed by notice given in accordance with this Section.
15. PARTIES. This Certificate shall bind the respective successors
and assigns of the parties.
16. ENTIRE AGREEMENT. This Certificate represents the entire
agreement of the parties with respect to the subject matter hereof and
supersedes any prior or contemporaneous oral or written agreements or
understandings. The terms of this Certificate may be amended only by a
written instrument executed by the Company and the Holder.
WITNESS the signature of the Company's authorized representative and
the acceptance of the terms hereof by the signature of the Holder dated
effective May 22, 1996.
COMPANY:
INLAND RESOURCES INC.
By:
-----------------------------------
Kyle R. Miller, President
HOLDER:
-----------------------------------
-6-
<PAGE>
Bill I. Pennington
-7-
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
- -------------------------------
- -------------------------------
- -------------------------------
The undersigned hereby: (1) irrevocably elects to purchase ______
shares of the Company's Common Stock issuable upon the exercise of the within
Warrants, and encloses payment of $________________ therefor; (2) requests
that a certificate for the shares be issued in the name of the undersigned
and delivered to the undersigned at the address below; and (3) if such number
of shares is not all of the shares purchasable hereunder, that a new
Certificate of like tenor for the balance of the remaining Warrants be issued
in the name of the undersigned and delivered to the undersigned at the
address below.
Date:
--------------------- ---------------------------------------
(Please sign exactly as name appears on
Warrant Certificate)
---------------------------------------
Address
---------------------------------------
-8-
<PAGE>
September 12, 1996
Mr. Kyle Miller
President
Inland Resources Inc.
475 17th Street, Suite 1500
Denver, CO 80202
RE: AGREEMENT - OPTION TO PURCHASE INLAND'S TOIYABE PROPERTY, LANDER COUNTY,
NEVADA
DEAR MR. MILLER:
This letter is intended to constitute a legally binding agreement ("Agreement")
between Inland Resources Inc. ("Inland") and Placer Dome U.S. Inc. ("PDUS")
regarding the subject property as shown in attached Exhibit A ("Property").
RECITALS
1. There currently exists a Letter Agreement between the parties entitled
Letter Agreement, dated August 16, 1995.
2. Because of unforeseen circumstances, the parties desire to terminate the
August 16, 1995 Letter Agreement and replace it with this September 12,
1996 Agreement.
3. The parties intend that PDUS will perform environmental due diligence on
the Property in the form of water quality drill testing and within the
time period set forth below, PDUS must elect to either: 1) purchase the
Property, or 2) decline to purchase the Property, terminate this Agreement,
and release all of its rights and interests in the Property.
AGREEMENT
1. Upon execution by both parties of this Agreement, it is hereby agreed that
the August 16, 1995 Letter Agreement will automatically terminate and become
immediately null and void.
2. PDUS will immediately begin a water quality drill testing program ("The
Program") on the Property as described in Exhibit B attached hereto. PDUS
will pay all costs and expenses associated with The Program and will be
responsible for managing The Program.
<PAGE>
3. PDUS agrees to Inland's request that The Program will not investigate or
intentionally produce any data related to the geologic or mineral
characteristics of the Property. The Program is intended for and restricted
to water quality testing only. PDUS will allow and welcome any Inland
employee (s) or agents (s) to be present during all work on the Program.
PDUS will allow Inland to keep all drill hole cuttings which must be
returned to PDUS only if and when PDUS purchases the Property.
4. It is agreed that PDUS may deviate somewhat from The Program; however, no
"significant" change may be made without the express written consent of
Inland. Any change in the number, direction, or location of any drill hole
as described in The Program is to be deemed a "significant change" and thus
will requires Inland's express written consent.
5. Inland agrees to allow PDUS to seek all required permitting on behalf of
Inland. PDUS will seek to amend Inland's current Plan of Operations
approved by the Bureau of Land Management. Inland will cooperate fully
with PDUS and will execute any documents required to effectuate the goal
of obtaining all necessary permits.
6. On or before THE EARLIER of the following two alternative dates (see below),
PDUS must elect, by written notice to Inland, to either: 1) release to
Inland any and all interest in the Property, or 2) complete the purchase of
the Property from Inland and accept any and all liability attaching to the
Property in exchange for a $240,000 payment from Inland to PDUS.
Date 1: 60 days following receipt by PDUS of written approval from all
necessary governmental agencies to carry out the Program.
Date 2: January 31, 1997.
7. If PDUS timely elects to purchase the Property, Inland will pay PDUS
$240,000 and cooperate fully with PDUS by executing all documents necessary
to transfer to PDUS all of Inland's leased and owned unpatented mining
claims and other property rights which include, but are not limited to, all
permits and any structures and equipment remaining on the Property but which
are not presently under contract for sale to a third party.
8. If PDUS fails to timely elect to purchase the Property, or elects to release
all interest in the Property, PDUS agrees that it will leave any well or all
the wells open, provided that; the governing agencies allow PDUS to do so;
and provided that Inland requests in writing that a specific well or wells
remain open, and further provided that no additional PDUS expenditures are
required and Inland agrees to take over the responsibility of operating and
closing all open wells in accordance with all applicable laws and
regulations. PDUS also agrees to turn over to Inland all data it creates or
obtains from its performance of The Program and from its work associated
with the Property.
<PAGE>
9. If PDUS elects to complete the purchase of the Property, from and after the
delivery of title to PDUS, PDUS shall be wholly responsible for all past,
present and future environmental and reclamation liabilities associated
with the Property, whether known or unknown at the time of delivery of
title, and PDUS shall defend, hold harmless and indemnify Inland for any
and all claims, demands, obligations and expenses which may result from or
arise out of any such liabilities. If PDUS does not purchase the Property,
PDUS shall be responsible only for any reclamation, environmental or other
liabilities which result from its performance of The Program; except as
specifically provided in this sentence, Inland shall remain wholly
responsible for all past, present and future environmental, reclamation and
other liabilities associated with the Property, whether known or unknown,
and Inland shall defend, hold harmless and indemnify PDUS for any and all
claims, demands, obligations and expenses which may result from or arise out
of any such liabilities. Any reclamation which PDUS is responsible for
shall be performed without any unreasonable delay.
10. It is understood that PDUS and Inland might not concur in the interpretation
of the data generated under The Program; nevertheless, it is hereby agreed
that PDUS may exercise its election options (under Paragraph 5 herein), as
in its sole judgment and discretion, it so chooses.
11. Any notice or delivery of information herein contemplated to be given by
either party to the other party shall be given in writing by personal
delivery, electronic facsimile transmission, or by certified mail, return
receipt requested, and addressed to the receiving party as listed below:
Placer Dome U.S. Inc.
240 S. Rock Blvd., Suite 117
Reno, Nevada 89502
Attention: Land/Legal Manager
FAX: (702) 856-2552
Inland Resources Inc.
475 17th Street, Suite 1500
Denver, CO 80202
Attention: Kyle Miller, President
FAX: (303) 296-4070
12. Except as otherwise provided herein, service of notice of delivery of
information shall be effective and complete upon the deposit thereof in the
United States mail, certified, return receipt requested, and with postage
prepaid and addressed as aforesaid.
13. This writing sets forth the entire agreement and understanding between the
parties, there being no oral agreements, promises or representations which
are or may be incidental or supplementary to the provisions hereof. No
changes, additions to, or
<PAGE>
waiver of any of the provisions of this Agreement shall be binding upon the
parties hereto unless in writing signed by an authorized representative of
the party to be bound. No waiver by any party or a breach of any of the
provisions of this Agreement shall be construed as a waiver of any
subsequent breach, whether of the same or of a different character.
14. This Agreement shall be construed and enforced in accordance with the laws
of the State of Nevada except insofar as it may become necessary to comply
with federal statutes, rules or regulations.
15. If any action is brought by either party for the enforcement,
interpretation, or declaration of rights of the parties with respect to
this Agreement, the negotiation of this Agreement or the operations
conducted hereunder, the prevailing party shall be entitled to reasonable
attorney fees in addition to any other relief awarded to the prevailing
party.
Thank you for working with us to accomplish our goals.
Very truly yours,
PLACER DOME U.S. INC.
By: /s/ DENNIS LEE
--------------------------
Dennis Lee
Land/Legal Manager
Accepted and Agreed To on this 25th day of September, 1996.
INLAND RESOURCES INC.
By: /s/ KYLE MILLER
--------------------------
Kyle Miller
President
<PAGE>
Inland Production
Attn: Bill Pennington
FAX: {303} 296-4070
Koch Oil Company
4111 East 37th Street North
Wichita KS 67220
Attn: Gary Niernberger
Dear Sirs:
Koch Oil Company is pleased to confirm the following commodity price swap
between Koch Oil company {Koch} and Inland Production {Inland}, on the Trade
Date referred below.
The terms of the particular Option Transaction to which this Confirmation
relates are as follows:
a. Transaction Type Asian Style NYMEX Crude Oil Put Option
b. Option Buyer: Inland
c. Option Seller: Koch
d. Trade Date: July 8, 1996
e. Expiration Date: Last day of each calendar month - January 1,
1997 thru December 31, 1997
f. Applicable Commodity: Put Option on the respective prompt NYMEX
Crude Oil Contract
g. Quantity: 720,000 barrels total {60,000 barrels
per month}
h. Strike Price: $15.00 USD
i. Premium: $.185/bbl {133,200}
j. Settlement: Monthly calendar average of the prompt
settlement value of the NYMEX Crude Oil
Contract. If such settlement value average
is less than the Put Strike Price. Koch
will pay Inland the difference between the
Strike Price and the settlement multiplied by
the quantity.
k. Premium Payment: Premium payment is due to Koch on July 10,
1996.
l. Exercise Payment: Any moneys due Inland upon settlement of
option to be paid within two {2} business
days following aforementioned settlement
date.
First National Bank of Chicago
Koch Industries, Inc.
A/C 5139058 ABA#071000013
<PAGE>
Ref. KOC Invoice #
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us.
We are pleased to have completed this transaction with you.
Best regards,
Koch Oil Company
By: /s/ James B. Urban
---------------------
James B. Urban
Accepted and confirmed:
Inland Production Company
By: /s/ Bill I. Pennington
------------------------
Bill I. Pennington
Title: CFO
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