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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 20, 1999
UNITED STATES EXPLORATION, INC.
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(Exact name of Registrant as specified in its charter)
Colorado 1-13513 84-1120323
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1560 Broadway, Suite 1900
Denver, Colorado 80202
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (303) 863-3550
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(Former name or former address, if changed since last report): NA
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 20, 1999, United States Exploration, Inc. (the "Company") sold
the stock of three wholly owned subsidiaries for $1.825 million in cash. The
subsidiaries sold were Performance Petroleum Corporation ("Performance"),
Pacific Osage, Inc. ("Pacific") and United States Gas Gathering Co., Inc.
("USGG").
The assets owned by Pacific, Performance and USGG consisted of
approximately 100 marginal stripper wells in Osage County, Oklahoma and
interests in two gathering systems associated with those wells. The estimated
proved reserves assigned to those wells as of January 1, 1998 were 185,000
barrels of oil and 900 million cubic feet of gas. The subsidiaries sold also had
obligations to plug and abandon approximately 300 non-producing wells. Oil and
gas properties owned by Performance and located in Logan, Noble and Kay
Counties, Oklahoma were transferred to the Company before the sale of
Performance.
As a result of reduced oil and gas prices, reduced purchases by the
Company's customers and normal production declines, the operations sold were not
profitable and were not expected to ever contribute significantly to net
revenues or cash flow. Because of the nature and age of the assets, they
consumed a disproportionate amount of management time. The sale of these
operations was intended to allow the Company to concentrate its energies on the
development of the properties in the Denver - Julesburg Basin acquired from
Union Pacific Resources in May of 1998.
USGG was sold in two transactions. First, USGG sold its gas gathering
system in Osage County, Oklahoma to Northern Osage Gas Association L.L.C. for
$245,000. Next, the Company sold the stock of USGG to four separate buyers for
$930,000. Neither Northern Osage Gas Association L.L.C. nor the buyers of the
USGG stock have any material relationship with the Company.
Performance and Pacific were sold to Demetrie D. Carone for $650,000. From
September, 1996 to August, 1997, Mr. Carone was the President and Chief
Executive Officer of the Company and a member of its Board of Directors. Mr.
Carone and members of his family own approximately 6% of the outstanding shares
of the Company. Mr. Carone currently has no relationship to the Company other
than as a shareholder. The Company originally acquired USGG, Performance and
Pacific from Mr. Carone and business associates in 1995 and 1996. Those
transactions are described in the Company's Annual Report on Form 10-KSB for the
year ended March 31, 1997.
The proceeds of the sales were used to repay a portion of the Company's
bank loan as required by applicable agreements. At the time of the sales, the
Company entered into an amendment to its loan agreements in which the lender
consented to the transaction and waived the Company's noncompliance with certain
financial covenants in its loan agreement through February, 1999. That amendment
also reduced the borrowing base for the loan from $35 to $32 million. The
borrowing base will be redetermined by the lender in February or March based on
year-end reserve estimates.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements concerning the Company's plans or expectations, production or
reserve levels, and all similar statements or implications are forward-looking
statements within the meaning of federal securities laws. Actual results or
events may differ materially from these forward-looking statements, depending
upon a variety of factors, including commodity prices, availability of capital,
results of exploration and other drilling, cash flow from operations, costs of
materials and labor, availability of equipment, regulatory actions, Company
objectives and business judgment and other factors, many of which are outside of
the Company's control. The Company's forward-looking statements are qualified in
their entirety by these and other factors more fully set forth in the Company's
public reports, including its report on Form 10-QSB for the period ended
September 30, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
The pro forma financial information required by this item relating to
the transactions described in Item 2 above is not included herewith
but will be filed by amendment within 60 days of the date this report
is due.
(c) Exhibits.
2.1 Pipeline Purchase Agreement between USGG and Northern Osage Gas
Association L.L.C. dated as of December 31, 1998.
2.2 Stock Purchase Agreement between the Company and the several
buyers named therein relating to the sale of USGG dated as of
December 31, 1998.
2.3 Stock Purchase Agreement between the Company and Demetrie D.
Carone relating to the sale of Pacific and Performance dated as
of December 31, 1998.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Current Report on Form
8-K to be signed on its behalf by the undersigned thereunto duly authorized.
UNITED STATES EXPLORATION, INC.
Date: February 1, 1999 By: /s/ F. Michael Murphy
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F. Michael Murphy, Vice President
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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2.1 Pipeline Purchase Agreement between USGG and Northern Osage Gas
Association L.L.C. dated as of December 31, 1998.
2.2 Stock Purchase Agreement between the Company and the several
buyers named therein relating to the sale of USGG dated as of
December 31, 1998.
2.3 Stock Purchase Agreement between the Company and Demetrie D.
Carone relating to the sale of Pacific and Performance dated as
of December 31, 1998.
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PIPELINE PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into effective as of the 31st day of
December, 1998 (the "Effective Date"), by and between UNITED STATES GAS
GATHERING CO., INC., a Delaware corporation (the "Seller"), and NORTHERN OSAGE
GAS ASSOCIATION, L.L.C. (the "Buyer").
WHEREAS, Seller is the owner of an undivided 50% interest in a natural
gas pipeline in Osage County, Oklahoma; and
WHEREAS, Seller desires to sell and Buyer desires to purchase the
Seller's interest in the Pipeline upon the terms and conditions contained
herein;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties hereto agree as
follows:
1. Purchase and Sale of Pipeline. On the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell, assign, transfer
and deliver to Buyer and Buyer agrees to purchase from the Seller, all of the
Seller's right, title and interest, if any, in the pipeline depicted on Exhibit
A as the ZCA Pipeline, including all of the assets, properties, rights and
operations of Seller constituting part of or used directly in the operation of
such pipeline, all agreements relating to such pipeline and the operation or
maintenance thereof, including contracts for the purchase, transportation or
sale of gas, and all inventories of natural gas liquids in such pipeline as of
the Effective Date (collectively, the "Pipeline"). The assets included in the
Pipeline are more particularly described in the Quit Claim Deed, Assignment and
Bill of Sale attached hereto as Exhibit B (the "Quit Claim").
2. Purchase Price and Delivery. The total purchase price (the "Purchase
Price") that shall be paid by Buyer for the Pipeline shall be $245,000, payable
by wire transfer to Seller at the Closing. Seller shall deliver to Buyer at
Closing, concurrently with the payment of the Purchase Price, (i) the Quit
Claim, duly executed and acknowledged by Seller and (ii) a certificate of the
Secretary of the Seller, in form and substance reasonably satisfactory to Buyer,
certifying the incumbency of each of the officers of Seller executing this
Agreement or any other document delivered hereunder.
3. Closing. The consummation of this transaction (the "Closing") shall
occur contemporaneously with the execution of this Agreement at the office of
United States Exploration, Inc., 1560 Broadway, Suite 1900, Denver, Colorado
80202 or at such other place as the parties may agree.
4. Assignment and Assumption of Contracts. Effective as of the
Effective Date, Seller hereby assigns to Buyer, and Buyer hereby assumes and
agrees to promptly and fully perform all of Seller's obligations under, all
contracts and agreements relating to the Pipeline, including, without
limitation, all contracts for the purchase, transportation or sale of natural
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gas and natural gas liquids. Without limiting the generality of the foregoing,
Seller assigns and Buyer assumes and agrees to perform the contracts described
in Exhibit C.
5. Representations and Warranties of Seller. Seller represents and
warrants to Buyer that the statements contained in this Paragraph 5 are correct
as of the date of this Agreement. Said representations and warranties are made
by Seller to Buyer for the sole benefit of Buyer and shall survive the Closing
until the date which is the earlier of (i) one (1) year from the date of the
Closing; or (ii) Buyer's subsequent sale of the Pipeline to a third party (not
at all times controlled by Buyer):
(a) Seller is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware. Seller has the
legal capacity and authority to enter into this Agreement. This Agreement is a
valid and legally binding obligation of Seller and is fully enforceable against
Seller in accordance with its terms, except as such enforceability may be
limited by general principles of equity, bankruptcy, insolvency, moratorium and
similar laws relating to creditors' rights generally.
(b) To the knowledge of the Seller, and except as otherwise
disclosed to Buyer in writing, (i) the Pipeline is in compliance in all material
respects with all applicable laws and regulations, and (ii) the Seller is not in
default of any order, writ, injunction or decree relating to the Pipeline. This
representation and warranty shall not apply to liabilities attributable to
environmental matters, subject to subparagraph 5(g) below.
(c) Seller has no knowledge of (i) any threatened or pending
lawsuits relating to the Pipeline or (ii) any threatened or pending proceedings
or governmental investigations relating to the Pipeline, except, in each case,
as otherwise disclosed to Buyer in writing.
(d) To the knowledge of Seller, (i) Seller possesses all
material governmental licenses, permits, certificates, orders, consents,
approvals, franchises and authorizations legally required to enable it to own
and operate the Pipeline and (ii) Seller is in compliance in all material
respects with the requirements of the foregoing. Seller makes no representation
or warranty that any such licenses, permits, certificates, orders, consents,
approvals, franchises or authorizations are assignable to Buyer or that Buyer
will be able to obtain new ones in its own name after the Closing.
(e) The Seller has made available to the Buyer all material
information concerning the Pipeline that is known to the Seller.
(f) The Seller has no knowledge of the existence of any liens
or encumbrances on the Pipeline, other than liens for taxes not yet due and
mechanics liens, operators liens and the like securing obligations arising in
the ordinary course of business that are not overdue.
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(g) In the opinion of the Chief Executive Officer of Seller,
based solely upon his own actual knowledge, there are no environmental problems
relating to the Pipeline that would have a material adverse effect upon the
Pipeline or its operation.
(h) To the knowledge of the Seller, the Seller has not
received any notice of default under the agreements described in Exhibit C.
(i) The consummation by Seller of the transactions
contemplated hereby will not (i) violate or constitute a default under the
Articles of Incorporation or Bylaws of Seller or (ii) result in the creation or
imposition of any lien, charge or encumbrance upon the Pipeline.
6. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller that the statements contained in this Paragraph 6 are correct
as of the date of this Agreement. Said representations and warranties shall
survive the Closing for a period of one year from the date of the Closing:
(a) Buyer has the legal capacity and authority to enter into
this Agreement. This Agreement is a valid and legally binding obligation of
Buyer and is fully enforceable against Buyer in accordance with its terms,
except as such enforceability may be limited by general principles of equity,
bankruptcy, insolvency, moratorium and similar laws relating to creditors'
rights generally.
(b) No broker, finder, agent or other intermediary has acted
for or on behalf of Buyer in connection with this Agreement and the transactions
contemplated hereby, nor is any third party entitled to any fee or commission in
connection herewith.
7. Taxes. Buyer shall be responsible for any sales, transfer, excise,
documentation, stamp tax or other taxes levied in connection with and/or
applicable to the sale and transfer of the Pipeline and Buyer hereby agrees to
indemnify and hold Seller harmless from and against any and all claims
(including interest, fines, penalties and reasonable attorneys' fees) which are
asserted at any time against Seller in connection with any of the foregoing,
except to the extent such claims are caused by a breach of the obligations of
Seller under this Section 7. At the Closing, Buyer shall pay to Seller the
amount Buyer believes in good faith to be due as sales tax as a result of the
sale of the Pipeline hereunder and Seller shall file the appropriate return with
the appropriate taxing authority and remit such amount to the appropriate taxing
authority all in a timely manner. Such payment shall not limit Buyer's
obligations under this Section 7. Seller shall deliver to Buyer's Agent a copy
of such return along with evidence of payment.
8. Covenants Subsequent to Closing. From time to time after the
Closing, Buyer shall provide to Seller, as reasonably requested by Seller in
each instance, access to the books and records relating to the Pipeline for
periods prior to the Closing, for Seller's legitimate business purposes,
including, without limitation, preparation of tax returns, preparation for tax
audits, etc. Buyer shall perform the obligations of Seller and its parent,
United States Exploration, Inc., under the contracts described in Exhibit C,
except (i) insofar as such obligations do not relate to the Pipeline and
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(ii) insofar as such obligations arise from operations of Seller's parent after
the Closing in the Area (as defined in the agreement described in paragraph 2 of
Exhibit C).
9. Indemnification by Seller. Seller shall indemnify and hold Buyer
harmless from and against any and all claims, threats, liabilities, taxes,
interest, fines, penalties, suits, damages, losses, costs and expenses
(including reasonable attorneys' fees and court costs) of every kind and nature
("Claims") arising solely out of (i) any misrepresentation or breach by Seller
of any representation or warranty contained in this Agreement of which Seller
receives written notice from Buyer prior to the survival date for Seller's
representations and warranties under Paragraph 5, which notice shall specify in
reasonable detail the facts alleged to constitute the breach; or (ii) any
nonfulfillment, failure or breach by Seller of or with any covenant, promise or
agreement of Seller contained in this Agreement; PROVIDED, that under no
circumstances shall Seller be obligated to indemnify Buyer for Claims in excess
of the Purchase Price and PROVIDED FURTHER, that Buyer's right to
indemnification hereunder shall be its sole remedy in respect of any Claims
under this Agreement.
10. Indemnification by Buyer. Buyer shall indemnify and hold Seller and
its current and future officers, directors and stockholders harmless from and
against any and all Claims, of every kind and nature arising solely out of (i)
any misrepresentation or breach by Buyer of any representation or warranty
contained in this Agreement of which Buyer receives written notice from Seller
prior to the survival date for Buyer's representations and warranties under
Paragraph 6, which notice shall specify in reasonable detail the facts alleged
to constitute the breach; (ii) any nonfulfillment, failure or breach by Buyer of
or with any covenant, promise or agreement of Seller contained in this
Agreement; or (iii) any liability or obligation relating to the Pipeline
subsequent to the Closing. Seller's right to indemnification hereunder shall be
its sole remedy in respect of any Claims under this Agreement.
11. Warranty Disclaimer. Except for the express warranties made by
Seller in Section 5, Seller makes no representation or warranty of any kind with
respect to the Pipeline. All rights and assets comprising the Pipeline are sold
AS IS, WHERE IS AND WITH ALL FAULTS. All other warranties that would otherwise
arise by operation of law are hereby expressly disclaimed. Without limiting the
generality of the foregoing, Seller makes no warranty of title with respect to
the Pipeline or any component thereof.
12. Severability. The agreements and covenants contained herein are
severable, and in the event any of them shall be held to be invalid by a court
of competent jurisdiction, this Agreement shall be interpreted as if such
invalid agreements or covenants were not contained herein.
13. Notices. Any notice under this Agreement shall be given in writing
to the party to whom the notice is addressed, personally by facsimile or by
certified mail, return receipt requested, or by private carrier, at the
following address or such other address or addresses as may hereafter be
furnished in writing by any party hereto:
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If to Buyer: Northern Osage Gas Association L.L.C.
2601 Nations Bank Center
Tulsa, Oklahoma 74119
Fax: (918) 748-0312
If to Seller: United States Exploration, Inc.
1560 Broadway, Suite 1900
Denver, Colorado 80202
Fax: (303) 863-1932
Receipt of any notice sent pursuant to this paragraph shall be the date of
personal delivery of such notice or notice by facsimile or, if mailed, three (3)
business days after mailing of such notice, or if by private carrier, one (1)
business day after sending of such notice, provided such delivery or mailing is
in accordance with the terms of this paragraph.
14. Governing Law. This Agreement and any performance hereunder shall
be construed and enforced in accordance with, and governed by, the internal laws
of the State of Oklahoma.
15. Amendment, Assignment. Neither this Agreement nor any term or
provision hereof may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by the parties hereto. Except for an assignment to an entity at all times
controlled by the assigning party, neither party hereto shall assign this
Agreement, or its rights or obligations hereunder, to any third party, and any
such assignment in violation of this prohibition shall be void and of no legal
effect.
16. Further Action. Each party shall execute and deliver such other
certificates, agreements and other documents and take such other actions as may
reasonably be requested by the other parties in order to consummate or implement
the transactions contemplated by this Agreement. Without limiting the generality
of the foregoing, in the event that Buyer discovers any easement or right-of-way
constituting part of the Pipeline that is owned by Seller and is not
specifically described in the Quit Claim, Seller shall, at Buyer's request and
expense, execute another instrument of transfer in the same form as the Quit
Claim assigning all of its right, title and interest in such easement or
right-of-way to Buyer
17. Section Headings. The headings of the several sections of this
Agreement are inserted solely for convenience of reference and are not a part of
and are not intended to govern, limit or aid in the construction of any term or
provision hereof.
18. Facsimile Signatures. Facsimile signatures shall be binding as
executed originals. The parties shall promptly exchange executed originals
through overnight conveyance.
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19. Knowledge Representations. Except as specifically indicated in
Section 5(g), representations and warranties in this Agreement based on the
knowledge of Seller mean the actual knowledge of the current officers of Seller.
IN WITNESS WHEREOF, the parties hereto executed this Agreement
effective as of the day and year first above written.
SELLER:
United States Gas Gathering Co., Inc.
By: /s/ Bruce D. Benson
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Name: Bruce D. Benson
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Title: President
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BUYER:
Northern Osage Gas Association, L.L.C.
By: /s/ Stephen W. Dixon
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Name: Stephen W. Dixon
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Title: Manager
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STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into effective as of the close of
business on the 31st day of December, 1998 (the "Effective Date"), by and
between UNITED STATES EXPLORATION, INC., a Colorado corporation (the "Seller"),
and the buyers named on the signature page of this Agreement (the "Buyers").
WHEREAS, Seller is the owner of 100 shares of Common Stock (the
"Stock") of United States Gas Gathering Co., Inc. (the "Corporation"), a
Delaware corporation, and such Stock totals one hundred percent (100%) of the
issued and outstanding stock of the Corporation; and
WHEREAS, Seller desires to sell and Buyers desire to purchase all of
the Seller's Stock of the Corporation upon the terms and conditions contained
herein;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties hereto agree as
follows:
1. The Business. The Corporation is engaged in the business of
producing natural gas and oil in Osage County, Oklahoma.
2. Purchase and Sale of Stock. On the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell, assign, transfer
and deliver to Buyers and Buyers agree to purchase from the Seller, one hundred
percent (100%) of the issued and outstanding Stock of the Corporation. The
number of shares of Stock to be purchased by each Buyer is set forth beneath his
signature to this Agreement.
3. Purchase Price and Delivery. The total purchase price (the "Purchase
Price") that shall be paid by Buyers for the Stock shall be $930,000, payable by
wire transfer to Seller at the Closing. Seller shall deliver to Buyers at
Closing, concurrently with the payment of the Purchase Price, (i) the stock
certificates representing one hundred percent (100%) of the issued and
outstanding Stock of the Corporation, duly endorsed in blank or accompanied by
assignments separate from the certificate duly endorsed in blank, (ii) certified
copies of resolutions adopted by the Seller, as the sole shareholder of the
Corporation, removing from office all officers and directors of the Corporation
and (iii) the minute books, stock records and corporate seal of the Corporation,
certified as complete and correct as to all actions taken since September 1,
1997 by the Secretary or Assistant Secretary of the Corporation.
4. Closing. The consummation of this transaction (the "Closing") shall
occur contemporaneously with the execution of this Agreement at the office of
United States Exploration, Inc., 1560 Broadway, Suite 1900, Denver, Colorado
80202 or at such other place as the parties may agree.
5. Other Actions at Closing. In addition to the payment and deliveries
required by Section 3, at the Closing:
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(a) Seller shall terminate all insurance coverage relating to
the Corporation previously provided by the Seller.
(b) Seller shall deliver to Buyers a certificate of the
Secretary of the Seller, in form and substance reasonably satisfactory to
Buyers, certifying (i) the incumbency of each of the officers of Seller and the
signature of each officer of Seller executing this Agreement or any other
document delivered hereunder and (ii) the resolutions of the Seller's Board of
Directors authorizing this Agreement and the transactions contemplated hereby.
6. Representations and Warranties of Seller. Seller represents and
warrants to Buyers that the statements contained in this Paragraph 6 are correct
as of the date of this Agreement. Said representations and warranties are made
by Seller to Buyers for the sole benefit of Buyers and shall survive the Closing
until the date which is the earlier of (i) one (1) year from the date of the
Closing; or (ii) Buyers' subsequent sale of the Corporation to a third party
(not at all times controlled by at least one of Buyers):
(a) The Corporation's authorized capital stock is 1,000 shares
of common stock, of which 100 shares are issued and outstanding. Seller is the
sole and exclusive record and beneficial owner of all of the issued and
outstanding Stock. Seller possesses good title to the Stock, and owns the Stock
free and clear of any and all security interests, agreements, restrictions,
claims, liens, pledges and encumbrances of any nature or kind. Seller's Stock
has been duly, legally and validly issued, and is fully paid and nonassessable.
The Corporation has no authorized or outstanding options, warrants, calls,
subscriptions, rights, convertible securities or other securities or any
commitments, agreements, arrangements or understandings of any kind or nature
obliging the Corporation in any such case to issue shares of the Corporation's
capital stock or other securities or securities convertible into or evidencing
the right to purchase shares of the Corporation's capital stock or other
securities.
(b) The Corporation is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware. The
Corporation has full right, power and authority to own its properties and
assets, and to carry on its business except to the extent that the failure to do
so would not reasonably be expected to have a material adverse effect on the
Corporation or the conduct of the business of the Corporation. The Corporation's
Certificate of Incorporation and Bylaws, complete and correct copies of which
have been delivered to Buyers, are in full force and effect and the Corporation
is not in breach or violation of any of the material provisions thereof. Seller
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Colorado.
(c) Seller has the legal capacity and authority to enter into
this Agreement. This Agreement is a valid and legally binding obligation of
Seller and is fully enforceable against Seller in accordance with its terms,
except as such enforceability may be limited by general principles of equity,
bankruptcy, insolvency, moratorium and similar laws relating to creditors'
rights generally.
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(d) The Corporation has duly and timely filed all tax returns
required to be filed by the Corporation on or before the date hereof. The
Corporation has paid in full all taxes, interest, penalties, assessments and
deficiencies owed by the Corporation to all taxing authorities for the periods
covered by such returns. The Corporation is a member of the Seller's
consolidated federal tax group.
(e) The liabilities of the Corporation known to Seller as of
the Closing, whether accrued, absolute, contingent, by guarantee or otherwise,
and whether due or to become due, do not exceed $50,000 and Seller has no
knowledge of any written demand for any debt, liability or obligation not
reflected in the $50,000 amount. This representation and warranty shall not
apply to plugging liabilities, liabilities attributable to environmental
matters, subject to Section 6(m) below, or liabilities to pay working interest
or royalty owners for gas taken prior to the Closing Date for which the
Corporation has not yet received payment and severance taxes in respect of such
gas.
(f) The Corporation has no employees or employment agreements.
The Corporation currently pays two independent contractors as follows:
Gale Thaete $1,000/month
Mark Hambtight $2,700/month
(g) To the knowledge of the Seller, and except as otherwise
disclosed to Buyer in writing, (i) the Corporation is in compliance in all
material respects with all applicable laws and regulations, and (ii) the
Corporation is not in default of any order, writ, injunction or decree. This
representation and warranty shall not apply to plugging liabilities or
liabilities attributable to environmental matters, subject to paragraph 6(m)
below.
(h) Seller has no knowledge of (i) any threatened or pending
lawsuits against the Corporation, (ii) any threatened or pending proceedings or
governmental investigations against the Corporation or (iii) any threatened or
pending lawsuits or investigations against the Seller pertaining to the business
or assets of the Corporation, except, in each case, as otherwise disclosed to
Buyers in writing.
(i) To the knowledge of Seller, (i) the Corporation possesses
all material governmental licenses, permits, certificates, orders, consents,
approvals, franchises and authorizations legally required to enable it to
conduct its business and (ii) the Corporation is in compliance in all material
respects with the requirements of the foregoing.
(j) The Seller has made available to the Buyers all material
information concerning the Corporation and its business and assets that is known
to the Seller.
(k) The Corporation has no knowledge of the existence of any
liens or encumbrances on its assets, other than liens for taxes not yet due and
mechanics liens, operators liens and the like securing obligations arising in
the ordinary course of business that are not overdue.
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(l) To the Company's knowledge, no consents, approvals or
authorizations of, or designations or filings with, any governmental agency is
required, on the part of either the Corporation or the Seller in connection with
the transfer of the Stock from the Seller to the Buyers, as contemplated by this
Agreement, including without limitation consents, approvals or authorizations by
the Oklahoma Corporation Commission under its rules or regulations applicable to
such transactions.
(m) In the opinion of the Chief Executive Officer of Seller,
based solely upon his own actual knowledge, there are no environmental problems
on the Corporation's properties that would have a material adverse effect upon
its business or financial condition.
(n) The financial statements of the Company as of and for the
eleven months ended November 30, 1998 fairly present in all material respects
the financial condition and results of operations of the Corporation at the date
and for the period indicated. Buyer acknowledges that, since November 30, 1998,
Seller has sold its pipeline and related assets in Osage County, Oklahoma to
Northern Osage Gas Association L.L.C. and that the November 30, 1998 financial
statements still reflect those assets and the revenues and expenses related
thereto.
(o) To the knowledge of the Corporation and the Seller, the
Corporation has not received any notice of default under the agreements
described in Exhibit A. Seller has disclosed to Buyers that the development plan
under its Blanket Lease with the Osage Tribe has expired.
(p) The consummation by Seller of the transactions
contemplated hereby and the change in control of the Corporation will not (i)
violate or constitute a default under the Articles of Incorporation or Bylaws of
the Corporation or Seller or (ii) result in the creation or imposition of any
lien, charge or encumbrance upon the property of the Corporation or cause the
acceleration of any indebtedness of the Corporation.
7. Representations and Warranties of Buyers. Buyers jointly and
severally represent and warrant to Seller that the statements contained in this
Paragraph 7 are correct as of the date of this Agreement. Said representations
and warranties shall survive the Closing for a period of one year from the date
of the Closing:
(a) Each Buyer has the legal capacity and authority to enter
into this Agreement. This Agreement is a valid and legally binding obligation of
each Buyer and is fully enforceable against each Buyer in accordance with its
terms, except as such enforceability may be limited by general principles of
equity, bankruptcy, insolvency, moratorium and similar laws relating to
creditors' rights generally.
(b) No broker, finder, agent or other intermediary has acted
for or on behalf of any Buyer in connection with this Agreement and the
transactions contemplated hereby, nor is any third party entitled to any fee or
commission in connection herewith. Each Buyer is purchasing the Stock solely on
his or its own behalf and not on behalf of any third party.
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<PAGE> 5
8. Taxes.
(a) Seller does hereby indemnify and hold Buyers and the
Corporation harmless from and against any and all liability for any taxable
period prior to and including the Effective Date for taxes of any corporations
which are or have been affiliated with the Seller.
(b) Seller shall cause to be prepared and timely filed (and
appropriate payment to be made) or cause to be timely filed by the Corporation
(and appropriate payment to be made by the Corporation), with copies to be
delivered to the Corporation, all U.S. federal income tax returns and
corresponding state income tax returns and returns required by applicable law to
be filed by the Corporation for all taxable periods prior to and including the
Effective Date, without regard to extensions and all such tax returns shall be
true, complete and correct in all respects.
9. Covenants Subsequent to Closing. From time to time after the
Closing, Buyers and the Corporation shall provide to Seller, as reasonably
requested by Seller in each instance, access to the books and records of the
Corporation for periods prior to the Closing, for Seller's legitimate business
purposes, including, without limitation, preparation of tax returns, preparation
for tax audits, etc. Buyers from and after the Effective Date shall cause the
Corporation to perform its obligations and the obligations of Seller under the
contracts described in Exhibit A, except (i) insofar as such obligations relate
to the assets sold to NOGA under the Pipeline Agreement and (ii) insofar as any
obligation arises from operations conducted by Seller after the Closing in the
Area (as defined in the agreement described in paragraph 2 of Exhibit A).
10. Indemnification by Seller.
(a) Seller shall indemnify and hold Buyers harmless from and
against any and all claims, threats, liabilities, taxes, interest, fines,
penalties, suits, damages, losses, costs and expenses (including reasonable
attorneys' fees and court costs) of every kind and nature ("Claims") arising
solely out of (i) any misrepresentation or breach by Seller of any
representation or warranty contained in this Agreement of which Seller receives
written notice from Buyers prior to the survival date for Seller's
representations and warranties under Paragraph 6, which notice shall specify in
reasonable detail the facts alleged to constitute the breach; or (ii) any
nonfulfillment, failure or breach by Seller of or with any covenant, promise or
agreement of Seller contained in this Agreement; PROVIDED, that under no
circumstances shall Seller be obligated to indemnify Buyers for Claims in excess
of the Purchase Price and PROVIDED FURTHER, that Buyers' right to
indemnification hereunder shall be their sole remedy in respect of any Claims
under this Agreement.
(b) Buyers acknowledge that the Corporation is a party to that
certain Pipeline Purchase Agreement dated effective as of December 31, 1998 (the
"Pipeline Agreement") with Northern Osage Gas Association L.L.C. ("NOGA")
pursuant to which the Corporation sold a pipeline and related assets in Osage
County, Oklahoma to NOGA. The Pipeline Agreement, the transaction effected
thereunder and any obligations of the Corporation created thereby shall not be a
breach of any representation, warranty or covenant of Seller contained herein.
However, subject to the conditions set forth below, Seller agrees to indemnify
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<PAGE> 6
and hold the Corporation harmless from and against any liability incurred by the
Corporation under the express indemnification provisions of the Pipeline
Agreement that obligate the Corporation to indemnify NOGA. Seller's
indemnification obligation under this Section 10(b) is subject to each of the
following conditions:
(i) There shall have been no statement, action or
omission by any Buyer or the Corporation on or after the Closing date
that created, contributed to the creation of, admitted, established,
acknowledged, gave credence or support to or otherwise assisted the
claim by NOGA under the Pipeline Agreement or the legal or factual
basis therefor;
(ii) Neither the Corporation nor any Buyer shall have
taken any action or made any statement to respond to or defend the
indemnification claim by NOGA;
(iii) The Corporation shall have given Seller written
notice of the claim and tendered defense of the claim to Seller within
two business days after it is first made orally or in writing by NOGA
or after the Corporation or any Buyer otherwise becomes aware of the
claim; and
(iv) The Corporation and each Buyer shall have
cooperated fully with Seller in analyzing, responding to and defending
the claim in such respect as Seller may from time to time request, and
shall reference all communications from NOGA to the Seller.
If any of these conditions are not met in any respect, Seller shall have no
obligation to indemnify Buyer in respect of any claim for indemnification by
NOGA under the Pipeline Agreement.
11. Indemnification by Buyers. Buyers shall jointly and severally
indemnify and hold Seller harmless from and against any and all Claims, of every
kind and nature arising solely out of (i) any misrepresentation or breach by any
Buyer of any representation or warranty contained in this Agreement of which
Buyers receive written notice from Seller prior to the survival date for Buyers'
representations and warranties under Paragraph 7, which notice shall specify in
reasonable detail the facts alleged to constitute the breach; (ii) any
nonfulfillment, failure or breach by Buyers of or with any covenant, promise or
agreement of any Buyer contained in this Agreement; or (iii) any liability or
obligation of the Corporation subsequent to the Closing, subject to Section
6(e). Seller's right to indemnification hereunder shall be its sole remedy in
respect of any Claims under this Agreement.
12. Securities Law Representations and Covenants. Each Buyer represents
and warrants to and agrees with Seller as follows:
(a) Such Buyer is familiar with the assets and operations of
the Corporation. Such Buyer has had access to all of the files and records of
the Corporation and has had the opportunity to request and receive any
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<PAGE> 7
information concerning the Corporation and its properties and operations that
such Buyer has desired. Such Buyer has met personally with the officers of the
Corporation and has had the opportunity to ask questions and receive answers
from them.
(b) Such Buyer has such knowledge and experience in financial
and business matters generally, and in particular in the businesses in which the
Corporation is engaged, to be able to make an assessment of the merits and risks
of the purchase of the Corporation.
(c) Such Buyer acknowledges that the Stock has not been
registered under the Securities Act of 1933, as amended (the "Act") or the
securities laws of any state and cannot be offered or sold by such Buyer unless
subsequently so registered or unless exemptions from the registration
requirements of the Act and all applicable state securities laws are available
for the transaction. Such Buyer agrees not to offer or sell the Stock or any
portion thereof except in compliance with all applicable laws. Such Buyer
acknowledges that the certificates representing the Stock will bear legends
reflecting the restrictions on transferability arising under the securities
laws.
(d) Such Buyer is purchasing the Stock for his or its own
account, for investment and with no view to the distribution thereof.
13. Severability. The agreements and covenants contained herein are
severable, and in the event any of them shall be held to be invalid by a court
of competent jurisdiction, this Agreement shall be interpreted as if such
invalid agreements or covenants were not contained herein.
14. Notices. Any notice under this Agreement shall be given in writing
to the party to whom the notice is addressed, personally by facsimile or by
certified mail, return receipt requested, or by private carrier, at the
following address or such other address or addresses as may hereafter be
furnished in writing by any party hereto:
If to any Buyer: Mr. Stephen W. Dixon
2840 East 51st Street
Tulsa, Oklahoma 74105
Fax: (918) 748-0312
If to Seller: United States Exploration, Inc.
1560 Broadway, Suite 1900
Denver, Colorado 80202
Fax: (303) 863-1932
Receipt of any notice sent pursuant to this paragraph shall be the date of
personal delivery of such notice or notice by facsimile or, if mailed, three (3)
business days after mailing of such notice, or if by private carrier, one (1)
business day after sending of such notice, provided such delivery or mailing is
in accordance with the terms of this paragraph.
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<PAGE> 8
15. Governing Law. This Agreement and any performance hereunder shall
be construed and enforced in accordance with, and governed by, the internal laws
of the State of Oklahoma.
16. Amendment, Assignment. Neither this Agreement nor any term or
provision hereof may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by the parties hereto. Except for an assignment to an entity at all times
controlled by the assigning party, neither party hereto shall assign this
Agreement, or its rights or obligations hereunder, to any third party, and any
such assignment in violation of this prohibition shall be void and of no legal
effect.
17. Further Action. Each party shall execute and deliver such other
certificates, agreements and other documents and take such other actions as may
reasonably be requested by the other parties in order to consummate or implement
the transactions contemplated by this Agreement.
18. Section Headings. The headings of the several sections of this
Agreement are inserted solely for convenience of reference and are not a part of
and are not intended to govern, limit or aid in the construction of any term or
provision hereof.
19. Buyers' Agent. Each Buyer appoints Stephen W. Dixon as such Buyer's
exclusive agent and representative to deal with all issues arising under this
Agreement (the "Buyers' Agent"). Seller may rely in all matters on the authority
of the Buyers' Agent to act for and bind all Buyers with respect to any matter
arising under this Agreement. All Buyers shall act in such matters solely
through the Buyers' Agent and all notices to or from Buyers shall be given
solely to or by Buyers' Agent.
20. Facsimile Signatures. Facsimile signatures shall be binding as
executed originals. The parties shall promptly exchange executed originals
through overnight conveyance.
21. Knowledge Representations. Except as specifically indicated in
Section 6(m), representations and warranties in this Agreement based on the
knowledge of Seller or the Corporation mean the actual knowledge of the current
officers of Seller and the Corporation.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto executed this Agreement
effective as of the day and year first above written.
SELLER:
United States Exploration, Inc.
By: /s/ Bruce D. Benson
--------------------------------------------
Name: Bruce D. Benson
------------------------------------------
Title: President
-----------------------------------------
BUYERS:
The Beverly B. Kantor Trust
By: /s/ Beverly B. Kantor, Trustee
--------------------------------------------
Beverly B. Kantor, Trustee
No. Shares: 50%
---
Revocable Intervivos Trust of Stephen W. Dixon
By: /s/ Stephen W. Dixon
--------------------------------------------
Stephen W. Dixon, Trustee
No. Shares: 7.5%
----
Revocable Intervivos Trust of Renette M. Dixon
By: /s/ Renette M. Dixon
--------------------------------------------
Renette M. Dixon, Trustee
No. Shares: 7.5%
----
60 Million Buffalo, L.L.C.
By: /s/ Scott I. Asner, Manager
--------------------------------------------
Scott I. Asner
Manager
No. Shares: 35%
---
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<PAGE> 10
EXHIBIT A
1. July 19, 1996 Agreement by and between Thermal Energy Corporation, an
Oklahoma corporation ("TEC") and United States Exploration ("USEXP")
and Demetrie D. Carone ("Carone") and the agreements that appear as
exhibits to such Agreement being Exhibit A - Leasehold Assignment and
Bill of Sale of Coal Gas, Exhibit B Gas Gathering System Bill of Sale
and Assignment and Exhibit C - Gas Gathering System Joint Ownership
Agreement
2. December 12, 1996 Agreement by and between TEC Osage, Inc. ("TEC") and
Demetrie D. Carone, ZCA Gather Co., Inc. and United States Exploration,
Inc. (collectively, "USEXP"), as amended by an Amendment to Agreement
dated the _____ day of April, 1997
3. Blanket Gas Lease, Contract No. I 68-IND-3748
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<PAGE> 1
STOCK PURCHASE AGREEMENT
This Agreement is made effective as of the 31st day of December, 1998
(the "Effective Date") between United States Exploration, Inc., a Colorado
corporation ("Seller"), and Demetrie D. Carone ("Buyer").
Seller owns 10,000 shares of the common stock of Pacific Osage, Inc.
("Pacific") and 1,000 shares of the common stock of Performance Petroleum Co.
("Performance") constituting all of the issued and outstanding common stock of
each such corporation (the "Shares"). Seller has agreed to sell the Shares to
Buyer on the following terms:
1. Purchase Price. The purchase price for the Shares is $650,000. The
purchase price shall be paid by wire transfer to the Seller, and the Seller
shall deliver the certificates representing the Shares, duly endorsed for
transfer to the Buyer, upon the execution of this Agreement.
2. Distribution of Certain Properties. Buyer acknowledges that,
immediately prior to the transfer of the Shares to Buyer, Performance
transferred to Seller all of its oil and gas interests in Logan, Noble and Kay
Counties, Oklahoma, and all tangible and intangible assets related to such oil
and gas interests.
3. Certain Assets at Barnsdall Yard.
(a) Buyer acknowledges that the five pumping units located at
Pacific's yard in Barnsdall, Oklahoma which are described in Exhibit A hereto
belong to Benson Mineral Group, Inc. and that Benson Mineral Group, Inc. has the
right to store those pumping units at their present location in that yard for up
to one year after the date hereof without any payment to Pacific. Buyer will
cause Performance and Pacific to honor that right.
(b) Buyer acknowledges that the furniture (or equivalent furniture),
geological data and equipment used by Loren Schmidt in his offices in the
Barnsdall facility are owned by Seller and not by Performance or Pacific. Seller
shall have the right to leave such furniture, geological data and equipment in
an office in the Barnsdall facility for up to one year after the date of this
Agreement. During that period, Loren Schmidt or another employee of Seller shall
be allowed access to the Barnsdall facility so that he can continue to work in
that facility on a daily basis with heat, electricity and sanitary facilities
provided by Performance.
(c) Seller acknowledges that the 6" line pipe stored in the
Barnsdall yard belongs to United States Gas Gathering, Inc. and is not an asset
of Pacific or Performance. Buyer agrees to cause Pacific to give United States
Gas Gathering, Inc. a reasonable time to remove the pipe from that yard or to
make arrangements with Buyer for the continued storage thereof.
(d) Seller has certain records stored in the Barnsdall facility.
Buyer agrees that Seller may continue to store those records in their current
<PAGE> 2
current location at that facility for up to a year after the date of this
Agreement, without payment of any storage or other charges. Buyer shall cause
Pacific to comply with that agreement.
(e) If Buyer sells or closes the Barnsdall facility within one year
after the date of this Agreement, Buyer shall notify Seller of the pending sale
or closure at least 30 days prior to the expected closing of such sale or the
closure of the facility to allow Seller time to make arrangements for the
physical transfer of the records, the pumping units and the furniture,
geological data and equipment. Seller shall complete such transfer by the end of
the 30-day period and shall thereafter have no further rights under this Section
3.
4. Representations and Warranties of Seller. Seller represents and
warrants to Buyer, that to the best of Seller's knowledge, (a) there are no
actions, suits, proceedings or investigations pending or threatened against
Pacific or Performance, (b) neither Pacific nor Performance has received any
notice from any governmental agency or private party alleging any violation by
it of any applicable environmental law or any obligation on its part to conduct
or pay for any remediation under applicable environmental laws, except such as
have been fully resolved, and (c) at the Effective Date, the current assets of
Pacific and Performance were approximately equal to their current liabilities.
For that purpose, the knowledge of the Seller shall mean the actual knowledge of
its current officers.
5. Representations, Warranties and Covenants of Buyer. Buyer represents
and warrants to and agrees with Seller as follows:
(a) Buyer is familiar with the assets and operations of
Performance and Pacific and has had access to all material information
concerning Performance and Pacific. Buyer has such knowledge and experience in
financial and business matters generally and in particular in the businesses in
which Pacific and Performance are engaged, to be able to assess the merits and
risks of the purchase of the Shares. Buyer acknowledges that the Shares have not
been registered under the Securities Act of 1933, as amended (the "Act") or the
securities laws of any state and cannot be offered or sold by Buyer unless
subsequently so registered or unless exemptions from the registration
requirements of the Act and all applicable state securities laws are available
for the transaction. Buyer agrees not to offer or sell the Shares or any portion
thereof except in compliance with all applicable laws. Buyer acknowledges that
the certificates representing the Shares will bear legends reflecting the
restrictions on transferability arising under the securities laws. Buyer is
purchasing the Shares for his own account, for investment and with no view to
the distribution thereof.
(b) Buyer shall indemnify Seller against any loss, liability,
cost or expense (including reasonable attorneys' fees) arising out of or
relating to the operations or assets of Pacific or Performance after the date
hereof.
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<PAGE> 3
6. Governing Law. This Agreement shall be governed in all respects by
the laws of the state of Colorado.
United States Exploration, Inc.
By: /s/ Bruce D. Benson
---------------------------------
Bruce D. Benson, President
/s/ Demetrie D. Carone
---------------------------------
Demetrie D. Carone
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