FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission file number 0-18981
UNITED STATES EXPLORATION, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1120323
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1560 Broadway, Suite 1900, Denver, Colorado 80202
- ------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(303) 863-3550
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(Registrant's telephone number, including area code)
1901 New Street, Independence, Kansas 67301; (316) 331-8102
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(Former name, former address and former
fiscal year, if changed since last report)
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 XX No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class of Stock Amount Outstanding
-------------- ------------------
$.0001 par value 8,312,358 shares outstanding
Common Stock at August 14, 1997
<PAGE>
UNITED STATES EXPLORATION, INC.
Index
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.............................. 1-6
Item 2. Management's Discussion and Analysis or
Plan of Operation................................. 7-8
Part II - OTHER INFORMATION........................................... 9-12
SIGNATURES............................................................ 13
<PAGE>
United States Exploration, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, March 31,
1997 1997
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 15,301,109 $ 15,323,038
Certificate of deposit 1,500,000 1,500,000
Accounts receivable 508,588 590,237
Due from related parties - 4,300
Inventories 96,486 152,401
Prepaid expenses and other 58,875 23,449
----------- -----------
Total current assets 17,465,058 17,593,425
PROPERTY AND EQUIPMENT, AT COST
Oil and gas property and equipment -
full cost method 9,470,242 9,636,527
Natural gas gathering systems 1,645,574 1,695,394
Building and equipment 422,653 478,949
----------- -----------
11,538,469 11,810,870
OTHER ASSETS
Assets held for sale
Crude oil refinery 1,775,011 1,775,011
Natural gas stripping plant 40,000 40,000
Equipment 135,346 146,486
Pipeline lease agreement, less accumulated
amortization of $159,981 at March 31,
1997 and $172,611 at June 30, 1997 534,697 547,327
----------- -----------
2,485,054 2,508,824
----------- -----------
$ 31,488,581 $ 31,913,119
=========== ===========
The accompanying notes are an integral part of these statements.
1
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 31,
1997 1997
---- ----
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 386,817 $ 515,788
Due to related parties 32,015 15,215
----------- -----------
Total current liabilities 418,832 531,003
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value
Authorized - 100,000,000 shares
Issued and outstanding
Series C Cumulative Convertible -
4,000,000 shares (liquidation
preference of $24,480,000) 24,000,000 24,000,000
Common stock - $.0001 par value
Authorized - 500,000,000 shares
Issued and outstanding - 8,312,358
shares 831 831
Capital in excess of par 11,370,867 11,370,867
Accumulated deficit (4,301,949) (3,989,582)
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31,069,749 31,382,116
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$31,488,581 $31,913,119
=========== ===========
2
<PAGE>
United States Exploration, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30,
1997 1996
---- ----
Revenues
Sale of purchased gas $ 306,080 $ 140,621
Sale of company produced
oil and gas 720,486 590,111
Contracting, drilling and
oil field supplies 72,247 108,324
----------- -----------
1,098,813 839,056
Costs and expenses
Gas acquisition costs 218,876 90,943
Gas transportation costs 145,207 77,531
Production costs - oil
and gas 255,508 281,074
Other operating expenses 104,040 43,253
Depreciation, depletion and
amortization 291,410 194,948
General and administrative 155,108 118,886
----------- -----------
1,170,149 806,635
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Earnings (loss) from operations (71,336) 32,421
Other income (expense)
Interest income 233,282 827
Interest expense (321) (137,054)
Other 6,008 6,839
----------- -----------
238,969 (129,388)
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NET EARNINGS (LOSS) 167,633 (96,967)
Preferred stock dividends applicable
to the period (480,000) (22,125)
----------- -----------
Net loss applicable to common stockholders $ (312,367) $ (119,092)
=========== ===========
Loss per common share $ (.04) $ (.02)
=========== ===========
Weighted average shares
outstanding 8,312,358 6,510,283
=========== ===========
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
United States Exploration, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended June 30,
Increase (decrease) in cash and cash equivalents
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 167,633 $ (96,967)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities
Depreciation, depletion and amortization 291,410 194,948
Write down of inventories 50,000 --
Decrease in accounts receivable 81,649 55,485
(Increase) decrease in due from related parties 4,300 (2,285)
Decrease in inventory 5,915 6,929
Increase in prepaid expenses (35,426) (34,739)
Increase (decrease) in accounts payable and
accrued expenses (128,971) 10,407
Increase in due to related parties 16,800 17,838
Other 10,577 --
------------ ------------
Net cash provided by operating activities 463,887 151,616
Cash flows from investing activities
Decrease in restricted cash -- 74,697
Capital expenditures (5,816) (5,430)
------------ ------------
Net cash used in investing activities (5,816) 69,267
Cash flows from financing activities
Dividends paid on preferred stock (480,000) --
Repayment of term debt -- (287,134)
Proceeds from exercise of stock options -- 66,000
------------ ------------
Net cash used in financing activities (480,000) (221,134)
------------ ------------
Net decrease in cash and cash equivalents (21,929) (251)
Cash and cash equivalents, beginning of period 15,323,038 169,965
------------ ------------
Cash and cash equivalents, end of period $ 15,301,109 $ 169,714
============ ============
Supplemental disclosure of cash flow information
Interest expense paid $ 321 $ 139,398
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - COMPANY HISTORY AND NATURE OF OPERATIONS
United States Exploration, Inc. was incorporated on January 9, 1989. The
Company through its subsidiaries operates as a producer of oil and gas and
as an operator of gas gathering systems and an oil field parts and supply
store. The Company's operations are located in southeast Kansas and
northeast Oklahoma.
The consolidated financial statements include the accounts of United States
Exploration, Inc. and its wholly-owned subsidiaries, USX Operating Co.,
Inc., Producers Service Incorporated, Performance Petroleum Corporation,
Pacific Osage, Inc., Argas, Inc. and ZCA Gas Gathering, Inc. Operations of
Performance and Pacific are included in the consolidated financial
statements from September 1, 1995, which was the effective date of their
acquisition, while the operations of Argas, Inc. and ZCA Gas Gathering,
Inc. are included as of October 1, 1996, the effective date of their
acquisitions. All significant intercompany transactions and balances have
been eliminated.
The foregoing financial information is unaudited. The Company believes
however that they have made all adjustments necessary to reflect properly
the results of operations for the interim periods presented. The
adjustments consist only of normal reoccurring accruals. The results of
operations for the three months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the year ending March 31,
1998.
NOTE B - FINANCIAL STATEMENTS
Management has elected to omit substantially all footnotes relating to the
condensed financial statements of the Company. For a complete set of
footnotes, reference is made to the Company's Form 10-KSB as filed with the
Securities and Exchange Commission for the year ended March 31, 1997 and
the audited financial statements filed therewith.
NOTE C - LOSS PER COMMON SHARE
Loss per common share has been computed by dividing net income (loss),
after reduction for preferred stock dividends applicable to the period, by
the weighted average number of common shares outstanding during the periods
presented.
NOTE D - CLOSING OF PARTS SUPPLY STORE
On July 31, 1997 the Company closed its oilfield parts and supply store. In
connection with the anticipated liquidation of the store's inventory, the
Company has written down the carrying value of the inventory $50,000 at
June 30, 1997.
5
<PAGE>
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - EMPLOYMENT AGREEMENT
On August 7, 1997, the Company entered into a three-year employment
agreement with Bruce D. Benson who was appointed the Company's president
and chief executive officer. In addition to his annual salary of $150,000,
Mr. Benson received the following stock options:
Shares Exercise price
------ --------------
1,000,000 $ 4.50 Exercisable immediately
1,000,000 6.00 Exercisable immediately
1,000,000 9.00 Exercisable after one year
1,000,000 12.00 Exercisable after one year
6
<PAGE>
UNITED STATES EXPLORATION, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Portions of this Report contain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements include, without limitation, statements regarding the
Company's need for working capital, future revenues and results of operations.
Factors that could cause actual results to differ materially include, among
others, the following: market prices for oil and gas, results of drilling,
recompletions and workovers undertaken by the Company, future acquisitions,
competition with other regional suppliers of oil and gas products, relationships
with third parties regarding utilization of Company-owned gas gathering systems
and the overall economic climate. Most of these factors are beyond the control
of the Company. Investors are cautioned not to put undue reliance on
forward-looking statements. The Company disclaims any intent or obligation to
update publicly these forward-looking statements, whether as a result of new
information, future events or otherwise.
Liquidity and Capital Resources
The financial condition of United States Exploration, Inc. ("Company")
remained basically unchanged at June 30, 1997 compared to fiscal year end March
31, 1997. Working capital at June 30, 1997 was $17,046,226, compared to
$17,062,422 at March 31, 1997. Current assets at June 30, 1997 include cash,
cash equivalents and liquid investments of $16,801,109, primarily representing
the proceeds of a private placement conducted by the Company during fiscal 1997.
The Company's focus during fiscal 1998 will be to invest this capital in the
exploration, development and acquisition of oil and gas properties in an effort
to increase cash flow and profitability. Current liabilities at June 30, 1997
total $418,832, representing almost exclusively trade accounts payable.
Management is of the opinion that the Company has sufficient liquidity and
working capital for the foreseeable future. The Company had no existing
commitments for capital expenditures at June 30, 1997. Management estimates that
a minor portion of the Company's existing working capital will be utilized in
repairing existing gas gathering systems and recompletions and workovers of
existing oil and gas wells. The Company will continue to explore acquisition of
producing and nonproducing oil and gas properties in an effort to expand
operations.
The Company's efforts during the first quarter of fiscal 1998 were the
evaluation and disposition of non-essential assets and improvement of operations
from existing assets. The Company continues efforts to dispose of a crude oil
refinery and accompanying real estate located near the City of Corpus Christi,
Texas. However, as of the date of this Report, no definitive agreement regarding
this disposition has been reached. Proceeds from the disposition of
non-essential assets, such as equipment from a parts and supply store which was
closed effective July 31, 1997, will be added to the Company's available working
capital and utilized for future operations.
7
<PAGE>
Results of Operations
For the three months ended June 30, 1997, the Company realized a net profit
of $167,633 on total revenues of $1,098,813. This compares to a net loss of
$96,967 on revenues of $839,056 for the three months ended June 30, 1996. Taking
into account the preferred stock dividends applicable to the three month period,
the net loss applicable to common shareholders for the three months ended June
30, 1997 was $312,367, or $(.04) per share.
Revenues for the first three months of fiscal 1998 increased over the
comparable period for fiscal 1997 as a result of acquisitions completed by the
Company during fiscal 1997. First quarter 1998 revenues increased $259,757, or
31%, compared to revenues for the first quarter of fiscal 1997. Acquisition of
additional gas gathering systems allowed the Company to acquire more gas from
third party sellers, resulting in an increase of sale of purchased gas. Sale of
Company-produced oil and gas increased 22% as a result of additional properties
acquired during fiscal 1997. With the acquisition of additional properties,
depreciation, depletion and amortization also increased, from $194,948 for the
first quarter of fiscal 1997 to $291,410 for the first quarter of fiscal 1998.
The results of operations for the three months ended June 30, 1997 included
provision for disposition of certain non-essential assets of the Company. In
connection with the anticipated liquidation of inventory in connection with the
closing of an oil field parts and supply store, the Company wrote down the
carrying value of the inventory $50,000 at June 30, 1997.
Cash flows from operating activities increased as a result of acquisition
of additional properties and interest income from liquid investments. Net cash
provided by operating activities was $463,887 for the three months ended June
30, 1997, compared to $151,616 for the three months ended June 30, 1996.
However, as was the case for the first three months of fiscal 1997, cash
provided by operating activities during the first quarter of fiscal 1998 was
used for financing activities. The Company paid dividends on its outstanding
preferred stock of $480,000 during the first quarter of fiscal 1998. As a
result, cash and cash equivalents remained basically unchanged.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
No report required.
Item 2. Changes in Securities.
No report required.
Item 3. Defaults Upon Senior Securities.
No report required.
Item 4. Submission of Matters to a Vote of Security Holders.
No report required.
Item 5. Other Information.
Effective August 7, 1997, the Company experienced a change in control.
Bruce D. Benson was appointed President, Chief Executive Officer and Chairman of
the Board of Directors of the Company. In connection with his appointment, Mr.
Benson received options to acquire 4,000,000 shares of the Company's Common
Stock. Of that amount, options to acquire 2,000,000 shares vested immediately,
and the remainder will vest on the first anniversary of his appointment, if Mr.
Benson remains employed by the Company. Subsequent to the appointment of Mr.
Benson, previous members of the Company's Board of Directors resigned and were
replaced by Messrs. Benson, Robert J. Malone, Richard L. Robinson and Thomas W.
Gamel. As a result of these transactions, the Company experienced a change in
control.
Mr. Benson was appointed pursuant to an Executive Employment Agreement,
dated August 7, 1997 (the "Employment Agreement"). His appointment was for an
initial term of three years, with provision for renewal. The Employment
Agreement provides that Mr. Benson's employment may be terminated at any time by
the Board of Directors, or by Mr. Benson upon the occurrence of certain events,
including a "change in control." For purposes of the Employment Agreement,
"change in control" is defined to include the acquisition by any person or
entity of more than thirty five percent (35%) of the Company's Common Stock, the
merger or consolidation of the Company with another corporation, a change in the
membership of the Board of Directors of 50% or more during a consecutive
two-year period, the sale, assignment, transfer or other dispositions of assets
of the Company representing in excess of one-third of the consolidated value of
the Company's assets or the approval of the shareholders of a complete
liquidation or dissolution of the Company.
9
<PAGE>
Mr. Benson's compensation includes cash and options to acquire the
Company's Common Stock. The Employment Agreement provides for a base salary of
not less than $150,000 per year, bonuses in the discretion of the Board of
Directors and insurance and other employee benefits. Mr. Benson received options
to acquire up to 4,000,000 shares of the Company's Common Stock, exercisable at
various prices between $4.50 and $12.00 per share. Options to acquire 2,000,000
shares, 1,000,000 each exercisable at $4.50 and $6.00, vested immediately; the
remaining options, 1,000,000 each exercisable at $9.00 and $12.00 per share,
vest on the first anniversary of the Employment Agreement, provided that Mr.
Benson remains employed by the Company. Notwithstanding the foregoing vesting
provisions, all of the options shall become exercisable upon the earliest to
occur of (a) immediately prior to the closing of the sale by the Company of all
or substantially all of its assets; or (b) immediately prior to the closing of
any merger, consolidation, or other transaction in which the outstanding Common
Stock of the Company is converted into or exchanged for securities, cash or
other property. All of these options are exercisable for a period of ten years
from the date of the Employment Agreement, and are non-assignable.
The Employment Agreement provides for adjustment in the exercise period of
the options in the event Mr. Benson's employment with the Company is terminated
for certain reasons. The exercise period may be shortened in the event his
employment is terminated for cause, as defined in the Employment Agreement, or
if such termination results from Mr. Benson's death or disability.
Following Mr. Benson's appointment, previous members of the Company's Board
of Directors resigned and were replaced such that the Board of Directors is
comprised of the following individuals at the date of this Report: Bruce D.
Benson, Robert J. Malone, Richard L. Robinson and Thomas W. Gamel.
[SPACE INTENTIONALLY LEFT BLANK]
10
<PAGE>
The following table depicts beneficial ownership of the Company's Common
Stock by the new members of the Board of Directors as of the date of this
Report. Unless otherwise indicated, all shares are owned directly by the named
individual.
Name of Individual Number of Shares Percentage of Voting Securities
- ------------------ ---------------- -------------------------------
Bruce D. Benson 2,220,000 1 21.53%
Thomas W. Gamel 388,788 2 4.58%
Robert J. Malone 295,500 3 3.44%
Richard L. Robinson 305,000 4 3.55%
- ------------------------------
1 Includes 2,000,000 shares underlying options, 1,000,000 of which are
exercisable at $4.50 per share and 1,000,000 of which are exercisable at $6.00
per share, each until August 7, 2007.
2 Includes 106,288 shares held indirectly through a corporation of which
Mr. Gamel has voting control, and 179,000 shares of Common Stock underlying
options exercisable at $4.125 per share until August 13, 2007.
3 Includes (i) 100,000 shares of Common Stock underlying 50,000 shares of
Series "C" Preferred Stock, convertible anytime into Common Stock at the rate of
two shares of Common Stock to one share of Preferred Stock , which Preferred
Shares are held indirectly through a partnership, and (ii) 179,000 shares of
Common Stock underlying options exercisable at $4.125 per share until August 13,
2007.
4 Includes (i) 100,000 shares of Common Stock underlying 50,000 shares of
Series "C" Preferred Stock, convertible anytime into Common Stock at the rate of
two shares of Common Stock to one share of Preferred Stock , which Preferred
Shares are held indirectly through a partnership, and (ii) 179,000 shares of
Common Stock underlying options exercisable at $4.125 per share until August 13,
2007.
- ------------------------------
Effective August 12, 1997, the Company relocated its principal executive
office from Independence, Kansas to Denver, Colorado. In connection with that
move, the Company entered into a Cost and Expense Sharing Agreement (the
"Agreement") with Benson Mineral Group, Inc. ("BMG"), a privately held Oklahoma
corporation of which Mr. Benson is President, a director and sole shareholder.
Pursuant to that Agreement, the Company has agreed to compensate BMG for office
rent, personnel costs and other overhead and administrative expenses associated
with operation of its business based upon actual use of facilities and personnel
by the Company. The Agreement is effective so long as Mr. Benson functions as
the President and Chief Executive Officer of the Company.
The foregoing description is qualified in its entirety by reference to the
Executive Employment Agreement, Non-Qualified Stock Option Agreements and Cost
and Expense Sharing Agreement, copies of which are filed with this Report as
exhibits.
11
<PAGE>
The Company knows of no other arrangement, the operation of which at a
subsequent date may result in a change in control.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits:
(1) Executive Employment Agreement, dated August 7, 1997, by and
between the Company and Bruce D. Benson;
(2) Cost and Expense Sharing Agreement, dated August 7, 1997, by and
between the Company and Benson Mineral Group, Inc; and
(3) Form of Non-Qualified Stock Option Agreement.
B. Reports on Form 8-K:
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNITED STATES EXPLORATION, INC.
Date: 8/19/97 By: /s/ Bruce D. Benson
------------------------- --------------------------------------------
Bruce D. Benson, President, Chief Executive
Officer and Chairman of the Board
(Principal Executive Officer)
Date: 8/19/97 By: /s/ F. Michael Murphy
------------------------- --------------------------------------------
F. Michael Murphy, Vice President,
Secretary and Chief Financial Officer
(Principal Financial Officer)
13
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement is made as of the 7th day of August,
1997 by and between United States Exploration, Inc., a Colorado corporation (the
"Company"), and Bruce D. Benson, a Colorado resident ("Executive").
The Company desires to employ Executive, and Executive desires to accept
employment with the Company, subject to the terms and conditions hereinafter set
forth. Accordingly, in consideration of the mutual covenants and agreements set
forth herein, the Company and Executive agree as follows:
1. Employment.
1.1 Engagement of Executive. The Company agrees to employ Executive,
and Executive agrees to accept employment by the Company, all in accordance with
the terms and conditions of this Agreement.
1.2 Duties and Powers.
(a) During the Employment Period (as defined below), Executive
will serve as the Company's President and Chief Executive Officer and will have
all of the responsibilities, duties and authority ordinarily associated with
those offices.
(b) During the Employment Period, Executive shall serve on the
Board of Directors of the Company (the "Board") and shall be the Chairman of the
Board. Executive acknowledges that, although the Board can initially appoint him
to the Board, only the shareholders can thereafter elect him to the Board. The
Company will cause Executive to be nominated for election to the Board on each
occasion on which directors are to be elected during the Employment Period.
(c) Executive shall also serve as the president and chief
executive officer and on the board of directors of each subsidiary of the
Company and shall hold comparable positions with respect to each other entity
controlled by the Company that is not a corporation.
1.3 Employment Period. Executive's employment under this Agreement
shall begin on the date hereof and shall continue to but excluding the third
anniversary of the date hereof (the "Initial Period"), unless extended as
provided in this Section 1.3. This Agreement and Executive's employment
hereunder shall automatically be extended for additional consecutive one-year
periods ("Renewal Periods") unless, at least 90 days prior to the end of the
Initial Period or any Renewal Period, either party gives written notice of
nonrenewal to the other. The Initial Period and the Renewal Periods are referred
to collectively as the Employment Period. Notwithstanding anything to the
contrary contained herein, the Employment Period is subject to termination
pursuant to Section 1.4.
- 1 -
<PAGE>
1.4 Termination.
(a) The Board has the right to terminate Executive's employment
under this Agreement, by notice to Executive in writing at any time. Any such
termination shall be effective upon the date of service of such notice pursuant
to Section 9.
(b) Executive shall have the right to terminate this Agreement in
the event that (i) he is at any time during the Employment Period actually or
constructively deprived of any of the titles, duties, responsibilities and
authority of the President, Chief Executive Officer and Chairman of the Board of
the Company or any of its subsidiaries, (ii) he is at any time during the
Employment Period not a member of the Board and the board of directors of each
subsidiary (following his initial election to the board of such subsidiary),
(iii) the Company fails to pay him any compensation or benefits to which he is
entitled hereunder within 15 days after written demand therefor, (iv) the
Company breaches any other covenant hereunder and such breach is not cured to
the reasonable satisfaction of Executive within 30 days after notice of breach
to the Company or (v) a "Change of Control" has occurred at any time after the
date of this Agreement. For that purpose, Executive shall be deemed to have been
constructively deprived of the duties, responsibilities and authority of the
President, Chief Executive Officer and Chairman of the Board of the Company or a
subsidiary if his duties, responsibilities and authority are altered in any way
so as to reduce the duties, responsibilities and authority exercised by him upon
commencement of the Employment Period. A "Change of Control" means: (v) the
acquisition by any entity, person or group (which theretofore beneficially owned
less than 35% of the Company's Common Stock) in one or more transactions of
beneficial ownership of 35% or more of the Company's Common Stock, where
beneficial ownership, the percentages of shares outstanding and the existence of
a group are determined pursuant to Sections 13(d) and (g) of the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder; (w)
the merger or consolidation of the Company with one or more corporations in a
transaction or series of transactions in which the common stock of the Company
is exchanged for, or after which the common stock of the Company theretofore
outstanding constitutes, less than 60% of the voting stock of the resulting or
surviving corporation, including, without limitation, an exchange of the common
stock of the Company for cash or other property, or after which any entity,
person or group (which theretofore beneficially owned less than 35% of the
Company's Common Stock) beneficially owns 35% or more of the voting stock of the
resulting or surviving corporation, or after which 50% or more of the members of
the board of directors of the resulting or surviving corporation were not
members of the Board immediately prior to the transaction; (x) a change, during
any period of two consecutive years beginning on or after the date hereof, in
the membership of the Board so that 50% or more of the members of the Board were
not such members at the commencement of such two-year period; (y) the sale,
assignment, transfer, pledge, hypothecation or other disposition of assets
(except a pledge, hypothecation or other similar disposition made at the time
the Company enters into a bona fide financing transaction with a party which at
the time of such transaction is not an affiliate of the Company) of the Company
having a value, as determined by the Board in good faith, in excess of one-third
of the consolidated total assets of the Company or (z) approval by the
shareholders of the Company of a complete liquidation or dissolution of the
Company. Notwithstanding the foregoing, no acquisition of Common Stock
- 2 -
<PAGE>
by Executive or any entity controlled by him or any group of which he is a
member shall constitute or give rise to a Change of Control and any director who
is appointed or nominated for election to the Board with the approval of
Executive (which approval must be evidenced by Executive's vote in favor of such
appointment or nomination at a meeting or in a written consent of the Board)
shall be deemed to have been a member of the Board immediately prior to any
transaction and as of the commencement of any two-year period.
(c) This Agreement shall terminate automatically upon Executive's
death.
2. Compensation and Benefits.
2.1 Base Compensation. During the Employment Period, the Company will
pay Executive a base salary at a rate of not less than $150,000 per annum (the
amount actually being paid to Executive at any time being referred to as the
"Base Salary"), payable in accordance with the Company's regular payroll policy.
At least annually, the Board of Directors shall review Executive's Base Salary
and may, in their discretion, increase, but not decrease, Executive's Base
Salary. Upon termination of the Employment Period, the Base Salary for any
partial year will be pro rated based on the number of days elapsed in such year
during which the Employment Period had continued.
2.2 Discretionary Bonus. Following the end of each fiscal year, the
Board, in its sole discretion, may elect to cause the Company to award to
Executive a bonus (the "Discretionary Bonus") for such year, in an amount to be
determined by the Board in their sole judgment based upon the Executive's
performance.
2.3 Benefits. In addition to the Base Salary and any Discretionary
Bonus payable to Executive hereunder, Executive will be entitled to the
following benefits during the Employment Period, unless otherwise altered by the
Board with respect to all executives of the Company:
(a) Hospitalization, disability, life and health insurance, to
the extent offered by the Company, and in amounts consistent with Company
policy, for all key management employees, as reasonably determined by the Board;
(b) Reimbursement for reasonable, ordinary and necessary out-of-
pocket business expenses incurred by Executive in the performance of his duties,
subject to the Company's policies in effect from time to time with respect to
travel, entertainment and other expenses, including, without limitation,
requirements with respect to reporting and documentation of such expenses; and
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(c) Other benefit arrangements, including a 401(k) or similar tax
deferral plan, to the extent made generally available by the Company to its
executives and key management employees.
In addition, the Executive shall be eligible to participate in any stock option,
restricted stock, stock appreciation rights or other equity incentive plan from
time to time maintained by the Company for officers or employees.
2.4 Taxes, etc. All compensation payable to Executive hereunder is
stated in gross amount and shall be subject to all applicable withholding taxes
and any other amounts required by law to be withheld.
2.5 Options. Upon the date hereof, the Company shall grant to
Executive options (the "Options") to purchase shares of the Company's common
stock, $.0001 par value ("Common Stock"), as follows:
No. Shares Exercise Price
---------- --------------
1,000,000 $ 4.50
1,000,000 6.00
1,000,000 9.00
1,000,000 12.00
---------
4,000,000
=========
The Options with an exercise price of $4.50 per share and $6.00 per share shall
be exercisable immediately upon the date hereof. The Options with an exercise
price of $9.00 per share and $12.00 per share shall become exercisable upon the
first anniversary of the date hereof, subject to the terms of the Options. The
Options shall be in the form annexed hereto as Exhibit A with appropriate
completions to reflect the number of shares, the exercise price and the timing
of exercisability for each option.
3. Time Required; Other Interests; Corporate Opportunities.
(a) The Company acknowledges that Executive has a variety of
other business, civic, political and personal interests and will in the future
pursue additional business opportunities and civic, political and personal
interests. Executive shall be free to pursue such other interests and
opportunities and shall not be required to devote his full business time and
effort to the affairs of the Company hereunder. Executive shall be obligated to
devote to the Company's affairs only such time and effort as, in his reasonable,
good faith judgment, they require. It is understood that Executive will
generally oversee the operations of the Company during the term of this
Agreement, but will cause the operations to be conducted by employees of the
Company and employees of BMG (as defined below) pursuant to the Cost Sharing
Agreement (as defined below). The Company understands and agrees that Executive
may perform his obligations hereunder from any location and that he is not
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<PAGE>
required to be present in the Company's offices for any particular amount of
time. In no event shall Executive's failure to devote a particular amount of
time to the Company's affairs or Executive's absence from the Company's offices
for any particular amount of time be deemed a breach of or failure to perform
his obligations hereunder. The Company may not require Executive to locate his
principal offices at any location other than the offices of BMG as contemplated
by Section 4.
(b) Executive's other interests include and may in the future
include oil and gas interests and operations. In order to avoid any uncertainty
as to the Company's right to participate in any other activities that Executive
may have or undertake under the "corporate opportunity" doctrine, the parties
have agreed that Executive will offer to the Company any opportunity to acquire
any Oil and Gas Interests (as defined below) of which Executive becomes aware
during the Employment Period and which Executive desires to pursue; provided,
however, that Executive shall not be obligated to offer to the Company any such
opportunity that exists or arises under any agreement to which Executive or any
entity controlled by him was a party as of the date hereof. If Executive does
not believe that the Company should pursue any such opportunity, and wishes to
pursue or cause an entity controlled by him to pursue such opportunity, he shall
give written notice of that fact to the Company, with a copy to each member of
the Board, describing the opportunity in reasonable detail. Executive shall
provide such additional information concerning the opportunity as any member of
the Board may reasonably request. The Company shall have a period of 15 days
after such notice to notify Executive of its decision to have the Company pursue
the opportunity. If the Company fails to give such notice within that 15-day
period, Executive or any other entity designated by him shall be free to pursue
the opportunity for his or its own account, with no further obligation to the
Company. Except as expressly provided in this Section 3(b), Executive shall have
no obligation to offer any business opportunity to the Company and shall be free
to pursue any such opportunity for his own account or the account of any other
entity, whether or not such opportunity might otherwise be deemed to be within
the scope of the Company's business. Without limiting the generality of the
foregoing, Executive shall not be obligated to offer any opportunity to acquire
any Oil and Gas Interest outside the Territory to the Company. As used in this
Section 3(b), (a) "Oil and Gas Interests" means any form of ownership of oil
and/or gas minerals or the right to receive a portion of the proceeds of sale
thereof and any facilities used in connection with the processing or
transportation thereof, and (b) "Territory" means the continental United States
of America except for the following: (i) Blaine, Pawnee and Canadian Counties,
Oklahoma, (ii) the Denver-Julesburg Basin in Colorado and Wyoming, (iii) the
Piceance Basin in Colorado, and (iv) oil and gas properties owned directly or
indirectly by Executive or by any entity in which Executive owns an interest as
of the date of this Agreement ("Existing Properties"), any property subject to
an area of mutual interest or similar provision relating to an Existing Property
and any property that directly adjoins an Existing Property.
4. Use of BMG Facilities and Personnel; Cost Sharing Agreement. Executive
is the sole shareholder of Benson Mineral Group, Inc. ("BMG"). BMG has offices
in Denver, Colorado that are equipped with systems designed for oil and gas
operations which are superior to the systems presently used by the Company. BMG
also has a number of employees with expertise needed by the Company to
effectively conduct its operations and pursue existing opportunities. In
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order to avail itself of BMG's facilities, systems and personnel, the Company
shall locate its principal executive offices at the offices of BMG. Executive
may cause officers and employees of BMG to provide services to the Company, and
may cause the Company to use the systems and facilities of BMG, in each case in
such areas, in such manner and to such extent as he deems appropriate in his
sole discretion. The Company shall bear all costs of relocating its principal
executive offices to BMG's offices, including any modifications in BMG's offices
or systems reasonably necessary to accommodate that change. Executive shall
determine, in his sole discretion, whether new or existing personnel shall be
employees of BMG or of the Company and may cause all such employees to be paid
by a common paymaster. In the event that the addition of the Company's
operations to the BMG offices now or in the future requires additional
facilities or systems, Executive shall determine, in his sole discretion,
whether such facilities and systems shall be procured for the Company or for
BMG. Contemporaneously with the execution of this Agreement, the Company and BMG
are entering into a Cost and Expense Sharing Agreement (the "Cost Sharing
Agreement") pursuant to which they will share and allocate the expenses of BMG's
offices, equipment and personnel. No compensation paid to Executive by the
Company or BMG shall be shared under the Cost and Expense Sharing Agreement.
Nothing contained in this Agreement or the Cost Sharing Agreement shall obligate
BMG to provide or the Company to use any particular facilities, systems or
services of BMG.
5. Life Insurance. The Company may at its discretion and at any time apply
for and procure as owner and for its own benefit and at its own expense,
insurance on the life of Executive in such amounts and in such form or forms as
the Company may choose. Executive shall cooperate with the Company in procuring
such insurance and shall, at the request of the Company, submit to such medical
examinations, supply such information and execute such documents as may be
required by the insurance company or companies to whom the Company has applied
for such insurance. Executive shall have no interest whatsoever in any such
policy or policies, except that, upon the termination of Executive's employment
hereunder, Executive shall have the privilege of purchasing any such insurance
from the Company for an amount equal to the actual cash surrender value thereof
on the date of termination.
6. Arbitration. Any dispute between the parties with respect to this
Agreement shall be submitted to binding arbitration in Denver, Colorado pursuant
to the rules of the American Arbitration Association then in force before the
Judicial Arbiter Group. If the Judicial Arbiter Group is not available to
conduct the arbitration, the arbitration shall be before another arbitrator
mutually acceptable to the parties or, if the parties are unable to agree,
before the American Arbitration Association. The Company shall pay all costs of
the arbitration proceedings, including all attorneys fees and other costs
incurred by both the Company and Executive in preparing for and participating in
the arbitration; provided, however, that if the arbitration was commenced by
Executive and the arbitrators determine that Executive's claims in the
arbitration, taken as a whole, were made in bad faith and lacked colorable legal
merit, they may order Executive to pay his own legal fees and other costs
incurred by him in preparing for and participating in the arbitration. The
arbitrators shall have the power to award any legal or equitable remedies that
would be available in proceedings conducted before a state or federal court of
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competent jurisdiction in Denver, Colorado. Judgment on the award of the
arbitrators may be entered in any court of competent jurisdiction. All
arbitration proceedings and the results thereof shall be confidential, except to
the extent that any party is required to make disclosure concerning such
proceedings under applicable law.
7. Assignment. No party hereto may assign or delegate any of its rights or
obligations hereunder. Except as otherwise expressly provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any of
the parties shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not.
8. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
9. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been duly given if (i) delivered personally
to the recipient, (ii) sent to the recipient by a reputable express courier
service (charges prepaid) or mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid, or (iii) transmitted by
telecopy to the recipient with a machine confirmation of transmission. Such
notices, demands and other communications shall be sent to the addresses or
telecopier numbers indicated below:
(a) If the Employee:
Bruce D. Benson
1560 Broadway, Suite 1900
Denver, Colorado 80202
Facsimile No.: (303) 863-1932
(b) If to Company:
United States Exploration, Inc.
6623 E. 117th Street
Bixby, Oklahoma 74008
Attn: Secretary
Facsimile No.: (918) 298-9112
Either party may change its address or telecopier number for notice purposes by
written notice to the other party. Any notice so sent shall be deemed to have
been received, notwithstanding the date or fact of actual receipt, (w) the date
such notice is personally delivered, (x) the earlier of the date indicated on
the return receipt or four business days after the date of mailing if sent by
certified or registered mail, (y) one business day after the date of delivery to
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the overnight courier if sent by overnight courier or (z) the day of
transmission by telecopy or, if the day of transmission is not a business day in
the jurisdiction where the recipient's telecopier is located, the next business
day.
10. Entire Agreement. This Agreement and the Cost Sharing Agreement set
forth the entire understanding of the parties, and supersede and pre-empt all
prior oral or written understandings and agreements, with respect to the subject
matter hereof and thereof. No modification, termination or attempted waiver of
this Agreement shall be valid unless in writing and signed by the party against
whom the same is asserted.
11. Waiver. Either party's failure to enforce any provision of this
Agreement shall not be construed as a waiver of that provision or any other
provision as to that or any future violations thereof, nor prevent that party
thereafter from enforcing each and every provision of this Agreement. The rights
granted the parties herein are cumulative and the waiver by a party of any
single remedy shall not constitute a waiver of such party's right to assert all
other legal remedies available under the circumstances.
12. No Conflict. Executive represents and warrants that Executive is not
subject to any agreement, order, judgment or decree of any kind which would
prevent Executive from entering into this Agreement or performing fully his
obligations hereunder.
13. Governing Law. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the laws
of the State of Colorado, without giving effect to provisions thereof regarding
conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
UNITED STATES EXPLORATION, INC.
By: /s/ Demitrie D. Carone
--------------------------------
Its: President
--------------------------------
/s/ Bruce D. Benson
-------------------------------
Bruce D. Benson
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EXHIBIT A
FORM OF OPTION
- 9 -
COST AND EXPENSE SHARING AGREEMENT
This Agreement is entered into effective August 7, 1997 by and between
Benson Mineral Group, Inc. ("BMG") and United States Exploration, Inc.
("Company") for the purpose of allocating costs and expenses which should be
allocated between the parties hereto.
WHEREAS, BMG currently rents office space at 1560 Broadway, Denver,
Colorado, for use as its corporate offices and Company may locate some of its
personnel at this office space;
WHEREAS, BMG employs office and field personnel who may perform services
for Company or for subsidiaries of Company;
WHEREAS, BMG and Company will make every effort to specifically identify
costs and expenses incurred so that each party will bear its own costs and
expenses; and
WHEREAS, it is recognized that some personnel costs and other costs and
expenses may not be capable of specific identification and a method of
allocating such personnel costs and other costs and expenses is desirable.
NOW, THEREFORE, the parties agree to follow the procedure described below
for allocating personnel costs and expenses and other costs and expenses which
cannot be specifically identified as being incurred by a particular party:
1. Company will pay BMG monthly for a pro-rata share of the Denver,
Colorado corporate office rent. Rents will be allocated based upon square
footage used by employees of Company compared to the square footage used by BMG
employees excluding, in each case, Bruce D. Benson. The square footage used by
Bruce D. Benson will be allocated 50% to Company and 50% to BMG. The portion of
the rent allocable to BMG employees, other than Bruce D. Benson, shall then be
allocated between the Company and BMG on the same basis as such employees'
compensation is allocated under 2. below. The square footage shall include a
pro-rata share of common area space within and without the demised premises for
which BMG pays monthly rent.
2. The Company will pay BMG monthly for any BMG employees, including
officers other than Bruce D. Benson, who work on Company business. The rate to
be paid will be a pro rata share of such employee's compensation, including
bonuses, if any, plus directly related personnel costs. Directly related
personnel costs shall include, without limitation, federal, state and local
payroll taxes, unemployment and workers' compensation insurance and employee
benefit plans such as health, life, disability, education and retirement. The
time spent on Company business shall be determined from the time sheets of BMG's
employees. The allocation of bonuses, if any, shall be based upon the time
sheets for the period to which the bonus is related.
3. Other Denver office costs and expenses which cannot be specifically
identified as pertaining to either BMG or Company shall be initially paid 50% by
each party and shall be adjusted on a calendar quarter basis based upon the
calendar quarter's allocation of rent pursuant to 1. above. Such expenses might
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include, but are not limited to, the following categories of general and
administrative costs (as used in BMG's accounting system):
A. Auto expenses of BMG vehicles based in Denver.
B. Computer charges of BMG's software vendor and others.
C. Miscellaneous small contributions.
D. Dues and Subscriptions.
E. Copier expenses.
F. Education expenses.
G. Miscellaneous entertainment.
H. Insurance.
I. Legal.
J. Miscellaneous.
K. Office maintenance, supplies and equipment repairs.
L. Postage, fax and deliveries.
M. Telephone.
N. Travel and lodging.
BMG shall use reasonable efforts to specifically allocate all office costs and
expenses incurred on behalf of the Company or BMG.
4. Although it is not anticipated that any Company employees, office or
field, will perform any services for BMG, the provisions for 2. above shall
apply for allocation of Company personnel costs to BMG if such costs and
expenses occur. Bruce D. Benson will be paid by both Company and BMG, and there
will be no allocations of his personnel costs. Although it is not anticipated
that there will be Company office costs which cannot be specifically allocated,
the provisions of 3. above shall apply if there are any Company office costs
which cannot be specifically identified.
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5. BMG shall bill the Company on a monthly basis for the Company's share of
costs and expenses hereunder. Each bill shall reflect in reasonable detail the
computation of the amount due. BMG shall provide the Company such additional
information regarding that computation as the Company shall reasonably request.
The Company shall pay each bill within 10 days of receipt.
6. Except as otherwise provided herein, each party shall pay its own costs
and expenses.
7. The parties shall meet annually within 90 days after the end of each
calendar year to review the operation of the allocation formulas set forth
herein and the overall fairness of the resulting allocations of costs and
expenses. The Company shall be represented in those discussions by two or more
members of the Company's Board of Directors who are not officers or employees of
the Company or BMG. In the course of those discussions, the parties shall
consider in good faith whether adjustments to the provisions of this Agreement
are appropriate.
8. This Agreement shall remain in effect until the termination of the
Executive Employment Agreement of even date herewith between Bruce D. Benson and
the Company. The obligations of the parties to pay amounts due hereunder in
respect of periods prior to such termination shall survive such termination.
This Agreement is not intended to obligate BMG to provide facilities, personnel,
equipment or services to the Company, but only to govern the sharing of costs
and expenses if and to the extent that BMG does so.
9. This Agreement may be modified only by a written amendment signed by
both parties. This Agreement shall be governed by Colorado law. If any amount
due hereunder is not paid when due, it shall bear interest at BMG's then current
cost of borrowing plus 1% per annum.
BENSON MINERAL GROUP, INC. UNITED STATES EXPLORATION, INC.
By: /s/ Bruce D. Benson By: /s/ Demetrie D. Carone
----------------------------- ---------------------------------
Its: President Its: President
----------------------------- ---------------------------------
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NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (the "Agreement") is made
effective as of the 7 day of August, 1997, between United States Exploration,
Inc., a Colorado corporation (the "Company"), and Bruce D. Benson (the
"Optionee"). For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Option Grant. Pursuant to the Executive Employment Agreement dated August 7,
1997 between the Company and the Optionee (the "Employment Agreement") and
subject to the terms and conditions of this Agreement, the Company grants to the
Optionee the right and option (the "Option") to purchase up to an aggregate of
1,000,000 shares (the "Optioned Shares") of its common stock, $.0001 par value
("Common Stock").
2. Stock Option Price. The purchase price of the Optioned Shares is $4.50 per
share (the "Stock Option Price").
3. Exercisability. The Option [is exercisable from and after the date hereof]
[shall become exercisable on the first anniversary of the date hereof.]
Notwithstanding anything to the contrary contained in this Section 3, the Option
shall become exercisable as to all of the Optioned Shares upon the earliest to
occur of [a] immediately prior to the closing of the sale by the Company of all
or substantially all of its assets or [b] immediately prior to the closing of
any merger, consolidation or other transaction in which the outstanding Common
Stock of the Company is converted into or exchanged for other securities or cash
or other property, other than a merger or consolidation in which the
shareholders of the Company immediately prior to the transaction own at least
60% of the total equity interest in and voting power of the surviving or
resulting corporation immediately after the transaction. The Option may be
exercised for any Optioned Shares as to which it is then exercisable, in whole
or in part, at any time and from time to time, prior to 5:00 p.m., Colorado
time, on the tenth anniversary of the date hereof, at which time the Option will
expire to the extent not previously exercised.
4. Manner of Exercise. The Option is exercisable by written notice to the
Company, signed by the Optionee or other authorized person, in the form attached
to this Option. Such notice must be accompanied by payment in full of the Stock
Option Price of the Optioned Shares being purchased. Such notice and payment
must either be actually delivered to the Company or sent by certified mail to
the Company at 1560 Broadway, Suite 1900, Denver, Colorado 80202 (or at such
other address as the Company may direct). Within five business days after
receipt of such notice and payment, the Company shall deliver to the Optionee
certificates representing the Optioned Shares purchased, registered in the name
of the Optionee (or such other name as the Optionee may designate in such
notice), free and clear of any liens, claims, encumbrances or restrictions. Upon
such exercise, the Optionee shall be deemed the record owner of the Optioned
Shares purchased upon such exercise without regard to the date on which the
related certificate is issued. Notwithstanding the foregoing, if the Option is
exercised at any time after the approval or announcement of a transaction
described in Section 3 which would accelerate the exercisability of the Option
(whether or not the Option has theretofore become fully exercisable), the
Optionee may exercise the Option conditioned upon the consummation of said
transaction (and may give notice of such exercise at any time after such
approval or announcement) and (i) if the transaction is consummated, the
Optionee shall be deemed to have been the record owner of the Optioned Shares
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immediately prior to and on the effective date of the transaction and (ii) if
the transaction is not consummated, the Company shall return the notice of
exercise and related payments (in the form received from the Optionee) to the
Optionee and the Option shall be restored to the status it would then have if
the transaction had not been approved or announced; provided, however, that if
the Option would otherwise expire, the Optionee may instruct the Company to
retain the exercise notice and payment and issue the Optioned Shares as to which
the Option had become exercisable in accordance with its terms.
5. Payment of Stock Option Prices. The Stock Option Price of any Optioned Shares
purchased hereunder may be paid in any of the following ways:
(a) by check;
(b) by delivery of certificates representing a number of shares of
outstanding Common Stock having a fair market value (based on the closing price
or, if the closing price is not reported, the average of the bid and asked
prices of the Common Stock on the last trading day before the date said notice
is sent by the Optionee) equal to the Stock Option Price, duly endorsed for
transfer to the Company and free and clear of any lien, claim, encumbrance or
restriction;
(c) a negotiable promissory note bearing interest at the prime rate from
time to time announced by Wells Fargo Bank, with principal payable not later
than five years after the date the Option is exercised and accrued interest
payable quarterly, and secured by collateral, other than the Optioned Shares
being purchased, having a fair market value at least equal to the principal
amount of the note; or
(d) any combination of the foregoing.
At the request of the Optionee, the Company shall cooperate in arranging a
so-called "broker-assisted cashless exercise" of the Option, including entering
into any agreement reasonably requested by a broker agreeing to forward the
certificate representing the Optioned Shares directly to the broker.
6. Securities Law Matters. As soon as reasonably practicable after the date
hereof, the Company shall register the Optioned Shares under the Securities Act
of 1933 for issuance to the Optionee upon exercise of the Option, and shall keep
such registration in effect until the Option has expired or been fully
exercised. Such registration shall include a "reoffer prospectus" to allow the
Optionee to resell the Optioned Shares. If the Option is exercised prior to the
effective date of such registration, at the time of exercise Optionee shall
execute and deliver to the Company an investment letter containing such
representations and warranties as the Company may reasonably request to
establish the availability of exemptions from the registration requirements of
federal and applicable state securities laws, and the certificates representing
the Optioned Shares shall bear an appropriate legend.
7. Nonassignable Option. Neither the Option nor any other rights acquired by the
Optionee under this Agreement are assignable or transferable by the Optionee.
Any sale, assignment, transfer, pledge or other disposition of any Option
contrary to the provisions of this Agreement, and any levy or any attachment or
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similar process upon any Option, will be null and void. The Option may be
exercised only by the Optionee during the Employee's lifetime, except as
otherwise specifically provided in Section 8.
8. Employment Termination. If the Optionee's employment with the Company is
terminated prior to the expiration or exercise in full of the Option:
(a) If such termination is by the Company for Cause (as defined below), the
Option may be exercised by the Optionee for a period of 90 days following
termination to the extent that it was exercisable on the date of termination,
but otherwise shall expire. "Cause" means the occurrence of any of the following
events:
(i) Optionee's conviction, beyond possibility of appeal, of a felony
or other crime involving moral turpitude, dishonesty, theft or fraud;
(ii) Optionee's willful disregard of the express instructions of the
Board, provided that such instructions are not contrary to applicable law or the
provisions of this Agreement and that the Board has given Optionee written
notice of such disregard and Optionee has failed to begin compliance with such
instructions to the reasonable satisfaction of the Board within 10 days after
such notice;
(iii) any willful act of gross misconduct by Optionee that is
materially and demonstrably injurious to the Company; or
(iv) the repeated failure by Optionee to perform his duties and
responsibilities hereunder after having been cautioned in writing by the Board
on at least two prior occasions over a period of at least 60 days.
A decision to terminate Optionee's employment as a result of any disagreement by
the Board with decisions made by Optionee or any dissatisfaction on the part of
the Board with the quality of Optionee's performance hereunder shall not
constitute termination for Cause for purposes of this Section.
(b) If such termination results from the Optionee's death or disability
(defined as Optionee's inability, by virtue of illness or physical or mental
incapacity or disability from any cause or causes whatsoever, to perform
Optionee's essential functions under the Employment Agreement, whether with or
without reasonable accommodation, for a period exceeding 180 days), the Option
may be exercised by the Optionee or his representative for a period of one year
following said termination to the extent that it was exercisable on the date of
termination, but otherwise shall expire.
(c) If such termination is by the Company for any other reason other than
cause, or for no reason, or is by the Optionee (unless such termination
constitutes a breach of the express terms of the Employment Agreement or any
other written employment agreement between the Company and the Optionee then in
effect or results from the death or disability of the Optionee), the Option
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shall become or continue to be exercisable as to all of the Optioned Shares from
and after the date of such termination and through and including the expiration
date stated in Section 3.
9. Adjustments in Certain Events.
(a) Stock Splits. In the event of a stock dividend, stock split or other
transaction as a result of which the outstanding shares of Common Stock are
divided into a larger number of shares or combined into a smaller number of
shares, the number of Optioned Shares and the Stock Option Price shall be
proportionately adjusted.
(b) Merger, Etc. In the event of a merger, consolidation, sale of all or
substantially all of the property of the Company, or reclassification,
recapitalization or reorganization of the Common Stock or of the Company, in
each case which results in the holders of the Company's Common Stock receiving,
in exchange for or upon conversion of or in addition to their shares of Common
Stock, securities, cash or other property, the Optionee shall be entitled to
receive, upon any exercise of the Option after the effective date of such
transaction, the securities (including Common Stock), cash or other property he
would have owned or been entitled to receive had he exercised the Option
immediately prior to the effective date of such transaction. If the transaction
is a merger or consolidation, as a condition to the transaction, the Company
shall cause the surviving or resulting entity to agree in writing for the
benefit of the Optionee to deliver such securities, cash or other property upon
exercise of the Option.
10. Fractional Shares. No fractional shares shall be issued upon exercise of
this Option. In lieu of any fractional shares otherwise issuable, the Company
shall pay the Optionee the fair market value thereof.
11. Withholding. Whenever compensation income is recognized by the Optionee with
respect to the Option, the Company may require (as a condition of Option
exercise) the Optionee to make a withholding tax payment to the Company. The
amount of such payment shall equal the amount of federal and state income tax
that the Company is required to withhold with respect to the issuance of such
stock. To the extent the required withholding tax payment is not timely made by
the Optionee, the Company may either withhold such payment from the Optionee's
cash compensation or make such other arrangements as the Board determines.
12. General Provisions.
(a) Delivery. Delivery of any notice or document shall occur upon actual
delivery to the recipient (including receipt of telecopy or facsimile
transmission), and shall be deemed delivered the third day following mailing by
U.S. certified mail, postage prepaid, return receipt requested, addressed to the
recipient's then current mailing address. Any corporate officer or other
authorized agent may receipt for any notice or document on behalf of the
Company.
(b) Amendment. This Agreement may be amended only in a written instrument
signed by both parties.
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(c) Binding Effect. This Agreement is binding upon, and inures to the
benefit of, the parties and their respective heirs, legal representatives and
permitted successors and assigns.
(d) Entire Agreement. This Agreement contains the entire agreement between
the parties with respect to its subject matter, and it supersedes all prior
written and oral agreements.
(e) No Waiver. No waiver of any default under this Agreement will be
considered valid unless in writing, and no such waiver will be deemed as a
waiver of any subsequent default of the same or similar nature.
(f) Governing Law. This Agreement will be construed and enforced in
accordance with the laws of the State of Colorado.
The Company and the Optionee have signed this Agreement effective as of the date
first above written, notwithstanding the actual date of signing.
United States Exploration, Inc.
8/7/97 By: /s/ Demetrie D. Carone
- ------------------ ----------------------------------
Date Title: President
-------------------------------
Optionee:
8/7/97 /s/ Bruce D. Benson
- ------------------ -------------------------------------
Date Bruce D. Benson
-5-
<PAGE>
NOTICE OF EXERCISE OF
NONQUALIFIED STOCK OPTION
The undersigned ("Optionee") hereby elects to exercise the Option (as
defined in the Nonqualified Stock Option Agreement dated August ___, 1997) as to
______ shares of the common stock, $.0001 par value ("Common Stock"), of United
States Exploration, Inc. (the "Company"), at a price of $_________ per share.
The undersigned is enclosing with this Notice payment in full of the purchase
price in the following form:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
The certificate for the shares issuable as a result of this exercise should
be registered in the name of the Optionee (unless otherwise indicated in a
writing accompanying this Notice) and delivered to the following address:
---------------------------
---------------------------
---------------------------
The Optionee will pay the Company any amount that the Company is required
to withhold as a result of this exercise.
-------------------------------------------
Name
-------------------------------------------
Signature
-------------------------------------------
Social Security Number
-------------------------------------------
Date
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 15,301,109
<SECURITIES> 1,500,000
<RECEIVABLES> 508,588
<ALLOWANCES> 0
<INVENTORY> 96,486
<CURRENT-ASSETS> 17,465,058
<PP&E> 11,538,469
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,488,581
<CURRENT-LIABILITIES> 418,832
<BONDS> 0
0
24,000,000
<COMMON> 831
<OTHER-SE> 7,068,918
<TOTAL-LIABILITY-AND-EQUITY> 31,488,581
<SALES> 1,098,813
<TOTAL-REVENUES> 1,098,813
<CGS> 619,591
<TOTAL-COSTS> 619,591
<OTHER-EXPENSES> 550,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 321
<INCOME-PRETAX> 167,633
<INCOME-TAX> 0
<INCOME-CONTINUING> 167,633
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,633
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
