SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 12, 1996
Inland Resources Inc.
(Exact name of registrant as specified in its charter)
Washington 0-16487 91-1307042
(State of incorporation) (Commission File (IRS Employer
No.) Identification No.)
475 17th Street, Suite 1500, Denver, Colorado 80202
(Address of principal execute offices, including zip code)
(303) 292-0900
(Registrant's telephone number, including area code)
1<PAGE>
Item 2. Acquisition or Disposition of Assets.
Effective July 1, 1995, Randall D. Smith ("Smith"), Inland
Resources Inc. ("Registrant") and Inland Production Company
("IPC"), a wholly owned subsidiary of Registrant, entered into a
Farmout Agreement pursuant to which IPC agreed to farmout to
Smith 40-acre drill sites and Smith agreed to expend
approximately $6,800,000 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 dry hole.
IPC earned a supervisory fee of $25,000, proportionately reduced
to IPC's working interest ownership in the drill site, for each
well drilled, for an aggregate of $326,178 in supervisory fees in
1995. The Farmout Agreement provided that Smith would reconvey
the drill sites to IPC once Smith had recovered from production
an amount equal to 100% of his expenditures, including
supervisory fees and severance and production taxes, plus an
additional sum equal to an annual 22% rate of return on all such
sums expended by Smith ("Payout"). On November 22, 1995, Inland,
IPC and Smith entered into an Option Agreement pursuant to which
Smith granted to IPC the option to reacquire the drill sites on
March 10, 1997 by issuing that number of shares of Common Stock
valued at $0.50 per share, which, based upon such valuation,
would equal the amount necessary for Smith to achieve Payout. If
Inland and IPC failed to exercise such option, Smith was given an
option, exercisable prior to expiration of the third business day
following March 10, 1997, to purchase that number of shares of
Common Stock which, based on a valuation of $0.50 per share,
would equal an amount that would cause Smith to achieve Payout.
In the event Smith elected to purchase such shares, Inland agreed
to register the shares upon Smith's request and to pay all
expenses of such registration. Prior to June 1, 1996, Smith
transferred a portion of his interests in the farmout wells, the
Farmout Agreement and Option Agreement to Jeffrey A. Smith, his
brother, and John W. Adams (collectively, with Smith, the
"Farmout Stockholders"). The Farmout Stockholders transferred
all of said interests to Farmout, Inc. ("Farmout") prior to June
1, 1996.
On June 12, 1996, Smith Management Company, Inc., an
affiliate of Smith ("Smith Management"), Farmout, the Farmout
Stockholders, Registrant and IPC entered into an agreement (the
"Agreement") pursuant to which the Farmout Stockholders
transferred one hundred percent (100%) of the outstanding capital
stock of Farmout to Inland in exchange for 1,309,880 shares (the
"Common Shares") of Registrant's common stock, par value $.001
per share ("Common Stock"), with such transfer to be effective
June 1, 1996, but with the Common Shares not to be delivered by
Registrant to the Farmout Stockholders until January 2, 1997.
The effect of the Agreement is to accelerate the March 10, 1997
2<PAGE>
acquisition date for the 20 producing wells which IPC had the
right to acquire under the Option Agreement. Consequently,
Registrant has, through its acquisition of the outstanding stock
of Farmout, now indirectly acquired these wells, effective June
1, 1996. Registrant also has agreed to register the Common
Shares upon the request of the Farmout Stockholders and to pay
all expenses of such registration.
Item 5. Other Events.
Pursuant to the Agreement, Smith Management also agreed to
purchase 950,000 shares of a newly designated series of preferred
stock of Registrant (the "Series B Preferred Stock") which will
have 1,000,000 shares designated in the series. Arthur J. Pasmas
("Pasmas"), a director of Registrant and a Vice President of
Smith Management, entered into a similar agreement with
Registrant on June 12, 1996 pursuant to which he agreed to
purchase the remaining 50,000 shares of Series B Preferred Stock.
The Series B Preferred Stock is to be issued by Registrant to
Smith Management and Pasmas for cash of $10 per share (an
aggregate of $10,000,000) at a closing to take place on July 31,
1996. Concurrently with the closing of the issuance and sale of
the Series B Preferred Stock, Registrant intends to call for
redemption its outstanding Series A Convertible Preferred Stock.
Upon receipt of notice of redemption, each holder of Series A
Convertible Preferred Stock will have the right to elect to
receive either (i) cash in the amount of $54, or (ii) 9.6726
shares of Common Stock, for each share of Series A Convertible
Preferred Stock held of record by such holder. Each holder of
Series A Convertible Preferred Stock will have 15 days after
notice of redemption has been delivered by Registrant to decide
whether to elect to receive cash or Common Stock. To the extent
holders of Series A Convertible Preferred Stock elect to receive
cash, Registrant intends to use a portion of the proceeds from
the sale of the Series B Preferred Stock to pay such holders of
Series A Convertible Preferred Stock.
The Series B Preferred Stock will bear a dividend of 12% per
annum on the Redemption Price (defined below); will have 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 Preferred Stock on all matters submitted to
the stockholders of Registrant 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 Registrant's Articles of
Incorporation affecting the Series B Preferred Stock or creating
another series of preferred stock with rights equal to or greater
3<PAGE>
than the rights of the Series B Preferred Stock. In addition, if
at any time prior to July 31, 1998, (i) Registrant sells all or
substantially all of its assets other than in the ordinary course
of business, (ii) Registrant merges or consolidates with or into
another person, (iii) a change of control of Registrant occurs or
(iv) Registrant 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
redemption or the number of shares of Common Stock issuable upon
conversion, as the case may be. Registrant has agreed to
register the shares of Common Stock issuable upon conversion of
the Series B Preferred Stock upon the request of Smith Management
or Pasmas, and to pay all expenses of such registration.
Item 7. Financial Statements and Exhibits.
(a) and (b) The audited and unaudited interim financial
information and pro forma financial information
regarding the 20 wells indirectly acquired
pursuant to the Agreement which is required to be
filed under Items 7(a) and (b) is not available as
of the date of this Report. Such information will
be filed under cover of an amendment to this
Report as soon as it is available, but not later
than 60 days after this Report was required to be
filed.
(c) Exhibits. The following exhibits are being filed herewith:
10.1 Form of Agreement dated June 12, 1996 between
Registrant, IPC, Smith Management, Farmout and the
Farmout Stockholders.*
10.2 Form of Registration Rights Agreement dated June 12,
1996 between Registrant, Smith Management and the
Farmout Stockholders.*
10.3 Security Agreement dated June 12, 1996 between the
Farmout Stockholders and Registrant.*
10.4 Form of Agreement dated June 12, 1996 between
Registrant and Pasmas.*
10.5 Form of Registration Rights Agreement to be entered
into as of July 31, 1996 between Registrant and
Pasmas.*
10.6 Form of Articles of Amendment to the Articles of
Incorporation of Registrant Designating the Series B
Preferred Stock.*
4
<PAGE>
____________________________
* Filed herewith.
5
<PAGE>
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 hereunto duly authorized.
June 25, 1996
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
Kyle R. Miller, President
and Chief Executive
Officer
6<PAGE>
EXHIBIT 10.1<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into
effective June 12, 1996, by and between SMITH MANAGEMENT COMPANY,
INC., a New York corporation ("Smith Management"), FARMOUT INC.,
a Utah corporation ("Farmout"), RANDALL D. SMITH ("R. Smith"),
JEFFREY A. SMITH ("J. Smith"), JOHN W. ADAMS ("Adams") (R. Smith,
J. Smith and Adams are hereinafter referred to as the "Farmout
Stockholders"), INLAND RESOURCES INC. ("Inland") and INLAND
PRODUCTION COMPANY ("Inland Production").
R E C I T A L S:
WHEREAS, Farmout Stockholders own all of the issued and
outstanding capital stock of Farmout ("Farmout Stock") and
Farmout Stockholders desire to sell, transfer and convey to
Inland, and Inland desires to acquire, the Farmout Stock in
exchange for the "Common Shares" (as defined in Section 1.01), in
accordance with the terms of this Agreement; and
WHEREAS, Smith Management (or its designee) desires to
acquire 950,000 shares of the 1,000,000 shares of Series B
Preferred Stock (as hereinafter defined) of Inland for $9,500,000
of the total of $10,000,000 to be received for the Series B
Preferred Stock, and Inland desires to issue such Series B
Preferred Stock to Smith Management; and
WHEREAS, the acquisition of the Farmout Stock by Inland and
the acquisition of the Series B Preferred Stock by Smith
Management are part of a joint transaction that will be closed in
two separate closings, on June 12, 1996 and July 31, 1996,
respectively; and
WHEREAS, Inland intends to call its existing Series A
Preferred Stock for redemption or conversion on July 31, 1996 and
to the extent any shares are to be redeemed, the proceeds from
the issuance of the Series B Preferred Stock are intended to be
used by Inland to pay any required redemption amounts.
NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual promises, covenants and representations set forth
herein, the parties hereto agree as follows:
A G R E E M E N T S:
I.
SALE AND PURCHASE OF FARMOUT STOCK
1.01 Farmout Stockholders hereby agree to sell, transfer and
convey to Inland at Farmout Closing (herein so called) good,
marketable and indefeasible title to the Farmout Stock free and
clear of any lien, security interest, pledge, encumbrance,
restriction on transferability, defect of title, charge or claim
of any nature whatsoever. In consideration therefor, and on the
basis of and in reliance upon the representations, warranties,
obligations and agreements of Farmout Stockholders set forth
herein, Inland agrees to purchase the Farmout Stock at Farmout
Closing and agrees to deliver to Farmout Stockholders (or to such
persons as the Farmout Stockholders designate) an aggregate of
1,309,880 post-split shares (the "Common Shares") of Inland's
common stock, par value $.001 per share ("Common Stock"), which
shall not be delivered by Inland until January 2, 1997, except
where such delivery is accelerated as hereinafter provided.
Inland's agreement to issue and deliver the Common Shares on
January 2, 1997 shall be secured by a pledge of the Farmout Stock
pursuant to a Security Agreement in the form attached hereto as
Exhibit "A" and incorporated herein for all purposes by this
reference. The Farmout Closing shall take place on June 12, 1996
(the "Farmout Closing Date") at the offices of Inland at 2:00
p.m. (Denver time). At the Farmout Closing, Farmout Stockholders
shall deliver the stock certificates representing the Farmout
Stock to Inland, duly endorsed for transfer, and Inland and the
Farmout Stockholders will execute the Security Agreement and the
Registration Rights Agreement. As noted above, the Common Shares
shall not be delivered by Inland until January 2, 1997; provided,
however, in the event of the filing of a petition in bankruptcy
against Inland, or the voluntary filing of a bankruptcy petition
by Inland, prior to such date, the Common Shares shall be
immediately issuable by Inland without further demand or action
by Farmout Stockholders. Inland hereby acknowledges and agrees
that from and after the transfer of the Farmout Stock by the
Farmout Stockholders to Inland at the Farmout Closing its
obligation to issue and deliver the Common Shares is fixed,
absolute and unconditional, and Inland shall not be entitled to
assert any defenses to such issuance and delivery including,
without limitation, any breach by Farmout Stockholders or Smith
Management of any of their respective agreements, covenants,
warranties or representations herein. The acquisition by Inland
of the Farmout Stock and the issuance by Inland of the Common
Shares are collectively referred to herein as the "Farmout
Transactions".
1.02 Farmout Stockholders and Inland hereby agree that the
effective date of the acquisition of the Farmout Stock by Inland
shall be June 1, 1996 and Farmout Stockholders and Farmout agree
that Farmout shall make no distributions or payments of cash or
other properties (other than a dividend in the amount of
$213,700), or incur any liabilities (other than accrued income
tax liabilities), after June 1, 1996. Farmout Stockholders and
Farmout also represent and warrant to Inland and Inland
Production that the Farmout Agreement dated effective July 1,
1995 (the "Farmout Agreement") between Inland, Inland Production
and R. Smith, the Option Agreement ("Option Agreement") between
Inland, Inland Production and Smith dated November 22, 1995, and
the Warrant Certificate ("Warrant Certificate") issued by Inland
in favor of Smith dated November 22, 1995 have all been duly and
properly assigned to Farmout, and Farmout is the proper party in
interest with respect to each of said documents. Farmout
Stockholders and Farmout further represent and warrant to Inland
and Inland Production that effective as of June 1, 1996 and
effective as of the Farmout Closing, Farmout owned, and will own,
no other assets, and had, and will have, no other liabilities or
obligations, contingent or otherwise (other than accrued income
tax liabilities), other than the assets represented by the wells
covered by the Farmout Agreement and the warrants represented by
the Warrant Certificate, or the liabilities and obligations
encompassed within the Farmout Agreement, Option Agreement or
Warrant Certificate.
1.03 Until the Common Shares are delivered by Inland to the
Farmout Stockholders on January 2, 1997, Inland hereby agrees
that it will not, without the prior written consent of the
Farmout Stockholders, effect a stock split of its Common Stock,
issue any stock dividend on its Common Stock or engage in a
recapitalization or other event that would cause the outstanding
shares of Common Stock to receive additional securities or be
converted into other securities.
II.
SERIES B PREFERRED STOCK
2.01 Subject to the terms and conditions of this Agreement,
at the "Series B Closing" (herein so called) Inland agrees to
issue and sell to Smith Management, and Smith Management (or
Smith Management's designee) agrees to subscribe for and purchase
from Inland, 950,000 shares (the "Series B Shares") of a series
of 1,000,000 shares of preferred stock, par value $.001 per
share, of Inland having the relative rights, preferences,
privileges and limitations set forth on the "Certificate of
Designation, Preferences and Rights of Series B Convertible
Preferred Stock" ("Certificate of Designation") attached hereto
as
Exhibit "B" and incorporated herein for all purposes by this
reference (the "Series B Preferred Stock"), for an aggregate
purchase price of $9,500,000 ($10.00 per Series B Share) (the
"Purchase Price"). The transactions contemplated to take place
at the Series B Closing are referred to herein as the "Series B
Transactions". Smith Management acknowledges that it is
anticipated by Inland that the remaining 50,000 shares of Series
B Stock will be sold to another purchaser for the price of $10.00
per share and that such sale will close on or around the Series B
Closing, provided, however, Smith Management (or its designee)
shall, whether or not such additional purchase and sale is made,
be obligated to purchase the Series B Shares at the Series B
Closing, and Inland shall be obligated to issue the Series B
Shares to Smith Management (or its designee) at the Series B
Closing.
2.02 Subject to the terms and conditions of this Agreement,
the issuance and purchase of the Series B Shares shall take place
at the "Series B Closing" to be held at the offices of Inland at
10:00 a.m. (Denver time) on July 31, 1996. The date on which the
Series B Closing occurs is referred to herein as the "Series B
Closing Date." On the Series B Closing Date, Inland will deliver
the Series B Shares registered in the name of Smith Management
and/or Smith Management's nominee or designee upon receipt of the
Purchase Price therefor by wire transfer of immediately available
funds to an account designated by Inland, or by such other method
as is mutually agreed to by Smith Management and Inland. Such
certificates shall bear appropriate restrictive legends deemed
necessary by Inland to comply with applicable securities laws.
Effective as of the Series B Closing Date, Inland will file with
the Secretary of State of Washington the Certificate of
Designation.
III
REPRESENTATIONS AND WARRANTIES OF INLAND
Inland represents and warrants to the Farmout Stockholders
and Smith Management, respectively, as of the date hereof and as
of each of the Farmout Closing Date and Series B Closing Date,
respectively, as follows:
3.01 Inland has all requisite corporate power and authority
to execute and deliver this Agreement, the Security Agreement and
the Registration Rights Agreement (in the form attached hereto as
Exhibit "C" and incorporated herein for all purposes by this
reference) and to consummate the acquisition of the Farmout Stock
as provided herein, the issuance of the Common Shares and the
issuance of the Series B Shares as provided herein (collectively
referred to herein as the "Transactions"). The execution and
delivery of this Agreement, the Security Agreement and the
Registration Rights Agreement and the consummation of the
Transactions to be performed by Inland have been duly and validly
authorized by all necessary action on the part of the Board of
Directors of Inland, and no other corporate proceedings are
necessary to authorize the execution and delivery of this
Agreement, the Security Agreement and the Registration Rights
Agreement by Inland or to consummate the Transactions to be
performed by Inland, other than filing the Certificate of
Designation with the Secretary of State of Washington on the
Series B Closing Date. This Agreement has been, and the Security
Agreement, and the Registration Rights Agreement, when executed
at Farmout Closing, will have been, duly and validly executed and
delivered by Inland and, assuming this Agreement, the Security
Agreement and the Registration Rights Agreement constitutes a
valid and binding obligation of Smith Management, Farmout and
Farmout Stockholders, this Agreement constitutes, and the
Security Agreement and Registration Rights Agreement, when
executed at Farmout Closing, will constitute, a valid and binding
agreement of Inland, enforceable against Inland in accordance
with its terms. Upon receipt by Inland of the Purchase Price and
the Farmout Stock, the Series B Shares and the Common Shares to
be issued on January 2, 1997, shall be duly authorized, validly
issued (when issued), fully paid and non-assessable. The Common
Shares will have been reserved for issuance as of the Farmout
Closing Date, and the shares of Common Stock underlying the
Series B Shares will have been reserved for issuance as of the
Series B Closing Date.
3.02 Neither the execution and delivery of this Agreement,
the Security Agreement or the Registration Rights Agreement by
Inland, the consummation of the Transactions to be performed by
Inland nor compliance by Inland with any of the provisions hereof
or of the Security Agreement or Registration Rights Agreement
will (i) conflict with or result in any breach of any provisions
of the Articles of Incorporation or by-laws of Inland or any of
its Subsidiaries, assuming, for this purpose, the Certificate of
Designation has been filed with the Secretary of State of
Washington; (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental
authority, including those of the United States, any foreign
country, state, county, city or other political subdivision,
agency or instrumentality thereof (herein referred to as a
"Governmental Authority"), except for consents, approvals,
authorizations, permits, filings or notifications which have been
obtained or made; (iii) except upon failure to obtain the consent
of Trust Company of the West required to be obtained under that
certain Credit Agreement dated November 29, 1995, result in a
default (with or without due notice or lapse of time or both) or
give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, contract, license, agreement
or other instrument or obligation to which Inland or any of its
Subsidiaries is a party or by which Inland or any of its
Subsidiaries or any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents have
been obtained; (iv) result in the creation or imposition of any
lien, charge or other encumbrance on the assets of Inland or any
of its Subsidiaries; or (v) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Inland, any of
its Subsidiaries or any of their respective assets. For
purposes of this Agreement, "Subsidiary" shall mean, when used
with reference to an entity, any corporation, a majority of the
outstanding voting securities of which are owned directly or
indirectly by such entity; and such term shall also refer to any
other partnership, limited partnership, joint venture, trust, or
other business entity in which such entity has a material
interest.
3.03 The offer, sale and issuance of the Common Shares or
Series B Shares pursuant to this Agreement do not require
registration of the Common Shares or Series B Shares under the
Securities Act of 1993, as amended (the "Securities Act") or
registration or qualification under any applicable state "blue
sky" or securities laws, based on available non-public offering
exemptions which are based, in part, on the representations of
Smith Management and Farmout Stockholders in Section 4.03.
Inland has not taken, directly or indirectly, nor will it take
any action which will subject the issuance or sale of any of the
Common Shares or Series B Shares to be in violation of the
provision of Section 5 of the Securities Act or the provisions of
any securities, blue sky law or similar law of any applicable
jurisdiction.
3.04 No broker's or finder's fees or commissions will be
payable by Inland in connection with the issuance and sale of the
Common Shares or Series B Shares or the Transactions.
3.05 The authorized capital stock of the Inland consists of
25,000,000 shares of Common Stock, and 20,000,000 shares of Class
A preferred stock, par value $.001 per share ("Preferred Stock").
As of the date hereof, 4,092,800 shares of Common Stock and
106,850 Series A Preferred Shares were issued and outstanding.
Except upon written notification to Smith Management and Farmout
Stockholders, Inland will not, prior to the Series B Closing,
issue any Common Stock or Preferred Stock (other than upon
conversion of Series A Preferred Shares or exercise of
outstanding options or warrants), and will not repurchase or
redeem any Common Stock or Preferred Stock (other than the
anticipated redemption of Series A Preferred Shares). Other than
the Common Shares issuable pursuant to this Agreement or the
shares of Common Stock underlying the Series B Shares, neither
Inland nor any Subsidiary has any shares of its capital stock
reserved for issuance, except for shares of Common Stock issuable
upon conversion of Series A Preferred Shares and except for
212,800 shares of Common Stock issuable pursuant to Inland's
employee stock option plan, of which options for 184,960 shares
are outstanding, and 256,911 shares issuable pursuant to other
outstanding subscriptions, options and warrants. No other
options, warrants or securities convertible into Common Stock,
other than the Series A Preferred Shares, are outstanding. All
such issued and outstanding shares of capital stock of Inland are
validly issued, fully paid, non-assessable and free of any
preemptive rights.
3.06 The various reports filed by Inland with the Securities
and Exchange Commission do not contain any untrue statement of a
material fact, or omit to state a material fact necessary to make
the statements contained therein not misleading.
IV
REPRESENTATIONS AND WARRANTIES OF
SMITH MANAGEMENT AND FARMOUT STOCKHOLDERS
Smith Management hereby represents and warrants to Inland
and Inland Production as of the date hereof and as of the Series
B Closing Date, and the Farmout Stockholders each severally
represent and warrant to Inland and Inland Production as of the
date hereof and as of the Farmout Closing Date, as follows:
4.01 Each of Smith Management and Farmout has all requisite
corporate power and authority to execute and deliver this
Agreement and to consummate the Transactions to be performed by
Smith Management and Farmout. The execution and delivery of this
Agreement and the consummation of the Transactions to be
performed by Smith Management and Farmout have been duly and
validly authorized by all necessary action on the part of the
Boards of Directors of Smith Management and Farmout, and no other
corporate proceedings are necessary to authorize the execution
and delivery of this Agreement by Smith Management or Farmout or
to consummate the Transactions to be performed by Smith
Management or Farmout. This Agreement has been duly and validly
executed and delivered by each of Smith Management, Farmout and
the Farmout Stockholders and, assuming this Agreement constitutes
a valid and binding obligation of Inland, this Agreement
constitutes a valid and binding agreement of each of Smith
Management, Farmout and the Farmout Stockholders, enforceable
against each of Smith Management, Farmout and the Farmout
Stockholders in accordance with its terms.
4.02 Neither the execution and delivery of this Agreement by
Smith Management, Farmout and the Farmout Stockholders, the
consummation of the Transactions to be performed by Smith
Management, Farmout and the Farmout Stockholders, nor compliance
by Smith Management, Farmout and the Farmout Stockholders, with
any of the provisions hereof will (i) conflict with or result in
any breach of any provisions of the Articles of Incorporation or
by-laws of Smith Management or Farmout or any of their
Subsidiaries, (ii) require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental
Authority, except for consents, approvals, authorizations,
permits, filings or notifications which have been obtained or
made, (iii) result in a default (with or without due notice or
lapse of time or both) or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, contract,
license, agreement or other instrument or obligation to which
Smith Management, Farmout or the Farmout Stockholders, or any of
the Subsidiaries of Smith Management or Farmout, is a party or by
which Smith Management, Farmout or the Farmout Stockholders, or
any of the Subsidiaries of Smith Management or Farmout, or any of
their respective assets may be bound, except for such defaults
(or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained, or (iv)
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Smith Management, Farmout or the Farmout
Stockholders, any of the Subsidiaries of Smith Management or
Farmout, or any of their respective assets.
4.03 Each of Smith Management and the Farmout Stockholders
has such knowledge and experience in financial and business
matters as enables it or him to evaluate the merits and risks of
an investment in the Shares. Each of Smith Management and the
Farmout Stockholders is an "accredited investor" as such term is
defined in Rule 501 under the Securities Act. Each of Smith
Management and the Farmout Stockholders is acquiring the Common
Shares and Series B Shares, as applicable, for its or his own
account and not with the view to resale or redistribution thereof
in violation of the Securities Act. Each of Smith Management and
the Farmout Stockholders acknowledges that it or he may not
transfer the Common Shares and Series B Shares, as applicable,
except pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act, and that a legend to such
effect shall be included on the certificate representing the
Common Shares and Series B Shares.
V
COVENANTS
5.01 Between the date hereof and the Series B Closing Date,
Inland will afford to Smith Management and its authorized
representatives reasonable access (subject to tenants' rights) to
the plant, offices, warehouses, or other facilities and
properties, including oil and gas properties) and to the books
and records of Inland and its Subsidiaries, will permit Smith
Management and its representatives to make such reasonable
inspections as they may require and will cause its officers and
those of its Subsidiaries to furnish Smith Management and its
representatives with such financial and operating data,
environmental assessment and other information with respect to
the business, assets and properties of Inland and its
Subsidiaries, as applicable, as Smith Management and its
representatives may from time to time reasonably request. No
inspection or examination by Smith Management or the Farmout
Stockholders or their representatives will constitute a waiver of
any claim against Inland for misrepresentation or breach of this
Agreement. Smith Management and the Farmout Stockholders shall
hold strictly confidential all information obtained as a result
of any examination or inspection of Inland and its Subsidiaries;
provided, that Smith Management and the Farmout Stockholders
shall not be obligated to hold confidential information which (i)
was or becomes generally available to the public other than as a
result of a disclosure by Smith Management or the Farmout
Stockholders or their representatives or (ii) was or becomes
available to Smith Management and the Farmout Stockholders on a
nonconfidential basis from a source other than Inland or its
representatives, provided that such source is not bound by a
confidentiality agreement with Inland or otherwise prohibited
from transmitting the information to Smith Management and the
Farmout Stockholders.
5.02 Subject to the terms and conditions herein provided,
Inland and each of Smith Management and the Farmout Stockholders
agree to use their best efforts to take, or cause to be taken,
all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to
consummate and make effective the Transactions.
5.03 Inland and Smith Management will consult with each
other before issuing any press release or otherwise making any
public statements with respect to the existence of this Agreement
or the Transactions and shall not issue any press release or make
any public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing
agreements between Inland and NASDAQ.
5.04 For so long as Smith Management, the Farmout
Stockholders or any of their Affiliates (which term has the
meaning given to it in Rule 405 under the Securities Act) own any
of the Common Shares or Common Stock underlying the Series B
Shares or any other securities of Inland, Inland covenants and
agrees that it will (i) maintain on a current basis the filing of
all reports required to be filed by Inland pursuant to the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder; (ii) use its reasonable best efforts to
maintain its qualification for the use of Form S-3; and (iii)
cooperate with Smith Management and the Farmout Stockholders
whenever Smith Management or the Farmout Stockholders wish to
dispose of any securities of Inland owned by them or any of their
Affiliates under Rule 144 and/or Rule 144A under the Securities
Act, to the full extent feasible in order to consummate such
disposition.
VI
CONDITIONS OF SMITH MANAGEMENT
The obligations of Smith Management to effect the closing of
the Series B Shares on the Series B Closing Date are subject to
the satisfaction of the following conditions any one or more of
which may be waived by Smith Management.
6.01 The representations and warranties contained in
Article III hereof shall be true in all material respects on and
as of the Series B Closing Date as if made on and as of the
Series B Closing Date. Inland shall have complied with all of
its obligations contained herein performance of which is required
on or prior to the Series B Closing Date. Smith Management shall
have received a certificate to the foregoing effect executed by
an officer of Inland.
6.02 The Certificate of Designation in the form of Exhibit
"B" shall have been filed with the Secretary of State of
Washington on or before the Series B Closing Date.
6.03 Smith Management shall, prior to the Series B Closing
Date, be satisfied, in its sole discretion, with the results of
its legal and business due diligence of Inland.
6.04 There shall have been no Material Adverse Effect from
the end of the quarter covered by Inland's most recently filed
Form 10-QSB until the Series B Closing Date with regard to the
obligation of Smith Management (or its designee) to purchase the
Series B Shares.
6.05 Trust Company of the West shall have consented to the
issuance of the Series B Shares by Inland and the redemption of
the Series A Preferred Stock on or before the Series B Closing
Date.
6.06 Inland shall send a notice of redemption to all holders
of Series A Preferred Stock simultaneously with the Series B
Closing.
6.07 Smith Management shall have received an opinion of
Inland's counsel at Series B Closing, in the form reasonably
requested by Smith Management.
VII
INLAND'S CONDITIONS
The obligations of Inland to issue and sell the Series B
Shares are subject to the satisfaction of the following
conditions any one or more of which may be waived by Inland:
7.01 The representations and warranties contained in
Article IV hereof shall be true in all material respects on and
as of the Series B Closing Date as if made on and as of the
Series B Closing Date with regard to the issuance of the Series B
Shares. Smith Management shall have complied with all of its
obligations contained herein performance of which is required on
or prior to the Series B Closing Date. Inland shall have
received a certificate to the foregoing effect executed by an
officer of Smith Management, as applicable.
7.02 Trust Company of the West shall have consented to the
issuance of the Series B Shares by Inland and the redemption of
the Series A Preferred Stock on or before the Series B Closing
Date.
VIII
TERMINATION, AMENDMENT AND WAIVER
8.01 The Series B Transactions contemplated hereby may be
abandoned at any time prior to the Series B Closing, as follows:
(a) By the mutual written consent of Inland, Inland
Production and Smith Management;
(b) On or after August 1, 1996, by Inland and Inland
Production, on the one hand, or by Smith Management, on the other
hand, if the Series B Closing shall not have occurred prior
thereto; provided, however, that a party shall not have the right
to terminate this Agreement pursuant to this Section 8.01 (b) if
the Series B Closing failed to occur on or before such date by
reason of the breach by such party of any of its obligation
hereunder; or
(c) by Inland and Inland Production, on one hand, or Smith
Management, on the other hand, if there shall have been a breach
by the other party of any of the covenants contained herein or if
any representation or warranty made by any other party is untrue
in any material respect.
8.02 In the event of the abandonment of the Series B
Transactions pursuant to Section 8.01(a), (b) or (c), this
Agreement shall forthwith become void and have no effect with
respect to the Series B Transactions, without any liability in
respect to the Series B Transactions on the part of any party
other than Section 9.05. In the event of the abandonment of the
Series B Transactions, this Agreement will remain in full force
and effect with respect to the Farmout Transactions and Inland
will remain absolutely and unconditionally obligated to deliver
the Common Shares in accordance with Section 1.01 hereof.
IX
MISCELLANEOUS
9.01 This Agreement (a) constitutes the entire agreement
among the parties with respect to subject matter hereof and
supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject
matter hereof and (b) shall not be assigned by operation of law
or otherwise.
9.02 All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given when delivered person, by facsimile, or
by registered or certified mail (postage prepaid, return receipt
requested) to respective parties as follows:
If to Inland or Inland Production:
c/o Inland Resources Inc.
475 17th Street
Suite 1500
Denver, Colorado 80202
Fax: 303-296-4070
Attn: Kyle R. Miller
With a copy to:
Glast, Phillips and Murray, P.C.
2200 One Galleria Tower
13355 Noel Road, L.B. 48
Dallas, Texas 75240-6657
Fax: 214-419-8329
Attn: Mike Parsons
If to Smith Management or the Farmout Stockholders:
c/o Smith Management Company, Inc.
885 Third Avenue
34th Floor
New York, New York 10022
Attn: David A. Persing, Senior Vice President and
General Counsel
9.03 This Agreement shall be governed by and construed in
accordance with the laws in the state of New York applicable to
agreements made and wholly performed in the State of New York.
9.04 This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the sane agreement.
9.05 Except as otherwise provided herein or in the
Registration Rights Agreement, each party shall bear and pay all
costs and expenses incurred by it or on its behalf in connection
with transactions contemplated hereby, including fees and
expenses of its representatives.
9.06 Except as provided in this Section 9.06, neither Smith
Management, the Farmout Stockholders nor Inland may assign its or
his rights or obligations hereunder; provided, however, Smith
Management may assign its rights to acquire the Series B Shares
to an affiliate, provided such assignment shall not relieve Smith
Management of its obligations hereunder; and provided, further,
that the Farmout Stockholders may designate other persons as the
recipients of the Common Shares, as long as they do so in
compliance with applicable securities laws.
IN WITNESS WHEREOF, the parties have caused this agreement
to be executed and delivered as of the day and year first set
above.
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
Kyle R. Miller, President
INLAND PRODUCTION COMPANY
By: /s/ Kyle R. Miller
Kyle R. Miller, President
SMITH MANAGEMENT COMPANY,
INC.
By: /s/ David Persing
Its: Senior Vice
President
FARMOUT INC.
By: /s/ Bruce M. Schnelwar
Its: Senior Vice
President
/s/ Randall D. Smith
Randall D. Smith, Individually
/s/ Jeffrey A. Smith
Jeffrey A. Smith, Individually
/s/ John W. Adams
John W. Adams, Individually
<PAGE>
EXHIBIT 10.2
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made
and entered into as of the 12th day of June, 1996 by and between
INLAND RESOURCES INC., a Washington corporation (the "Issuer"),
and SMITH MANAGEMENT COMPANY, INC., a New York corporation
("Smith Management"), RANDALL D. SMITH ("R. Smith"), JEFFREY A.
SMITH ("J. Smith") and JOHN W. ADAMS ("Adams"). R. Smith, J.
Smith and Adams are sometimes referred to herein jointly as
"Farmout Stockholders", and the Farmout Stockholders are
sometimes referred to herein jointly with Smith Management as the
"Purchasers".
W I T N E S S E T H:
WHEREAS, the Issuer and Purchasers are parties to that
certain Agreement dated as of June 12, 1996 (the "Purchase
Agreement") pursuant to which the Issuer has agreed to issue to
Farmout Stockholders 1,309,880 shares of common stock, par value
$.001 per share ("Common Stock"), of the Issuer (the "Common
Shares"), and to issue to Smith Management 950,000 shares of the
1,000,000 shares of Class A preferred stock, par value $.001 per
share to be designated as "Series B Convertible Preferred Stock"
("Series B Preferred Stock"), of the Issuer (the "Preferred
Shares"), which are convertible into shares of Common Stock at an
initial conversion price of $6.27 per share of Common Stock (the
"Underlying Common Shares"); and
WHEREAS, it is a condition precedent to the Purchasers'
obligation to purchase the Common Shares and Preferred Shares
that the Issuer and the Purchasers shall have entered into this
Registration Rights Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter set forth, the Issuer and the Purchaser
agree as follows:
1. Shelf Registration Rights.
The Issuer will, as soon as possible following a written
request by Smith Management with regard to the Common Shares, or
the Farmout Stockholders with regard to the Underlying Common
Shares, file a shelf registration statement (the "Shelf
Registration Statement") on Form S-3 covering the Common Shares
or Underlying Common Shares, as applicable, and thereafter shall
use its best efforts to cause the Shelf Registration Statement to
be declared effective as soon as practicable following such
filing and to take any and all reasonable action within the
Issuer's control (provided that such Registration Statement may
be unusable during periods (which shall not exceed one hundred
twenty (120) consecutive days or an aggregate of one hundred
eighty days within any three hundred sixty five day period) of
pending acquisitions or other material events which would require
a post-effective amendment or supplement to the Shelf
Registration Statement, it being agreed that the Issuer shall use
its best efforts to file a post-effective amendment at the
earliest practicable date so that the Shelf Registration
Statement will be useable), as may be necessary or appropriate to
maintain such effectiveness until such time as neither the
Purchasers nor any of their assignees own any Registerable
Securities (as defined in Section 4). Purchasers will cooperate
fully with Issuer by filing consents or other documents with the
SEC which may be required by the SEC, or by providing such
documents as may be reasonably required by the Issuer. If the
Purchasers propose to dispose of any of the Registerable
Securities pursuant to an underwritten offering the Purchasers
shall have the right to select the underwriter.
2. Indemnification. In connection with the registration
of any of the Registerable Securities under the Securities Act of
1933, as amended (the "Act"):
(a) Issuer's Indemnification. The Issuer will
indemnify and hold harmless the Purchasers, each person
who controls the Purchasers within the meaning of the
Act and the Securities Exchange Act of 1934, as amended
(the "Exchange Act") , and Smith Management's officers
and directors, against any losses, claims, expenses,
damages or liabilities (including reasonable attorney's
fees) , joint or several, to which the Purchasers,
their controlling persons or such officers and
directors become subject under the Act, insofar as such
losses, claims, expenses, damages or liabilities (or
actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement
of any material fact contained in the Shelf
Registration Statement, in any prospectus forming a
part of the Shelf Registration Statement (the
"Prospectus") or any amendment or supplement thereof,
or arise out of or are based upon the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse
the Purchasers, each such controlling person or such
officers and directors for any legal or other expenses
reasonably incurred by them in connection with
investigating or defending any such loss, claim,
expense, damage, liability or action; provided,
however, that the Issuer will not be liable in any such
case if but only to the extent that any such loss,
claim, expense, damage or liability arises out of our
is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in
conformity with information furnished in writing to the
Issuer by the Purchaser or Purchaser's underwriter
expressly for inclusion in the Registration Statement.
(b) Purchasers' Indemnification. Each Purchaser
will indemnify and hold harmless the Issuer and each
underwriter of the Registerable Securities and each
person who controls the Issuer or any such underwriter
within the meaning of the Act and the Exchange Act,
each officer of the Issuer who signs the Shelf
Registration Statement and each director of the Issuer,
against all losses, claims, expenses, damages or
liabilities (including reasonable attorneys, fees),
joint or several, to which the Issuer, any such
underwriter or such officer or director or controlling
person become subject under the Act, but only insofar
as such losses, claims, expenses, damages or
liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged
untrue statement of any material fact made in reliance
on and in conformity with information relating to such
Purchaser furnished in writing to the Issuer expressly
for inclusion in the Shelf Registration Statement.
(c) Notification. Promptly after receipt by an
indemnified party hereunder of notice of the
commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made
against the indemnifying party hereunder, notify the
indemnifying party in writing thereof; provided,
however, that any failure to give such notice will not
waive any rights of the indemnified party except to the
extent the rights of the indemnifying party are
materially prejudiced. In case any such action shall
be brought against any indemnified party and it shall
notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to
participate in the defense thereof.
(d) If the indemnification provided for in this
Section 2 is unavailable or insufficient to hold
harmless an indemnified party in respect of any losses,
claims, expenses, damages or liabilities or actions in
respect thereof, then each indemnifying party shall in
lieu of indemnifying such indemnified party contribute
to the amount paid or payable by such indemnified party
as a result of such losses, claims, expenses, damages,
liabilities or actions in such proportion as is
appropriate to reflect the relative fault of the
Issuer, on the one hand, and the applicable Purchaser,
on the other, in connection with the statements or
omissions which resulted in such losses, claims,
expenses, damages, liabilities or actions as well as
any other relevant equitable considerations, including
the failure to give any required notice. The relative
fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission
to state a material fact relates to information
supplied by the Issuer, on the one hand, or the
applicable Purchaser, on the other, and the parties,
relative intent, knowledge, access to information and
opportunity to correct or present such statement or
omission. The Issuer and the Purchasers agree that it
would not be just and equitable if contribution
pursuant to this Section 2 (d) were determined by pro
rata allocation or by any other method of allocation
which does not take account of the equitable
considerations referred to above in this Section 2 (d)
. The amount paid or payable to an indemnified party as
a result of the losses, claims, expenses, damages,
liabilities or actions in respect thereof referred to
above in this Section 2(d) shall be deemed to include
any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or
defending any such action or claim. No person guilty
of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. Expenses. In connection with the Shelf Registration
Statement, Issuer shall pay all expenses incident to the Issuer's
performance of or compliance with its obligations hereunder,
including, without limitation, all registration, filing and
National Association of Securities Dealers, Inc. fees, all fees
and expenses of complying with securities or blue sky laws, all
word processing, duplicating and printing expenses, messenger and
delivery expenses, and the reasonable fees and disbursements of
the Issuer's counsel and of its independent public accountants.
Purchasers will be responsible for any expenses incurred by them,
including for their own counsel, accountants, underwriters and
representatives.
4. Registerable Securities. For purposes of this
Agreement, the term "Registerable Securities" shall mean (i) the
Common Shares and Underlying Common Shares and any Common Shares
and Underlying Common Shares sold by any Purchaser to a permitted
assignee pursuant to Section 8 and (ii) any shares of Common
Stock issued or issuable with respect to the shares of Common
Stock described in (i) above, by way of a stock dividend or stock
split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganizations.
Registerable Securities shall cease to be Registerable Securities
when they have been disposed of pursuant to the Shelf
Registration Statement or pursuant to Rule 144 under the Act.
5. Rule 144 Covenants. The Issuer agrees that for so long
as the Purchasers own any Registerable Securities to (i) file
with the SEC, in a timely manner, all reports required to be
filed by the Issuer under the Exchange Act and (ii) to provide
the Purchasers, upon request, information regarding the number of
shares of Common Stock outstanding as shown by the most recent
report or statement published by the Issuer.
6. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of
the State of New York, without regard to the conflict of law
principles thereof.
7. Binding Effect. The obligations of this Agreement
shall be binding upon the parties, their heirs, successors and
legal representatives.
8. Assignment. This Agreement may not be assigned by any
party without the prior written consent of the other party
hereto, except that Smith Management and the Farmout Stockholders
may assign all or any portion of their rights under this
Agreement to a party to which it sells or transfers Registerable
Securities in a private transaction exempt from the registration
and prospectus delivery requirements of the Act, provided, at
such time, Purchaser furnishes an opinion of counsel to such
effect reasonably acceptable to the Issuer.
9. Amendment. Amendments to this Agreement may only be
made in writing signed by each of the parties.
10. Entire Agreement. This Agreement contains the entire
understanding of the parties and there are no other agreements,
written or oral, regarding the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
Kyle R. Miller, President
SMITH MANAGEMENT COMPANY,
INC.
By: /s/ David Persing
Its: Senior Vice
President
/s/ Randall D. Smith
Randall D. Smith, Individually
/s/ Jeffrey A. Smith
Jeffrey A. Smith, Individually
/s/ John W. Adams
John W. Adams, Individually
<PAGE>
EXHIBIT 10.3<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is made, executed
and entered into this 12th day of June, 1996, between and among
RANDALL D. SMITH, JEFFREY A. SMITH and JOHN W. ADAMS
(individually and collectively referred to herein as the "Secured
Party") and INLAND RESOURCES INC. ("Pledgor").
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SECURITY INTEREST
Pledgor hereby creates and grants to the Secured Party a
security interest in the property described in Article II hereof
to secure the payment and performance of the obligations of
Pledgor to the Secured Party set forth in Article III hereof.
ARTICLE II
COLLATERAL
The property in which the security interest is created is
all of Pledgor's right, title and interest in and to 100 shares
of common stock, par value $1.00 per share, of Farmout Inc., a
Utah corporation (hereinafter referred to as the "Collateral").
ARTICLE III
OBLIGATION SECURED
This Agreement shall secure the performance of the
obligation of Pledgor to Secured Party to issue and deliver to
Secured Party 1,309,880 post-split shares of Pledgor's common
stock, par value $.001 per share ("Common Stock"), on January 2,
1997 pursuant to that certain Agreement executed effective as of
June 12, 1996 by and between Secured Party, Pledgor and other
parties named therein, subject to earlier delivery of such Common
Stock as provided in Section 1.01 of said Agreement upon the
terms and conditions provided in said Section 1.01 (the
"Obligation").
ARTICLE IV
WARRANTY AND REPRESENTATION OF PLEDGOR
Pledgor represents and warrants that:
(i) Pledgor has full authority and capacity to execute and
deliver this Agreement;
(ii) no financing statement covering the Collateral, or any
part thereof, has been filed with any filing officer;
(iii) no other security agreement covering the
Collateral, or any part thereof, has been made and no security
interest, other than the one herein created, has attached or been
perfected in the Collateral or in any part thereof;
(iv) no dispute, right of setoff, counter-claim or defense
exists with respect to all or any part of the Collateral;
(v) except for matters arising by reason of state or
federal securities laws, there are no restrictions upon the
transfer of any of the Collateral;
(vi) Pledgor has the right to transfer the Collateral free
of any liens, claims or encumbrances and without obtaining the
consent of any other party which has not already been obtained,
and the transfer of the Collateral will not result in a default
under any agreement to which Pledgor or the Company is a party;
and
(vii) Pledgor is the owner of the Collateral.
ARTICLE V
COVENANTS AND OBLIGATIONS OF PLEDGOR
Pledgor covenants and agrees to:
(i) deliver to Randall D. Smith, on behalf of the Secured
Party, the original stock certificate which represents the
Collateral, together with a stock power endorsing the Collateral
to Secured Party in the form attached hereto as Exhibit "A";
(ii) from time to time promptly execute and deliver to
Randall D. Smith, on behalf of the Secured Party, all such other
assignments, certificates, supplemental writings, financing
statements and continuation statements, and do all other acts or
things, as Secured Party may reasonably request in order to more
fully evidence and perfect the security interest herein created;
(iii) promptly furnish Secured Party with any
information which Secured Party may reasonably request concerning
the Collateral;
(iv) allow Secured Party to inspect all records of Pledgor
relating to the Collateral, and to make and take away copies of
such records;
(v) promptly notify Secured Party of any change in any fact
or circumstance warranted or represented by the Pledgor in this
Agreement or in any other writing furnished by Pledgor to Secured
Party in connection with the Collateral;
(vi) promptly notify Secured Party of any claim, action or
proceeding affecting title to the Collateral, or any part
thereof, or the security interest therein, and at the request of
Secured Party, appear in and defend, at Pledgor's expense, any
such action or proceeding;
(vii) promptly notify Secured Party of any change of
address of Pledgor; and
(viii) not merge or consolidate Farmout, Inc. with or
into any other corporation or entity, or enter into any exchange
of stock with any other corporation or entity, prior to delivery
of the Common Stock to Secured Party as required herein.
Pledgor further covenants and agrees that, without the prior
written consent of Secured Party, Pledgor will not: (a) sell,
assign or transfer any of Pledgor's rights in the Collateral; or
(b) create any other security interest in, or otherwise encumber,
the Collateral, or any part thereof, or permit the same to be or
become subject to any lien, attachment, execution, sequestration,
other legal or equitable process, or any encumbrance or security
agreement of any kind or character.
Should the Collateral, or any part thereof, ever be in any
manner converted by the issuer thereof into another type of
property or any money or other proceeds ever be paid or delivered
to Pledgor as a result of Pledgor's rights in the Collateral,
then, in any such event, all such property, money and other
proceeds shall become part of the Collateral, shall be held by
Pledgor in trust for the benefit of Secured Party, and Pledgor
covenants to forthwith pay or deliver to Randall D. Smith, on
behalf of the Secured Party, all of the same and, at the same
time, if Secured Party deems it necessary and so requests,
Pledgor will properly endorse or assign the same; provided,
however, that cash dividends paid on the Collateral to Pledgor
shall be and remain the property of Pledgor, except any dividends
paid during the time after a "default" (as defined below) has
occurred and remains uncured. With respect to any of such
property of a kind requiring an additional security agreement,
financing statement or other writing to perfect a security
interest therein in favor of Secured Party, Pledgor will
forthwith execute and deliver to Randall D. Smith, on behalf of
the Secured Party, whatever the Secured Party shall reasonably
deem necessary or proper for such purpose. Should any covenant
or agreement of Pledgor fail to be performed in accordance with
its terms, Secured Party may, but never shall be obligated to,
perform or attempt to perform such covenant or agreement on
behalf of Pledgor and Pledgor agrees to pay to Secured Party any
such amount reasonably expended by Secured Party in such
performance or attempted performance, together with interest
thereon at the rate specified in the Note.
ARTICLE VI
EVENTS OF DEFAULT; RIGHTS OF SECURED PARTY UPON DEFAULT
The term "default", as used herein, means the occurrence of
any of the following events:
(i) the failure of Pledgor to issue and deliver the
1,309,880 shares of Common Stock to Secured Party on January 2,
1997, which failure continues for fifteen (15) calendar days
after notice thereof from Secured Party to Pledgor; or
(ii) the failure of Pledgor to punctually and properly
perform any material covenant or agreement contained herein,
which failure continues for thirty (30) calendar days after
notice thereof from Secured Party to Pledgor.
Upon the occurrence of a default, in addition to any and all
other rights and remedies which Secured Party may then have
hereunder, or under the Uniform Commercial Code, as adopted in
New York (the "Code"), or otherwise, Secured Party, at Secured
Party's option, may:
(i) bring suit to enforce specific performance of Pledgor's
obligation to issue and deliver the 1,309,880 shares of Common
Stock to Secured Party;
(ii) reduce any claim against Pledgor to judgment and
otherwise enforce collection of the same;
(iii) foreclose or otherwise enforce its security
interest in all or any part of the Collateral by any available
judicial procedure;
(iv) after notification, if any, as provided for herein,
sell or otherwise dispose of, at such location chosen by Secured
Party, all or any part of the Collateral, and any such sale or
other disposition may be as a unit or in parcels, by public or
private proceedings, and for cash or upon credit or otherwise as
Secured Party may reasonably determine, and by way of one or more
contracts (it being agreed that the sale of any part of the
Collateral, shall not exhaust Secured Party's power of sale, but
sales may be made from time to time until all of the Collateral
has been sold or until the Obligation has been paid in full), and
at any such sale it shall not be necessary to exhibit the
Collateral;
(v) apply by appropriate judicial proceedings for
appointment of a receiver for the Collateral, or any part
thereof, and Pledgor hereby consents to any such appointment;
(vi) buy the Collateral at any public sale;
(vii) buy the Collateral at any private sale if the
Collateral is of a type customarily sold in a recognized market
or is a type which is the subject of widely distributed standard
price quotations; and
(viii) without notice to Pledgor, either have the
Collateral registered in Secured Party's name, or in the name of
a nominee, and, with or without such registration, (a) exercise
as to such Collateral all the rights, powers and remedies of an
owner, including the right and power to vote, (b) enter into any
extension, reorganization, merger or consolidation agreement, or
any other agreement in any way relating to or affecting the
Collateral, and in connection therewith may deposit or surrender
control of the Collateral and accept other property in exchange
therefor, and (c) demand of the issuer of the Collateral to
receive any and all dividends and other distributions payable in
respect thereof, regardless of the medium in which paid and
whether they be ordinary or extraordinary, and the issuer of the
Collateral, in making payment to Secured Party hereunder, shall
be fully protected in relying on the written statement of Secured
Party that Secured Party then holds a security interest which
entitles it to receive such payment, and the receipt of Secured
Party for such payment shall be full acquittance therefor to the
issuer of the Collateral and the issuer of the Collateral shall
not be required to see the application of such payment; provided,
however, Secured Party shall have no duty to exercise any of the
foregoing rights, privileges or options and shall not be
responsible for any delay or failure to do so.
Secured Party shall have no duty to fix or preserve the
rights against any other party having an interest in the
Collateral, and shall never be liable for its failure to use
diligence to collect any amount payable in respect to the
Collateral, but shall be liable only to account to Pledgor for
what Secured Party may actually collect or receive thereon.
Pledgor agrees that the Secured Party shall have no
responsibility for ascertaining any maturities, calls,
conversions, exchanges, offers, tenders or similar matters
relating to any of the Collateral, nor for informing Pledgor with
respect to any thereof.
Secured Party shall be entitled to apply the proceeds of any
sale or other disposition of the Collateral in the following
order: first, to the payment of all of Secured Party's reasonable
expenses, including, without limitation, attorneys' fees and
other legal expenses, incurred in holding and preparing the
Collateral, or any part thereof, for sale or other disposition,
in arranging for such sale or other disposition, and in actually
selling the same; and next, toward payment of the balance of the
Obligation in such order and manner as Secured Party, in its
discretion, may deem advisable. Secured Party shall account to
Pledgor for any surplus after making the foregoing application
and, if any Collateral remains unsold, shall return such
Collateral to Pledgor. If the proceeds are not sufficient to pay
the Obligation in full, Pledgor shall be liable for any
deficiency and shall be required to pay the same to Secured
Party.
ARTICLE VII
RIGHTS OF PLEDGOR
Unless and until occurrence of an event of "default" as
herein defined, Pledgor shall have the right to vote the
Collateral. If requested by Pledgor, Secured Party shall execute
and deliver to Pledgor such proxies and authorizations as are
reasonably required to confirm the voting rights of Pledgor.
ARTICLE VIII
SECURITIES LAW
The Secured Party is authorized, at any sale, if it deems it
desirable so to do, to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are
purchasing for their own account, for investment, and not with a
view to distribution or sale of any of the Collateral.
If any default shall have occurred and if Secured Party
determines to exercise its rights to sell all or any of the
Collateral, upon request the Pledgor shall from time to time
furnish to Secured Party all such information as Secured Party
may request in order to determine the number of shares included
in the Collateral which may be sold by Pledgor in exempt
transactions under Section 4(1) of the Securities Act of 1933, as
amended, and Rule 144 of the Securities and Exchange Commission
thereunder (or any statutory provisions or rules in effect in
lieu thereof), as the same are from time to time in effect.
Pledgor recognizes and acknowledges that Secured Party may
be unable to effect a public sale of all or a part of the
Collateral (time being of the essence) and may elect to resort to
one or more private sales to purchasers who will be obligated to
agree, among other things, to acquire the Collateral for their
own account, for investment, and not with a view to the
distribution or resale thereof. Pledgor acknowledges that any
such private sales may be at prices and on terms less favorable
to Secured Party than those of public sales, provided such
private sales shall be made in a commercially reasonable manner.
ARTICLE IX
NOTIFICATION OF SALE
Reasonable notification of the time and place of any public
sale of the Collateral, or reasonable notification of the time
after which any private sale or other intended disposition of the
Collateral is to be made, shall be sent to Pledgor at the address
set forth on the signature page hereof, and to any other person
entitled under the Code to notice.
ARTICLE X
FINANCING STATEMENT
Secured Party shall have the right at any time to file this
Agreement, or a photographic or other reproduction hereof, as a
financing statement, and to attach to the same a description of
all Collateral at the time subject to this Agreement, but the
failure of Secured Party to do so shall not impair the validity
or enforceability of this Agreement.
ARTICLE XI
REMEDIES CUMULATIVE
All rights and remedies of Secured Party hereunder are
cumulative of each other and of every other right or remedy which
Secured Party may otherwise have at law or in equity or under any
other contract or other writing for the enforcement of the
security interest herein or the collection of the Obligation, and
the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise by
Secured Party of other rights or remedies.
ARTICLE XII
TRANSFER AND ASSIGNMENT BY SECURED PARTY
The rights, powers and interests held by Secured Party
hereunder, together with the Collateral, may be transferred and
assigned by Secured Party, in whole or in part, at such time and
upon such terms as he may deem advisable to any person who shall
acquire any part of the Obligation, and upon any such transfer or
assignment, the transferee or assignee shall succeed to all the
rights and powers of, and be subject to the duties and
obligations of, Secured Party hereunder to the extent of any such
transfer and assignment.
ARTICLE XIII
NO WAIVER OF RIGHTS OR REMEDIES
Should any part of the Obligation be payable in
installments, the acceptance by Secured Party at any time and
from time to time of part payment of the aggregate amount of all
installments then matured shall not be deemed to be a waiver of
the default, if any, then existing. No waiver by Secured Party
of any default shall be deemed to be a wavier of any other
subsequent default, nor shall any such waiver by Secured Party be
deemed to be a continuing waiver. No modification or waiver of
any provision of this agreement or of any promissory note or
other security agreement, mortgage, deed of trust, assignment or
contract of any kind evidencing or securing payment of the
Obligation, or any part thereof, shall be effective unless the
same shall be in writing and signed by Secured Party. No delay
or omission by Secured Party in exercising any right or power
hereunder, or under any other writings executed by Pledgor as
security for or in connection with the Obligation, shall impair
any such right or power or be construed as a waiver thereof or
any acquiescence therein, nor shall any single or partial
exercise of any such right or power preclude other or further
exercise thereof, or the exercise of any other right or power of
Secured Party hereunder or under such other writings.
ARTICLE XIV
BINDING EFFECT
This Agreement shall be binding on Pledgor and Pledgor's
successors and assigns and shall inure to the benefit of Secured
Party and Secured Party's successors and assigns.
ARTICLE XV
LAW GOVERNING
All obligations of Pledgor under this Agreement are
performable in New York, New York. This Agreement shall be
deemed made in New York, New York and shall be governed by, and
construed in accordance with, the laws of the State of New York.
ARTICLE XVI
HEADINGS
All headings set forth in this Agreement are intended for
convenience only and shall not control or affect the meaning,
construction or effect of this Agreement or any of the provisions
hereof.
ARTICLE XVII
SEVERABILITY
All agreements and covenants contained herein are severable
and in the event that any of them shall be held to be invalid by
any court of competent jurisdiction, this Agreement shall be
interpreted as if such invalid agreements or covenants were not
contained herein.
ARTICLE XVIII
TERMINATION OF SECURITY AGREEMENT
Upon the issuance and delivery to Secured Party of the
1,309,880 shares of Common Stock, this Agreement shall terminate.
Upon such termination, Secured Party shall promptly return to
Pledgor the stock certificates representing the Collateral,
together with the stock power executed by Pledgor in favor of
Secured Party.
ARTICLE XIX
NOTICES
Any notice shall be conclusively deemed to have been
received by a party hereto and to be effective on the day on
which delivered to such party at the address set forth below
beside each party's signature hereto (or at such other address as
such party shall specify to the other parties in writing), or if
sent by registered mail, on the third business day after the day
on which mailed, addressed to such party at the same address.
ARTICLE XX
ENTIRE AGREEMENT
This Agreement supersedes any and all other agreements,
either
oral or in writing, between the parties hereto with respect to
the
subject matter hereof and contains all of the covenants and
agreements between the parties with respect to the subject matter
hereof.
ARTICLE XXI
WAIVERS AND AMENDMENTS
No term or condition of this Agreement shall be deemed to
have
been waived nor shall there be any estoppel to enforce any
provision of this Agreement except by written instrument of the
party charged with such waiver or estoppel. No amendment or
modification of this Agreement shall be deemed effective unless
and
until executed in writing by the parties hereto.
ARTICLE XXII
MULTIPLE COUNTERPARTS
This Agreement may be executed in two (2) or more
counterparts, each of which shall constitute an original, but all
of which when taken together shall constitute one and the same
instrument and any of the parties hereto may execute this
Agreement
by signing any such counterpart.
EXECUTED by Pledgor and Secured Party effective the date and
year first above written.
ADDRESS AND TELECOPY NUMBER PLEDGOR:
FOR NOTICES TO PLEDGOR:
INLAND RESOURCES INC.
475 17th Street, Suite 1500
Denver, Colorado 80202
Fax: (303) 296-4070 By: /s/ Kyle R. Miller
Kyle R. Miller, President
ADDRESS AND TELECOPY NUMBER SECURED PARTY:
FOR NOTICES TO SECURED PARTY:
c/o Smith Management Company, Inc. /s/ Randall D. Smith
885 Third Avenue Randall D. Smith
34th Floor
New York, New York 10022
Fax: (212) 751-9503
c/o Smith Management Company, Inc. /s/ Jeffrey A. Smith
885 Third Avenue Jeffrey A. Smith
34th Floor
New York, New York 10022
Fax: (212) 751-9503
c/o Smith Management Company, Inc. /s/ John W. Adams
885 Third Avenue John W. Adams
34th Floor
New York, New York 10022
Fax: (212) 751-9503
<PAGE>
Exhibit "A"
to
Security Agreement
STOCK POWER
FOR VALUE RECEIVED, INLAND RESOURCES INC. hereby sells,
assigns and transfers unto Randall D. Smith, Jeffrey A. Smith and
John W. Adams, jointly, _________ shares of common stock, par
value $_________ per share, of Farmout Inc., a Utah corporation,
in the name of Inland Resources Inc. on the books of said Farmout
Inc. represented by Certificate No. _______, and hereby
irrevocably constitutes and appoints Randall D. Smith, Jeffrey A.
Smith and John W. Adams, jointly, attorney to transfer the said
stock on the books of Farmout Inc. with full power of
substitution in the premises.
DATED: June 12, 1996.
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
Kyle R. Miller, President
<PAGE>
EXHIBIT 10.4
<PAGE>
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into
effective June 12, 1996, by and between ARTHUR J. PASMAS
("Pasmas") and INLAND RESOURCES INC. ("Inland").
R E C I T A L S:
WHEREAS, Pasmas desires to acquire 50,000 shares of the
1,000,000 shares of Series B Preferred Stock (as hereinafter
defined) of Inland for $500,000 of the total of $10,000,000 to be
received for the Series B Preferred Stock, and Inland desires to
issue such Series B Preferred Stock to Pasmas; and
WHEREAS, the acquisition of the Series B Preferred Stock by
Pasmas will be closed on July 31, 1996; and
WHEREAS, Inland intends to call its existing Series A
Preferred Stock for redemption or conversion on July 31, 1996 and
to the extent any shares are to be redeemed, the proceeds from
the issuance of the Series B Preferred Stock are intended to be
used by Inland to partially pay any required redemption amounts.
NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual promises, covenants and representations set forth
herein, the parties hereto agree as follows:
A G R E E M E N T S:
I.
SERIES B PREFERRED STOCK
1.01 Subject to the terms and conditions of this Agreement,
at the "Series B Closing" (herein so called) Inland agrees to
issue and sell to Pasmas, and Pasmas agrees to subscribe for and
purchase from Inland, 50,000 shares (the "Series B Shares") of a
series of 1,000,000 shares of preferred stock, par value $.001
per share, of Inland having the relative rights, preferences,
privileges and limitations set forth on the "Certificate of
Designation, Preferences and Rights of Series B Convertible
Preferred Stock" ("Certificate of Designation") attached hereto
as
Exhibit "A" and incorporated herein for all purposes by this
reference (the "Series B Preferred Stock"), for an aggregate
purchase price of $500,000 ($10.00 per Series B Share) (the
"Purchase Price"). The transactions contemplated to take place
at the Series B Closing are referred to herein as the "Series B
Transactions". Pasmas acknowledges that it is anticipated by
Inland that the remaining 950,000 shares of Series B Stock will
be sold to another purchaser for the price of $10.00 per share
and that such sale will close on or around the Series B Closing,
provided, however, Pasmas shall, whether or not such additional
purchase and sale is made, be obligated to purchase the Series B
Shares at the Series B Closing, and Inland shall be obligated to
issue the Series B Shares to Pasmas at the Series B Closing.
1.02 Subject to the terms and conditions of this Agreement,
the issuance and purchase of the Series B Shares shall take place
at the "Series B Closing" to be held at the offices of Inland at
10:00 a.m. (Denver time) on July 31, 1996. The date on which the
Series B Closing occurs is referred to herein as the "Series B
Closing Date." On the Series B Closing Date, Inland will deliver
the Series B Shares registered in the name of Pasmas upon receipt
of the Purchase Price therefor by wire transfer of immediately
available funds to an account designated by Inland, or by such
other method as is mutually agreed to by Pasmas and Inland. Such
certificates shall bear appropriate restrictive legends deemed
necessary by Inland to comply with applicable securities laws.
Effective as of the Series B Closing Date, Inland will file with
the Secretary of State of Washington the Certificate of
Designation.
II
REPRESENTATIONS AND WARRANTIES OF INLAND
Inland represents and warrants to Pasmas as of the date
hereof and as of the Series B Closing Date, as follows:
2.01 Inland has all requisite corporate power and authority
to execute and deliver this Agreement and the Registration Rights
Agreement (in the form attached hereto as Exhibit "B" and
incorporated herein for all purposes by this reference) and to
consummate the issuance of the Series B Shares as provided herein
(referred to herein as the "Transaction"). The execution and
delivery of this Agreement and the Registration Rights Agreement
and the consummation of the Transaction to be performed by Inland
have been duly and validly authorized by all necessary action on
the part of the Board of Directors of Inland, and no other
corporate proceedings are necessary to authorize the execution
and delivery of this Agreement and the Registration Rights
Agreement by Inland or to consummate the Transaction to be
performed by Inland, other than filing the Certificate of
Designation with the Secretary of State of Washington on the
Series B Closing Date. This Agreement has been, and the
Registration Rights Agreement, when executed at Series B Closing,
will have been, duly and validly executed and delivered by Inland
and, assuming this Agreement and the Registration Rights
Agreement constitutes a valid and binding obligation of Pasmas,
this Agreement constitutes, and the Registration Rights
Agreement, when executed at Series B Closing, will constitute, a
valid and binding agreement of Inland, enforceable against Inland
in accordance with its terms. Upon receipt by Inland of the
Purchase Price, the Series B Shares shall be duly authorized,
validly issued (when issued), fully paid and non-assessable. The
shares of Common Stock underlying the Series B Shares will have
been reserved for issuance as of the Series B Closing Date.
2.02 Neither the execution and delivery of this Agreement or
the Registration Rights Agreement by Inland, the consummation of
the Transaction to be performed by Inland nor compliance by
Inland with any of the provisions hereof or of Registration
Rights Agreement will (i) conflict with or result in any breach
of any provisions of the Articles of Incorporation or by-laws of
Inland or any of its Subsidiaries, assuming, for this purpose,
the Certificate of Designation has been filed with the Secretary
of State of Washington; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to,
any governmental authority, including those of the United States,
any foreign country, state, county, city or other political
subdivision, agency or instrumentality thereof (herein referred
to as a "Governmental Authority"), except for consents,
approvals, authorizations, permits, filings or notifications
which have been obtained or made; (iii) except upon failure to
obtain the consent of Trust Company of the West required to be
obtained under that certain Credit Agreement dated November 29,
1995, result in a default (with or without due notice or lapse of
time or both) or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, contract,
license, agreement or other instrument or obligation to which
Inland or any of its Subsidiaries is a party or by which Inland
or any of its Subsidiaries or any of their respective assets may
be bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or
consents have been obtained; (iv) result in the creation or
imposition of any lien, charge or other encumbrance on the assets
of Inland or any of its Subsidiaries; or (v) violate any order,
writ, injunction, decree, statute, rule or regulation applicable
to Inland, any of its Subsidiaries or any of their respective
assets. For purposes of this Agreement, "Subsidiary" shall
mean, when used with reference to an entity, any corporation, a
majority of the outstanding voting securities of which are owned
directly or indirectly by such entity; and such term shall also
refer to any other partnership, limited partnership, joint
venture, trust, or other business entity in which such entity has
a material interest.
2.03 The offer, sale and issuance of the Series B Shares
pursuant to this Agreement do not require registration of the
Series B Shares under the Securities Act of 1993, as amended (the
"Securities Act") or registration or qualification under any
applicable state "blue sky" or securities laws, based on
available non-public offering exemptions which are based, in
part, on the representations of Pasmas in Section 3.03. Inland
has not taken, directly or indirectly, nor will it take any
action which will subject the issuance or sale of any of the
Series B Shares to be in violation of the provision of Section 5
of the Securities Act or the provisions of any securities, blue
sky law or similar law of any applicable jurisdiction.
2.04 No broker's or finder's fees or commissions will be
payable by Inland in connection with the issuance and sale of the
Series B Shares or the Transaction.
2.05 The authorized capital stock of the Inland consists of
25,000,000 shares of Common Stock, and 20,000,000 shares of Class
A preferred stock, par value $.001 per share ("Preferred Stock").
As of the date hereof, 4,092,800 shares of Common Stock and
106,850 Series A Preferred Shares were issued and outstanding.
Except upon written notification to Pasmas, Inland will not,
prior to the Series B Closing, issue any Common Stock or
Preferred Stock (other than upon conversion of Series A Preferred
Shares or exercise of outstanding options or warrants), and will
not repurchase or redeem any Common Stock or Preferred Stock
(other than the anticipated redemption of Series A Preferred
Shares). Other than the Common Shares issuable pursuant to this
Agreement or the shares of Common Stock underlying the Series B
Shares, neither Inland nor any Subsidiary has any shares of its
capital stock reserved for issuance, except for shares of Common
Stock issuable upon conversion of Series A Preferred Shares and
except for 212,800 shares of Common Stock issuable pursuant to
Inland's employee stock option plan, of which options for 184,960
shares are outstanding, and 256,911 shares issuable pursuant to
other outstanding subscriptions, options and warrants. No other
options, warrants or securities convertible into Common Stock,
other than the Series A Preferred Shares, are outstanding. All
such issued and outstanding shares of capital stock of Inland are
validly issued, fully paid, non-assessable and free of any
preemptive rights.
2.06 The various reports filed by Inland with the Securities
and Exchange Commission do not contain any untrue statement of a
material fact, or omit to state a material fact necessary to make
the statements contained therein not misleading.
III
REPRESENTATIONS AND WARRANTIES OF
PASMAS
Pasmas hereby represents and warrants to Inland as of the
date hereof and as of the Series B Closing Date, as follows:
3.01 This Agreement has been duly and validly executed and
delivered by Pasmas and, assuming this Agreement constitutes a
valid and binding obligation of Inland, this Agreement
constitutes a valid and binding agreement of Pasmas, enforceable
against Pasmas in accordance with its terms.
3.02 Neither the execution and delivery of this Agreement by
Pasmas, the consummation of the Transaction to be performed by
Pasmas, nor compliance by Pasmas with any of the provisions
hereof will (i) require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental
Authority, except for consents, approvals, authorizations,
permits, filings or notifications which have been obtained or
made, (ii) result in a default (with or without due notice or
lapse of time or both) or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, contract,
license, agreement or other instrument or obligation to which
Pasmas is a party or by which Pasmas or any of his assets may be
bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or
consents have been obtained, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to
Pasmas or any of his assets.
3.03 Pasmas has such knowledge and experience in financial
and business matters as enables him to evaluate the merits and
risks of an investment in the Series B Shares. Pasmas is an
"accredited investor" as such term is defined in Rule 501 under
the Securities Act. Pasmas is acquiring the Series B Shares for
his own account and not with the view to resale or redistribution
thereof in violation of the Securities Act. Pasmas acknowledges
that he may not transfer the Series B Shares except pursuant to
an effective registration statement under the Securities Act or
pursuant to an exemption from the registration requirements of
the Securities Act, and that a legend to such effect shall be
included on the certificate representing the Series B Shares.
IV
COVENANTS
4.01 Between the date hereof and the Series B Closing Date,
Inland will afford to Pasmas and his authorized representatives
reasonable access (subject to tenants' rights) to the plant,
offices, warehouses, or other facilities and properties,
including oil and gas properties) and to the books and records of
Inland and its Subsidiaries, will permit Pasmas and his
representatives to make such reasonable inspections as they may
require and will cause its officers and those of its Subsidiaries
to furnish Pasmas and his representatives with such financial and
operating data, environmental assessment and other information
with respect to the business, assets and properties of Inland and
its Subsidiaries, as applicable, as Pasmas and his
representatives may from time to time reasonably request. No
inspection or examination by Pasmas or his representatives will
constitute a waiver of any claim against Inland for
misrepresentation or breach of this Agreement. Pasmas shall hold
strictly confidential all information obtained as a result of any
examination or inspection of Inland and its Subsidiaries;
provided, that Pasmas shall not be obligated to hold confidential
information which (i) was or becomes generally available to the
public other than as a result of a disclosure by Pasmas or his
representatives or (ii) was or becomes available to Pasmas on a
nonconfidential basis from a source other than Inland or its
representatives, provided that such source is not bound by a
confidentiality agreement with Inland or otherwise prohibited
from transmitting the information to Pasmas.
4.02 Subject to the terms and conditions herein provided,
Inland and Pasmas agree to use their best efforts to take, or
cause to be taken, all action, and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the Transaction.
4.03 Inland and Pasmas will consult with each other before
issuing any press release or otherwise making any public
statements with respect to the existence of this Agreement or the
Transaction and shall not issue any press release or make any
public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing
agreements between Inland and NASDAQ.
4.04 For so long as Pasmas or any of his Affiliates (which
term has the meaning given to it in Rule 405 under the Securities
Act) own any of the Common Stock underlying the Series B Shares
or any other securities of Inland, Inland covenants and agrees
that it will (i) maintain on a current basis the filing of all
reports required to be filed by Inland pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder; (ii) use its reasonable best efforts to maintain its
qualification for the use of Form S-3; and (iii) cooperate with
Pasmas whenever Pasmas wishes to dispose of any securities of
Inland owned by him or any of his Affiliates under Rule 144
and/or Rule 144A under the Securities Act, to the full extent
feasible in order to consummate such disposition.
V
CONDITIONS OF PASMAS
The obligations of Pasmas to effect the closing of the
Series B Shares on the Series B Closing Date are subject to the
satisfaction of the following conditions any one or more of which
may be waived by Pasmas.
5.01 The representations and warranties contained in
Article II hereof shall be true in all material respects on and
as of the Series B Closing Date as if made on and as of the
Series B Closing Date. Inland shall have complied with all of
its obligations contained herein performance of which is required
on or prior to the Series B Closing Date. Pasmas shall have
received a certificate to the foregoing effect executed by an
officer of Inland.
5.02 The Certificate of Designation in the form of Exhibit
"A" shall have been filed with the Secretary of State of
Washington on or before the Series B Closing Date.
5.03 Pasmas shall, prior to the Series B Closing Date, be
satisfied, in its sole discretion, with the results of its legal
and business due diligence of Inland.
5.04 There shall have been no Material Adverse Effect from
the end of the quarter covered by Inland's most recently filed
Form 10-QSB until the Series B Closing Date with regard to the
obligation of Pasmas to purchase the Series B Shares.
5.05 Trust Company of the West shall have consented to the
issuance of the Series B Shares by Inland and the redemption of
the Series A Preferred Stock on or before the Series B Closing
Date.
5.06 Inland shall send a notice of redemption to all holders
of Series A Preferred Stock simultaneously with the Series B
Closing.
5.07 Pasmas shall have received an opinion of Inland's
counsel at Series B Closing, in the form reasonably requested by
Pasmas.
VI
INLAND'S CONDITIONS
The obligations of Inland to issue and sell the Series B
Shares are subject to the satisfaction of the following
conditions any one or more of which may be waived by Inland:
6.01 The representations and warranties contained in
Article III hereof shall be true in all material respects on and
as of the Series B Closing Date as if made on and as of the
Series B Closing Date with regard to the issuance of the Series B
Shares. Pasmas shall have complied with all of its obligations
contained herein performance of which is required on or prior to
the Series B Closing Date. Inland shall have received a
certificate to the foregoing effect executed by Pasmas.
6.02 Trust Company of the West shall have consented to the
issuance of the Series B Shares by Inland and the redemption of
the Series A Preferred Stock on or before the Series B Closing
Date.
VII
TERMINATION, AMENDMENT AND WAIVER
7.01 The Series B Transactions contemplated hereby may be
abandoned at any time prior to the Series B Closing, as follows:
(a) By the mutual written consent of Inland and Pasmas;
(b) On or after August 1, 1996, by Inland or Pasmas if the
Series B Closing shall not have occurred prior thereto; provided,
however, that a party shall not have the right to terminate this
Agreement pursuant to this Section 7.01 (b) if the Series B
Closing failed to occur on or before such date by reason of the
breach by such party of any of such party's obligation hereunder;
or
(c) by Inland or Pasmas if there shall have been a breach
by the other party of any of the covenants contained herein or if
any representation or warranty made by any other party is untrue
in any material respect.
7.02 In the event of the abandonment of the Series B
Transactions pursuant to Section 7.01(a), (b) or (c), this
Agreement shall forthwith become void and have no effect with
respect to the Series B Transactions, without any liability in
respect to the Series B Transactions on the part of any party
other than Section 8.05.
VIII
MISCELLANEOUS
8.01 This Agreement (a) constitutes the entire agreement
among the parties with respect to subject matter hereof and
supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject
matter hereof and (b) shall not be assigned by operation of law
or otherwise.
8.02 All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given when delivered person, by facsimile, or
by registered or certified mail (postage prepaid, return receipt
requested) to respective parties as follows:
If to Inland:
c/o Inland Resources Inc.
475 17th Street
Suite 1500
Denver, Colorado 80202
Fax: 303-296-4070
Attn: Kyle R. Miller
With a copy to:
Glast, Phillips and Murray, P.C.
2200 One Galleria Tower
13355 Noel Road, L.B. 48
Dallas, Texas 75240-6657
Fax: 214-419-8329
Attn: Mike Parsons
If to Pasmas:
Arthur J. Pasmas
Smith Management Company
5858 Westmeimer
Suite 400
Houston, Texas 77057
Fax: (713) 974-6818
8.03 This Agreement shall be governed by and construed in
accordance with the laws in the state of New York applicable to
agreements made and wholly performed in the State of New York.
8.04 This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the sane agreement.
8.05 Except as otherwise provided herein or in the
Registration Rights Agreement, each party shall bear and pay all
costs and expenses incurred by it or on its behalf in connection
with transactions contemplated hereby, including fees and
expenses of its representatives.
8.06 Neither Pasmas nor Inland may assign its or his rights
or obligations hereunder.
IN WITNESS WHEREOF, the parties have caused this agreement
to be executed and delivered as of the day and year first set
above.
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
Kyle R. Miller, President
/s/ Arthur J. Pasmas
Arthur J. Pasmas
<PAGE>
EXHIBIT 10.5<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made
and entered into as of the 31st day of July, 1996 by and between
INLAND RESOURCES INC., a Washington corporation (the "Issuer"),
and ARTHUR J. PASMAS ("Pasmas").
W I T N E S S E T H:
WHEREAS, the Issuer and Purchaser are parties to that
certain Agreement dated as of June 12, 1996 (the "Purchase
Agreement") pursuant to which the Issuer has agreed to issue to
Purchaser 50,000 shares of the 1,000,000 shares of Class A
preferred stock, par value $.001 per share to be designated as
"Series B Convertible Preferred Stock" ("Series B Preferred
Stock"), of the Issuer (the "Preferred Shares"), which are
convertible into shares of Common Stock at an initial conversion
price of $6.27 per share of Common Stock (the "Underlying Common
Shares"); and
WHEREAS, it is a condition precedent to the Purchaser's
obligation to purchase the Preferred Shares that the Issuer and
the Purchaser shall have entered into this Registration Rights
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter set forth, the Issuer and the Purchaser
agree as follows:
1. Shelf Registration Rights.
The Issuer will, as soon as possible following a written
request by Purchaser with regard to the Underlying Common Shares,
file a shelf registration statement (the "Shelf Registration
Statement") on Form S-3 covering the Underlying Common Shares and
thereafter shall use its best efforts to cause the Shelf
Registration Statement to be declared effective as soon as
practicable following such filing and to take any and all
reasonable action within the Issuer's control (provided that such
Registration Statement may be unusable during periods (which
shall not exceed one hundred twenty (120) consecutive days or an
aggregate of one hundred eighty days within any three hundred
sixty five day period) of pending acquisitions or other material
events which would require a post-effective amendment or
supplement to the Shelf Registration Statement, it being agreed
that the Issuer shall use its best efforts to file a
post-effective amendment at the earliest practicable date so that
the
Shelf Registration Statement will be useable), as may be
necessary or appropriate to maintain such effectiveness until
such time as neither the Purchaser nor any of his assignees own
any Registerable Securities (as defined in Section 4). Purchaser
will cooperate fully with Issuer by filing consents or other
documents with the SEC which may be required by the SEC, or by
providing such documents as may be reasonably required by the
Issuer. If the Purchaser proposes to dispose of any of the
Registerable Securities pursuant to an underwritten offering the
Purchaser shall have the right to select the underwriter.
2. Indemnification. In connection with the registration
of any of the Registerable Securities under the Securities Act of
1933, as amended (the "Act"):
(a) Issuer's Indemnification. The Issuer will
indemnify and hold harmless the Purchaser against any
losses, claims, expenses, damages or liabilities
(including reasonable attorney's fees) to which the
Purchaser becomes subject under the Act, insofar as
such losses, claims, expenses, damages or liabilities
(or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue
statement of any material fact contained in the Shelf
Registration Statement, in any prospectus forming a
part of the Shelf Registration Statement (the
"Prospectus") or any amendment or supplement thereof,
or arise out of or are based upon the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse
the Purchaser for any legal or other expenses
reasonably incurred by him in connection with
investigating or defending any such loss, claim,
expense, damage, liability or action; provided,
however, that the Issuer will not be liable in any such
case if but only to the extent that any such loss,
claim, expense, damage or liability arises out of our
is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in
conformity with information furnished in writing to the
Issuer by the Purchaser or Purchaser's underwriter
expressly for inclusion in the Registration Statement.
(b) Purchaser's Indemnification. Purchaser will
indemnify and hold harmless the Issuer and each
underwriter of the Registerable Securities and each
person who controls the Issuer or any such underwriter
within the meaning of the Act and the Exchange Act,
each officer of the Issuer who signs the Shelf
Registration Statement and each director of the Issuer,
against all losses, claims, expenses, damages or
liabilities (including reasonable attorneys, fees),
joint or several, to which the Issuer, any such
underwriter or such officer or director or controlling
person become subject under the Act, but only insofar
as such losses, claims, expenses, damages or
liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged
untrue statement of any material fact made in reliance
on and in conformity with information relating to
Purchaser furnished in writing to the Issuer expressly
for inclusion in the Shelf Registration Statement.
(c) Notification. Promptly after receipt by an
indemnified party hereunder of notice of the
commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made
against the indemnifying party hereunder, notify the
indemnifying party in writing thereof; provided,
however, that any failure to give such notice will not
waive any rights of the indemnified party except to the
extent the rights of the indemnifying party are
materially prejudiced. In case any such action shall
be brought against any indemnified party and it shall
notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to
participate in the defense thereof.
(d) If the indemnification provided for in this
Section 2 is unavailable or insufficient to hold
harmless an indemnified party in respect of any losses,
claims, expenses, damages or liabilities or actions in
respect thereof, then each indemnifying party shall in
lieu of indemnifying such indemnified party contribute
to the amount paid or payable by such indemnified party
as a result of such losses, claims, expenses, damages,
liabilities or actions in such proportion as is
appropriate to reflect the relative fault of the
Issuer, on the one hand, and the Purchaser, on the
other, in connection with the statements or omissions
which resulted in such losses, claims, expenses,
damages, liabilities or actions as well as any other
relevant equitable considerations, including the
failure to give any required notice. The relative
fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission
to state a material fact relates to information
supplied by the Issuer, on the one hand, or the
Purchaser, on the other, and the parties, relative
intent, knowledge, access to information and
opportunity to correct or present such statement or
omission. The Issuer and the Purchaser agree that it
would not be just and equitable if contribution
pursuant to this Section 2 (d) were determined by pro
rata allocation or by any other method of allocation
which does not take account of the equitable
considerations referred to above in this Section 2 (d)
. The amount paid or payable to an indemnified party as
a result of the losses, claims, expenses, damages,
liabilities or actions in respect thereof referred to
above in this Section 2(d) shall be deemed to include
any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or
defending any such action or claim. No person guilty
of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. Expenses. In connection with the Shelf Registration
Statement, Issuer shall pay all expenses incident to the Issuer's
performance of or compliance with its obligations hereunder,
including, without limitation, all registration, filing and
National Association of Securities Dealers, Inc. fees, all fees
and expenses of complying with securities or blue sky laws, all
word processing, duplicating and printing expenses, messenger and
delivery expenses, and the reasonable fees and disbursements of
the Issuer's counsel and of its independent public accountants.
Purchaser will be responsible for any expenses incurred by him,
including for his own counsel, accountants, underwriters and
representatives.
4. Registerable Securities. For purposes of this
Agreement, the term "Registerable Securities" shall mean (i) the
Underlying Common Shares and any Underlying Common Shares sold by
Purchaser to a permitted assignee pursuant to Section 8 and (ii)
any shares of Common Stock issued or issuable with respect to the
shares of Common Stock described in (i) above, by way of a stock
dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other
reorganizations. Registerable Securities shall cease to be
Registerable Securities when they have been disposed of pursuant
to the Shelf Registration Statement or pursuant to Rule 144 under
the Act.
5. Rule 144 Covenants. The Issuer agrees that for so long
as the Purchaser owns any Registerable Securities to (i) file
with the SEC, in a timely manner, all reports required to be
filed by the Issuer under the Exchange Act and (ii) to provide
the Purchaser, upon request, information regarding the number of
shares of Common Stock outstanding as shown by the most recent
report or statement published by the Issuer.
6. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of
the State of New York, without regard to the conflict of law
principles thereof.
7. Binding Effect. The obligations of this Agreement
shall be binding upon the parties, their heirs, successors and
legal representatives.
8. Assignment. This Agreement may not be assigned by any
party without the prior written consent of the other party
hereto, except that Pasmas may assign all or any portion of his
rights under this Agreement to a party to which he sells or
transfers Registerable Securities in a private transaction exempt
from the registration and prospectus delivery requirements of the
Act, provided, at such time, Purchaser furnishes an opinion of
counsel to such effect reasonably acceptable to the Issuer.
9. Amendment. Amendments to this Agreement may only be
made in writing signed by each of the parties.
10. Entire Agreement. This Agreement contains the entire
understanding of the parties and there are no other agreements,
written or oral, regarding the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
Kyle R. Miller, President
/s/ Arthur J. Pasmas
Arthur J. Pasmas
<PAGE>
EXHIBIT 10.6<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
INLAND RESOURCES INC.
DESIGNATING A SERIES OF STOCK
Pursuant to RCW 23B.06.020 and RCW 23B.10.020 of the
Washington Business Corporation Act, INLAND RESOURCES INC., a
Washington corporation (the "Corporation"), hereby submits this
Articles of Amendment to its Articles of Incorporation thereby
designating and establishing the following series of stock:
I. The name of the corporation is INLAND RESOURCES INC.
II. The date of filing the original articles of incorporation
with the Secretary of State of Washington is August 12, 1985.
III. The Articles of Incorporation of the Corporation are amended
by amending Article IV to add the following new paragraph 3 to
said Article IV:
"3. 1,000,000 shares of Class A preferred stock, par value
$0.001 per share, shall be designated Series B Convertible
Preferred Stock ("Series B Preferred Stock"). The Series B
Preferred Stock shall have the following voting powers,
preferences and relative, participating, optional and other
special rights, qualifications, limitations and restrictions:
"(i) Dividends. The Series B Preferred Stock shall
bear dividends at the rate of 12% per annum on the Redemption
Price thereof, accumulating daily, whether or not declared, and
payable quarterly in cash or common stock, at the option of the
holder, to the record holders of Series B Preferred Stock on the
Corporation's books on the last day of each calendar quarter in
each calendar year (the "Record Dates"), with the first Record
Date on September 30, 1996, subject to the Board's election
hereinafter set forth in this paragraph (i). At the election of
the Corporation's Board of Directors (the "Board"), (a) such
dividends may be paid in cash or (b) such dividends may be
accumulated and shall be payable in cash when and as declared by
the Board, provided, the holders of Series B Preferred Stock may,
by written notice to the Corporation delivered within ten (10)
days following each Record Date, elect to take dividends in the
form of Common Stock at the Conversion Price (defined in aragraph
(iv), below). Notwithstanding the foregoing, in the event that
the holder of Series B Preferred Stock does not elect during
such ten day period to receive dividends in the form of Common
Stock, the holder will continue to have the right to take such
accumulated dividends in the form of Common Stock until such
time, if any, as the Board of Directors declares that such
accumulated dividends shall be paid in cash and establishes a
dividend payment date therefor. When paid in cash, such
dividends shall be payable out of funds legally available
therefor within twenty (20) days after the Board's election or
declaration. No dividends shall be paid or declared, and no
distribution (of securities of the Corporation or any other
property) shall be made, on any Junior Securities (as defined
below) while any dividends on the Series B Preferred Stock shall
remain accumulated and unpaid. "Junior Securities" means any of
the Corporation's equity securities other than the Series B
Preferred Stock and the Corporation's Series A Preferred Stock,
which is being called for redemption (or conversion, at the
election of the holders thereof) concurrently with the filing of
these Articles of Amendment designating the Series B Preferred
Stock, it being understood, therefore, that no shares of Series A
Preferred Stock will be issued and outstanding as of the first
Record Date for Series B Preferred Stock, but until said Series A
Preferred Stock is actually redeemed or converted in accordance
with such call for redemption, the Series A Preferred Stock shall
have preference over the Series B Preferred Stock and the Series
B Preferred Stock shall be deemed subordinate to the Series A
Preferred Stock.
"(ii) Liquidation Rights.
"(a) In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or
involuntary, the holder of each share of Series B Preferred Stock
then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its
stockholders, whether such assets are capital, surplus or
earnings, before any payment or declaration and setting apart for
payment of any amount shall be made in respect of any Junior
Securities (but expressly subordinate to the rights of the
holders of Series A Preferred Stock until it is redeemed or
converted as noted in paragraph (i), above), an amount in cash
equal to ten dollars ($10.00) for each share of such
Series B Preferred Stock, together with any accumulated dividends
thereon, provided, if such liquidation, dissolution or winding up
of the Corporation occurs prior to July 31, 1998, the holders of
Series B Preferred Stock shall be entitled to the full amount of
dividends that would have been accumulated through such date (the
"Liquidation Value").
"(b) After the payment or distribution to the
holders of Series B Preferred Stock of the full preferential
amounts aforesaid, the holders of Common Stock then outstanding
shall together be entitled to receive ratably all the remaining
assets of the Corporation.
"(c) A consolidation or merger of the Corporation
with or into any other corporation or corporations shall not be
deemed to be a liquidation, dissolution or winding up of the
Corporation as those terms are used in this paragraph (ii).
"(d) If upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary,
the assets to be distributed among the holders of Series B
Preferred Stock pursuant to subparagraph (a) shall be
insufficient to permit the payment to such stockholders of the
full preferential amounts required by such subparagraph, then all
of the assets of the Corporation to be distributed shall be
distributed ratably to the holders of outstanding Series B
Preferred Stock based on the number of shares held by each
holder, and the holders of Junior Securities shall receive no
distribution upon such liquidation, dissolution or winding up of
the Corporation.
"(iii) Redemption of Series B Preferred Stock.
Subject to the rights of the holders of Series A Preferred Stock
until redeemed or converted as noted in paragraph (i), above, the
Series B Preferred Stock may be redeemed at any time by the
Corporation prior to liquidation, dissolution or winding up of
the Corporation upon fifteen (15) days advance written notice by
the Corporation to the record holders of such Series B Preferred
Stock on the books of the Corporation, by paying to the holders
of Series B Preferred Stock an amount equal to $10.00 per
outstanding share (the "Redemption Price") plus accumulated and
unpaid dividends thereon. The holders of Series B Preferred
Stock shall be deemed to have received written notice of such
redemption five (5) days after the Corporation's mailing of the
notice of redemption by certified or registered mail, return
receipt requested, postage prepaid, and addressed to each holder
of record at such holder's address appearing on the books of the
Corporation. Upon redemption of the Series B Preferred Stock,
each holder shall be entitled to payment of the Redemption Price
and any accumulated dividends, provided, if such redemption
occurs prior to July 31, 1998, the holders of Series B Preferred
Stock shall be entitled to the full amount of dividends that
would have been accumulated through such date. Any record holder
of Series B Preferred Stock may convert all or a portion of its,
his or her Series B Preferred Stock in accordance with the
provisions of paragraph (iv) prior to such date of redemption by
delivering written notice to the Corporation of such holder's
election to convert all or a portion of such shares of Series B
Preferred Stock (and dividends payable thereon) held of
record by such holder. The Redemption Price (and dividends
payable thereon) payable to the holders of Series B Preferred
Stock who have not elected to convert their shares shall be
payable by the Corporation within ten (10) days after expiration
of the aforementioned fifteen (15) day notice period.
Any designee of Smith Management Company, Inc. ("Smith
Management") on the Corporation's Board, or any replacements
thereof or any other subsequent nominees by Smith Management,
shall not be entitled to vote on the redemption of the Series B
Preferred Stock.
The Corporation must exercise its redemption rights granted
pursuant to this paragraph (iii) if a "Corporate Transaction" (as
hereinafter defined) occurs. "Corporate Transaction" means the
occurrence of any of the following: (i) the sale by the
Corporation of all or substantially all of its assets other than
in the ordinary course of business, (ii) a merger of the
Corporation with or into another person or a consolidation of the
Corporation with another person, or (iii) any person or "group"
(within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) (other than Pengo Securities
Corp. and its affiliates), acquires voting securities of the
Corporation representing a majority of the total votes that may
be cast in the election of the Corporation's directors.
The Corporation shall be prohibited from redeeming any
Junior Securities unless the Corporation shall also redeem all of
the Series B Preferred Stock in conjunction therewith, or holders
of at least a majority of the Series B Preferred Stock
outstanding at such time have voted to allow redemption of such
Junior Securities without redemption of the Series B Preferred
Stock. Notwithstanding the foregoing, the Corporation shall be
entitled to redeem the Series A Preferred Stock without further
notice to, or action by, the holders of Series B Preferred Stock.
"(iv) Conversion. The holders of Series B
Preferred Stock shall have the following conversion rights (the
"Conversion Rights"):
"(a) Right to Convert. Each share of Series B
Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at
the office of the Corporation or any transfer agent for the
Series B Preferred Stock or Common Stock, into the number of
shares of Common Stock which result from dividing the Redemption
Price (plus any accumulated dividends) by the "Conversion Price"
per share (as defined herein) in effect at the time of such
conversion; provided, if the conversion is elected by the holder
after the Corporation has issued a notice of redemption, or in
connection with a liquidation, dissolution, or winding up of the
Corporation, prior to July 31, 1998, the accumulated dividends
into which the Conversion Price shall be divided shall include
the full amount of dividends that would have been accumulated
through July 31, 1998. The initial "Conversion Price" per share
shall be $6.27, and such initial Conversion Price shall be
subject to adjustment from time to time as provided herein.
"(b) Mechanics of Conversion. Before any holder
of Series B Preferred Stock shall be entitled to convert the same
into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series
B Preferred Stock or Common Stock, and shall give written notice
to the Corporation at such office that such holder elects to
convert the same and shall state therein the number of shares of
Series B Preferred Stock being converted. Thereupon the
Corporation shall promptly issue and deliver at such office to
such holder of Series B Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series
B Preferred Stock to be converted, and the person or persons whom
the Corporation's records indicate are entitled to receive the
shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such
shares of Common Stock on such date. The certificate or
certificates representing the shares of Common Stock issued upon
such conversion shall contain the same restrictive legends, if
any, included on the certificate or certificates of Series B
Preferred Stock surrendered, unless the shares of Common Stock
issuable upon such conversion have been registered under the
Securities Act of 1933, as amended, and applicable state
securities laws, in which case they will not be legended.
"(c) Adjustment for Stock Splits and Combinations.
If the Corporation shall at any time or from time to time after
the issuance of the Series B Preferred Stock (the "Commitment
Date") effect a subdivision of the outstanding Common Stock, the
Conversion Price then in effect immediately before the
subdivision shall be proportionately decreased, and conversely,
if the Corporation shall at any time or from time to time after
the Commitment Date combine the outstanding shares of Common
Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment
under this subparagraph (c) shall become effective at the close
of business on the date the subdivision or combination becomes
effective.
"(d) Adjustment for Certain Dividends and
Distributions. In the event the Corporation at any time, or from
time to time, after the Commitment Date shall make or issue, or
fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution
payable in shares of Common Stock, then and in each such event
the Conversion Price then in effect shall be decreased as of the
time of such issuance or in the event such a record date shall
have been fixed, as of the close of business on such record date,
by multiplying the Conversion Price then in effect by a fraction:
"(i) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date; and
"(ii) the denominator of which shall be
the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is
not fully made on the date fixed therefore the Conversion Price
shall be recomputed accordingly as of the close of business on
such record date and thereafter the Conversion Price shall be
adjusted pursuant to this subparagraph (d) as of the time of
actual payment of such dividends or distributions.
"(e) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time or from
time to time after the Commitment Date shall make or issue or fix
a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock,
then and in each such event provision shall be made so that the
holders of Series B Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation
which they would have received had their Series B Preferred Stock
been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such
event to and including the Conversion Date, retained such
securities receivable by them as aforesaid during such period,
giving application to all adjustments called for during such
period under this paragraph (iv) with respect to the rights of
the holders of the Series B Preferred Stock.
"(f) Adjustment for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon the conversion
of the Series B Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this
paragraph (iv)), then and in each such event the holders of each
share of Series B Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock
and other securities and property receivable upon such
reorganization, reclassification or other change by holders of
the number of shares of Common Stock into which such share of
Series B Preferred Stock might have been converted immediately
prior to such reorganization, reclassification or other change,
all subject to further adjustment as provided herein.
"(g) Reorganization, Mergers, Consolidations or
Sales of Assets. Subject to the Corporation's obligation to
redeem the Series B Preferred Stock in connection with the
occurrence of a Corporate Transaction as provided in paragraph
(iii), if at any time or from time to time there shall be a
capital reorganization of the Common Stock (other than a
subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this paragraph (iv)) or a merger or
consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as
a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holders of Series B Preferred
Stock shall thereafter be entitled to receive, upon conversion of
Series B Preferred Stock, the number of shares of stock or other
securities or property to which a holder of the Common Stock
deliverable upon such conversion would have been entitled in
connection with such reorganization, merger, consolidation or
sale (provided, however, if any such reorganization, merger,
consolidation or sale of assets occurs prior to July 31, 1998,
the holders of Series B Preferred Stock shall be entitled to
convert the full amount of dividends that would have been
accumulated through such date). In any such case,
appropriate adjustment shall be made in the application of the
provisions of this paragraph (iv) with respect to the rights of
the holders of Series B Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of
this paragraph (iv) (including provisions for the adjustment of
the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series B Preferred Stock)
shall be applicable after that event and be as nearly equivalent
to the provisions hereof as is practicable.
"(h) Adjustment for Issuance of Common Stock at
Less than Conversion Price. If the Corporation at any time after
the Commitment Date (i) issues any shares of Common Stock (other
than pursuant to the Agreement dated effective June 12, 1996
between Smith Management Company, Inc., Farmout Inc., Randall D.
Smith, Jeffrey A. Smith, John W. Adams, Inland Production Company
and the Corporation, or other than pursuant to warrants, options
or convertible securities outstanding as of the Commitment Date,
or other than pursuant to the Corporation's Amended 1988 Option
Plan), for a per share consideration or price less than the
Conversion Price then in effect hereunder, or (ii) issues any
rights, warrants or options to acquire, or securities convertible
into, shares of Common Stock (other than options to purchase
Common Stock pursuant to options which may be granted under the
Corporation's Amended 1988 Option Plan and similar benefit plans
subsequently adopted by the Corporation for the benefit of its
employees), that permit exercise or conversion for a per share
consideration less than the Conversion Price then in effect
hereunder, then effective automatically on the date of such
issuance the Conversion Price hereunder shall automatically be
adjusted as follows: the number of shares of the Corporation's
Common Stock outstanding (or deemed to be outstanding as
hereinafter provided) immediately prior to such issue shall be
multiplied by the Conversion Price in effect at the time of such
issue and there shall be added to the product so obtained the
aggregate consideration, if any, (a) received by the
Corporation upon such issue of additional shares of Common Stock
pursuant to (i) and (b) received by the Corporation, or which
will be received by the Corporation, pursuant to (ii) upon the
issue and upon the subsequent exercise or conversion of any such
additional rights, warrants, options or convertible securities.
The sum so obtained shall be divided by the number of shares of
the Corporation's Common Stock outstanding (or deemed to be
outstanding as hereinafter provided) immediately after such issue
(including, for this purpose, the shares to be subsequently
issued under any rights, warrants, options or convertible
securities which triggered the requirement to apply this
adjustment to the Conversion Price), and the resulting quotient
shall be the adjusted Conversion Price. For purposes of
determining outstanding shares of Common Stock for
applying the foregoing formula, all options, rights, warrants and
securities convertible into Common Stock outstanding as of the
date hereof shall be deemed to be outstanding shares of Common
Stock, and any options, rights, warrants or convertible
securities issued after the date hereof pursuant to (ii), above,
which have resulted in a previous adjustment of the Conversion
Price shall be considered outstanding shares of Common Stock for
all subsequent applications of the formula to arrive at
subsequent adjustments of the Conversion Price.
"(i) Accountants' Certificate of Adjustment. In
each case of an adjustment or readjustment of the Conversion
Price or the number of shares of Common Stock or other securities
issuable upon conversion of Series B Preferred Stock, the
Corporation, at its expense, shall cause independent public
accountants of recognized standing selected by the Corporation
(who may be the independent public accountants then auditing the
books of the Corporation) (or the chief financial officer of the
Corporation at the Board's option) to compute such adjustment or
readjustment in accordance with the Corporation's Articles of
Incorporation and prepare a certificate showing such adjustment
or readjustments and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series B
Preferred Stock at the holder's address as shown in the
Corporation's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based.
"(j) Notices of Record Date. In the event (i) any
taking by the Corporation of a record of the holders of any class
of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution,
or (ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation or any transfer of all or substantially all of the
assets of the Corporation to, or any merger or consolidation
with, any other corporation, or any other entity or person, or
any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, the Corporation shall mail to each holder
of Series B Preferred Stock at least thirty (30) days prior to
the record date specified therein, a notice specifying (A) the
date on which any such record is to be taken for the purpose of
such dividend or distribution and a description of such dividend
or distribution, (B) the date on which any such reorganization,
reclassification or recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to
become effective and a description of such transaction, and (C)
the time, if any, that is to be fixed as to when the holders of
record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such
reorganization, reclassification or recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up.
"(k) Fractional Shares. No fractional shares of
Common Stock shall be issued upon conversion of Series B
Preferred Stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Corporation shall pay
cash equal to the product of such fraction multiplied by the fair
market value of one share of the Corporation's Common Stock on
the date of conversion, as determined by the closing "bid" price
on the day prior to the date of conversion.
"(l) Reservation of Stock Issuable Upon Conversion
or for Dividends. The Corporation shall at all times reserve and
keep available out of the authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion
of shares of Series B Preferred Stock and to cover dividends that
may be issuable in Common Stock pursuant to paragraph (iii), such
number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding shares
of Series B Preferred Stock and to cover dividends that may be
issuable in Common Stock pursuant to paragraph (iii); and if at
any time thereafter the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series B Preferred Stock or
payment of such dividends, the Corporation will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purpose.
"(m) Notices Deemed Given. Any notice required by
the provisions of this paragraph (iv) to be given to the holders
of shares of Series B Preferred Stock shall be deemed given five
(5) business days after the same has been deposited in the United
States mail, certified or registered mail, return receipt
requested, postage prepaid, and addressed to each holder of
record at such holder's address appearing on the books of the
Corporation.
"(n) Payment of Taxes. The Corporation will pay
all taxes and other governmental charges, other than income,
estate or gift taxes, that may be imposed in respect of the issue
or delivery of shares of Common Stock upon conversion of shares
of Series B Preferred Stock.
"(v) Voting Rights. Each holder of any share of Series
B Preferred Stock shall be entitled to vote on all matters and
shall be entitled to one vote for each share of Series B
Preferred Stock held. Each holder of shares of any of the Common
Stock shall be entitled to one vote on all matters and shall be
entitled to one vote for each share of Common Stock held. Except
as otherwise expressly provided herein or as mandated by law, the
holders of shares of Common Stock and Series B Preferred Stock
shall vote together and not as separate voting groups or classes.
In the event voting as a separate voting group by the holders of
Series B Preferred Stock is expressly provided herein or mandated
and required by Washington law, any vote by the holders of Series
B Preferred Stock as a separate voting group shall be effective
if approved by a majority of the outstanding shares of Series B
Preferred Stock. Cumulative voting by holders of Series B
Preferred Stock and holders of Common Stock is expressly denied.
"(vi) Preemptive Rights. Except as provided in
paragraph (iv), no holder of any shares of Series B Preferred
Stock shall be entitled as a matter of right to subscribe or
receive additional shares of any class of stock of the
Corporation, whether now or hereafter authorized, or any bonds,
debentures or other securities convertible into such stock, but
such additional shares of stock or other securities convertible
into stock may be issued or disposed of by the Board to such
persons and on such terms as in the Board's discretion the Board
shall deem advisable.
"(vii) No Reissuance of Series B Preferred Stock.
No share or shares of Series B Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares of Series B
Preferred Stock which the Corporation shall be authorized to
issue and all such shares shall be returned to authorized but
unissued shares of Class A preferred stock, par value $0.001 per
share, of the Corporation and may be issued or further
designated, as determined by the Board in
accordance with the Articles of Incorporation and applicable law.
"(viii) Common Stock. The term "Common Stock", as
used herein, means the Corporation's $.001 par value Common
Stock and any capital stock of any class of the Corporation
authorized after the date the Series B Preferred Stock is
established which is not limited to a fixed sum or percentage of
par or stated value in respect of the rights of holders thereof
to participate in dividends or in the distribution of assets upon
any liquidation, dissolution or winding up of the Corporation.
"(ix) Amendments. There shall be no amendment,
modification or waiver of the terms hereof without the prior
written consent of holders of at least a majority of the Series B
Preferred Stock outstanding at such time. The designation by the
Board of one or more additional series of Class A preferred stock
of the Corporation with dividend, liquidation, voting or
conversion rights pari passu with or having priority over or
having greater or more beneficial rights per share than the
Series B Preferred Stock shall be deemed to constitute an
amendment to the Articles of Incorporation of the Corporation for
which the holders of shares of Series B Preferred Stock are
entitled to vote hereunder as a separate voting group. Except as
otherwise expressly provided in this paragraph (ix), any changes
or amendments to the Articles of Incorporation of the Corporation
may be made in accordance with applicable law."
IV. The foregoing amendment was duly adopted by the Board of
Directors of the Corporation on ________________________, 1996.
DATED: July _____, 1996.
Kyle R. Miller, President and
CEO
