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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (fee required)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required)
For the transition period ____________ to _____________
Commission file number 0-16487
INLAND RESOURCES INC.
(Name of small business issuer in its charter)
WASHINGTON 91-1307042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 17TH STREET, SUITE 1500, DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 292-0900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and none will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The registrant's revenues for its most recent fiscal year were: $10,704,463
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the average bid and asked price of such stock, was
$26,046,00 as of January 31, 1997.
At January 31, 1997, the registrant had outstanding 6,312,059 shares of par
value $.001 common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-KSB incorporates certain
information by reference from the definitive Proxy Statement for the
registrant's Annual Meeting of Stockholders scheduled to be held on April 30,
1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
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TABLE OF CONTENTS
PART I
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ITEM 1. DESCRIPTION OF BUSINESS..................................................... 2
General..................................................................... 2
Merger with Inland Production Company (formerly known
as Lomax Exploration Company).............................................. 2
Mining Operations........................................................... 3
Sale of Duchesne County Fields.............................................. 3
Acquisition of Federal Leases............................................... 3
Acquisition of Farmout Wells................................................ 3
Oil and Gas Operations...................................................... 4
Operations........................................................... 4
Secondary Recovery Enhancement Activities............................ 5
Gas Gathering and Transportation Systems............................. 6
Markets.............................................................. 6
Regulation........................................................... 6
Environmental........................................................ 7
Competition.......................................................... 8
Operational Hazards and Insurance.................................... 8
Title to Properties.................................................. 8
Employees................................................................... 8
ITEM 2. DESCRIPTION OF PROPERTY..................................................... 9
Oil and Gas................................................................. 9
Acreage.............................................................. 9
Productive Oil and Gas Wells......................................... 9
Reserves............................................................. 10
Volumes, Prices and Production Costs................................. 11
Drilling Activities.................................................. 12
Delivery Commitments....................................................... 13
Other Property............................................................. 13
ITEM 3. LEGAL PROCEEDINGS.......................................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................ 13
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PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................. 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION................. 14
General................................................................... 14
Results of Operations Fiscal 1996 Compared to 1995........................ 14
Continuing Operations............................................... 14
Discontinued Operations............................................. 16
Extraordinary Loss.................................................. 17
Liquidity and Capital Resources........................................... 17
New Accounting Pronouncement.............................................. 19
Inflation and Changes in Prices........................................... 19
Forward Looking Statements................................................ 20
ITEM 7. FINANCIAL STATEMENTS...................................................... 20
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................................... 20
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PART III
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8K........................................... 20
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* Incorporated by reference to Proxy Statement.
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INLAND RESOURCES INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL
Inland Resources Inc. ("Inland" or the "Company") is an independent energy
company engaged in the acquisition, development, and enhancement of oil and gas
properties in the United States. Substantially all of Inland's property
interests are located in the Monument Butte Field within the Uinta Basin of
Northeastern Utah. Since its entry into the oil and gas business in 1993, Inland
has drilled 118 gross (76 net) wells and consummated two significant property
acquisitions. As a result of these successful efforts, the Company has
experienced significant growth in proved reserves, production and revenue. At
December 31, 1996, the Company's estimated net proved reserves totaled nine
million barrels of oil equivalent, having a pre-tax present value discounted at
10% using constant prices of $71.9 million.
The Company intends to pursue a balanced strategy of development drilling
and acquisitions, focusing on enhancing operating efficiency and reducing
capital costs through the concentration of assets in selected geographic areas.
Currently, the Company's operations are focused on the full development of the
Monument Butte Field where the Company operates 151 gross (99.5 net) wells.
Inland pioneered the secondary water flood recovery processes used in the
Monument Butte Field and currently operates seven of the fourteen approved
secondary recovery projects in the area. Budgeted development expenditures for
1997 in the Monument Butte Field are $28 million.
Inland does not generally intend to pursue exploratory drilling due to the
industry's high failure rate and the resulting higher associated finding costs.
However, Inland may occasionally drill exploratory wells in certain areas it
considers strategic.
All references to shares of Inland's common stock, par value $.001 per
share ("Inland Common Stock" or "Common Stock"), and share prices in this Form
10-KSB have been adjusted to give effect to the 1 for 10 reverse stock split
effected June 3, 1996.
MERGER WITH INLAND PRODUCTION COMPANY (FORMERLY KNOWN AS LOMAX EXPLORATION
COMPANY)
Consistent with its strategy of increasing reserves and production through
acquisition of existing oil and gas production in developed fields, effective
September 21, 1994, Inland acquired by triangular merger (the "Merger") all of
the common and preferred stock of Lomax Exploration Company, now known as Inland
Production Company ("IPC"), in exchange for 770,451 shares of Inland Common
Stock and 107,546 shares of Inland Series A convertible preferred stock, par
value $.001 per share (each share of which was convertible into 9.6726 shares of
Inland Common Stock) ("Inland Series A Preferred Stock"). Such shares of Inland
Common Stock and Inland Series A Preferred Stock were issued pursuant to a
registration statement on Form S-4, Commission file no. 33-80392 (the "Form S-4
Registration Statement"), filed with the Securities and Exchange Commission
("Commission") that became effective August 3, 1994, and following approvals of
the transactions by the stockholders of both Inland and IPC at special meetings
held August 29, 1994. The Inland Series A Preferred Stock bore a dividend of
8% per annum on the Redemption Price (defined below); had a liquidation
preference over Inland Common Stock equal to $50.00 per share plus any
accumulated and unpaid dividends; was redeemable at the option of the Company at
a "Redemption Price" equal to $50.00 per share during the first year after the
effective date of the Merger, $54.00 per share during the second year and $58.32
per share, plus accumulated and unpaid dividends, during the third year or
thereafter; was convertible at a "Conversion Price" of $6.00 per share (divided
into the applicable Redemption Price then in effect) subject to certain anti-
dilution adjustments; and was initially entitled to elect three of the seven
members of the Board of Directors of Inland. On July 31, 1996, Inland delivered
notice to the holders of Series A Preferred Stock that
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Inland intended to redeem the shares of Series A Preferred Stock in accordance
with Inland's Articles of Incorporation, except those shares which the holders
elected to convert into Inland Common Stock. The redemption was closed on
August 20, 1996. During 1996, 87% of holders elected to convert into 900,831
shares of Inland Common Stock. Inland paid $739,708 to the non-converting
holders of the remaining shares of Series A Preferred Stock.
At the time of the Merger, IPC owned working interests varying from 4% to
100% in 8,508 net acres of oil and gas leases in the Uinta Basin Area located in
Duchesne and Uintah Counties, Utah, in the oil and gas field known as the
"Monument Butte Field", and also owned oil and gas properties in the States of
Wyoming and Oklahoma. References to "Inland" or the "Company" herein shall
include its subsidiary, IPC, on a consolidated basis, unless the context clearly
indicates otherwise.
MINING OPERATIONS
On December 30, 1996, Placer Dome U.S. Inc. ("Placer") acquired all of
Inland's rights in the Toyiabe Mine, and assumed all past, present and future
environmental and reclamation liabilities associated with the Toyiabe Mine. In
consideration of the assumption of such liabilities, Inland paid $500,000 to
Placer. Upon closing this sale, Inland has divested itself of any remaining
business activities related to mining of precious metals. Inland recorded a
charge of $30,000 against 1996 revenues relating to this disposition. See Item
6 - "Management's Discussion and Analysis or Plan of Operations --Results of
Operations -- Fiscal 1996 Compared to 1995."
SALE OF DUCHESNE COUNTY FIELDS
On September 19, 1995, Inland sold its undivided 50% interest in the
Duchesne County Fields to Petroglyph Gas Partners, L.P. ("PGP"). The purchase
price paid by PGP was (i) $3 million in cash (less $53,000 in net closing
adjustments among the parties); (ii) the assumption by PGP of Inland's liability
under its Loan Agreement, dated August 24, 1994, with Joint Energy Development
Investments Limited Partnership ("JEDI"), a nonrecourse loan having an
outstanding balance at September 19, 1995 of $2.5 million (the "Inland Loan
Agreement"); and (iii) the assignment by PGP to Inland of PGP's undivided 38.23%
interest in 8,277 gross acres of oil and gas leases located within the Monument
Butte Field in Duchesne County, Utah (the "Ashley Federal Unit") bringing
Inland's total interest in the Ashley Federal Unit to 76.47%. The sale was
effective July 1, 1995. JEDI consented to the sale and the assumption of the
Inland Loan Agreement by PGP, therefore, Inland has no further liability or
obligation under the Inland Loan Agreement.
ACQUISITION OF FEDERAL LEASES
In November 1995, IPC entered into four oil and gas leases (the "Utah
Federal Leases") with the Department of Interior covering 6,200 gross acres
(5,861 net acres) located within the Monument Butte Field. The aggregate
purchase price for the Utah Federal Leases was $7,157,646, which was paid in
cash from funds on hand. Two leases are held by production and provide for
payment a royalty of 12.5%, and two leases are held by payment of annual rentals
of $2 per acre and will be subject to a 12.5% royalty upon commencement of
production. The Utah Federal Leases did not have any producing wells at the
purchase date. A portion of the purchase price for the Utah Federal Leases was
obtained from a sale on November 6, 1995 by Inland of 1,200,000 shares of Common
Stock to Pengo Securities Corp. ("Pengo"), an affiliate of Randall D. Smith, for
consideration of $6 million in cash ($5.00 per share). Pengo and Mr. Smith
presently beneficially own approximately 3,232,893 shares of Common Stock, or
approximately 51.2% of the issued and outstanding shares of Common Stock, and
950,000 shares of Series B Preferred Stock (convertible as of December 31, 1996
into 1,590,910 shares of Common Stock).
ACQUISITION OF FARMOUT WELLS
Effective July 1, 1995, Randall D. Smith ("Smith"), Inland and IPC, 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
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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 $5.00 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 Inland Common Stock which, based on a
valuation of $5.00 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, 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. ("Smith Management") (an
affiliate of Smith), Farmout, the Farmout Stockholders, Inland and IPC entered
into an agreement (the "Purchase 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 "Farmout
Shares") of Inland Common Stock, with such transfer to be effective June 12,
1996, but with the Farmout Shares not to be delivered by Inland to the Farmout
Stockholders until January 2, 1997. The effect of the Purchase Agreement was to
accelerate the March 10, 1997 acquisition date for the 20 producing wells which
IPC had the right to acquire under the Option Agreement. Consequently, Inland
has, through its acquisition of the outstanding stock of Farmout, indirectly
acquired these wells. Inland also has agreed to register the Farmout Shares
upon the request of the Farmout Stockholders and to pay all expenses of such
registration.
OIL AND GAS OPERATIONS
OPERATIONS. Presently, all oil and gas acreage, wells, gas gathering
systems, water delivery systems and other oil and gas related tangible assets
are owned by IPC. IPC serves as operator for the drilling, completion and
operation of the majority of wells in which it has an interest within the
Monument Butte Field. John E. Dyer, Vice President and Chief Operating Officer
of Inland, evaluates drilling, exploration, reworking and secondary recovery
enhancement operations for the Company. Field operations of the Company are
performed from a production office located in Roosevelt Utah.
On September 21, 1994, IPC entered into a Loan Agreement with JEDI to
provide nonrecourse financing for the development of the IPC oil and gas
properties (the "IPC Loan Agreement"). The IPC Loan Agreement was paid in full
by IPC from the proceeds of a Credit Agreement (the "TCW Loan Agreement") dated
November 29, 1995, as amended June 12, 1996, between IPC, Inland, Trust Company
of the West and affiliated entities (collectively, "TCW"), which provides a
recourse loan facility to IPC of up to $25 million for development of its oil
and gas properties.
IPC drew down an initial $5 million under the TCW Loan Agreement on
November 29, 1995, of which $4,123,500 was used to repay the IPC Loan Agreement,
$400,000 was used to pay closing costs associated with the TCW Loan Agreement
and $476,500 was used for working capital. During 1996, $16.5 million of the
$20.0 million of remaining loan availability was drawn down to fund IPC's
development drilling program in the Monument Butte Field. TCW extended the term
of its loan commitment and IPC borrowed the remaining $3.5 million of loan
availability on February 18, 1997. The TCW Loan Agreement bears interest at a
rate of 10% per annum. Interest is payable quarterly, commencing March 27,
1996, and minimum payments of principal will be required quarterly, commencing
in March 1997, in the following amounts per quarter: $275,000 in 1997, $550,000
in 1998, $1,300,000 in 1999, $1,400,000 in 2000, $1,200,000 in 2001, $750,000 in
2002, $425,000 in 2003, and $350,000 in 2004, with the final payment being due
and payable on December 31, 2004. Commencing in March 1997, additional
principal payments may be due under certain circumstances out of excess cash
flow, as defined in the TCW Loan Agreement.
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In addition to these payments, IPC granted TCW an equity yield enhancement in
the form of an initial 7% overriding royalty interest, proportionately reduced
by IPC's working interest in the oil and gas properties, commencing November 29,
1995 and continuing until the internal annual rate of return to TCW equals 16%
on the aggregate amounts advanced to IPC under the TCW Loan Agreement, at which
time it reduces to 3%, proportionately reduced by IPC's working interest in the
oil and gas properties, until TCW's internal annual rate of return equals 22%.
IPC paid a loan commitment fee of $250,000 upon closing of the TCW Loan
Agreement. The TCW Loan Agreement also subjects the Company to penalties if the
loan is prepaid prior to November 29, 1997. IPC is required to meet certain
minimum ratios, is subject to covenants not to engage in various activities
without TCW's prior consent, and may not pay any dividends or make any other
distributions to Inland without TCW's prior written consent. The TCW Loan
Agreement is collateralized by IPC's interest in substantially all of its oil
and gas and other properties. At December 31, 1996, IPC had borrowed $21.5
million under the TCW Loan Agreement. Inland has also guaranteed repayment of
all amounts advanced under the TCW Loan Agreement together with accrued interest
thereon, and Inland may not pay any dividends or make other distributions to its
stockholders without TCW's prior written consent (consent has been given for the
payment of stock dividends on Inland's Series B Preferred Stock).
Inland will actively seek to acquire other producing oil and gas properties
upon terms considered to be attractive by Inland. Generally, Inland does not
plan to engage in oil and gas exploration and development in new or unproven
areas, and plans to focus its acquisition efforts on proven properties with a
history of ongoing production. However, from time to time Inland may for various
reasons determine to purchase unproven properties or drill exploratory wells in
certain areas considered strategic by Inland.
SECONDARY RECOVERY ENHANCEMENT ACTIVITIES. Inland presently engages in
secondary recovery enhancement operations in the Monument Butte Field through
water flooding. Water flooding consists of drilling a water injection well or
converting an existing producing well into a water injection well and then
pumping volumes of water at acceptable pressures and injection rates into the
well and into the oil producing horizons of the reservoir to maintain higher
reservoir pressures and increase production in other producing wells connected
to that reservoir. The repressurization process may take months or years
depending on the level of reservoir depletion through prior production. IPC
proved that the geology of certain portions of the Monument Butte Field is
susceptible to such flooding techniques.
IPC has been engaged in secondary recovery water flood operations in the
Monument Butte Field since 1987 and currently has seven approved water flood
units or areas; the Monument Butte Unit, the Gilsonite Unit, the Travis Unit,
the Boundary Unit, the Ashley Unit, the Monument Butte Northeast Area and the
Monument Butte East Unit. IPC continued development of water flood operations in
1996 by initiating injection in nine wells, four of which were drilled during
1996. At December 31, 1996, IPC had 25 wells injecting an aggregate of 2,000
barrels of water per day. During 1996, the Company also purchased or installed
over 58 miles of water pipelines to handle low pressure water delivery and high
pressure water injection and built two new injection plants. IPC has
experienced stabilized or increasing production in many wells neighboring its
water injection operations and intends to continue to aggressively develop
secondary recovery water flood operations by extending infrastructure and
initiating injection in as many as 20 wells in the Monument Butte Field during
1997.
On January 12, 1989, IPC entered into an agreement (amended on October 30,
1996) with the Johnson Water District to take up to 12,000 barrels of water per
day ("BWPD"), subject to availability, from their water pipeline to provide
water for IPC's water flood injection operations in the Monument Butte Field
until such time as IPC terminates the agreement. IPC also purchases
approximately 400 BWPD from a neighboring operator for injection operations in
the Gilsonite Unit. During February 1996, IPC successfully drilled a water
source well in the Boundary Unit capable of supplying 500 barrels per day of
injection quality water. Inland believes that the agreement with the Johnson
Water District, excess capacity from neighboring operators and existing
groundwater sources will provide sufficient water to facilitate significant
water flood operations.
In October 1992, IPC and the U. S. Department of Energy ("DOE") signed a
three year cooperative agreement to further develop oil production and reserves
in the Monument Butte Field by using secondary water flood recovery. The
agreement was a cost sharing program pursuant to which the DOE reimburses IPC
and its working interest partners 41.5% of the total project expenditures.
Total project expenditures were $4.4 million, of which the DOE's share was
approximately $1.8 million. As of December 31, 1996, all expenditures under
this program were incurred, and
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substantially all reimbursements from the DOE were received. IPC has also
contracted with the University of Utah to conduct certain research for IPC
regarding its water flood techniques.
GAS GATHERING AND TRANSPORTATION SYSTEMS. During 1996, IPC installed a gas
gathering, transportation and compression system consisting of approximately 60
miles of pipeline and four gas compression and dehydration units. IPC also owns
an undivided 83.86% partnership interest in the West Monument Butte Pipeline
Company, which owns the "Travis Unit" gas gathering and transportation system.
Utilizing these systems, IPC now collects and markets a substantial portion of
its operated gas production.
MARKETS. The availability of a ready market and the prices obtained for
IPC's oil and gas depend on many factors beyond IPC's control, including the
extent of domestic production and imports of oil and gas, the proximity and
capacity of natural gas pipelines and other transportation facilities,
fluctuating demands for oil and gas, the marketing of competitive fuels, and the
effects of governmental regulation of oil and gas production and sales. Future
decreases in the prices of oil and gas would have an adverse effect on IPC's
proved reserves, revenues, profitability and cash flow, although the Company has
mitigated this risk by entering into certain hedging arrangements. The oil
produced from the Monument Butte Field is called "Black Wax" and is sold at the
posted field price (an industry term for the fair market value of oil in a
particular field) less a deduction of approximately $0.85 to $1.00 per barrel
for oil quality adjustments. The posted field price ranged from $17.00 to $24.75
during 1996 and $16.50 to $20.00 during 1995, and was $23.50 per barrel on
December 31, 1996. As the quantity of Black Wax produced within the Monument
Butte Field grows, physical limitations within the regional refineries, located
in Salt Lake City, Utah, will limit the amount of Black Wax that can be
processed. The Company is conducting discussions with each refinery to inform
them of the outlook for Black Wax production in this region such that they can
propose solutions to existing plant configurations. While the outcome of these
talks is unknown, the Company expects to negotiate a long-term marketing
arrangement that will be beneficial to the Company. Until such an arrangement
is reached and the refinery modifications are accomplished there may be short-
term downward pressure on Black Wax pricing.
The natural gas produced by IPC not subject to gas purchase agreements is
sold on a month-to-month basis in the spot market, the price of which ranged
from $1.10 to $3.93 during 1996 and $1.00 to $1.87 per Mcf of gas during 1995,
and was $3.93 at December 31, 1996. All spot market sales during 1996 were made
to Wasatch Energy Corporation.
Pursuant to certain gas purchase agreements entered into with Interline
Resources Corporation ("Interline"), IPC has dedicated its gas production from
the "Monument Butte Unit", the "Monument Butte East Unit", the "Boundary Unit",
and the "Gilsonite Unit" to Interline until October 31, 1997 and thereafter on a
year to year basis until either party cancels the contract upon 180 days'
notice. IPC intends to cancel this gas purchase agreement and gather and
transport this gas using its own gas gathering and transportation system
effective October 31, 1997. IPC is paid for gas sold to Interline in the amount
by which the price received by Interline for its gas resales exceeds $1.65 per
MMBTU. If the price received by Interline exceeds $3.30 per MMBTU, then IPC and
Interline share in the proceeds above $3.30 MMBTU on a 50/50 basis. The price
of gas under this contract has not exceeded $1.65 per MMBTU for the last three
years.
Prior to April 1, 1996, Interline compressed and marketed the "Travis Unit"
gas production. Commencing April 1, 1996, IPC began to compress and market the
gas produced from the "Travis Unit" using its own gathering and transportation
system.
During 1996 and 1995, Inland and IPC (on a combined basis) sold
approximately 0% and 21%, respectively, of their combined oil production to EOTT
Energy Corporation, and approximately 100% and 78%, respectively, to Chevron
U.S.A. They sold approximately 0% and 58%, respectively, of their combined gas
production to Grand Valley Gas Company, approximately 5% and 95%, respectively,
to Interline, and approximately 95% and 0%, respectively, to Wasatch Energy
Corporation. Inland believes that the loss of either Chevron, Wasatch or
Interline as a purchaser of its production would not have a material adverse
effect on its results of operations due to the availability of other purchasers
in the area.
REGULATION. IPC's oil and gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by federal
and state agencies. Failure to comply with such rules and regulations can
result in substantial penalties. The regulatory burden on the oil and gas
industry increases IPC's cost of doing business and affects
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its profitability. Because such rules and regulations are frequently amended or
interpreted, Inland is unable to predict the future cost or impact of complying
with such laws. These laws and regulations include state and federal regulation
of oil and gas production, federal regulation of gas sold in interstate and
intrastate commerce, regulations governing environmental quality and pollution
control, state limits on allowable rates of production by a well or proration
unit, the amount of oil and gas available for sale, the availability of adequate
pipeline and other transportation and processing facilities and the marketing of
competitive fuels. For example, a productive gas well may be "shut-in" because
of an over-supply of gas or lack of an available gas pipeline in the areas in
which Inland may conduct operations. State and federal regulations generally
are intended to prevent waste of oil and gas, protect rights to produce oil and
gas between owners in a common reservoir, control the amount of oil and gas
produced by assigning allowable rates of production and control contamination of
the environment. Pipelines are subject to the jurisdiction of various federal,
state and local agencies.
Many state authorities require permits for drilling operations, drilling
bonds and reports concerning operations and impose other requirements relating
to the exploration and production of oil and gas. Such states also have
ordinances, statutes or regulations addressing conservation matters, including
provisions for the unitization or pooling of oil and gas properties, the
regulation of spacing, plugging and abandonment of such wells, and limitations
establishing maximum rates of production from oil and gas wells. However, no
Utah regulations provide such production limitations with respect to the
Monument Butte Field.
Inland does not expect compliance with any of the foregoing ordinances or
regulations to have any material adverse effect on its oil and gas production
and secondary recovery enhancement activities.
ENVIRONMENTAL. Inland is subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands
and other protected areas, and impose substantial liabilities for pollution
resulting from Inland's operations. Moreover, the recent trend toward stricter
standards in environmental legislation and regulation is likely to continue.
For instance, legislation has been proposed in Congress from time to time that
would reclassify certain oil and gas production wastes as "hazardous wastes,"
which reclassification would make such wastes subject to much more stringent
handling, disposal and clean-up requirements. If such legislation were to be
enacted, it could have a significant impact on the operating costs of Inland, as
well as the oil and gas industry in general. Inland does not presently
anticipate that it will in the near future be required to expend amounts
relating to its oil and gas operations that are material in relation to its
total capital expenditure program by reason of environmental laws and
regulations, but because such laws and regulations are frequently changed,
Inland is unable to predict the ultimate cost of such compliance.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
who are considered to have contributed to the release of a "hazardous substance"
into the environment. These persons include the owner or operator of the
disposal site or sites where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances under CERCLA and may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources. It is not uncommon for neighboring landowners and
other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment.
Inland is not presently aware of any potential claims against Inland in this
regard.
The Company is subject to the requirements of the federal Occupational
Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the EPA community right-to-know regulations under Title
III of the federal Superfund Amendment and Reauthorization Act and similar state
statutes require the Company to organize information about hazardous materials
used or produced in its operations. Certain of this information must be
provided to employees, state and local governmental authorities and local
citizens. The Company is also subject to the requirements and reporting set
forth in OSHA workplace standards. The Company provides safety training and
personal protective equipment to its employees.
The Company's operations involve the injection of water into the
subsurface. Under the Safe Drinking Water Act ("SDWA"), oil and gas operators,
such as the Company, must obtain a permit for the construction and operation of
-7-
<PAGE>
underground Class II injection wells. To protect against contamination of
drinking water, periodic mechanical integrity tests are often required to be
performed by the well operator. The Company has obtained such permits for the
Class II wells it operates.
During 1996, the Vernal, Utah office of the Bureau of Land Management
("BLM") undertook the preparation of an Environmental Assessment ("EA")
relating to the future impact of proposed drilling on plants, wildlife, soil and
air quality within certain areas of the Monument Butte Field. Due to this
process, the Company reduced its activities on these lands during the last six
months of 1996 and January 1997 pending issuance of the EA by the BLM. The
formal Record of Decision relating to the EA was issued by the BLM on February
3, 1997. The Company believes it will be able to comply with the Record of
Decision without causing a material impact on its future drilling plans in the
Monument Butte Field.
COMPETITION. Many companies and individuals are engaged in the oil and
gas business. Inland is faced with strong competition from major oil and gas
companies and other independent operators attempting to acquire prospective oil
and gas leases, producing oil and gas properties and other mineral interests.
Some competitors are very large, well-established companies with substantial
capabilities and long earnings records. Inland may be at a disadvantage in
acquiring oil and gas prospects since it must compete with individuals and
companies which have greater financial resources and larger technical staffs
than Inland.
OPERATIONAL HAZARDS AND INSURANCE. Inland's operations are subject to the
usual hazards incident to the drilling and production of oil and gas, such as
blowouts, cratering, explosions, uncontrollable flows of oil, gas or well
fluids, fires, pollution and other environmental risks. These hazards can cause
personal injury and loss of life, severe damage to and destruction of property
and equipment, pollution or environmental damage and suspension of operations.
IPC maintains insurance of various types to cover its operations. IPC is
also required under various operating agreements to maintain certain insurance
coverage on existing wells and all new wells drilled during drilling operations,
and to name others as additional insureds thereunder. The occurrence of a
significant adverse event, the risks of which are not fully covered by
insurance, could have a material adverse effect on Inland's financial condition
and results of operations. Moreover, no assurances can be given that IPC will
be able to maintain adequate insurance in the future at rates it considers
reasonable.
TITLE TO PROPERTIES. IPC has obtained title opinions on substantially all
of its producing properties. Inland believes that IPC has satisfactory title to
all of its properties in accordance with standards generally accepted in the oil
and gas industry. As is customary in the oil and gas industry, IPC performs a
minimal title investigation before acquiring undeveloped properties. A title
opinion is obtained prior to the commencement of drilling operations on such
properties. IPC's properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens
which Inland believes do not materially interfere with the use of or affect the
value of such properties.
EMPLOYEES
At January 31, 1997, the Company had 45 employees, consisting of four
executive officers, 16 clerical and administrative employees and 25 field
operations staff.
-8-
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
- --------------------------------
OIL AND GAS
ACREAGE. The following table reflects the developed and undeveloped
acreage that IPC held as of December 31, 1996:
<TABLE>
<CAPTION>
Developed Acreage/(1)//(2)/ Undeveloped Acreage/(1)//(3)/
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Gross Net Gross Net
Location Acres Acres Acres Acres
-------- ----- ----- ----- -----
Utah 6,258 4,901 39,445 25,961
Wyoming/(4)/ 40 32 8,922 8,720
Other 40 3 600 54
------ ----- ------ ------
Total 6,338 4,936 48,967 34,735
====== ===== ====== ======
</TABLE>
- ------------------------
(1) A gross acre is an acre in which IPC holds any working interest without
adjustment to reflect the actual percentage interest held therein by IPC.
Net acres is the sum of the actual percentage working interest owned by IPC
in gross acres.
(2) Developed acreage is acreage included in the spacing unit for or assignable
to productive wells.
(3) Undeveloped acreage is acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage
contains proved reserves. Undeveloped acreage includes 34,970 gross
(22,103 net) acres held by production at December 31, 1996.
(4) As of December 31, 1996, there were no producing oil or gas wells on the
Company's Wyoming acreage and the Company had no reserves attributed to
such acreage.
- ------------------------
As of January 31, 1997, the undeveloped acreage not held by production involves
122 leases with remaining terms of up to 10 years, with leases covering
approximately 800 net acres expiring in 1997. IPC intends to renew expiring
leases in areas considered to have good development potential. IPC also intends
to continue to pay delay rentals and minimum royalties necessary to maintain a
lease (an expense of approximately $24,000 in 1997), in the event IPC decides to
develop the acreage subject to such lease prior to expiration of the lease term.
To the extent that wells cannot be drilled in time to hold a lease which IPC
desires to retain, IPC may negotiate a farm out arrangement of such lease
retaining an override or back-end interest.
PRODUCTIVE OIL AND GAS WELLS. The following table reflects the number of
productive oil and gas wells in which IPC held a working interest as of
December 31, 1996:
<TABLE>
<CAPTION>
Productive Wells/(1)/
-----------------------------
Gross/(2)/ Net/(2)/
------------------------- ----------------------
Water Water
Location Oil/(1)/ Injection Oil/(1)/ Injection
-------- ------- --------- ------- ---------
<S> <C> <C> <C> <C>
Utah 145 25 101.5 16
Other 2 - .5 -
------- --------- ------- ---------
Total 147 25 102 16
======= ========= ======= =========
</TABLE>
-9-
<PAGE>
- ------------------------
(1) Productive wells are producing wells or wells capable of production.
Multiple completions have been counted as one well. Substantially all of
the wells have multiple completions, and all of the wells include both oil
completions and gas completions. However, pursuant to the rules of the
Securities and Exchange Commission ("Commission"), all wells are shown as
oil wells since one of the multiple completions in each well is an oil
completion. IPC is an operator of 151 gross wells (99.5 net) and a non-
operator with respect to 21 gross (2.5 net) wells.
(2) A gross well is a well in which IPC holds a working interest, without
adjustment to reflect the actual percentage interest held therein by IPC.
Net wells represent the sum of the actual percentage working interests
owned by IPC in gross wells at December 31, 1996.
- ------------------------
RESERVES. The following tables set forth the Company's estimated
quantities of proved oil and gas reserves and the estimated future net cash
inflows (by reserve categories) discounted to present value at an annual rate of
10%. Future income tax expenses have not been taken into account in estimating
future net cash inflows. These estimates were prepared by the Company, with
certain portions having been reviewed by Ryder Scott Company, an independent
reservoir engineer. The review by Ryder Scott Company consisted of properties
which comprised approximately 83% of the total present worth of future net
income discounted at 10% as of December 31, 1996. The total proved net reserves
estimated by the Company were within 10% of those reviewed and estimated by
Ryder Scott Company; however, on a well by well basis, differences of greater
than 10% may exist. See, also, the Supplemental Oil and Gas Disclosures
appearing on pages F-17 through F-19 of this Form 10-KSB.
Net proved reserves at December 31, 1996:
<TABLE>
<CAPTION>
Proved Developed Proved Undeveloped Total Proved
---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Location Oil Gas Oil Gas Oil Gas
- -------- (MBbls)* (MMcf)* (MBbls)* (MMcf)* (MBbls)* (MMcf)*
-------- ------- -------- ------- -------- -------
Utah/(1)/ 4,385 5,409 2,927 4,779 7,312 10,188
===== ===== ===== ===== ===== ======
</TABLE>
- ----------------
* "MBbls" means one thousand barrels and "Bbls" means barrels, "MMcf" means one
million cubic feet of gas and "Mcf" means one thousand cubic feet of gas.
(1) The Company has no proven reserves in any other location.
- ----------------
Discounted future net cash inflows before income taxes at December 31,
1996:
<TABLE>
<CAPTION>
Location Proved Developed Proved Undeveloped Total Proved
- -------- ---------------- ------------------ ------------
<S> <C> <C> <C>
Utah $54,206,000 $17,700,000 $71,906,000
=========== =========== ===========
</TABLE>
Future net cash inflows from reserves at December 31, 1996 were calculated
on the basis of average prices in effect on that date combined with the effects
of hedging agreements and approximated $22.52 per barrel of oil and $4.50 per
Mcf of gas. The value of the estimated proved gas reserves are net of a
deduction for normal shrinkage and for natural gas estimated to be required to
power future field operations.
-10-
<PAGE>
The future net revenue attributable to the Company's estimated proved
undeveloped reserves at December 31, 1996, and the $17.7 million value thereof,
have been calculated assuming the Company will expend approximately $32 million
to develop these reserves during 1997 and 1998. The amount and timing of these
expenditures will depend on a number of factors, including actual drilling
results, product prices and the availability of capital.
The foregoing estimated pretax discounted future net cash inflow figures
relate only to the reserves tabulated above. The estimates were prepared
without consideration of income taxes and indirect costs such as interest and
administrative expenses, and are not to be construed as representative of the
fair market values of the properties to which they relate.
Reserve estimates are imprecise and may be expected to change as additional
information becomes available. Furthermore, estimates of oil and gas reserves,
of necessity, are projections based on engineering data, and there are
uncertainties inherent in the interpretation of such data as well as the
projection of future rates of production and the timing of development
expenditures. Reserve engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Accordingly, there can be no assurance that the reserves set forth herein will
ultimately be produced nor can there be assurance that the proved undeveloped
reserves will be developed within the periods anticipated. The Company
emphasizes with respect to its estimated proved reserves that the discounted
future net cash inflows should not be construed as representative of the fair
market value of the proved oil and gas properties belonging to IPC, since
discounted future net cash inflows are based upon projected cash inflows which
do not provide for changes in oil and gas prices nor for escalation of expenses
and capital costs. The meaningfulness of such estimates is highly dependent
upon the accuracy of the assumptions upon which they were based.
No major discovery or other favorable or adverse event is believed to have
caused a significant change in these estimates of IPC's proved reserves since
January 1, 1997.
No estimates of total proven net oil and gas reserves have been filed by
the Company with, or included in any report to, any United States authority or
agency pertaining to the Company's individual reserves since the beginning of
the Company's last fiscal year.
VOLUMES, PRICES AND PRODUCTION COSTS. The following table sets forth on
an actual basis certain information regarding the production volumes of, average
sales prices received for, and average production costs for the sales of oil and
gas by the Company. Average sales prices have been computed without
consideration for the effects of hedging transactions. See, also, the
Supplemental Oil and Gas Disclosures appearing on pages F-17 through F-19 of
this Form 10-KSB.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Net Production:...........
Oil (Bbls)............... 501,908 104,564 46,089
Gas (Mcf)................ 710,436 108,927 170,925
Total (BOE*)........... 620,314 122,718 74,577
Average Sale Price:.......
Oil (per Bbl)............ $ 20.18 $ 17.10 $ 16.09
Gas (per Mcf) (1)........ $ 1.56 $ 1.21 $ 1.78
Average Production Cost:
($/BOE) (2).............. $ 2.31 $ 8.23 $ 12.27
</TABLE>
- ------------------
* "BOE" means equivalent barrels of oil. In reference to natural gas, natural
gas equivalents are determined using the ratio of six Mcf of natural gas to one
Bbl of crude oil, condensate or natural gas liquids.
-11-
<PAGE>
(1) Includes natural gas liquids.
(2) Includes direct lifting costs (labor, repairs and maintenance, materials
and supplies) and the administrative costs of production offices, insurance
and property taxes.
- -------------------
DRILLING ACTIVITIES. The following table sets forth the number of oil and gas
wells drilled in which the Company had an interest during 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ----------------
Gross/(1)/ Net/(1)/ Gross/(1)/ Net/(1)/ Gross Net/(1)/
--------- ------- --------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Development wells:
- ------------------
Oil/(2)/............... 57 50.1 33 6.8 9 4.9
Water Injection........ 4 2.8 1 .2 - -
Dry.................... 2 2.0 1 2 .9
--- ---- ---- ----- --- ---
63 54.9 35 7.0 11 5.8
Total................ === ==== ==== ===== === ===
Exploratory wells:
- --------------------
Oil/(2)/............... - - 4 3.9 - -
Dry.................... 1 1 1 1 3 2
--- ---- ---- ----- --- ---
1 1 5 4.9 3 2
Total................ === ==== ==== ===== === ===
Total wells:
- ------------
Oil/(2)/............... 57 50.1 37 10.7 9 4.9
Water Injection........ 4 2.8 1 .2 - -
Dry.................... 3 3.0 2 1 5 2.9
--- ---- ---- ----- --- ---
64 55.9 40 11.9 14 7.8
Total................ === ==== ==== ===== === ===
</TABLE>
- ---------------------------
(1) 1995 development wells gross column includes the drilling of 21 wells under
the Farmout Agreement. Since the Company had no working interest in the
Farmout wells at December 31, 1995, these wells are not included in the
1995 development wells net column. On June 12, 1996, IPC acquired the
working interest in the 20 producing wells drilled under the Farmout
Agreement.
(2) All of the completed wells have multiple completions, including both oil
completions and gas completions. Consequently, pursuant to the rules of the
Commission each well is classified as an oil well.
- ---------------------------
The information contained in the foregoing table should not be considered
indicative of future drilling performance nor should it be assumed that there is
any necessary correlation between the number of productive wells drilled and the
amount of oil and gas that may ultimately be recovered by IPC.
The Company does not own any drilling rigs and all of its drilling
activities are conducted by independent contractors on a day rate or footage
basis under standard drilling contracts. From December 31, 1996 to January 31,
1997, IPC drilled one gross (one net) development oil well.
-12-
<PAGE>
DELIVERY COMMITMENTS
Approximately 30% of the natural gas produced by the Company at December
31, 1996 was subject to gas purchase agreements with Interline Resources
Corporation ("Interline"). See Item 1 -- "Description of Business --Markets" for
a discussion of these contracts. The Company is not obligated to deliver a fixed
quantity of natural gas under such contracts, but is required to deliver all of
its production from the wells, net of lease fuel used, subject to such
contracts.
The Company has also entered into various price protection agreements to
hedge against volatility in crude oil prices and to help insure the repayment of
indebtedness. These agreements are discussed at Item 6 -- "Management's
Discussion and Analysis or Plan of Operation -- Liquidity and Capital
Resources."
OTHER PROPERTY
The Company's principal executive office is located in Denver, Colorado.
The Company leases approximately 9,500 square feet pursuant to a lease which
expires in June 2000 and provides for a rental rate of $10,354 per month .
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------
The Company's Common Stock is quoted on the National Association of
Securities Dealer's Automated Quotation System ("NASDAQ"). The ticker symbol is
"INLN". On January 21, 1997, the Company filed an application for approval of
the Common Stock for quotation on the NASDAQ National Market System, which
application is pending.
As of January 31, 1997 there were 512 holders of record of the Company's
Common Stock and two holders of the Company's Series B Preferred Stock. The
following table sets forth the range of high and low bid prices as reported by
NASDAQ for the periods indicated. The quotations reflect inter-dealer prices
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1996 1995
---- ----
High Bid Low Bid High Bid Low Bid
-------- ------- -------- -------
<S> <C> <C> <C> <C>
First Quarter $5.00 $3.75 $5.31 $3.13
Second Quarter 9.38 3.75 4.69 3.13
Third Quarter 7.94 5.50 5.63 3.75
Fourth Quarter 9.25 6.13 5.63 4.38
</TABLE>
The above prices have been adjusted to reflect a 1 for 10 reverse split of
the Common Stock that occurred on June 3, 1996.
-13-
<PAGE>
Inland has not paid cash dividends on Inland's Common Stock during the last
two years and the Board of Directors of Inland does not currently intend to pay
cash dividends on Common Stock in the foreseeable future. The Company may not
declare or pay dividends on Common Stock if there are accumulated and unpaid
dividends on Inland's Series B Preferred Stock. Until redeemed by the Company,
the 1,000,000 outstanding shares of Series B Preferred Stock bears a 12%
dividend per annum, which equals an annual dividend of $1,200,000 as long as all
1,000,000 shares are outstanding. These dividends accumulate and are payable in
full prior to any distributions on Common Stock. Additionally, if at any time
prior to July 31, 1998 the Company merges, sells all or substantially all of its
assets, dissolves or experiences a change of control, the holders of Series B
Preferred Stock are entitled to dividends for the full two year period expiring
July 31, 1998. Each holder of Series B Preferred Stock may, at its option, elect
to take dividends in the form of shares of Inland Common Stock, rather than
cash, at an initial "conversion price" of $6.27 per share (subject to anti-
dilution adjustments for certain events relating to the Common Stock). Each
holder of Series B Preferred Stock has presently elected to take dividends in
Common Stock, subject to their right to change such election upon six months'
advance notice. During 1996, 79,745 shares of Common Stock were accrued for
issuance as dividends, and no dividends on Series B Preferred Stock were
accumulated or in arrears at December 31, 1996. Inland Series B Preferred Stock
is redeemable at any time by Inland by payment of a redemption price of $10.00
per share, unless converted by the holder of Series B Preferred Stock.
The TCW Loan Agreement expressly prohibits Inland from paying any cash
dividends on Common Stock or Series B Preferred Stock while any amounts owing
under the TCW Loan Agreement remain unpaid, unless TCW consents to such
dividend. Likewise, the TCW Loan Agreement prohibits Inland from redeeming or
repurchasing any shares of Common Stock or Series B Preferred Stock without
TCW's prior consent. TCW has consented to the issuance of Common Stock as
payment of the dividends accruing on the Series B Preferred Stock, but not cash
dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------------------------------------------------------------------
GENERAL
Effective March 1, 1993, Inland Resources Inc. (the "Company") acquired an
undivided 50% interest in certain oil and gas leases and other assets located in
Duchesne County, Utah (the "Duchesne County Fields"). Since the purchase of the
Duchesne County Fields, the Company's business emphasis has been oil and gas
development and production. The Company's mining operations were limited to
closure of the Toiyabe Mine until December 30, 1996, when the Toiyabe Mine was
sold.
Effective September 21, 1994, the Company acquired all the outstanding
common and preferred stock of Lomax Exploration Company, now known as Inland
Production Company ("IPC"). IPC is engaged in oil and gas development and
production activities in the Monument Butte Field in Northeastern, Utah. IPC
operates as a wholly-owned subsidiary of the Company. Effective July 1, 1995,
the Company sold its undivided interest in the Duchesne County Fields. As a
result, the Company is now focused on the development of the Monument Butte
Field where the Company controls operations for the majority of its holdings and
has a significant infrastructure in place to conduct water flood operations. In
November 1995, the Company further increased its position in the Monument Butte
Field by entering into four oil and gas leases (the "Utah Federal Leases")
covering 6,200 gross acres (5,861 net acres); and on June 12, 1996 the Company
acquired working interests in an additional 20 wells in the Monument Butte Field
pursuant to the acquisition of Farmout Inc.
RESULTS OF OPERATIONS- FISCAL 1996 COMPARED TO 1995
CONTINUING OPERATIONS. Effective July 1, 1995, the Company sold the
Duchesne County Fields and effective June 1, 1996, the Company acquired the 20
Farmout wells. Accordingly, the results of operations for 1995 include only six
months of activity from the Duchesne County Fields and no activity from the 20
Farmout Wells, while the results of operations for 1996 include seven months of
activity from the 20 Farmout wells and no activity from the Duchesne County
Fields.
-14-
<PAGE>
Oil and gas sales - Oil and gas sales during 1996 exceeded the previous
year by approximately $8.8 million or 462%. The increase was primarily
attributable to increased oil and gas sales volumes in the Monument Butte Field
and increased average oil sales prices. The increase in oil and gas sales
volumes in the Monument Butte Field are attributable to the acquisition of the
20 Farmout wells in 1996 and the 57 oil and gas wells that IPC drilled and put
on production during 1996. Oil sales as a percentage of total oil and gas sales
was 89% and 93% in 1996 and 1995, respectively. Crude oil is expected to
continue as the predominant product produced from the Monument Butte Field.
As further discussed in "Liquidity and Capital Resources" below, the
Company has entered into price protection agreements to hedge against the
volatility in crude oil prices. Although hedging activities do not affect the
Company's actual sales price for crude oil in the field, the financial impact of
hedging transactions is reported as an adjustment to crude oil revenue in the
period in which the related oil is sold. Oil and gas sales were decreased by
$535,000 and $15,500 during 1996 and 1995, respectively, due to the recognition
of hedging contract settlement losses and contract purchase cost amortization.
Management fees - As further discussed in "Liquidity and Capital Resources"
below, during 1995 the Company entered into a Farmout Agreement with a
significant stockholder (the "Farmee"). The Farmout Agreement required the
Farmee to pay the Company a management fee of $25,000 per well, proportionately
reduced to the Farmee's interest and net of COPAS drilling overhead charges, as
reimbursement to the Company for land, geological, engineering and accounting
services. Management fees represent the reimbursement for the 21 wells drilled
under the Farmout Agreement in 1995. No additional wells were drilled under the
Farmout Agreement in 1996. The Company acquired the 20 producing wells drilled
under the Farmout Agreement on June 12, 1996.
Lease operating expenses - Lease operating expense increased $425,000 or
42% between periods due to the increased number of producing wells in the
Monument Butte Field and the cost of operating the Company's gas gathering,
compression and transportation system. On a consolidated basis, lease operating
expense per barrel of oil equivalent ("BOE") decreased from $8.23 in 1995 to
$2.31 in 1996. The reduction of lease operating expenses within the Monument
Butte Field is the result of an effort to eliminate unnecessary labor and
material charges in conjunction with increased production levels which allows
for more efficient operating procedures and wider allocation of fixed costs. The
sale of the Duchesne County Fields has also contributed to the reduction of
lease operating expenses.
The Company's policy is to expense the costs of water injection operations
during the start-up phase of secondary recovery water flood operations. These
expenses include the costs of purchasing water and operating water source wells,
water injection wells and water injection stations. As a result of this policy,
the Company's per barrel lifting costs will be higher than if the Company would
capitalize and deplete these costs as part of secondary recovery enhancement
projects.
Lease operating expense in the Monument Butte Field benefits from certain
gas transportation contracts. Under the terms of the contracts, the Company is
allowed to use natural gas produced from the Monument Butte, Gilsonite and
Boundary Units to power field operations throughout the Monument Butte Field. As
a result of this provision, the Company does not recognize lease operating
expense for natural gas used as lease fuel since their is no charge to the
Company for such usage and, if sold, the related gas proceeds would not inure to
the benefit of the Company. The Company estimates the amount of natural gas used
as lease fuel, net to the Company's interest, was 195,000 Mcf and 66,000 Mcf
during 1996 and 1995, respectively. The Company does not currently intend to
renew the contracts when they expire. After expiration of the contracts, natural
gas production from these areas will be the property of the Company causing
natural gas used as lease fuel to reduce natural gas sales.
Production taxes - Production taxes as a percentage of sales decreased from
7% in 1995 to 5.4% in 1996. The decrease was caused by the sale of the Duchesne
County Fields where the effective production tax rate was 12.6%, compared to an
average of 5.4% for the Monument Butte Field. The higher tax rate for the
Duchesne County Fields is due to their location on the Reservation of the Ute
Indian Tribe where an additional Ute Indian severance tax is imposed. In
addition, new wells drilled by the Company in Utah are allowed a six month
exemption from state severance taxes.
-15-
<PAGE>
Exploration and impairment - Exploration and impairment expense in 1996 and
1995 represents the Company's share of costs to retain unproved acreage and
drilling costs related to one uneconomic exploration well in each year. In
addition, during 1995 the Company recorded an impairment charge of $263,000 on a
Wyoming property.
Depletion, depreciation and amortization - The increase in depletion,
depreciation and amortization resulted from increased sales volumes offset by a
decreased average depletion rate. Depletion, which is based on the units-of-
production method, comprises the majority of the total charge and varies based
on proved reserves of the Company. The average depletion rate was $5.17 per BOE
during 1996 and $5.80 per BOE during 1995. The decrease between years was due to
the positive effect of the 1996 drilling program and the sale of the Duchesne
County Fields. Based on the December 31, 1996 estimated proved reserves, the
Company's depletion rate entering 1997 is $5.65 per BOE.
General and administrative, net - General and administrative expense
increased $334,000 on a net basis between years. General and administrative
expense is reported net of operator fees and reimbursements which were
$1,938,000 and $1,105,000 during 1996 and 1995, respectively. The increase in
reimbursements is primarily a function of the level of operated drilling
activity. During 1996, the Company drilled 64 wells, and during 1995, the
Company drilled 32 wells. Gross general and administrative expense increased
from $2,440,000 in 1995 to $3,608,000 in 1996. The increase is related to
increased salaries, payroll taxes and employee benefits as the Company's
employee base grew from 22 employees at January 1, 1995 to 45 employees at
December 31, 1996. The increase in employees was required to operate and
administrate the 1995 and 1996 drilling programs. The remaining increase is
associated with the cost of operating with a larger employee base.
Interest expense - Borrowings during 1996 have averaged approximately $15
million at an average effective interest rate of 11%. Borrowings during 1995
averaged approximately $4 million at an average effective interest rate of 18%.
The change in the effective interest rate resulted from the debt refinancing
performed on November 29, 1995, as further explained in "Liquidity and Capital
Resources", below.
Other income - Other income in 1996 and 1995 primarily represents interest
earned on the investment of surplus cash balances.
Gain on sale of Duchesne County Fields - As previously stated, the Company
sold the Duchesne County Fields effective July 1, 1995. After netting the
financial impact of the transaction, the Company reported an $850,000 gain on
sale.
Loss on Disposal of Discontinued Operations - As previously stated, and as
noted below, the Company sold the Toiyabe Mine on December 30, 1996, and
reported a loss of $30,000 on sale. In 1995, the Company increased its
reclamation reserve and recorded a charge to operations of $500,000 due to
changes in the estimate of labor, materials and holding costs required to fully
reclaim the Toiyabe Mine.
Income taxes - In 1996 and 1995, no income tax provision or benefit was
recognized due to net operating losses incurred and the reversal and recording
of a full valuation allowance.
DISCONTINUED OPERATIONS. Effective December 30, 1996, the Company sold the
Toiyabe Mine and has completely divested itself of any remaining business
activities related to the mining of precious metals. As further explained in
Note 3 to the consolidated financial statements, the Company classifies all
mining operations as discontinued operations. During 1996 and 1995, the Company
focused reclamation activities on recontouring and revegetating certain
disturbed land areas, lowering constituent levels in leachate solution and
certain other miscellaneous tasks. Costs incurred in performing these operations
were $129,000 and $434,000 in 1996 and 1995, respectively. Placer Dome U.S. Inc.
("Placer") purchased the Toiyabe Mine from the Company and assumed
responsibility for all past, present and future environmental and reclamation
activities, liabilities and expenses. The Company paid Placer $500,000 in
consideration of the assumption of such responsibilities. As a result, the
Company has no future liability for the Toiyabe Mine, unless Placer fails to
honor its agreement with the Company to assume and pay such liabilities.
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EXTRAORDINARY LOSS. On November 29, 1995, the Company refinanced an
existing obligation collateralized by the Monument Butte Field. Unamortized debt
issue costs of $215,926 associated with the refinanced debt was written off as
an extraordinary loss as required by Statement of Financial Accounting Standards
No. 4 .
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Holdings - During 1996, the Company's unrestricted
cash and cash equivalents increased $7.1 million and working capital increased
$6.8 million. The increases were caused by the Company's sale of $10 million of
Series B Preferred Stock which closed on July 31, 1996. The timing of advances
under the TCW Loan Agreement and payment of drilling obligations also impact the
Company's cash and working capital positions. The Company is required to cover
net general and administrative expenses, lease operating expenses, production
taxes, undeveloped acreage holding costs, discretionary capital expenditures and
principal and interest payments out of cash generated from operations and its
current cash holdings. The Company believes that cash sources and holdings will
be sufficient to cover such costs and payments and meet its working capital
needs through 1997.
TCW Loan Agreement - On November 29, 1995, the Company entered into a
Credit Agreement (as amended June 12, 1996) (the "TCW Loan Agreement") with
Trust Company of the West and affiliated entities (collectively "TCW"), which
provides a recourse loan facility to the Company of up to $25 million for the
development of the Monument Butte Field. The Company drew down $5 million
initially and used the proceeds to repay $4,123,500 due under an existing
obligation collateralized by the Company's properties in the Monument Butte
Field and to pay $400,000 of closing costs associated with the TCW Loan
Agreement, with the balance of funds increasing working capital. During 1996,
$16.5 million of the $20 million of remaining loan availability was drawn down
to fund the Company's development drilling program in the Monument Butte Field.
The TCW Loan Agreement bears interest at a rate of 10% per annum. Interest is
payable quarterly, commencing March 27, 1996, and minimum payments of principal
will be required quarterly, commencing in March 1997, in the following amounts
per quarter: $275,000 in 1997, $550,000 in 1998, $1,300,000 in 1999, $1,400,000
in 2000, $1,200,000 in 2001, $750,000 in 2002, $425,000 in 2003, and $350,000 in
2004, with the final payment being due and payable on December 31, 2004.
Commencing in March 1997, additional principal payments may be due under certain
circumstances out of excess cash flow, as defined in the TCW Loan Agreement. In
addition to these payments, the Company granted TCW an equity yield enhancement
in the form of an initial 7% overriding royalty interest, proportionately
reduced by the Company's working interest in the oil and gas properties,
commencing November 29, 1995 and continuing until the internal annual rate of
return to TCW equals 16% on the aggregate amounts advanced under the TCW Loan
Agreement, at which time it reduces to 3%, proportionately reduced by IPC's
working interest in the oil and gas properties, until TCW's internal annual rate
of return equals 22%. The TCW Loan Agreement also subjects the Company to
penalties if the loan is prepaid prior to its second anniversary date of
November 29, 1997. The Company paid a loan commitment fee of $250,000 upon
closing of the TCW Loan Agreement. The Company is required to meet certain
minimum ratios, is subject to covenants not to engage in various activities
without TCW's prior consent, and may not pay any dividends or make any other
distributions to stockholders without TCW's prior written consent (consent has
been given for the payment of stock dividends on Inland's Series B Preferred
Stock). The TCW Loan Agreement also contains a provision that if any material
adverse change occurs in the Company's financial condition that is not remedied
within 60 days, TCW has the right to declare the Company in default. The TCW
Loan Agreement is collateralized by the Company's interest in substantially all
of its oil and gas and other properties. At December 31, 1996, the Company had
borrowed $21.5 million under the TCW Loan Agreement.
Subsequent to December 31, 1996, TCW extended the term of its loan
commitment to February 18, 1997 and the Company borrowed the $3.5 million of
remaining loan availability. The Company believes the additional advance,
combined with cash generated from operations and cash holdings, after working
capital needs are met, will allow the Company to fund approximately $23 million
of its $28 million 1997 budgeted capital expenditures. The Company anticipates
funding the shortfall through sales of equity or debt of the Company or through
traditional borrowing facilities, but if it is unable to obtain funding from
such sources the Company will be required to modify its 1997 development
program.
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<PAGE>
During 1996, the Company used borrowings and working capital to further
develop its properties in the Monument Butte Field. The Company incurred
exploration and development expenditures of $23 million during 1996 for its
share of the cost to drill 63 development wells, one exploratory well, convert
nine wells to water injection and install 58 miles of water delivery and
injection pipelines and 60 miles of gas gathering and transportation pipelines.
Farmout Acquisition - Effective July 1, 1995, Randall D. Smith ("Smith"),
Inland and IPC, 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 $5.00 per share (the
market price on November 22, 1995), 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 Inland Common Stock which, based on a valuation of $5.00 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, Inland and IPC entered
into an agreement (the "Purchase 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 "Farmout
Shares") of Inland Common Stock, with such transfer to be effective June 12,
1996, but with the Farmout Shares not to be delivered by Inland to the Farmout
Stockholders until January 2, 1997. The effect of the Purchase Agreement was to
accelerate the March 10, 1997 acquisition date for the 20 producing wells which
IPC had the right to acquire under the Option Agreement. Consequently, Inland
has, through its acquisition of the outstanding stock of Farmout, now indirectly
acquired these wells on June 12, 1996. Inland also has agreed to register the
Farmout Shares upon the request of the Farmout Stockholders and to pay all
expenses of such registration.
Crude Oil Hedging Activities - The Company has a hedge in place with Enron
Capital and Trade Resources Corp. (the "Enron Hedge") that hedges crude oil
production over a five year period beginning January 1, 1996 in monthly amounts
escalating from 8,500 Bbls in January 1996 to 14,000 Bbls in December 2000. The
hedge is structured as a cost free collar whereby if the average monthly price,
based on NYMEX Light Sweet Crude Oil Futures Contracts, is between $18.00 and
$20.55 per barrel, no payment is due under the contract. If the average price is
less than $18.00, the Company is paid the difference between $18.00 and the
average price, multiplied by barrels of crude oil hedged that month. Similarly,
should the average price exceed $20.55 per barrel, the Company is required to
pay the difference between $20.55 and the average price, multiplied by barrels
of crude oil hedged that month. On January 1, 1997, the Company paid $34,170 to
enter into a contract with Koch Gas Services Company ("Koch") that exactly
offsets the effect of the Enron Hedge during the period January 1998 through
December 2000. The combination of the two contracts limits the Company's
remaining exposure under the Enron Hedge to the settlements during the period
January 1997 through December 1997 at 10,900 barrels per month. In an effort to
limit its downside exposure, on July 8, 1996, the Company purchased from Koch
720,000 put options for $133,200 with a strike price of $15.00. The contract
settles in monthly amounts of 60,000 put options during the period January 1997
to December 1997.
Other contracts that have completely settled as of December 31, 1996
include three contracts entered into with Enron Capital and Trade Resources
Corp. The effect of two of the contracts was to lower the floor under the Enron
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<PAGE>
Hedge from $18.00 to $16.50 during the eleven month period from February to
December 1996. The Company received $52,400 as a result of this restructuring.
Under the final contract, the Company purchased for $149,000 an additional
257,000 put options with a strike price of $16.50 covering the period February
through December 1996 in monthly amounts escalating from 10,000 barrels to
35,000 barrels during the contract period. On November 20, 1995, the Company
entered into a cost free collar with Koch that hedged 12,000 barrels of crude
oil production each month during the period December 1995 to December 1996. The
contract was structured with a floor price of $16.00 and a ceiling price of
$18.20 per barrel.
Markets - The availability of a ready market and the prices obtained
for the Company's oil and gas depend on many factors beyond the Company's
control, including the extent of domestic production, imports of oil and gas,
the proximity and capacity of oil and natural gas pipelines and other
transportation facilities, fluctuating demands for oil and gas, the marketing of
competitive fuels, and the effects of governmental regulation of oil and gas
production and sales. Crude oil produced from the Monument Butte Field is
called "Black Wax" and is sold at the posted field price (an industry term of
the fair market value of oil in a particular field) less a deduction of
approximately $0.85 to $1.00 per barrel for oil quality adjustments. The posted
field price for the Monument Butte Field has ranged from $17.00 to $24.75 per
barrel during 1996. As the quantity of Black Wax produced within the Monument
Butte Field grows, physical limitations within the regional refineries, located
in Sale Lake City, Utah, will limit the amount of Black Wax that can be
processed. The Company is conducting discussions with each refinery to inform
them of the outlook for Black Wax production in this region such that they can
propose solutions to existing plant configurations. While the outcome of these
talks is unknown, the Company expects to negotiate a long-term marketing
arrangement that will be beneficial to the Company. Until such an arrangement
is reached and the refinery modifications are accomplished, there may be short-
term downward pressure on Black Wax pricing.
The Company continues to aggressively seek other opportunities to
acquire existing oil and gas production in developed fields. The Company will
attempt to finance such acquisitions through (i) seller financing, whenever
possible; (ii) joint operating agreements with industry partners where the
Company may sell part of its position to provide acquisition and development
funds; (iii) sales of equity or debt of the Company; or (iv) traditional bank
lines of credit, although the Company currently has no existing bank lines of
credit or arrangements with any bank to loan funds.
Environmental Matters - The Company is subject to numerous federal and
state laws and regulations relating to environmental matters. Increasing focus
on environmental issues nationally has lead the Company to continue to evaluate
its responsibilities to the environment. During 1996, the Vernal, Utah office of
the Bureau of Land Management ("BLM") undertook the preparation of an
Environmental Assessment ("EA") relating to certain lands within the Monument
Butte Field. Due to this process, the Company reduced its activities on these
lands during the last six months of 1996 and January 1997 pending issuance of
the EA by the BLM. The formal Record of Decision relating to the EA was issued
by the BLM on February 3, 1997. The Company believes it will be able to comply
with the Record of Decision without causing a material impact on its future
drilling plans in the Monument Butte Field.
The Company believes it is in compliance in all material respects with
applicable federal, state and local environmental regulations. There are no
environmental proceedings pending against the Company.
NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board issued Statement No. 123 on
the "Accounting for Stock-Based Compensation". This statement prescribes the
accounting and reporting standards for stock-based employee compensation plans
and is effective for the Company's 1996 reporting year. The Company has decided
not to adopt the recognition criteria within the standard, but the Company makes
pro forma disclosures as an acceptable alternative provided by the standard.
INFLATION AND CHANGES IN PRICES
The Company's revenues and the value of its oil and gas properties
have been and will be affected by changes in oil and gas prices. The Company's
ability to borrow from traditional lending sources and to obtain additional
capital
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<PAGE>
on attractive terms is also substantially dependent on oil and gas prices. Oil
and gas prices are subject to significant seasonal and other fluctuations that
are beyond the Company's ability to control or predict. Although certain of the
Company's costs and expenses are affected by the level of inflation, inflation
did not have a significant effect on the Company's result of operations during
1996 or 1995.
FORWARD LOOKING STATEMENTS
Certain statements included in this Management's Discussion and
Analysis or Plan of Operation are forward looking statements that predict the
future development of the Company. The realization of these predictions will be
subject to a number of variable contingencies, and there is no assurance that
they will occur in the time frame proposed. The risks associated with the
potential actualization of the Company's plans include: contractor delays, the
availability and cost of financing, the availability of materials, and
regulatory approvals, to name a few.
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
The financial statements required by this item begin at page F-1
hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
The information required by this Item was previously reported in the
Company's Current Report on Form 8-K dated October 4, 1996.
PART III
For information called for by Items 9, 10, 11 and 12, reference is
made to the Company's definitive Proxy Statement for its Annual Meeting of
Stockholders scheduled to be held April 30, 1997, which the Company intends to
file with the Securities and Exchange Commission on or before March 24, 1997,
which information is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) The following documents are filed as part of this Annual Report
on Form 10-KSB:
1. Financial Statements: The financial statements filed as
part of this report are listed in the "Index to Financial Statements"
on Page F-1 hereof.
2. Exhibits required to be filed by Item 601 of Regulation S-B:
Exhibit
Number Description of Exhibits
------ -----------------------
2.1 Agreement and Plan of Merger between the Company, IRI Acquisition
Corp. and Lomax Exploration Company ("IPC") (exclusive of all
exhibits) (Filed as exhibit 2.1 to the Company's Registration
Statement on Form S-4, Registration No. 33-80392, and
incorporated herein by this reference).
3.1 Amended and Restated Articles of Incorporation, as amended
through July 31, 1996 (filed as Exhibit 3.1 to the Company's Form
10-QSB for the quarter ended June 30, 1996, and incorporated
herein by reference).
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<PAGE>
Exhibit
Number Description of Exhibits
------ -----------------------
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-18, Registration No. 33-11870-F,
and incorporated herein by reference).
3.2.1 Amendment to Article IV, Section 1 of the Bylaws of the Company
adopted February 23, 1993 (filed as Exhibit 3.2.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, and incorporated herein by reference).
3.2.2 Amendment to the Bylaws of the Company adopted April 8, 1994
(filed as Exhibit 3.2.2 to the Company's Registration Statement
on Form S-4, Registration No. 33-80392, and incorporated herein
by reference).
3.2.3 Amendment to the Bylaws of the Company adopted April 27, 1994
(filed as Exhibit 3.2.3 to the Company's Registration Statement
on Form S-4, Registration No. 33-80392, and incorporated herein
by reference).
4.1 Credit Agreement between the Company, IPC and Trust Company of
the West and various affiliated entities (collectively, "TCW")
dated November 29, 1995 (exclusive of all exhibits and schedules)
(filed as Exhibit 4.1 to the Company's Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1995, and incorporated
herein by reference).
4.1.1 First Amendment to Credit Agreement between the Company, IPC and
TCW dated as of June 12, 1996 (exclusive of all exhibits) (filed
as Exhibit 4.1 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1996, and incorporated herein
by reference).
4.1.2 Royalty Agreement dated November 29, 1995, between IPC, TCW DR IV
Royalty Partnership, L.P. and TCW (exclusive of all exhibits and
schedules) (filed as Exhibit 4.1.2 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995, and
incorporated herein by reference).
4.1.3 Conveyance of Adjustable Overriding Royalty Interest dated
November 29, 1995 between IPC and TCW DR IV Royalty Partnership,
L.P. (exclusive of all exhibits and schedules) (filed as Exhibit
4.1.3 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, and incorporated herein by
reference).
4.1.4 Deed of Trust, Mortgage, Line of Credit Mortgage, Assignment,
Security Agreement, Fixture Filing and Financing Statement dated
November 29, 1995 between IPC, First American Title Company of
Utah, Trustee, and TCW Asset Management Company, Collateral Agent
(exclusive of all exhibits and schedules) (filed as Exhibit 4.1.4
to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995, and incorporated herein by reference).
4.1.5 Guaranty dated November 29, 1995, executed by the Company in
favor of TCW and other named parties (filed as Exhibit 4.1.5 to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995, and incorporated herein by reference).
10.1 1988 Option Plan of Inland Gold and Silver Corp. (filed as
Exhibit 10(15) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988, and incorporated herein
by reference).
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<PAGE>
Exhibit
Number Description of Exhibits
------ -----------------------
10.1.1 Amended 1988 Option Plan of Inland Gold and Silver Corp. (filed
as Exhibit 10.10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, and incorporated
herein by reference).
10.1.2 Amended 1988 Option Plan of the Company, as amended through
August 29, 1994 (including amendments increasing the number of
shares to 212,800 and changing "formula award") (filed as Exhibit
10.1.2 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein by
reference).
10.1.3 "Automatic Adjustment to Number of Shares Covered by Amended 1988
Option Plan" executed effective June 3, 1996 (filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1996, and incorporated herein by
reference).
10.2 Warrant Agreement and Warrant Certificate between Kyle R. Miller
and the Company dated February 23, 1993 (filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K dated February 23, 1993,
and incorporated herein by reference).
10.2.1 Warrant Certificate between Kyle R. Miller and the Company dated
October 15, 1993 representing 3,150 shares (filed as Exhibit
10.2.1 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein by
reference).
10.2.2 Warrant Certificate between Kyle R. Miller and the Company dated
March 22, 1994 representing 5,715 shares (filed as Exhibit 10.2.2
to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994, and incorporated herein by reference).
10.2.3 Warrant Certificate between Kyle R. Miller and the Company dated
September 21, 1994 representing 44,811 shares (filed as Exhibit
10.2.3 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein by
reference).
10.2.4 Warrant Certificate between Kyle R. Miller and the Company dated
September 21, 1994 representing 38,523 shares (filed as Exhibit
10.2.4 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein by
reference).
10.2.5 Warrant Certificate between Kyle R. Miller and the Company dated
September 21, 1994 representing 30,000 shares (filed as Exhibit
10.2.5 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein by
reference).
10.2.6 Amendment to Warrant Certificates filed as Exhibits 10.2, 10.2.1
and 10.2.2 (filed as Exhibit 10.2.6 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1994, and incorporated herein by reference).
10.2.7 Warrant Certificate between Kyle R. Miller and the Company dated
November 16, 1993 representing 1,500 shares (filed as Exhibit
10.2.7 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, and incorporated herein by
reference).
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<PAGE>
Exhibit
Number Description of Exhibits
------ -----------------------
10.2.8 Warrant Certificate between Kyle R. Miller and the Company dated
March 15, 1995 representing 1,250 shares (filed as Exhibit 10.2.8
to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995, and incorporated herein by reference).
10.2.9 Warrant Certificate between Kyle R. Miller and the Company dated
November 6, 1995 representing 30,000 shares (filed as Exhibit
10.2.9 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, and incorporated herein by
reference).
10.2.10 First Amendment to Warrant Agreement between the Company and Kyle
R. Miller dated October 19, 1995 (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended September 30, 1995, and incorporated herein by reference).
*10.2.11 Warrant Certificate between the Company and Kyle R. Miller dated
May 22, 1996 (corrected version).
*10.2.12 Warrant Certificate between the Company and Kyle R. Miller dated
January 23, 1997 representing 70,000 shares.
10.3 Employment Agreement between Kyle R. Miller and the Company dated
February 23, 1993, which was replaced by Exhibit 10.3.1 (filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K dated
February 23, 1993, and incorporated herein by reference).
10.3.2 Employment Agreement between the Company and Kyle R. Miller dated
June 1, 1996 (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1996, and
incorporated herein by reference).
10.4 Lease Agreement - Commercial Premises (short form) dated August
12, 1988 by and between Broadway Management Company and the
Company, together with Addendums to Lease dated October 2, 1989,
November 6, 1991 and March 8, 1993 (filed as Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, and incorporated herein by reference).
10.5 Purchase and Sale Agreement between the Company and Evertson Oil
Company, Inc. dated March 15, 1993 (filed as Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, and incorporated herein by reference).
10.6.1 Wrap Around Agreement between Petroglyph Gas Partners, L.P.
("PGP") and the Company dated January 31, 1994 (filed as Exhibit
10.20.1 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, and incorporated herein by
reference).
10.6.2 Assignment of Purchase and Sale Agreement from the Company to PGP
(filed as Exhibit 10.20.2 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1993, and
incorporated herein by reference).
10.6.3 Ratification of Purchase and Sale Agreement between Evertson Oil
Company, Inc. and the Company dated January 31, 1994 (filed as
Exhibit 10.20.3 to the Company's Annual
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<PAGE>
Exhibit
Number Description of Exhibits
------ -----------------------
Report on Form 10-KSB for the fiscal year ended December 31,
1993, and incorporated herein by reference).
10.6.4 Letter from PGP to the Company dated January 28, 1994 (filed as
Exhibit 10.20.4 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993, and incorporated herein
by reference).
10.6.5 Asset Purchase and Sale Agreement dated August 25, 1995, but
effective as of July 1, 1995, by and between the Company and PGP
(without exhibits) (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K dated September 19, 1995, and
incorporated herein by reference).
10.6.6 Assignment and Assumption Agreement, First Amendment to Loan
Agreement, and Confirmation of Documents dated September 19, 1995
by and between the Company, PGP and Joint Energy Development
Investments Limited Partnership (without exhibits) (filed as
Exhibit 10.2 to the Company's Current Report on Form 8-K dated
September 19, 1995, and incorporated herein by reference).
10.7.1 Operating Agreement dated February 25, 1994 between the Company,
PGP and Petroglyph Operating Company, Inc. related to a portion
of the Duchesne County Fields (filed as Exhibit 10.21.1 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993, and incorporated herein by reference).
10.7.2 Operating Agreement dated February 25, 1994 between the Company,
PGP and Petroglyph Operating Company, Inc. related to the
remainder of the Duchesne County Fields (filed as Exhibit 10.21.2
to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1993, and incorporated herein by reference).
10.8 Cooperative Agreement between IPC and the U.S. Department of
Energy, and related correspondence (filed as Exhibit 10.22 to the
Company's Registration Statement on Form S-4, Registration No.
33-80392, and incorporated herein by reference).
10.9 Employment Agreement between IPC and Bill I. Pennington effective
May 1, 1993, which was replaced by Exhibit 10.9.1 (filed as
Exhibit 10.23 to the Company's Registration Statement on Form S-
4, Registration No. 33-80392, and incorporated herein by
reference).
10.9.1 Employment Agreement between the Company and Bill I. Pennington
dated September 21, 1994, which was replaced by Exhibit 10.9.2
(filed as Exhibit 10.9.1 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994, and
incorporated herein by reference).
*10.9.2 Employment Agreement between the Company and Bill I. Pennington
dated June 1, 1996 (corrected version).
10.10 Employment Agreement between IPC and John D. Lomax effective May
1, 1992 which was replaced by Exhibit 10.10.1 (filed as Exhibit
10.24 to the Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated herein by reference).
10.10.1 Employment Agreement between the Company and John D. Lomax dated
September 21, 1994 (filed as Exhibit 10.10.1 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1994, and incorporated herein by reference).
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Exhibit
Number Description of Exhibits
------ -----------------------
10.10.2 Deferred Compensation Agreement dated effective July 1, 1995
between the Company and John D. Lomax (filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended June 30, 1995, and incorporated herein by
reference).
10.10.3 First Amendment to Deferred Compensation Agreement dated
effective December 1, 1995 between the Company, IPC and John D.
Lomax (filed as Exhibit 10.10.3 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995, and
incorporated herein by reference).
10.11 Loan Agreement dated July 8, 1993 between IPC and First
Interstate Bank of Utah, N.A. regarding $250,000 loan (filed as
Exhibit 10.25 to the Company's Registration Statement on Form S-
4, Registration No. 33-80392, and incorporated herein by
reference).
10.11.1 Floating Rate Promissory Note dated July 8, 1993 in the amount of
$250,000 executed by IPC and representing the loan described in
Exhibit 10.11 (filed as Exhibit 10.25.1 to the Company's
Registration Statement on Form S-4, Registration No. 33-80392,
and incorporated herein by reference).
10.11.2 Assignment of Monies Due and to Become Due dated July 8, 1993
executed by IPC and relating to Exhibit 10.11 (filed as Exhibit
10.25.2 to the Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated herein by reference).
10.11.3 Continuing Guaranty dated July 8, 1993 executed by John D. Lomax
and Bill I. Pennington in favor of First Interstate Bank of Utah,
N.A. (filed as Exhibit 10.25.3 to the Company's Registration
Statement on Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.11.4 Deed of Trust, Mortgage, Assignment, Security Agreement, and
Financing Statement executed by IPC dated July 19, 1993 securing
the obligations described in Exhibit 10.11 (filed as Exhibit
10.25.4 to the Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated herein by reference).
10.12 Loan Agreement dated June 1, 1994 between IPC and John D. Lomax,
Bill I. Pennington, Jack N. Warren, Allan C. King and T Brooke
Farnsworth relating to $100,000 loan to IPC (filed as Exhibit
10.26 to the Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated herein by reference).
10.12.1 Promissory Note dated June 1, 1994 payable by IPC to the persons
described in Exhibit 10.12 relating to the loan described in
Exhibit 10.12 (filed as Exhibit 10.26.1 to the Company's
Registration Statement on Form S-4, Registration No. 33-80392,
and incorporated herein by reference).
10.12.2 Deed of Trust, Mortgage, Assignment, Security Agreement, and
Financing Statement executed by IPC and securing the loan
described in Exhibit 10.12 (filed as Exhibit 10.26.2 to the
Company's Registration Statement on Form S-4, Registration No.
33-80392, and incorporated herein by reference).
10.12.3 Security Agreement executed by IPC and securing the loan
described in Exhibit 10.12 (filed as Exhibit 10.26.3 to the
Company's Registration Statement on Form S-4, Registration No.
33-80392, and incorporated herein by reference).
-25-
<PAGE>
Exhibit
Number Description of Exhibits
------ -----------------------
10.13 Subcontract Agreement between IPC and the University of Utah
dated September 25, 1992 (filed as Exhibit 10.27 to the Company's
Registration Statement on Form S-4, Registration No. 33-80392,
and incorporated herein by reference).
10.14 Subcontract Agreement dated October 8, 1992 between IPC and the
University of Utah Research Institute (filed as Exhibit 10.28 to
the Company's Registration Statement on Form S-4, Registration
No. 33-80392, and incorporated herein by reference).
10.15 Chevron Crude Oil Purchase Contract No. 531144 dated October 25,
1988, as amended by Amendment No. 1 dated November 27, 1989,
Amendment No. 2 dated September 12, 1990, Amendment No. 3 dated
July 15, 1991, Amendment No. 4 dated January 22, 1992, Amendment
No. 5 dated January 13, 1993, and the March 4, 1992 letter from
Chevron U.S.A. Products Company to all Chevron Products Company
customers (filed as Exhibit 10.29 to the Company's Registration
Statement on Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.16 Lease dated March 30, 1993 between Marshall Properties, Inc. and
IPC (filed as Exhibit 10.30 to the Company's Registration
Statement on Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.17 Agreement between IPC and Bill I. Pennington (filed as Exhibit
10.31 to the Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated herein by reference).
10.18 Subscription Agreement between the Company and Smith Management
Company dated May 12, 1994 (filed as Exhibit 10.34 to the
Company's Registration Statement on Form S-4, Registration No.
33-80392, and incorporated herein by reference).
10.18.1 Amendment to Subscription Agreement filed as Exhibit 10.32, dated
September 16, 1994 (filed as Exhibit 10.18.1 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1994, and incorporated herein by reference).
10.19 Registration Rights Agreement dated September 21, 1994 between
the Company and Energy Management Corporation, a wholly owned
subsidiary of Smith Management Company and the assignee of Smith
Management Company under the Subscription Agreement filed as
Exhibit 10.18 (filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1994, and incorporated herein by reference).
10.19.1 Correspondence constituting an amendment/clarification of the
Registration Rights Agreement filed as Exhibit 10.19 (filed as
Exhibit 10.19.1 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated herein
by reference).
10.19.2 Registration Rights Agreement dated March 20, 1995 between the
Company and Energy Management Corporation (filed as Exhibit
10.19.2 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein by
reference).
10.20 Swap Agreement dated August 4, 1994 between the Company and Enron
Risk Management Services Corp.(filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended September 30, 1994, and incorporated herein by reference).
-26-
<PAGE>
Exhibit
Number Description of Exhibits
------- -----------------------
10.21 Swap Agreement dated August 26, 1994 between the Company and JEDI
(filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended September 30, 1994, and
incorporated herein by reference).
10.22 Swap Agreement dated August 4, 1994 between IPC and Enron Risk
Management Services Corp. (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 1994, and incorporated herein by reference).
10.23 Subscription Agreement between the Company and Pengo Securities
Corp. dated October 23, 1995, without exhibits (filed as Exhibit
10.1 to the Company's Current Report on Form 8-K dated November
6, 1995, and incorporated herein by reference).
10.23.1 Registration Rights Agreement between the Company and Pengo
Securities Corp. dated November 6, 1995 (filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K dated November 6, 1995,
and incorporated herein by reference).
10.24 Combined Hydrocarbon Lease between IPC and the U.S. Department of
the Interior, Bureau of Land Management ("Bureau") dated
effective October 18, 1995 relating to 677.36 acres (filed as
Exhibit 10.3 to the Company's Current Report on Form 8-K dated
November 6, 1995, and incorporated herein by reference).
10.25 Combined Hydrocarbon Lease between IPC and the Bureau dated
effective October 18, 1995 relating to 2,879.94 acres (filed as
Exhibit 10.4 to the Company's Current Report on Form 8-K dated
November 6, 1995, and incorporated herein by reference).
10.26 Combined Hydrocarbon Lease between IPC and the Bureau dated
effective October 18, 1995 relating to 647.32 acres (filed as
Exhibit 10.5 to the Company's Current Report on Form 8-K dated
November 6, 1995, and incorporated herein by reference).
10.27 Combined Hydrocarbon Lease between IPC and the Bureau dated
effective October 18, 1995 relating to 1,968.01 acres (filed as
Exhibit 10.6 to the Company's Current Report on Form 8-K dated
November 6, 1995, and incorporated herein by reference).
10.28 Farmout Agreement between IPC, the Company and Randall D. Smith,
dated effective July 1, 1995 (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1995, and incorporated herein by reference).
10.29 Option Agreement dated November 22, 1995 between the Company, IPC
and Randall D. Smith (filed as Exhibit 10.29 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1995, and incorporated herein by reference).
10.29.1 Warrant Certificate dated November 22, 1995 granted by the
Company to Randall D. Smith, together with Exhibit "A", a
Registration Rights Agreement (filed as Exhibit 10.29.1 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
10.29.2 Form of Agreement dated June 12, 1996 between the Company , IPC,
Smith Management Company, Inc. ("Smith Management"), Farmout,
Inc. ("Farmout") and Randall D. Smith, Jeffrey A. Smith and John
W. Adams (the "Farmout Stockholders") (filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K dated June 12, 1996, and
incorporated herein be reference).
-27-
<PAGE>
Exhibit
Number Description of Exhibits
------- -----------------------
10.29.3 Form of Registration Rights Agreement dated June 12, 1996 between
the Company, Smith Management and the Farmout Stockholders (filed
as Exhibit 10.2 to the Company's Current Report on Form 8-K dated
June 12, 1996, and incorporated herein by reference).
10.29.4 Security Agreement dated June 12, 1996 between the Farmout
Stockholders and the Company (filed as Exhibit 10.3 to the
Company's Current Report on Form 8-K dated June 12, 1996, and
incorporated herein by reference).
10.29.5 Form of Agreement dated June 12, 1996 between the Company and
Arthur J. Pasmas (filed as Exhibit 10.4 to the Company's Current
Report on Form 8-K dated June 12, 1996, and incorporated herein
by reference).
10.29.6 Form of Registration Rights Agreement entered into as of July 31,
1996 between the Company and Arthur J. Pasmas (filed as Exhibit
10.5 to the Company's Current Report on Form 8-K dated June 12,
1996, and incorporated herein by reference).
*10.29.7 Form of Amendment to Registration Rights Agreement filed as
Exhibit 10.29.6.
10.30 Crude Oil Call/Put Option (Costless Collar) between IPC and Koch
Gas Services Company dated November 20, 1995 (filed as Exhibit
10.30 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, and incorporated herein by
reference).
10.31 Swap Agreement dated November 22, 1994 between the Company and
Joint Energy Investments Limited Partnership (filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended June 30, 1995, and incorporated herein by
reference).
10.31.1 Termination Agreement Revised dated January 18, 1996 between the
Company and Enron Capital & Trade Resources Corp. ("ECT")
relating to Exhibit 10.31 (filed as Exhibit 10.31.1 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
10.32 Swap Agreement dated January 18, 1995 between the Company and ECT
(filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 1995, and
incorporated herein by reference).
10.33 Put Option dated January 18, 1996 between the Company and ECT
(filed as Exhibit 10.33 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995, and
incorporated herein by reference).
10.34 Commodity Option dated January 18, 1996 between IPC and ECT
(filed as Exhibit 10.34 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995, and
incorporated herein by reference).
*10.35 Employment Agreement between the Company and John E. Dyer dated
June 1, 1996 (corrected version).
*10.35.1 Amendment to Employment Agreement filed as Exhibit 10.35.
-28-
<PAGE>
Exhibit
Number Description of Exhibits
------- -----------------------
10.36 Crude Oil Call Option between IPC and Enron Capital & Trade
Resources dated April 3, 1996 (without exhibits) (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1996, and incorporated herein by
reference).
*10.37 Warrant Certificate between the Company and John E. Dyer dated
May 22, 1996 representing 50,000 shares (corrected version).
*10.37.1 Warrant Certificate between the Company and John E. Dyer dated
January 23, 1997 representing 70,000 shares.
*10.38 Warrant Certificate between the Company and Bill I. Pennington
dated May 22, 1996 representing 50,000 shares (corrected
version).
*10.38.1 Warrant Certificate between the Company and Bill I. Pennington
dated January 23, 1997 representing 60,000 shares.
10.39 Agreement - Option to Purchase Inland's Toiyabe Property, Lander
County, Nevada (without exhibits) (filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996, and incorporated herein by reference).
*10.39.1 Form of Release of Claim between Placer Dome U.S. Inc. ("Placer
Dome") and the Company.
*10.39.2 Form of Assignment of Lease (Unpatented Mining Claims) between
the Company and Placer Dome.
*10.39.3 Form of Corporation Grant, Bargain and Sale Deed (Unpatented
Mining Claims) between the Company and Placer Dome.
*10.39.4 Assignment and Bill of Sale between the Company and Placer Dome.
10.40 Swap Agreement dated July 8, 1996 between IPC and Koch Gas
Services Company (filed as Exhibit 10.5 to the Company's
Quarterly Report on Form 10-QSB for the quarter ended September
30, 1996, and incorporated herein by reference).
*10.41 Letter agreement dated October 30, 1996 between the Company and
Johnson Water District.
*10.42 Collar between Koch Oil Company and the Company effective January
1, 1997.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Coopers & Lybrand LLP.
*23.3 Consent of Ryder Scott Company Petroleum Engineers.
*27.1 Financial Data Schedule required by Item 601 of Regulation S-B.
- ------------------------
-29-
<PAGE>
* Filed herewith.
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated October 4, 1996
reporting information under the following Form 8-K Items:
Item 4. Changes in Registrant's Certifying Accountant
Item 7. Financial Statements and Exhibits
No financial statements were included in the October 4, 1996 Form 8-K. No
other reports on Form 8-K were filed during the fourth quarter of 1996.
-30-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INLAND RESOURCES INC.
February 24, 1997 By: /s/ Kyle R. Miller
----------------------------------------
Kyle R. Miller,
Director, President
and Chief Executive Officer
(Principal Executive Officer)
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
February 20, 1997 /s/ Richard F. Conway
--------------------------------------------
RICHARD F. CONWAY
Director
February 18, 1997 /s/ Arthur J. Pasmas
--------------------------------------------
ARTHUR J. PASMAS
Director
February 20, 1997 /s/ Thomas J. Trzanowski
--------------------------------------------
THOMAS J. TRZANOWSKI
Director
February 24, 1997 /s/ Paul C. Schorr
--------------------------------------------
PAUL C. SCHORR
Director
February 24, 1997 /s/ Bill I. Pennington
--------------------------------------------
BILL I. PENNINGTON
Vice President and Chief Financial
Officer (Principal Financial Officer)
February 24, 1997 /s/ Michael J. Stevens
--------------------------------------------
MICHAEL J. STEVENS
Secretary, Treasurer and Controller
(Principal Accounting Officer)
-31-
<PAGE>
INLAND RESOURCES INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Public Accountants F-2
Consolidated Balance Sheets, December 31, 1996 and 1995 F-4
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the years ended F-7
December 31, 1996 and 1995
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Inland Resources Inc.
We have audited the accompanying consolidated balance sheet of Inland Resources
Inc. and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Inland Resources Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/S/ ARTHUR ANDERSEN LLP
Denver, Colorado
February 7, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Inland Resources Inc.
We have audited the accompanying consolidated balance sheet of Inland Resources
Inc. and subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Inland Resources
Inc. and subsidiaries as of December 31, 1995, and the consolidated results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND LLP
Denver, Colorado
March 20, 1996
F-3
<PAGE>
INLAND RESOURCES INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,030,982 $ 2,970,305
Accounts receivable and accrued sales 2,077,661 701,956
Inventory 862,229 417,665
Other current assets 242,022 19,338
------------ -----------
Total current assets 13,212,894 4,109,264
------------ -----------
Property and equipment, at cost:
Oil and gas properties (successful
efforts method)
Accumulated depletion, depreciation 46,832,811 17,404,280
and amortization (3,834,517) (585,590)
------------ -----------
42,998,294 16,818,690
Other property and equipment, net 779,161 593,106
Debt issue costs, net 338,262 401,803
------------ -----------
Total assets $ 57,328,611 $21,922,863
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,236,734 $ 2,859,775
Current portion of long-term debt 1,148,000 48,021
Property reclamation costs,
short-term 200,000
----------- -----------
Total current liabilities 5,384,734 3,107,796
------------ -----------
Long-term debt 19,972,014 4,436,225
Property reclamation costs, long-term 399,433
Commitments (Notes 10 and 11)
Stockholders' equity:
Preferred Class A stock, par value
$.001, 20,000,000 shares
authorized; 107
Series A: 0 and 106,850 shares
issued and outstanding 1,000
Series B: 1,000,000 and 0 shares
issued and outstanding,
liquidation preference of
$12,400,000
Additional paid-in capital - 9,999,000 4,100,261
preferred
Common stock, par value $.001;
25,000,000 and 10,000,000
shares authorized, respectively;
5,002,179 issued 6,312,059 6,312 4,093
deemed outstanding in 1996,
4,092,800 issued and
outstanding in 1995 (as restated
- see Note 8)
Additional paid-in capital - common 29,129,185 19,183,119
Accrued preferred Series B dividends 670,000
Accumulated deficit (7,833,634) (9,308,171)
------------ -----------
Total stockholders' equity 31,971,863 13,979,409
------------ -----------
Total liabilities and
stockholders' equity $ 57,328,611 $21,922,863
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-4
<PAGE>
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Sales of oil and gas $10,704,463 $ 1,904,810
Management fee 326,178
----------- -----------
Total revenues 10,704,463 2,230,988
----------- -----------
Operating expenses:
Lease operating expenses 1,434,860 1,010,050
Production taxes 610,130 132,417
Exploration and impairment 166,616 342,081
Depletion, depreciation and
amortization 3,428,513 857,570
General and administrative, net 1,669,638 1,335,263
----------- -----------
Total operating expenses 7,309,757 3,677,381
----------- -----------
Operating income (loss) 3,394,706 (1,446,393)
Interest expense (1,633,229) (749,307)
Interest and other income, net 413,060 127,537
Gain on sale of the Duchesne County
Fields 850,000
----------- -----------
Net income (loss) from continuing
operations before extraordinary loss 2,174,537 (1,218,163)
Loss on disposal of discontinued
operations (30,000) (500,000)
----------- -----------
Net income (loss) before extraordinary
loss 2,144,537 (1,718,163)
Extraordinary loss on early
extinguishment of debt (215,926)
----------- -----------
Net income (loss) $ 2,144,537 $(1,934,089)
Preferred Series A Stock dividend on
cash redemption (214,000)
----------- -----------
Net income (loss) available to common
shareholders $ 1,930,537 $(1,934,089)
=========== ===========
Net income (loss) per share - Primary
Continuing operations $ .37 $ (.40)
Discontinued operations .00 (.16)
Extraordinary loss (.07)
----------- -----------
Total $ .37 $ (.63)
=========== ===========
Weighted average common and common
equivalent shares outstanding -
Primary 5,276,345 3,071,110
=========== ===========
Net income (loss) per share - Fully
diluted
Continuing operations $ .29 $ (.40)
Discontinued operations .00 (.16)
Extraordinary loss (.07)
----------- -----------
Total $ .29 $ (.63)
=========== ===========
Weighted average common and common
equivalent shares outstanding -
Fully diluted 6,651,225 3,071,110
=========== ===========
Dividends per common share NONE NONE
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-5
<PAGE>
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,144,537 $ (1,934,089)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Net cash used by discontinued
operations (129,433) (434,237)
Loss on disposal of
discontinued operations 30,000 500,000
Depletion, depreciation and
amortization 3,428,513 857,570
Amortization of debt issue
costs and debt discount 198,603
Loss on disposal of assets 3,942
Gain on sale of the Duchesne
County Fields (850,000)
Impairment of properties 296,350
Loss on early extinguishment
of debt 215,926
Effect of changes in current
assets and liabilities:
Accounts receivable and
accrued sales (1,375,705) 740,961
Inventory (444,564) 143,525
Other current assets (222,684) 66,358
Accounts payable and
accrued expenses 1,376,959 695,437
------------ ------------
Net cash provided by operating
activities 5,006,226 301,743
------------ ------------
Cash flows from investing activities:
Development expenditures and
equipment purchases (23,251,672) (3,736,011)
Payment to sell discontinued
operations (500,000)
Acquisition of oil and gas properties (7,449,000)
Proceeds from sale of Duchesne
County Fields 2,946,765
Change in restricted cash 160,658
Proceeds from sale of assets 47,344
------------ ------------
Net cash used by investing activities (23,751,672) (8,030,244)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of stock 10,045,125 5,989,693
Proceeds from issuance of long-term
debt 16,578,192 7,600,000
Payments of long-term debt (73,415) (4,180,240)
Debt issue costs (4,071) (401,803)
Redemption of preferred Series A
stock (739,708)
------------ ------------
Net cash provided by financing
activities 25,806,123 9,007,650
------------ ------------
Net increase in cash and cash
equivalents 7,060,677 1,279,149
Cash and cash equivalents at beginning
of period 2,970,305 1,691,156
------------ ------------
Cash and cash equivalents at end of
period $ 10,030,982 $ 2,970,305
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-6
<PAGE>
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Additional Common Stock Additional Accrued
-------------------- Paid-in ----------------------- Paid-in Series B Accumulated
Shares Amount Capital Shares Amount Capital Dividend Deficit
---------- -------- ------------ ------------ --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 106,850 107 $ 3,672,861 28,927,999 $ 28,928 $13,168,591 $(6,946,682)
Issuance of common stock, net
of issuance costs of
$10,307 12,000,000 12,000 5,977,693
Preferred Series A stock
dividend 427,400 (427,400)
Net loss (1,934,089)
--------------------------------------------------------------------------------------------------
Balances, December 31, 1995 106,850 $ 107 $ 4,100,261 40,927,999 $ 40,928 $19,146,284 $(9,308,171)
One-for-ten reverse stock
split (36,835,151) (36,835) 36,835
Purchase of Farmout Inc. 1,309,880 1,310 6,541,190
Redemption of preferred
Series A stock (13,713) (14) (739,694)
Conversion of preferred
Series A stock (93,137) (93) (3,360,567) 900,831 901 3,359,759
Issuance of preferred Series
B stock 1,000,000 1,000 9,999,000
Exercise of employee stock
options 8,500 8 45,117
Accrued preferred Series B
stock dividend 670,000 (670,000)
Net income 2,144,537
----------------------------------------------------------------------------------------------------
Balances, December 31, 1996 1,000,000 $1,000 $ 9,999,000 6,312,059 $ 6,312 $29,129,185 $670,000 $(7,833,634)
====================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-7
<PAGE>
INLAND RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
__________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Business:
---------
Inland Resources Inc. (the "Company") is an independent energy company with
substantially all of its property interests located in the Monument Butte
Field within the Uinta Basin of Northeastern Utah.
Consolidation:
--------------
The accompanying financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All intercompany
activity has been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements:
------------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents:
--------------------------
Cash and cash equivalents include cash on hand and amounts due from banks
and other investments with original maturities of less than three months.
Concentrations of Credit Risk:
------------------------------
The Company regularly has cash in a single financial institution which
exceeds depository insurance limits. The Company places such deposits with
high credit quality institutions and has not experienced any credit losses.
Substantially all of the Company's receivables are within the oil and gas
industry, primarily from its oil and gas purchasers and joint interest
owners. Although diversified within many companies, collectibility is
dependent upon the general economic conditions of the industry. To date,
write-offs of uncollectible accounts have been minimal.
Fair Value of Financial Instruments:
------------------------------------
The Company's financial investments consist of cash, trade receivables,
trade payables and long-term debt. The carrying value of cash and cash
equivalents, trade receivables and trade payables are considered to be
representative of their fair market value, due to the short maturity of
these instruments. The fair value for long-term debt is estimated based on
current rates available for similar debt with similar maturities and
securities and approximates its carrying value.
Inventory:
----------
Inventory consists primarily of tubular goods valued at the lower of
average cost or market.
Accounting for Oil and Gas Operations:
--------------------------------------
The Company uses the "successful efforts" method of accounting for oil and
gas operations. The use of this method results in the capitalization of
those costs associated with the acquisition, exploration, and development
of properties that produce revenue or are anticipated to produce future
revenue. The Company does not capitalize general and administrative
expenses directly identifiable with such activities or lease operating
expenses associated with secondary recovery startup projects. Costs of
unsuccessful exploration efforts are expensed in the period it is
determined that such costs are not recoverable through future revenues.
Geological and geophysical costs are expensed as incurred. The cost of
development wells are capitalized whether productive or nonproductive. Upon
the sale of proved properties, the cost and accumulated depletion are
removed from the accounts and any gain or loss is charged to income.
Interest is capitalized during the drilling and completion period of wells
and on other major projects. The amount of interest capitalized during 1996
was $135,000. Interest was not capitalized in prior years due to the
immaterial amount.
F-8
<PAGE>
The provision for depletion, depreciation and amortization of developed oil
and gas properties is based on the units of production method, based on
proved oil and gas reserves. Dismantlement, restoration, and abandonment
costs are offset by residual values of lease and well equipment. As a
result, no accrual for such costs has been recorded.
Effective October 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". Under this statement,
a calculation of the aggregate before-tax undiscounted future net revenues
(the "Ceiling") is performed for each distinct property pool in which the
Company participates. If the net capitalized cost of each property pool
exceeds the applicable Ceiling calculation, the excess is recorded as a
charge to operations. There was no charge to the consolidated statements of
operations as a result of adopting this statement.
The Company periodically assesses undeveloped oil and gas properties for
impairment. Impairment represents management's estimate of the decline in
realizable value experienced during the period.
Property and Equipment:
-----------------------
Property and equipment is recorded at cost. Replacements and major
improvements are capitalized while maintenance and repairs are charged to
expense as incurred. Upon sale or retirement, the asset cost and
accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in operations. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets,
generally ranging from three to seven years.
Income Taxes:
-------------
The Company uses the liability method of accounting for income taxes. Under
the liability method, deferred income taxes are recorded for differences
between the book and tax basis of assets and liabilities at tax rates in
effect when the balances are expected to reverse.
Revenue Recognition:
--------------------
Sales of oil and gas are recorded upon delivery to purchasers.
Net Income (Loss) Per Share:
----------------------------
The computation of earnings per common and common equivalent share is based
upon net income available to common stockholders and the weighted average
number of common shares outstanding during the period plus accrued
dividends on Series B Preferred Stock and the dilutive effect of shares
issuable from the exercise of stock options and warrants less the number of
treasury shares assumed to be purchased using the average market price for
the period. The fully diluted earnings per share computation reflects
additional dilution assuming full conversion of the Series A Preferred
Stock or Series B Preferred Stock, as applicable, and the additional
dilution related to the exercise of stock options and warrants less the
number of treasury shares assumed to be purchased using the market price at
the end of the period. Common stock equivalents have not been included in
the 1995 earnings per share calculation because their effect is anti-
dilutive.
2. FINANCIAL INSTRUMENTS:
----------------------
Periodically, the Company enters into commodity contracts to hedge or
otherwise reduce the impact of oil and gas price fluctuations and to help
insure the repayment of indebtedness. The amortized cost and the monthly
settlement gain or loss are reported as an adjustment to revenue in the
period in which the related oil or gas is sold. Hedging activities do not
affect the actual sales price for the Company's crude oil or natural gas.
The Company is subject to the creditworthiness of its counterparties since
the contracts are not collateralized.
Crude Oil Hedging Activities:
-----------------------------
The Company has a hedge in place with Enron Capital and Trade Resources
Corp. (the "Enron Hedge") that hedges crude oil production over a five year
period beginning January 1, 1996 in monthly amounts escalating from 8,500
Bbls in January 1996 to 14,000 Bbls in December 2000. The hedge is
structured as a cost free collar whereby if the average monthly price,
based on NYMEX Light Sweet Crude Oil Futures Contracts, is between $18.00
and $20.55 per barrel, no payment is due under the contract. If the average
price is less than $18.00, the
F-9
<PAGE>
Company is paid the difference between $18.00 and the average price,
multiplied by barrels of crude oil hedged that month. Similarly, should the
average price exceed $20.55 per barrel, the Company is required to pay the
difference between $20.55 and the average price, multiplied by barrels of
crude oil hedged that month. On January 1, 1997, the Company paid $34,170
to enter into a contract with Koch Gas Services Company ("Koch") that
exactly offsets the effect of the Enron Hedge during the period January
1998 through December 2000. The combination of the two contracts limits the
Company's remaining exposure under the Enron Hedge to the settlements
during the period January 1997 through December 1997 at 10,900 barrels per
month. In an effort to limit its downside exposure, on July 8, 1996, the
Company purchased from Koch 720,000 put options for $133,200 with a strike
price of $15.00. The contract settles in monthly amounts of 60,000 put
options during the period January 1997 to December 1997.
Other contracts that have completely settled as of December 31, 1996
include three contracts entered into with Enron Capital and Trade Resources
Corp. The effect of two of the contracts was to lower the floor under the
Enron Hedge from $18.00 to $16.50 during the eleven month period from
February to December 1996. The Company received $52,400 as a result of this
restructuring. Under the final contract, the Company purchased for $149,000
an additional 257,000 put options with a strike price of $16.50 covering
the period February through December 1996 in monthly amounts escalating
from 10,000 barrels to 35,000 barrels during the contract period. On
November 20, 1995, the Company entered into a cost free collar with Koch
that hedged 12,000 barrels of crude oil production each month during the
period December 1995 to December 1996. The contract was structured with a
floor price of $16.00 and a ceiling price of $18.20 per barrel.
The effects of all hedging contracts resulted in a losses of $535,000 and
$15,500 during 1996 and 1995, respectively.
3. DISCONTINUED OPERATIONS:
------------------------
In 1993, the Company changed its business emphasis from the mining of
precious metals to the production of oil and gas. As a result, mining
operations are classified as discontinued operations in the accompanying
consolidated financial statements.
Since July 1992, the Company's only mining activity has been the
reclamation of the Toiyabe Mine, located in Lander County, Nevada, in
compliance with standards established by various governmental agencies. On
December 30, 1996, Placer Dome U.S. Inc. ("Placer") acquired all of the
Company's rights in the Toiyabe Mine, and agreed to assume all associated
past, present and future environmental and reclamation liabilities. The
Company paid Placer $500,000 in consideration of their assumption of the
reclamation and other liabilities. Upon the closing of this sale, the
Company has divested itself of any remaining business activities and
liability (unless Placer fails to honor its agreement with the Company)
related to the mining of precious metals. The Company recorded a charge of
$30,000 in 1996 relating to this disposition.
During 1996 and 1995, the Company's reclamation activities included
recontouring and revegetating certain disturbed land areas, lowering
constituent levels in leachate solution and certain other miscellaneous
tasks. Costs incurred in performing these operations were $129,000 and
$434,000 in 1996 and 1995, respectively. In 1995, due to changes in the
estimate of the cost of materials, labor and holding costs required to
fully reclaim the Toiyabe Mine, the Company increased its reclamation
reserve and recorded a charge to operations of $500,000. The remaining
assets and liabilities attributable to discontinued operations consist of:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Accounts payable and accrued expenses $(35,812) $(118,861)
Property reclamation costs, short-term (200,000)
------------ ------------
Current liabilities related to
discontinued operations $(35,812) $(318,861)
============ ============
Property reclamation costs, long-term (399,433)
------------
Long-term liabilities related to
discontinued operations $(399,433)
============
</TABLE>
F-10
<PAGE>
4. PURCHASE OF FARMOUT INC.:
-------------------------
Effective July 1, 1995, Randall D. Smith ("Smith"), the Company and IPC
entered into a Farmout Agreement pursuant to which IPC agreed to farmout to
Smith its interest in certain 40-acre drill sites and Smith agreed to drill
wells on such drill sites between July 1, 1995 and December 31, 1995.
Pursuant to the Farmout Agreement, 21 wells were drilled and funded by
Smith, 20 of which were producing wells and one of which was a
developmental dry hole. The Company earned $326,178 of management fees to
oversee the drilling program. On November 22, 1995, the Company entered
into an Option Agreement to reacquire the properties for an amount of the
Company's common stock, at the then current market value of $5.00 per
share, that would allow Smith to achieve a 22% rate of return.
Prior to June 1, 1996, the Smith's interest in the farmout wells and the
Farmout Agreement were transferred to Farmout Inc., a Utah corporation. On
June 12, 1996, the Company entered into an agreement to acquire one hundred
percent (100%) of the outstanding capital stock of Farmout Inc. in exchange
for 1,309,880 shares of the Company's common stock. Under the terms of the
agreement, the Company did not issue the common stock until January 2,
1997. Since no contingencies existed as to the common stock issuance, the
1,309,880 shares are considered outstanding for purposes of reporting in
the accompanying consolidated financial statements. The purchase was valued
at $6.55 million for accounting purposes. The only assets of Farmout Inc.
were the twenty producing farmout wells. Farmout Inc. had no liabilities at
the purchase date. Income tax liabilities arising prior to June 12, 1996
are the responsibility of the prior owners and income tax liabilities from
June 12, 1996 forward are the responsibility of the Company. Smith and
affiliated entities are collectively majority shareholders of the Company.
The acquisition of Farmout Inc. was accounted for as a purchase, therefore,
the assets and results of operations of Farmout Inc. are included in the
Company's consolidated financial statements from the acquisition date
forward. Farmout Inc. operates as a wholly-owned subsidiary of the Company.
The following presents unaudited, pro forma operating results as if the
purchase of Farmout Inc. had occurred at the beginning of each period
presented.
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands except per share data) 1996 1995
--------- ---------
<S> <C> <C>
Revenues $12,391 $ 2,934
Net income (loss) before extraordinary loss $ 3,163 $(1,443)
Net income (loss) $ 3,163 $(1,659)
Earnings (Loss) per share - Primary $ 0.50 $ (0.45)
Earnings (Loss) per share - Fully diluted $ 0.41 $ (0.45)
</TABLE>
The pro forma operating results have been prepared for comparative purposes
only. They do not purport to present actual operating results that would
have been achieved had the acquisition been made at the beginning of each
period presented or to necessarily be indicative of future operations.
5. OTHER PROPERTY AND EQUIPMENT:
-----------------------------
Other property and equipment at December 31, 1996 and 1995 consists of the
following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Furniture and fixtures $ 439,682 $ 287,773
Vehicles 393,412 179,680
Land and buildings 290,041 290,041
----------------- -----------------
1,123,135 757,494
Less accumulated depreciation (343,974) (164,388)
----------------- -----------------
$ 779,161 $ 593,106
================= =================
</TABLE>
F-11
<PAGE>
6. LONG-TERM DEBT:
----------------
On August 24, 1994, the Company entered into a Loan Agreement with Joint
Energy Development Investments Limited Partnership ("JEDI"), to provide
nonrecourse financing for the development of the Duchesne County Fields
(the "Inland Loan Agreement"). The Company had borrowed $2.5 million under
the facility through July 1, 1995, the date the Company sold the Duchesne
County Fields to Petroglyph Gas Partners, L.P. ("PGP"). The purchase price
paid by PGP was (i) $3 million in cash (less $53,000 in net closing
adjustments between the parties) (ii) the assumption by PGP of the
Company's $2.5 million outstanding liability under the Inland Loan
Agreement and (iii) the assignment by PGP to the Company of PGP's 38.23%
working interest in 8,277 gross acres of oil and gas leases in Duchesne
County, Utah. JEDI consented to the sale and assumption of the Inland Loan
Agreement by PGP, therefore, Inland has no further liability or obligation
under the Inland Loan Agreement. The Company recorded an extraordinary loss
of $215,926 in the 1995 consolidated statement of operations relating to
the unamortized portion of the cost to enter into the Inland Loan
Agreement.
On September 21, 1994, the Company entered into a separate Loan Agreement
with JEDI to provide nonrecourse financing for the development of the
Monument Butte Field (the "IPC Loan Agreement"). Through November 29, 1995,
the Company had borrowed $4 million under the facility. On November 29,
1995, the Company entered into a Credit Agreement (the "TCW Loan
Agreement") with Trust Company of the West and affiliated entities
(collectively "TCW"), which provided a recourse loan facility to the
Company of up to $25 million for the development of the Monument Butte
Field. The Company advanced $5 million at closing and used the proceeds to
repay $4,123,500 of principal and interest in full satisfaction of amounts
due under the IPC Loan Agreement, to pay $400,000 of closing costs
associated with the TCW Loan Agreement with the balance of funds increasing
working capital. During 1996, $16.5 million of the $20 million of remaining
loan availability was drawn down to fund development drilling in the
Monument Butte Field. The Company has requested an extension of the
commitment period and expects to draw down the remaining $3.5 million on
February 18, 1997. The TCW Loan Agreement bears interest at 10% per annum.
Interest is payable quarterly beginning March 1996 and minimum payments of
principal are required quarterly beginning March 1997. In addition to these
payments, the Company granted TCW an initial 7% overriding royalty
interest, proportionately reduced to the Company's working interest in the
oil and gas properties, commencing November 29, 1995 and continuing until
the internal annual rate of return to TCW equals 16%, at which time it
reduces to 3%, proportionately reduced to the Company's working interest,
until TCW's internal rate of return equals 22%. The TCW Loan Agreement
subjects the Company to penalties on the overriding royalty interest if the
loan is prepaid prior to November 29, 1997. The Company paid a $250,000
commitment fee at closing and recorded an $800,000 loan discount relating
to the 7% override which is being amortized over the term of the loan using
the effective interest method. The Company is required to meet certain
minimum ratios, is subject to covenants not to engage in various activities
without TCW's consent, and may not pay any dividends or make any other
distributions to stockholders without TCW's consent (consent has been given
for the payment of stock dividends on the Series B Preferred Stock). The
TCW Loan Agreement also contains a provision that if any material adverse
change occurs in the Company's financial condition that is not remedied
within 60 days, TCW has the right to declare the Company in default. The
TCW Loan Agreement is collateralized by the Company's interest in
substantially all of its oil and gas and other properties. At December 31,
1996, the Company had borrowed $21.5 million under the TCW Loan Agreement
and had amortized the original $800,000 discount to $666,491.
F-12
<PAGE>
Long-term debt as of December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
TCW Loan Agreement $21,500,000 $5,000,000
Less discount on TCW Loan Agreement (666,491) (800,000)
------------ ------------
20,833,509 4,200,000
Carman Loan Agreement. The loan bears 195,385 202,907
interest at 9.5% with principal and
interest of $26,800 due annually on
May 1st of each year through 2009. The
Loan is collateralized by the land
purchased.
Other 91,120 81,339
------------ ------------
Total 21,120,014 4,484,246
Current portion 1,148,000 48,021
------------ ------------
Long-term portion $19,972,014 $4,436,225
============ ============
</TABLE>
As of December 31, 1996, the annual principal payments on long-term debt
for the next five years are as follows:
<TABLE>
<S> <C>
1997 $ 1,148,000
1998 2,239,000
1999 5,231,000
2000 5,611,000
2001 4,812,000
Thereafter 2,745,505
</TABLE>
7. INCOME TAXES:
-------------
In 1996 and 1995, no income tax provision or benefit was recognized due to
the effect of net operating losses and the recording of a valuation
allowance against portions of the deferred tax assets that did not meet the
recognition criteria of more likely than not. Deferred income taxes reflect
the impact of temporary differences between amounts of assets and
liabilities for financial reporting purposes and such amounts as measured
by tax laws. The tax effect of the temporary differences and carryforwards
giving rise to the Company's deferred tax assets and liabilities at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Deferred
December 31, Expense December 31,
1995 (Benefit) 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Amortization of deferred exploration
and mining costs $ 135,700 $ (135,700)
Net operating loss carryforwards 5,720,000 (216,000) $ 5,504,000
Other 55,300 (23,300) 32,000
------------ ------------ ------------
Total 5,911,000 (375,000) 5,536,000
Valuation allowance (3,132,000) 2,025,000 (1,107,000)
------------ ------------ ------------
Deferred tax assets 2,779,000 1,650,000 4,429,000
------------ ------------ ------------
Deferred tax liabilities:
Depletion, depreciation and
amortization of property
and equipment (2,769,000) (1,406,000) (4,175,000)
Other (10,000) (244,000) (254,000)
------------ ------------ ------------
Deferred tax liabilities (2,779,000) (1,650,000) (4,429,000)
------------ ------------ ------------
Net deferred tax asset - - -
============ ============ ============
</TABLE>
F-13
<PAGE>
Income tax expense for 1996 and 1995 differed from amounts computed by
applying the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Expected statutory tax expense at 34% $ 729,000 $(658,000)
Deductions taken for book, not taken
for tax 11,000 3,000
(Reverse) establish valuation
allowance, net (740,000) 655,000
--------- ---------
- -
========= =========
</TABLE>
No state or federal income taxes are payable at December 31, 1996 or 1995,
and the Company did not pay any income taxes in 1996 or 1995. Additionally,
$1,772,000 of the valuation allowance was reversed upon the acquisition of
Farmout Inc. since the book basis in the purchased assets was greater than
the associated tax basis.
A valuation allowance is to be provided if it is more likely than not that
some portion or all of a deferred tax asset will not be realized. The
Company's ability to realize the benefit of its tax assets depends on the
generation of future taxable income through profitable operations and
expansion of the Company's oil and gas producing properties. The market,
capital, and environmental risks associated with that growth requirement
caused the Company to conclude that a valuation allowance should be
provided, except to the extent that the benefit of operating loss
carryforwards can be used to offset future reversals of existing deferred
tax liabilities. The Company will continue to monitor the need for the
valuation allowance that has been provided.
At December 31, 1996, the Company had tax basis net operating loss
carryforwards available to offset future regular and alternative taxable
income of $15.4 million and $13.7 million, respectively, which expire from
1998 to 2010. The Company also has investment tax and new jobs credit
carryforwards of $175,000 and $6,000, respectively, which expire from 1997
to 2001. Utilization of the net operating loss carryforwards and tax credit
carryforwards are limited under the change of ownership tax rules.
8. CAPITAL STOCK:
--------------
Common Stock:
-------------
On May 22, 1996, the Company's shareholders approved a 1-for-10 reverse
stock split of the Company's common stock. The effect of the stock split
was to lower the authorized common shares from 100,000,000 to 10,000,000
and reduce outstanding common shares from 40,927,999 to 4,092,800. The
shareholders further approved an increase in the number of post-split
authorized shares from 10,000,000 to 25,000,000. All earnings per share
amounts and weighted average common and common equivalent shares
outstanding as reported on the consolidated statement of operations have
been calculated based on post-reverse split share amounts.
Preferred Stock:
----------------
On July 31, 1996, the Company sold an affiliate of Smith 950,000 shares of
a newly designated series of preferred stock of the Company (the "Series B
Stock") which has 1,000,000 shares designated in the series. A director of
the Company who is also a Vice President of Smith Management Company, Inc.,
entered into a similar agreement pursuant to which he agreed to purchase
the remaining 50,000 shares of Series B Stock. The Series B Stock was
issued by the Company for cash of $10 per share (an aggregate of $10.0
million). Concurrently with the issuance of the Series B Stock, the Company
called for redemption its outstanding Series A Convertible Preferred Stock
(the "Series A Stock"). Each record holder of Series A Stock had the right
to elect to receive either (i) cash in the amount of $54.00 per share, or
(ii) 9.6726 shares of common stock for each share of Series A Stock. During
1996, 93,137 shares of Series A Stock elected to convert into 900,831
shares of common stock. The remaining 13,713 shares of Series A Stock were
redeemed for $739,708.
The Series B Stock bears a dividend of 12% per annum on the Redemption
Price (defined below); has a liquidation preference over common stock equal
to $10.00 per share plus any accumulated and unpaid dividends; is
redeemable at a "Redemption Price" equal to $10.00 per share, plus
accumulated and unpaid dividends; is convertible at a "conversion price" of
$6.27 per share (divided into the Redemption Price) subject to certain
anti-dilution adjustments; and is entitled to one vote per share of Series
B Stock on all matters
F-14
<PAGE>
submitted to the stockholders of the Company and will vote with the common
stock as one voting group or class, and not as a separate voting group or
class, except where required by law or except with regard to various
amendments to the Company's Articles of Incorporation affecting the Series
B Stock or creating another series of preferred stock with rights equal to
or greater than the rights of the Series B Stock. In addition, if at any
time prior to July 31, 1998, (i) the Company sells all or substantially all
of its assets other than in the ordinary course of business, (ii) the
Company merges or consolidates with or into another person, (iii) a change
of control of the Company occurs or (iv) the Company is liquidated or
dissolved, the holders of Series B Preferred Stock will be entitled to a
full two years of accumulated dividends in calculating amounts payable upon
liquidation, redemption or the number of shares of common stock issuable
upon conversion, as the case may be.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
-------------------------------------------------
Cash paid for interest during 1996 and 1995 was $1,616,000 and $586,000,
respectively.
During 1996, the Company purchased Farmout Inc. by issuing common stock
valued at $6,542,500.
During 1995, the Company purchased land in the Monument Butte Field by
issuing debt for $202,907.
10. COMMITMENTS:
------------
The Company leases approximately 9,500 square feet of office space in
Denver. The lease expires in June 2000 and provides for a rental rate of
$10,350 per month. Future minimum rental payments under this lease are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 124,200
1998 124,200
1999 124,200
2000 62,100
-----------
$434,700
===========
</TABLE>
Total rent expense during 1996 and 1995 was $108,100 and $52,435,
respectively.
11. STOCK OPTIONS AND WARRANTS:
---------------------------
On August 25, 1988, the Company's Board of Directors adopted an incentive
stock option plan (the "Plan") for key employees and directors of the
Company. A total of 212,800 shares of common stock are reserved for
issuance under the Plan. All options under the Plan are exercisable 90 days
after the grant date and expire 10 years from the date of grant. All
options were exercisable at December 31, 1996, except 27,840 options
granted on November 18, 1996.
<TABLE>
<CAPTION>
Weighted Weighted Average
Number of Average Option Exercise Fair Value of
Options Exercise Price Price Range Options Granted
--------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 94,760 $4.98 $2.50 - $11.50
Granted 55,700 $4.32 $3.10 - $ 5.30 $2.45
---------
Balance, December 31, 1995 150,460 $4.74 $2.50 - $11.50
Granted 62,340 $6.54 $5.00 - $ 6.87 $2.99
Exercised (8,500) $5.31 $3.13 - $ 6.50
---------
Balance, December 31, 1996 204,300 $5.26 $2.50 - $11.50
=========
</TABLE>
F-15
<PAGE>
On May 22, 1996, the Warrant Agreement entered into on February 23, 1993
with the president and chief executive officer of the Company was
terminated. The Warrant Agreement provided for the automatic grant of five-
year warrants equal to 5% of the number of shares issued by the Company
with an exercise price equal to the price at which such shares were issued.
Pursuant to this agreement, the president received warrants for 31,250
shares of common stock at exercise prices between $5.00 and $6.50 per share
during 1995. The weighted average fair value of warrants granted in 1995
was $2.71. In consideration for the termination of the Warrant Agreement,
the Compensation Committee extended the term of all warrants granted under
the agreement (a total of 201,911 warrants) to June 1, 2003. All such
warrants were exercisable at December 31, 1996.
On May 22, 1996, three executive officers of the Company were issued ten
year warrants to purchase 200,000 shares of common stock at an exercise
price of $6.27. All such warrants were exercisable at December 31, 1996.
The weighted average fair value of options granted in 1996 was $2.51.
Effective July 1, 1995, the Company entered into a two year Deferred
Compensation Agreement with the former Chairman of the Company that
provided for payment of $70,000 per year, continued his entitlement to
health and life insurance benefits until July 1, 1996 and continued his
entitlement to overriding royalty interests earned prior to July 1, 1995.
The value of the Deferred Compensation Agreement was recorded as a charge
to operations in 1995.
On March 15, 1995, the Company issued a consultant a warrant to purchase
25,000 shares of Common Stock at $6.50 per share. The warrant is currently
exercisable and expires February 1, 1998.
The Company has elected to account for grants of stock options and warrants
under APB Opinion No. 25. No compensation cost has been recognized on the
consolidated statements of operations through December 31, 1996. If
compensation expense for grants of stock options and warrants had been
determined consistent with Statement on Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation", the Company's net income and
earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C> <C>
Net income (loss) As reported $2,144,537 $(1,934,089)
Pro forma $1,451,334 $(2,145,401)
Primary EPS As reported $ .37 $ (.63)
Pro forma $ .28 $ (.70)
Fully Diluted EPS As reported $ .29 $ (.63)
Pro forma $ .22 $ (.70)
</TABLE>
Due to the requirements of Statement No. 123, the calculated compensation
expense in 1996 and 1995 as adjusted in the pro forma statements above, may
not be representative of compensation expense to be calculated in future
years. The pro forma adjustment is calculated using an estimate of the fair
value of each option and warrant on the date of grant. The Company used the
following assumptions within the Black-Scholes pricing model to estimate
the fair value of stock option and warrant grants in 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C>
Weighted average remaining life 4.8 years
Risk-free interest rate 5.1% to 7.3%
Expected dividend yield 0%
Expected lives 3 years to 5 years
Expected volatility 57.1%
</TABLE>
Effective February 1, 1995, the Company adopted a voluntary 401(k) employee
savings plan which covers all full-time employees who meet certain
eligibility requirements. Voluntary contributions are made to the 401(k)
Plan by participants. In addition, the Company matches at its discretion, a
portion of the participant's voluntary contribution. Matching contributions
of $16,700 and $14,300 were made by the Company during 1996 and 1995,
respectively.
F-16
<PAGE>
12. QUARTERLY EARNINGS PER SHARE (unaudited):
-----------------------------------------
Summarized unaudited quarterly financial data for 1996 are as follows (in
thousands except per share data):
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------
December 31, September 30, June 30, March 31,
1996 1996 1996 1996
------------ ------------- -------- ---------
<S> <C> <C> <C> <C>
Revenues $3,906 $3,553 $2,553 $ 692
Operating income 1,209 1,088 1,082 15
Net income (loss) 737 726 821 (139)
Earnings per share - Primary .12 .09 .18 (.02)
Earnings per share - Fully diluted .10 .07 .14 (.02)
</TABLE>
13. OIL AND GAS PRODUCING ACTIVITIES:
---------------------------------
Major Customers:
----------------
The following companies purchased 10% or more of the Company's oil and gas
production:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Chevron U.S.A. $10,129,000 $ 1,387,000
Wasatch Energy Corporation 1,196,000
Interline Resources Corporation 385,000
</TABLE>
Costs Incurred in Oil and Gas Producing Activities
--------------------------------------------------
Costs incurred in oil and gas producing activities are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Unproved property acquisition cost $ 189,000 $ 7,238,000
Proved property acquisition cost 363,000 211,000
Development cost 21,577,000 2,050,000
Exploration cost 875,000 1,381,000
----------- -----------
Total $23,004,000 $10,880,000
=========== ===========
</TABLE>
Net Capitalized Costs
---------------------
Net capitalized costs related to the Company's oil and gas producing
activities are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Unproved properties $ 6,165,000 $ 8,508,000
Proved properties 39,693,000 8,744,000
Gas and water transportation facilities 975,000 152,000
----------- -----------
Total 46,833,000 17,404,000
Accumulated depletion, depreciation
and amortization (3,835,000) (585,000)
----------- -----------
Total $42,998,000 $16,819,000
=========== ===========
</TABLE>
F-17
<PAGE>
Oil and Gas Reserve Quantities (Unaudited):
-------------------------------------------
The reserve information presented below is based upon reports prepared by
the Company's in-house petroleum engineer and reviewed by the independent
petroleum engineering firm of Ryder Scott Company in 1996 and prepared by
Ryder Scott Company in 1995. The Company emphasizes that reserve estimates
are inherently imprecise and that estimates of new discoveries are more
imprecise than those of producing oil and gas properties. As a result,
revisions to previous estimates are expected to occur as additional
production data becomes available or economic factors change.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions.
Proved developed oil and gas reserves are those expected to be recovered
through existing wells with existing equipment and operating methods.
Presented below is a summary of the changes in estimated proved reserves of
the Company, all of which are located in the United States, for the years
ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
Oil (MBbl) Gas (MMcf) Oil (MBbl) Gas (MMcf)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Proved reserves, beginning of year 3,016 5,663 1,503 3,726
Purchase of reserves in place 485 1,202
Extensions and discoveries 3,950 5,807 2,422 5,033
Production (502) (710) (104) (109)
Revisions of previous estimates 363 (1,774) (261) (891)
Sales of reserves in place (544) (2,096)
---------- ---------- ---------- ----------
Proved reserves, end of year 7,312 10,188 3,016 5,663
========== ========== ========== ==========
Proved developed reserves, beginning
of year 1,227 1,223 840 1,987
========== ========== ========== ==========
Proved developed reserves, end of 4,385 5,409 1,227 1,223
year ========== ========== ========== ==========
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows (Unaudited):
---------------------------------------------------------------------
Statement of Financial Accounting Standards No. 69 prescribes guidelines
for computing a standardized measure of future net cash flow and changes
therein relating to estimated proved reserves. The Company has followed
these guidelines which are briefly discussed below.
Future cash inflows and future production and development costs are
determined by applying year-end prices and costs to the estimated
quantities of oil and gas to be produced. Estimated future income taxes are
computed using current statutory income tax rates including consideration
for estimated future statutory depletion. The resulting future net cash
flows are reduced to present value amounts by applying a 10% annual
discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such, do not
necessarily reflect the Company's expectations of actual revenues to be
derived from those reserves nor their present worth. The limitations
inherent in the reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized measure computations
since these estimates are the basis for the valuation process.
F-18
<PAGE>
The following summary sets forth the Company's future net cash flows
relating to proved oil and gas reserves based on the standardized measure
prescribed in Statement of Financial Accounting Standards No. 69.
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------- --------
<S> <C> <C>
Future cash inflows $210,473 $ 60,336
Future production costs (63,007) (21,292)
Future development costs (31,941) (15,819)
Future income tax provision (27,174) (4,220)
-------- --------
Future net cash flows 88,351 19,005
Less effect of 10% discount factor (35,368) (9,574)
-------- --------
Standardized measure of discounted
future net cash flows $ 52,983 $ 9,431
======== ========
</TABLE>
The principal sources of changes in the standardized measure of discounted
future net cash flows are as follows for the years ended December 31, 1996
and 1995.
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------- --------
<S> <C> <C>
Standardized measure, beginning of year $ 9,431 $ 6,943
Purchase of reserves in place 5,398
Sales of reserves in place (3,187)
Sales of oil and gas produced, net of
production costs (8,659) (762)
Net change in prices and production
costs 13,448 2,043
Extensions, discoveries and improved
recovery, net 96,807 33,150
Revisions of previous quantity estimates 1,428 (6,240)
Change in future development costs (16,122) (13,064)
Net change in income taxes (22,954) (3,738)
Accretion of discount (25,794) (5,714)
-------- --------
Standardized measure, end of year $ 52,983 $ 9,431
======== ========
</TABLE>
F-19
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C>
2.1 Agreement and Plan of Merger between the Company, IRI Acquisition <C>
Corp. and Lomax Exploration Company ("IPC") (exclusive of all exhibits)
(Filed as exhibit 2.1 to the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and incorporated herein by this
reference).
3.1 Amended and Restated Articles of Incorporation, as amended through
July 31, 1996 (filed as Exhibit 3.1 to the Company's Form 10-QSB for
the quarter ended June 30, 1996, and incorporated herein by reference).
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-18, Registration No. 33-11870-F, and
incorporated herein by reference).
3.2.1 Amendment to Article IV, Section 1 of the Bylaws of the Company
adopted February 23, 1993 (filed as Exhibit 3.2.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992,
and incorporated herein by reference).
3.2.2 Amendment to the Bylaws of the Company adopted April 8, 1994
(filed as Exhibit 3.2.2 to the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and incorporated herein by reference).
3.2.3 Amendment to the Bylaws of the Company adopted April 27, 1994
(filed as Exhibit 3.2.3 to the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and incorporated herein by reference).
4.1 Credit Agreement between the Company, IPC and Trust Company of the
West and various affiliated entities (collectively, "TCW") dated
November 29, 1995 (exclusive of all exhibits and schedules) filed as
Exhibit 4.1 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, and incorporated herein by
reference).
4.1.1 First Amendment to Credit Agreement between the Company, IPC and
TCW dated as of June 12, 1996 (exclusive of all exhibits) (filed as
Exhibit 4.1 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1996, and incorporated herein by
reference).
4.1.2 Royalty Agreement dated November 29, 1995, between IPC, TCW DR IV
Royalty Partnership, L.P. and TCW (exclusive of all exhibits and
schedules) (filed as Exhibit 4.1.2 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995, and
incorporated herein by reference).
4.1.3 Conveyance of Adjustable Overriding Royalty Interest dated
November 29, 1995 between IPC and TCW DR IV Royalty Partnership, L.P.
(exclusive of all exhibits and schedules) (filed as Exhibit 4.1.3 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
4.1.4 Deed of Trust, Mortgage, Line of Credit Mortgage, Assignment,
Security Agreement, Fixture Filing and Financing Statement dated
November 29, 1995 between IPC, First American Title Company of Utah,
Trustee, and TCW Asset Management Company, Collateral Agent (exclusive
of all exhibits and schedules) (filed as Exhibit 4.1.4 to the
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C>
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
4.1.5 Guaranty dated November 29, 1995, executed by the Company in favor
of TCW and other named parties (filed as Exhibit 4.1.5 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995, and incorporated herein by reference).
10.1 1988 Option Plan of Inland Gold and Silver Corp. (filed as
Exhibit 10(15) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, and incorporated herein by
reference).
10.1.1 Amended 1988 Option Plan of Inland Gold and Silver Corp. (filed
as Exhibit 10.10.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and incorporated herein by
reference).
10.1.2 Amended 1988 Option Plan of the Company, as amended through
August 29, 1994 (including amendments increasing the number of shares
to 212,800 and changing "formula award") (filed as Exhibit 10.1.2 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
10.1.3 "Automatic Adjustment to Number of Shares Covered by Amended 1988
Option Plan" executed effective June 3, 1996 (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1996, and incorporated herein by reference).
10.2 Warrant Agreement and Warrant Certificate between Kyle R. Miller
and the Company dated February 23, 1993 (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K dated February 23, 1993, and
incorporated herein by reference).
10.2.1 Warrant Certificate between Kyle R. Miller and the Company dated
October 15, 1993 representing 3,150 shares (filed as Exhibit 10.2.1 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
10.2.2 Warrant Certificate between Kyle R. Miller and the Company dated
March 22, 1994 representing 5,715 shares (filed as Exhibit 10.2.2 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
10.2.3 Warrant Certificate between Kyle R. Miller and the Company dated
September 21, 1994 representing 44,811 shares (filed as Exhibit 10.2.3
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
10.2.4 Warrant Certificate between Kyle R. Miller and the Company dated
September 21, 1994 representing 38,523 shares (filed as Exhibit 10.2.4
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C>
10.2.5 Warrant Certificate between Kyle R. Miller and the Company dated
September 21, 1994 representing 30,000 shares (filed as Exhibit 10.2.5
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
10.2.6 Amendment to Warrant Certificates filed as Exhibits 10.2, 10.2.1
and 10.2.2 (filed as Exhibit 10.2.6 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1994, and
incorporated herein by reference).
10.2.7 Warrant Certificate between Kyle R. Miller and the Company dated
November 16, 1993 representing 1,500 shares (filed as Exhibit 10.2.7 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
10.2.8 Warrant Certificate between Kyle R. Miller and the Company dated
March 15, 1995 representing 1,250 shares (filed as Exhibit 10.2.8 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
10.2.9 Warrant Certificate between Kyle R. Miller and the Company dated
November 6, 1995 representing 30,000 shares (filed as Exhibit 10.2.9 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
10.2.10 First Amendment to Warrant Agreement between the Company and
Kyle R. Miller dated October 19, 1995 (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended
September 30, 1995, and incorporated herein by reference).
*10.2.11 Warrant Certificate between the Company and Kyle R. Miller
dated May 22, 1996 (corrected version).
*10.2.12 Warrant Certificate between the Company and Kyle R. Miller
dated January 23, 1997
representing 70,000 shares.
10.3 Employment Agreement between Kyle R. Miller and the Company dated
February 23, 1993, which was replaced by Exhibit 10.3.1 (filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K dated February
23, 1993, and incorporated herein by reference).
10.3.2 Employment Agreement between the Company and Kyle R. Miller dated
June 1, 1996 (filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1996, and incorporated
herein by reference).
10.4 Lease Agreement - Commercial Premises (short form) dated August 12,
1988 by and between Broadway Management Company and the Company,
together with Addendums to Lease dated October 2, 1989, November 6,
1991 and March 8, 1993 (filed as Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.5 Purchase and Sale Agreement between the Company and Evertson Oil
Company, Inc. dated March 15, 1993 (filed as Exhibit 10.19 to the
Company's Annual Report on
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C>
Form 10-K for the fiscal year ended December 31, 1992, and incorporated
herein by reference).
10.6.1 Wrap Around Agreement between Petroglyph Gas Partners, L.P.
("PGP") and the Company dated January 31, 1994 (filed as Exhibit
10.20.1 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993, and incorporated herein by reference).
10.6.2 Assignment of Purchase and Sale Agreement from the Company to PGP
(filed as Exhibit 10.20.2 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1993, and incorporated herein by
reference).
10.6.3 Ratification of Purchase and Sale Agreement between Evertson Oil
Company, Inc. and the Company dated January 31, 1994 (filed as Exhibit
10.20.3 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993, and incorporated herein by reference).
10.6.4 Letter from PGP to the Company dated January 28, 1994 (filed as
Exhibit 10.20.4 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, and incorporated herein by
reference).
10.6.5 Asset Purchase and Sale Agreement dated August 25, 1995, but
effective as of July 1, 1995, by and between the Company and PGP
(without exhibits) (filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated September 19, 1995, and incorporated herein by
reference).
10.6.6 Assignment and Assumption Agreement, First Amendment to Loan
Agreement, and Confirmation of Documents dated September 19, 1995 by
and between the Company, PGP and Joint Energy Development Investments
Limited Partnership (without exhibits) (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K dated September 19, 1995, and
incorporated herein by reference).
10.7.1 Operating Agreement dated February 25, 1994 between the Company,
PGP and Petroglyph Operating Company, Inc. related to a portion of the
Duchesne County Fields (filed as Exhibit 10.21.1 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1993, and incorporated herein by reference).
10.7.2 Operating Agreement dated February 25, 1994 between the Company,
PGP and Petroglyph Operating Company, Inc. related to the remainder of
the Duchesne County Fields (filed as Exhibit 10.21.2 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1993, and incorporated herein by reference).
10.8 Cooperative Agreement between IPC and the U.S. Department of
Energy, and related correspondence (filed as Exhibit 10.22 to the
Company's Registration Statement on Form S-4, Registration No. 33-
80392, and incorporated herein by reference).
10.9 Employment Agreement between IPC and Bill I. Pennington effective
May 1, 1993, which was replaced by Exhibit 10.9.1 (filed as Exhibit
10.23 to the Company's Registration Statement on Form S-4, Registration
No. 33-80392, and incorporated herein by reference).
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C>
10.9.1 Employment Agreement between the Company and Bill I. Pennington
dated September 21, 1994, which was replaced by Exhibit 10.9.2 (filed
as Exhibit 10.9.1 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and incorporated herein by
reference).
*10.9.2 Employment Agreement between the Company and Bill I. Pennington
dated June 1, 1996 (corrected version).
10.10 Employment Agreement between IPC and John D. Lomax effective May
1, 1992 which was replaced by Exhibit 10.10.1 (filed as Exhibit 10.24
to the Company's Registration Statement on Form S-4, Registration No.
33-80392, and incorporated herein by reference).
10.10.1 Employment Agreement between the Company and John D. Lomax dated
September 21, 1994 (filed as Exhibit 10.10.1 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1994, and
incorporated herein by reference).
10.10.2 Deferred Compensation Agreement dated effective July 1, 1995
between the Company and John D. Lomax (filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the fiscal quarter ended
June 30, 1995, and incorporated herein by reference).
10.10.3 First Amendment to Deferred Compensation Agreement dated
effective December 1, 1995 between the Company, IPC and John D. Lomax
(filed as Exhibit 10.10.3 to the Company's Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1995, and incorporated
herein by reference).
10.11 Loan Agreement dated July 8, 1993 between IPC and First Interstate
Bank of Utah, N.A. regarding $250,000 loan (filed as Exhibit 10.25 to
the Company's Registration Statement on Form S-4, Registration No. 33-
80392, and incorporated herein by reference).
10.11.1 Floating Rate Promissory Note dated July 8, 1993 in the amount
of $250,000 executed by IPC and representing the loan described in
Exhibit 10.11 (filed as Exhibit 10.25.1 to the Company's Registration
Statement on Form S-4, Registration No. 33-80392, and incorporated
herein by reference).
10.11.2 Assignment of Monies Due and to Become Due dated July 8, 1993
executed by IPC and relating to Exhibit 10.11 (filed as Exhibit 10.25.2
to the Company's Registration Statement on Form S-4, Registration No.
33-80392, and incorporated herein by reference).
10.11.3 Continuing Guaranty dated July 8, 1993 executed by John D. Lomax
and Bill I. Pennington in favor of First Interstate Bank of Utah, N.A.
(filed as Exhibit 10.25.3 to the Company's Registration Statement on
Form S-4, Registration No. 33-80392, and incorporated herein by
reference).
10.11.4 Deed of Trust, Mortgage, Assignment, Security Agreement, and
Financing Statement executed by IPC dated July 19, 1993 securing the
obligations described in Exhibit 10.11 (filed as Exhibit 10.25.4 to the
Company's Registration Statement on Form S-4, Registration No. 33-
80392, and incorporated herein by reference).
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C>
10.12 Loan Agreement dated June 1, 1994 between IPC and John D. Lomax,
Bill I. Pennington, Jack N. Warren, Allan C. King and T Brooke
Farnsworth relating to $100,000 loan to IPC (filed as Exhibit 10.26 to
the Company's Registration Statement on Form S-4, Registration No. 33-
80392, and incorporated herein by reference).
10.12.1 Promissory Note dated June 1, 1994 payable by IPC to the persons
described in Exhibit 10.12 relating to the loan described in Exhibit
10.12 (filed as Exhibit 10.26.1 to the Company's Registration Statement
on Form S-4, Registration No. 33-80392, and incorporated herein by
reference).
10.12.2 Deed of Trust, Mortgage, Assignment, Security Agreement, and
Financing Statement executed by IPC and securing the loan described in
Exhibit 10.12 (filed as Exhibit 10.26.2 to the Company's Registration
Statement on Form S-4, Registration No. 33-80392, and incorporated
herein by reference).
10.12.3 Security Agreement executed by IPC and securing the loan
described in Exhibit 10.12 (filed as Exhibit 10.26.3 to the Company's
Registration Statement on Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.13 Subcontract Agreement between IPC and the University of Utah dated
September 25, 1992 (filed as Exhibit 10.27 to the Company's
Registration Statement on Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.14 Subcontract Agreement dated October 8, 1992 between IPC and the
University of Utah Research Institute (filed as Exhibit 10.28 to the
Company's Registration Statement on Form S-4, Registration No. 33-
80392, and incorporated herein by reference).
10.15 Chevron Crude Oil Purchase Contract No. 531144 dated October 25,
1988, as amended by Amendment No. 1 dated November 27, 1989, Amendment
No. 2 dated September 12, 1990, Amendment No. 3 dated July 15, 1991,
Amendment No. 4 dated January 22, 1992, Amendment No. 5 dated January
13, 1993, and the March 4, 1992 letter from Chevron U.S.A. Products
Company to all Chevron Products Company customers (filed as Exhibit
10.29 to the Company's Registration Statement on Form S-4, Registration
No. 33-80392, and incorporated herein by reference).
10.16 Lease dated March 30, 1993 between Marshall Properties, Inc. and
IPC (filed as Exhibit 10.30 to the Company's Registration Statement on
Form S-4, Registration No. 33-80392, and incorporated herein by
reference).
10.17 Agreement between IPC and Bill I. Pennington (filed as Exhibit
10.31 to the Company's Registration Statement on Form S-4, Registration
No. 33-80392, and incorporated herein by reference).
10.18 Subscription Agreement between the Company and Smith Management
Company dated May 12, 1994 (filed as Exhibit 10.34 to the Company's
Registration Statement on Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.18.1 Amendment to Subscription Agreement filed as Exhibit 10.32,
dated September 16, 1994 (filed as Exhibit 10.18.1 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1994, and incorporated herein by reference).
10.19 Registration Rights Agreement dated September 21, 1994 between the
Company and Energy Management Corporation, a wholly owned subsidiary of
Smith Management Company and the assignee of Smith Management Company
under the Subscription Agreement filed as Exhibit 10.18 (filed as
Exhibit 10.19 to the Company's Annual
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C>
Report on Form 10-KSB for the fiscal year ended December 31, 1994, and
incorporated herein by reference).
10.19.1 Correspondence constituting an amendment/clarification of the
Registration Rights Agreement filed as Exhibit 10.19 (filed as Exhibit
10.19.1 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994, and incorporated herein by reference).
10.19.2 Registration Rights Agreement dated March 20, 1995 between the
Company and Energy Management Corporation (filed as Exhibit 10.19.2 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by reference).
10.20 Swap Agreement dated August 4, 1994 between the Company and Enron
Risk Management Services Corp.(filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter ended September
30, 1994, and incorporated herein by reference).
10.21 Swap Agreement dated August 26, 1994 between the Company and JEDI
(filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended September 30, 1994, and incorporated
herein by reference).
10.22 Swap Agreement dated August 4, 1994 between IPC and Enron Risk
Management Services Corp. (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter ended September
30, 1994, and incorporated herein by reference).
10.23 Subscription Agreement between the Company and Pengo Securities
Corp. dated October 23, 1995, without exhibits (filed as Exhibit 10.1
to the Company's Current Report on Form 8-K dated November 6, 1995, and
incorporated herein by reference).
10.23.1 Registration Rights Agreement between the Company and Pengo
Securities Corp. dated November 6, 1995 (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K dated November 6, 1995, and
incorporated herein by reference).
10.24 Combined Hydrocarbon Lease between IPC and the U.S. Department of
the Interior, Bureau of Land Management ("Bureau") dated effective
October 18, 1995 relating to 677.36 acres (filed as Exhibit 10.3 to the
Company's Current Report on Form 8-K dated November 6, 1995, and
incorporated herein by reference).
10.25 Combined Hydrocarbon Lease between IPC and the Bureau dated
effective October 18, 1995 relating to 2,879.94 acres (filed as Exhibit
10.4 to the Company's Current Report on Form 8-K dated November 6,
1995, and incorporated herein by reference).
10.26 Combined Hydrocarbon Lease between IPC and the Bureau dated
effective October 18, 1995 relating to 647.32 acres (filed as Exhibit
10.5 to the Company's Current Report on Form 8-K dated November 6,
1995, and incorporated herein by reference).
10.27 Combined Hydrocarbon Lease between IPC and the Bureau dated
effective October 18, 1995 relating to 1,968.01 acres (filed as Exhibit
10.6 to the Company's Current Report on Form 8-K dated November 6,
1995, and incorporated herein by reference).
10.28 Farmout Agreement between IPC, the Company and Randall D. Smith,
dated effective July 1, 1995 (filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter ended June 30,
1995, and incorporated herein by reference).
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C>
10.29 Option Agreement dated November 22, 1995 between the Company, IPC
and Randall D. Smith (filed as Exhibit 10.29 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995, and
incorporated herein by reference).
10.29.1 Warrant Certificate dated November 22, 1995 granted by the
Company to Randall D. Smith, together with Exhibit "A", a Registration
Rights Agreement (filed as Exhibit 10.29.1 to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995, and
incorporated herein by reference).
10.29.2 Form of Agreement dated June 12, 1996 between the Company , IPC,
Smith Management Company, Inc. ("Smith Management"), Farmout, Inc.
("Farmout") and Randall D. Smith, Jeffrey A. Smith and John W. Adams
(the "Farmout Stockholders") (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K dated June 12, 1996, and incorporated herein
be reference).
10.29.3 Form of Registration Rights Agreement dated June 12, 1996
between the Company, Smith Management and the Farmout Stockholders
(filed as Exhibit 10.2 to the Company's Current Report on Form 8-K
dated June 12, 1996, and incorporated herein by reference).
10.29.4 Security Agreement dated June 12, 1996 between the Farmout
Stockholders and the Company (filed as Exhibit 10.3 to the Company's
Current Report on Form 8-K dated June 12, 1996, and incorporated herein
by reference).
10.29.5 Form of Agreement dated June 12, 1996 between the Company and
Arthur J. Pasmas (filed as Exhibit 10.4 to the Company's Current Report
on Form 8-K dated June 12, 1996, and incorporated herein by reference).
10.29.6 Form of Registration Rights Agreement entered into as of July
31, 1996 between the Company and Arthur J. Pasmas (filed as Exhibit
10.5 to the Company's Current Report on Form 8-K dated June 12, 1996,
and incorporated herein by reference).
*10.29.7 Form of Amendment to Registration Rights Agreement filed as Exhibit
10.29.6.
10.30 Crude Oil Call/Put Option (Costless Collar) between IPC and Koch
Gas Services Company dated November 20, 1995 (filed as Exhibit 10.30 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
10.31 Swap Agreement dated November 22, 1994 between the Company and
Joint Energy Investments Limited Partnership (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1995, and incorporated herein by reference).
10.31.1 Termination Agreement Revised dated January 18, 1996 between the
Company and Enron Capital & Trade Resources Corp. ("ECT") relating to
Exhibit 10.31 (filed as Exhibit 10.31.1 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995, and
incorporated herein by reference).
10.32 Swap Agreement dated January 18, 1995 between the Company and ECT
(filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended June 30, 1995, and incorporated herein by
reference).
10.33 Put Option dated January 18, 1996 between the Company and ECT
(filed as Exhibit 10.33 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995, and incorporated herein by
reference).
</TABLE>
viii
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C>
10.34 Commodity Option dated January 18, 1996 between IPC and ECT (filed
as Exhibit 10.34 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995, and incorporated herein by
reference).
*10.35 Employment Agreement between the Company and John E. Dyer dated
June 1, 1996 (corrected version).
*10.35.1 Amendment to Employment Agreement filed as Exhibit 10.35.
10.36 Crude Oil Call Option between IPC and Enron Capital & Trade
Resources dated April 3, 1996 (without exhibits) (filed as Exhibit 10.1
to the Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1996, and incorporated herein by reference).
*10.37 Warrant Certificate between the Company and John E. Dyer dated
May 22, 1996 representing 50,000 shares (corrected version).
*10.37.1 Warrant Certificate between the Company and John E. Dyer dated January
23, 1997 representing 70,000 shares.
*10.38 Warrant Certificate between the Company and Bill I. Pennington
dated May 22, 1996, representing 50,000 shares (corrected version).
*10.38.1 Warrant Certificate between the Company and Bill I. Pennington
dated January 23, 1997 representing 60,000 shares.
10.39 Agreement - Option to Purchase Inland's Toiyabe Property, Lander
County, Nevada (without exhibits) (filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996, and incorporated herein by reference).
*10.39.1 Form of Release of Claims between Placer Dome U.S. Inc.
("Placer Dome") and the Company.
*10.39.2 Form of Assignment of Lease (Unpatented Mining Claims) between
the Company and Placer Dome.
*10.39.3 Form of Corporation Grant, Bargain and Sale Deed (Unpatented
Mining Claims) between the Company and Placer Dome.
*10.39.4 Assignment and Bill of Sale between the Company and Placer Dome
10.40 Swap Agreement dated July 8, 1996 between IPC and Koch Gas
Services Company (filed as Exhibit 10.5 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1996, and
incorporated herein by reference).
*10.41 Letter agreement dated October 30, 1996 between the Company and
the Johnson Water District.
*10.42 Collar between Koch Oil Company and the Company effective January
1, 1997.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Coopers & Lybrand LLP.
ix
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Page
- ------ ----------------------- -------------
<S> <C> <C>
*23.3 Consent of Ryder Scott Company Petroleum Engineers.
*27.1 Financial Data Schedule required by Item 601 of Regulation S-B.
</TABLE>
- ------------------------
* Filed herewith.
x
<PAGE>
EXHIBIT 10.2.11
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
INLAND RESOURCES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
CERTIFICATE EVIDENCING THE NUMBER OF WARRANTS
SET FORTH IN SECTION 1
1. Basic Terms. This certifies that, for good and valuable consideration,
-----------
Kyle R. Miller (the "Holder"), is entitled, subject to the terms and conditions
of this Warrant Certificate (the "Certificate"), to purchase 100,000 (post
1-for-10 reverse stock split) shares of the common stock, $.001 par value (the
"Common Stock"), of Inland Resources Inc. (the "Company"), subject to adjustment
as provided in this Certificate, from the Company at the Exercise Price (as
defined below), on delivery of this Certificate to the Company with the exercise
form duly executed and payment of the Exercise Price payable to the Company by
cashier's check or other immediately available funds, for all shares purchased.
One Warrant (herein so called) is required for the purchase of one share of
Common Stock, subject to adjustment as provided herein.
2. Expiration Date. The right to exercise the Warrants evidenced by this
---------------
Certificate shall expire at 12:00 a.m. PST on the tenth (10th) anniversary of
the effective date of this Certificate, provided, however, that if Holder's
employment by the Company as an executive officer is terminated for any reason
other than death or disability then the Warrants evidenced by this Certificate
shall expire ninety (90) days after such termination, but if termination is as a
result of death or disability then the Warrants may be exercised at any time
within one year after the termination of employment for such reason (the
"Expiration Date").
3. Exercise Price. The purchase price per share of the Common Stock upon
--------------
exercise of the Warrants (the "Exercise Price") shall be equal to $6.27 (post
1-for-10 reverse stock split) per share, which is equal to or greater than the
fair market value per share on the date hereof. The Exercise Price may be
adjusted from time to time pursuant to the terms of this Certificate.
4. Company's Warranties, Representations and Covenants. The Company
---------------------------------------------------
warrants, represents and covenants to the Holder that:
(a) The Company has been duly incorporated and organized and is
validly existing as a corporation in good standing under the laws of its
state of organization.
(b) The Warrants have been duly authorized and are the validly issued,
fully paid and binding obligation of the Company. The Common Stock of the
Company issuable upon exercise of the Warrants are validly authorized and
upon
- 1 -
<PAGE>
payment of the Exercise Price shall be validly issued, fully paid and
nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of the Warrants shall, at
delivery, be fully paid and nonassessable, free from all taxes, liens, and
charges with respect to the purchase.
(d) The Company shall take any necessary steps to assure that the par
value per share of the Common Stock is at all times equal to or less than
the then current Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and hold available
sufficient shares of its Common Stock to satisfy the Common Stock issuable
upon exercise of this Warrant.
(f) The Company shall maintain its books and records in accordance
with generally accepted accounting principles applied on a consistent
basis.
(g) The Company shall permit the Holder through his designated
representatives to visit and inspect any of the properties of the Company,
to examine its books and records, and to discuss its affairs, finances and
accounts with and be advised as to the same by the officers of the Company
at reasonable times and intervals, on the same basis as any other
shareholder.
The provisions of this Section shall continue for so long as the Holder
owns this Certificate.
5. Method of Exercise; Shares Issued Upon Exercise. Exercise may be made
-----------------------------------------------
of all or any part of the Warrants evidenced by this Certificate by surrendering
it, with the exercise form provided for herein duly executed by or on behalf of
the Holder, at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants being exercised.
The Warrants are exercisable at the option of the Holder in whole or in part at
any time prior to the Expiration Date. If less than all of the Warrants
evidenced by this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate (dated the date
hereof) evidencing the Warrants not so exercised. Unless the Common Stock
issuable upon exercise of the Warrants has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), the certificates evidencing the Common
Stock issuable on exercise of the Warrants will bear the following legend:
"The shares of stock of Inland Resources Inc. (the "Company") represented
by this certificate have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), or under the securities laws of any
state, and the Holder hereof cannot make any sale, assignment, or other
transfer of any shares of such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the
- 2 -
<PAGE>
applicable state securities laws, or under such other circumstances that,
in the opinion of counsel of the Holder hereof, does not require
registration under the 1933 Act and any state securities laws. Said shares
are restricted securities within the meaning of Rule 144 promulgated under
the 1933 Act and may be subject to the limitations upon resale set forth
therein or in other rules and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the shares of Common
Stock issuable upon exercise or conversion of this Warrant shall have been
beneficially held for three (3) years within the meaning of Rule 144(k) of the
1933 Act or any successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is not an affiliate
of the Company within the meaning of Rule 144, if required by Rule 144 or such
successor rule or statute, then the Company shall remove all restrictive legends
and stop transfer restrictions at the written request of the owner of the shares
of Common Stock issuable on exercise or conversion of this Warrant.
6. Investment Representation of Holder. Holder represents and warrants
-----------------------------------
that the Warrants evidenced by this Certificate, and any Warrant Shares (herein
so called) purchased upon exercise of the Warrants, have been, or will be,
acquired or purchased as an investment for Holder's own account and not with a
view toward further distribution thereof. It is expressly understood that the
Warrants cannot be transferred except pursuant to Section 9 hereof, and that the
Warrant Shares cannot be sold or transferred except pursuant to an effective
registration statement or an exemption from applicable securities laws.
7. Adjustment of Shares Purchasable. The number of shares of Common
--------------------------------
Stock purchasable hereunder and the Exercise Price per share are subject to
adjustment from time to time as specified in this Certificate.
8. Exchange for Other Denominations. This Certificate is exchangeable,
--------------------------------
on its surrender by the Holder to the Company, for new Certificates of like
tenor and date representing in the aggregate the number of Warrants and the
right to purchase the number of shares of Common Stock purchasable hereunder in
denominations designated by the Holder at the time of surrender.
9. Restrictions on Transfer. During the lifetime of Holder, this
------------------------
Certificate shall be exercisable only by the Holder in person, by attorney or by
mail, on surrender of this Certificate, properly endorsed. Neither this
Certificate nor the Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of Holder while
employed by the Company or a subsidiary, the Warrants may be exercised at any
time within one year after such death or disability by the duly appointed
personal representative of Holder, or by any person or persons who shall acquire
the Warrants directly from Holder by bequest or inheritance.
10. Adjustment of Shares. Wherever this Certificate specifies a number of
--------------------
shares of Common Stock or an Exercise Price per share, the specified number of
shares of Common Stock to be received on exercise and the Exercise Price per
share shall be changed to reflect adjustments
- 3 -
<PAGE>
(which may require that additional securities or other property be delivered on
exercise) required by this section, as follows:
(a) If a stock or property dividend is declared to the holders of
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants, there shall be added with respect to each share of
Common Stock issuable upon exercise of Warrants the amount of the dividend,
stock or property, which would have been issued to the Holder had the
Holder been the holder of record of such issuable share at the dividend
record date. Such additional stock or property resulting from such
dividend shall be delivered without additional cost upon the exercise of
Warrants. Any distribution to the holders of Common Stock of the Company
of any kind, other than a distribution of cash as a dividend out of profits
of the Company for the current year of the dividend, shall be treated as a
stock or property dividend for purposes of this Subsection 10(a). If the
Holder is entitled to receive cash upon exercise of Warrants under this
Subsection 10(a), the Holder may, at the Holder's option, elect to reduce
the Exercise Price by all or part of the cash to be received by the Holder
upon exercise under this Subsection 10(a).
(b) If an increase has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a subdivision of such shares, the number
of shares which may thereafter be purchased upon exercise of Warrants shall
be increased with respect to each share issuable upon exercise of Warrants
by the number of shares which could have been received by the Holder at the
time of such subdivision had it been the holder of record of such issuable
shares at the record and/or effective date of the subdivision. In such
event, the Exercise Price per share of Warrants shall be proportionately
reduced.
(c) If a decrease has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a reverse stock split, the number of
shares which may thereafter be purchased upon exercise of Warrants shall be
changed with respect to each share issuable upon exercise of Warrants to
the number of shares which would have been held by the Holder at the time
of said reverse stock split had the Holder been the holder of such issuable
share at the record and/or effective date of the reverse stock split. In
such event, the Exercise Price per share shall be proportionately
increased.
(d) If there is a capital reorganization, reclassification of the
capital stock of the Company, or any consolidation or merger of the Company
with any other corporation or corporations, or if there is a sale or
distribution of all or substantially all of the Company's property and
assets, the Company shall make adequate provision so that there shall
remain and be substituted under this Certificate with respect to each share
issuable upon exercise of Warrants the stock, securities and/or assets
which
- 4 -
<PAGE>
would have been issuable or payable in respect of or in exchange for such
issuable shares if the Holder had been the owner of such share on the
applicable record date. All other provisions of this Certificate shall
remain in full force and effect.
11. Notice of Adjustment. On the happening of any event requiring an
--------------------
adjustment of the Exercise Price or the shares purchasable hereunder, the
Company shall immediately give written notice to the Holder stating the adjusted
Exercise Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in reasonable
detail the method of calculation and the facts upon which the calculation is
based.
12. Notice Requirement. If at any time the Company proposes or is aware
------------------
of any of the following transactions, the Company shall give written notice to
the Holder at least 30 days prior to the proposed transaction: an anticipated
voluntary or involuntary dissolution, liquidation or winding up of the Company;
a merger or consolidation of the Company; the payment or declaration of a
dividend or distribution to shareholders of the Company; or the vote of
shareholders of the Company to amend the certificate or articles of
incorporation of the Company. Such notice shall contain: (a) the date on which
the proposed transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed transaction;
(c) a brief description of the proposed transaction; (d) a brief description of
any dividends or other distributions to be made to holders of Common Stock as a
result of the proposed transaction; (e) a brief description of any other effect
of the proposed transaction on holders of Common Stock or this Certificate; and
(f) an estimate of the fair value of any dividends or other distributions to be
made to shareholders.
13. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of any of the Warrants evidenced hereby to issue any fractional shares,
but shall make an adjustment therefore in cash on the basis of the mean between
the low bid and high asked prices on the over-the-counter market as reported by
the NASD Automated Quotation System or the closing market price on a national
securities exchange on the trading day immediately prior to exercise, whichever
is applicable, or if neither is applicable, then on the basis of the market
value of any such fractional interest as shall be reasonably determined by the
Company.
14. Notice. Any notice required or permitted by any party to this
------
Certificate shall be in writing and may be delivered personally to the party
being given notice or to the person in charge of the office of the party being
given notice or by facsimile, national overnight courier service or by mail, at
the party's address indicated below, and any notice will be effective only upon
actual receipt by the party. The addresses of the parties are as follows:
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
- 5 -
<PAGE>
The names and addresses of persons to receive notice as stated in this Section
may be changed by notice given in accordance with this Section.
15. Parties. This Certificate shall bind the respective successors and
-------
assigns of the parties.
16. Entire Agreement. This Certificate represents the entire agreement of
----------------
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous oral or written agreements or understandings. The terms of
this Certificate may be amended only by a written instrument executed by the
Company and the Holder.
WITNESS the signature of the Company's authorized representative and the
acceptance of the terms hereof by the signature of the Holder dated effective
May 22, 1996.
COMPANY:
INLAND RESOURCES INC.
By: /s/ John E. Dyer
-----------------------------------------
John E. Dyer, Vice President
HOLDER:
/s/ Kyle R. Miller
--------------------------------------------
KYLE R. MILLER
- 6 -
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase ______ shares
of the Company's Common Stock issuable upon the exercise of the within Warrants,
and encloses payment of $________________ therefor; (2) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address below; and (3) if such number of
shares is not all of the shares purchasable hereunder, that a new Certificate of
like tenor for the balance of the remaining Warrants be issued in the name of
the undersigned and delivered to the undersigned at the address below.
Date:
------------------------- --------------------------------------------
(Please sign exactly as name appears on
Warrant Certificate)
--------------------------------------------
Address
--------------------------------------------
- 7 -
<PAGE>
EXHIBIT 10.2.12
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
INLAND RESOURCES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
CERTIFICATE EVIDENCING THE NUMBER OF WARRANTS
SET FORTH IN SECTION 1
1. Basic Terms. This certifies that, for good and valuable consideration,
-----------
Kyle R. Miller (the "Holder"), is entitled, subject to the terms and conditions
of this Warrant Certificate (the "Certificate"), to purchase 70,000 shares of
the common stock, $.001 par value (the "Common Stock"), of Inland Resources Inc.
(the "Company"), subject to adjustment as provided in this Certificate, from the
Company at the Exercise Price (as defined below), on delivery of this
Certificate to the Company with the exercise form duly executed and payment of
the Exercise Price payable to the Company by cashier's check or other
immediately available funds, for all shares purchased. One Warrant (herein so
called) is required for the purchase of one share of Common Stock, subject to
adjustment as provided herein.
2. Expiration Date. The right to exercise the Warrants evidenced by this
---------------
Certificate shall expire at 12:00 a.m. PST on the fifth (5th) anniversary of the
effective date of this Certificate, provided, however, that if Holder's
employment by the Company or a subsidiary is terminated for any reason other
than death or disability then the vested Warrants evidenced by this Certificate
shall expire ninety (90) days after such termination, but if termination is as a
result of death or disability then the vested Warrants may be exercised at any
time within one year after the termination of employment for such reason (the
"Expiration Date").
3. Exercise Price. The purchase price per share of the Common Stock upon
--------------
exercise of the Warrants (the "Exercise Price") shall be equal to $10.00 per
share, which is equal to or greater than the fair market value per share on the
date hereof. The Exercise Price may be adjusted from time to time pursuant to
the terms of this Certificate.
4. Vesting of Warrants. Subject to the other terms and conditions of this
-------------------
Agreement, the Warrants granted hereby shall vest in accordance with the
following schedule: (i) fifty percent (50%) of the Warrants granted hereby shall
vest on the first anniversary of the effective date of this Certificate,
provided the Holder is employed by the Company or a subsidiary on such date; and
(ii) fifty percent (50%) of the Warrants granted hereby shall vest on the second
anniversary of the date of this Certificate, provided Holder is an employee of
the Company or a subsidiary on such date; provided, however, notwithstanding the
foregoing, the Warrants granted hereby shall vest immediately upon a "Change in
Control" of the Company or upon termination of Holder's employment by the
Company or a subsidiary without "Cause"; and, provided, further, that the non-
vested Warrants granted hereby shall be immediately forfeited upon Holder's
voluntary termination of employment (including as a result of death or
disability) or termination of Holder's employment by the Company or a subsidiary
with "Cause". For purposes of this Certificate, the term "Cause" shall have the
same meaning as in Holder's Employment Agreement with the Company, provided, if
Holder does not have an Employment Agreement or ceases to have an Employment
Agreement, then for purposes of this Certificate, the term "Cause" shall mean
and be strictly limited to: (1) conviction of
- 1 -
<PAGE>
a crime constituting a felony under state or federal law; (2) determination by
the Board of Directors that Holder has committed any material act of dishonesty
against the Company; (3) gross negligence by Holder in carrying out his duties;
(4) gross misconduct by Employee, such as intoxication on the job, use of drugs
on the job for non-medical purposes, or other misconduct which has an adverse
effect on the business of the Company; or (5) Holder acting beyond his scope of
authority granted by the Board of Directors of the Company. For purposes of
this Certificate "Change in Control" shall mean a change of stock ownership of
the Company of a nature that would be required to be reported in response to
Item 6 (e) of Schedule 14A promulgated under the Securities Exchange Act of
1934, as amended, and any successor item of a similar nature. Once a Warrant
has vested, it may be exercised at any time by the Holder, subject to the other
terms and conditions of this Certificate.
5. Company's Warranties, Representations and Covenants. The Company
---------------------------------------------------
warrants, represents and covenants to the Holder that:
(a) The Company has been duly incorporated and organized and is
validly existing as a corporation in good standing under the laws of its
state of organization.
(b) The Warrants have been duly authorized and are the validly issued,
fully paid and binding obligation of the Company. The Common Stock of the
Company issuable upon exercise of the Warrants are validly authorized and
upon payment of the Exercise Price shall be validly issued, fully paid and
nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of the Warrants shall, at
delivery, be fully paid and nonassessable, free from all taxes, liens, and
charges with respect to the purchase.
(d) The Company shall take any necessary steps to assure that the par
value per share of the Common Stock is at all times equal to or less than
the then current Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and hold available
sufficient shares of its Common Stock to satisfy the Common Stock issuable
upon exercise of this Warrant.
(f) The Company shall maintain its books and records in accordance
with generally accepted accounting principles applied on a consistent
basis.
(g) The Company shall permit the Holder through his designated
representatives to visit and inspect any of the properties of the Company,
to examine its books and records, and to discuss its affairs, finances and
accounts with and be advised as to the same by the officers of the Company
at reasonable times and intervals, on the same basis as any other
shareholder.
The provisions of this Section shall continue for so long as the Holder
owns this Certificate.
- 2 -
<PAGE>
6. Method of Exercise; Shares Issued Upon Exercise. Exercise may be made
-----------------------------------------------
of all or any part of the Warrants evidenced by this Certificate by surrendering
it, with the exercise form provided for herein duly executed by or on behalf of
the Holder, at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants being exercised.
The Warrants are exercisable at the option of the Holder in whole or in part at
any time prior to the Expiration Date. If less than all of the Warrants
evidenced by this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate (dated the date
hereof) evidencing the Warrants not so exercised. Unless the Common Stock
issuable upon exercise of the Warrants has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), the certificates evidencing the Common
Stock issuable on exercise of the Warrants will bear the following legend:
"The shares of stock of Inland Resources Inc. (the "Company") represented
by this certificate have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), or under the securities laws of any
state, and the Holder hereof cannot make any sale, assignment, or other
transfer of any shares of such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the applicable state
securities laws, or under such other circumstances that, in the opinion of
counsel of the Holder hereof, does not require registration under the 1933
Act and any state securities laws. Said shares are restricted securities
within the meaning of Rule 144 promulgated under the 1933 Act and may be
subject to the limitations upon resale set forth therein or in other rules
and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the shares of Common
Stock issuable upon exercise or conversion of this Warrant shall have been
beneficially held for three (3) years within the meaning of Rule 144(k) of the
1933 Act or any successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is not an affiliate
of the Company within the meaning of Rule 144, if required by Rule 144 or such
successor rule or statute, then the Company shall remove all restrictive legends
and stop transfer restrictions at the written request of the owner of the shares
of Common Stock issuable on exercise or conversion of this Warrant.
7. Investment Representation of Holder. Holder represents and warrants
-----------------------------------
that the Warrants evidenced by this Certificate, and any Warrant Shares (herein
so called) purchased upon exercise of the Warrants, have been, or will be,
acquired or purchased as an investment for Holder's own account and not with a
view toward further distribution thereof. It is expressly understood that the
Warrants cannot be transferred except pursuant to Section 10 hereof, and that
the Warrant Shares cannot be sold or transferred except pursuant to an effective
registration statement or an exemption from applicable securities laws.
8. Adjustment of Shares Purchasable. The number of shares of Common
--------------------------------
Stock purchasable hereunder and the Exercise Price per share are subject to
adjustment from time to time as specified in this Certificate.
9. Exchange for Other Denominations. This Certificate is exchangeable,
--------------------------------
on its surrender by the Holder to the Company, for new Certificates of like
tenor and date representing in the
- 3 -
<PAGE>
aggregate the number of Warrants and the right to purchase the number of shares
of Common Stock purchasable hereunder in denominations designated by the Holder
at the time of surrender.
10. Restrictions on Transfer. During the lifetime of Holder, this
------------------------
Certificate shall be exercisable only by the Holder in person, by attorney or by
mail, on surrender of this Certificate, properly endorsed. Neither this
Certificate nor the Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of Holder while
employed by the Company or a subsidiary, the Warrants may be exercised at any
time within one year after such death or disability by the duly appointed
personal representative of Holder, or by any person or persons who shall acquire
the Warrants directly from Holder by bequest or inheritance.
11. Adjustment of Shares. Wherever this Certificate specifies a number of
--------------------
shares of Common Stock or an Exercise Price per share, the specified number of
shares of Common Stock to be received on exercise and the Exercise Price per
share shall be changed to reflect adjustments (which may require that additional
securities or other property be delivered on exercise) required by this section,
as follows:
(a) If a stock or property dividend is declared to the holders of
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants, there shall be added with respect to each share of
Common Stock issuable upon exercise of Warrants the amount of the dividend,
stock or property, which would have been issued to the Holder had the
Holder been the holder of record of such issuable share at the dividend
record date. Such additional stock or property resulting from such
dividend shall be delivered without additional cost upon the exercise of
Warrants. Any distribution to the holders of Common Stock of the Company
of any kind, other than a distribution of cash as a dividend out of profits
of the Company for the current year of the dividend, shall be treated as a
stock or property dividend for purposes of this Subsection 11(a). If the
Holder is entitled to receive cash upon exercise of Warrants under this
Subsection 11(a), the Holder may, at the Holder's option, elect to reduce
the Exercise Price by all or part of the cash to be received by the Holder
upon exercise under this Subsection 11(a).
(b) If an increase has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a subdivision of such shares, the number
of shares which may thereafter be purchased upon exercise of Warrants shall
be increased with respect to each share issuable upon exercise of Warrants
by the number of shares which could have been received by the Holder at the
time of such subdivision had it been the holder of record of such issuable
shares at the record and/or effective date of the subdivision. In such
event, the Exercise Price per share of Warrants shall be proportionately
reduced.
(c) If a decrease has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a reverse stock split, the number of
shares which may thereafter be purchased upon exercise of Warrants shall be
changed with respect to each share issuable upon exercise of Warrants to
the number of shares which would have been
- 4 -
<PAGE>
held by the Holder at the time of said reverse stock split had the Holder
been the holder of such issuable share at the record and/or effective date
of the reverse stock split. In such event, the Exercise Price per share
shall be proportionately increased.
(d) If there is a capital reorganization, reclassification of the
capital stock of the Company, or any consolidation or merger of the Company
with any other corporation or corporations, or if there is a sale or
distribution of all or substantially all of the Company's property and
assets, the Company shall make adequate provision so that there shall
remain and be substituted under this Certificate with respect to each share
issuable upon exercise of Warrants the stock, securities and/or assets
which would have been issuable or payable in respect of or in exchange for
such issuable shares if the Holder had been the owner of such share on the
applicable record date. All other provisions of this Certificate shall
remain in full force and effect.
12. Notice of Adjustment. On the happening of any event requiring an
--------------------
adjustment of the Exercise Price or the shares purchasable hereunder, the
Company shall immediately give written notice to the Holder stating the adjusted
Exercise Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in reasonable
detail the method of calculation and the facts upon which the calculation is
based.
13. Notice Requirement. If at any time the Company proposes or is aware
------------------
of any of the following transactions, the Company shall give written notice to
the Holder at least 30 days prior to the proposed transaction: an anticipated
voluntary or involuntary dissolution, liquidation or winding up of the Company;
a merger or consolidation of the Company; the payment or declaration of a
dividend or distribution to shareholders of the Company; or the vote of
shareholders of the Company to amend the certificate or articles of
incorporation of the Company. Such notice shall contain: (a) the date on which
the proposed transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed transaction;
(c) a brief description of the proposed transaction; (d) a brief description of
any dividends or other distributions to be made to holders of Common Stock as a
result of the proposed transaction; (e) a brief description of any other effect
of the proposed transaction on holders of Common Stock or this Certificate; and
(f) an estimate of the fair value of any dividends or other distributions to be
made to shareholders.
14. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of any of the Warrants evidenced hereby to issue any fractional shares,
but shall make an adjustment therefore in cash on the basis of the mean between
the low bid and high asked prices on the over-the-counter market as reported by
the NASD Automated Quotation System or the closing market price on a national
securities exchange on the trading day immediately prior to exercise, whichever
is applicable, or if neither is applicable, then on the basis of the market
value of any such fractional interest as shall be reasonably determined by the
Company.
15. Notice. Any notice required or permitted by any party to this
------
Certificate shall be in writing and may be delivered personally to the party
being given notice or to the person in charge of the office of the party being
given notice or by facsimile, national overnight courier service or by mail, at
the party's address indicated below, and any notice will be effective only upon
actual receipt by the party. The addresses of the parties are as follows:
- 5 -
<PAGE>
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
The names and addresses of persons to receive notice as stated in this Section
may be changed by notice given in accordance with this Section.
16. Parties. This Certificate shall bind the respective successors and
-------
assigns of the parties.
17. Entire Agreement. This Certificate represents the entire agreement of
----------------
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous oral or written agreements or understandings. The terms of
this Certificate may be amended only by a written instrument executed by the
Company and the Holder.
WITNESS the signature of the Company's authorized representative and the
acceptance of the terms hereof by the signature of the Holder dated effective
January 23, 1997.
COMPANY:
INLAND RESOURCES INC.
By: /s/ John E. Dyer
-----------------------------------------
John E. Dyer, Vice President
HOLDER:
/s/ Kyle R. Miller
--------------------------------------------
KYLE R. MILLER
- 6 -
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase ______ shares
of the Company's Common Stock issuable upon the exercise of the within Warrants,
and encloses payment of $________________ therefor; (2) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address below; and (3) if such number of
shares is not all of the shares purchasable hereunder, that a new Certificate of
like tenor for the balance of the remaining Warrants be issued in the name of
the undersigned and delivered to the undersigned at the address below.
Date:
----------------------- --------------------------------------------
(Please sign exactly as name appears on
Warrant Certificate)
--------------------------------------------
Address
--------------------------------------------
- 7 -
<PAGE>
EXHIBIT 10.9.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into by and between INLAND RESOURCES
INC. (hereinafter referred to as "Employer") and BILL I. PENNINGTON (hereinafter
referred to as "Employee").
WHEREAS, Employer desires to employ Employee as its Vice President and
Chief Financial Officer and Employee desires to accept such employment.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Employer and Employee agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee to serve as Vice
President and Chief Financial Officer of Employer.
2. DUTIES. During his employment, Employee shall devote all of his
working time, energies and skills to the management of Employer's business.
Employee agrees to serve Employer diligently and to the best of his ability.
Employee shall render services consistent with those of a person in his position
and shall perform all duties incident to such office and all such further
similar duties that may, from time to time, be assigned to him by Employer.
Employee's duties include finding further business opportunities for Employer
and Employee agrees to bring to Employer for acceptance or rejection all
business opportunities located by or made available to Employee.
3. COMPENSATION. Employee's compensation for services performed under
this Agreement shall be as follows:
(a) Base Salary. Employer shall pay Employee a base salary ("Base
-----------
Salary") of One Hundred Thirty Seven Thousand Five Hundred and No/100
Dollars ($137,500.00) per year. In addition, the Compensation Committee of
the Board of Directors of Employer (the "Committee") shall, in good faith,
consider granting increases in such salary based upon such factors as
Employee's performance and the growth and/or profitability of Employer, but
it shall have no obligation to grant any such increases in compensation.
Such Base Salary shall be payable in equal semi-monthly installments on the
fifteenth day and the last working day of the month, or at such other times
and in such installments as may be agreed upon between Employer and
Employee. All payments shall be subject to the deduction of payroll taxes
and similar assessments as required by law.
- 1 -
<PAGE>
(b) Bonus. In addition to the Base Salary, Employee shall be eligible
-----
to receive bonus compensation in such amounts and at such times as the
Committee shall, from time to time, determine.
4. EXPENSES AND BENEFITS. Employee is authorized to incur reasonable
expenses in connection with the business of Employer, including expenses for
entertainment, travel and similar matters. Employer will reimburse Employee for
such expenses upon presentation by Employee of such accounts and records as
Employer shall, from time to time, require. Employer also agrees to provide
Employee with the following benefits:
(a) Employee Benefit Plans. Employee shall be entitled to participate
----------------------
in employee benefit plans or programs of Employer, if any, to the extent
that his position, tenure, salary, age, health and other qualifications
make him eligible to participate, subject to the rules and regulations
applicable thereto. Such additional benefits shall include, subject to the
approval of the Committee, full medical, dental and disability income
insurance.
(b) Other. Such items and benefits as Employer shall, from time to
-----
time, consider necessary or appropriate to assist Employee in the
performance of his duties.
(c) Vacations. Employee shall be entitled (in addition to the usual
---------
public holidays) to a paid vacation for a period in each calendar year not
exceeding three (3) weeks, to be taken at such times as may be approved by
Employer.
5. TERM. The term of this Agreement shall be for one (1) year, beginning
from the effective date hereof, and shall be automatically renewed for
successive one (1) year terms. In addition, this Agreement shall terminate as
provided for in Section 7 or upon the death of Employee.
6. DISABILITY. In the event that Employee becomes Permanently Disabled
(as hereafter defined) during the term of this Agreement and while engaged in
the scope of his employment by Employer, Employee shall continue in the employ
of Employer but his compensation hereunder shall be reduced to one-half ( 1/2)
of the Base Salary then in effect, as set forth in Section 3(a) hereof,
commencing upon the determination of Employee's Permanent Disability and
continuing thereafter until the first to occur of (a) twelve (12) months or (b)
the death of Employee or (c) the expiration of the term of this Agreement; and
during such period of time, Employee shall not be entitled to payment of
expenses or benefits specified in Section 4 hereof (except for reimbursement of
expenses incurred by Employee prior to becoming Permanently Disabled), except
that Employer shall continue to provide Employee with the insurance benefits
specified in Section 4(a) hereof. In addition, any compensation payable to
Employee by Employer shall be reduced by any amount which Employee is eligible
to receive from workers compensation, social security or disability insurance
provided by Employer. If Employee becomes Permanently Disabled while not
engaged in the scope of his employment by Employer, such disability may be cause
for termination for "Cause" under Section 7 hereof.
- 2 -
<PAGE>
(a) Definition of Disability. For purposes of this Agreement, the
------------------------
terms "Permanent Disability" or "Permanently Disabled" shall mean three (3)
months of substantially continuous disability. Disability shall be deemed
"substantially continuous" if, as a practical matter, Employee, by reason
of his mental or physical health, is unable to sustain reasonably long
periods of substantial performance of his duties. Frequent long illnesses,
though different from the preceding illness and though separated by
relatively short periods of performance, shall be deemed to be
"substantially continuous". Disability shall be determined in good faith
by the Board of Directors whose decision shall be final and binding upon
Employee. Employee hereby consents to medical examinations by such
physicians and medical consultants as Employer shall, from time to time,
require.
7. TERMINATION BY EMPLOYER. Employer shall have the right to terminate
Employee's employment as hereinafter provided.
(a) Termination by Employer for Cause. The Board of Directors shall
---------------------------------
have the right to terminate Employee's employment under this Agreement for
Cause, in which event no compensation shall be paid or other benefits
furnished to Employee after termination for Cause. Termination for Cause
shall be effective immediately upon notice sent or given to Employee.
(i) Definition of Cause. For purposes of this Agreement, the
-------------------
term "Cause" shall mean and be strictly limited to: (1) conviction of
a crime constituting a felony under state or federal law; (2)
determination by the Board of Directors that Employee has committed
any material act of dishonesty against Employer; (3) gross negligence
by Employee in carrying out his duties; (4) material breach of this
Agreement by Employee; (5) gross misconduct by Employee, such as
intoxication on the job, use of drugs on the job for non-medical
purposes or other misconduct which has a substantial adverse effect on
the business of Employer; or (6) Employee becoming Permanently
Disabled while not engaged in the scope of his employment by Employer.
(b) Termination by Employer without Cause. The Board of Directors
-------------------------------------
shall have the right to terminate Employee's employment under this
Agreement without Cause at any time, by giving written notice of
termination to Employee. In such event, Employer will continue to pay
Employee the full Base Salary for twelve (12) months immediately preceding
the date of such notice together with an amount equal to any bonus paid to
Employee during such twelve (12) months.
8. NON-COMPETITION AND CONFIDENTIALITY.
(a) Non-competition. Employee recognizes and understands that in
---------------
performing the responsibilities of his employment, he will occupy a
position of fiduciary trust and confidence, pursuant to which he will
develop and acquire experience and knowledge with respect to Employer's
business. It is the expressed
- 3 -
<PAGE>
intent and agreement of Employee and Employer that such knowledge and
experience shall be used exclusively in the furtherance of the interests of
Employer and not in any manner which would be detrimental to Employer's
interests. Employee further understands and agrees that Employer conducts
its business within a specialized market segment in its geographic region,
and that it would be detrimental to the interests of Employer if Employee
used the knowledge and experience which he currently possesses or which he
acquires pursuant to his employment hereunder for the purpose of directly
or indirectly competing with Employer, or for the purpose of aiding other
persons or entities in so competing with Employer, anywhere in such
region. Employee therefore agrees that so long as he is employed by
Employer, unless Employee first secures the written consent of Employer,
Employee will not directly or indirectly invest, engage or participate in
or become employed by any entity in direct or indirect competition with
Employer's business. Employee further agrees upon termination of
Employee's employment either (i) by Employer with or without cause or (ii)
by Employee, unless Employee first secures the written consent of Employer,
Employee will not for a period of one year after such termination directly
or indirectly invest, engage or participate in or become employed by any
entity in direct or indirect competition with Employer in any mine or oil
or gas property located anywhere within a 100 mile radius of any mine or
oil or gas property owned or operated (wholly or partially) by Employer at
the time of termination of Employee's employment hereunder. This non-
competition provision is not to be construed to prohibit Employee from
being employed in the mining or oil or gas industry, but rather to permit
him to be so employed so long as such employment does not involve
Employee's direct or indirect participation in a property within such 100
mile radius. In the event that the provisions of this Section 8 should
ever be deemed to exceed the time or geographic limitations permitted by
applicable laws, then such provisions shall be reformed to the maximum time
or geographic limitations permitted by applicable laws.
(b) Remedies. Employee acknowledges that the restrictions contained
--------
in Section 8(a), in view of the nature of the business in which Employer is
engaged, are reasonable and necessary to protect the legitimate interests
of Employer. Employee understands that the remedies at law for his
violations of any of the covenants or provisions of Section 8(a) will be
inadequate, that such violation will cause irreparable injury within a
short period of time, and that Employer shall be entitled to preliminary
injunctive relief and other injunctive relief against such violation. Such
injunctive relief shall be in addition to, and in no way in limitation of,
any and all other remedies Employer shall have in law and equity for the
enforcement of those covenants and provisions.
9. GENERAL PROVISIONS.
(a) Notices. Any notices to be given hereunder by either party to the
-------
other may be effected by personal delivery, in writing or by mail,
registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be
- 4 -
<PAGE>
addressed to the parties at the addresses set forth below, but each party
may change his or its address by written notice in accordance with this
Section 9(a). Notices delivered personally shall be deemed communicated as
of the actual receipt; mailed notices shall be deemed communicated as of
three (3) days after mailing.
If to Employee:
--------------
Inland Resources Inc.
475 17th Street, Suite 1500
Denver, Colorado 80202
If to Employer:
--------------
Board of Directors
Inland Resources Inc.
475 17th Street, Suite 1500
Denver, Colorado 80202
(b) Partial Invalidity. If any provision in this Agreement is held by
------------------
a court of competent jurisdiction to be invalid, void, or unenforceable,
the remaining provisions shall, nevertheless, continue in full force
without being impaired or invalidated in any way.
(c) Law Governing Agreement. This Agreement shall be governed by and
-----------------------
construed in accordance with the laws of the State of Washington.
(d) Attorneys' Fees and Costs. If any action at law or in equity is
-------------------------
necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which he or it
may be entitled.
(e) Assignment. This Agreement shall inure to the benefit of and
----------
bind the parties hereto and their respective legal representatives,
successors and assigns.
(f) Entire Agreement. This Agreement supersedes any and all other
----------------
agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by Employer and contain all of the
covenants and agreements between the parties with respect to such
employment. Each party to this Agreement acknowledges that no
representations, inducements, or agreements, oral or otherwise, have been
made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and no other agreement, statement or promise not contained
in this Agreement shall be valid or binding. Any modification of this
Agreement will be effected only if it is in writing signed by the party to
be charged.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective the 1st day of June, 1996.
EMPLOYER:
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
----------------------------------------
Kyle R. Miller,
President and Chief Executive
Officer
EMPLOYEE:
/s/ Bill I. Pennington
--------------------------------------------
Bill I. Pennington
- 6 -
<PAGE>
EXHIBIT 10.29.7
AMENDMENT
Amendment No. 1 dated as of January 27, 1997 (this "Amendment") to that
certain Registration Rights Agreement dated as of June 12, 1996 (the "Original
Registration Rights Agreement") by and between Inland Resources Inc. (the
"Issuer"), Smith Management Company, Inc. ("Smith Management"), Randall D.
Smith, Jeffrey A. Smith and John W. Adams (Messrs. Smith, Smith and Adams are
collectively referred to herein as the "Farmout Stockholders") (the Original
Registration Rights Agreement, as amended by this Amendment, is referred to
herein as the "Registration Rights Agreement"). Capitalized terms used in this
Amendment without definition shall have the meanings ascribed to them in the
Original Registration Rights Agreement.
WHEREAS, Smith Management has previously assigned its rights under the
Original Registration Rights Agreement to Pengo Securities Corp. ("Pengo"), the
Issuer issued 950,000 shares of Series B Preferred Stock to Pengo and the Issuer
desires to evidence its consent to such assignment by its execution and delivery
of this Amendment;
WHEREAS, Lake Trust has a credit facility with Energy Management
Corporation ("EMC") and EMC in turn has a credit facility with First Union
National Bank (the "Bank");
WHEREAS, the parties wish to (i) correct an error contained in the Original
Registration Rights Agreement and (ii) have the Issuer consent to (x) the
assignment of the Farmout Stockholders' Rights under the Registration Rights
Agreement to Lake Trust, (y) the assignment of Lake Trust's Rights thereunder to
EMC and (z) the assignment of EMC's rights thereunder to the Bank.
NOW THEREFORE, the parties agree as follows:
1. Section 1 of the Original Registration Rights Agreement is amended by
deleting the following language at the beginning of Section 1:
"The Issuer will, as soon as possible following a written request by
Smith Management with respect to the Common Shares, or the Farmout
Stockholders with respect to the Underlying Common Shares,"
and replacing the deleted language with following:
"The Issuer will, as soon as possible following a written request by
the Farmout Stockholders with respect to the Common Shares, or Smith
Management with respect to the Underlying Common Shares,".
2. The Issuer hereby consents to (x) the assignment of the Farmout
Shareholders' Rights under the Registration Rights Agreement to Lake Trust,
(y) the assignment of Lake Trust's Rights thereunder to EMC and (z) the
assignment of EMC's rights thereunder to the Bank.
1
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed as of January 27,
1997.
INLAND RESOURCES, INC.
By: /s/ Bill Pennington
------------------------------------
Bill Pennington
Vice-President
PENGO SECURITIES CORP.
By: /s/ David A. Persing
------------------------------------
David A. Persing
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
2
<PAGE>
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into by and between INLAND RESOURCES
INC. (hereinafter referred to as "Employer") and JOHN E. DYER (hereinafter
referred to as "Employee").
WHEREAS, Employer desires to employ Employee as its Vice President and
Chief Operating Officer and Employee desires to accept such employment.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Employer and Employee agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee to serve as Vice
President and Chief Operating Officer of Employer.
2. DUTIES. During his employment, Employee shall devote all of his
working time, energies and skills to the management of Employer's business.
Employee agrees to serve Employer diligently and to the best of his ability.
Employee shall render services consistent with those of a person in his position
and shall perform all duties incident to such office and all such further
similar duties that may, from time to time, be assigned to him by Employer.
Employee's duties include finding further business opportunities for Employer
and Employee agrees to bring to Employer for acceptance or rejection all
business opportunities located by or made available to Employee.
3. COMPENSATION. Employee's compensation for services performed under
this Agreement shall be as follows:
(a) Base Salary. Employer shall pay Employee a base salary ("Base
-----------
Salary") of One Hundred Twenty Thousand and No/100 Dollars ($120,000.00)
per year. In addition, the Compensation Committee of the Board of
Directors of Employer (the "Committee") shall, in good faith, consider
granting increases in such salary based upon such factors as Employee's
performance and the growth and/or profitability of Employer, but it shall
have no obligation to grant any such increases in compensation. Such Base
Salary shall be payable in equal semi-monthly installments on the fifteenth
day and the last working day of the month, or at such other times and in
such installments as may be agreed upon between Employer and Employee. All
payments shall be subject to the deduction of payroll taxes and similar
assessments as required by law.
- 1 -
<PAGE>
(b) Bonus. In addition to the Base Salary, Employee shall be
-----
eligible to receive bonus compensation in such amounts and at such times as
the Committee shall, from time to time, determine.
4. EXPENSES AND BENEFITS. Employee is authorized to incur reasonable
expenses in connection with the business of Employer, including expenses for
entertainment, travel and similar matters. Employer will reimburse Employee for
such expenses upon presentation by Employee of such accounts and records as
Employer shall, from time to time, require. Employer also agrees to provide
Employee with the following benefits:
(a) Employee Benefit Plans. Employee shall be entitled to
----------------------
participate in employee benefit plans or programs of Employer, if any, to
the extent that his position, tenure, salary, age, health and other
qualifications make him eligible to participate, subject to the rules and
regulations applicable thereto. Such additional benefits shall include,
subject to the approval of the Committee, full medical, dental and
disability income insurance.
(b) Other. Such items and benefits as Employer shall, from time to
-----
time, consider necessary or appropriate to assist Employee in the
performance of his duties.
(c) Vacations. Employee shall be entitled (in addition to the usual
---------
public holidays) to a paid vacation for a period in each calendar year not
exceeding three (3) weeks, to be taken at such times as may be approved by
Employer.
5. TERM. The term of this Agreement shall be for one (1) year, beginning
from the effective date hereof, and shall be automatically renewed for
successive one (1) year terms. In addition, this Agreement shall terminate as
provided for in Section 7 or upon the death of Employee.
6. DISABILITY. In the event that Employee becomes Permanently Disabled
(as hereafter defined) during the term of this Agreement and while engaged in
the scope of his employment by Employer, Employee shall continue in the employ
of Employer but his compensation hereunder shall be reduced to one-half ( 1/2)
of the Base Salary then in effect, as set forth in Section 3(a) hereof,
commencing upon the determination of Employee's Permanent Disability and
continuing thereafter until the first to occur of (a) twelve (12) months or (b)
the death of Employee or (c) the expiration of the term of this Agreement; and
during such period of time, Employee shall not be entitled to payment of
expenses or benefits specified in Section 4 hereof (except for reimbursement of
expenses incurred by Employee prior to becoming Permanently Disabled), except
that Employer shall continue to provide Employee with the insurance benefits
specified in Section 4(a) hereof. In addition, any compensation payable to
Employee by Employer shall be reduced by any amount which Employee is eligible
to receive from workers compensation, social security or disability insurance
provided by Employer. If Employee becomes Permanently Disabled while not
engaged in the scope of his employment by Employer, such disability may be cause
for termination for "Cause" under Section 7 hereof.
- 2 -
<PAGE>
(a) Definition of Disability. For purposes of this Agreement, the
------------------------
terms "Permanent Disability" or "Permanently Disabled" shall mean three (3)
months of substantially continuous disability. Disability shall be deemed
"substantially continuous" if, as a practical matter, Employee, by reason
of his mental or physical health, is unable to sustain reasonably long
periods of substantial performance of his duties. Frequent long illnesses,
though different from the preceding illness and though separated by
relatively short periods of performance, shall be deemed to be
"substantially continuous". Disability shall be determined in good faith by
the Board of Directors whose decision shall be final and binding upon
Employee. Employee hereby consents to medical examinations by such
physicians and medical consultants as Employer shall, from time to time,
require.
7. TERMINATION BY EMPLOYER. Employer shall have the right to terminate
Employee's employment as hereinafter provided.
(a) Termination by Employer for Cause. The Board of Directors shall
---------------------------------
have the right to terminate Employee's employment under this Agreement for
Cause, in which event no compensation shall be paid or other benefits
furnished to Employee after termination for Cause. Termination for Cause
shall be effective immediately upon notice sent or given to Employee.
(i) Definition of Cause. For purposes of this Agreement, the
-------------------
term "Cause" shall mean and be strictly limited to: (1) conviction of
a crime constituting a felony under state or federal law; (2)
determination by the Board of Directors that Employee has committed
any material act of dishonesty against Employer; (3) gross negligence
by Employee in carrying out his duties; (4) material breach of this
Agreement by Employee; (5) gross misconduct by Employee, such as
intoxication on the job, use of drugs on the job for non-medical
purposes or other misconduct which has a substantial adverse effect on
the business of Employer; or (6) Employee becoming Permanently
Disabled while not engaged in the scope of his employment by Employer.
(b) Termination by Employer without Cause. The Board of Directors
-------------------------------------
shall have the right to terminate Employee's employment under this
Agreement without Cause at any time, by giving written notice of
termination to Employee. In such event, Employer will continue to pay
Employee the full Base Salary for twelve (12) months immediately preceding
the date of such notice together with an amount equal to any bonus paid to
Employee during such twelve (12) months.
8. NON-COMPETITION AND CONFIDENTIALITY.
(a) Non-competition. Employee recognizes and understands that in
---------------
performing the responsibilities of his employment, he will occupy a
position of fiduciary trust and confidence, pursuant to which he will
develop and acquire experience and knowledge with respect to Employer's
business. It is the expressed
- 3 -
<PAGE>
intent and agreement of Employee and Employer that such knowledge and
experience shall be used exclusively in the furtherance of the interests of
Employer and not in any manner which would be detrimental to Employer's
interests. Employee further understands and agrees that Employer conducts
its business within a specialized market segment in its geographic region,
and that it would be detrimental to the interests of Employer if Employee
used the knowledge and experience which he currently possesses or which he
acquires pursuant to his employment hereunder for the purpose of directly
or indirectly competing with Employer, or for the purpose of aiding other
persons or entities in so competing with Employer, anywhere in such region.
Employee therefore agrees that so long as he is employed by Employer,
unless Employee first secures the written consent of Employer, Employee
will not directly or indirectly invest, engage or participate in or become
employed by any entity in direct or indirect competition with Employer's
business. Employee further agrees upon termination of Employee's employment
either (i) by Employer with or without cause or (ii) by Employee, unless
Employee first secures the written consent of Employer, Employee will not
for a period of one year after such termination directly or indirectly
invest, engage or participate in or become employed by any entity in direct
or indirect competition with Employer in any mine or oil or gas property
located anywhere within a 100 mile radius of any mine or oil or gas
property owned or operated (wholly or partially) by Employer at the time of
termination of Employee's employment hereunder. This non-competition
provision is not to be construed to prohibit Employee from being employed
in the mining or oil or gas industry, but rather to permit him to be so
employed so long as such employment does not involve Employee's direct or
indirect participation in a property within such 100 mile radius. In the
event that the provisions of this Section 8 should ever be deemed to exceed
the time or geographic limitations permitted by applicable laws, then such
provisions shall be reformed to the maximum time or geographic limitations
permitted by applicable laws.
(b) Remedies. Employee acknowledges that the restrictions contained
--------
in Section 8(a), in view of the nature of the business in which Employer is
engaged, are reasonable and necessary to protect the legitimate interests
of Employer. Employee understands that the remedies at law for his
violations of any of the covenants or provisions of Section 8(a) will be
inadequate, that such violation will cause irreparable injury within a
short period of time, and that Employer shall be entitled to preliminary
injunctive relief and other injunctive relief against such violation. Such
injunctive relief shall be in addition to, and in no way in limitation of,
any and all other remedies Employer shall have in law and equity for the
enforcement of those covenants and provisions.
9. GENERAL PROVISIONS.
(a) Notices. Any notices to be given hereunder by either party to
-------
the other may be effected by personal delivery, in writing or by mail,
registered or certified, postage prepaid with return receipt requested.
Mailed notices shall be
- 4 -
<PAGE>
addressed to the parties at the addresses set forth below, but each party
may change his or its address by written notice in accordance with this
Section 9(a). Notices delivered personally shall be deemed communicated as
of the actual receipt; mailed notices shall be deemed communicated as of
three (3) days after mailing.
If to Employee:
--------------
Inland Resources Inc.
475 17th Street, Suite 1500
Denver, Colorado 80202
If to Employer:
---------------
Board of Directors
Inland Resources Inc.
475 17th Street, Suite 1500
Denver, Colorado 80202
(b) Partial Invalidity. If any provision in this Agreement is held
------------------
by a court of competent jurisdiction to be invalid, void, or unenforceable,
the remaining provisions shall, nevertheless, continue in full force
without being impaired or invalidated in any way.
(c) Law Governing Agreement. This Agreement shall be governed by and
-----------------------
construed in accordance with the laws of the State of Washington.
(d) Attorneys' Fees and Costs. If any action at law or in equity is
-------------------------
necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which he or it
may be entitled.
(e) Assignment. This Agreement shall inure to the benefit of and
----------
bind the parties hereto and their respective legal representatives,
successors and assigns.
(f) Entire Agreement. This Agreement supersedes any and all other
----------------
agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by Employer and contain all of the
covenants and agreements between the parties with respect to such
employment. Each party to this Agreement acknowledges that no
representations, inducements, or agreements, oral or otherwise, have been
made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and no other agreement, statement or promise not contained
in this Agreement shall be valid or binding. Any modification of this
Agreement will be effected only if it is in writing signed by the party to
be charged.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective the 1st day of June, 1996.
EMPLOYER:
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
--------------------------------
Kyle R. Miller, President
and Chief Executive Officer
EMPLOYEE:
/s/ John E. Dyer
----------------------------------------
JOHN E. DYER
- 6 -
<PAGE>
EXHIBIT 10.35.1
AMENDMENT TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is entered into by and
between Inland Resources Inc. ("Employer") and John E. Dyer ("Employee") and
amends that certain Employment Agreement between Employer and Employee dated
effective June 1, 1996.
Section 3(a) of the Employment Agreement is hereby amended to provide that
the "Base Salary" shall be One Hundred Thirty-Seven Thousand Five Hundred and
No/100 Dollars ($137,500.00) per year, effective as of January 1, 1997.
IN WITNESS WHEREOF the parties have executed this Amendment to be effective
the first day of January, 1997.
EMPLOYER:
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
-------------------------------------
Kyle R. Miller, President and
Chief Executive Officer
EMPLOYEE:
/s/ John E. Dyer
----------------------------------------
JOHN E. DYER
<PAGE>
EXHIBIT 10.37
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
INLAND RESOURCES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
CERTIFICATE EVIDENCING THE NUMBER OF WARRANTS
SET FORTH IN SECTION 1
1. Basic Terms. This certifies that, for good and valuable consideration,
-----------
John E. Dyer (the "Holder"), is entitled, subject to the terms and conditions of
this Warrant Certificate (the "Certificate"), to purchase 50,000 (post 1-for-10
reverse stock split) shares of the common stock, $.001 par value (the "Common
Stock"), of Inland Resources Inc. (the "Company"), subject to adjustment as
provided in this Certificate, from the Company at the Exercise Price (as defined
below), on delivery of this Certificate to the Company with the exercise form
duly executed and payment of the Exercise Price payable to the Company by
cashier's check or other immediately available funds, for all shares purchased.
One Warrant (herein so called) is required for the purchase of one share of
Common Stock, subject to adjustment as provided herein.
2. Expiration Date. The right to exercise the Warrants evidenced by this
---------------
Certificate shall expire at 12:00 a.m. PST on the tenth (10th) anniversary of
the effective date of this Certificate, provided, however, that if Holder's
employment by the Company as an executive officer is terminated for any reason
other than death or disability then the Warrants evidenced by this Certificate
shall expire ninety (90) days after such termination, but if termination is as a
result of death or disability then the Warrants may be exercised at any time
within one year after the termination of employment for such reason (the
"Expiration Date").
3. Exercise Price. The purchase price per share of the Common Stock upon
--------------
exercise of the Warrants (the "Exercise Price") shall be equal to $6.27 (post 1-
for-10 reverse stock split) per share, which is equal to or greater than the
fair market value per share on the date hereof. The Exercise Price may be
adjusted from time to time pursuant to the terms of this Certificate.
4. Company's Warranties, Representations and Covenants. The Company
---------------------------------------------------
warrants, represents and covenants to the Holder that:
(a) The Company has been duly incorporated and organized and is
validly existing as a corporation in good standing under the laws of its
state of organization.
(b) The Warrants have been duly authorized and are the validly issued,
fully paid and binding obligation of the Company. The Common Stock of the
Company issuable upon exercise of the Warrants are validly authorized and
upon
-1-
<PAGE>
payment of the Exercise Price shall be validly issued, fully paid and
nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of the Warrants shall, at
delivery, be fully paid and nonassessable, free from all taxes, liens, and
charges with respect to the purchase.
(d) The Company shall take any necessary steps to assure that the par
value per share of the Common Stock is at all times equal to or less than
the then current Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and hold available
sufficient shares of its Common Stock to satisfy the Common Stock issuable
upon exercise of this Warrant.
(f) The Company shall maintain its books and records in accordance
with generally accepted accounting principles applied on a consistent
basis.
(g) The Company shall permit the Holder through his designated
representatives to visit and inspect any of the properties of the Company,
to examine its books and records, and to discuss its affairs, finances and
accounts with and be advised as to the same by the officers of the Company
at reasonable times and intervals, on the same basis as any other
shareholder.
The provisions of this Section shall continue for so long as the Holder
owns this Certificate.
5. Method of Exercise; Shares Issued Upon Exercise. Exercise may be made
-----------------------------------------------
of all or any part of the Warrants evidenced by this Certificate by surrendering
it, with the exercise form provided for herein duly executed by or on behalf of
the Holder, at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants being exercised.
The Warrants are exercisable at the option of the Holder in whole or in part at
any time prior to the Expiration Date. If less than all of the Warrants
evidenced by this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate (dated the date
hereof) evidencing the Warrants not so exercised. Unless the Common Stock
issuable upon exercise of the Warrants has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), the certificates evidencing the Common
Stock issuable on exercise of the Warrants will bear the following legend:
"The shares of stock of Inland Resources Inc. (the "Company") represented
by this certificate have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), or under the securities laws of any
state, and the Holder hereof cannot make any sale, assignment, or other
transfer of any shares of such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the
-2-
<PAGE>
applicable state securities laws, or under such other circumstances that,
in the opinion of counsel of the Holder hereof, does not require
registration under the 1933 Act and any state securities laws. Said shares
are restricted securities within the meaning of Rule 144 promulgated under
the 1933 Act and may be subject to the limitations upon resale set forth
therein or in other rules and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the shares of Common
Stock issuable upon exercise or conversion of this Warrant shall have been
beneficially held for three (3) years within the meaning of Rule 144(k) of the
1933 Act or any successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is not an affiliate
of the Company within the meaning of Rule 144, if required by Rule 144 or such
successor rule or statute, then the Company shall remove all restrictive legends
and stop transfer restrictions at the written request of the owner of the shares
of Common Stock issuable on exercise or conversion of this Warrant.
6. Investment Representation of Holder. Holder represents and warrants
-----------------------------------
that the Warrants evidenced by this Certificate, and any Warrant Shares (herein
so called) purchased upon exercise of the Warrants, have been, or will be,
acquired or purchased as an investment for Holder's own account and not with a
view toward further distribution thereof. It is expressly understood that the
Warrants cannot be transferred except pursuant to Section 9 hereof, and that the
Warrant Shares cannot be sold or transferred except pursuant to an effective
registration statement or an exemption from applicable securities laws.
7. Adjustment of Shares Purchasable. The number of shares of Common
--------------------------------
Stock purchasable hereunder and the Exercise Price per share are subject to
adjustment from time to time as specified in this Certificate.
8. Exchange for Other Denominations. This Certificate is exchangeable,
--------------------------------
on its surrender by the Holder to the Company, for new Certificates of like
tenor and date representing in the aggregate the number of Warrants and the
right to purchase the number of shares of Common Stock purchasable hereunder in
denominations designated by the Holder at the time of surrender.
9. Restrictions on Transfer. During the lifetime of Holder, this
------------------------
Certificate shall be exercisable only by the Holder in person, by attorney or by
mail, on surrender of this Certificate, properly endorsed. Neither this
Certificate nor the Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of Holder while
employed by the Company or a subsidiary, the Warrants may be exercised at any
time within one year after such death or disability by the duly appointed
personal representative of Holder, or by any person or persons who shall acquire
the Warrants directly from Holder by bequest or inheritance.
10. Adjustment of Shares. Wherever this Certificate specifies a number of
--------------------
shares of Common Stock or an Exercise Price per share, the specified number of
shares of Common Stock to be received on exercise and the Exercise Price per
share shall be changed to reflect adjustments
-3-
<PAGE>
(which may require that additional securities or other property be delivered on
exercise) required by this section, as follows:
(a) If a stock or property dividend is declared to the holders of
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants, there shall be added with respect to each share of
Common Stock issuable upon exercise of Warrants the amount of the dividend,
stock or property, which would have been issued to the Holder had the
Holder been the holder of record of such issuable share at the dividend
record date. Such additional stock or property resulting from such
dividend shall be delivered without additional cost upon the exercise of
Warrants. Any distribution to the holders of Common Stock of the Company
of any kind, other than a distribution of cash as a dividend out of profits
of the Company for the current year of the dividend, shall be treated as a
stock or property dividend for purposes of this Subsection 10(a). If the
Holder is entitled to receive cash upon exercise of Warrants under this
Subsection 10(a), the Holder may, at the Holder's option, elect to reduce
the Exercise Price by all or part of the cash to be received by the Holder
upon exercise under this Subsection 10(a).
(b) If an increase has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a subdivision of such shares, the number
of shares which may thereafter be purchased upon exercise of Warrants shall
be increased with respect to each share issuable upon exercise of Warrants
by the number of shares which could have been received by the Holder at the
time of such subdivision had it been the holder of record of such issuable
shares at the record and/or effective date of the subdivision. In such
event, the Exercise Price per share of Warrants shall be proportionately
reduced.
(c) If a decrease has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a reverse stock split, the number of
shares which may thereafter be purchased upon exercise of Warrants shall be
changed with respect to each share issuable upon exercise of Warrants to
the number of shares which would have been held by the Holder at the time
of said reverse stock split had the Holder been the holder of such issuable
share at the record and/or effective date of the reverse stock split. In
such event, the Exercise Price per share shall be proportionately
increased.
(d) If there is a capital reorganization, reclassification of the
capital stock of the Company, or any consolidation or merger of the Company
with any other corporation or corporations, or if there is a sale or
distribution of all or substantially all of the Company's property and
assets, the Company shall make adequate provision so that there shall
remain and be substituted under this Certificate with respect to each share
issuable upon exercise of Warrants the stock, securities and/or assets
which
-4-
<PAGE>
would have been issuable or payable in respect of or in exchange for such
issuable shares if the Holder had been the owner of such share on the
applicable record date. All other provisions of this Certificate shall
remain in full force and effect.
11. Notice of Adjustment. On the happening of any event requiring an
--------------------
adjustment of the Exercise Price or the shares purchasable hereunder, the
Company shall immediately give written notice to the Holder stating the adjusted
Exercise Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in reasonable
detail the method of calculation and the facts upon which the calculation is
based.
12. Notice Requirement. If at any time the Company proposes or is aware
------------------
of any of the following transactions, the Company shall give written notice to
the Holder at least 30 days prior to the proposed transaction: an anticipated
voluntary or involuntary dissolution, liquidation or winding up of the Company;
a merger or consolidation of the Company; the payment or declaration of a
dividend or distribution to shareholders of the Company; or the vote of
shareholders of the Company to amend the certificate or articles of
incorporation of the Company. Such notice shall contain: (a) the date on which
the proposed transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed transaction;
(c) a brief description of the proposed transaction; (d) a brief description of
any dividends or other distributions to be made to holders of Common Stock as a
result of the proposed transaction; (e) a brief description of any other effect
of the proposed transaction on holders of Common Stock or this Certificate; and
(f) an estimate of the fair value of any dividends or other distributions to be
made to shareholders.
13. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of any of the Warrants evidenced hereby to issue any fractional shares,
but shall make an adjustment therefore in cash on the basis of the mean between
the low bid and high asked prices on the over-the-counter market as reported by
the NASD Automated Quotation System or the closing market price on a national
securities exchange on the trading day immediately prior to exercise, whichever
is applicable, or if neither is applicable, then on the basis of the market
value of any such fractional interest as shall be reasonably determined by the
Company.
14. Notice. Any notice required or permitted by any party to this
------
Certificate shall be in writing and may be delivered personally to the party
being given notice or to the person in charge of the office of the party being
given notice or by facsimile, national overnight courier service or by mail, at
the party's address indicated below, and any notice will be effective only upon
actual receipt by the party. The addresses of the parties are as follows:
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
-5-
<PAGE>
The names and addresses of persons to receive notice as stated in this Section
may be changed by notice given in accordance with this Section.
15. Parties. This Certificate shall bind the respective successors and
-------
assigns of the parties.
16. Entire Agreement. This Certificate represents the entire agreement of
----------------
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous oral or written agreements or understandings. The terms of
this Certificate may be amended only by a written instrument executed by the
Company and the Holder.
WITNESS the signature of the Company's authorized representative and the
acceptance of the terms hereof by the signature of the Holder dated effective
May 22, 1996.
COMPANY:
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
----------------------------------------
Kyle R. Miller, President
HOLDER:
/s/ John E. Dyer
-------------------------------------------
JOHN E. DYER
-6-
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase ______ shares
of the Company's Common Stock issuable upon the exercise of the within Warrants,
and encloses payment of $________________ therefor; (2) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address below; and (3) if such number of
shares is not all of the shares purchasable hereunder, that a new Certificate of
like tenor for the balance of the remaining Warrants be issued in the name of
the undersigned and delivered to the undersigned at the address below.
Date:
------------------ ------------------------------------------
(Please sign exactly as name appears on
Warrant Certificate)
--------------------------------------------
Address
--------------------------------------------
-7-
<PAGE>
EXHIBIT 10.37.1
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
INLAND RESOURCES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
CERTIFICATE EVIDENCING THE NUMBER OF WARRANTS
SET FORTH IN SECTION 1
1. Basic Terms. This certifies that, for good and valuable
-----------
consideration, John E. Dyer (the "Holder"), is entitled, subject to the terms
and conditions of this Warrant Certificate (the "Certificate"), to purchase
70,000 shares of the common stock, $.001 par value (the "Common Stock"), of
Inland Resources Inc. (the "Company"), subject to adjustment as provided in this
Certificate, from the Company at the Exercise Price (as defined below), on
delivery of this Certificate to the Company with the exercise form duly executed
and payment of the Exercise Price payable to the Company by cashier's check or
other immediately available funds, for all shares purchased. One Warrant (herein
so called) is required for the purchase of one share of Common Stock, subject to
adjustment as provided herein.
2. Expiration Date. The right to exercise the Warrants evidenced by this
---------------
Certificate shall expire at 12:00 a.m. PST on the fifth (5th) anniversary of the
effective date of this Certificate, provided, however, that if Holder's
employment by the Company or a subsidiary is terminated for any reason other
than death or disability then the vested Warrants evidenced by this Certificate
shall expire ninety (90) days after such termination, but if termination is as a
result of death or disability then the vested Warrants may be exercised at any
time within one year after the termination of employment for such reason (the
"Expiration Date").
3. Exercise Price. The purchase price per share of the Common Stock upon
--------------
exercise of the Warrants (the "Exercise Price") shall be equal to $10.00 per
share, which is equal to or greater than the fair market value per share on the
date hereof. The Exercise Price may be adjusted from time to time pursuant to
the terms of this Certificate.
4. Vesting of Warrants. Subject to the other terms and conditions of
-------------------
this Agreement, the Warrants granted hereby shall vest in accordance with the
following schedule: (i) fifty percent (50%) of the Warrants granted hereby shall
vest on the first anniversary of the effective date of this Certificate,
provided the Holder is employed by the Company or a subsidiary on such date; and
(ii) fifty percent (50%) of the Warrants granted hereby shall vest on the second
anniversary of the date of this Certificate, provided Holder is an employee of
the Company or a subsidiary on such date; provided, however, notwithstanding the
foregoing, the Warrants granted hereby shall vest immediately upon a "Change in
Control" of the Company or upon termination of Holder's employment by the
Company or a subsidiary without "Cause"; and, provided, further, that the non-
vested Warrants granted hereby shall be immediately forfeited upon Holder's
voluntary termination of employment (including as a result of death or
disability) or termination of Holder's employment by the Company or a subsidiary
with "Cause". For purposes of this Certificate, the term "Cause" shall have the
same meaning as in Holder's Employment Agreement with the Company, provided, if
Holder does not have an Employment Agreement or ceases to have an Employment
Agreement, then for purposes of this Certificate, the term "Cause" shall mean
and be strictly limited to: (1) conviction of
- 1 -
<PAGE>
a crime constituting a felony under state or federal law; (2) determination by
the Board of Directors that Holder has committed any material act of dishonesty
against the Company; (3) gross negligence by Holder in carrying out his duties;
(4) gross misconduct by Employee, such as intoxication on the job, use of drugs
on the job for non-medical purposes, or other misconduct which has an adverse
effect on the business of the Company; or (5) Holder acting beyond his scope of
authority granted by the Board of Directors of the Company. For purposes of
this Certificate "Change in Control" shall mean a change of stock ownership of
the Company of a nature that would be required to be reported in response to
Item 6 (e) of Schedule 14A promulgated under the Securities Exchange Act of
1934, as amended, and any successor item of a similar nature. Once a Warrant
has vested, it may be exercised at any time by the Holder, subject to the other
terms and conditions of this Certificate.
5. Company's Warranties, Representations and Covenants. The Company
---------------------------------------------------
warrants, represents and covenants to the Holder that:
(a) The Company has been duly incorporated and organized and is
validly existing as a corporation in good standing under the laws of its
state of organization.
(b) The Warrants have been duly authorized and are the validly
issued, fully paid and binding obligation of the Company. The Common Stock
of the Company issuable upon exercise of the Warrants are validly
authorized and upon payment of the Exercise Price shall be validly issued,
fully paid and nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of the Warrants shall,
at delivery, be fully paid and nonassessable, free from all taxes, liens,
and charges with respect to the purchase.
(d) The Company shall take any necessary steps to assure that the par
value per share of the Common Stock is at all times equal to or less than
the then current Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and hold available
sufficient shares of its Common Stock to satisfy the Common Stock issuable
upon exercise of this Warrant.
(f) The Company shall maintain its books and records in accordance
with generally accepted accounting principles applied on a consistent
basis.
(g) The Company shall permit the Holder through his designated
representatives to visit and inspect any of the properties of the Company,
to examine its books and records, and to discuss its affairs, finances and
accounts with and be advised as to the same by the officers of the Company
at reasonable times and intervals, on the same basis as any other
shareholder.
The provisions of this Section shall continue for so long as the Holder
owns this Certificate.
- 2 -
<PAGE>
6. Method of Exercise; Shares Issued Upon Exercise. Exercise may be made
-----------------------------------------------
of all or any part of the Warrants evidenced by this Certificate by surrendering
it, with the exercise form provided for herein duly executed by or on behalf of
the Holder, at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants being exercised.
The Warrants are exercisable at the option of the Holder in whole or in part at
any time prior to the Expiration Date. If less than all of the Warrants
evidenced by this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate (dated the date
hereof) evidencing the Warrants not so exercised. Unless the Common Stock
issuable upon exercise of the Warrants has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), the certificates evidencing the Common
Stock issuable on exercise of the Warrants will bear the following legend:
"The shares of stock of Inland Resources Inc. (the "Company") represented
by this certificate have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), or under the securities laws of any
state, and the Holder hereof cannot make any sale, assignment, or other
transfer of any shares of such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the applicable state
securities laws, or under such other circumstances that, in the opinion of
counsel of the Holder hereof, does not require registration under the 1933
Act and any state securities laws. Said shares are restricted securities
within the meaning of Rule 144 promulgated under the 1933 Act and may be
subject to the limitations upon resale set forth therein or in other rules
and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the shares of Common
Stock issuable upon exercise or conversion of this Warrant shall have been
beneficially held for three (3) years within the meaning of Rule 144(k) of the
1933 Act or any successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is not an affiliate
of the Company within the meaning of Rule 144, if required by Rule 144 or such
successor rule or statute, then the Company shall remove all restrictive legends
and stop transfer restrictions at the written request of the owner of the shares
of Common Stock issuable on exercise or conversion of this Warrant.
7. Investment Representation of Holder. Holder represents and warrants
-----------------------------------
that the Warrants evidenced by this Certificate, and any Warrant Shares (herein
so called) purchased upon exercise of the Warrants, have been, or will be,
acquired or purchased as an investment for Holder's own account and not with a
view toward further distribution thereof. It is expressly understood that the
Warrants cannot be transferred except pursuant to Section 10 hereof, and that
the Warrant Shares cannot be sold or transferred except pursuant to an effective
registration statement or an exemption from applicable securities laws.
8. Adjustment of Shares Purchasable. The number of shares of Common
--------------------------------
Stock purchasable hereunder and the Exercise Price per share are subject to
adjustment from time to time as specified in this Certificate.
9. Exchange for Other Denominations. This Certificate is exchangeable,
--------------------------------
on its surrender by the Holder to the Company, for new Certificates of like
tenor and date representing in the
- 3 -
<PAGE>
aggregate the number of Warrants and the right to purchase the number of shares
of Common Stock purchasable hereunder in denominations designated by the Holder
at the time of surrender.
10. Restrictions on Transfer. During the lifetime of Holder, this
------------------------
Certificate shall be exercisable only by the Holder in person, by attorney or by
mail, on surrender of this Certificate, properly endorsed. Neither this
Certificate nor the Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of Holder while
employed by the Company or a subsidiary, the Warrants may be exercised at any
time within one year after such death or disability by the duly appointed
personal representative of Holder, or by any person or persons who shall acquire
the Warrants directly from Holder by bequest or inheritance.
11. Adjustment of Shares. Wherever this Certificate specifies a number of
--------------------
shares of Common Stock or an Exercise Price per share, the specified number of
shares of Common Stock to be received on exercise and the Exercise Price per
share shall be changed to reflect adjustments (which may require that additional
securities or other property be delivered on exercise) required by this section,
as follows:
(a) If a stock or property dividend is declared to the holders of
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants, there shall be added with respect to each share of
Common Stock issuable upon exercise of Warrants the amount of the dividend,
stock or property, which would have been issued to the Holder had the
Holder been the holder of record of such issuable share at the dividend
record date. Such additional stock or property resulting from such
dividend shall be delivered without additional cost upon the exercise of
Warrants. Any distribution to the holders of Common Stock of the Company
of any kind, other than a distribution of cash as a dividend out of profits
of the Company for the current year of the dividend, shall be treated as a
stock or property dividend for purposes of this Subsection 11(a). If the
Holder is entitled to receive cash upon exercise of Warrants under this
Subsection 11(a), the Holder may, at the Holder's option, elect to reduce
the Exercise Price by all or part of the cash to be received by the Holder
upon exercise under this Subsection 11(a).
(b) If an increase has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a subdivision of such shares, the number
of shares which may thereafter be purchased upon exercise of Warrants shall
be increased with respect to each share issuable upon exercise of Warrants
by the number of shares which could have been received by the Holder at the
time of such subdivision had it been the holder of record of such issuable
shares at the record and/or effective date of the subdivision. In such
event, the Exercise Price per share of Warrants shall be proportionately
reduced.
(c) If a decrease has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a reverse stock split, the number of
shares which may thereafter be purchased upon exercise of Warrants shall be
changed with respect to each share issuable upon exercise of Warrants to
the number of shares which would have been
- 4 -
<PAGE>
held by the Holder at the time of said reverse stock split had the Holder
been the holder of such issuable share at the record and/or effective date
of the reverse stock split. In such event, the Exercise Price per share
shall be proportionately increased.
(d) If there is a capital reorganization, reclassification of the
capital stock of the Company, or any consolidation or merger of the Company
with any other corporation or corporations, or if there is a sale or
distribution of all or substantially all of the Company's property and
assets, the Company shall make adequate provision so that there shall
remain and be substituted under this Certificate with respect to each share
issuable upon exercise of Warrants the stock, securities and/or assets
which would have been issuable or payable in respect of or in exchange for
such issuable shares if the Holder had been the owner of such share on the
applicable record date. All other provisions of this Certificate shall
remain in full force and effect.
12. Notice of Adjustment. On the happening of any event requiring an
--------------------
adjustment of the Exercise Price or the shares purchasable hereunder, the
Company shall immediately give written notice to the Holder stating the adjusted
Exercise Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in reasonable
detail the method of calculation and the facts upon which the calculation is
based.
13. Notice Requirement. If at any time the Company proposes or is aware
------------------
of any of the following transactions, the Company shall give written notice to
the Holder at least 30 days prior to the proposed transaction: an anticipated
voluntary or involuntary dissolution, liquidation or winding up of the Company;
a merger or consolidation of the Company; the payment or declaration of a
dividend or distribution to shareholders of the Company; or the vote of
shareholders of the Company to amend the certificate or articles of
incorporation of the Company. Such notice shall contain: (a) the date on which
the proposed transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed transaction;
(c) a brief description of the proposed transaction; (d) a brief description of
any dividends or other distributions to be made to holders of Common Stock as a
result of the proposed transaction; (e) a brief description of any other effect
of the proposed transaction on holders of Common Stock or this Certificate; and
(f) an estimate of the fair value of any dividends or other distributions to be
made to shareholders.
14. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of any of the Warrants evidenced hereby to issue any fractional shares,
but shall make an adjustment therefore in cash on the basis of the mean between
the low bid and high asked prices on the over-the-counter market as reported by
the NASD Automated Quotation System or the closing market price on a national
securities exchange on the trading day immediately prior to exercise, whichever
is applicable, or if neither is applicable, then on the basis of the market
value of any such fractional interest as shall be reasonably determined by the
Company.
15. Notice. Any notice required or permitted by any party to this
------
Certificate shall be in writing and may be delivered personally to the party
being given notice or to the person in charge of the office of the party being
given notice or by facsimile, national overnight courier service or by mail, at
the party's address indicated below, and any notice will be effective only upon
actual receipt by the party. The addresses of the parties are as follows:
- 5 -
<PAGE>
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
The names and addresses of persons to receive notice as stated in this Section
may be changed by notice given in accordance with this Section.
16. Parties. This Certificate shall bind the respective successors and
-------
assigns of the parties.
17. Entire Agreement. This Certificate represents the entire agreement of
----------------
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous oral or written agreements or understandings. The terms of
this Certificate may be amended only by a written instrument executed by the
Company and the Holder.
WITNESS the signature of the Company's authorized representative and the
acceptance of the terms hereof by the signature of the Holder dated effective
January 23, 1997.
COMPANY:
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
-----------------------------------------
Kyle R. Miller, President and
Chief Executive Officer
HOLDER:
/s/ John E. Dyer
--------------------------------------------
JOHN E. DYER
- 6 -
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase ______ shares
of the Company's Common Stock issuable upon the exercise of the within Warrants,
and encloses payment of $________________ therefor; (2) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address below; and (3) if such number of
shares is not all of the shares purchasable hereunder, that a new Certificate of
like tenor for the balance of the remaining Warrants be issued in the name of
the undersigned and delivered to the undersigned at the address below.
Date:_____________________ ____________________________________________
(Please sign exactly as name appears on
Warrant Certificate)
____________________________________________
Address
____________________________________________
- 7 -
<PAGE>
EXHIBIT 10.38
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
INLAND RESOURCES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
CERTIFICATE EVIDENCING THE NUMBER OF WARRANTS
SET FORTH IN SECTION 1
1. Basic Terms. This certifies that, for good and valuable consideration,
-----------
Bill I. Pennington (the "Holder"), is entitled, subject to the terms and
conditions of this Warrant Certificate (the "Certificate"), to purchase 50,000
(post 1-for-10 reverse stock split) shares of the common stock, $.001 par value
(the "Common Stock"), of Inland Resources Inc. (the "Company"), subject to
adjustment as provided in this Certificate, from the Company at the Exercise
Price (as defined below), on delivery of this Certificate to the Company with
the exercise form duly executed and payment of the Exercise Price payable to the
Company by cashier's check or other immediately available funds, for all shares
purchased. One Warrant (herein so called) is required for the purchase of one
share of Common Stock, subject to adjustment as provided herein.
2. Expiration Date. The right to exercise the Warrants evidenced by this
---------------
Certificate shall expire at 12:00 a.m. PST on the tenth (10th) anniversary of
the effective date of this Certificate, provided, however, that if Holder's
employment by the Company as an executive officer is terminated for any reason
other than death or disability then the Warrants evidenced by this Certificate
shall expire ninety (90) days after such termination, but if termination is as a
result of death or disability then the Warrants may be exercised at any time
within one year after the termination of employment for such reason (the
"Expiration Date").
3. Exercise Price. The purchase price per share of the Common Stock upon
--------------
exercise of the Warrants (the "Exercise Price") shall be equal to $6.27 (post
1-for-10 reverse stock split) per share, which is equal to or greater than the
fair market value per share on the date hereof. The Exercise Price may be
adjusted from time to time pursuant to the terms of this Certificate.
4. Company's Warranties, Representations and Covenants. The Company
---------------------------------------------------
warrants, represents and covenants to the Holder that:
(a) The Company has been duly incorporated and organized and is
validly existing as a corporation in good standing under the laws of its
state of organization.
(b) The Warrants have been duly authorized and are the validly issued,
fully paid and binding obligation of the Company. The Common Stock of the
Company issuable upon exercise of the Warrants are validly authorized and
upon
- 1 -
<PAGE>
payment of the Exercise Price shall be validly issued, fully paid and
nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of the Warrants shall, at
delivery, be fully paid and nonassessable, free from all taxes, liens, and
charges with respect to the purchase.
(d) The Company shall take any necessary steps to assure that the par
value per share of the Common Stock is at all times equal to or less than
the then current Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and hold available
sufficient shares of its Common Stock to satisfy the Common Stock issuable
upon exercise of this Warrant.
(f) The Company shall maintain its books and records in accordance
with generally accepted accounting principles applied on a consistent
basis.
(g) The Company shall permit the Holder through his designated
representatives to visit and inspect any of the properties of the Company,
to examine its books and records, and to discuss its affairs, finances and
accounts with and be advised as to the same by the officers of the Company
at reasonable times and intervals, on the same basis as any other
shareholder.
The provisions of this Section shall continue for so long as the Holder
owns this Certificate.
5. Method of Exercise; Shares Issued Upon Exercise. Exercise may be made
-----------------------------------------------
of all or any part of the Warrants evidenced by this Certificate by surrendering
it, with the exercise form provided for herein duly executed by or on behalf of
the Holder, at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants being exercised.
The Warrants are exercisable at the option of the Holder in whole or in part at
any time prior to the Expiration Date. If less than all of the Warrants
evidenced by this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate (dated the date
hereof) evidencing the Warrants not so exercised. Unless the Common Stock
issuable upon exercise of the Warrants has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), the certificates evidencing the Common
Stock issuable on exercise of the Warrants will bear the following legend:
"The shares of stock of Inland Resources Inc. (the "Company") represented
by this certificate have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), or under the securities laws of any
state, and the Holder hereof cannot make any sale, assignment, or other
transfer of any shares of such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the
- 2 -
<PAGE>
applicable state securities laws, or under such other circumstances that,
in the opinion of counsel of the Holder hereof, does not require
registration under the 1933 Act and any state securities laws. Said shares
are restricted securities within the meaning of Rule 144 promulgated under
the 1933 Act and may be subject to the limitations upon resale set forth
therein or in other rules and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the shares of Common
Stock issuable upon exercise or conversion of this Warrant shall have been
beneficially held for three (3) years within the meaning of Rule 144(k) of the
1933 Act or any successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is not an affiliate
of the Company within the meaning of Rule 144, if required by Rule 144 or such
successor rule or statute, then the Company shall remove all restrictive legends
and stop transfer restrictions at the written request of the owner of the shares
of Common Stock issuable on exercise or conversion of this Warrant.
6. Investment Representation of Holder. Holder represents and warrants
-----------------------------------
that the Warrants evidenced by this Certificate, and any Warrant Shares (herein
so called) purchased upon exercise of the Warrants, have been, or will be,
acquired or purchased as an investment for Holder's own account and not with a
view toward further distribution thereof. It is expressly understood that the
Warrants cannot be transferred except pursuant to Section 9 hereof, and that the
Warrant Shares cannot be sold or transferred except pursuant to an effective
registration statement or an exemption from applicable securities laws.
7. Adjustment of Shares Purchasable. The number of shares of Common
--------------------------------
Stock purchasable hereunder and the Exercise Price per share are subject to
adjustment from time to time as specified in this Certificate.
8. Exchange for Other Denominations. This Certificate is exchangeable,
--------------------------------
on its surrender by the Holder to the Company, for new Certificates of like
tenor and date representing in the aggregate the number of Warrants and the
right to purchase the number of shares of Common Stock purchasable hereunder in
denominations designated by the Holder at the time of surrender.
9. Restrictions on Transfer. During the lifetime of Holder, this
------------------------
Certificate shall be exercisable only by the Holder in person, by attorney or by
mail, on surrender of this Certificate, properly endorsed. Neither this
Certificate nor the Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of Holder while
employed by the Company or a subsidiary, the Warrants may be exercised at any
time within one year after such death or disability by the duly appointed
personal representative of Holder, or by any person or persons who shall acquire
the Warrants directly from Holder by bequest or inheritance.
10. Adjustment of Shares. Wherever this Certificate specifies a number of
--------------------
shares of Common Stock or an Exercise Price per share, the specified number of
shares of Common Stock to be received on exercise and the Exercise Price per
share shall be changed to reflect adjustments
- 3 -
<PAGE>
(which may require that additional securities or other property be delivered on
exercise) required by this section, as follows:
(a) If a stock or property dividend is declared to the holders of
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants, there shall be added with respect to each share of
Common Stock issuable upon exercise of Warrants the amount of the dividend,
stock or property, which would have been issued to the Holder had the
Holder been the holder of record of such issuable share at the dividend
record date. Such additional stock or property resulting from such
dividend shall be delivered without additional cost upon the exercise of
Warrants. Any distribution to the holders of Common Stock of the Company
of any kind, other than a distribution of cash as a dividend out of profits
of the Company for the current year of the dividend, shall be treated as a
stock or property dividend for purposes of this Subsection 10(a). If the
Holder is entitled to receive cash upon exercise of Warrants under this
Subsection 10(a), the Holder may, at the Holder's option, elect to reduce
the Exercise Price by all or part of the cash to be received by the Holder
upon exercise under this Subsection 10(a).
(b) If an increase has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a subdivision of such shares, the number
of shares which may thereafter be purchased upon exercise of Warrants shall
be increased with respect to each share issuable upon exercise of Warrants
by the number of shares which could have been received by the Holder at the
time of such subdivision had it been the holder of record of such issuable
shares at the record and/or effective date of the subdivision. In such
event, the Exercise Price per share of Warrants shall be proportionately
reduced.
(c) If a decrease has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a reverse stock split, the number of
shares which may thereafter be purchased upon exercise of Warrants shall be
changed with respect to each share issuable upon exercise of Warrants to
the number of shares which would have been held by the Holder at the time
of said reverse stock split had the Holder been the holder of such issuable
share at the record and/or effective date of the reverse stock split. In
such event, the Exercise Price per share shall be proportionately
increased.
(d) If there is a capital reorganization, reclassification of the
capital stock of the Company, or any consolidation or merger of the Company
with any other corporation or corporations, or if there is a sale or
distribution of all or substantially all of the Company's property and
assets, the Company shall make adequate provision so that there shall
remain and be substituted under this Certificate with respect to each share
issuable upon exercise of Warrants the stock, securities and/or assets
which
- 4 -
<PAGE>
would have been issuable or payable in respect of or in exchange for such
issuable shares if the Holder had been the owner of such share on the
applicable record date. All other provisions of this Certificate shall
remain in full force and effect.
11. Notice of Adjustment. On the happening of any event requiring an
--------------------
adjustment of the Exercise Price or the shares purchasable hereunder, the
Company shall immediately give written notice to the Holder stating the adjusted
Exercise Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in reasonable
detail the method of calculation and the facts upon which the calculation is
based.
12. Notice Requirement. If at any time the Company proposes or is aware
------------------
of any of the following transactions, the Company shall give written notice to
the Holder at least 30 days prior to the proposed transaction: an anticipated
voluntary or involuntary dissolution, liquidation or winding up of the Company;
a merger or consolidation of the Company; the payment or declaration of a
dividend or distribution to shareholders of the Company; or the vote of
shareholders of the Company to amend the certificate or articles of
incorporation of the Company. Such notice shall contain: (a) the date on which
the proposed transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed transaction;
(c) a brief description of the proposed transaction; (d) a brief description of
any dividends or other distributions to be made to holders of Common Stock as a
result of the proposed transaction; (e) a brief description of any other effect
of the proposed transaction on holders of Common Stock or this Certificate; and
(f) an estimate of the fair value of any dividends or other distributions to be
made to shareholders.
13. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of any of the Warrants evidenced hereby to issue any fractional shares,
but shall make an adjustment therefore in cash on the basis of the mean between
the low bid and high asked prices on the over-the-counter market as reported by
the NASD Automated Quotation System or the closing market price on a national
securities exchange on the trading day immediately prior to exercise, whichever
is applicable, or if neither is applicable, then on the basis of the market
value of any such fractional interest as shall be reasonably determined by the
Company.
14. Notice. Any notice required or permitted by any party to this
------
Certificate shall be in writing and may be delivered personally to the party
being given notice or to the person in charge of the office of the party being
given notice or by facsimile, national overnight courier service or by mail, at
the party's address indicated below, and any notice will be effective only upon
actual receipt by the party. The addresses of the parties are as follows:
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
- 5 -
<PAGE>
The names and addresses of persons to receive notice as stated in this Section
may be changed by notice given in accordance with this Section.
15. Parties. This Certificate shall bind the respective successors and
-------
assigns of the parties.
16. Entire Agreement. This Certificate represents the entire agreement of
----------------
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous oral or written agreements or understandings. The terms of
this Certificate may be amended only by a written instrument executed by the
Company and the Holder.
WITNESS the signature of the Company's authorized representative and the
acceptance of the terms hereof by the signature of the Holder dated effective
May 22, 1996.
COMPANY:
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
-----------------------------------------
Kyle R. Miller, President
HOLDER:
/s/ Bill I. Pennington
--------------------------------------------
BILL I. PENNINGTON
- 6 -
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase ______ shares
of the Company's Common Stock issuable upon the exercise of the within Warrants,
and encloses payment of $________________ therefor; (2) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address below; and (3) if such number of
shares is not all of the shares purchasable hereunder, that a new Certificate of
like tenor for the balance of the remaining Warrants be issued in the name of
the undersigned and delivered to the undersigned at the address below.
Date:
------------------------- --------------------------------------------
(Please sign exactly as name appears on
Warrant Certificate)
--------------------------------------------
Address
--------------------------------------------
- 7 -
<PAGE>
EXHIBIT 10.38.1
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK OF
INLAND RESOURCES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
CERTIFICATE EVIDENCING THE NUMBER OF WARRANTS
SET FORTH IN SECTION 1
1. Basic Terms. This certifies that, for good and valuable consideration,
-----------
Bill I. Pennington (the "Holder"), is entitled, subject to the terms and
conditions of this Warrant Certificate (the "Certificate"), to purchase 60,000
shares of the common stock, $.001 par value (the "Common Stock"), of Inland
Resources Inc. (the "Company"), subject to adjustment as provided in this
Certificate, from the Company at the Exercise Price (as defined below), on
delivery of this Certificate to the Company with the exercise form duly executed
and payment of the Exercise Price payable to the Company by cashier's check or
other immediately available funds, for all shares purchased. One Warrant
(herein so called) is required for the purchase of one share of Common Stock,
subject to adjustment as provided herein.
2. Expiration Date. The right to exercise the Warrants evidenced by this
---------------
Certificate shall expire at 12:00 a.m. PST on the fifth (5th) anniversary of the
effective date of this Certificate, provided, however, that if Holder's
employment by the Company or a subsidiary is terminated for any reason other
than death or disability then the vested Warrants evidenced by this Certificate
shall expire ninety (90) days after such termination, but if termination is as a
result of death or disability then the vested Warrants may be exercised at any
time within one year after the termination of employment for such reason (the
"Expiration Date").
3. Exercise Price. The purchase price per share of the Common Stock upon
--------------
exercise of the Warrants (the "Exercise Price") shall be equal to $10.00 per
share, which is equal to or greater than the fair market value per share on the
date hereof. The Exercise Price may be adjusted from time to time pursuant to
the terms of this Certificate.
4. Vesting of Warrants. Subject to the other terms and conditions of this
-------------------
Agreement, the Warrants granted hereby shall vest in accordance with the
following schedule: (i) fifty percent (50%) of the Warrants granted hereby shall
vest on the first anniversary of the effective date of this Certificate,
provided the Holder is employed by the Company or a subsidiary on such date; and
(ii) fifty percent (50%) of the Warrants granted hereby shall vest on the second
anniversary of the date of this Certificate, provided Holder is an employee of
the Company or a subsidiary on such date; provided, however, notwithstanding the
foregoing, the Warrants granted hereby shall vest immediately upon a "Change in
Control" of the Company or upon termination of Holder's employment by the
Company or a subsidiary without "Cause"; and, provided, further, that the non-
vested Warrants granted hereby shall be immediately forfeited upon Holder's
voluntary termination of employment (including as a result of death or
disability) or termination of Holder's employment by the Company or a subsidiary
with "Cause". For purposes of this Certificate, the term "Cause" shall have the
same meaning as in Holder's Employment Agreement with the Company, provided, if
Holder does not have an Employment Agreement or ceases to have an Employment
Agreement, then for purposes of this Certificate, the term "Cause" shall mean
and be strictly limited to: (1) conviction of
- 1 -
<PAGE>
a crime constituting a felony under state or federal law; (2) determination by
the Board of Directors that Holder has committed any material act of dishonesty
against the Company; (3) gross negligence by Holder in carrying out his duties;
(4) gross misconduct by Employee, such as intoxication on the job, use of drugs
on the job for non-medical purposes, or other misconduct which has an adverse
effect on the business of the Company; or (5) Holder acting beyond his scope of
authority granted by the Board of Directors of the Company. For purposes of
this Certificate "Change in Control" shall mean a change of stock ownership of
the Company of a nature that would be required to be reported in response to
Item 6 (e) of Schedule 14A promulgated under the Securities Exchange Act of
1934, as amended, and any successor item of a similar nature. Once a Warrant
has vested, it may be exercised at any time by the Holder, subject to the other
terms and conditions of this Certificate.
5. Company's Warranties, Representations and Covenants. The Company
---------------------------------------------------
warrants, represents and covenants to the Holder that:
(a) The Company has been duly incorporated and organized and is
validly existing as a corporation in good standing under the laws of its
state of organization.
(b) The Warrants have been duly authorized and are the validly issued,
fully paid and binding obligation of the Company. The Common Stock of the
Company issuable upon exercise of the Warrants are validly authorized and
upon payment of the Exercise Price shall be validly issued, fully paid and
nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of the Warrants shall, at
delivery, be fully paid and nonassessable, free from all taxes, liens, and
charges with respect to the purchase.
(d) The Company shall take any necessary steps to assure that the par
value per share of the Common Stock is at all times equal to or less than
the then current Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and hold available
sufficient shares of its Common Stock to satisfy the Common Stock issuable
upon exercise of this Warrant.
(f) The Company shall maintain its books and records in accordance
with generally accepted accounting principles applied on a consistent
basis.
(g) The Company shall permit the Holder through his designated
representatives to visit and inspect any of the properties of the Company,
to examine its books and records, and to discuss its affairs, finances and
accounts with and be advised as to the same by the officers of the Company
at reasonable times and intervals, on the same basis as any other
shareholder.
The provisions of this Section shall continue for so long as the Holder
owns this Certificate.
- 2 -
<PAGE>
6. Method of Exercise; Shares Issued Upon Exercise. Exercise may be made
-----------------------------------------------
of all or any part of the Warrants evidenced by this Certificate by surrendering
it, with the exercise form provided for herein duly executed by or on behalf of
the Holder, at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants being exercised.
The Warrants are exercisable at the option of the Holder in whole or in part at
any time prior to the Expiration Date. If less than all of the Warrants
evidenced by this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate (dated the date
hereof) evidencing the Warrants not so exercised. Unless the Common Stock
issuable upon exercise of the Warrants has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), the certificates evidencing the Common
Stock issuable on exercise of the Warrants will bear the following legend:
"The shares of stock of Inland Resources Inc. (the "Company") represented
by this certificate have not been registered under the Securities Act of
1933, as amended (the "1933 Act"), or under the securities laws of any
state, and the Holder hereof cannot make any sale, assignment, or other
transfer of any shares of such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the applicable state
securities laws, or under such other circumstances that, in the opinion of
counsel of the Holder hereof, does not require registration under the 1933
Act and any state securities laws. Said shares are restricted securities
within the meaning of Rule 144 promulgated under the 1933 Act and may be
subject to the limitations upon resale set forth therein or in other rules
and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the shares of Common
Stock issuable upon exercise or conversion of this Warrant shall have been
beneficially held for three (3) years within the meaning of Rule 144(k) of the
1933 Act or any successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is not an affiliate
of the Company within the meaning of Rule 144, if required by Rule 144 or such
successor rule or statute, then the Company shall remove all restrictive legends
and stop transfer restrictions at the written request of the owner of the shares
of Common Stock issuable on exercise or conversion of this Warrant.
7. Investment Representation of Holder. Holder represents and warrants
-----------------------------------
that the Warrants evidenced by this Certificate, and any Warrant Shares (herein
so called) purchased upon exercise of the Warrants, have been, or will be,
acquired or purchased as an investment for Holder's own account and not with a
view toward further distribution thereof. It is expressly understood that the
Warrants cannot be transferred except pursuant to Section 10 hereof, and that
the Warrant Shares cannot be sold or transferred except pursuant to an effective
registration statement or an exemption from applicable securities laws.
8. Adjustment of Shares Purchasable. The number of shares of Common
--------------------------------
Stock purchasable hereunder and the Exercise Price per share are subject to
adjustment from time to time as specified in this Certificate.
9. Exchange for Other Denominations. This Certificate is exchangeable,
--------------------------------
on its surrender by the Holder to the Company, for new Certificates of like
tenor and date representing in the
- 3 -
<PAGE>
aggregate the number of Warrants and the right to purchase the number of shares
of Common Stock purchasable hereunder in denominations designated by the Holder
at the time of surrender.
10. Restrictions on Transfer. During the lifetime of Holder, this
------------------------
Certificate shall be exercisable only by the Holder in person, by attorney or by
mail, on surrender of this Certificate, properly endorsed. Neither this
Certificate nor the Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of Holder while
employed by the Company or a subsidiary, the Warrants may be exercised at any
time within one year after such death or disability by the duly appointed
personal representative of Holder, or by any person or persons who shall acquire
the Warrants directly from Holder by bequest or inheritance.
11. Adjustment of Shares. Wherever this Certificate specifies a number of
--------------------
shares of Common Stock or an Exercise Price per share, the specified number of
shares of Common Stock to be received on exercise and the Exercise Price per
share shall be changed to reflect adjustments (which may require that additional
securities or other property be delivered on exercise) required by this section,
as follows:
(a) If a stock or property dividend is declared to the holders of
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants, there shall be added with respect to each share of
Common Stock issuable upon exercise of Warrants the amount of the dividend,
stock or property, which would have been issued to the Holder had the
Holder been the holder of record of such issuable share at the dividend
record date. Such additional stock or property resulting from such
dividend shall be delivered without additional cost upon the exercise of
Warrants. Any distribution to the holders of Common Stock of the Company
of any kind, other than a distribution of cash as a dividend out of profits
of the Company for the current year of the dividend, shall be treated as a
stock or property dividend for purposes of this Subsection 11(a). If the
Holder is entitled to receive cash upon exercise of Warrants under this
Subsection 11(a), the Holder may, at the Holder's option, elect to reduce
the Exercise Price by all or part of the cash to be received by the Holder
upon exercise under this Subsection 11(a).
(b) If an increase has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a subdivision of such shares, the number
of shares which may thereafter be purchased upon exercise of Warrants shall
be increased with respect to each share issuable upon exercise of Warrants
by the number of shares which could have been received by the Holder at the
time of such subdivision had it been the holder of record of such issuable
shares at the record and/or effective date of the subdivision. In such
event, the Exercise Price per share of Warrants shall be proportionately
reduced.
(c) If a decrease has been effected in the number of outstanding
shares of the same class of securities of the Company as is issuable upon
exercise of Warrants by reason of a reverse stock split, the number of
shares which may thereafter be purchased upon exercise of Warrants shall be
changed with respect to each share issuable upon exercise of Warrants to
the number of shares which would have been
- 4 -
<PAGE>
held by the Holder at the time of said reverse stock split had the Holder
been the holder of such issuable share at the record and/or effective date
of the reverse stock split. In such event, the Exercise Price per share
shall be proportionately increased.
(d) If there is a capital reorganization, reclassification of the
capital stock of the Company, or any consolidation or merger of the Company
with any other corporation or corporations, or if there is a sale or
distribution of all or substantially all of the Company's property and
assets, the Company shall make adequate provision so that there shall
remain and be substituted under this Certificate with respect to each share
issuable upon exercise of Warrants the stock, securities and/or assets
which would have been issuable or payable in respect of or in exchange for
such issuable shares if the Holder had been the owner of such share on the
applicable record date. All other provisions of this Certificate shall
remain in full force and effect.
12. Notice of Adjustment. On the happening of any event requiring an
--------------------
adjustment of the Exercise Price or the shares purchasable hereunder, the
Company shall immediately give written notice to the Holder stating the adjusted
Exercise Price and the adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth in reasonable
detail the method of calculation and the facts upon which the calculation is
based.
13. Notice Requirement. If at any time the Company proposes or is aware
------------------
of any of the following transactions, the Company shall give written notice to
the Holder at least 30 days prior to the proposed transaction: an anticipated
voluntary or involuntary dissolution, liquidation or winding up of the Company;
a merger or consolidation of the Company; the payment or declaration of a
dividend or distribution to shareholders of the Company; or the vote of
shareholders of the Company to amend the certificate or articles of
incorporation of the Company. Such notice shall contain: (a) the date on which
the proposed transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed transaction;
(c) a brief description of the proposed transaction; (d) a brief description of
any dividends or other distributions to be made to holders of Common Stock as a
result of the proposed transaction; (e) a brief description of any other effect
of the proposed transaction on holders of Common Stock or this Certificate; and
(f) an estimate of the fair value of any dividends or other distributions to be
made to shareholders.
14. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of any of the Warrants evidenced hereby to issue any fractional shares,
but shall make an adjustment therefore in cash on the basis of the mean between
the low bid and high asked prices on the over-the-counter market as reported by
the NASD Automated Quotation System or the closing market price on a national
securities exchange on the trading day immediately prior to exercise, whichever
is applicable, or if neither is applicable, then on the basis of the market
value of any such fractional interest as shall be reasonably determined by the
Company.
15. Notice. Any notice required or permitted by any party to this
------
Certificate shall be in writing and may be delivered personally to the party
being given notice or to the person in charge of the office of the party being
given notice or by facsimile, national overnight courier service or by mail, at
the party's address indicated below, and any notice will be effective only upon
actual receipt by the party. The addresses of the parties are as follows:
- 5 -
<PAGE>
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
The names and addresses of persons to receive notice as stated in this Section
may be changed by notice given in accordance with this Section.
16. Parties. This Certificate shall bind the respective successors and
-------
assigns of the parties.
17. Entire Agreement. This Certificate represents the entire agreement of
----------------
the parties with respect to the subject matter hereof and supersedes any prior
or contemporaneous oral or written agreements or understandings. The terms of
this Certificate may be amended only by a written instrument executed by the
Company and the Holder.
WITNESS the signature of the Company's authorized representative and the
acceptance of the terms hereof by the signature of the Holder dated effective
January 23, 1997.
COMPANY:
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
-----------------------------------------
Kyle R. Miller, President and
Chief Executive Officer
HOLDER:
/s/ Bill I. Pennington
--------------------------------------------
Bill I. Pennington
- 6 -
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase ______ shares
of the Company's Common Stock issuable upon the exercise of the within Warrants,
and encloses payment of $________________ therefor; (2) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address below; and (3) if such number of
shares is not all of the shares purchasable hereunder, that a new Certificate of
like tenor for the balance of the remaining Warrants be issued in the name of
the undersigned and delivered to the undersigned at the address below.
Date:
------------------------- --------------------------------------------
(Please sign exactly as name appears on
Warrant Certificate)
--------------------------------------------
Address
--------------------------------------------
- 7 -
<PAGE>
EXHIBIT 10.39.1
RELEASE OF CLAIMS
-----------------
This Release of all Claims is given this ________ day of
____________________, 1996, by Placer Dome U.S. Inc., a California corporation
("PDUS") to and in favor of Inland Resources Inc., a Washington corporation
formerly doing business as Inland Gold and Silver Corp. ("Inland") and is based
upon the following facts and circumstances:
1. Inland owns certain unpatented mining claims and leases other
unpatented mining claims from Independence Mining Company, Inc., which claims
comprise a mining project located in Lander County, Nevada, commonly referred to
as the Toiyabe Project ("Project").
2. PDUS entered into a letter agreement and amendments thereto with Inland
pursuant to which PDUS was to purchase Inland's interests in the Project from
Inland upon certain terms and conditions.
3. Pursuant to the letter agreement, as amended, PDUS was given an
opportunity to investigate the condition of the Project and to conduct any
environmental studies which PDUS determined were necessary for its purposes.
4. PDUS has concluded its investigation of the Project and, even though
the investigation has disclosed some environmental conditions which must be
addressed, it is willing, ready and able to proceed with its purchase of the
Project.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, PDUS does hereby release, acquit and forever discharge
Inland and any of its agents, representatives, attorneys, successors and assigns
of and from any and all actions, causes of action, claims, demands, costs,
expenses, and without limitation to the foregoing, any and all claims or causes
of action whatsoever existing in the undersigned on account of or in any way
growing out of or in connection with the condition of the Project.
The undersigned representative of PDUS has full authority to execute this
Release on behalf of PDUS. The undersigned further declares that this entire
Release has been carefully read, that the contents hereof are fully known and
understood, and that the same is signed as a free and voluntary act of each of
the undersigned.
DATED this _____ day of ____________________, 1996.
PLACER DOME U.S., INC. a California
corporation
By
---------------------------------
Its
------------------------------
1
<PAGE>
CERTIFICATE OF ACKNOWLEDGEMENT
STATE OF ____________________ )
) ss.
COUNTY OF ___________________ )
This instrument was acknowledged before me on ____________________________,
1996, by _______________________, on behalf of Placer Dome U.S. Inc.
-----------------------------------------
NOTARY PUBLIC
(My Commission Expires:_________________)
2
<PAGE>
EXHIBIT 10.39.2
When Recorded
Return To:
Placer Dome U.S. Inc.
240 So. Rock Blvd., Ste. 117
Reno, Nevada 89502
Attention: Land/Legal Mgr.
_____________________________________________________________________________
A.P.N. (Unpatented Mining Claims)
ASSIGNMENT OF LEASE
--------------------------
(Unpatented Mining Claims)
This Assignment of Lease ("Assignment") is entered into this 30th day of
December, 1996, by and between Inland Resources Inc., a Washington corporation
formerly doing business as Inland Gold and Silver Corp. ("Assignor") and Placer
Dome U.S. Inc., a California corporation ("Assignee").
RECITALS
A. Freeport Exploration Company owned those certain unpatented mining
claims located within the County of Lander, State of Nevada, more particularly
described in Exhibit "A" attached hereto ("Claims").
B. By lease agreement dated August 27, 1981, Freeport leased the Claims to
Homestake Mining Company. By mesne conveyances, the lessor's and the lessee's
interests under the Lease have been transferred to other parties. Independence
Mining Company, Inc. ("Independence") holds the lessor's interests under the
Lease and Assignor holds the lessee's interests.
C. Assignee wishes to purchase Assignor's interests in the Lease and
Assignor is willing to sell and transfer its interests in the Lease to Assignee.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
sufficiency of which is hereby acknowledged, Assignor and Assignee agree as
follows:
COVENANTS
1. Assignement and Acceptance. Assignor hereby unconditionally sells,
--------------------------
assigns and transfers to Assignee, its successors and assigns, all of Assignor's
rights, titles, interests and obligations in, to and under the Lease. Assignee
hereby accepts the assignment.
2. Assignor's Representations. Assignor represents to Assignee that it
--------------------------
has not encumbered the Lease in any manner whatsoever and it has not assigned
its interests in and to the Lease, in whole or in part, to any third party or
parties.
3. Assignee's Covenants. Assignee agrees during the continuance of the
--------------------
term of the Lease, or any extensions thereof, to pay the rents reserved and to
perform the covenants, conditions, and stipulations in said Lease by the lessee
and to keep indemnified the Assignor against all actions, claims, and demands
whatsoever in respect of the said rents, covenants, conditions, and
stipulations,
1
<PAGE>
or anything relating thereto.
4. Notice to Independence. Section 25 of the Lease allows any party to
----------------------
transfer its interests thereunder, but the transferring party is to provide the
other party to the Lease with notice of the transfer and a copy of the document
of transfer. Assignee shall notify Independence of the transfer.
5. Savings Clause. Nothing contained within this Assignement shall alter
--------------
or modify Independence's rights or obligations under the Lease.
6. Further Assurances. Assignor and Assignee agree that, to the extent it
------------------
may be necessary, they shall execute and deliver such other and additional
documents as may be necessary to fully implement the purpose of this Assignment,
i.e. the assignment of Assignor's rights, titles and interests in and to the
Lease to Assignee.
7. Recordation and Filing. Assignee may record this Assignment with the
----------------------
Office of the County Recorder of Lander County, Nevada, and may file it with the
appropriate field office of the United States Department of Interior, Bureau of
Land Management.
In witness whereof, Assignor and Assignee have caused their corporate names
to be hereto affixed by their representatives duly authorized pursuant to
corporate resolutions of their Boards of Directors this 30th day of December,
1996.
INLAND RESOURCES INC., a Washington
corporation formerly doing business as
Inland Gold and Silver Corp.
By
-------------------------------------------
Its
------------------------------------
2
<PAGE>
PLACER DOME U.S. INC., a California corporation
By:____________________________________________
Its:___________________________________________
CERTIFICATES OF ACKNOWLEDGEMENT
STATE OF ________________)
) ss.
COUNTY OF _______________)
This instrument was acknowledged before me on __________________________,
1996, by _______________________, on behalf of Inland Resources Inc.
_______________________________________
NOTARY PUBLIC
(My Commission Expires:___________)
STATE OF _______________)
) ss.
COUNTY OF ______________)
This instrument was acknowledged before me on ____________________________,
1996, by _______________________, on behalf of Placer Dome U.S. Inc.
_______________________________________
NOTARY PUBLIC
(My Commission Expires:___________)
3
<PAGE>
EXHIBIT "A"
CLAIMS OWNED BY INDEPENDENCE AND LEASED TO ASSIGNOR
4
<PAGE>
EXHIBIT 10.39.3
When Recorded
Return To:
Placer Dome U.S. Inc.
240 So. Rock Blvd., Ste. 117
Reno, Nevada 89502
Attention: Land/Legal Mgr.
_______________________________________________________________________________
A.P.N. (Unpatented Mining Claims)
CORPORATION
-----------
GRANT, BARGAIN AND SALE DEED
----------------------------
(Unpatented Mining Claims)
Inland Resources Inc., a Washington corporation, formerly doing business as
Inland Gold and Silver Corp. ("Grantor"), in consideration of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, does hereby grant, bargain, sell and convey to
Placer Dome U.S. Inc. a California corporation ("Grantee") those certain
unpatented mining claims located in Lander County, Nevada, and more particularly
described in Exhibit "A" attached hereto.
Together with all and singular the tenements, hereditaments, appurtenances,
the reversion and reversions, remainder and remainders, rents, issues and
profits thereof.
To have and to hold, all and singular, the above-mentioned and described
property unto Grantee, its successors and assigns forever.
In witness whereof, Grantor has caused its corporate name to be hereto
affixed by its representative duly authorized pursuant to a corporate resolution
of its Board of Directors this 30th day of December, 1996.
INLAND RESOURCES INC., a Washington
corporation formerly doing business as Inland
Gold and Silver Corp.
By
---------------------------------------
Its
-------------------------------------
1
<PAGE>
CERTIFICATE OF ACKNOWLEDGEMENT
STATE OF ___________________ )
) ss.
COUNTY OF __________________ )
This instrument was acknowledged before me on ____________________, 1996,
by _________________, on behalf of Inland Resources Inc.
-------------------------------------
NOTARY PUBLIC
(My Commission Expires:___________)
2
<PAGE>
EXHIBIT "A"
UNPATENTED MINING CLAIMS
3
<PAGE>
EXHIBIT 10.39.4
ASSIGNMENT AND BILL OF SALE
---------------------------
This Assignment and Bill of Sale is made this 30th day of December, 1996,
by Inland Resources Inc., a Washington corporation formerly doing business as
Inland Gold and Silver Corp. (hereinafter "Assignor/Grantor"), to Placer Dome
U.S. Inc., a California corporation (hereinafter "Assignee/Grantee").
1. Assignor/Grantor owns certain mining properties located in Lander
County, Nevada, commonly referred to as the Toiyabe Property ("Property").
2. By letter agreements entered into by and between Assignor/Grantor and
Assignee/Grantee, Assignor/Grantor has agreed to assign and grant to
Assignee/Grantee all of Assignor's/Grantor's rights, titles and interests in and
to the mining properties and any and all other property and property rights
which Assignor/Grantor may own related to the Property including, but not
limited to, all permits, structures and equipment now on the Property or
existing in relation to the Property.
3. By this Assignment and Bill of Sale, Assignor/Grantor intends to set
aside, transfer and convey to Assignee/Grantee all of Assignor's/Grantor's
interests in the personal property, permits, intangibles and other property
owned or leased by Assignor/Grantor in relation to the Property to
Assignee/Grantee.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor/Grantor hereby transfers,
assigns and sets over to Assignee/Grantee, free and clear of any claims, liens,
or other encumbrances whatsoever (other than personal property taxes not yet due
and payable), all of Assignor's/Grantor's rights, titles and interests, legal
and equitable, in and to any personal property and personal property rights
owned by Assignor/Grantor located at the Property or related to the Property
including, but not limited to, any contract rights, choses in action,
intangibles, structures and permits. Furthermore, Assignor/Grantor grants,
conveys and transfers to Assignee/Grantee, free and clear of any claims, liens,
or other encumbrances (other than personal property taxes not yet due and
payable), all of Assignor's/Grantor's rights, titles and interests, legal and
equitable, in and to the equipment and machinery listed in Exhibit "A" attached
hereto and any other equipment or machinery owned by Assignor/Grantor located at
the Property.
Assignor/Grantor agrees to execute such further assignments, bills of sale,
documents of title and such other documents as may be necessary to transfer,
convey and set aside any personal property, personal property rights, permits,
intangibles and other property owned or leased by Assignor/Grantor in relation
to the Property.
INLAND RESOURCES INC. a Washington
corporation formerly doing business
as Inland Gold and Silver Corp.
By
--------------------------------------
Its
-------------------------------------
1
<PAGE>
CERTIFICATE OF ACKNOWLEDGEMENT
STATE OF____________________________)
) ss.
COUNTY OF___________________________)
This instrument was acknowledged before me on __________________________,
1996, by __________________________________, on behalf of Inland Resources, Inc.
NOTARY PUBLIC
(My Commission Expires:________)
2
<PAGE>
EXHIBIT "A" TO ASSIGNMENT AND BILL OF SALE
------------------------------------------
(PERSONAL PROPERTY AND EQUIPMENT)
3
<PAGE>
EXHIBIT 10.41
October 30, 1996
Johnson Water District
P O Box 1670
Roosevelt, UT 84066
Gentlemen,
The following constitutes an amendment to the original water sales and
delivery agreement dated January 12, 1989, and amended October 12, 1993 between
Lomax Exploration and Johnson Water District ( hereafter referred to as "JWD").
1. Due to the merger of Lomax Exploration and Inland Resources Inc., Inland
Resources Inc. desires to transfer the original water agreement dated January
12, 1989 and the subsequent memorandum of understanding dated October 12, 1993
to Inland Production Company, a wholly owned subsidiary of Inland Resources Inc.
(hereafter referred to as "Inland").
2. Inland requests an additional 7000 barrel per day (294,000 gal/day)
allotment to the existing 5000 barrel (210,000 gal/day) per day allotment
currently in place.
3. Inland proposes one of the following options be implemented to allow Inland
to secure an additional 7000 barrel per day allotment through JWD.
OPTION #1
---------
Inland would acquire a 7000 BWPD allotment through the Upper Country Water
District (hereafter referred to as "UCWD"). This volume would be delivered
to the JWD system in the Upalco area northwest of Ioka under the following
condition: 1) Inland's water requirements exceed 5000 BWPD and 2) JWD
system requirements at Bridgeland exceed 1,200,000 gal/day. By restricting
deleveries from UCWD as described above, JWD could supply Inland's water
requirements in excess of 5000 BWPD if current commitments were not fully
utilized, resulting in water demands less than 1,2000,000 gal/day. Inland
would purchase this water as provided for in the original January 12, 1989
agreement.
When volumes at Bridgeland exceed 1,2000,000 gal/day and Inland's
requirements exceed 5000 BWPD (between 5000 BWPD and 12,000 BWPD) Inland
would purchase water from UCWD. Purchases from UCWD essentially result in a
barrel for barrel trade between Inland and JWD when Inland's water
requirements exceed 5000 BWPD and JWD system requirements exceed 1,200,000
gal/day at Bridgeland. Inland is willing to compensate JWD $.30/1000
gallons for water volumes traded through UCWD.
1/2
<PAGE>
Inland emphasizes no water would be purchased from UCWD unless water
demands at Brigeland exceed 1,200,000 gal/day.
Inland is also willing to install storage at the Inland pump station if
circumstances arise where storage is needed.
OPTION #2
---------
Inland would provide capital funds to install storage facilities throughout
the JWD system such that culinary users don't experience less than normal
tap pressures (ie: when water volumes at Bridgeland exceed 1,200,000
gal/day). These storage additions would allow distribution of 2,000,000
gal/day through the JWD system. Horrock's study indicates probable
locations for storage are at the Ioka pump station and at the Inland pump
station. As a result of these capital expenditures, JWD would grant Inland
an additional 7000 BWPD allotment.
Water rates for the additional 7000 barrel per day allotment shall
initially be $.85/1000 gallons. Price escalations or reductions shall be
set by JWD and shall be consistent with changes experienced by other
Industrial and Commercial users on the JWD system. This rate base is
consistent with the original January 12, 1989 agreement.
4. Inland continues to acknowledge that culinary use has priority on water
available through the JWD system. Our goal is to maximize water delivery
through the JWD system for the benefit of all users.
HEREWITH: Let this amendment to the original agreement dated January 12, 1989
and to the memorandum of understanding dated October 12, 1993 act as an
official record between Inland Production Company (formerly Lomax Exploration)
and Johnson Water District. Executed on the dates contained herein, to b
effective for all purposes as of November 15, 1996, ("Effective Date").
Accepted and Agreed: Accepted and Agreed:
Johnson Water District Inland Production Company
- ----------------------------------- --------------------------------
By: By: John E. Dyer
Title: Title: Vice President & COO
Date:_________ Date:________
2/2
<PAGE>
EXHIBIT 10.42
CONFIRMATION
DOP-32290
TO: Inland Production FAX: {303} 296-4070
ATTN: Bill Pennington
FROM: Koch Oil Company
4111 East 37th Street North
Wichita KS 67220
ATTN: Gary Niernberger
Dear Sirs:
Koch Oil Company is pleased to confirm the following Collar between Koch Oil
Company {Koch} and Inland Production on the Trade Date referred to below.
The terms of the particular transaction to which this confirmation relates are
as follows:
<TABLE>
<S> <C>
a. Transaction Type Collar PUT/CALL Option
b. Put Option Seller/Call Option Inland Production
Buyer:
c. Call Option Seller/Put Option Koch
Buyer:
d. Trade Date: January 1, 1997
e. Expiration Date: Last day of each calendar month
f. Applicable Commodity: NYMEX Crude Oil Contract
g. Determination Quantity: January 1998-December 1998: 12,500 bbls/month {150,000 tot bbls
January 1999-December 1999: 14,000 bbls/month {168,000 tot bbls
January 2000-December 2000: 14,000 bbls/month {168,000 tot bbls
h. Put Strike Price: January 1998-December 1998: $18.00/bbl USD
January 1999-December 1999: $18.00/bbl USD
January 2000-December 2000: $18.00/bbl USD
i. Call Strike Price: January 1998-December 1998: $20.55/bbl USD
January 1999-December 1999: $20.55/bbl USD
January 2000-December 2000: $20.55/bbl USD
j. Determination Period: January 1, 1998 through December 31, 2000
k. Floating Price: Monthly average NYMEX WTI for the calendar month {prompt month-i.e., during Jan. 1998,
prompt NYMEX will be the Feb. 98 and Mar. 98 contracts
l. Settlement Date: Five business days following Expiration date
</TABLE>
<PAGE>
<TABLE>
<S> <C>
m. Settlement: If on Expiration date, the Floating Price is less than the Put Strike Price, then Inland
Production shall pay to Koch the difference times the Determination quantity on the
Settlement Date. If the Floating Price is greater than the Call Strike Price, then Koch
shall pay to Inland Production the difference times the Determination Quantity on the
Settlement Date.
n. Premium: January 1998-December 1998: $0.295/bbl USD {$44,250.00 total
January 1999-December 1999: {$0.065}/bbl USD $10,920.00 total
January 2000-December 2000: $0.005/bbl USD {$840.00 total
o. Premium Payment Date: Total premium of $34,170.00 due to Koch on January 16, 1997
p. Payment: Any monies due by either party to be paid by wire five {5} business days following
aforementioned settlement date
First National Bank of Chicago
Chicago, Illinois
ABA #071000013
SWIFT FNBC US 44
Koch Industries, Inc.
A/C 51-39058
Ref. KOC Invoice
</TABLE>
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us. Please return the signed original to the attention of
Barbara Hettinger at the Wichita address above.
We are pleased to have completed this transaction with you.
Best Regards,
KOCH OIL COMPANY
By:
------------------------------------
James B. Urban
Accepted and confirmed:
Inland Production
By:
------------------------------------
Title:
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF INLAND RESOURCES INC.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
STATE OF
PERCENTAGE INCORPORATION
NAME OWNERSHIP OR ORGANIZATION
---- ---------- ---------------
<S> <C> <C>
- ---------------------------------------------------------------------------
Inland Production Company 100% Texas
- ---------------------------------------------------------------------------
Farmout Inc. 100% Utah
- ---------------------------------------------------------------------------
Inland Gas Development Company 100% Utah
- ---------------------------------------------------------------------------
West Monument Butte Pipeline Company 83.86% Utah
- ---------------------------------------------------------------------------
Castle Peak Pipeline Company 49.43% Utah
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-KSB, into the Company's previously filed
Registration Statements on Form S-8 (File No. 33-41662), Form S-8 (File No. 33-
84640), Form S-3 (File No. 33-84766) and Form S-3 (File No. 33-80392).
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Denver, Colorado
February 24, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Inland Resources Inc. on Form S-8 (File No. 33-41662), Form S-8 (File No. 33-
84640), Form S-3 (File No. 33-84766) and Form S-3 (File No. 33-80392) of our
report dated March 20, 1996, on our audit of the consolidated financial
statements of Inland Resource Inc. as of December 31, 1995 and for the year then
ended, which report is included in this Annual Report on Form 10-KSB.
/s/ Coopers & Lybrand LLP
Coopers & Lybrand LLP
Denver, Colorado
February 24, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CONSULTANT PETROLEUM ENGINEERS
We consent to the incorporation by reference in the registration statements
of Inland Resources Inc. on Form S-8 (File No. 33-41662), Form S-8 (File No. 33-
84640), Form S-3 (File No. 33-84766) and Form S-3 (File No. 33-80392) of our
reserve appraisal, dated February 23, 1996, and our estimated proved reserves
review, dated January 27, 1997, respectively, relating to the estimated oil and
gas reserves and future net income attributable to certain oil and gas interests
of Inland Resources Inc. as of January 1, 1996, and January 1, 1997,
respectively, which reserve appraisal and estimated proved reserves review is
included in this Annual Report on Form 10-KSB.
/s/ Ryder Scott Company Petroleum Engineers
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Denver, Colorado
February 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at December 31, 1996 and the consolidated statements
of operations and cash flows for the year ended December 31, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,030,982
<SECURITIES> 0
<RECEIVABLES> 2,077,661
<ALLOWANCES> 0
<INVENTORY> 862,229
<CURRENT-ASSETS> 13,212,894
<PP&E> 47,955,946
<DEPRECIATION> 4,078,491
<TOTAL-ASSETS> 57,328,611
<CURRENT-LIABILITIES> 5,384,734
<BONDS> 19,972,014
0
10,000,000
<COMMON> 29,135,497
<OTHER-SE> (7,163,634)
<TOTAL-LIABILITY-AND-EQUITY> 57,328,611
<SALES> 10,704,463
<TOTAL-REVENUES> 10,704,463
<CGS> 2,044,990
<TOTAL-COSTS> 7,309,757
<OTHER-EXPENSES> (413,060)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,633,229
<INCOME-PRETAX> 2,174,537
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,174,537
<DISCONTINUED> (30,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,144,537
<EPS-PRIMARY> .37
<EPS-DILUTED> .29
</TABLE>
