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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________
Commission File Number 1-13513
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UNITED STATES EXPLORATION, INC.
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(Name of small business issuer 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
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 863-3550
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Shares, $.0001 par value The American Stock Exchange
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer's revenues for the most recent fiscal period were $5,279,921.
The aggregate market value of the common equity held by nonaffiliates of the
Company as of March 31, 1999, was approximately $18,552,838 based upon the last
reported sale of the Company's Common Shares on that date.
The total number of Common Shares outstanding as of March 31, 1999 was
15,491,828.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relative to the Registrant's 1999
annual meeting of shareholders are incorporated by reference into Part III of
this report.
Transitional Small Business Disclosure Format: Yes No X
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
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<S> <C> <C>
Items 1 and 2. Description of Business and Properties....................................... 1
Item 3. Legal Proceedings............................................................ 9
Item 4. Submission of Matters to a Vote of
Security Holders ............................................................ 9
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters.......................................................... 9
Item 6. Management's Discussion and Analysis or
Plan of Operation........................................................... 10
Item 7. Financial Statements........................................................ 17
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .................................... 17
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act*
Item 10. Executive Compensation*
Item 11. Security Ownership of Certain Beneficial Owners and Management*
Item 12. Certain Relationships and Related Transactions*
Item 13. Exhibits and Reports on Form 8-K ........................................... 17
Signature Page ............................................................................... 21
Index to Financial Statements................................................................. 22
</TABLE>
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*The information called for by these Items is incorporated by this reference
from the Proxy Statement for Registrant's 1999 annual meeting of shareholders.
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ADDITIONAL INFORMATION
Descriptions in this Report are qualified by reference to the contents
of any contract, agreement or other documents and are not necessarily complete.
Reference is made to each such contract, agreement or document filed as an
exhibit to this Report, or previously filed by the Company pursuant to
regulations of the Securities and Exchange Commission (the "Commission"). (See
"Item 13. Exhibits and Reports on Form 8-K.")
FORWARD LOOKING STATEMENTS
See "Special Note Regarding Forward Looking Statements" at the end of
"Item 6. Management's Discussion and Analysis or Plan of Operation" for
cautionary statements concerning forward looking information contained in this
report.
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ITEMS 1. AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES
GENERAL
United States Exploration, Inc. ("UXP" or the "Company") is an
independent producer of oil and natural gas. Our principal oil and gas
properties are located in the Wattenberg area of the Denver-Julesburg Basin in
northeastern Colorado. Those properties were acquired from Union Pacific
Resources Company ("UPR") in May of 1998. We also hold smaller interests in
Kansas and Oklahoma and operate natural gas gathering systems located near
certain of our properties in Kansas. In January 1999, we sold a portion of our
properties in Oklahoma in order to concentrate our efforts on the Colorado
properties.
OIL AND GAS PRODUCTION
Net oil and gas production (after royalties), average production costs
and average sales prices for the Company's products for the year ended December
31, 1998, the nine months ended December 31, 1997, and the fiscal year ended
March 31, 1997 are shown in the table below:
NET OIL AND GAS PRODUCTION,
AVERAGE PRODUCTION COSTS AND SALES PRICES
<TABLE>
<CAPTION>
Net Average Sales Price
Production Production --------------------------
-------------------------- Cost Per Per Bb1 Per Mcf
Period Oil (mbbl) Gas(mmcf) Equivalent Unit(1) of Oil of Gas
- ------ ---------- --------- ------------------ --------- -------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1998(2) 140.1 1,650 $ 6.76(3) $13.07 $1.71
Nine months ended
December 31, 1997 64.6 274 10.14 19.31 2.65
Year ended
March 31, 1997 88.1 318 9.42 20.25 2.57
</TABLE>
(1) Production cost per equivalent unit is calculated at the rate of 6 mcf
of natural gas per bbl of oil.
(2) Approximately 54% of the oil production and 80% of the gas production
in 1998 was attributable to production from the properties acquired
from UPR during the period from the May 15, 1998 closing date through
year end. Approximately 31% of the oil production and 11% of the gas
production during 1998 was attributable to production from the
Oklahoma properties sold in January of 1999.
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(3) The decrease in the cost per equivalent unit of production during the
year ended December 31, 1998 is attributable to the new properties
acquired in Colorado, which have lower production costs than the
Kansas and Oklahoma properties.
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Our natural gas is sold at spot prices determined on a monthly basis
by reference to the regional market for gas. Oil is also sold at prevailing
spot prices. During the year ended December 31, 1998, there were four
purchasers or operators who accounted for more than 10% of our revenues from
purchased and produced oil and gas sales. North American Resources Company,
Conoco, HS Resources and Woodward Marketing purchased from the Company or sold
for the Company's account oil and gas constituting 21%, 19%, 18% and 10%,
respectively, of total 1998 sales. The loss of any of these purchasers would
temporarily affect our revenues, but we believe we will continue to have a
market for our products for the foreseeable future. (See Note 10 of Notes to
Consolidated Financial Statements for more detail.)
The availability of a ready market for our oil and gas depends upon
numerous factors beyond our control, including the extent of domestic
production and importation of oil and gas, the relative status of the domestic
and international economy, the proximity of our properties to gas gathering
systems, the capacity of such systems, the marketing of other competitive
fuels, the fluctuation in seasonal demands and governmental regulation of
production, refining, transportation and pricing of oil, natural gas and other
fuels.
PROPERTIES
The following table summarizes our gross and net producing wells and
gross and net developed acres at December 31, 1998.
<TABLE>
<CAPTION>
Producing
Wells
----------------------------- Developed
Area Gas Oil Acres
---- ------------ ------------ --------------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Colorado(1) 276 130 68 43 41,018 39,306(3)
Kansas 10 10 -- -- 3,728 3,728
Oklahoma(2) -- -- 19 19 885 885
</TABLE>
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(1) All of the properties and reserves in Colorado were acquired in
May 1998 from UPR.
(2) Excludes approximately 100 oil and gas wells and associated
acreage sold in January 1999.
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(3) The net acres represent interests in depths below the
Codell/Neobrara formations. The Company's interests in shallower formations
approximate 28,650 net acres.
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We operate 81 of the wells in which we own an interest in Colorado and
all of the wells in which we own an interest in Kansas and Oklahoma.
As part of our acquisition of the Colorado properties in May 1998, we
entered into an Exploration Agreement with UPR giving us the right to explore
and develop all of UPR's undeveloped acreage in the Wattenberg area of the
Denver-Julesburg Basin, excluding certain acreage already committed to other
agreements. The Exploration Agreement covers approximately 400,000 gross acres
and will also cover any undeveloped acreage currently committed to another
agreement that reverts to UPR during its term. In order to keep the Exploration
Agreement in effect, we must drill 15 commitment wells during the first 18
months and 20 commitment wells during each succeeding 12-month period for up to
five 12-month option periods. If we do not drill the required number of
commitment wells during any period, the Exploration Agreement will terminate at
the end of the period and we will be required to pay liquidated damages of
$125,000 for each commitment well that we did not drill during the period. As of
March 31, 1999, we had not drilled any commitment wells. The Company has
negotiated (but has not finalized) an amendment to the Exploration Agreement
under which certain future deepenings and re-entries, which are significantly
less expensive than new wells, will count as commitment wells during the initial
18-month term of the Exploration Agreement. Management believes that resources
are available to satisfy the Company's commitment under the Exploration
Agreement during the initial term. The failure to drill the commitment wells
would have a material adverse effect on the financial condition and prospects of
the Company. See "Item 6. Management's Discussion and Analysis or Plan of
Operation--Liquidity and Capital Resources" and Note 16 of Notes to Consolidated
Financial Statements.
In addition, the Exploration Agreement requires UPR to transfer to us
any working interests in wells in the subject area that UPR acquires under
existing agreements during the term of the Exploration Agreement. That
requirement covers a number of existing wells in which UPR has the right to
obtain a working interest or convert an overriding royalty interest into a
working interest after payout has been reached and will cover other wells that
may be drilled by operators with whom UPR has existing farm-out or similar
agreements. We also have the right to take over wells on the UPR lands that are
required to be offered to UPR prior to abandonment.
We did not drill any new wells on any of our properties during the
three-year period ended December 31, 1998. After the UPR acquisition, we began a
program of deepening existing wells on the acquired properties to commence
production from other formations in which we had acquired an interest. At
December 31, 1998, we had deepened a total of 16 wells (6.64 net) at a total
cost net to our interests of approximately $1.5 million. All of those deepenings
resulted in production from the deeper zone. As of March 8, 1999, the new zones
in these 16 wells were producing at a rate of approximately 1.8 mmcf of gas and
24 bbl of oil per day net to our interest. Between December 31, 1998 and March
8, 1999, we deepened and brought to production another 8 wells which were
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producing from the new zones approximately 1.0 mmcf of gas and 3 bbl of oil per
day net to our interest as of March 8, 1999. Subject to capital constraints, we
currently plan to continue this deepening program in 1999. See "Item 6.
Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources."
The Company also owns 100 acres of land near Corpus Christi, Texas
that is for sale. The land was the site of an inactive refinery that was
removed during 1998.
RESERVES
The following is a summary of the Company's estimated proved reserves
as of year-end 1997 and 1998:
<TABLE>
<CAPTION>
December 31,
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1997 1998
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Kansas & Kansas &
Oklahoma Colorado Total Oklahoma(1) Colorado Total
-------- -------- ----- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Crude Oil - mbbl 252.2 -- 252.2 53.4 2162.2 2215.6
Natural Gas - mmcf 2,518.0 -- 2,518.0 1,427.0 57,534.6 58,970.6
Total - mmcfe 4,031.2 -- 4,031.2 1,747.4 70,716.8 72,464.2
</TABLE>
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(1) Excludes reserves of 1,593 mmcfe associated with Oklahoma properties
sold in January 1999.
All of the increase in estimated reserves from 1997 to 1998 can be attributed
to the acquisition of the Colorado properties from UPR. (See Note 19 of Notes
to Consolidated Financial Statements for more detailed information concerning
changes in the Company's estimated oil and gas reserves during 1998.)
Notwithstanding the significant increase in reserves provided by this
acquisition, reported year-end 1998 volumes represent a material decrease from
the volumes attributed to this acquisition earlier in the year. In May 1998,
the Company estimated that the UPR properties contained approximately 140 Bcfe
of proved reserves. Approximately one-third of the difference between the May
estimate and the estimated reserves at year-end 1998 can be attributed to price
decreases. Year-end 1998 natural gas and oil prices were $1.85/mcf and
$9.40/bbl, as compared to $1.96/mcf and $16.43/bbl at year-end 1997. The
remainder of the difference is attributable to (1) higher than anticipated
operating and capital costs, (2) the inability, at the time the reserve study
was prepared, to establish the extent of the Company's interests in certain
formations and (3) lower than anticipated predictability of production from the
Dakota formation.
No reserve estimates were filed with any other federal authorities or
agencies since January 1, 1998.
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FACILITIES
The Company occupies a portion of its executive and administrative
offices at 1560 Broadway, Suite 1900, Denver, Colorado, pursuant to a Cost and
Expense Sharing Agreement with Benson Mineral Group, Inc. ("BMG"), an affiliate
of Bruce D. Benson, Chairman of the Board, Chief Executive Officer and
President of the Company. Pursuant to that Agreement, the Company shares
approximately 9,490 square feet of office space with BMG. The Company pays its
pro rata share of office rent, personnel costs, administrative costs and
expenses to BMG on a monthly basis. During 1998, the Company paid approximately
$15,600 in rent and $86,970 in common expenses to BMG under this agreement.
On July 1, 1998, UXP leased approximately 11,850 square feet of
additional office space adjacent to the space it shares with BMG. The
additional space was obtained to accommodate expansion in our operations
following the UPR acquisition. The term of the lease is 117 months. The rental
is $14,817 per month, increasing to $19,410 per month after 57 months. After
the Company leased this additional office space, BMG waived the right to
collect approximately $50,000 accrued under the Cost and Expense Sharing
Agreement during 1998.
EMPLOYEES
At March 31, 1999, the Company had 13 employees, of which five are
field employees and the remainder are executive and office personnel. The
Company also engages independent contractors to supplement the services of its
employees as needed. At March 31, 1999, the Company was using the services of
approximately six independent contractors on a full time equivalent basis.
Pursuant to the Cost and Expense Sharing Agreement between the Company
and BMG, BMG shares the services of nine employees and contractors of the
Company located in its executive and administrative offices. Such individuals
include F. Michael Murphy, Vice President and Secretary of the Company, Murray
N. Brooks, Vice President of Operations and Randall L. Rogers, Treasurer and
Principal Accounting Officer. Prior to February 1999, the nine shared employees
were employed by BMG and the Company reimbursed BMG for a portion of their
salaries and benefits proportionate to the portion of their time spent on UXP
matters. Since February 1999, these shared employees have been employed by the
Company and BMG reimburses the Company for the cost of time spent on BMG
matters. During 1998, the Company paid BMG approximately $558,000 under this
arrangement.
COMPETITION
The Company's competitors include major oil companies and other
independent operators, most of which have financial resources, staffs and
facilities substantially greater than those of the Company. Competition in the
oil and gas industry is intense. The Company also faces intense competition in
obtaining capital for drilling and acquisitions and may be at a competitive
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disadvantage compared with more established companies with proven records of
successful operations.
GOVERNMENT REGULATION
The production and sale of oil and gas are subject to various federal,
state and local governmental regulations, which may be changed from time to
time in response to economic or political conditions. Matters subject to
regulation include discharge permits for drilling operations, drilling bonds,
reports concerning operations, the spacing of wells, unitization and pooling of
properties, taxation and environmental protection. From time to time,
regulatory agencies have imposed price controls and limitations on production
by restricting the rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. Changes in these
regulations could have a material adverse effect on the Company.
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GLOSSARY OF TERMS
<TABLE>
<S> <C>
BBLS: Barrels of oil.
BCFE: Billion cubic feet of gas equivalent, calculated on the basis of six mcf
of gas for one bbl. of oil.
GROSS ACRE: An acre in which a working interest is owned, without regard to the
size of the interest.
GROSS WELL: An oil or gas well in which a working interest is owned, without
regard to the size of the interest.
LEASES: Full or partial leasehold interests in oil
and gas prospects, authorizing the owner
thereof to drill for, reduce to possession
and produce and sell oil and gas, subject
to the payment of rentals, bonuses and/or
royalties.
MBBL: Thousand barrels.
MCF: Thousand cubic feet.
MMCF: Million cubic feet.
NET ACRES: One net acre is deemed to exist when the sum of the fractional
working interests owned in gross acres equals one. The number of
net acres is the sum of the fractional working interests owned in gross
acres.
NET WELL: One net well is deemed to exist when the sum of fractional working
interests owned in gross wells equals one. The number of net wells
is the sum of the fractional working interests owned in gross wells.
PROVED DEVELOPED Proved reserves that are expected to be recovered through existing
RESERVES: wells with existing equipment and operating methods.
PROVED RESERVES: Quantities of oil and gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs.
</TABLE>
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<TABLE>
<S> <C>
PROVED Proved reserves that are expected to be recovered from new wells or
UNDEVELOPED from existing wells where a relatively major expenditure is required
RESERVES: for recompletion.
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
No material legal proceeding to which the Company (or any of its
officers or directors in their capacities as such) is a party or to which the
property of the Company is subject is pending and no such legal proceeding is
known by management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no items submitted to a vote of the Company's Shareholders
during the Company's fourth quarter ended December 31, 1998.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was listed on the American Stock Exchange
effective October 23, 1997. Prior to that date, the Company's Common Stock was
traded over-the-counter and quoted in the Nasdaq Small Cap market.
The following table sets forth the range of high and low sales prices
for the Common Stock on the American Stock Exchange from October 23, 1997
through December 31, 1998 and the range of high and low bid quotations as
reported for the Common Stock by Nasdaq for the remainder of the period shown.
Nasdaq quotations represent prices between dealers, do not include retail
mark-ups, mark-downs or commissions and do not necessarily represent prices at
which actual transactions were effected.
<TABLE>
<CAPTION>
HIGH LOW
YEAR ENDED DECEMBER 31, 1998 ----- ------
- ----------------------------
<S> <C> <C>
Fourth Quarter $3.00 $1.25
Third Quarter $3.50 $1.88
Second Quarter $4.00 $2.50
First Quarter $3.31 $2.87
YEAR ENDED DECEMBER 31, 1997
- ----------------------------
Fourth Quarter $4.06 $2.63
(October 23 to December 31)
Fourth Quarter $3.84 $3.63
(October 1 to October 22)
Third Quarter $4.50 $3.13
Second Quarter $4.88 $3.00
First Quarter $4.50 $2.81
</TABLE>
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The number of record holders of the Common Shares as of December 31,
1998 was 417, including nominees of beneficial owners. The Company estimates
that there were approximately 1,500 beneficial owners of its Common Shares as
of that date.
No dividends on the Common Shares have been paid by the Company to
date nor does the Company anticipate that dividends will be paid in the
foreseeable future. The Series C Preferred Stock of the Company currently
outstanding prevents the Company from paying any dividends on its common stock
until the Series C Preferred Stock is redeemed or converted.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
INTRODUCTION
In May 1998, we acquired our Colorado properties from UPR. Those new
properties are many times larger than the properties we have historically
owned. For example, in December 1998, we produced approximately 190 mmcf of gas
and 12.3 mbbl of oil. In the nine months ended December 31, 1997, the average
monthly production was 30.4 mmcf of gas and 7.2 mbbl of oil. As a result of the
impact of this acquisition, comparisons of 1998 to 1997 are not particularly
meaningful. In addition, 1998 was the first full year since we changed our
fiscal year to a calendar year. The 1997 numbers presented are for the
nine-month transition period ended December 31, 1997.
As a result of the losses experienced by the Company in recent
periods and existing defaults under our principal loan agreement, our auditors
have included a "going concern" qualification in their opinion on our 1998
financial statements. See "Index to Financial Statements - Reports of
Independent Auditors."
LIQUIDITY AND CAPITAL RESOURCES
Bank Credit Facility
On May 15, 1998, in connection with the UPR acquisition, we entered
into a Credit Agreement with ING (U.S.) Capital Corporation ("ING")
establishing a revolving credit facility (the "Credit Agreement"). The maximum
available borrowings under the Credit Agreement were initially set at $35
million, subject to periodic redeterminations of the borrowing base. The
original loan amortization schedule included 20 quarterly installments
beginning March 31, 2000. Loan interest
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is generally payable on a quarterly basis at a rate selected by us which is
determined by reference to LIBOR or the lender's reference rate plus varying
margins. At March 31, 1999, the outstanding loan balance was $32 million with a
weighted-average interest rate of approximately 7.3% per annum.
Our obligations under the Credit Agreement are secured by
substantially all of the Company's oil and gas properties. The Credit Agreement
prohibits the payment of dividends on our Common Stock and prohibits the
payment of dividends on our Series C Preferred Stock for periods ending after
June 30, 1999. Prior to June 30, 1999, we are prohibited from paying any
dividend on the Series C Preferred Stock if a default under the Credit
Agreement exists. No dividend has been paid on the Series C Preferred Stock
since the quarter ended June 30, 1998.
On November 18, 1998, we notified ING that we were in default of
several of the Credit Agreement's financial covenants as of September 30, 1998.
As a result, the entire amount of the outstanding bank loan was reclassified as
a current liability on the Company's balance sheet in accordance with the
requirements of generally accepted accounting principles. On January 15, 1999,
we received a Limited Consent and Agreement from ING waiving all outstanding
matters of default in conjunction with the bank's consent to sell certain
Oklahoma assets and a reduction in the Company's borrowing base to $32 million.
The waiver of default expired on February 28, 1999, by which time it had been
anticipated that ING would have completed its year-end review of the Company's
reserves and established a new borrowing base.
As of April 15, 1999, the bank had not yet completed its review of
reserves or established a new borrowing base level due to delays in finalizing
the estimates of the Company's reserves by third party engineers. Based on
preliminary reports provided to the bank, ING has advised that the new
borrowing base level will most likely be established within a range between $21
million and $26 million dollars. However, ING has provided no commitment that
the borrowing base will be established within this range. The anticipated
reduction in borrowing base value reflects the combined impact of (1) lower
product prices, (2) higher than anticipated operating and capital costs, (3)
the inability, at the time the Company's year-end reserve study was prepared,
to establish the extent of its interests in certain formations and (4) lower
than expected predictability of production from the Dakota formation.
We have not yet established with the bank a plan for eliminating the
anticipated borrowing base deficiency. However, we have begun discussions with
ING and are evaluating our options. Under the terms of the Credit Agreement,
the bank has the ability to declare the outstanding loan balance to be due and
payable and foreclose on the properties which are pledged as security to the
loan. However, ING has given no indication that it intends to exercise such
remedies in the foreseeable future. On the contrary, the bank has expressed its
desire to work with us to find a mutually acceptable solution to the borrowing
base shortfall.
ING has recently advised all of the customers of its Natural
Resources Group that this department of the bank has ceased ongoing operations.
However, the bank has retained certain personnel to administer the loans of
existing clients, including UXP, and has stated that their withdrawal from the
oil and gas business is being managed in order to have as little adverse impact
on their clients as possible.
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Capital Expenditures
Until the borrowing base shortfall described above has been resolved,
we will significantly curtail projects requiring cash investment by the
Company, focusing principally on projects that pay back their investment over a
short period of time. We will also seek sources of outside financing which will
allow development of the Company's capital projects with little or no
investment by the Company, but no assurance can be given that such sources will
become available.
Under the Exploration Agreement with UPR, we have an obligation to
drill 15 commitment wells prior to December 1, 1999. As of April 15, 1999, none
of these wells had been drilled. If the wells are not drilled by the deadline,
the Exploration Agreement is terminated and we will be obligated to pay
liquidated damages of $125,000 for each well not drilled. The Company has
negotiated (but has not finalized) an amendment to the Exploration Agreement
under which certain future deepenings and re-entries, which are significantly
less expensive than new wells, will count as commitment wells during the
initial 18-month term. Management believes that resources are available to
satisfy the Company's commitment under the Exploration Agreement during the
initial term.
Cash Balances and Cash Flow
As of April 10, 1999, the Company had cash and cash equivalents of
approximately $2.6 million. However, based on current prices and production
levels, the Company is experiencing negative cash flow before capital spending.
Cost reductions are being analyzed. However, there can be no assurance that
cost savings will be sufficient to create positive cash flow. Based on current
projections, we expect existing cash resources would be sufficient to fund
ongoing operations with limited capital expenditures through the end of the
year.
The Company's cash flow is very sensitive to changes in commodity
prices. A $.25/mcf increase in the price of gas and a $1.00/bbl increase in the
price of oil would increase expected cash flow from the Company's currently
producing wells over the twelve month period beginning May 1, 1999 by
approximately $450,000 and $75,000, respectively.
Conversion of Series C Preferred Stock
In order to reduce the negative impact to earnings attributable to
common shareholders and cash flow attributable to preferred stock dividends, we
engaged in an active program to convert Series C Preferred Stock into shares of
common stock during 1998. Since December 31, 1997, 3,391,834 shares of Series C
Preferred Stock have been converted into 6,783,668 shares of common stock
(including 50,000 shares of preferred stock converted after December 31, 1998).
This conversion reduces preferred stock dividend requirements by approximately
$1.6 million per year. The annual dividend requirement on the 443,166 shares
that remain outstanding is approximately $200,000. However, no dividends have
been paid on any of the Company's preferred stock since June 30, 1998.
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Property Sales
During the first quarter of 1999, we announced the sale of certain
Oklahoma assets for $1,825,000. The proceeds of this sale were used to pay down
the outstanding bank loan. We have also announced our intention to dispose of
the Company's remaining assets in Oklahoma, Kansas and Texas. Any proceeds
realized from these sales will also be applied to reduce the ING loan.
Therefore, such sales will reduce interest expense and may reduce the remaining
borrowing base shortfall, but until such time as the borrowing base shortfall
has been eliminated, the sales cannot be expected to improve the Company's
liquidity.
RESULTS OF OPERATIONS
Year Ended December 31, 1998
The Company realized a net loss of $21,251,173 for the year compared
to a loss of $7,584,803 for the transition period (nine months) ended December
31, 1997. Including preferred stock dividends, the loss for the year was
$22,286,106 or $1.67 per share.
The largest component of the net loss was a provision for impairment
of assets totaling $15,351,978, of which $15,206,978 was an adjustment to the
carrying value of the Company's oil and gas property and equipment based upon
engineering reserve studies prepared as of December 31, 1998. See "Items 1 and
2 Description of Business and Properties-Reserves" for a discussion of the
Company's oil and gas reserves. As a result of the reduction in estimated
reserves, the Company recorded an additional depletion, depreciation and
amortization expense in the fourth quarter of 1998 totaling $2,558,311. Without
the provision for impairment of the Company's oil and gas property and
equipment and the additional depletion, depreciation and amortization expense
recorded in the fourth quarter, the Company's net loss would have been
$3,485,884.
Because of the acquisition of the UPR properties in May 1998,
comparison of the results of operations between the year ended December 31, 1998
and the nine months ended December 31, 1997 is not meaningful. The oil and gas
properties involved in the UPR acquisition dwarf the oil and gas properties
owned by the Company at December 31, 1997. The Company initially borrowed
$29,000,000 in connection with the UPR acquisition and used some $11,000,000 of
existing cash to complete the acquisition. As a result, sales of Company
produced oil and gas, production costs of oil and gas, general and
administrative expenses and interest expense increased substantially, while
interest income declined substantially. Of the $4,376,561 in sales of Company
produced oil and gas, $3,144,919 are attributable to the UPR properties. Of the
$2,692,644 in production costs- oil and gas, $1,638,997 are attributable to the
UPR properties. All interest expense is attributable to the UPR acquisition and
substantially all of the decrease in interest income results from the use of
Company cash in the UPR acquisition. The increase in general and administrative
expense primarily results from additional personnel and associated costs, office
facilities and legal and accounting expenses, all of which are related to the
continuing operations of the UPR properties.
Sales of purchased gas and the related costs of gas acquisition and
gathering and transmission were somewhat affected by price, but the large
reduction in sales of purchased gas is attributable to
13
<PAGE> 18
the shut-in of the Kansas gathering system for five months and the subsequent
period of time needed to get the gathering system completely functioning again
after the shut-in period.
Preferred stock dividends attributable to the year ended December 31,
1998 are $1,034,933 and include $118,360 for dividends for the last two quarters
of 1998, which were not declared or paid and are not accrued on the balance
sheet. Preferred stock dividends attributable to the nine months ended December
31, 1997 were $1,421,226. Preferred stock dividends attributable to the three
months ended March 31, 1997 were $480,000. The comparison between the two
calendar years is $1,034,933 attributable to 1998 and $1,901,226 attributable to
1997. The large reduction is attributable to the conversion of preferred stock
to common stock during 1998. Most of these conversions were effective
immediately after the cash dividend paid for the second quarter of 1998.
Transition Period (Nine Months) Ended December 31, 1997
During the Transition Period ended December 31, 1997, the Company
realized a net loss of $7,584,803 on revenues of $3,034,585. This compares to a
profit of $121,627 on revenues of $3,544,961 for the nine months ended December
31, 1996 and a loss of $87,530 on revenues of $4,513,387 for the fiscal year
ended March 31, 1997. Including provision for Preferred Stock dividends
applicable to the period, the net loss for the Transition Period was
$9,006,029, or $1.06 per share.
The greatest component of the net loss for the Transition Period was
a provision for impairment of assets of $6,320,401. Such provision includes
$4,901,567 for adjustment of the carrying costs of the Company's oil and gas
assets, and $1,075,011 in connection with a write down of a refinery and real
estate owned by the Company. Of the adjustment to the full cost pool,
substantially all is attributable to a revision in the estimate of future
revenue quantities of the Company's oil and gas assets since fiscal year end
March 31, 1997. The adjustment in the carrying costs of the refinery and
associated real estate was made following management's re-evaluation of those
assets and their proposed disposition by the Company. Depreciation, depletion
and amortization expense in the final quarter of the Transition Period
increased $984,461, mostly as the result of the revision of the Company's
proved oil and gas reserve quantities. Excluding provision for impairment of
assets, the Company would have realized a net loss of $1,264,402 for the
Transition Period, which includes extraordinary expenses to clean up the
existing assets in order to maximize productivity. Even without the provision
for the impairment of assets and the substantial increase in depreciation,
depletion and amortization, the Company's revenues were insufficient to cover
its costs and expenses.
Revenues for the Transition Period decreased from the comparable
period ended December 31, 1996, from $3,544,961 to $3,034,585. A substantial
portion of that decrease is attributable to a reduction of revenues from
contracting services and sale of oil field supplies, as the Company determined
to discontinue those operations. Revenue from the sale of oil and gas produced
by the Company remained generally constant, while revenue from the sale of
purchased gas decreased slightly.
14
<PAGE> 19
Production costs as a percentage of Company produced oil and gas
increased from the nine months ended December 31, 1996 to the Transition
Period, from 43% to 57% of revenues. Such increase is attributable to the
Company's repair and clean-up effort, although production rates and prices also
contributed to this increase. Gas transportation costs also increased during
the Transition Period, as the Company performed necessary repairs on certain of
its gas gathering systems. Finally, general and administrative expenses
increased substantially, from $359,778 for the nine months ended December 31,
1996 to $841,193 for the Transition Period. Such increase is primarily
attributable to increased staffing, increased legal and accounting costs, a
$50,000 consulting fee paid to Benson Mineral Group, Inc., $80,750 paid to
former directors and employees in the form of stock, and the cost of listing
the Company's stock on the American Stock Exchange.
Other income during the Transition Period helped reduce the Company's
net loss. The Company realized other income of $736,222 for the Transition
Period, including $677,488 in interest. Interest income increased substantially
from the nine months ended December 31, 1996 to the Transition Period, as the
Company had substantial temporary investments of cash resulting from the
private placement of the Preferred stock during the nine months ended December
31, 1996.
YEAR 2000 COMPLIANCE
Year 2000 issues result from the inability of computer programs or
equipment to accurately calculate, store or use a date subsequent to December
31, 1999. This could result in a system failure or miscalculations causing
disruptions of the Company's operations, including, among other things, a
temporary inability to process transactions, send invoices or engage in other
normal business operations. Year 2000 problems experienced by the Company's
suppliers and customers could also adversely affect the Company by delaying its
receipt of goods, services or payments.
The Company believes that its own computer systems are Year 2000
compliant. For reasons unrelated to Year 2000 issues, the Company acquired new
IBM hardware for all of its critical systems during 1998 and has been advised
by the vendor that the new equipment is Year 2000 compliant. The balance of the
Company's operating systems are PC-based and all PCS have been acquired within
the past two years. The Company's software system was purchased in 1992, but
has been continuously maintained by the software vendor, who has advised the
Company that the system is Year 2000 compliant. Accordingly, the Company does
not expect to incur any material costs associated with internal Year 2000
issues.
The Company is developing a program to have formal communications
with its significant suppliers, business partners and customers to determine
whether those third parties have addressed Year 2000 issues. The primary
companies with which the Company deals are large, publicly-held enterprises
that can be expected to be alert to Year 2000 issues as a result of regulatory
pressures or otherwise. However, there can be no assurance that the Company's
receipt of goods, services or payments will not be complicated or delayed as a
result of Year 2000 problems experienced by third parties, including its
suppliers and customers or others with whom its suppliers and customers deal.
15
<PAGE> 20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Portions of this Report contain "forward-looking statements" within
the meaning of the federal securities laws. Such forward-looking statements
include, without limitation, statements regarding the Company's need for and
potential sources of capital, oil and gas reserves, future revenues and results
of operations, plans for future development operations and plans for dealing
with third parties, and are identified by words such as "anticipates," "plans,"
"expects," "intends" and "estimates." Factors that could cause actual results
to differ materially from these contemplated by such forward-looking statements
include, among others, the following:
Reserve Estimates. The Company's estimates of proved reserves of oil
and gas and future net cash flows therefrom are based on various assumptions
and interpretations and, therefore, are inherently imprecise. Actual future
production, revenue, taxes, development expenditures, operating expenses and
quantities of recoverable oil and gas reserves may be subject to revision based
upon production history, results of future exploration and development,
prevailing oil and gas prices, operating costs and other factors.
Reliance on Key Personnel. The Company is dependent upon its
executive officers and key employees, particularly Bruce D. Benson, its Chief
Executive Officer. The unexpected loss of the services of one or more of these
individuals could have a detrimental effect on the Company. The Company does
not have key person life insurance on any of its officers.
Management of Growth. The acquisition of the UPR properties resulted
in a substantial change in the size and extent of the Company's assets and
operations. In order to accommodate this growth, the Company has expanded its
staffing, office space and management information systems. The Company could
experience temporary difficulties in the course of managing the growth within
the Company. Any such difficulties could adversely affect the Company's
business, financial condition or results of operations until resolved.
Availability of Services and Materials. The Company's expanded
operations will require significantly higher levels of third-party services and
materials. Such services and materials have at times been scarce and the
unavailability of a sufficient number of drilling rigs or other goods or
services could impede the Company's ability to achieve its objectives and
significantly increase the costs of its operations.
Increased Debt. The Company's ability to service the debt incurred
under the Credit Agreement is in part dependent upon increasing its cash flows
from the UPR properties through further development work. The Company's ability
to conduct that further development work is, in turn, dependent upon the
availability of adequate capital and its ability to enter into appropriate
agreements with the operators of wells in which it owns an interest to deepen
or recomplete the wells for production from additional zones. The Company's
capital resources are quite limited and it is currently in default under its
loan agreement. There can be no assurance that it will be able to resolve the
existing defaults or increase revenues sufficiently to service its debt. These
factors can be expected to adversely affect the Company's ability to obtain
additional financing for working capital, capital expenditures and other
purposes.
16
<PAGE> 21
Oil and Gas Prices and Markets. The Company's revenues are dependent
upon prevailing prices for oil and gas. Oil and gas prices can be extremely
volatile. Prevailing prices are also affected by the actions of foreign
governments, international cartels and the United States government. Recent
declines in oil and gas prices have adversely affected the Company and have
resulted in a reduction in the estimated proved reserves attributable to the
Company's properties, with a resulting decrease in the Company's borrowing
base. Further price declines could occur in the future with similar results. In
addition, the Company's revenues depend upon the marketability of production,
which is influenced by the availability and capacity of gas gathering systems
and pipelines, as well as the effects of federal and state regulation and
general economic conditions.
Government Regulation. Changes in government regulations applicable
to the production and sale of oil and gas may adversely affect the Company. See
"Items 1 and 2 - Description of Business and Properties - Government
Regulation."
Most of these factors are beyond the control of the Company.
Investors are cautioned not to place undue reliance on forward-looking
statements.
ITEM 7. FINANCIAL STATEMENTS
Reference is made to the Index to Financial Statements following the
Signature Page of this report for a listing of the financial statements
included in this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Previously reported in the Company's report on Form 8-K dated May 19,
1998.
PART III
ITEMS 9 THROUGH 12:
The information called for by Item 9 (Directors, Executive Officers,
Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
Act), Item 10 (Executive Compensation), Item 11 (Security Ownership of Certain
Beneficial Owners and Management), and Item 12 (Certain Relationships and
Related Transactions) is incorporated by reference from the Registrant's
definitive Proxy Statement for its 1999 annual meeting of shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT NO.
3.1(1) Articles of Incorporation of the Company as filed on
January 9, 1989, with the Secretary of State of the State
of Colorado.
17
<PAGE> 22
3.2(1) By-laws of the Company.
3.3(1) Articles of Amendment of the Company filed on June 7,
1990 with the Secretary of State of the State of
Colorado.
3.4(2) Articles of Amendment of the Company as filed with the
Secretary of State of the State of Colorado on September
24, 1996.
3.5(3) Amended and Restated Bylaws of the Company.
10.1(1) 1989 Incentive Stock Option Plan of the Company.
10.2(1) 1990 Non-Qualifying Stock Option Plan.
10.3.1(4) Lease Agreement between Mid-America Pipeline Company and
Producers Service, Incorporated.
10.3.2(4) Amendment to Lease Agreement between Mid-America Pipeline
Company and Producers Service, Incorporated.
10.4(5) Executive Employment Agreement, dated August 7, 1997, by
and between the Company and Bruce D. Benson.
10.5(5) Cost and Expense Sharing Agreement, dated August 7, 1997,
by and between the Company and Benson Mineral Group, Inc.
10.6(5) Form of Non-Qualified Stock Option Agreement.
10.7(6) Purchase and Sale Agreement between the Company and Union
Pacific Resources Company dated April 10, 1998.
10.8(6) Exploration Agreement between the Company and Union
Pacific Resources Company dated May 15, 1998.
10.9(6) Credit Agreement dated as of May 15, 1998 among the
Company and ING (U.S.) Capital Corporation.
10.10(6) Mortgage, Assignment, Security Agreement, Fixture Filing
and Financing Statement from United States Exploration,
Inc. to ING (U.S.) Capital Corporation, dated May 15,
1998.
10.11(6) Mortgage, Assignment, Security Agreement, Fixture Filing
and Financing Statement from Performance Petroleum Co.,
United States Gas Gathering Co., Inc. and Pacific Osage,
Inc. to ING (U.S.) Capital Corporation, dated May 15,
1998.
18
<PAGE> 23
10.12(6) Pledge Agreement made as of May 15, 1998, by United
States Exploration, Inc., in favor of ING (U.S.) Capital
Corporation.
10.13(6) Guaranty made as of May 15, 1998, by Performance
Petroleum Co., United States Gas Gathering Co., Inc.,
Pacific Osage, Inc. and Producers Service Incorporated,
in favor of ING (U.S.) Capital Corporation.
10.14(7) Pipeline Purchase Agreement between USGG and Northern
Osage Gas Association L.L.C. dated as of December 31,
1998.
10.15(7) Stock Purchase Agreement between the Company and the
several buyers named therein relating to the sale of USGG
dated as of December 31, 1998.
10.16(7) Stock Purchase Agreement between the Company and Demetrie
D. Carone relating to the sale of Pacific and Performance
dated as of December 31, 1998.
10.17(8) Directors Fee Stock Plan
10.18(8) Office Lease Agreement between the Company and EOP-One
Civic Center Plaza, L.L.C. dated October 15, 1998.
21(8) List of the Company's subsidiaries.
23.1(8) Consent of Grant Thornton LLP, independent certified
public accountants, to incorporation of this report by
reference into the issuer's Registration Statement on
Form S-8.
23.2(8) Consent of Ernst & Young LLP, independent certified
public accountants, to incorporation of this report by
reference into the issuer's Registration Statement on
Form S-8.
24(8) Powers of Attorney
27(8) Financial Data Schedule.
- ----------
(1) Filed as an Exhibit to Form S-18 dated March 8, 1989.
(2) Filed as an Exhibit to Form 8-K dated September 30, 1996.
(3) Filed as an Exhibit to Form S-8 filed August 7, 1998
(Registration No. 333-60983).
(4) Filed as an Exhibit to Form 10-KSB for the fiscal year ended
March 31, 1994 and incorporated herein by reference.
19
<PAGE> 24
(5) Filed as an Exhibit to Form 10-QSB for the quarter ended June 30,
1997, and incorporated herein by reference.
(6) Filed as an Exhibit to Form 8-K dated May 26, 1998 and
incorporated herein by reference.
(7) Filed as an Exhibit to Form 8-K dated February 2, 1999 and
incorporated herein by reference.
(8) Filed herewith.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fourth quarter of
1998.
20
<PAGE> 25
United States Exploration, Inc. and Subsidiaries
Consolidated Financial Statements
Year ended December 31, 1998 and nine months ended
December 31, 1997
CONTENTS
<TABLE>
<S> <C>
Reports of Independent Auditors .......................................................................F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................................................F-3
Consolidated Statements of Operations..................................................................F-5
Consolidated Statements of Changes in Stockholders' Equity.............................................F-6
Consolidated Statements of Cash Flows .................................................................F-7
Notes to Consolidated Financial Statements ............................................................F-8
</TABLE>
<PAGE> 26
Report of Independent Auditors
Board of Directors
United States Exploration, Inc.
We have audited the accompanying consolidated balance sheet of United States
Exploration, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United States
Exploration, Inc. and subsidiaries at December 31, 1998, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that United
States Exploration, Inc. and subsidiaries will continue as a going concern. As
more fully described in Note 2, the Company has incurred operating losses and is
currently in default of certain covenants of a note payable with a bank. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to this matter are also described in
Note 2. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
/s/ Ernst & Young LLP
Denver, Colorado
April 9, 1999
F-1
<PAGE> 27
Report of Independent Auditors
Board of Directors
United States Exploration, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of United States
Exploration, Inc. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the nine months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United States
Exploration, Inc. and Subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for the nine
months then ended in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Wichita, Kansas
March 6, 1998
F-2
<PAGE> 28
United States Exploration, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,000,661 $ 15,988,152
Accounts receivable 2,980,700 562,016
Due from related parties 4,761 --
Inventory 9,684 14,889
Prepaid expenses, well costs and deposits 806,947 31,267
Assets held for sale 1,825,000 --
------------ ------------
Total current assets 6,627,753 16,596,324
Property and equipment, at cost, net:
Oil and gas property and equipment--
full cost method 25,166,770 3,390,640
Natural gas gathering systems 977,050 1,367,267
Building and equipment 295,046 392,644
------------ ------------
26,438,866 5,150,551
Other assets:
Land held for resale 700,000 700,000
Natural gas stripping plant -- 20,000
Equipment -- 10,000
Pipeline lease agreement, less accumulated
amortization of $248,481 and $197,871 at
December 31, 1998 and 1997, respectively 462,358 509,437
Loan costs, less accumulated amortization
of $44,695 at December 31, 1998 429,076 --
------------ ------------
1,591,434 1,239,437
------------ ------------
Total assets $ 34,658,053 $ 22,986,312
============ ============
</TABLE>
F-3
<PAGE> 29
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,365,983 $ 371,898
Accrued liabilities 450,449 33,266
Due to related parties 47,379 62,334
Dividends payable -- 460,200
Due bank under credit facility 31,900,000 --
------------ ------------
Total current liabilities 34,763,811 927,698
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock - $.01 par value
Authorized - 100,000,000 shares
Series C Cumulative Convertible
Issued and outstanding - 493,166 and 3,835,000
shares at December 31, 1998
and 1997, respectively (liquidation preference of
$3,077,356 at December 31, 1998) 2,958,996 23,010,000
Common stock - $.0001 par value:
Authorized - 500,000,000 shares
Issued and outstanding - 15,480,194 and
8,795,400 shares at December 31, 1998 and
1997, respectively 1,548 880
Capital in excess of par value 32,577,053 12,523,345
Accumulated deficit (35,643,355) (13,475,611)
------------ ------------
Total stockholders' equity (deficit) (105,758) 22,058,614
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 34,658,053 $ 22,986,312
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 30
United States Exploration, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31
1998 1997
------------- -------------
<S> <C> <C>
REVENUES
Sale of purchased gas $ 844,437 $ 950,369
Sale of company produced oil and gas 4,376,561 1,974,033
Operating fees, contracting, drilling and oil
field supplies 58,923 110,183
------------- -------------
5,279,921 3,034,585
COSTS AND EXPENSES
Gas acquisition costs 406,228 673,831
Gathering and transmission costs 604,215 416,921
Production costs - oil and gas 2,692,644 1,118,342
Other operating expenses 118,316 219,447
Depletion, depreciation and amortization 4,087,740 1,765,475
Provision for impairment of assets 15,351,978 6,320,401
General and administrative expenses 2,157,044 841,193
------------- -------------
25,418,165 11,355,610
------------- -------------
Loss from operations (20,138,244) (8,321,025)
OTHER INCOME (EXPENSE)
Interest income 332,674 677,488
Interest expense (1,431,563) (2,092)
Other (14,040) 60,826
------------- -------------
Net loss (21,251,173) (7,584,803)
Preferred stock dividends applicable to the period (1,034,933) (1,421,226)
------------- -------------
Net loss applicable to common stockholders $ (22,286,106) $ (9,006,029)
============= =============
Basic and diluted loss per common share $ (1.67) $ (1.06)
============= =============
Weighted average common shares outstanding 13,322,519 8,487,667
============= =============
</TABLE>
See accompanying notes.
F-5
<PAGE> 31
United States Exploration, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Year ended December 31, 1998 and nine months ended December 31, 1997
<TABLE>
<CAPTION>
SERIES C COMMON STOCK
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Balance, March 31, 1997 4,000,000 $ 24,000,000 8,312,358 $ 831
Issuance of common stock for
compensation -- -- 19,000 2
Exercise of stock options -- -- 133,700 14
Conversion of preferred stock to
common stock (165,000) (990,000) 330,000 33
Dividends on Series C
preferred stock -- -- -- --
Net loss for the period -- -- -- --
Issuance of common stock -- -- 342 --
--------- ------------ ----------- --------
Balance, December 31, 1997 3,835,000 23,010,000 8,795,400 880
Conversion of preferred stock to
common stock (3,341,834) (20,051,004) 6,683,668 668
Dividends on Series C
preferred stock -- -- 1,126 --
Net loss for the year -- -- -- --
--------- ------------ ----------- --------
Balance, December 31, 1998 493,166 $ 2,958,996 15,480,194 $ 1,548
========= ============ =========== ========
<CAPTION>
CAPITAL IN
EXCESS OF ACCUMULATED
PAR VALUE DEFICIT TOTAL
------------ ------------- -------------
<S> <C> <C> <C>
Balance, March 31, 1997 $ 11,370,867 $ (3,989,582) $ 31,382,116
Issuance of common stock for
compensation 80,748 -- 80,750
Exercise of stock options 80,737 -- 80,751
Conversion of preferred stock to
common stock 989,967 -- --
Dividends on Series C
preferred stock -- (1,901,226) (1,901,226)
Net loss for the period -- (7,584,803) (7,584,803)
Issuance of common stock 1,026 -- 1,026
------------ ------------- -------------
Balance, December 31, 1997 12,523,345 (13,475,611) 22,058,614
Conversion of preferred stock to
common stock 20,050,336 -- --
Dividends on Series C
preferred stock 3,372 (916,571) (913,199)
Net loss for the year -- (21,251,173) (21,251,173)
------------ ------------- -------------
Balance, December 31, 1998 $ 32,577,053 $ (35,643,355) $ (105,758)
============ ============= =============
</TABLE>
See accompanying notes.
F-6
<PAGE> 32
United States Exploration, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net loss $ (21,251,173) $ (7,584,803)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation, depletion and amortization 4,087,740 1,765,475
Provision for impairment of assets 15,351,978 6,320,401
Stock issued as compensation -- 80,750
Loss (gain) on sale of assets 20,827 (21,089)
Change in assets and liabilities, net of effect of
acquisitions:
(Increase) decrease in accounts receivable (2,418,684) 28,221
(Increase) decrease in due from related parties (4,761) 4,300
Decrease in inventory 5,205 137,512
Increase in prepaid expenses (775,680) (7,818)
Increase (decrease) in accounts payable and
accrued expenses 2,411,268 (110,624)
(Decrease) increase in due to related parties (14,955) 47,119
Other 1,999 --
------------- -------------
Net cash (used in) provided by operating activities (2,586,236) 659,444
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,954,355) (364,654)
Proceeds from sale of equipment 62,865 229,573
Maturity of certificate of deposit -- 1,500,000
Acquisition of oil and gas leases (39,559,220) --
------------- -------------
Net cash (used in) provided by investing activities (42,450,710) 1,364,919
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt 31,900,000 --
Loan costs related to acquisition financing (473,772) --
Dividend paid on preferred stock (1,376,773) (1,440,000)
Proceeds from exercise of stock options -- 80,751
------------- -------------
Net cash provided by (used in) financing activities 30,049,455 (1,359,249)
------------- -------------
Net (decrease) increase in cash and cash equivalents (14,987,491) 665,114
Cash and cash equivalents, beginning of year 15,988,152 15,323,038
------------- -------------
Cash and cash equivalents, end of year $ 1,000,661 $ 15,988,152
============= =============
Noncash investing and financing activities
Conversion of preferred stock and accrued dividends to
shares of common stock $ 20,051,004 $ 990,000
Preferred dividends paid with common stock 3,372 1,026
Cash paid during the year for interest 1,152,144 2,092
Liabilities assumed with acquisition 355,881 --
</TABLE>
See accompanying notes
F-7
<PAGE> 33
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY HISTORY AND NATURE OF OPERATIONS
United States Exploration, Inc. (the Company) was incorporated on January 9,
1989. The Company operates as a producer of oil and gas, as an operator of gas
gathering systems and, prior to August 1997, as an owner of an oil field supply
store and a contract oil field servicing business. The Company's operations are
located in southeast Kansas, northeast Oklahoma and, effective May 1998,
northeast Colorado. During 1997 the Company changed its year end from March 31
to December 31.
PRINCIPLES OF CONSOLIDATION
The accompanying 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 United States Gas Gathering Co., Inc.
(formerly ZCA Gas Gathering, Inc.). On December 31, 1997, Argas, Inc. and USX
Operating Co., Inc. were merged into United States Exploration, Inc. On January
20, 1999, the stock of Performance Petroleum Corporation, Pacific Osage, Inc.
and United States Gas Gathering Co. Inc. was sold in two separate transactions.
All significant intercompany transactions and balances have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The Company has no cash equivalents at December 31, 1998. Cash
equivalents at December 31, 1997 are comprised primarily of $15,900,000 of
Pharmacia and UpJohn Treasury Services AB Commercial Paper which matured January
7, 1998.
F-8
<PAGE> 34
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory is valued at the lower of cost or market with cost determined by the
first-in, first-out (FIFO) method and is mainly comprised of miscellaneous oil
field parts and supplies.
OIL AND GAS INTERESTS
The Company follows the full cost method of accounting as defined by the
Securities and Exchange Commission, whereby all costs incurred in connection
with the acquisition, exploration and development of oil and gas properties,
whether productive or unproductive, are capitalized. Capitalized costs which
relate to proved properties and estimated future costs to be incurred in the
development of proved reserves and estimated future dismantlement and
abandonment costs are amortized using the units-of-production method.
Capitalized costs associated with significant investments in unproved properties
are excluded from the amortization base until such time as these properties are
evaluated. Additionally, no gains or losses are recognized upon the disposition
of oil and gas properties. Capitalized costs are subjected to periodic tests of
recoverability by comparison to the present value of future net revenues from
proved reserves. Any capitalized costs in excess of the present value of future
net revenues from proved reserves, adjusted for the cost of certain unproved
properties, are charged to expense in the year such excess occurs.
PROPERTY AND EQUIPMENT
Property and equipment, exclusive of property and equipment included in the full
cost pool, is stated at cost and depreciated using the straight-line method over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold improvements 10 years
Building (field headquarters) 30 years
Natural gas gathering systems 17 years
Equipment 3 to 7 years
</TABLE>
Maintenance, repairs and renewals which neither materially add to the value of
the asset nor appreciably prolong its life are charged to expense as incurred.
Gains or losses on dispositions of these assets are included in operations.
F-9
<PAGE> 35
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The capitalized pipeline lease agreement is being amortized using the
straight-line method over the remaining term of the lease.
The capitalized loan costs are being amortized over the stated term of the
credit facility.
INCOME TAXES
United States Exploration, Inc. and its subsidiaries file a consolidated federal
income tax return. Deferred income taxes are based on the liability method as
prescribed by Statement of Financial Standards No. 109, Accounting for Income
Taxes (SFAS 109). Under SFAS 109, deferred income taxes are provided for
temporary differences in recognizing certain income and expense items for
financial reporting and tax reporting purposes.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations
in accounting for outstanding stock options. Under APB 25, when the exercise
price of the Company's stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized. If
the market price of the underlying stock on the date of grant exceeds the
exercise price of Company's stock options, compensation expense would be
recognized.
LOSS PER SHARE
Basic loss per share is computed by dividing net loss applicable to common
stockholders by the weighted-average common shares outstanding for the period.
Diluted loss per share reflects the potential dilution that could occur if
common stock options were exercised and preferred stock was converted into
common stock. Basic and diluted loss per share are the same for all periods
presented as the exercise of stock options and the conversion of preferred stock
have an antidilutive effect on all periods.
F-10
<PAGE> 36
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. FINANCIAL RESULTS AND LIQUIDITY
The Company has incurred net losses of $21,251,173 and $7,584,803 for the year
ended December 31, 1998 and the nine months ended December 31, 1997,
respectively. Included in these amounts are provisions for impairment of assets
of $15,351,978 and $6,320,401, respectively. In addition, the Company is not in
compliance with certain covenants under a credit facility with a bank, and as a
result, the loan may be called. Accordingly, $31,900,000 outstanding at December
31, 1998 under the credit facility has been classified as a current liability in
the accompanying balance sheet. As more fully described in Note 18, the
Company's management is evaluating its options and continuing its discussions
with the bank.
3. RELATED PARTY TRANSACTIONS
Effective August 12, 1997, the Company relocated its principal executive office
from Independence, Kansas to Denver, Colorado and shares office space with
Benson Mineral Group,, Inc. (BMG). In connection with that move, the Company
entered into a cost and expense sharing agreement with BMG, a privately held
Oklahoma corporation. The Company's current president is also the president, a
director and sole shareholder of BMG. Pursuant to the cost and expense sharing
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 the facilities and personnel by the
Company. During the year ended December 31, 1998, the Company paid or accrued
$660,646 to BMG pursuant to this arrangement, of which $47,379 was payable at
December 31, 1998. During the nine months ended December 31, 1997, the Company
paid or accrued $229,345 to BMG, of which $62,324 was payable at December 31,
1997. The cost and expense sharing agreement is effective so long as the current
president functions in such capacity. Prior to entering into the expense sharing
agreement with BMG, the Company also paid $50,000 to BMG for consulting services
rendered in 1997.
In addition, the Company entered into an executive employment agreement with its
current president dated August 7, 1997. The agreement provides for a base salary
of not less than $150,000 per year and bonuses at the discretion of the Board of
Directors. It has an initial term of three years, but renews automatically for
successive one-year terms unless terminated by either party. The agreement also
provides for the granting of options to purchase shares of the Company's common
stock (see Note 11).
F-11
<PAGE> 37
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
In August 1997, each of the three retiring members of the Company's Board of
Directors received 5,000 shares of the Company's common stock as compensation
for past services. In addition, each of the three new members of the Board of
Directors, excluding the Chairman of the Board, received 179,000 stock options
at an option price of $4.13 per share. The three outside directors each received
3,879 shares of the Company's common stock in 1999 as payment for directors fees
earned from April 1, 1998 through December 31, 1998.
4. OIL AND GAS PROPERTIES
The Company's oil and gas activities are conducted within the continental United
States. The following schedules present capitalized costs at December 31, 1998
and 1997 and results of operations for producing activities for the year ended
December 31, 1998 and nine months ended December 31, 1997. At December 31, 1998
and 1997, costs associated with acquisition and development activities of
$51,803,057 and $14,681,417, respectively, are considered evaluated and subject
to amortization.
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------ ------------
<S> <C> <C>
Capitalized costs:
Oil and gas properties $ 51,803,057 $ 14,681,417
Accumulated depreciation, depletion
amortization and valuation allowance 26,636,287 11,290,777
------------ ------------
Net capitalized costs $ 25,166,770 $ 3,390,640
============ ============
Results of operations for producing activities:
Oil and gas sales $ 4,376,561 $ 1,974,033
Production costs (2,692,644) (1,118,342)
Depreciation, depletion and amortization (3,669,802) (1,464,479)
Full cost pool valuation allowance (15,206,978) (4,901,567)
------------ ------------
Results of operations from producing activities
(excluding overhead expenses) $(17,192,863) $ (5,510,355)
============ ============
Amortization per equivalent physical unit (barrels)
of production (excludes full cost pool
valuation allowance) $ 8.91 $ 13.28
============ ============
</TABLE>
F-12
<PAGE> 38
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. OIL AND GAS PROPERTIES (CONTINUED)
Costs incurred in oil and gas acquisition and development activities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------ ------------
<S> <C> <C>
Property acquisition costs $ 39,559,220 $ 53,075
Development costs 1,583,158 67,200
------------ ------------
$ 41,142,378 $ 120,275
============ ============
</TABLE>
Capitalized costs are subject to an annual test of recoverability by comparison
to the present value of future net revenues from proved reserves. Any
capitalized costs in excess of the present value of future net revenues are
required to be expensed. At December 31, 1998 and 1997, capitalized costs
exceeded the present value of future net revenues by $15,206,978 and $4,901,567,
respectively, which resulted in a write-down of the carrying value of the oil
and gas properties.
For the year ended December 31, 1998, the primary reasons for the write-down of
the carrying value of the oil and gas properties were: (1) lower oil and gas
prices at December 31, 1998, (2) higher than originally anticipated operating
and capital costs on the properties acquired from UPR, (3) the inability to
establish for the purposes of year-end reserve estimates the extent of the
Company's interest in certain formations within the UPR properties and (4)
predictability of production from the Dakota formation of the UPR properties
less than originally anticipated.
For the nine months ended December 31, 1997, the revision of previous quantity
estimates was the primary reason for the write-down of the carrying value of the
oil and gas properties.
F-13
<PAGE> 39
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. NATURAL GAS GATHERING SYSTEMS
Natural gas gathering systems consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------ ------------
<S> <C> <C>
Kansas systems $ 2,432,096 $ 2,274,470
Oklahoma systems -- 750,188
------------ ------------
2,432,096 3,024,658
Accumulated depreciation and valuation allowance (1,455,046) (1,657,391)
------------ ------------
$ 977,050 $ 1,367,267
============ ============
</TABLE>
6. EQUIPMENT, LEASEHOLD IMPROVEMENTS AND BUILDING
Equipment, leasehold improvements and building consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------- ----------
<S> <C> <C>
Leasehold improvements $ 5,013 $ --
Building -- 130,588
Oil field equipment 238,689 512,808
Autos and trucks 121,180 163,774
Office equipment and furniture 210,260 52,124
---------- ----------
575,142 859,294
Accumulated depreciation (280,096) (466,650)
---------- ----------
$ 295,046 $ 392,644
========== ==========
</TABLE>
7. LAND HELD FOR RESALE
The Company owns land located in Ingleside, Texas, which it acquired in July
1994. Until 1998, a refinery was located on 20 acres of the approximately 100
acres of undeveloped real estate.
F-14
<PAGE> 40
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LAND HELD FOR RESALE (CONTINUED)
The refinery had been nonoperational since the early 1980s and marketing efforts
for the refinery were unsuccessful. Management decided to dismantle and salvage
the refinery and sell the real estate, writing down the refinery and land to a
net realizable value of $700,000 by recognizing an impairment loss of $1,075,011
for the nine months ended December 31, 1997. During 1998, the Company spent
approximately $145,000 to dismantle the refinery, but concluded the net
realizable value of the land was still approximately $700,000. This resulted in
an additional impairment loss of approximately $145,000 for the year ended
December 31, 1998.
8. PIPELINE LEASE
The Company leases and operates a seventy-two mile gas pipeline under an
operating lease which was acquired for a total cost of $707,308. The lease
expires January 31, 2008 and requires minimum monthly payments of $6,500 per
month. A volume rent adjustment is computed at each six-month anniversary date.
The recomputed monthly rent is equal to the average monthly MCF's transported
through the pipeline during the previous six months times $.08 but not less than
$6,500. The maximum monthly rental under the formula is $13,600 a month. Average
monthly MCF's transported during any six month period during the year ended
December 31, 1998 and the nine months ended December 31, 1997 did not result in
any volume rent adjustments. The agreement includes a purchase option for
$1,800,000 which can be exercised at any time during the term of the lease.
F-15
<PAGE> 41
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Purchase accounting adjustment - book basis of
acquired assets greater than
tax basis - lease
equipment $ 176,377 $ 193,586
Deferred tax assets:
Net operating loss carryforwards 6,615,199 3,535,787
Valuation allowance (natural gas stripping plant) -- 39,520
Oil and gas properties - full cost pool amortization
greater than tax depletion 6,611,637 463,672
Depreciation on equipment 328,518 371,825
------------ ------------
13,555,354 4,410,804
Less valuation allowance (13,378,977) (4,217,218)
------------ ------------
176,377 193,586
------------ ------------
Net deferred amount $ -- $ --
============ ============
</TABLE>
The valuation allowance was increased by $9,161,759 and $3,942,125 at December
31, 1998 and 1997, respectively, to reduce the deferred tax asset to zero.
The Company is limited in its use of its net operating loss carryforwards. The
Company may use, in any one tax year, up to $507,000 of net operating losses
from carryforwards expiring in years before 2009 and up to $2,285,000 of net
operating losses from carryforwards expiring after 2008, for a maximum of
$9,724,000 in any one year.
F-16
<PAGE> 42
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
The net operating loss carryforwards available to United States Exploration,
Inc. for income tax purposes are as follows:
<TABLE>
<CAPTION>
EXPIRATION DATES
----------------
<S> <C>
2002 $ 868,000
2003 2,545,000
2004 1,300,000
2005 293,000
2006 448,000
2007 37,000
2008 2,162,000
2009 537,000
2010 435,000
2011 301,000
2012 1,499,000
2013 6,983,000
-------------
$ 17,408,000
=============
</TABLE>
10. MAJOR CUSTOMERS
The Company sold substantially all of its produced and purchased gas to six
purchasers for the year ended December 31, 1998 and sold approximately 78% to
four purchasers for the nine months ended December 31, 1997. The Company sold
substantially all of its oil to five purchasers for the year ended December 31,
1998 and substantially all of its oil to two purchasers for the nine months
ended December 31, 1997.
11. STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
F-17
<PAGE> 43
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STOCK OPTION PLANS (CONTINUED)
Effective January 13, 1989, the Company adopted an Incentive Stock Option Plan
(the Plan) and reserved a total of 1,000,000 common shares for issuance pursuant
to the Plan. The Plan expired on January 13, 1999 and no new options can be
granted. All options granted prior to the expiration remain outstanding until
they have expired or been canceled.
Effective May 25, 1990, the Board of Directors adopted a Nonqualifying Stock
Option Plan (NQSOP) for the benefit of nonemployee directors of the Company and
others having rendered significant services to the Company. To date, an
aggregate of 2,900,000 common shares have been reserved to be issued pursuant to
the NQSOP. As of December 31, 1998 and 1997, there were 179,200 options
available for issuance. The NQSOP is administered at the discretion of the
compensation committee of the Board of Directors. Unless otherwise specified,
the options expire ten years from the date of the grant.
In August 1997, the Company entered into an employment agreement with its
current president which provided for the issuance of nonqualified stock options.
A total of 4,000,000 options were issued with 1,000,000 shares each being
exercisable at $4.50, $6.00, $9.00 and $12.00 per share. The options exercisable
at $4.50 and $6.00 were exercisable immediately and the remaining options became
exercisable in August 1998. The options have a ten-year life.
F-18
<PAGE> 44
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STOCK OPTION PLANS (CONTINUED)
A summary of the Company's stock option plans as of December 31, 1998 and 1997
is presented below. No compensation expense related to stock options granted in
1998 was recorded as the option exercise prices were greater than the fair
market value on date of grant.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at March 31, 1997 203,700 $ 1.28
Granted 4,562,000 7.41
Exercised (133,700) .60
----------
Outstanding at December 31, 1997 4,632,000 7.34
Granted 225,600 4.00
Expired (40,000) 3.00
==========
Outstanding at December 31, 1998 4,817,600 7.22
==========
Options exercisable at December 31, 1997 2,612,000 4.94
==========
Options exercisable at December 31, 1998 4,577,000 7.39
==========
</TABLE>
Options outstanding at December 31, 1998 have exercise prices ranging from $2 to
$12 with a weighted-average contractual life of 8.65 years. They can be
summarized as follows:
<TABLE>
<CAPTION>
EXERCISE REMAINING
SHARES PRICE LIFE
--------- --------- ---------
<S> <C> <C>
55,000 $2.00-3.25 3.25 - 5.5 years
762,600 4.00-4.25 8.66 - 9.5 years
1,000,000 4.50 8.66 years
1,000,000 6.00 8.66 years
1,000,000 9.00 8.66 years
1,000,000 12.00 8.66 years
----------
4,817,600
==========
</TABLE>
F-19
<PAGE> 45
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STOCK OPTION PLANS (CONTINUED)
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using the minimum
value method available to nonpublic companies under SFAS 123. Under this method,
option value is determined as the excess of the fair value of the stock at the
date of grant over the present value of both the exercise price (lump sum) and
the expected dividend payments (annuity), each discounted at the risk-free rate,
over the expected exercise life of the option. A risk-free interest rate of
5.25%, a dividend yield of 0%, a volatility factor of .63 and .61 for 1998 and
1997, respectively, and a weighted-average expected life of five years were
applied.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net loss and net loss per share for the year ended December 31, 1998 and
nine months ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Net loss - as reported $ (21,251,173) $ (7,584,803)
Net loss - pro forma (24,623,587) (17,453,029)
Basic loss per common share - as reported (1.67) (1.06)
Basic loss per common share - pro forma (1.93) (2.22)
Weighted average fair value of options granted
during the period 1.81 2.93
</TABLE>
12. SERIES C CONVERTIBLE PREFERRED STOCK
In late 1996, the Company completed a private placement of 4,000,000 shares of
Series C convertible Preferred Stock at $6.00 per share. Total proceeds received
were $24,000,000. The stock carries an 8% cumulative per annum dividend and is
convertible at the option of the holder into two shares of Company common stock
for each share of Series C Preferred Stock. This conversion rate is subject to
adjustment for common stock dividends, additional common stock issuances, or any
stock rights and warrant issuances. The Series C Preferred Stock has a
liquidation preference of $6.00 per share, plus accrued and unpaid dividends.
The Company may redeem the stock at the price of $6.00 per share plus accrued
and unpaid dividends.
F-20
<PAGE> 46
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. SERIES C CONVERTIBLE PREFERRED STOCK (CONTINUED)
During 1998, 3,341,834 shares of Series C Convertible Preferred Stock were
converted into 6,683,668 shares of common stock, leaving 493,166 shares of
Series C Convertible Preferred Stock outstanding on December 31, 1998. Dividends
were declared and paid for all of 1997 and for the first two quarters of 1998.
No dividends have been declared for the last two quarters of 1998. Dividends
applicable to the last two quarters total $118,360. The Company has commitment
letters from two holders of the preferred stock wherein 67,000 shares of
preferred stock are to be converted to 134,000 shares of common stock effective
June 30, 1998, but at December 31, 1998 the preferred stock certificates had not
been received for conversion. Subsequent to December 31, 1998, a certificate
covering 50,000 shares of the committed 67,000 shares was received.
13. ACQUISITIONS
On May 15, 1998, the Company acquired from Union Pacific Resources Company
(UPR), all of UPR's working interests in producing oil and gas wells in 34 oil
and gas fields in the Wattenberg area of the Denver-Julesburg Basin in
northeastern Colorado. The purchase price for the wells, as adjusted, was
approximately $39,560,000. Included in accounts receivable at December 31, 1998
is $1,686,118 due from UPR as a final settlement of the purchase price. At the
closing of the acquisition, the Company also entered into an Exploration
Agreement with UPR giving the Company the right to explore and develop all of
UPR's undeveloped acreage in the area, excluding certain acreage already
committed to other agreements.
The Exploration Agreement covers approximately 400,000 gross acres and will also
cover any undeveloped acreage currently committed to another agreement that
reverts to UPR during its term. In order to keep the Exploration Agreement in
effect, the Company must drill 15 commitment wells during the first 18 months
and 20 commitment wells during each succeeding 12-month period for up to five
12-month option periods. If the Company does not drill the required number of
commitment wells during any period, the Exploration Agreement will terminate at
the end of the period and the Company will be required to pay liquidated damages
of $125,000 for each commitment well that was not drilled during the period. The
Company has negotiated (but has not finalized) an amendment to the Exploration
Agreement wherein certain future deepenings and reentries of wells will qualify
as commitment wells during the initial 18-month period. Deepenings and reentries
of wells require less capital than drilling of new wells.
F-21
<PAGE> 47
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. IMPAIRMENT OF ASSETS
During the nine months ended December 31, 1997, the Company decided to
concentrate its efforts on the core business of oil and gas production. As a
result, in addition to its decision to discontinue its drilling and service
business, the Company closed its supply store and identified certain equipment
for disposal. This process resulted in an additional provision for impairment of
$151,000. All significant equipment items identified for disposal had been sold
as of December 31, 1997.
The Company also determined that the crude oil refinery located on the land held
for sale was not a part of the assets directly related to its core business and
that long-term development efforts of real estate or disposition of the refinery
were not consistent with its business plan. Management also concluded that
carrying costs of the refinery and real estate could be eliminated by
accelerated sales efforts, and that the proceeds from that sale could be
immediately put to use in the Company's core business. Based on this decision,
the refinery (not operational since the early 1980s) was determined to have
negligible value after considering clean-up and dismantling costs. The real
estate and refinery were written down $1,075,011 to their estimated fair market
value of $700,000, based on the estimated proceeds of a sale occurring in the
reasonably near future. During the year ended December 31, 1998, the Company
dismantled the refinery at a cost of $145,000, which was considered an
additional impairment expense.
For the nine months ended December 31, 1997, the Company determined that it
would discontinue operating certain segments of its natural gas gathering system
in Kansas and Oklahoma. The Company recorded a $172,823 impairment provision to
reduce the carrying value of these assets to their estimated net realizable
value.
The Company recorded a write-down of the oil and gas properties and equipment,
based upon the full cost pool ceiling test, of $15,206,978 at December 31, 1998
and $4,901,567 at December 31, 1997. See Notes 4 and 19 for additional
information regarding the oil and gas property and equipment write-down.
Subsequent to December 31, 1997, the Company sold the natural gas stripping
plant held for sale. Based upon that sale, the Company provided an additional
provision for impairment of $20,000 at December 31, 1997.
During the last quarter of the year ended December 31, 1998, the Company
recorded additional depletion of $2,258,311 based upon the December 31, 1998
reserve study.
F-22
<PAGE> 48
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No.107, Disclosures About Fair Value
of Financial Instruments, requires that the Company disclose estimated fair
values for its financial instruments. Such information is based on the
requirements set forth in that Statement and does not purport to represent the
aggregate net fair value of the Company. The fair value of the Company's
financial instruments, consisting of cash and cash equivalents and borrowings
under the credit facility, are considered to approximate their carrying amounts
in the Company's balance sheet.
16. COMMITMENTS
The Company entered into a 117 month lease, effective July 1, 1998, for office
space. Approximately 12,000 square feet were leased with monthly payments of
$14,817 for the first 57 months and $19,411 for the remainder of the lease term.
The Company has incurred costs of approximately $100,000 for leasehold
improvements, substantially all of which were incurred subsequent to December
31, 1998. The approximate minimum aggregate rental commitment under the office
space lease is as follows:
<TABLE>
<S> <C>
1999 $ 177,804
2000 177,804
2001 177,804
2002 177,804
2003 219,150
Thereafter 989,961
-----------
$ 1,920,327
===========
</TABLE>
The Company has committed to drill 15 wells by November 30, 1999 under the
Exploration Agreement which is a part of the acquisition of properties from UPR
(see Note 13). At December 31, 1998 no wells have been drilled pursuant to the
Exploration Agreement. Liquidated damages of $125,000 per commitment well not
drilled will be due UPR, resulting in a total of $1,875,000 if no commitment
wells are drilled by November 30, 1999. See Note 13 for further details of an
amendment to the Exploration Agreement which will reduce the capital required to
fulfill this commitment.
F-23
<PAGE> 49
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. ASSETS HELD FOR SALE
On January 20, 1999, the Company sold, effective as of December 31, 1998, the
stock of three wholly owned subsidiaries. Performance Petroleum Corporation and
Pacific Osage, Inc. were sold in one of the transactions for $650,000. United
States Gas Gathering Co., Inc. was sold in the other transaction for $1,175,000.
As required by the Company's credit agreement with its lender, proceeds were
used to reduce the Company's borrowings. The underlying properties sold
consisted of the following:
<TABLE>
<S> <C>
Current assets $ 134,542
Natural gas gathering systems, net 371,622
Oil and gas property and equipment, net 1,159,076
Building and other equipment, net 218,203
-----------
1,883,443
Current liabilities (58,443)
-----------
$ 1,825,000
===========
</TABLE>
18. CREDIT AGREEMENT
In connection with the acquisition of the UPR properties, the Company entered
into a Credit Agreement with ING (U.S.) Capital Corporation establishing a
revolving credit facility (the Credit Agreement). The maximum available
borrowings under the Credit Agreement were initially set at $35 million, subject
to periodic redeterminations of the borrowing base. The Company borrowed $29
million under the Credit Agreement to pay a portion of the purchase price of the
UPR properties, and the balance was paid with the Company's existing funds.
Principal is repayable in 20 quarterly installments beginning March 31, 2000.
Interest is generally payable on a quarterly basis at a rate, selected by the
Company, which is determined by reference to LIBOR or the lender's reference
rate plus varying margins. At December 31, 1998, the outstanding loan balance of
$31.9 million bore interest at rates varying from 7.6875% to 8.5% per annum. The
obligations of the Company under the Credit Agreement are secured by
substantially all of the Company's oil and gas properties. The Credit Agreement
prohibits the payment of dividends on Common Stock and prohibits the payment of
dividends on the Series C Preferred Stock for periods ending after June 30,
1999. Prior to June 30, 1999, no dividend can be paid on the Series C Preferred
Stock if a default under the Credit Agreement exists or would exist after the
payment.
F-24
<PAGE> 50
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. CREDIT AGREEMENT (CONTINUED)
At September 30, 1998 and December 31, 1998, the Company did not meet certain
financial ratios and net worth requirements contained in the Credit Agreement.
The Credit Agreement requires the Company to have a ratio of EBITDA (Earnings
Before Interest, Taxes, Depreciation and Amortization) to interest expense of
not less than 2.75:1, a ratio of current assets to current liabilities of not
less than 1:1, and to maintain tangible net worth of at least $20 million.
As a result of the Company's failure to meet these ratios and requirements at
December 31, 1998, the loan is in default and can be called by the bank,
Therefore, the Company is required by generally accepted accounting principles
to classify the entire $31,900,000 due to the lender as a current liability even
though the loan is payable by its terms over a five-year period beginning March
31, 2000 as follows:
<TABLE>
<S> <C>
1999 $ --
2000 8,000,000
2001 7,500,000
2002 7,000,000
2003 7,000,000
Thereafter 2,400,000
------------
$ 31,900,000
============
</TABLE>
As of April 9, 1999, the Company's bank had not yet completed its review of
reserves or established a new borrowing base level for the Company. Based on
preliminary reports provided to the bank, it has advised that the new borrowing
base level will most likely be established within a range between $21 and $26
million dollars. However, the bank has provided no commitment that the borrowing
base will be established within this range. These amounts are substantially less
than the outstanding loan balance on April 9, 1999 of $32 million.
The Company has not yet established with the bank a plan for eliminating the
anticipated borrowing base deficiency. However, the Company has begun
discussions with the bank and is evaluating its options.
F-25
<PAGE> 51
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. OIL AND GAS INFORMATION (UNAUDITED)
The estimates of the Company's proved oil and gas reserves are based upon
evaluations prepared by independent petroleum engineers as of December 31, 1998
and 1997. All reserves are located within the United States. Reserves are
estimated in accordance with guidelines established by the Securities and
Exchange Commission and the Financial Accounting Standards Board which require
that reserve estimates be prepared under existing economic and operating
conditions with no provision for price and cost escalation except by contractual
arrangements. Proved reserves are estimated quantities of oil and natural gas
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reserves. Proved developed reserves
are those which are expected to be recovered through existing wells with
existing equipment and operating methods. Reserves are stated in barrels of oil
and millions of cubic feet of natural gas.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------
1998 1997
------------------------------- --------------------------------
Oil Gas Oil Gas
(bbls) (mmcf) (bbls) (mmcf)
------ ------ ------ ------
<S> <C> <C> <C> <C>
Proved developed and
undeveloped reserves,
beginning of period 252,215 2,518 792,430 9,708
Revisions of previous estimates 7,556 (21) (475,612) (6,916)
Production (140,112) (1,650) (64,603) (274)
Purchase of minerals in place 2,238,422 58,863 -- --
Dispositions of minerals
in place (See Note 17) (142,441) (739)
---------- ------- --------- -------
Proved developed and
undeveloped reserves,
end of period 2,215,640 58,971 252,215 2,518
Proved developed reserves:
Beginning of period 207,202 1,565 647,870 6,377
End of period 717,419 23,237 207,202 1,565
</TABLE>
F-26
<PAGE> 52
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. OIL AND GAS INFORMATION (UNAUDITED) (CONTINUED)
Geological and engineering estimates of proved oil and gas reserves at one point
in time are highly interpretive, inherently imprecise and subject to ongoing
revisions that may be substantial in amount. Although every reasonable effort is
made to ensure that the reserve estimates reported represent the most accurate
assessments possible, these estimates are by their nature generally less precise
than other estimates presented in connection with financial statement
disclosures.
The following schedules present the standardized measure of estimated discounted
future net cash flows from the Company's proved reserves and an analysis of the
changes in these amounts for the periods indicated. Estimated future cash flows
are determined by using period-end prices for December 31, 1998 and 1997
adjusted only for fixed and determinable increases in natural gas prices
provided by contractual agreements. Estimated future production and development
costs are based on economic conditions at December 31, 1998 and 1997. The
standardized measure of future net cash flows was prepared using the prevailing
economic conditions existing at December 31, 1998 and 1997, and such conditions
continually change. Accordingly, such information should not serve as a basis in
making any judgment on the potential value of recoverable reserves or in
estimating future results of operations.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------- -------------
<S> <C> <C>
Future cash inflows $ 129,807,936 $ 10,090,059
Future production and development costs (71,530,056) (5,554,269)
------------- -------------
Future net cash flows 58,277,880 4,535,790
10% annual discount for estimated timing of
cash flows (33,111,110) (1,145,150)
------------- -------------
Standardized measure of discounted future
net cash flows $ 25,166,770 $ 3,390,640
============= =============
</TABLE>
F-27
<PAGE> 53
United States Exploration, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. OIL AND GAS INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31
1998 1997
------------- -------------
<S> <C> <C>
Amount at beginning of period $ 3,390,640 $ 9,537,329
Sales of minerals in place (860,754) --
Sales and transfers of oil and gas production,
net of production costs (1,683,918) (855,691)
Development costs incurred -- 67,200
Revisions of previous quantity estimates, net
of changes in previous estimates of development
and production costs and timing revisions -- (5,518,632)
Purchase of minerals in place 25,950,822 --
Accretion of discount -- 953,733
Net changes in prices and production costs (1,630,020) (892,497)
Net change in income taxes -- 99,198
------------ ------------
21,776,130 (6,146,689)
------------ ------------
Amount at end of period $ 25,166,770 $ 3,390,640
============ ============
</TABLE>
F-28
<PAGE> 54
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED STATES EXPLORATION, INC.
<TABLE>
<S> <C>
By: /s/ Bruce D. Benson
-------------------------------------------
Bruce D. Benson, President, Chief Executive
Officer and Chairman of the Board
Date: April 15, 1999
------------------------------------------
</TABLE>
In accordance with the Exchange Act, this report has been signed by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Bruce D. Benson President, Chief Executive April 15, 1999
- ----------------------------------- Officer, and Chairman of
Bruce D. Benson the Board of Directors
/s/ F. Michael Murphy Vice President, Chief Financial April 15, 1999
- ----------------------------------- Officer and Secretary
F. Michael Murphy
/s/ Randall L. Rogers Chief Accounting Officer April 15, 1999
- -----------------------------------
Randall L. Rogers
Thomas W. Gamel Director April 15, 1999
Robert J. Malone Director April 15, 1999
Richard L. Robinson Director April 15, 1999
By: /s/ F. Michael Murphy
--------------------------------
F. Michael Murphy
Attorney-In-Fact
</TABLE>
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1(1) Articles of Incorporation of the Company as filed on
January 9, 1989, with the Secretary of State of the State
of Colorado.
3.2(1) By-laws of the Company.
3.3(1) Articles of Amendment of the Company filed on June 7,
1990 with the Secretary of State of the State of
Colorado.
3.4(2) Articles of Amendment of the Company as filed with the
Secretary of State of the State of Colorado on September
24, 1996.
3.5(3) Amended and Restated Bylaws of the Company.
10.1(1) 1989 Incentive Stock Option Plan of the Company.
10.2(1) 1990 Non-Qualifying Stock Option Plan.
10.3.1(4) Lease Agreement between Mid-America Pipeline Company and
Producers Service, Incorporated.
10.3.2(4) Amendment to Lease Agreement between Mid-America Pipeline
Company and Producers Service, Incorporated.
10.4(5) Executive Employment Agreement, dated August 7, 1997, by
and between the Company and Bruce D. Benson.
10.5(5) Cost and Expense Sharing Agreement, dated August 7, 1997,
by and between the Company and Benson Mineral Group, Inc.
10.6(5) Form of Non-Qualified Stock Option Agreement.
10.7(6) Purchase and Sale Agreement between the Company and Union
Pacific Resources Company dated April 10, 1998.
10.8(6) Exploration Agreement between the Company and Union
Pacific Resources Company dated May 15, 1998.
10.9(6) Credit Agreement dated as of May 15, 1998 among the
Company and ING (U.S.) Capital Corporation.
10.10(6) Mortgage, Assignment, Security Agreement, Fixture Filing
and Financing Statement from United States Exploration,
Inc. to ING (U.S.) Capital Corporation, dated May 15,
1998.
10.11(6) Mortgage, Assignment, Security Agreement, Fixture Filing
and Financing Statement from Performance Petroleum Co.,
United States Gas Gathering Co., Inc. and Pacific Osage,
Inc. to ING (U.S.) Capital Corporation, dated May 15,
1998.
</TABLE>
<PAGE> 56
<TABLE>
<S> <C>
10.12(6) Pledge Agreement made as of May 15, 1998, by United
States Exploration, Inc., in favor of ING (U.S.) Capital
Corporation.
10.13(6) Guaranty made as of May 15, 1998, by Performance
Petroleum Co., United States Gas Gathering Co., Inc.,
Pacific Osage, Inc. and Producers Service Incorporated,
in favor of ING (U.S.) Capital Corporation.
10.14(7) Pipeline Purchase Agreement between USGG and Northern
Osage Gas Association L.L.C. dated as of December 31,
1998.
10.15(7) Stock Purchase Agreement between the Company and the
several buyers named therein relating to the sale of USGG
dated as of December 31, 1998.
10.16(7) Stock Purchase Agreement between the Company and Demetrie
D. Carone relating to the sale of Pacific and Performance
dated as of December 31, 1998.
10.17(8) Directors Fee Stock Plan
10.18(8) Office Lease Agreement between the Company and EOP-One
Civic Center Plaza, L.L.C. dated October 15, 1998.
21(8) List of the Company's subsidiaries.
23.1(8) Consent of Grant Thornton LLP, independent certified
public accountants, to incorporation of this report by
reference into the issuer's Registration Statement on
Form S-8.
23.2(8) Consent of Ernst & Young LLP, independent certified
public accountants, to incorporation of this report by
reference into the issuer's Registration Statement on
Form S-8.
24(8) Powers of Attorney
27(8) Financial Data Schedule.
</TABLE>
- ----------
(1) Filed as an Exhibit to Form S-18 dated March 8, 1989.
(2) Filed as an Exhibit to Form 8-K dated September 30, 1996.
(3) Filed as an Exhibit to Form S-8 filed August 7, 1998
(Registration No. 333-60983).
(4) Filed as an Exhibit to Form 10-KSB for the fiscal year ended
March 31, 1994 and incorporated herein by reference.
<PAGE> 57
(5) Filed as an Exhibit to Form 10-QSB for the quarter ended June 30,
1997, and incorporated herein by reference.
(6) Filed as an Exhibit to Form 8-K dated May 26, 1998 and
incorporated herein by reference.
(7) Filed as an Exhibit to Form 8-K dated February 2, 1999 and
incorporated herein by reference.
(8) Filed herewith.
<PAGE> 1
EXHIBIT 10.17
DIRECTORS' FEE STOCK PLAN
UNITED STATES EXPLORATION, INC.
1. Purpose. This Directors' Fee Stock Plan (the "Plan") has
been established effective as of April 1, 1998 by United States Exploration,
Inc. (the "Company") to enable the Company to pay the compensation of its
Directors in shares of the Company's Common Stock, thereby providing for or
increasing the Directors' proprietary interest in the Company. The Plan provides
for the issuance of shares of Common Stock of the Company ("Common Stock") on an
annual basis in accordance with the terms and conditions set forth below.
2. Number of Shares. Compensation due to each Director of the
Company in his capacity as such, including compensation for committee membership
(collectively, "Directors Fees"), for each calendar year shall be paid to the
Director in shares of Common Stock ("Shares"). The number of Shares to be issued
to each Director each year shall be determined by dividing the amount of
Directors Fees due such Director for the year by the Average Fair Market Value
(as defined below) of the Company's Common Stock for the year. For that purpose,
(i) the Average Fair Market Value of the Common Stock shall equal the arithmetic
average of the Fair Market Values of the Common Stock on the first trading day
of the year and the last trading day of the year and (ii) the Fair Market Value
of the Common Stock shall mean the closing price of the Common Stock on the
principal stock exchange on which it is then traded or, if the Common Stock is
not then traded on an exchange, the closing price of the Common Stock as
reported by Nasdaq, or if closing prices for the Common Stock are not then
reported by Nasdaq, the average of the bid and asked prices of the Common Stock
as reported by Nasdaq, or, if no bid and asked prices are reported by Nasdaq,
the average of the bid and asked prices as reported by any other source selected
by the Company's Board of Directors. The number of Shares due a Director shall
be rounded up to the next whole Share in the event such determination results in
a fraction of a Share. For the 1998 calendar year, the first trading day shall
be deemed to be April 1, 1998. In the event a Director's service on the Board
shall terminate for any reason during a year, the number of Shares to be issued
for such partial year's service shall be determined by calculating the Average
Fair Market Value using the Fair Market Values of the Common Stock on the first
trading day of the year and the date that the Director's service terminated (or
if such date is not a trading day, the next preceding trading day). In the event
that a Director is first elected during a year, the number of Shares to be
issued for such partial year's service shall be determined by calculating the
Average Fair Market Value using the Fair Market Values of the Common Stock on
the first day of the Director's terms as such (or, if such day is not a trading
day, the next succeeding trading day) and the last trading day of the year. As
used in this Plan, trading day means a day upon which the American Stock
Exchange is open for trading. In the event of any stock dividend, stock split or
other subdivision or combination of the Company's outstanding shares of Common
Stock, the Fair Market Value of the Common Stock on any date prior to the
effective date thereof shall be appropriately adjusted. Directors' Fees shall
not include expenses for which the Directors are entitled to reimbursement,
which shall be payable in cash.
3. Issuance of Shares. Subject to Section 4, Shares issuable
under this Plan in respect of each year shall be issued to the Directors within
30 days after the end of the year. In the event a Director's service on the
Board shall terminate for any reason during a year, subject to
<PAGE> 2
Section 4, certificates representing the Shares due for the partial year shall
be issued within 30 days after such termination. Notwithstanding the actual date
of issuance of the certificates representing the Shares, and subject to Section
4, a Director shall be deemed for all purposes the registered holder of the
Shares due for any year or partial year as of January 1 of the following year
or, if such Director's service terminated prior to the end of the year, as of
the first business day following such termination of service.
4. Securities Law Compliance. Notwithstanding any other
provision of the Plan, the Company shall not be obligated to issue any Shares
unless and until, in the opinion of the Company's counsel, there has been
compliance with all applicable federal and state securities laws and regulations
and only when all other legal matters in connection with the issuance and
delivery of such Shares have been approved by the Company's counsel. The Company
shall use its best efforts to effect any such compliance, and each Director
shall take any action reasonably requested by the Company in connection
therewith; provided, however, that in no event shall the Company be required to
file a registration statement under the Securities Act of 1933 (the "Securities
Act") or any state securities law to satisfy its obligation to use its best
efforts to effect such compliance. If the Shares have not been registered under
the Securities Act at the time of issuance, Shares shall be issued only upon
delivery by the Director to the Company of an investment letter and agreement
signed by the Director containing such representations, warranties and covenants
as the Committee may deem necessary to establish the availability of an
exemption from the registration requirements of the Securities Act and all
applicable state securities laws, which, until amended by the Board of
Directors, shall be substantially in the form attached as Exhibit A.
5. Establishment of Directors' Fees. The Board of Directors
may from time to time establish the amount of Directors' Fees payable to each
Director. Directors' Fees may be payable on an annual, per-meeting or other
basis selected by the Board of Directors.
6. Death of Director. In the event that a Director dies while
in office, any Shares issuable under the Plan shall be issued to the Director's
estate.
7. Amendment of Plan. The Board of Directors may amend the
Plan from time to time. No amendment shall adversely affect a Director's right
to receive Shares issued or issuable under the Plan in respect of any completed
year without the written consent of the affected Director.
8. Interpretation of Plan. The Plan shall be administered and
interpreted by the Board of Directors. Any determination by the Board as to the
meaning or operation of the Plan shall be binding on all Directors.
9. Effective Date. The Plan shall be effective as of April 1,
1998, and shall apply to all Directors' Fees due in respect of periods
commencing on or after that date unless and until amended by the Board of
Directors.
- 2 -
<PAGE> 3
10. Termination. The Board of Directors may terminate the Plan
at any time, but such action shall have no effect on Shares issued or issuable
for any completed year.
The foregoing Plan was duly adopted by the
Board of Directors on June 29, 1998
/s/ F. Michael Murphy
------------------------------------------
F. Michael Murphy, Secretary
- 3 -
<PAGE> 1
EXHIBIT 10.18
DENVER POST TOWER
STANDARD FORM OFFICE LEASE
BETWEEN
EOP-ONE CIVIC CENTER PLAZA, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY
("LANDLORD")
AND
UNITED STATES EXPLORATION, INC., A COLORADO CORPORATION
("TENANT")
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. BASIC LEASE INFORMATION; DEFINITIONS................................3
II. LEASE GRANT.........................................................5
III. ADJUSTMENT OF COMMENCEMENT DATE/POSSESSION..........................5
IV. RENT................................................................7
V. USE................................................................14
VI. SECURITY DEPOSIT...................................................14
VII. SERVICES TO BE FURNISHED BY LANDLORD...............................15
VIII. LEASEHOLD IMPROVEMENTS.............................................16
IX. GRAPHICS...........................................................16
X. REPAIRS AND ALTERATIONS............................................17
XI. USE OF ELECTRICAL SERVICES BY TENANT...............................18
XII. ENTRY BY LANDLORD..................................................18
XIII. ASSIGNMENT AND SUBLETTING..........................................19
XIV. LIENS..............................................................21
XV. INDEMNITY AND WAIVER OF CLAIMS.....................................21
XVI. TENANT'S INSURANCE.................................................22
XVII. SUBROGATION........................................................24
XVIII. LANDLORD'S INSURANCE...............................................24
XIX. CASUALTY DAMAGE....................................................25
XX. DEMOLITION.........................................................26
XXI. CONDEMNATION.......................................................26
XXII. EVENTS OF DEFAULT..................................................26
XXIII. REMEDIES...........................................................27
XXIV. LIMITATION OF LIABILITY............................................29
XXV. NO WAIVER..........................................................29
XXVI. EVENT OF BANKRUPTCY................................................30
XXVII. WAIVER OF JURY TRIAL...............................................31
XXVIII. RELOCATION.........................................................31
XXIX. HOLDING OVER.......................................................31
XXX. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE...................31
XXXI. ATTORNEYS'FEES.....................................................32
XXXII. NOTICE.............................................................32
XXXIII. LANDLORD'S LIEN....................................................32
XXXIV. EXCEPTED RIGHTS....................................................32
XXXV. SURRENDER OF PREMISES..............................................33
XXXVI. MISCELLANEOUS......................................................33
XXXVII. ENTIRE AGREEMENT...................................................35
</TABLE>
2
<PAGE> 3
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as
of the 15th day of October, 1998, by and between EOP-One Civic Center Plaza,
L.L.C., a Delaware limited liability company ("Landlord") and United States
Exploration, Inc., a Colorado corporation ("Tenant").
I. BASIC LEASE INFORMATION; DEFINITIONS.
A. The following are some of the basic lease information and
defined terms used in this Lease.
1. "Additional Base Rental" shall mean Tenant's Pro Rata
Share of Basic Costs and any other sums (exclusive of
Base Rental) that are required to be paid by Tenant
to Landlord hereunder, which sums are deemed to be
additional rent under this Lease. Additional Base
Rental and Base Rental are sometimes collectively
referred to herein as "Rent".
2. "Base Rental" shall mean the sum of One Million Eight
Hundred Seventy Four Thousand Five Hundred Sixty One
and 93/100 Dollars ($1,874,561.93), TWO MILLION NINE
THOUSAND TWO HUNDRED FIFTY THREE AND NO/100 DOLLARS
($2,009,253.00), payable by Tenant to Landlord in one
hundred seventeen (117) monthly installments as
follows:
a. Fifty seven (57) equal installments of
Fifteen Thousand Two Hundred Sixty Two and
03/100 Dollars ($15,262.03), FOURTEEN
THOUSAND EIGHT HUNDRED SEVENTEEN AND 50/100
DOLLARS ($14,817.50), each payable on or
before the first day of each month during
the period beginning July 1, 1998 and ending
March 31, 2003 provided that the installment
of Base Rental for the first full calendar
month of the Lease Term shall be payable
upon the execution of this Lease by Tenant.
b. Sixty (60) equal installments of Sixteen
Thousand Seven Hundred Forty Three and
78/100 Dollars ($16,743.78), NINETEEN
THOUSAND FOUR HUNDRED TEN AND 93/100 DOLLARS
($19,410.93), each payable on or before the
first day of each month during the period
beginning April 1, 2003 and ending March 31,
2008.
3. "Building" shall mean the office building located at
1560 Broadway, Denver, County of Denver, State of
Colorado, commonly known as Denver Post Tower.
4. The "Commencement Date", "Lease Term" and
"Termination Date" shall have the meanings set forth
in subsection I.A.4.a. below:
a. The "Lease Term" shall mean a period of one
hundred seventeen (117) months, commencing
on July 1, 1998 (the "Commencement Date")
and, unless sooner terminated as provided
herein, ending on March 31, 2008 (the
"Termination Date").
5. "Premises" shall mean the area located on the
nineteenth (19th) floor of the Building, as outlined
on Exhibit A attached hereto and incorporated
herein and known as Suite #1950. Landlord and Tenant
hereby stipulate and agree that the "Rentable Area
of the Premises" shall mean 11,854 square feet and
the "Rentable Area of the Building" shall mean
579,999 square feet. If the Premises being leased
to Tenant hereunder include one or more floors
within the Building in their entirety, the
definition of Premises with respect to such full
floor(s) shall include all corridors and restroom
facilities located on such floor(s). Notwithstanding
the foregoing, unless specifically provided herein
to the contrary, the Premises shall not include
any telephone closets, electrical closets,
janitorial closets, equipment rooms or similar
areas on any full or partial floor that are
used by Landlord for the operation of the Building.
3
<PAGE> 4
6. "Permitted Use" shall mean general office use.
7. "Security Deposit" shall mean the sum of Zero and
no/100 Dollars ($0.00).
8. "Tenant's Pro Rata Share" shall mean two and four
hundred thirty eight ten thousandths percent
(2.0438%), which is the quotient (expressed as a
percentage), derived by dividing the Rentable Area of
the Premises by the Rentable Area of the Building.
9. "Guarantor(s)" shall mean any party that agrees in
writing to guarantee the Lease. As of the date first
written above, there are no Guarantor(s).
10. "Notice Addresses" shall mean the following addresses
for Tenant and Landlord, respectively:
Tenant:
On and after the Commencement Date, notices shall be
sent to Tenant at the Premises.
Prior to the Commencement Date, notices shall be sent
to Tenant at the following address:
Benson Mineral Group, Inc.
1560 Broadway, Suite 1900
Denver, Colorado 80202
Attn: General Counsel
Landlord:
One Civic Center Plaza
c/o Equity Office Properties Trust
1560 Broadway
Denver, Colorado 80202
Attention: Building Manager
With a copy to:
Equity Office Properties Trust
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: General Counsel of Property Operations
Payments of Rent only shall be made payable to the
order of:
Equity Office Properties
at the following address:
EOP-One Civic Center Plaza, LLC
Department 174
Denver, Colorado 80271-0174
B. The following are additional definitions of some of the
defined terms used in the Lease.
1. "Base Year" shall mean 1998.
2. "Basic Costs" shall mean all costs and expenses paid
or incurred in connection with operating,
maintaining, repairing, managing and owning the
Building and the Property, as further described in
Article IV hereof.
3. "Broker" means "N/A".
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4. "Building Standard" shall mean the type, grade,
brand, quality and/or quantity of materials Landlord
designates from time to time to be the minimum
quality and/or quantity to be used in the Building.
5. "Business Day(s)" shall mean Mondays through Fridays
exclusive of the normal business holidays
("Holidays") of New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Landlord, from time to time during the
Lease Term, shall have the right to designate
additional Holidays, provided that such additional
Holidays are commonly recognized by other office
buildings in the area where the Building is located.
6. "Common Areas" shall mean those areas provided for
the common use or benefit of all tenants generally
and/or the public, such as corridors, elevator
foyers, common mail rooms, restrooms, vending areas,
lobby areas (whether at ground level or otherwise)
and other similar facilities.
7. "Landlord Work" shall mean the work, if any, that
Landlord is obligated to perform in the Premises
pursuant to the Work Letter Agreement, if any,
attached hereto as Exhibit D. (If applicable.)
8. "Maximum Rate" shall mean the greatest per annum rate
of interest permitted from time to time under
applicable law.
9. "Normal Business Hours" for the Building shall mean
6:00 A.M. to 6:00 P.M. Mondays through Fridays, and
6:00 A.M. to 1:00 P.M. on Saturdays, exclusive of
Holidays.
10. "Prime Rate" shall mean the per annum interest rate
publicly announced by The First National Bank of
Chicago or any successor thereof from time to time
(whether or not charged in each instance) as its
prime or base rate in Chicago, Illinois.
11. "Property" shall mean the Building and the parcel(s)
of land on which it is located and, at Landlord's
discretion, the Building garage, if any, and all
other improvements owned by Landlord and serving the
Building and the tenants thereof and the parcel(s) of
land on which they are located.
II. LEASE GRANT.
Subject to and upon the terms herein set forth, Landlord leases to
Tenant and Tenant leases from Landlord the Premises, together with the right, in
common with others, to use the Common Areas.
III. ADJUSTMENT OF COMMENCEMENT DATE/POSSESSION.
A. If the Lease Term, Commencement Date and Termination Date are
to be determined in accordance with subsection I.A.4.b. above,
the Lease Term shall not commence until the later to occur of
the Target Commencement Date and the date that Landlord has
substantially completed the Landlord Work; provided, however,
that if Landlord shall be delayed in substantially completing
the Landlord Work as a result of the occurrence of any of the
following (a "Delay"):
1. Tenant's failure to furnish information in accordance
with the Work Letter Agreement or to respond to any
request by Landlord for any approval or information
within any time period prescribed, or if no time
period is prescribed, then within two (2) Business
Days of such request; or
2. Tenant's insistence on materials, finishes or
installations that have long lead times after having
first been informed by Landlord that such materials,
finishes or installations will cause a Delay; or
3. Changes in any plans and specifications requested by
Tenant; or
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4. The performance or nonperformance by a person or
entity employed by Tenant in the completion of any
work in the Premises (all such work and such persons
or entities being subject to the prior approval of
Landlord); or
5. Any request by Tenant that Landlord delay the
completion of any of the Landlord Work; or
6. Any breach or default by Tenant in the performance of
Tenant's obligations under this Lease; or
7. Any delay resulting from Tenant's having taken
possession of the Premises for any reason prior to
substantial completion of the Landlord Work; or
8. Any other delay chargeable to Tenant, its agents,
employees or independent contractors;
then, for purposes of determining the Commencement Date, the
date of substantial completion shall be deemed to be the day
that said Landlord Work would have been substantially
completed absent any such Delay(s). The Landlord Work shall be
deemed to be substantially completed on the date that Landlord
reasonably determines that all Landlord's Work has been
performed (or would have been performed absent any Delays),
other than any details of construction, mechanical adjustment
or any other matter, the noncompletion of which does not
materially interfere with Tenant's use of the Premises. The
adjustment of the Commencement Date and, accordingly, the
postponement of Tenant's obligation to pay Rent shall be
Tenant's sole remedy and shall constitute full settlement of
all claims that Tenant might otherwise have against Landlord
by reason of the Premises not being ready for occupancy by
Tenant on the Target Commencement Date. Promptly after the
determination of the Commencement Date, Landlord and Tenant
shall enter into a letter agreement (the "Commencement
Letter") on the form attached hereto as Exhibit C setting
forth the Commencement Date, the Termination Date and any
other dates that are affected by the adjustment of the
Commencement Date. Tenant, within five (5) days after receipt
thereof from Landlord, shall execute the Commencement Letter
and return the same to Landlord. Notwithstanding anything
herein to the contrary, Landlord may elect, by written notice
to Tenant, not to adjust the Commencement Date as provided
above if such adjustment would cause Landlord to be in
violation of the expansion rights granted to any other tenant
of the Building. If Landlord elects not to adjust the
Commencement Date, the Commencement Date shall be the Target
Commencement Date, provided that Rent shall not commence until
the date that Landlord Work has been substantially completed
(or would have been substantially completed absent any
Delays).
B. By taking possession of the Premises, Tenant is deemed to have
accepted the Premises and agreed that the Premises is in good
order and satisfactory condition, with no representation or
warranty by Landlord as to the condition of the Premises or
the Building or suitability thereof for Tenant's use.
C. Notwithstanding anything to the contrary contained in the
Lease, Landlord shall not be obligated to tender possession
of any portion of the Premises or other space leased by
Tenant from time to time hereunder that, on the date
possession is to be delivered, is occupied by a tenant or
other occupant or that is subject to the rights of any other
tenant or occupant, nor shall Landlord have any other
obligations to Tenant under this Lease with respect to such
space until the date Landlord: (1) recaptures such space
from such existing tenant or occupant; and (2) regains the
legal right to possession thereof. This Lease shall not be
affected by any such failure to deliver possession and
Tenant shall have no claim for damages against Landlord as a
result thereof, all of which are hereby waived and released
by Tenant. If the Lease Term is to be determined pursuant to
Section I.A.4.a. hereof, the Commencement Date shall be
postponed until
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the date Landlord delivers possession of the Premises to
Tenant, in which event the Termination Date shall, at the
option of Landlord, correspondingly be postponed on a per
diem basis. If the Lease Term is to be determined pursuant to
Section I.A.4.b., the Commencement Date and Termination Date
shall be determined as provided in Section III.A. above.
D. If Tenant takes possession of the Premises prior to the
Commencement Date, such possession shall be subject to all
the terms and conditions of the Lease and Tenant shall pay
Base Rental and Additional Base Rental to Landlord for each
day of occupancy prior to the Commencement Date.
Notwithstanding the foregoing, if Tenant, with Landlord's
prior approval, takes possession of the Premises prior to
the Commencement Date for the sole purpose of performing any
Landlord-approved improvements therein or installing
furniture, equipment or other personal property of Tenant,
such possession shall be subject to all of the terms and
conditions of the Lease, except that Tenant shall not be
required to pay Base Rental or Additional Base Rental with
respect to the period of time prior to the Commencement Date
during which Tenant performs such work. Tenant shall,
however, be liable for the cost of any services (e.g.
electricity, HVAC, freight elevators) that are provided to
Tenant or the Premises during the period of Tenant's
possession prior to the Commencement Date. Nothing herein
shall be construed as granting Tenant the right to take
possession of the Premises prior to the Commencement Date,
whether for construction, fixturing or any other purpose,
without the prior consent of Landlord.
IV. RENT.
A. During each calendar year, or portion thereof, falling within
the Lease Term, Tenant shall pay to Landlord as Additional
Base Rental hereunder the sum of (1) Tenant's Pro Rata Share
of the amount, if any, by which Taxes (hereinafter defined)
for the applicable calendar year exceed Taxes for the Base
Year plus (2) Tenant's Pro Rata Share of the amount, if any,
by which Expenses (hereinafter defined) for the applicable
calendar year exceed Expenses for the Base Year. For
purposes hereof, "Expenses" shall mean all Basic Costs with
the exception of Taxes. Tenant's Pro Rata Share of increases
in Taxes and Tenant's Pro Rata Share of increases in
Expenses shall be computed separate and independent of each
other prior to being added together to determine the
"Excess". In the event that Taxes and/or Expenses, as the
case may be, in any calendar year decrease below the amount
of Taxes or Expenses for the Base Year, Tenant's Pro Rata
Share of Taxes and/or Expenses, as the case may be, for such
calendar year shall be deemed to be $0, it being understood
that Tenant shall not be entitled to any credit or offset if
Taxes and/or Expenses decrease below the corresponding
amount for the Base Year. Prior to the Commencement Date and
prior to January 1 of each calendar year during the Lease
Term, or as soon thereafter as practical, Landlord shall
make a good faith estimate of the Excess for the applicable
calendar year and Tenant's Pro Rata Share thereof. On or
before the first day of each month during such calendar
year, Tenant shall pay to Landlord, as Additional Base
Rental, a monthly installment equal to one-twelfth of
Tenant's Pro Rata Share of Landlord's estimate of the
Excess. Landlord shall have the right from time to time
during any such calendar year to revise the estimate of
Basic Costs and the Excess for such year and provide Tenant
with a revised statement therefor, and thereafter the amount
Tenant shall pay each month shall be based upon such revised
estimate. If Landlord does not provide Tenant with an
estimate of the Basic Costs and the Excess by January 1 of
any calendar year, Tenant shall continue to pay a monthly
installment based on the previous year's estimate until such
time as Landlord provides Tenant with an estimate of Basic
Costs and the Excess for the current year. Upon receipt of
such current year's estimate, an adjustment shall be made
for any month during the current year with respect to which
Tenant paid monthly installments of Additional Base Rental
based on the previous year's estimate. Tenant shall pay
Landlord for any underpayment within ten (10) days after
demand. Any overpayment shall, at Landlord's option, be
refunded to Tenant or credited against the installment of
Additional
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Base Rental due for the months immediately following the
furnishing of such estimate. Any amounts paid by Tenant
based on any estimate shall be subject to adjustment
pursuant to the immediately following paragraph when actual
Basic Costs are determined for such calendar year.
As soon as is practical following the end of each calendar
year during the Lease Term, Landlord shall furnish to Tenant a
statement of Landlord's actual Basic Costs and the actual
Excess for the previous calendar year. If the estimated Excess
actually paid by Tenant for the prior year is in excess of
Tenant's actual Pro Rata Share of the Excess for such prior
year, then Landlord shall apply such overpayment against
Additional Base Rental due or to become due hereunder,
provided if the Lease Term expires prior to the determination
of such overpayment, Landlord shall refund such overpayment to
Tenant after first deducting the amount of any Rent due
hereunder. Likewise, Tenant shall pay to Landlord, within ten
(10) days after demand, any underpayment with respect to the
prior year, whether or not the Lease has terminated prior to
receipt by Tenant of a statement for such underpayment, it
being understood that this clause shall survive the expiration
of the Lease.
B. Basic Costs shall mean all costs and expenses paid or incurred
in each calendar year in connection with operating,
maintaining, repairing, managing and owning the Building and
the Property, including, but not limited to, the following:
1. All labor costs for all persons performing services
required or utilized in connection with the
operation, repair, replacement and maintenance of and
control of access to the Building and the Property,
including but not limited to amounts incurred for
wages, salaries and other compensation for services,
payroll, social security, unemployment and other
similar taxes, workers' compensation insurance,
uniforms, training, disability benefits, pensions,
hospitalization, retirement plans, group insurance or
any other similar or like expenses or benefits.
2. All management fees, the cost of equipping and
maintaining a management office at the Building,
accounting services, legal fees not attributable to
leasing and collection activity, and all other
administrative costs relating to the Building and
the Property. If management services are not
provided by a third party, Landlord shall be
entitled to a management fee comparable to that due
and payable to third parties provided Landlord or
management companies owned by, or management
divisions of, Landlord perform actual management
services of a comparable nature and type as
normally would be performed by third parties.
3. All rental and/or purchase costs of materials,
supplies, tools and equipment used in the operation,
repair, replacement and maintenance and the control
of access to the Building and the Property.
4. All amounts charged to Landlord by contractors and/or
suppliers for services, replacement parts,
components, materials, equipment and supplies
furnished in connection with the operation, repair,
maintenance, replacement of and control of access to
any part of the Building, or the Property generally,
including the heating, air conditioning, ventilating,
plumbing, electrical, elevator and other systems and
equipment. At Landlord's option, major repair items
may be amortized over a period of up to five (5)
years.
5. All premiums and deductibles paid by Landlord for
fire and extended coverage insurance, earthquake and
extended coverage insurance, liability and extended
coverage insurance, rental loss insurance, elevator
insurance, boiler insurance and other insurance
customarily carried from time to time by landlords of
comparable office buildings or required to be carried
by Landlord's Mortgagee.
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6. Charges for water, gas, steam and sewer, but
excluding those charges for which Landlord is
otherwise reimbursed by tenants, and charges for
Electrical Costs. For purposes hereof, the term
"Electrical Costs" shall mean: (i) all charges paid
by Landlord for electricity supplied to the
Building, Property and Premises, regardless of
whether such charges are characterized as
distribution charges, transmission charges,
generation charges, public good charges,
disconnection charges, competitive transaction
charges, stranded cost recoveries or otherwise; (ii)
except to the extent otherwise included in Basic
Costs, any costs incurred in connection with the
energy management program for the Building, Property
and Premises, including any costs incurred for the
replacement of lights and ballasts and the purchase
and installation of sensors and other energy saving
equipment; and (iii) if and to the extent permitted
by law, a reasonable fee for the services provided
by Landlord in connection with the selection of
utility companies and the negotiation and
administration of contracts for the generation of
electricity. Notwithstanding the foregoing,
Electrical Costs shall be adjusted as follows: (a)
any amounts received by Landlord as reimbursement
for above standard electrical consumption shall be
deducted from Electrical Costs, (b) the cost of
electricity incurred in providing overtime HVAC to
specific tenants shall be deducted from Electrical
Costs, it being agreed that the electrical component
of overtime HVAC Costs shall be calculated as a
reasonable percentage of the total HVAC costs
charged to such tenants, and (c) if Tenant is billed
directly for the cost of electricity to the Premises
as a separate charge in addition to Base Rental and
Basic Costs, the cost of electricity to individual
tenant spaces in the Building shall be deducted from
Electrical Costs.
7. "Taxes", which for purposes hereof, shall mean: (a)
all real estate taxes and assessments on the
Property, the Building or the Premises, and taxes
and assessments levied in substitution or
supplementation in whole or in part of such taxes,
(b) all personal property taxes for the Building's
personal property, including license expenses, (c)
all taxes imposed on services of Landlord's agents
and employees, (d) all other taxes, fees or
assessments now or hereafter levied by any
governmental authority on the Property, the Building
or its contents or on the operation and use thereof
(except as relate to specific tenants), and (e) all
costs and fees incurred in connection with seeking
reductions in or refunds in Taxes including, without
limitation, any costs incurred by Landlord to
challenge the tax valuation of the Building, but
excluding income taxes. For the purpose of
determining real estate taxes and assessments for
any given calendar year, the amount to be included
in Taxes for such year shall be as follows: (1) with
respect to any special assessment that is payable in
installments, Taxes for such year shall include the
amount of the installment (and any interest) due and
payable during such year; and (2) with respect to
all other real estate taxes, Taxes for such year
shall, at Landlord's election, include either the
amount accrued, assessed or otherwise imposed for
such year or the amount due and payable for such
year, provided that Landlord's election shall be
applied consistently throughout the Lease Term. If a
reduction in Taxes is obtained for any year of the
Lease Term during which Tenant paid its Pro Rata
Share of Basic Costs, then Basic Costs for such year
will be retroactively adjusted and Landlord shall
provide Tenant with a credit, if any, based on such
adjustment. Likewise, if a reduction is subsequently
obtained for Taxes for the Base Year (if Tenant's
Pro Rata Share is based upon increases in Basic
Costs over a Base Year), Basic Costs for the Base
Year shall be restated and the Excess for all
subsequent years recomputed. Tenant shall pay to
Landlord Tenant's Pro Rata Share of any such
increase in the Excess within thirty (30) days after
Tenant's receipt of a statement therefor from
Landlord.
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8. All landscape expenses and costs of maintaining,
repairing, resurfacing and striping of the parking
areas and garages of the Property, if any.
9. Cost of all maintenance service agreements, including
those for equipment, alarm service, window cleaning,
drapery or venetian blind cleaning, janitorial
services, pest control, uniform supply, plant
maintenance, landscaping, and any parking equipment.
10. Cost of all other repairs, replacements and general
maintenance of the Property and Building neither
specified above nor directly billed to tenants.
11. The amortized cost of capital improvements made to
the Building or the Property which are: (a)
primarily for the purpose of reducing operating
expense costs or otherwise improving the operating
efficiency of the Property or Building; or (b)
required to comply with any laws, rules or
regulations of any governmental authority or a
requirement of Landlord's insurance carrier. The
cost of such capital improvements shall be amortized
over a period of five (5) years and shall, at
Landlord's option, include interest at a rate that
is reasonably equivalent to the interest rate that
Landlord would be required to pay to finance the
cost of the capital improvement in question as of
the date such capital improvement is performed,
provided if the payback period for any capital
improvement is less than five (5) years, Landlord
may amortize the cost of such capital improvement
over the payback period. Notwithstanding the
foregoing, the portion of the annual amortized costs
to be included in Basic Costs in any calendar year
with respect to a capital improvement which is
intended to reduce expenses or improve the operating
efficiency of the Property or Building shall equal
the lesser of: a) such annual amortized costs; and
b) the projected annual amortized reduction in
expenses for that portion of the amortization period
of the capital improvement which falls within the
Lease Term (based on the total cost savings for such
period, as reasonably estimated by Landlord).
12. Any other expense or charge of any nature whatsoever
which, in accordance with general industry practice
with respect to the operation of a first-class office
building, would be construed as an operating expense.
In addition, if Landlord incurs any costs and expenses in
connection with the operation, maintenance, repair, management
or ownership of the Building and one or more other buildings,
such costs and expenses shall be equitably prorated between
the Building and such other buildings and the Building's
equitable share thereof shall be included in Basic Costs.
Basic Costs shall not include the cost of capital improvements
(except as set forth above and as distinguished from
replacement parts or components purchased and installed in the
ordinary course), depreciation, interest (except as provided
above with respect to the amortization of capital
improvements), lease commissions, and principal payments on
mortgage and other non-operating debts of Landlord. In
addition, the following shall not be included in Basic Costs:
a) Repairs or other work occasioned by: (i) fire,
windstorm, or other casualty of the type which
Landlord has insured (to the extent that Landlord has
received insurance proceeds and provided that the
amount of any deductible paid by Landlord shall be
included in Basic Costs); or (ii) the exercise of the
right of eminent domain (to the extent that such
repairs or other work are covered by the proceeds of
the award, if any, received by Landlord);
b) Leasing commissions, brochures, marketing supplies,
attorney's fees, costs, and disbursements and other
expenses incurred in connection with negotiation of
leases with prospective tenants;
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c) Rental concessions granted to specific tenants and
expenses incurred in renovating or otherwise
improving or decorating, painting, or redecorating
space for specific tenants, other than ordinary
repairs and maintenance provided or available to
tenants in general;
d) Landlord's costs of electricity and other services
sold or provided to tenants in the Building and for
which Landlord is entitled to be reimbursed by such
tenants as a separate additional charge or rental
over and above the base rental or additional base
rental payable under the lease with such tenant;
e) Overhead and profit increment paid to subsidiaries or
other affiliates of Landlord for services on or to
the Property, Building and/or Premises to the extent
only that the costs of such services exceed the
competitive cost for such services rendered by
persons or entities of similar skill, competence and
experience.
f) The cost of services that are not available to Tenant
under this Lease or for which Tenant reimburses
Landlord as a separate charge (other than through
Basic Costs);
g) Advertising and promotional expenditures;
h) Costs incurred in connection with the sale,
financing, refinancing, mortgaging or sale of the
Building or Property, including brokerage
commissions, attorneys' and accountants' fees,
closing costs, title insurance premiums, transfer
taxes and interest charges;
i) Costs, fines, interest, penalties, legal fees or
costs of litigation incurred due to the late payments
of taxes, utility bills and other costs incurred by
Landlord's failure to make such payments when due
unless such failure is due to Landlord's good faith
and reasonable efforts in contesting the amount of
such payments;
j) Costs incurred by Landlord for trustee's fees,
partnership organizational expenses and accounting
fees to the extent relating to Landlord's general
corporate overhead and general administrative
expenses;
k) Any penalties or liquidated damages that Landlord
pays to Tenant under this Lease or to any other
tenants in the Building under their respective
leases;
l) Attorney's fees, costs and disbursements and other
expenses incurred in connection with negotiations or
disputes with tenants or other occupants of the
Building or with prospective tenants (other than
attorney's fees, costs and disbursements and other
expenses incurred by Landlord in seeking to enforce
Building rules and regulations).
If the Building is not at least ninety-five percent (95%)
occupied during any calendar year of the Lease Term or if
Landlord is not supplying services to at least ninety-five
percent (95%) of the total Rentable Area of the Building at
any time during any calendar year of the Lease Term, actual
Basic Costs for purposes hereof shall be determined as if the
Building had been ninety-five percent (95%) occupied and
Landlord had been supplying services to ninety-five percent
(95%) of the Rentable Area of the Building during such year.
If Tenant pays for its Pro Rata Share of Basic Costs based on
increases over a "Base Year" and Basic Costs for any calendar
year during the Lease Term are determined as provided in the
foregoing sentence, Basic Costs for such Base Year shall also
be determined as if the Building had been ninety-five percent
(95%) occupied and Landlord had been supplying services to
ninety-five percent (95%) of the Rentable Area of the
Building. Any necessary extrapolation of Basic Costs under
this Article shall be performed by adjusting the cost of those
components of Basic Costs that are impacted by changes in the
occupancy of the Building (including, at Landlord's option,
Taxes) to the
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cost that would have been incurred if the Building had been
ninety-five percent (95%) occupied and Landlord had been
supplying services to ninety-five percent (95%) of the
Rentable Area of the Building. In addition, if Tenant's Pro
Rata Share of Basic Costs is determined based upon
increases over a Base Year and Basic Costs for the Base
Year include exit and disconnection fees, stranded cost
charges and/or competitive transaction charges, such fees
and charges may, at Landlord's option, be imputed as a
Basic Cost for subsequent years in which such fees and
charges are not incurred. In no event, however, shall the
amount of such imputed fees and charges exceed the actual
amount of exit and disconnection fees, stranded cost
charges and/or competitive transaction charges that were
actually included in Basic Costs for the Base Year.
C. If Basic Costs for any calendar year increase by more than
three percent (3%) over Basic Costs for the immediately
preceding calendar year, Tenant, within ninety (90) days
after receiving Landlord's statement of actual Basic Costs
for a particular calendar year, shall have the right to
provide Landlord with written notice (the "Review Notice")
of its intent to review Landlord's books and records
relating to the Basic Costs for such calendar year. Within
a reasonable time after receipt of a timely Review Notice,
Landlord shall make such books and records available to
Tenant or Tenant's agent for its review at either
Landlord's home office or at the office of the Building,
provided that if Tenant retains an agent to review
Landlord's books and records for any calendar year, such
agent must be A CPA firm licensed to do business in the
state in which the Building is located. Tenant shall be
solely responsible for any and all costs, expenses and fees
incurred by Tenant or Tenant's agent in connection with
such review. If Tenant elects to review Landlord's books
and records, within thirty (30) days after such books and
records are made available to Tenant, Tenant shall have the
right to give Landlord written notice stating in reasonable
detail any objection to Landlord's statement of actual
Basic Costs for such calendar year. If Tenant fails to give
Landlord written notice of objection within such thirty
(30) day period or fails to provide Landlord with a Review
Notice within the ninety (90) day period provided above,
Tenant shall be deemed to have approved Landlord's
statement of Basic Costs in all respects and shall
thereafter be barred from raising any claims with respect
thereto. Upon Landlord's receipt of a timely objection
notice from Tenant, Landlord and Tenant shall work together
in good faith to resolve the discrepancy between Landlord's
statement and Tenant's review. If Landlord and Tenant
determine that Basic Costs for the calendar year in
question are less than reported, Landlord shall provide
Tenant with a credit against future Additional Base Rental
in the amount of any overpayment by Tenant. Likewise, if
Landlord and Tenant determine that Basic Costs for the
calendar year in question are greater than reported, Tenant
shall forthwith pay to Landlord the amount of underpayment
by Tenant. In addition, if Landlord and Tenant determine
that Basic Costs for the Building for the year in question
were less than stated by more than five percent (5%),
Landlord, within thirty (30) days after its receipt of paid
invoices therefor from Tenant, shall reimburse Tenant for
any reasonable amounts paid by Tenant to third parties in
connection with such review by Tenant. Any information
obtained by Tenant pursuant to the provisions of this
Section shall be treated as confidential. Notwithstanding
anything herein to the contrary, Tenant shall not be
permitted to examine Landlord's books and records or to
dispute any statement of Basic Costs unless Tenant has paid
to Landlord the amount due as shown on Landlord's statement
of actual Basic Costs, said payment being a condition
precedent to Tenant's right to examine Landlord's books and
records.
D. Tenant covenants and agrees to pay to Landlord during the
Lease Term, without any setoff or deduction whatsoever, the
full amount of all Base Rental and Additional Base Rental
due hereunder. In addition, Tenant shall pay and be liable
for, as additional rent, all rental, sales and use taxes or
other similar taxes, if any, levied or imposed by any city,
state, county or other governmental body having authority,
such payments to be in addition to all other payments
required to be paid to Landlord by Tenant under the terms
and conditions of this Lease. Any such payments shall
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be paid concurrently with the payments of the Rent on which
the tax is based. The Base Rental, Tenant's Pro Rata Share of
Basic Costs and any recurring monthly charges due hereunder
shall be due and payable in advance on the first day of each
calendar month during the Lease Term without demand, provided
that the installment of Base Rental for the first full
calendar month of the Lease Term shall be payable upon the
execution of this Lease by Tenant. All other items of Rent
shall be due and payable by Tenant on or before ten (10) days
after billing by Landlord. If the Lease Term commences on a
day other than the first day of a calendar month or terminates
on a day other than the last day of a calendar month, then the
monthly Base Rental and Tenant's Pro Rata Share of Basic Costs
for such month shall be prorated for the number of days in
such month occurring within the Lease Term based on a
fraction, the numerator of which is the number of days of the
Lease Term that fell within such calendar month and the
denominator of which is thirty (30). All such payments shall
be by a good and sufficient check. No payment by Tenant or
receipt or acceptance by Landlord of a lesser amount than the
correct amount of Rent due under this Lease shall be deemed to
be other than a payment on account of the earliest Rent due
hereunder, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment be deemed an
accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the
balance or pursue any other available remedy. The acceptance
by Landlord of any Rent on a date after the due date of such
payment shall not be construed to be a waiver of Landlord's
right to declare a default for any other late payment.
Tenant's covenant to pay Rent shall be independent of every
other covenant set forth in this Lease.
E. All Rent not paid when due and payable shall bear interest
from the date Landlord provides Tenant with notice that the
rent was not received on the date due until paid at the lesser
of: (1) eighteen percent (18%) per annum; or (2) the Maximum
Rate. In addition, if Tenant fails to pay any installment of
Rent within one (1) business day after when due and payable
hereunder, a service fee equal to five percent (5%) of such
unpaid amount will be due and payable immediately by Tenant to
Landlord.
F. In lieu of requiring Tenant to pay Rent by good and sufficient
check in the manner described in Section IV.D. above, Landlord
shall have the right to require Tenant to pay Rent by means of
an automated debit system (the "Automatic Debit System")
whereby any or all payments of Rent shall be debited from
Tenant's account in a bank or financial institution designated
by Tenant and credited to Landlord's account in a bank or
financial institution designated by Landlord. In the event
Landlord elects to have Tenant pay all or any portion of Rent
by means of the Automatic Debit System, Tenant, within thirty
(30) days after written request by Landlord, shall execute and
deliver to Landlord any authorizations, certificates or other
documentation as may be required to establish and give effect
to the Automatic Debit System. If Landlord elects to have less
than all items of Rent paid by the Automatic Debit System,
Landlord shall advise Tenant in writing as to those items of
Rent that will be paid by the Automatic Debit System (e.g.
Base Rental only or Base Rental and Tenant's Pro Rata Share of
Basic Costs only). Either party shall have the right to change
its bank or financial institution from time to time, provided
that Tenant, no less than thirty (30) days prior to the
effective date of any such change, shall provide Landlord with
written notice of such change and any and all authorizations,
certificates or other documentation as may be required to
establish and give effect to the Automatic Debit System at
Tenant's new bank or financial institution. Tenant shall
promptly pay all service fees and other charges imposed upon
Landlord or Tenant in connection with the Automatic Debit
System, including, without limitation, any charges resulting
from insufficient funds in Tenant's bank account. In the event
that any Rent is not paid on time as a result of insufficient
funds in Tenant's account, Tenant shall be liable for any
interest and/or service fee in accordance with Section IV.E.
above. Tenant shall remain liable to Landlord for all payments
of Rent due hereunder regardless of whether Tenant's account
is incorrectly debited in any given month, it being
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agreed that a debit of less than the full amount of Rent due
shall not be construed as a waiver by Landlord of its right to
receive any unpaid balance of Rent. Notwithstanding the
foregoing, Landlord shall not be entitled to require Tenant to
pay Rent through the Automatic Debit System unless Tenant, on
more than three (3) occasion(s) during the Lease Term, has
failed to pay any installment of Rent on or before the date
required herein. Notwithstanding the foregoing, Landlord shall
not be entitled to require Tenant to pay Rent through the
Automatic Debit System unless Tenant, on more than two (2)
occasions during the Lease Term, has failed to pay any
installment of Rent on or before the date required herein.
V. USE.
The Premises shall be used for the Permitted Use and for no other
purpose. Tenant agrees not to use or permit the use of the Premises for any
purpose which is illegal, dangerous to life, limb or property or which, in
Landlord's reasonable opinion, creates a nuisance or which would increase the
cost of insurance coverage with respect to the Building. Landlord hereby
represents that so long as Tenant complies with all of the terms and conditions
of this Lease and uses the Premises in a manner that does not materially
increase the danger of property damage or personal injury, the use of the
Premises for the Permitted Use will not result in an increase in the cost of
insurance coverage for which Tenant will be responsible (other than through
inclusion in Basic Costs). Tenant shall conduct its business and control its
agents, servants, contractors, employees, customers, licensees, and invitees in
such a manner as not to interfere with, annoy or disturb other tenants, or in
any way interfere with Landlord in the management and operation of the Building.
Tenant will maintain the Premises in a clean and healthful condition, and comply
with all laws, ordinances, orders, rules and regulations of any governmental
entity with reference to the operation of Tenant's particular business and to
the use, condition, configuration or occupancy of the Premises, including
without limitation, the Americans with Disabilities Act (collectively referred
to as "Laws"). Tenant, within ten (10) days after receipt thereof, shall provide
Landlord with copies of any notices it receives with respect to a violation or
alleged violation of any Laws. Tenant will comply with the rules and regulations
of the Building attached hereto as Exhibit B and such other rules and
regulations adopted and altered by Landlord from time to time and will cause all
of its agents, servants, contractors, employees, customers, licensees and
invitees to do so. All changes to such rules and regulations will be reasonable
and shall be sent by Landlord to Tenant in writing. Except to the extent
properly included in Basic Costs, Landlord shall be responsible for the cost of
correcting any violations of Title III of the Americans with Disabilities Act
(ADA) with respect to the Common Areas of the Building. Notwithstanding the
foregoing, Landlord shall have the right to contest any alleged violation in
good faith, including, without limitation, the right to apply for and obtain a
waiver or deferment of compliance, the right to assert any and all defenses
allowed by law and the right to appeal any decisions, judgments or rulings to
the fullest extent permitted by law. Landlord, after the exhaustion of any and
all rights to appeal or contest, will make all repairs, additions, alterations
or improvements necessary to comply with the terms of any final order or
judgment.
VI. SECURITY DEPOSIT.
The Security Deposit shall be delivered to Landlord upon the execution
of this Lease by Tenant and shall be held by Landlord without liability for
interest (except as required by law) and as security for the performance of
Tenant's obligations under this Lease. The Security Deposit shall not be
considered an advance payment of Rent or a measure of Tenant's liability for
damages. Landlord may, from time to time, without prejudice to any other remedy,
use all or a portion of the Security Deposit to make good any arrearage of Rent,
to repair damages to the Premises, to clean the Premises upon termination of
this Lease or otherwise to satisfy any other covenant or obligation of Tenant
hereunder. Following any such application of the Security Deposit, Tenant shall
pay to Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. If Tenant is not in default at the termination
of this Lease, after Tenant surrenders the Premises to Landlord in accordance
with this Lease and all amounts due Landlord from Tenant are finally determined
and paid by Tenant or through application of the Security Deposit, the balance
of the Security Deposit remaining after any such application shall be returned
to Tenant. If Landlord transfers its interest in the Premises during the Lease
Term, Landlord may assign the Security Deposit to the transferee and thereafter
shall have no further liability for the return of such Security Deposit. Tenant
agrees to look solely to such transferee or assignee for the return of the
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Security Deposit. Landlord and its successors and assigns shall not be bound by
any actual or attempted assignment or encumbrance of the Security Deposit by
Tenant, provided, however, if Tenant's interest in this Lease has been assigned,
Landlord shall, provided that Landlord has been furnished with a fully executed
copy of the agreement assigning such Security Deposit, return the Security
Deposit to such assignee in accordance with the terms and conditions hereof. If
Landlord returns the Security Deposit to Tenant's assignee as aforesaid,
Landlord will have no further obligation to any party with respect thereto.
Landlord shall not be required to keep the Security Deposit separate from its
other accounts.
VII. SERVICES TO BE FURNISHED BY LANDLORD.
A. Landlord, as part of Basic Costs (except as otherwise
provided), agrees to furnish Tenant the following services:
1. Water for use in the lavatories on the floor(s) on
which the Premises is located. If Tenant desires
water in the Premises for any approved reason,
including a private lavatory or kitchen, cold water
shall be supplied, at Tenant's sole cost and expense,
from the Building water main through a line and
fixtures installed at Tenant's sole cost and
expense with the prior reasonable consent of
Landlord. If Tenant desires hot water in the
Premises, Tenant, at its sole cost and expense and
subject to the prior reasonable consent of
Landlord, may install a hot water heater in the
Premises. Tenant shall be solely responsible for
maintenance and repair of any such hot water heater.
2. Central heat and air conditioning in season during
Normal Business Hours, at such temperatures and in
such amounts as are considered by Landlord, in its
reasonable judgment, to be standard for buildings of
similar class, size, age and location, or as
required by governmental authority. In the event
that Tenant requires central heat, ventilation or
air conditioning at hours other than Normal Business
Hours, such central heat, ventilation or air
conditioning shall be furnished only upon the
written request of Tenant delivered to Landlord at
the office of the Building prior to 3:00 P.M. at
least one Business Day in advance of the date for
which such usage is requested. Tenant shall pay
Landlord, as Additional Base Rental, the entire cost
of additional service as such costs are determined
by Landlord from time to time.
3. Maintenance and repair of all Common Areas in the
manner and to the extent reasonably deemed by
Landlord to be standard for buildings of similar
class, size, age and location.
4. Janitor service on Business Days; provided, however,
if Tenant's use, floor covering or other improvements
require special services, Tenant shall pay the
additional cost reasonably attributable thereto as
Additional Base Rental.
5. Passenger elevator service in common with other
tenants of the Building.
6. Electricity to the Premises for general office use,
in accordance with and subject to the terms and
conditions set forth in Article XI of this Lease.
B. The failure by Landlord to any extent to furnish, or the
interruption or termination of, any services in whole or in
part, resulting from adherence to laws, regulations and
administrative orders, wear, use, repairs, improvements,
alterations or any causes beyond the reasonable control of
Landlord shall not render Landlord liable in any respect nor
be construed as a constructive eviction of Tenant, nor give
rise to an abatement of Rent, nor relieve Tenant from the
obligation to fulfill any covenant or agreement hereof.
Should any of the equipment or machinery used in the
provision of such services for any cause cease to function
properly, Landlord shall use reasonable diligence to repair
such equipment or machinery. Notwithstanding anything to the
contrary
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contained in this Section VII.B., if: (i) Landlord ceases to
furnish any service in the Building for a period in excess
of five (5) consecutive days after Tenant notifies Landlord
of such cessation (the "Interruption Notice"); (ii) such
cessation does not arise as a result of an act or omission
of Tenant; (iii) such cessation is not caused by a fire or
other casualty (in which case Article XIX shall control);
(iv) the restoration of such service is reasonably within
the control of Landlord; and (v) as a result of such
cessation, the Premises, or a material portion thereof, is
rendered untenantable (meaning that Tenant is unable to use
the Premises in the normal course of its business) and
Tenant in fact ceases to use the Premises, or material
portion thereof, then Tenant, as its sole remedy, shall be
entitled to receive an abatement of Base Rental payable
hereunder during the period beginning on the sixth (6th)
consecutive day of such cessation and ending on the day when
the service in question has been restored. In the event the
entire Premises has not been rendered untenantable by the
cessation in service, the amount of abatement that Tenant is
entitled to receive shall be prorated based upon the
percentage of the Premises so rendered untenantable and not
used by Tenant.
C. Tenant expressly acknowledges that if Landlord, from time to
time, elects to provide security services, Landlord shall not
be deemed to have warranted the efficiency of any security
personnel, service, procedures or equipment and Landlord shall
not be liable in any manner for the failure of any such
security personnel, services, procedures or equipment to
prevent or control, or apprehend anyone suspected of personal
injury, property damage or any criminal conduct in, on or
around the Property.
VIII. LEASEHOLD IMPROVEMENTS.
Any trade fixtures, unattached and movable equipment or furniture, or
other personalty brought into the Premises by Tenant ("Tenant's Property") shall
be owned and insured by Tenant. Tenant shall remove all such Tenant's Property
from the Premises in accordance with the terms of Article XXXV hereof. Any and
all alterations, additions and improvements to the Premises, including any
built-in furniture (collectively, "Leasehold Improvements") shall be owned and
insured by Landlord and shall remain upon the Premises, all without
compensation, allowance or credit to Tenant unless the parties agree otherwise
in writing. Landlord may, nonetheless, at any time prior to, or within six (6)
months after, the expiration or earlier termination of this Lease or Tenant's
right to possession, require Tenant to remove any Leasehold Improvements
performed by or for the benefit of Tenant and all electronic, phone and data
cabling as are designated by Landlord (the "Required Removables") at Tenant's
sole cost. In the event that Landlord so elects, Tenant shall remove such
Required Removables within ten (10) days after notice from Landlord, provided
that in no event shall Tenant be required to remove such Required Removables
prior to the expiration or earlier termination of this Lease or Tenant's right
to possession. In addition to Tenant's obligation to remove the Required
Removables, Tenant shall repair any damage caused by such removal and perform
such other work as is reasonably necessary to restore the Premises to a "move
in" condition. If Tenant fails to remove any specified Required Removables or to
perform any required repairs and restoration within the time period specified
above, Landlord, at Tenant's sole cost and expense, may remove, store, sell
and/or dispose of the Required Removables and perform such required repairs and
restoration work. Tenant, within five (5) days after demand from Landlord, shall
reimburse Landlord for any and all reasonable costs incurred by Landlord in
connection with the Required Removables. Notwithstanding the foregoing, Tenant
may request in writing at the time it submits its plans and specifications for
an alteration, addition or improvement, that Landlord advise Tenant whether
Landlord will require Tenant to remove, at the termination of this Lease or
Tenant's right to possession hereunder, such alteration, addition or
improvement, or any particular portion thereof and Landlord shall advise Tenant
within twenty (20) days after receipt of Tenant's request as to whether Landlord
will require removal; provided, however, Landlord shall have the right to
require Tenant to remove any vault, stairway, raised floor or structural
alterations installed in the Premises, regardless of whether Landlord timely
notified Tenant that it would require such removal.
IX. GRAPHICS.
Landlord shall provide and install, at Tenant's cost, any suite numbers
and Tenant identification on the exterior of the Premises using the standard
graphics for the
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Building. Tenant shall not be permitted to install any signs or other
identification without Landlord's prior written consent.
X. REPAIRS AND ALTERATIONS.
A. Except to the extent such obligations are imposed upon
Landlord hereunder, Tenant, at its sole cost and expense,
shall perform all maintenance and repairs to the Premises as
are necessary to keep the same in good condition and repair
throughout the entire Lease Term, reasonable wear and tear
excepted. Tenant's repair and maintenance obligations with
respect to the Premises shall include, without limitation,
any necessary repairs with respect to: (1) any carpet or
other floor covering, (2) any interior partitions, (3) any
doors, (4) the interior side of any demising walls, (5) any
telephone and computer cabling that serves Tenant's
equipment exclusively, (6) any supplemental air conditioning
units, private showers and kitchens, including any plumbing
in connection therewith, and similar facilities serving
Tenant exclusively, and (7) any alterations, additions or
improvements performed by contractors retained by Tenant.
All such work shall be performed in accordance with section
X.B. below and the rules, policies and procedures reasonably
enacted by Landlord from time to time for the performance of
work in the Building. If Tenant fails to make any necessary
repairs to the Premises, Landlord may, at its option, make
such repairs, and Tenant shall pay the cost thereof to the
Landlord on demand as Additional Base Rental, together with
an administrative charge in an amount equal to ten percent
(10%) of the cost of such repairs. Landlord shall, at its
expense (except as included in Basic Costs), keep and
maintain in good repair and working order and make all
repairs to and perform necessary maintenance upon: (a) all
structural elements of the Building; and (b) all mechanical,
electrical and plumbing systems that serve the Building in
general; and (c) the Building facilities common to all
tenants including, but not limited to, the ceilings, walls
and floors in the Common Areas.
B. Tenant shall not make or allow to be made any alterations,
additions or improvements to the Premises without first
obtaining the written consent of Landlord in each such
instance, such consent shall not be unreasonable withheld or
delayed. Prior to commencing any such work and as a
condition to obtaining Landlord's consent, Tenant must
furnish Landlord with plans and specifications reasonably
acceptable to Landlord; names and addresses of contractors
reasonably acceptable to Landlord; copies of contracts;
necessary permits and approvals; evidence of contractor's
and subcontractor's insurance in accordance with Article XVI
section B. hereof, and payment bond or other security, all
in form and amount satisfactory to Landlord. All such
improvements, alterations or additions shall be constructed
in a good and workmanlike manner using Building Standard
materials or other new materials of equal or greater
quality. Landlord, to the extent reasonably necessary to
avoid any disruption to the tenants and occupants of the
Building, shall have the right to designate the time when
any such alterations, additions and improvements may be
performed and to otherwise designate reasonable rules,
regulations and procedures for the performance of work in
the Building. Upon completion, Tenant shall furnish
"as-built" plans, contractor's affidavits and full and final
waivers of lien and receipted bills covering all labor and
materials. All improvements, alterations and additions shall
comply with all insurance requirements, codes, ordinances,
laws and regulations, including without limitation, the
Americans with Disabilities Act. Tenant shall reimburse
Landlord upon demand as Additional Base Rental for all sums,
if any, expended by Landlord for third party examination of
the architectural, mechanical, electric and plumbing plans
for any alterations, additions or improvements. In addition,
if Landlord so requests, Landlord shall be entitled to
oversee the construction of any alterations, additions or
improvements that may affect the structure of the Building
or any of the mechanical, electrical, plumbing or life
safety systems of the Building. In the event Landlord elects
to oversee such work, Landlord shall be entitled to receive
a fee for such oversight in an amount equal to fifteen
percent (15%) of the cost of such alterations, additions or
improvements. Landlord's approval of Tenant's plans and
specifications for any work performed for or on behalf of
Tenant
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shall not be deemed to be a representation by Landlord that
such plans and specifications comply with applicable
insurance requirements, building codes, ordinances, laws or
regulations or that the alterations, additions and
improvements constructed in accordance with such plans and
specifications will be adequate for Tenant's use.
XI. USE OF ELECTRICAL SERVICES BY TENANT.
A. All electricity used by Tenant in the Premises shall, at
Landlord's option, be paid for by Tenant either: (1) through
inclusion in Base Rental and Basic Costs (except as provided
in Section XI.B. below with respect to excess usage); or (2)
by a separate charge billed directly to Tenant by Landlord
and payable by Tenant as Additional Base Rental within ten
(10) days after billing; or (3) by a separate charge or
charges billed by the utility company(ies) providing
electrical service and payable by Tenant directly to such
utility company(ies). It is understood that electrical
service to the Premises may be furnished by one or more
companies providing electrical generation, transmission
and/or distribution services and that the cost of
electricity may be billed as a single charge or divided into
and billed in a variety of categories such as distribution
charges, transmission charges, generation charges, public
good charges or other similar categories. Landlord shall
have the exclusive right to select the company(ies)
providing electrical service to the Building, Premises and
Property, to aggregate the electrical service for the
Building, Premises and Property with other buildings, to
purchase electricity for the Building, Premises and Property
through a broker and/or buyers group and to change the
providers and/or manner of purchasing electricity from time
to time. Landlord shall be entitled to receive a reasonable
fee (if permitted by law) for the services provided by
Landlord in connection with the selection of utility
companies and the negotiation and administration of
contracts for the generation of electricity. In addition, if
Landlord bills Tenant directly for the cost of electricity
as Additional Base Rental, the cost of electricity may
include (if permitted by law) an administrative fee to
reimburse Landlord for the cost of reading meters, preparing
invoices and related costs.
B. Tenant's use of electrical service in the Premises shall not
exceed, either in voltage, rated capacity, use beyond Normal
Business Hours or overall load, that which Landlord deems to
be standard for the Building. In the event Tenant shall
consume (or request that it be allowed to consume)
electrical service in excess of that deemed by Landlord to
be standard for the Building, Landlord may refuse to consent
to such excess usage or may condition its consent to such
excess usage upon such conditions as Landlord reasonably
elects (including the installation of utility service
upgrades, submeters, air handlers or cooling units), and all
such additional usage (to the extent permitted by law),
installation and maintenance thereof shall be paid for by
Tenant as Additional Base Rental. Landlord, at any time
during the Lease Term, shall have the right to separately
meter electrical usage for the Premises or to measure
electrical usage by survey or any other method that
Landlord, in its reasonable judgment, deems to be
appropriate.
C. Notwithstanding Section A. above to the contrary, if Landlord
permits Tenant to purchase electrical power for the Premises
from a provider other than Landlord's designated
company(ies), such provider shall be considered to be a
contractor of Tenant and Tenant shall indemnify and hold
Landlord harmless from such provider's acts and omissions
while in, or in connection with their services to, the
Building or Premises in accordance with the terms and
conditions of Article XV. In addition, at the request of
Landlord, Tenant shall allow Landlord to purchase
electricity from Tenant's provider at Tenant's rate or at
such lower rate as can be negotiated by the aggregation of
Landlord's and Tenant's requirements for electricity power.
XII. ENTRY BY LANDLORD.
Landlord and its agents or representatives shall have the right to
enter the Premises to inspect the same, or to show the Premises to prospective
purchasers,
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mortgagees, tenants (during the last twelve months of the Lease Term or earlier
in connection with a potential relocation) or insurers, or to clean or make
repairs, alterations or additions thereto, including any work that Landlord
deems necessary for the safety, protection or preservation of the Building or
any occupants thereof, or to facilitate repairs, alterations or additions to the
Building or any other tenants' premises. Except for any entry by Landlord in an
emergency situation or to provide normal cleaning and janitorial service,
Landlord shall provide Tenant with reasonable prior notice of any entry into the
Premises, which notice may be given verbally. If reasonably necessary for the
protection and safety of Tenant and its employees, Landlord shall have the right
to temporarily close the Premises to perform repairs, alterations or additions
in the Premises, provided that Landlord shall use reasonable efforts to perform
all such work on weekends and after Normal Business Hours. Entry by Landlord
hereunder shall not constitute a constructive eviction or entitle Tenant to any
abatement or reduction of Rent by reason thereof.
XIII. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not assign, sublease, transfer or encumber
this Lease or any interest therein or grant any license,
concession or other right of occupancy of the Premises or
any portion thereof or otherwise permit the use of the
Premises or any portion thereof by any party other than
Tenant (any of which events is hereinafter called a
"Transfer") without the prior written consent of Landlord,
which consent shall not be unreasonably withheld with
respect to any proposed assignment or subletting. Landlord's
consent shall not be considered unreasonably withheld if:
(1) the proposed transferee's financial responsibility does
not meet the same criteria Landlord uses to select Building
tenants; (2) the proposed transferee's business is not
suitable for the Building considering the business of the
other tenants and the Building's prestige or would result in
a violation of an exclusive right granted to another tenant
in the Building; (3) the proposed use is different than the
Permitted Use; (4) the proposed transferee is a government
agency or occupant of the Building; (5) Tenant is in
default; or (6) any portion of the Building or Premises
would become subject to additional or different governmental
laws or regulations as a consequence of the proposed
Transfer and/or the proposed transferee's use and occupancy
of the Premises. Tenant acknowledges that the foregoing is
not intended to be an exclusive list of the reasons for
which Landlord may reasonably withhold its consent to a
proposed Transfer. Any attempted Transfer in violation of
the terms of this Article shall, at Landlord's option, be
void. Consent by Landlord to one or more Transfers shall not
operate as a waiver of Landlord's rights as to any
subsequent Transfers. In addition, Tenant shall not, without
Landlord's consent, publicly advertise the proposed rental
rate for any Transfer. Notwithstanding anything to the
contrary contained herein or in Section XIII.D., Tenant may
assign its entire interest under this Lease or sublet the
Premises to a wholly owned corporation, partnership or other
legal entity or affiliate, subsidiary or parent of Tenant or
to any successor to Tenant by purchase, merger,
consolidation or reorganization (hereinafter, collectively,
referred to as "Permitted Transfer") without the consent of
Landlord, provided: (i) Tenant is not in default under this
Lease; (ii) if the proposed transferee is a successor to
Tenant by purchase, merger, consolidation or reorganization,
the continuing or surviving entity shall own all or
substantially all of the assets of Tenant and shall either:
(a) have a net worth which is at least equal to the greater
of Tenant's net worth at the date of this Lease or Tenant's
net worth at the date of the Transfer; or (b) if such
successor entity does not have an equal or greater net
worth, such successor entity must have a net worth that is
reasonably sufficient to perform the obligations of Tenant
hereunder (taking into consideration the other obligations
of such entity), and, in addition, must provide Landlord
with a cash security deposit or letter of credit in an
amount reasonably necessary to cause the level of Landlord's
lease securitization after such transfer to be at least
comparable to the greater of Landlord's level of lease
securitization as of the date of this Lease or as of the day
prior to the transfer; (iii) such proposed transferee
operates the business in the Premises for the Permitted Use
and no other purpose; and (iv) in no event shall any
Transfer release or relieve Tenant from any of its
obligations under this Lease. Tenant shall give Landlord
written notice at least thirty (30) days prior to the
effective date of such Permitted
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Transfer. As used herein: (a) "parent" shall mean a company
which owns a majority of Tenant's voting equity; (b)
"subsidiary" shall mean an entity wholly owned by Tenant or at
least fifty-one percent (51%) of whose voting equity is owned
by Tenant; and (c) "affiliate" shall mean an entity
controlled, controlling or under common control with Tenant.
Notwithstanding the foregoing, sale of the shares of equity of
any affiliate or subsidiary to which this Lease has been
assigned or transferred other than to another parent,
subsidiary or affiliate of the original Tenant named hereunder
shall be deemed to be an assignment requiring the consent of
Landlord hereunder.
B. If Tenant requests Landlord's consent to a Transfer, Tenant,
together with such request for consent, shall provide Landlord
with the name of the proposed transferee and the nature of the
business of the proposed transferee, the term, use, rental
rate and all other material terms and conditions of the
proposed Transfer, including, without limitation, a copy of
the proposed assignment, sublease or other contractual
documents and evidence satisfactory to Landlord that the
proposed transferee is financially responsible.
Notwithstanding Landlord's agreement to act reasonably under
Section XIII.A. above, Landlord may, within forty-five (45)
days after its receipt of all information and documentation
required herein, either, (1) consent to or reasonably refuse
to consent to such Transfer in writing; or (2) negotiate
directly with the proposed transferee and in the event
Landlord is able to reach an agreement with such proposed
transferee, terminate this Lease (in part or in whole, as
appropriate) upon thirty (30) days' notice; or (3) cancel and
terminate this Lease, in whole or in part as appropriate, upon
thirty (30) days' notice. Notwithstanding the foregoing,
Tenant, within five (5) days after receipt of Landlord's
notice of intent to terminate, may withdraw its request for
consent to the Transfer. In such event, Landlord's election to
terminate the Lease shall be null and void and of no force and
effect. In the event Landlord consents to any such Transfer,
the Transfer and consent thereto shall be in a form approved
by Landlord, and Tenant shall bear all reasonable costs and
expenses incurred by Landlord in connection with the review
and approval of such documentation, which costs and expenses
shall be deemed to be at least Seven Hundred Fifty Dollars
($750.00). Notwithstanding the foregoing, provided that Tenant
does not request any changes to this Lease or Landlord's
standard form of consent in connection with the proposed
transfer, such costs and expenses shall not exceed Seven
Hundred Fifty Dollars ($750.00).
C. All cash or other proceeds (the "Transfer Consideration") of
any Transfer of Tenant's interest in this Lease and/or the
Premises, whether consented to by Landlord or not, shall be
paid to Landlord and Tenant hereby assigns all rights it might
have or ever acquire in any such proceeds to Landlord. In
addition to the Rent hereunder, Tenant hereby covenants and
agrees to pay to Landlord all rent and other consideration
which it receives which is in excess of the Rent payable
hereunder within ten (10) days following receipt thereof by
Tenant. In determining excess rent in connection with an
assignment or subletting, Tenant may, [on an amortized basis,]
deduct the following expenditures resulting from such
subletting or assignment: (1) brokerage and marketing fees;
(2) legal fees; (3) construction costs; and (4) financial
concessions granted in such sublease or assignment. In
addition to any other rights Landlord may have, Landlord shall
have the right to contact any transferee and require that all
payments made pursuant to the Transfer shall be made directly
to Landlord.
D. If Tenant is a corporation, limited liability company or
similar entity, and if at any time during the Lease Term the
entity or entities who own the voting shares at the time of
the execution of this Lease cease for any reason (including
but not limited to merger, consolidation or other
reorganization involving another corporation) to own a
majority of such shares, or if Tenant is a partnership and if
at any time during the Lease Term the general partner or
partners who own the general partnership interests in the
partnership at the time of the execution of this Lease, cease
for any reason to own a majority of such interests (except as
the result of transfers by gift, bequest or inheritance to or
for the benefit of
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members of the immediate family of such original
shareholder[s] or partner[s]), such an event shall be deemed
to be a Transfer. The preceding sentence shall not apply
whenever Tenant is a corporation, the outstanding stock of
which is listed on a recognized security exchange, or if at
least eighty percent (80%) of its voting stock is owned by
another corporation, the voting stock of which is so listed.
Notwithstanding the foregoing, any change in control resulting
from a transfer of stock among shareholders existing as of the
date of this Lease shall not require Landlord's prior consent,
provided Landlord shall be notified of such change in control
thirty (30) days following the effective date of such change
in control. In no event shall any Transfer release or relieve
Tenant from any of its obligations under this Lease.
E. Any Transfer consented to by Landlord in accordance with this
Article XIII shall be only for the Permitted Use and for no
other purpose. In no event shall any Transfer release or
relieve Tenant or any Guarantors from any obligations under
this Lease.
XIV. LIENS.
Tenant will not permit any mechanic's liens or other liens to be placed
upon the Premises or Tenant's leasehold interest therein, the Building, or the
Property. Landlord's title to the Building and Property is and always shall be
paramount to the interest of Tenant, and nothing herein contained shall empower
Tenant to do any act that can, shall or may encumber Landlord's title. In the
event any such lien does attach, Tenant shall, within five (5) days of notice of
the filing of said lien, either discharge or bond over such lien to the
satisfaction of Landlord and Landlord's Mortgagee (as hereinafter defined), and
in such a manner as to remove the lien as an encumbrance against the Building
and Property. If Tenant shall fail to so discharge or bond over such lien, then,
in addition to any other right or remedy of Landlord, Landlord may, but shall
not be obligated to bond over or discharge the same. Any amount paid by Landlord
for any of the aforesaid purposes, including reasonable attorneys' fees (if and
to the extent permitted by law) shall be paid by Tenant to Landlord on demand as
Additional Base Rental. Landlord shall have the right to post and keep posted on
the Premises any notices that may be provided by law or which Landlord may deem
to be proper for the protection of Landlord, the Premises and the Building from
such liens.
XV. INDEMNITY AND WAIVER OF CLAIMS.
A. Except with respect to claims waived under Article XVII below,
tenant shall indemnify, defend and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors,
employees, Mortgagee(s) and agents, and the respective
principals and members of any such agents (collectively the
"Landlord Related Parties") harmless against and from all
liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including, without limitation,
reasonable attorneys' fees and other professional fees (if and
to the extent permitted by law), which may be imposed upon,
incurred by, or asserted against Landlord or any of the
Landlord Related Parties and arising, directly or indirectly,
out of or in connection with the use, occupancy or maintenance
of the Premises by, through or under Tenant including, without
limitation, any of the following: (1) any work or thing done
in, on or about the Premises or any part thereof by Tenant or
any of its transferees, agents, servants, contractors,
employees, customers, licensees or invitees; (2) any use,
non-use, possession, occupation, condition, operation or
maintenance of the Premises or any part thereof; (3) any act
or omission of Tenant or any of its transferees, agents,
servants, contractors, employees, customers, licensees or
invitees, regardless of whether such act or omission occurred
within the Premises; (4) any injury or damage to any person or
property occurring in, on or about the Premises or any part
thereof; or (5) any failure on the part of Tenant to perform
or comply with any of the covenants, agreements, terms or
conditions contained in this Lease with which Tenant must
comply or perform. In case any action or proceeding is brought
against Landlord or any of the Landlord Related Parties by
reason of any of the foregoing, Tenant shall, at Tenant's sole
cost and expense, resist and defend such action or proceeding
with counsel approved by Landlord or, at Landlord's option,
reimburse Landlord for the cost of any counsel retained
directly by Landlord to defend and resist such action or
proceeding.
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B. Landlord and the Landlord Related Parties shall not be liable
for, and Tenant hereby waives, all claims for loss or damage
to Tenant's business or damage to person or property sustained
by Tenant or any person claiming by, through or under Tenant
[including Tenant's principals, agents and employees
(collectively, the "Tenant Related Parties")] resulting from
any accident or occurrence in, on or about the Premises, the
Building or the Property, including, without limitation,
claims for loss, theft or damage resulting from: (1) the
Premises, Building, or Property, or any equipment or
appurtenances becoming out of repair; (2) wind or weather; (3)
any defect in or failure to operate, for whatever reason, any
sprinkler, heating or air-conditioning equipment, electric
wiring, gas, water or steam pipes; (4) broken glass; (5) the
backing up of any sewer pipe or downspout; (6) the bursting,
leaking or running of any tank, water closet, drain or other
pipe; (7) the escape of steam or water; (8) water, snow or ice
being upon or coming through the roof, skylight, stairs,
doorways, windows, walks or any other place upon or near the
Building; (9) the falling of any fixture, plaster, tile or
other material; (10) any act, omission or negligence of other
tenants, licensees or any other persons or occupants of the
Building or of adjoining or contiguous buildings, or owners of
adjacent or contiguous property or the public, or by
construction of any private, public or quasi-public work; or
(11) any other cause of any nature except, as to items 1-9,
where such loss or damage is due to Landlord's willful failure
to make repairs required to be made pursuant to other
provisions of this Lease, after the expiration of a reasonable
time after written notice to Landlord of the need for such
repairs. To the maximum extent permitted by law, Tenant agrees
to use and occupy the Premises, and to use such other portions
of the Building as Tenant is herein given the right to use, at
Tenant's own risk. Except to the extent such losses,
liabilities, obligations, damages, penalties, claims, costs,
charges and expenses result from the negligence of Tenant or
any Tenant Related Parties, Landlord shall indemnify and hold
Tenant harmless from and against all liabilities, obligations,
damages (other than consequential damages), penalties, claims,
costs, charges and expenses, including, without limitation,
reasonable attorneys' fees, which may be imposed upon,
incurred by, or asserted against Tenant by any third parties
and arising, directly or indirectly, out of or in connection
with any of the following: (i) any work or thing done in, on
or about the Common Areas or any part thereof by Landlord or
any of its agents, contractors or employees; (ii) any use,
non-use, possession, occupation, condition, operation,
maintenance or management of the Common Areas or any part
thereof by Landlord or any of its agents, contractors or
employees; (iii) any act or omission of Landlord or any of its
agents, contractors or employees; and (iv) any injury or
damage to any person or property occurring in, on or about the
Common Areas or any part thereof; provided, however, that in
each case such liability, obligation, damage, penalty, claim,
cost, charge or expense results from the negligence of
Landlord and/or its agents, employees or contractors. In case
any action or proceeding is brought against Tenant or any of
the Tenant Related Parties by a third party by reason of any
of the foregoing, Landlord shall, at Landlord's sole cost and
expense, resist and defend such action or proceeding with
counsel reasonably approved by Tenant.
XVI. TENANT'S INSURANCE.
A. At all times commencing on and after the earlier of the
Commencement Date and the date Tenant or its agents, employees
or contractors enters the Premises for any purpose, Tenant
shall carry and maintain, at its sole cost and expense:
1. Commercial General Liability Insurance applicable to
the Premises and its appurtenances providing, on an
occurrence basis, a minimum combined single limit of
Two Million Dollars ($2,000,000.00), with a
contractual liability endorsement covering Tenant's
indemnity obligations under this Lease.
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2. All Risks of Physical Loss Insurance written at
replacement cost value and with a replacement cost
endorsement covering all of Tenant's Property in the
Premises.
3. Workers' Compensation Insurance as required by the
state in which the Premises is located and in amounts
as may be required by applicable statute, and
Employers' Liability Coverage of One Million Dollars
($1,000,000.00) per occurrence.
4. Whenever good business practice, in Landlord's
reasonable judgment, indicates the need of additional
insurance coverage or different types of insurance in
connection with the Premises or Tenant's use and
occupancy thereof, Tenant shall, upon request, obtain
such insurance at Tenant's expense and provide
Landlord with evidence thereof, except that Landlord
shall not require Tenant to obtain additional
insurance during the first three (3) years of the
Lease Term (and in no event more than a total of
three (3) times during the initial Lease Term),
unless such additional insurance is, in
Landlord's reasonable judgment, necessary due to
Tenant's use of the Premises.
Provided Tenant delivers to Landlord audited financial
statements, reasonably satisfactory to Landlord evidencing
that Tenant has a net worth as measured by its retained
earnings ("Net Worth") in the amount of Ten million and no/100
Dollars ($10,000,000.00) or more as of the date of said
statement, tenant may self-insure for the all risks of
physical loss coverage specified in this section. If Landlord
permits Tenant to self-insure in accordance with the
foregoing, then in order to be permitted to maintain such
self-insurance, tenant must maintain throughout the lease term
a net worth of at least ten million and no/100 dollars
($10,000,000.00), and deliver to landlord, within ninety (90)
days after the end of each of tenant's fiscal years, a
statement in the form described above evidencing tenant's net
worth. if at any time tenant's net worth is less than the
amount set forth above, then Tenant must obtain, provide, and
keep in full force and effect the above referenced insurance
coverage with respect to the Premises and provide Landlord
with evidence of the same.
B. Except for items for which Landlord is responsible under the
Work Letter Agreement, before any repairs, alterations,
additions, improvements, or construction are undertaken by or
on behalf of Tenant, Tenant shall carry and maintain, at its
expense, or Tenant shall require any contractor performing
work on the Premises to carry and maintain, at no expense to
Landlord, in addition to Workers' Compensation Insurance as
required by the jurisdiction in which the Building is located,
All Risk Builder's Risk Insurance in the amount of the
replacement cost of any alterations, additions or improvements
(or such other amount reasonably required by Landlord) and
Commercial General Liability Insurance (including, without
limitation, Contractor's Liability coverage, Contractual
Liability coverage and Completed Operations coverage,) written
on an occurrence basis with a minimum combined single limit of
Two Million Dollars ($2,000,000.00) and adding "the named
Landlord hereunder (or any successor thereto), Equity Office
Properties Trust, a Maryland real estate investment trust, EOP
Operating Limited Partnership, a Delaware limited partnership,
and their respective members, principals, beneficiaries,
partners, officers, directors, employees, agents and any
Mortgagee(s)", and other designees of Landlord as the interest
of such designees shall appear, as additional insureds
(collectively referred to as the "Additional Insureds").
C. Any company writing any insurance which Tenant is required to
maintain or cause to be maintained pursuant to the terms of
this Lease (all such insurance as well as any other insurance
pertaining to the Premises or the operation of Tenant's
business therein being referred to as "Tenant's Insurance"),
as well as the form of such insurance, shall at all times be
subject to Landlord's reasonable approval, and each such
insurance company shall have an A.M. Best rating of "A-" or
better and shall be licensed and qualified to do business in
the state in which the Premises is located. All policies
evidencing Tenant's Insurance (except for Workers'
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Compensation Insurance) shall specify Tenant as named insured
and the Additional Insureds as additional insureds. Provided
that the coverage afforded Landlord and any designees of
Landlord shall not be reduced or otherwise adversely affected,
all of Tenant's Insurance may be carried under a blanket
policy covering the Premises and any other of Tenant's
locations. All policies of Tenant's Insurance shall contain
endorsements that the insurer(s) will give to Landlord and its
designees at least thirty (30) days' advance written notice of
any change, cancellation, termination or lapse of said
insurance. Tenant shall be solely responsible for payment of
premiums for all of Tenant's Insurance. Tenant shall deliver
to Landlord at least fifteen (15) days prior to the time
Tenant's Insurance is first required to be carried by Tenant,
and upon renewals at least fifteen (15) days prior to the
expiration of any such insurance coverage, a certificate of
insurance of all policies procured by Tenant in compliance
with its obligations under this Lease. The limits of Tenant's
Insurance shall in no event limit Tenant's liability under
this Lease.
D. Tenant shall not do or fail to do anything in, upon or about
the Premises which will: (1) violate the terms of any of
Landlord's insurance policies; (2) prevent Landlord from
obtaining policies of insurance acceptable to Landlord or any
Mortgagees; or (3) result in an increase in the rate of any
insurance on the Premises, the Building, any other property of
Landlord or of others within the Building. In the event of the
occurrence of any of the events set forth in this Section,
Tenant shall pay Landlord upon demand, as Additional Base
Rental, the cost of the amount of any increase in any such
insurance premium, provided that the acceptance by Landlord of
such payment shall not be construed to be a waiver of any
rights by Landlord in connection with a default by Tenant
under the Lease. If Tenant fails to obtain the insurance
coverage required by this Lease, Landlord may, at its option,
obtain such insurance for Tenant, and Tenant shall pay, as
Additional Base Rental, the cost of all premiums thereon and
all of Landlord's costs associated therewith.
XVII. SUBROGATION.
Notwithstanding anything set forth in this Lease to the contrary,
Landlord and Tenant do hereby waive any and all right of recovery, claim, action
or cause of action against the other, their respective principals,
beneficiaries, partners, officers, directors, agents, and employees, and, with
respect to Landlord, its Mortgagee(s), for any loss or damage that may occur to
Landlord or Tenant or any party claiming by, through or under Landlord or
Tenant, as the case may be, with respect to their respective property, the
Building, the Property or the Premises or any addition or improvements thereto,
or any contents therein, by reason of fire, the elements or any other cause,
regardless of cause or origin, including the negligence of Landlord or Tenant,
or their respective principals, beneficiaries, partners, officers, directors,
agents and employees and, with respect to Landlord, its Mortgagee(s), which loss
or damage is (or would have been, had the insurance required by this Lease been
carried) covered by insurance. Since this mutual waiver will preclude the
assignment of any such claim by subrogation (or otherwise) to an insurance
company (or any other person), Landlord and Tenant each agree to give each
insurance company which has issued, or in the future may issue, policies of
insurance, with respect to the items covered by this waiver, written notice of
the terms of this mutual waiver, and to have such insurance policies properly
endorsed, if necessary, to prevent the invalidation of any of the coverage
provided by such insurance policies by reason of such mutual waiver. For the
purpose of the foregoing waiver, the amount of any deductible applicable to any
loss or damage shall be deemed covered by, and recoverable by the insured under
the insurance policy to which such deductible relates. In the event that Tenant
is permitted to and self-insures any risk which would have been covered by the
insurance required to be carried by Tenant pursuant to Article XVI of the Lease,
or if Tenant fails to carry any insurance required to be carried by Tenant
pursuant to Article XVI of this Lease, then all loss or damage to Tenant, its
leasehold interest, its business, its property, the Premises or any additions or
improvements thereto or contents thereof shall be deemed covered by and
recoverable by Tenant under valid and collectible policies of insurance.
XVIII. LANDLORD'S INSURANCE.
Landlord shall maintain property insurance on the Building in such
amounts as Landlord reasonably elects, provided that during the Lease Term,
Landlord shall
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maintain standard so-called "all risk" property insurance covering the Building
in an amount equal to ninety percent (90%) of the replacement cost thereof
(including Leasehold Improvements approved by Landlord) at the time in
question.. The cost of such insurance shall be included as a part of the Basic
Costs, and payments for losses and recoveries thereunder shall be made solely to
Landlord or the Mortgagees of Landlord as their interests shall appear.
XIX. CASUALTY DAMAGE.
If the Premises or any part thereof shall be damaged by fire or other
casualty, Tenant shall give prompt written notice thereof to Landlord. In case
the Building shall be so damaged that in Landlord's reasonable judgment,
substantial alteration or reconstruction of the Building shall be required
(whether or not the Premises has been damaged by such casualty) or in the event
Landlord will not be permitted by applicable law to rebuild the Building in
substantially the same form as existed prior to the fire or casualty or in the
event the Premises has been materially damaged and there is less than two (2)
years of the Lease Term remaining on the date of such casualty or in the event
any Mortgagee should require that the insurance proceeds payable as a result of
a casualty be applied to the payment of the mortgage debt or in the event of any
material uninsured loss to the Building, Landlord may, at its option, terminate
this Lease by notifying Tenant in writing of such termination within ninety (90)
days after the date of such casualty. Such termination shall be effective as of
the date of fire or casualty, with respect to any portion of the Premises that
was rendered untenantable, and the effective date of termination specified in
Landlord's notice, with respect to any portion of the Premises that remained
tenantable. If Landlord does not elect to terminate this Lease, Landlord shall
commence and proceed with reasonable diligence to restore the Building (provided
that Landlord shall not be required to restore any unleased premises in the
Building) and the Leasehold Improvements (but excluding any improvements,
alterations or additions made by Tenant in violation of this Lease) located
within the Premises, if any, which Landlord has insured to substantially the
same condition they were in immediately prior to the happening of the casualty.
Notwithstanding the foregoing, Landlord's obligation to restore the Building,
and the Leasehold Improvements, if any, shall not require Landlord to expend for
such repair and restoration work more than the insurance proceeds actually
received by the Landlord as a result of the casualty. When repairs to the
Premises have been completed by Landlord, Tenant shall complete the restoration
or replacement of all Tenant's Property necessary to permit Tenant's reoccupancy
of the Premises, and Tenant shall present Landlord with evidence satisfactory to
Landlord of Tenant's ability to pay such costs prior to Landlord's commencement
of repair and restoration of the Premises. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting in any way from such damage or the repair thereof, except that,
subject to the provisions of the next sentence, Landlord shall allow Tenant a
fair diminution of Rent on a per diem basis during the time and to the extent
any damage to the Premises causes the Premises to be rendered untenantable and
not used by Tenant. If the Premises or any other portion of the Building is
damaged by fire or other casualty resulting from the gross negligence or willful
misconduct of Tenant or any Tenant Related Parties, the Rent hereunder shall not
be diminished during any period during which the Premises, or any portion
thereof, is untenantable (except to the extent Landlord is entitled to be
reimbursed by the proceeds of any rental interruption insurance), and Tenant
shall be liable to Landlord for the cost of the repair and restoration of the
Building caused thereby to the extent such cost and expense is not covered by
insurance proceeds. Landlord and Tenant hereby waive the provisions of any law
from time to time in effect during the Lease Term relating to the effect upon
leases of partial or total destruction of leased property. Landlord and Tenant
agree that their respective rights in the event of any damage to or destruction
of the Premises shall be those specifically set forth herein. Notwithstanding
anything in this Article XIX to the contrary, if all or any portion of the
Premises shall be made untenantable by a fire or other casualty, Landlord shall,
with reasonable promptness, cause an architect or general contractor selected by
Landlord to estimate the amount of time required to substantially complete
repair and restoration of the Premises and make the Premises tenantable again,
using standard working methods (the "Completion Estimate"). If the Completion
Estimate indicates that the Premises cannot be made tenantable within eighteen
(18) months from the date the repair and restoration is started, either party
shall have the right to terminate this Lease by giving written notice to the
other of such election within ten (10) days after its receipt of the Completion
Estimate. Tenant, however, shall not have the right to terminate this Lease in
the event that the fire or casualty in question was caused by the negligence or
intentional misconduct of Tenant or any Tenant Related Parties. If the
Completion Estimate indicates that the Premises can be made tenantable within
eighteen (18)
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months from the date the repair and restoration is started and Landlord has not
otherwise exercised its right to terminate the Lease pursuant to the terms
hereof, or if the Completion Estimate indicates that the Premises cannot be
made tenantable within eighteen (18) months but neither party terminates this
Lease pursuant to this Article XIX, Landlord shall proceed with reasonable
promptness to repair and restore the Premises.
XX. DEMOLITION.
Landlord shall have the right to terminate this Lease if Landlord
proposes or is required, for any reason, to remodel, remove, or demolish the
Building or any substantial portion thereof. Such cancellation shall be
exercised by Landlord by the service of not less than one hundred eighty (180)
days' written notice of such termination. Such notice shall set forth the date
upon which the termination will be effective. No money or other consideration
shall be payable by Landlord to Tenant for Landlord's exercise of this right,
and the right is hereby reserved to Landlord and all purchasers, successors,
assigns, transferees, and ground tenants of Landlord, as the case may be, and is
in addition to all other rights of Landlord. Tenant has read the foregoing and
understands that Landlord has a right to terminate this Lease as provided above.
XXI. CONDEMNATION.
If (a) the whole or any substantial part of the Premises or (b) any
portion of the Building or Property which would leave the remainder of the
Building unsuitable for use as an office building comparable to its use on the
Commencement Date, shall be taken or condemned for any public or quasi-public
use under governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, then Landlord may, at its
option, terminate this Lease effective as of the date the physical taking of
said Premises or said portion of the Building or Property shall occur.
Notwithstanding the foregoing, if the whole or any substantial part of the
Premises shall be taken or condemned for any public or quasi-public use under
governmental law, ordinance or regulation, or by right of eminent domain, or by
private purchase in lieu thereof, Tenant shall also have the right to terminate
this Lease effective as of the date the physical taking of the Premises occurs.
Such right to terminate shall be exercised by written notice to Landlord within
thirty (30) days after the date on which Tenant is first notified of the taking.
In the event this Lease is not terminated, the Rentable Area of the Building,
the Rentable Area of the Premises and Tenant's Pro Rata Share shall be
appropriately adjusted. In addition, Rent for any portion of the Premises so
taken or condemned shall be abated during the unexpired term of this Lease
effective when the physical taking of said portion of the Premises shall occur.
All compensation awarded for any such taking or condemnation, or sale proceeds
in lieu thereof, shall be the property of Landlord, and Tenant shall have no
claim thereto, the same being hereby expressly waived by Tenant, except for any
portions of such award or proceeds which are specifically allocated by the
condemning or purchasing party for the taking of or damage to trade fixtures of
Tenant, which Tenant specifically reserves to itself.
XXII. EVENTS OF DEFAULT.
The following events shall be deemed to be events of default under this
Lease:
A. Tenant shall fail to pay when due any Base Rental, Additional
Base Rental or other Rent under this Lease and such failure
shall continue for three (3) days after written notice from
Landlord (hereinafter sometimes referred to as a "Monetary
Default").
B. Any failure by Tenant (other than a Monetary Default) to
comply with any term, provision or covenant of this Lease,
including, without limitation, the rules and regulations,
which failure is not cured within ten (10) days after delivery
to Tenant of notice of the occurrence of such failure (but if
the failure is of a nature that Tenant, in the exercise of
reasonable due diligence, cannot complete the cure, tenant
shall not be deemed in default if Tenant begins the cure
promptly within the ten (10) day period and diligently pursues
it to completion), provided that if any such failure creates a
hazardous condition, such failure must be cured immediately.
Notwithstanding the foregoing, if Tenant fails to comply with
any particular provision or covenant of this Lease, including,
without limitation, Tenant's obligation to pay Rent when due,
on three (3) occasions during any twelve (12) month period,
any subsequent violation of such provision or covenant shall
be considered to be an incurable default by Tenant.
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C. Tenant or any Guarantor shall become insolvent, or shall make
a transfer in fraud of creditors, or shall commit an act of
bankruptcy or shall make an assignment for the benefit of
creditors, or Tenant or any Guarantor shall admit in writing
its inability to pay its debts as they become due.
D. Tenant or any Guarantor shall file a petition under any
section or chapter of the United States Bankruptcy Code, as
amended, pertaining to bankruptcy, or under any similar law or
statute of the United States or any State thereof, or Tenant
or any Guarantor shall be adjudged bankrupt or insolvent in
proceedings filed against Tenant or any Guarantor thereunder;
or a petition or answer proposing the adjudication of Tenant
or any Guarantor as a debtor or its reorganization under any
present or future federal or state bankruptcy or similar law
shall be filed in any court and such petition or answer shall
not be discharged or denied within sixty (60) days after the
filing thereof.
E. A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant or any Guarantor or
of the Premises or of any of Tenant's Property located thereon
in any proceeding brought by Tenant or any Guarantor, or any
such receiver or trustee shall be appointed in any proceeding
brought against Tenant or any Guarantor and shall not be
discharged within sixty (60) days after such appointment or
Tenant or such Guarantor shall consent to or acquiesce in such
appointment.
F. The leasehold estate hereunder shall be taken on execution or
other process of law or equity in any action against Tenant.
G. Tenant shall abandon any substantial portion of the Premises
without the prior written permission of Landlord.
H. Tenant shall fail to take possession of and occupy the
Premises within thirty (30) days following the Commencement
Date
I. The liquidation, termination, dissolution, forfeiture of right
to do business, or death of Tenant or any Guarantor.
XXIII. REMEDIES.
A. Upon the occurrence of any event or events of default under
this Lease, Landlord shall have the option to pursue any one
or more of the following remedies without any notice (except
as expressly prescribed in Article XXII above) or demand
whatsoever (and without limiting the generality of the
foregoing, Tenant hereby specifically waives notice and demand
for payment of Rent or other obligations due [except as
expressly prescribed in Article XXII above]:
1. Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord. If
Tenant fails to surrender the Premises upon termination
of the Lease hereunder, Landlord may without prejudice
to any other remedy which it may have, enter upon and
take possession of the Premises and expel or remove
Tenant and any other person who may be occupying said
Premises, or any part thereof, and Tenant hereby agrees
to pay to Landlord on demand the amount of all loss and
damage, including consequential damage, which Landlord
may suffer by reason of such termination, whether
through inability to relet the Premises on satisfactory
terms or otherwise, specifically including but not
limited to all Costs of Reletting (hereinafter defined)
and any deficiency that may arise by reason of any
reletting or failure to relet. Landlord agrees to use
reasonable efforts to mitigate damages, provided that
such reasonable efforts shall not require Landlord to
relet the Premises in preference to any other space in
the Building or to relet the Premises to any party that
Landlord could reasonably reject as a transferee
pursuant to Article XIII hereof.
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2. Enter upon and take possession of the Premises and expel
or remove Tenant or any other person who may be
occupying said Premises, or any part thereof, without
having any civil or criminal liability therefor and
without terminating this Lease. Landlord may (but shall
be under no obligation to) relet the Premises or any
part thereof for the account of Tenant, in the name of
Tenant or Landlord or otherwise, without notice to
Tenant for such term or terms which may be greater or
less than the period which would otherwise have
constituted the balance of the Lease Term and on such
conditions (which may include concessions, free rent and
alterations of the Premises) and for such uses as
Landlord in its absolute discretion may determine, and
Landlord may collect and receive any rents payable by
reason of such reletting. Tenant agrees to pay Landlord
on demand all Costs of Reletting and any deficiency that
may arise by reason of such reletting or failure to
relet. Landlord shall not be responsible or liable for
any failure to relet the Premises or any part thereof or
for any failure to collect any Rent due upon any such
reletting. No such re-entry or taking of possession of
the Premises by Landlord shall be construed as an
election on Landlord's part to terminate this Lease
unless a written notice of such termination is given to
Tenant.
3. Enter upon the Premises without having any civil or
criminal liability therefor, and do whatever Tenant is
obligated to do under the terms of this Lease, and
Tenant agrees to reimburse Landlord on demand for any
expense which Landlord may incur in thus affecting
compliance with Tenant's obligations under this Lease
together with interest at the lesser of a per annum rate
equal to: (a) the Maximum Rate, or (b) the Prime Rate
plus five percent (5%).
4. In order to regain possession of the Premises and to
deny Tenant access thereto in any instance in which
Landlord has terminated this Lease or Tenant's right to
possession, or to limit access to the Premises in
accordance with local law in the event of a default by
Tenant, Landlord or its agent may, at the expense and
liability of the Tenant, alter or change any or all
locks or other security devices controlling access to
the Premises without posting or giving notice of any
kind to Tenant. Landlord shall have no obligation to
provide Tenant a key or grant Tenant access to the
Premises so long as Tenant is in default under this
Lease. Tenant shall not be entitled to recover
possession of the Premises, terminate this Lease, or
recover any actual, incidental, consequential, punitive,
statutory or other damages or award of attorneys' fees,
by reason of Landlord's alteration or change of any lock
or other security device. Landlord may, without notice,
remove and either dispose of or store, at Tenant's
expense, any property belonging to Tenant that remains
in the Premises after Landlord has regained possession
thereof. Notwithstanding anything herein to the
contrary, if Landlord has not previously obtained a
court order terminating this Lease or Tenant's right to
possession, Landlord's right to limit or deny Tenant's
access to the Premises shall be exercised only during
the continuance of an uncured event of default and only
for the limited purpose of prohibiting Tenant from
removing any furniture, equipment, trade fixtures or
other property with respect to which Landlord could
reasonably be expected to have a statutory lien
interest. In addition, in the event that any of the
rights and remedies granted to Landlord under this
Section XXIII.A.4. are specifically prohibited by
applicable law, the limitations and prohibitions imposed
upon Landlord under such law shall prevail for the
purpose of determining Landlord's rights and remedies
under this Lease.
5. Terminate this Lease, in which event, Tenant shall
immediately surrender the Premises to Landlord and pay
to Landlord the sum of: (a) all Rent accrued hereunder
through the date of termination, and, upon Landlord's
determination thereof, (b) an amount equal to: the total
Rent that Tenant would have been required to pay for
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the remainder of the Lease Term discounted to present
value at the Prime Rate then in effect, minus the then
present fair rental value of the Premises for the
remainder of the Lease Term, similarly discounted, after
deducting all anticipated Costs of Reletting (as defined
below).
B. For purposes of this Lease, the term "Costs of Reletting"
shall mean all costs and expenses incurred by Landlord in
connection with the reletting of the Premises, including
without limitation, the cost of cleaning, renovation, repairs,
decoration and alteration of the Premises for a new tenant or
tenants, advertisement, marketing, brokerage and legal fees
(if and to the extent permitted by law), the cost of
protecting or caring for the Premises while vacant, the cost
of removing and storing any property located on the Premises,
any increase in insurance premiums caused by the vacancy of
the Premises and any other out-of-pocket expenses incurred by
Landlord including tenant incentives, allowances and
inducements.
C. Except as otherwise herein provided, no repossession or
re-entering of the Premises or any part thereof pursuant to
Article XXIII hereof or otherwise shall relieve Tenant or any
Guarantor of its liabilities and obligations hereunder, all of
which shall survive such repossession or re-entering.
Notwithstanding any such repossession or re-entering by reason
of the occurrence of an event of default, Tenant will pay to
Landlord the Rent required to be paid by Tenant pursuant to
this Lease.
D. No right or remedy herein conferred upon or reserved to
Landlord is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be
cumulative and in addition to any other right or remedy given
hereunder or now or hereafter existing by agreement,
applicable law or in equity. In addition to other remedies
provided in this Lease, Landlord shall be entitled, to the
extent permitted by applicable law, to injunctive relief, or
to a decree compelling performance of any of the covenants,
agreements, conditions or provisions of this Lease, or to any
other remedy allowed to Landlord at law or in equity.
Forbearance by Landlord to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed
or construed to constitute a waiver of such default.
E. This Article XXIII shall be enforceable to the maximum extent
such enforcement is not prohibited by applicable law, and the
unenforceability of any portion thereof shall not thereby
render unenforceable any other portion.
XXIV. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE
LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER) TO TENANT SHALL
BE LIMITED TO THE INTEREST OF LANDLORD IN THE BUILDING, AND TENANT AGREES TO
LOOK SOLELY TO LANDLORD'S INTEREST IN THE BUILDING FOR THE RECOVERY OF ANY
JUDGMENT OR AWARD AGAINST THE LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD
NOR ANY MEMBER, PRINCIPAL, PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR
BENEFICIARY OF LANDLORD SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR
DEFICIENCY. TENANT HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT FOR AN
ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL MORTGAGEES
WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST LIENS ON THE
PROPERTY, BUILDING OR PREMISES NOTICE AND REASONABLE TIME TO CURE SUCH ALLEGED
DEFAULT BY LANDLORD.
XXV. NO WAIVER.
Failure of Landlord to declare any default immediately upon its
occurrence, or delay in taking any action in connection with an event of default
shall not constitute a waiver of such default, nor shall it constitute an
estoppel against Landlord, but Landlord shall have the right to declare the
default at any time and take such action as is lawful or authorized under this
Lease. Failure by Landlord to enforce its rights with respect to any
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one default shall not constitute a waiver of its rights with respect to any
subsequent default. Receipt by Landlord of Tenant's keys to the Premises shall
not constitute an acceptance or surrender of the Premises.
XXVI. EVENT OF BANKRUPTCY.
In addition to, and in no way limiting the other remedies set forth
herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a
voluntary or involuntary bankruptcy, reorganization, composition, or other
similar type proceeding under the federal bankruptcy laws, as now enacted or
hereinafter amended, then:
A. "Adequate protection" of Landlord's interest in the Premises
pursuant to the provisions of Section 361 and 363 (or their
successor sections) of the Bankruptcy Code, 11 U.S.C. Section
101 et seq., (such Bankruptcy Code as amended from time to
time being herein referred to as the "Bankruptcy Code"), prior
to assumption and/or assignment of the Lease by Tenant shall
include, but not be limited to all (or any part) of the
following:
1. the continued payment by Tenant of the Base Rental and
all other Rent due and owing hereunder and the
performance of all other covenants and obligations
hereunder by Tenant;
2. the furnishing of an additional/new security deposit by
Tenant in the amount of three (3) times the then current
monthly Base Rental.
B. "Adequate assurance of future performance" by Tenant and/or
any assignee of Tenant pursuant to Bankruptcy Code Section 365
will include (but not be limited to) payment of an
additional/new Security Deposit in the amount of three (3)
times the then current monthly Base Rental payable hereunder.
C. Any person or entity to which this Lease is assigned pursuant
to the provisions of the Bankruptcy Code, shall be deemed
without further act or deed to have assumed all of the
obligations of Tenant arising under this Lease on and after
the effective date of such assignment. Any such assignee
shall, upon demand by Landlord, execute and deliver to
Landlord an instrument confirming such assumption of
liability.
D. Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of the Landlord
under this Lease, whether or not expressly denominated as
"Rent," shall constitute "rent" for the purposes of Section
502(b) (6) of the Bankruptcy Code.
E. If this Lease is assigned to any person or entity pursuant to
the provisions of the Bankruptcy Code, any and all monies or
other considerations payable or otherwise to be delivered to
Landlord (including Base Rentals and other Rent hereunder),
shall be and remain the exclusive property of Landlord and
shall not constitute property of Tenant or of the bankruptcy
estate of Tenant. Any and all monies or other considerations
constituting Landlord's property under the preceding sentence
not paid or delivered to Landlord shall be held in trust by
Tenant or Tenant's bankruptcy estate for the benefit of
Landlord and shall be promptly paid to or turned over to
Landlord.
F. If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any
person or entity who shall have made a bona fide offer to
accept an assignment of this Lease on terms acceptable to the
Tenant, then notice of such proposed offer/assignment, setting
forth: (1) the name and address of such person or entity, (2)
all of the terms and conditions of such offer, and (3) the
adequate assurance to be provided Landlord to assure such
person's or entity's future performance under the Lease, shall
be given to Landlord by Tenant no later than twenty (20) days
after receipt by Tenant, but in any event no later than ten
(10) days prior to the date that Tenant shall make application
to a court of competent jurisdiction for authority and
approval to enter into such assumption and assignment, and
Landlord shall thereupon have the prior right and option, to
be exercised by notice to
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Tenant given at any time prior to the effective date of such
proposed assignment, to accept an assignment of this Lease
upon the same terms and conditions and for the same
consideration, if any, as the bona fide offer made by such
persons or entity, less any brokerage commission which may be
payable out of the consideration to be paid by such person for
the assignment of this Lease.
G. To the extent permitted by law, Landlord and Tenant agree that
this Lease is a contract under which applicable law excuses
Landlord from accepting performance from (or rendering
performance to) any person or entity other than Tenant within
the meaning of Sections 365(c) and 365(e) (2) of the
Bankruptcy Code.
XXVII. WAIVER OF JURY TRIAL.
Landlord and Tenant hereby waive any right to a trial by jury in any
action or proceeding based upon, or related to, the subject matter of this
Lease. This waiver is knowingly, intentionally, and voluntarily made by Tenant,
and Tenant acknowledges that neither Landlord nor any person acting on behalf of
Landlord has made any representations of fact to induce this waiver of trial by
jury or in any way to modify or nullify its effect. Tenant further acknowledges
that it has been represented (or has had the opportunity to be represented) in
the signing of this Lease and in the making of this waiver by independent legal
counsel, selected of its own free will, and that it has had the opportunity to
discuss this waiver with counsel.
XXVIII. RELOCATION.
Intentionally omitted.
XXIX. HOLDING OVER.
In the event of holding over by Tenant after expiration or other
termination of this Lease or in the event Tenant continues to occupy the
Premises after the termination of Tenant's right of possession pursuant to
Articles XXII and XXIII hereof, occupancy of the Premises subsequent to such
termination or expiration shall be that of a tenancy at sufferance and in no
event for month-to-month or year-to-year. Tenant shall, throughout the entire
holdover period, be subject to all the terms and provisions of this Lease and
shall pay for its use and occupancy an amount (on a per month basis without
reduction for any partial months during any such holdover) equal to twice the
sum of the Base Rental and Additional Base Rental due for the period immediately
preceding such holding over, provided that in no event shall Base Rental and
Additional Base Rental during the holdover period be less than the fair market
rental for the Premises. No holding over by Tenant or payments of money by
Tenant to Landlord after the expiration of the term of this Lease shall be
construed to extend the Lease Term or prevent Landlord from recovery of
immediate possession of the Premises by summary proceedings or otherwise. In
addition to the obligation to pay the amounts set forth above during any such
holdover period, Tenant also shall be liable to Landlord for all damage,
including any consequential damage, which Landlord may suffer by reason of any
holding over by Tenant, and Tenant shall indemnify Landlord against any and all
claims made by any other tenant or prospective tenant against Landlord for delay
by Landlord in delivering possession of the Premises to such other tenant or
prospective tenant. Notwithstanding the foregoing, Tenant shall not be liable
for consequential damages unless: (1) Landlord notifies Tenant that it has
entered into a lease for the Premises or has received a bona fide offer to lease
the Premises; and (2) Tenant fails to vacate the Premises within ten (10) days
after the date of Landlord's notice.
XXX. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE.
Tenant accepts this Lease subject and subordinate to any mortgage, deed
of trust, ground lease or other lien presently existing or hereafter arising
upon the Premises, or upon the Building and/or the Property and to any renewals,
modifications, refinancings and extensions thereof (any such mortgage, deed of
trust, lease or other lien being hereinafter referred to as a "Mortgage", and
the person or entity having the benefit of same being referred to hereinafter as
a "Mortgagee"), but Tenant agrees that any such Mortgagee shall have the right
at any time to subordinate such Mortgage to this Lease on such terms and subject
to such conditions as such Mortgagee may deem appropriate in its discretion.
This clause shall be self-operative and no further instrument of subordination
shall be required. However, Landlord is hereby irrevocably vested with
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full power and authority to subordinate this Lease to any Mortgage, and Tenant
agrees upon demand to execute such further instruments subordinating this Lease,
acknowledging the subordination of this Lease or attorning to the holder of any
such Mortgage as Landlord may request. The terms of this Lease are subject to
approval by the Landlord's existing lender(s) and any lender(s) who, at the time
of the execution of this Lease, have committed or are considering committing to
Landlord to make a loan secured by all or any portion of the Property, and such
approval is a condition precedent to Landlord's obligations hereunder. In the
event that Tenant should fail to execute a standard, commercially reasonable
subordinate or other agreement required by this Article within twenty one (21)
days of request, Landlord shall be entitled to collect from Tenant upon demand,
as liquidated damages occasioned by such delay and not as a penalty (the actual
damages resulting form such delay being impossible to ascertain), a sum equal to
one-fifteenth of the monthly base rental for each day, up to fifteen (15) days,
after the expiration of said twenty one (21) day period that Tenant fails to
deliver such subordinate or other agreement. If such failure persists after such
fifteen (15) day period, Landlord shall be entitled to pursue any and all
remedies it may have with respect to such default, including, consequential
damages arising by reason of such delay. If any person shall succeed to all or
part of Landlord's interests in the Premises whether by purchase, foreclosure,
deed in lieu of foreclosure, power of sale, termination of lease or otherwise,
and if and as so requested or required by such successor-in-interest, Tenant
shall, without charge, attorn to such successor-in-interest. Tenant agrees that
it will from time to time upon request by Landlord and, within five (5) days of
the date of such request, execute and deliver to such persons as Landlord shall
request an estoppel certificate or other similar statement in recordable form
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as so
modified), stating the dates to which Rent and other charges payable under this
Lease have been paid, stating that Landlord is not in default hereunder (or if
Tenant alleges a default stating the nature of such alleged default) and further
stating such other matters as Landlord shall reasonably require.
XXXI. ATTORNEYS' FEES.
In the event that Landlord should retain counsel and/or institute any
suit against Tenant for violation of or to enforce any of the covenants or
conditions of this Lease, or should Tenant institute any suit against Landlord
for violation of any of the covenants or conditions of this Lease, or should
either party intervene in any suit in which the other is a party to enforce or
protect its interest or rights hereunder, the prevailing party in any such suit
shall be entitled to all of its costs, expenses and reasonable fees of its
attorney(s) (if and to the extent permitted by law) in connection therewith.
XXXII. NOTICE.
Whenever any demand, request, approval, consent or notice ("Notice")
shall or may be given to either of the parties by the other, each such Notice
shall be in writing and shall be sent by registered or certified mail with
return receipt requested, or sent by overnight courier service (such as Federal
Express) at the respective addresses of the parties for notices as set forth in
Section I.A.10. of this Lease, provided that if Tenant has vacated the Premises
or is in default of this Lease Landlord may serve Notice by any manner permitted
by law. Any Notice under this Lease delivered by registered or certified mail
shall be deemed to have been given, delivered, received and effective on the
earlier of (a) the third day following the day on which the same shall have been
mailed with sufficient postage prepaid or (b) the delivery date indicated on the
return receipt. Notice sent by overnight courier service shall be deemed given,
delivered, received and effective upon the day after such notice is delivered to
or picked up by the overnight courier service. Either party may, at any time,
change its Notice Address by giving the other party Notice stating the change
and setting forth the new address.
XXXIII. LANDLORD'S LIEN.
Intentionally Omitted, provided that the deletion of this Article shall not be
construed to be a waiver of Landlord's lien rights as provided by law.
XXXIV. EXCEPTED RIGHTS.
This Lease does not grant any rights to light or air over or about the
Building. Landlord specifically excepts and reserves to itself the use of any
roofs, the exterior portions of the Premises, all rights to the land and
improvements below the improved floor level of the Premises, the improvements
and air rights above the Premises and the
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improvements and air rights located outside the demising walls of the Premises,
and such areas within the Premises as are required for installation of utility
lines and other installations required to serve any occupants of the Building
and the right to maintain and repair the same, and no rights with respect
thereto are conferred upon Tenant unless otherwise specifically provided herein.
Landlord further reserves to itself the right from time to time: (a) to change
the Building's name or street address; (b) to install, fix and maintain signs on
the exterior and interior of the Building; (c) to designate and approve window
coverings; (d) to make any decorations, alterations, additions, improvements to
the Building, or any part thereof (including the Premises) which Landlord shall
desire, or deem necessary for the safety, protection, preservation or
improvement of the Building, or as Landlord may be required to do by law,
subject to the terms of Article XII hereof; (e) to have access to the Premises
to perform its duties and obligations and to exercise its rights under this
Lease; (f) to retain at all times and to use pass-keys to all locks within and
into the Premises; (g) to approve the weight, size, or location of heavy
equipment, or articles in and about the Premises; (h) to close or restrict
access to the Building at all times other than Normal Business Hours subject to
Tenant's right to admittance at all times under such regulations as Landlord may
prescribe from time to time, or to close (temporarily or permanently) any of the
entrances to the Building; (i) to change the arrangement and/or location of
entrances of passageways, doors and doorways, corridors, elevators, stairs,
toilets and public parts of the Building; (j) if Tenant has vacated the Premises
during the last six (6) months of the Lease Term, to perform additions,
alterations and improvements to the Premises in connection with a reletting or
anticipated reletting thereof without being responsible or liable for the value
or preservation of any then existing improvements to the Premises; and (k) to
grant to anyone the exclusive right to conduct any business or undertaking in
the Building. Landlord, in accordance with Article XII hereof, shall have the
right to enter the Premises in connection with the exercise of any of the rights
set forth herein and such entry into the Premises and the performance of any
work therein shall not constitute a constructive eviction or entitle Tenant to
any abatement or reduction of Rent by reason thereof.
XXXV. SURRENDER OF PREMISES.
At the expiration or earlier termination of this Lease or Tenant's
right of possession hereunder, Tenant shall remove all Tenant's Property from
the Premises, remove all Required Removables designated by Landlord and quit and
surrender the Premises to Landlord, broom clean, and in good order, condition
and repair, ordinary wear and tear excepted. If Tenant fails to remove any of
Tenant's Property within one (1) day after the termination of this Lease or
Tenant's right to possession hereunder, Landlord, at Tenant's sole cost and
expense, shall be entitled to remove and/or store such Tenant's Property and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay Landlord, upon demand, any and all
expenses caused by such removal and all storage charges against such property so
long as the same shall be in the possession of Landlord or under the control of
Landlord. In addition, if Tenant fails to remove any Tenant's Property from the
Premises or storage, as the case may be, within ten (10) days after written
notice from Landlord, Landlord, at its option, may deem all or any part of such
Tenant's Property to have been abandoned by Tenant and title thereof shall
immediately pass to Landlord.
XXXVI. MISCELLANEOUS.
A. If any term or provision of this Lease, or the application
thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or
circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby, and each term
and provision of this Lease shall be valid and enforced to the
fullest extent permitted by law. This Lease represents the
result of negotiations between Landlord and Tenant, each of
which has been (or has had opportunity to be) represented by
counsel of its own selection, and neither of which has acted
under duress or compulsion, whether legal, economic or
otherwise. Consequently, Landlord and Tenant agree that the
language in all parts of the Lease shall in all cases be
construed as a whole according to its fair meaning and neither
strictly for nor against Landlord or Tenant.
B. Tenant agrees not to record this Lease or any memorandum
hereof without Landlord's prior written consent.
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C. This Lease and the rights and obligations of the parties
hereto shall be interpreted, construed, and enforced in
accordance with the laws of the state in which the Building is
located.
D. Events of "Force Majeure" shall include strikes, riots, war,
acts of God, and shortages of labor or materials. Whenever a
period of time is herein prescribed for the taking of any
action by Landlord or Tenant, as the case may be, other than
the payment of Rent or any other sums due hereunder, such
party shall not be liable or responsible for, and there shall
be excluded from the computation of such period of time, any
delays due to events of Force Majeure.
E. Landlord shall have the right to transfer and assign, in whole
or in part, all of its rights and obligations hereunder and in
the Building and Property referred to herein, and in such
event and upon such transfer Landlord shall be released from
any further obligations hereunder, and Tenant agrees to look
solely to such successor in interest of Landlord for the
performance of such obligations. Notwithstanding the
foregoing, unless such liability is assumed in writing by its
successor in interest hereunder, Landlord shall remain liable
after its period of ownership with respect to any sums due in
connection with a breach or default that arose during such
period of ownership.
F. Tenant hereby represents to Landlord that it has dealt
directly with and only with the Broker as a broker in
connection with this Lease. Tenant agrees to indemnify and
hold Landlord and the Landlord Related Parties harmless from
all claims of any brokers claiming to have represented Tenant
in connection with this Lease. Landlord agrees to indemnify
and hold Tenant and the Tenant Related Parties harmless from
all claims of any brokers claiming to have represented
Landlord in connection with this Lease.
G. If there is more than one Tenant, or if the Tenant is
comprised of more than one person or entity, the obligations
hereunder imposed upon Tenant shall be joint and several
obligations of all such parties. All notices, payments, and
agreements given or made by, with or to any one of such
persons or entities shall be deemed to have been given or made
by, with or to all of them.
H. In the event Tenant is a corporation (including any form of
professional association), partnership (general or limited),
or other form of organization other than an individual (each
such entity is individually referred to herein as an
"Organizational Entity"), then Tenant hereby covenants,
warrants and represents: (1) that such individual is duly
authorized to execute or attest and deliver this Lease on
behalf of Tenant in accordance with the organizational
documents of Tenant; (2) that this Lease is binding upon
Tenant; (3) that Tenant is duly organized and legally existing
in the state of its organization, and is qualified to do
business in the state in which the Premises is located; and
(4) that the execution and delivery of this Lease by Tenant
will not result in any breach of, or constitute a default
under any mortgage, deed of trust, lease, loan, credit
agreement, partnership agreement or other contract or
instrument to which Tenant is a party or by which Tenant may
be bound. If Tenant is an Organizational Entity, upon request,
Tenant will, prior to the Commencement Date, deliver to
Landlord true and correct copies of all organizational
documents of Tenant, including, without limitation, copies of
an appropriate resolution or consent of Tenant's board of
directors or other appropriate governing body of Tenant
authorizing or ratifying the execution and delivery of this
Lease, which resolution or consent will be duly certified to
Landlord's satisfaction by an appropriate individual with
authority to certify such documents, such as the secretary or
assistant secretary or the managing general partner of Tenant.
I. Tenant acknowledges that the financial capability of Tenant to
perform its obligations hereunder is material to Landlord and
that Landlord would not enter into this Lease but for its
belief, based on its review of Tenant's financial statements,
that Tenant is capable of performing such financial
obligations. Tenant hereby represents, warrants and certifies
to Landlord
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that its financial statements previously furnished to Landlord
were at the time given true and correct in all material
respects and that there have been no material subsequent
changes thereto as of the date of this Lease. At any time
during the Lease Term, Tenant shall provide Landlord, upon ten
(10) days' prior written notice from Landlord, with a current
financial statement and financial statements of the two (2)
years prior to the current financial statement year and such
other information as Landlord or its Mortgagee may reasonably
request in order to create a "business profile" of Tenant and
determine Tenant's ability to fulfill its obligations under
this Lease. Such statement shall be prepared in accordance
with generally accepted accounting principles and, if such is
the normal practice of Tenant, shall be audited by an
independent certified public accountant.
J. Except as expressly otherwise herein provided, with respect to
all required acts of Tenant, time is of the essence of this
Lease. This Lease shall create the relationship of Landlord
and Tenant between the parties hereto.
K. This Lease and the covenants and conditions herein contained
shall inure to the benefit of and be binding upon Landlord and
Tenant and their respective permitted successors and assigns.
L. Notwithstanding anything to the contrary contained in this
Lease, the expiration of the Lease Term, whether by lapse of
time or otherwise, shall not relieve Tenant from Tenant's
obligations accruing prior to the expiration of the Lease
Term, and such obligations shall survive any such expiration
or other termination of the Lease Term.
M. The headings and titles to the paragraphs of this Lease are
for convenience only and shall have no affect upon the
construction or interpretation of any part hereof.
N. LANDLORD HAS DELIVERED A COPY OF THIS LEASE TO TENANT FOR
TENANT'S REVIEW ONLY, AND THE DELIVERY HEREOF DOES NOT
CONSTITUTE AN OFFER TO TENANT OR OPTION. THIS LEASE SHALL NOT
BE EFFECTIVE UNTIL AN ORIGINAL OF THIS LEASE EXECUTED BY BOTH
LANDLORD AND TENANT AND AN ORIGINAL GUARANTY, IF ANY, EXECUTED
BY EACH GUARANTOR IS DELIVERED TO AND ACCEPTED BY LANDLORD,
AND THIS LEASE HAS BEEN APPROVED BY LANDLORD'S MORTGAGEES, IF
REQUIRED.
O. Tenant shall, and may peacefully have, hold, and enjoy the
Premises, subject to the other terms of this Lease (including,
without limitation, Article XXX hereof), provided that Tenant
pays the Rent herein recited to be paid by Tenant and performs
all of Tenant's covenants and agreements herein contained.
This covenant and any and all other covenants of Landlord
shall be binding upon Landlord and its successors only during
its or their respective periods of ownership of the Landlord's
interest hereunder.
XXXVII. ENTIRE AGREEMENT.
This Lease Agreement, including the following Exhibits:
Exhibit A - Outline and Location of Premises
Exhibit B - Rules and Regulations
Exhibit C - Commencement Letter (if required)
Exhibit D - Work Letter Agreement (if required)
Exhibit E - Parking Agreement
constitutes the entire agreement between the parties hereto with
respect to the subject matter of this Lease and supersedes all prior
agreements and understandings between the parties related to the
Premises, including all lease proposals, letters of intent and similar
documents. TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT LANDLORD HAS
NOT MADE AND IS NOT MAKING, AND TENANT, IN EXECUTING AND DELIVERING
THIS LEASE, IS NOT RELYING UPON, ANY WARRANTIES, REPRESENTATIONS,
PROMISES OR STATEMENTS, EXCEPT TO THE EXTENT THAT THE SAME ARE
EXPRESSLY SET FORTH IN THIS LEASE. ALL UNDERSTANDINGS
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<PAGE> 36
AND AGREEMENTS HERETOFORE MADE BETWEEN THE PARTIES ARE MERGED IN
THIS LEASE WHICH ALONE FULLY AND COMPLETELY EXPRESSES THE AGREEMENT
OF THE PARTIES, NEITHER PARTY RELYING UPON ANY STATEMENT OR
REPRESENTATION NOT EMBODIED IN THIS LEASE. THIS LEASE MAY BE
MODIFIED ONLY BY A WRITTEN AGREEMENT SIGNED BY LANDLORD AND TENANT.
LANDLORD AND TENANT EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO
IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, SUITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF
THIS LEASE, ALL OF WHICH ARE HEREBY WAIVED BY TENANT, AND THAT THERE
ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN
THIS LEASE.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
LANDLORD: EOP-One Civic Center Plaza, L.L.C.,
a Delaware limited liability
company
By: EOP Operating Limited Partnership, a
Delaware limited partnership, its sole
member
By: Equity Office Properties Trust,
a Maryland real estate investment
trust, its managing general
partner
ATTEST:
- --------------------------------------- BY: /s/ KIM KOEHN
-------------------------
NAME (print): NAME: Kim Koehn
--------------------------
TITLE: Sr. Vice President -
West Region
TENANT: United States
Exploration, Inc., a
Colorado corporation
ATTEST:
/s/ BARBARA BUXTON
- ---------------------------------------- BY: /s/ F. MICHAEL MURPHY
NAME (print): /s/ Barbara Buxton NAME: F. Michael Murphy
-------------------------- ----------------------
TITLE: VP
NAME (print): ---------------------
---------------------------
36
<PAGE> 37
EXHIBIT A
PREMISES
This Exhibit by and between EOP-One Civic Center Plaza, L.L.C., a
Delaware limited liability company ("Landlord"), and United States Exploration,
Inc., a Colorado corporation ("Tenant") is attached to and made a part of the
Lease dated October 15th, 1998 for space in the Building located at 1560
Broadway, Denver, Colorado 80202.
Suite: #1950
Square Footage: 11,854 rentable square feet
Commencement Date: July 1, 1998
Expiration Date: March 31, 2008
[DENVER POST TOWER FLOOR PLAN]
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EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to
the Premises, the Building, the parking garage associated therewith (if any),
the Property and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas
shall not be obstructed by Tenant or used by Tenant for any purpose other
than ingress and egress to and from the Premises. No rubbish, litter,
trash, or material of any nature shall be placed, emptied, or thrown in
those areas. At no time shall Tenant permit Tenant's employees to loiter
in common areas or elsewhere in or about the Building or Property.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by Tenant or its agents, employees or
invitees, shall be paid for by Tenant, and Landlord shall not in any case
be responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows, doors or other parts of the Building, except those of such
color, size, style and in such places as shall be first approved in
writing by Landlord. No nails, hooks or screws shall be driven or inserted
into any part of the Premises or Building except by the Building
maintenance personnel, nor shall any part of the Building be defaced by
Tenant.
4. Landlord may provide and maintain in the first floor (main lobby) of the
Building an alphabetical directory board listing all Tenants, and no other
directory shall be permitted unless previously consented to by Landlord in
writing.
5. Tenant shall not place any additional lock or locks on any door in the
Premises or Building without Landlord's prior written consent. A
reasonable number of keys to the locks on the doors in the Premises shall
be furnished by Landlord to Tenant at the cost of Tenant, and Tenant shall
not have any duplicate keys made. All keys shall be returned to Landlord
at the expiration or earlier termination of this Lease.
6. All contractors, contractor's representatives, and installation
technicians performing work in the Building shall be subject to Landlord's
prior approval and shall be required to comply with Landlord's standard
rules, regulations, policies and procedures, as the same may be revised
from time to time. Tenant shall be solely responsible for complying with
all applicable laws, codes and ordinances pursuant to which said work
shall be performed.
7. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which
require the use of elevators, stairways, lobby areas, or loading dock
areas, shall be restricted to hours designated by Landlord. Tenant must
seek Landlord's prior approval by providing in writing a detailed listing
of any such activity. If approved by Landlord, such activity shall be
under the supervision of Landlord and performed in the manner stated by
Landlord. Landlord may prohibit any article, equipment or any other item
from being brought into the Building. Tenant is to assume all risk for
damage to articles moved and injury to any persons resulting from such
activity. If any equipment, property, and/or personnel of Landlord or of
any other tenant is damaged or injured as a result of or in connection
with such activity, Tenant shall be solely liable for any and all damage
or loss resulting therefrom.
8. Landlord shall have the power to prescribe the weight and position of
safes and other heavy equipment or items, which in all cases shall not in
the opinion of Landlord exceed acceptable floor loading and weight
distribution requirements. All damage done to the Building by the
installation, maintenance, operation, existence or removal of any property
of Tenant shall be repaired at the expense of Tenant.
9. Corridor doors, when not in use, shall be kept closed.
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<PAGE> 39
10. Tenant shall not: (1) make or permit any improper, objectionable or
unpleasant noises or odors in the Building, or otherwise interfere in any
way with other tenants or persons having business with them; (2) solicit
business or distribute, or cause to be distributed, in any portion of the
Building any handbills, promotional materials or other advertising; or (3)
conduct or permit any other activities in the Building that might
constitute a nuisance.
11. No animals, except seeing eye dogs, shall be brought into or kept in, on
or about the Premises.
12. No inflammable, explosive or dangerous fluid or substance shall be used or
kept by Tenant in the Premises or Building. Tenant shall not, without
Landlord's prior written consent, use, store, install, spill, remove,
release or dispose of within or about the Premises or any other portion of
the Property, any asbestos-containing materials or any solid, liquid or
gaseous material now or hereafter considered toxic or hazardous under the
provisions of 42 U.S.C. Section 9601 et seq. or any other applicable
environmental law which may now or hereafter be in effect. If Landlord
does give written consent to Tenant pursuant to the foregoing sentence,
Tenant shall comply with all applicable laws, rules and regulations
pertaining to and governing such use by Tenant, and shall remain liable
for all costs of cleanup or removal in connection therewith.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which would injure the reputation or impair the present or future
value of the Premises or the Building; without limiting the foregoing,
Tenant shall not use or permit the Premises or any portion thereof to be
used for lodging, sleeping or for any illegal purpose.
14. Tenant shall not take any action which would violate Landlord's labor
contracts affecting the Building or which would cause any work stoppage,
picketing, labor disruption or dispute, or any interference with the
business of Landlord or any other tenant or occupant of the Building or
with the rights and privileges of any person lawfully in the Building.
Tenant shall take any actions necessary to resolve any such work stoppage,
picketing, labor disruption, dispute or interference and shall have
pickets removed and, at the request of Landlord, immediately terminate at
any time any construction work being performed in the Premises giving rise
to such labor problems, until such time as Landlord shall have given its
written consent for such work to resume. Tenant shall have no claim for
damages of any nature against Landlord or any of the Landlord Related
Parties in connection therewith, nor shall the date of the commencement of
the Term be extended as a result thereof.
15. Tenant shall utilize the termite and pest extermination service designated
by Landlord to control termites and pests in the Premises. Except as
included in Basic Costs, Tenant shall bear the cost and expense of such
extermination services.
16. Tenant shall not install, operate or maintain in the Premises or in any
other area of the Building, any electrical equipment which does not bear
the U/L (Underwriters Laboratories) seal of approval, or which would
overload the electrical system or any part thereof beyond its capacity for
proper, efficient and safe operation as determined by Landlord, taking
into consideration the overall electrical system and the present and
future requirements therefor in the Building. Tenant shall not furnish any
cooling or heating to the Premises, including, without limitation, the use
of any electronic or gas heating devices, without Landlord's prior written
consent. Tenant shall not use more than its proportionate share of
telephone lines available to service the Building.
17. Tenant shall not operate or permit to be operated on the Premises any coin
or token operated vending machine or similar device (including, without
limitation, telephones, lockers, toilets, scales, amusement devices and
machines for sale of beverages, foods, candy, cigarettes or other goods),
except for those vending machines or similar devices which are for the
sole and exclusive use of Tenant's employees, and then only if such
operation does not violate the lease of any other tenant of the Building.
39
<PAGE> 40
18. Bicycles and other vehicles are not permitted inside or on the walkways
outside the Building, except in those areas specifically designated by
Landlord for such purposes.
19. Landlord may from time to time adopt appropriate systems and procedures
for the security or safety of the Building, its occupants, entry and use,
or its contents. Tenant, Tenant's agents, employees, contractors, guests
and invitees shall comply with Landlord's reasonable requirements relative
thereto.
20. Landlord shall have the right to prohibit the use of the name of the
Building or any other publicity by Tenant that in Landlord's opinion may
tend to impair the reputation of the Building or its desirability for
Landlord or other tenants. Upon written notice from Landlord, Tenant will
refrain from and/or discontinue such publicity immediately.
21. Tenant shall carry out Tenant's permitted repair, maintenance,
alterations, and improvements in the Premises only during times agreed to
in advance by Landlord and in a manner which will not interfere with the
rights of other tenants in the Building.
22. Canvassing, soliciting, and peddling in or about the Building is
prohibited. Tenant shall cooperate and use its best efforts to prevent the
same.
23. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any common area of the Building,
unless such common area has been declared a designated smoking area by
Landlord, or to allow any smoke from the Premises to emanate into the
common areas or any other tenant's premises. Landlord shall have the right
at any time to designate the Building as a non-smoking building.
24. Tenant shall observe Landlord's rules with respect to maintaining standard
window coverings at all windows in the Premises so that the Building
presents a uniform exterior appearance. Tenant shall ensure that to the
extent reasonably practicable, window coverings are closed on all windows
in the Premises while they are exposed to the direct rays of the sun.
25. All deliveries to or from the Premises shall be made only at such times,
in the areas and through the entrances and exits designated for such
purposes by Landlord. Tenant shall not permit the process of receiving
deliveries to or from the Premises outside of said areas or in a manner
which may interfere with the use by any other tenant of its premises or of
any common areas, any pedestrian use of such area, or any use which is
inconsistent with good business practice.
26. The work of cleaning personnel shall not be hindered by Tenant after 5:30
P.M., and such cleaning work may be done at any time when the offices are
vacant. Windows, doors and fixtures may be cleaned at any time. Tenant
shall provide adequate waste and rubbish receptacles necessary to prevent
unreasonable hardship to Landlord regarding cleaning service.
40
<PAGE> 41
EXHIBIT C
COMMENCEMENT LETTER
INTENTIONALLY OMITTED
41
<PAGE> 42
EXHIBIT D
WORK LETTER
INTENTIONALLY OMITTED
42
<PAGE> 43
EXHIBIT E
PARKING AGREEMENT
This Exhibit E ("Exhibit E") by and between EOP-One Civic Center Plaza,
L.L.C., a Delaware limited liability company ("Landlord"), and United States
Exploration, Inc., a Colorado corporation ("Tenant") is attached to and made a
part of the Lease dated October 15, 1998 for space in the Building located at
1560 Broadway, Denver, Colorado 80202.
1. The parties acknowledge that they have heretofore entered, or are
contemporaneously herewith entering into a certain lease dated October 15, 1998
(the "Lease") for the premises knows as Suite #1950 (the "Premises") located in
the building known as Denver Post Tower (the "Building"). In the event of any
conflict between the Lease and this Agreement, the latter shall control.
2. Landlord hereby grants to Tenant and persons designated by Tenant a license
to use four (4) FIVE (5) unreserved parking spaces and zero (0) reserved spaces.
The term of such license shall commence on the Commencement Date under the Lease
and shall continue until the earlier to occur of the Expiration Date under the
Lease, or termination of the Lease or Tenant's abandonment of the Premises
thereunder. During the term of this license, Tenant shall pay Landlord the
monthly charges established from time to time by Landlord for parking in the
Building Garage payable in advance, with Tenant's payment of monthly Base Rent.
The charge for such reserved parking space(s) is $165.00 per parking space per
month, total monthly charge of $0.00 for all such reserved parking spaces. The
charge for such unreserved parking space(s) is $125.00 per parking space per
month, total monthly charge of $500.00 $625.00 for all such unreserved parking
spaces. No deductions from the monthly charge shall be made for days on which
the Building Garage is not used by Tenant. However, Tenant may reduce the number
of parking spaces hereunder, at any time, providing at least thirty (30) days
advance written notice to Landlord, accompanied by a key-card, sticker, or other
identification or entrance system provided by Landlord or its parking
contractor, such cancellation shall be reinstated from time to time at Tenant's
option. Tenant may, from time to time request additional parking spaces, and if
Landlord shall provide the same, such parking spaces shall be provided and used
on a month-to-month basis, and otherwise on the foregoing terms and provisions,
and such monthly parking charges as Landlord shall establish from time to time.
3. Tenant shall at all times comply with all applicable ordinances, rules,
regulations, codes, laws, statutes, and requirements of all federal, state,
county and municipal governmental bodies or their subdivisions respecting the
use of the Building Garage. Landlord reserves the right to adopt, modify, and
enforce reasonable Rules governing the use of the Building Garage from time to
time including any key-card, sticker, or other identification or entrance
systems and hours of operations. The Rules set forth herein are currently in
effect. Landlord may refuse to permit any person who violates such Rules to park
in the Building Garage, and any violation of the Rules shall subject the car to
removal from the Building Garage.
4. Tenant may validate visitor parking by such method or methods as Landlord may
approve, at the validation rate from time to time generally applicable to
visitor parking. Unless specified to the contrary above, the parking spaces
hereunder shall be provided on an unreserved, "first-come, first-served" basis.
Tenant acknowledges that Landlord has or may arrange for the Building Garage to
be operated by an independent contractor, not affiliated with Landlord. In such
event, Tenant acknowledges that Landlord shall have no liability for claims
arising through acts or omissions of such independent contractor, if such
contractor is reputable. Except for intentional acts or gross negligence,
Landlord shall have no liability whatsoever for any damage to building or any
other items located in the Building Garage, nor for any personal injuries or
death arising out of any matter relating to the Building Garage, and in all
events, Tenant agrees to look first to its insurance carrier and to require the
Tenant's employees to look to their respective insurance carriers for payment of
any losses sustained in connection with any use of the Building Garage. Tenant
hereby waives on behalf of its insurance carriers all rights of subrogation
against Tenant or Landlord's agents. Landlord reserves the right to assign
specific parking spaces, and to reserve parking spaces for visitors, small cars,
handicapped persons and for other tenants, guest of tenants or other parties,
with assigned and/or reserved space. Such reserved space may be relocated as
determined
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by Landlord from time to time, and Tenant and persons designated by Tenant
hereunder shall not park in any such assigned or reserved parking spaces.
Landlord also reserves the right to close all or any portion of the Building
Garage, or if required by casualty, strike, condemnation, act of God,
governmental law or requirement, or other reason beyond Landlord's reasonable
control. In such event, Landlord shall refund any prepaid parking rent
hereunder, prorated on a per diem basis. If, for any other reason, Tenant or
person(s) properly designated by Tenant, shall be denied access to the Building
Garage, and Tenant or such person(s) shall have complied with this Agreement and
this Agreement shall be in effect, Landlord's liability shall be limited to such
parking charges (excluding tickets for parking violations) incurred by Tenant or
such persons in utilizing alternative parking, which amount Landlord shall pay
upon presentation or documentation supporting Tenant's claiming in connection
therewith.
5. If Tenant shall default under this Agreement, Landlord shall have the right
to remove from the Building Garage any vehicles hereunder which shall have been
involved or shall have been owned or driven by parties involved in causing such
default, without liability therefore whatsoever. In addition, if Tenant shall
default under this Agreement, Landlord shall have the right to cancel this
Agreement on ten (10) days written notice, unless within such ten (10) day
period, Tenant cures such default. If Tenant defaults with respect to the same
term or condition under this Agreement more than three (3) times during any
twelve (12) month period, and Landlord notifies Tenant thereof promptly after
each such default, the next default of such term or condition during the
succeeding twelve (12) month period, shall, at Landlord's election, constitute
an incurable default. Such cancellation right shall be cumulative and in
addition to any other rights or remedies available to Landlord at law or equity,
or provided under the Lease (all of which rights and remedies under the Lease
are hereby incorporated herein, as though fully set forth). Any default by
Tenant under the Lease shall be a default under this Agreement, and any default
under this Agreement shall be a default under the Lease.
RULES
(i) Building Garage hours shall be 6:00 a.m. to 8:00 p.m.; however, Tenant
shall have access to the garage or parking lot on a 24-hour basis, 7 days
a week. Tenant shall not store or permit its employees to store any
automobile in the Garage or the surface parking areas without the proper
written consent of Landlord. Except for emergency repairs, Tenant and its
employees shall not perform any work on any automobiles while located in
the Garage or on the Property. If it is necessary for Tenant or its
employees to leave an automobile in the Garage or on the surface parking
areas overnight, Tenant shall provide Landlord with prior notice thereof
designating the license plate number and model of such automobile.
(ii) Cars must be parked entirely within the stall lines painted on the floor,
and only small cars may be parked in areas reserved for small cars.
(iii) All directional signs and arrows must be observed.
(iv) The speed limit shall be 5 miles per hour.
(v) Parking spaces reserved for handicapped parking must be used only by
vehicles properly designated.
(vi) Parking is prohibited in all areas not expressly designated for parking,
including without limitation:
(a) areas not striped for parking
(b) aisles
(c) where "no parking" signs are posted
(d) ramps
(e) loading zones
(vii) Parking stickers, key cards, or any other devices or forms of
identification or entry supplied by Landlord shall remain the property of
Landlord. Such devices must be displayed as requested and may not be
mutilated in any manner. The serial number of the parking identification
device may not be obliterated. Devices are not transferable and any
device in the possession of an unauthorized holder will be void.
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(viii) Monthly fees shall be payable in advance prior to the fifth (5th) day
of each month. Failure to do so will automatically cancel parking
privileges and a charge at the prevailing daily rate will be due. No
deductions or allowances from the monthly rate will be made for days on
which the Building Garage is not used by Tenant or its designees.
(ix) Building Garage managers or attendants are not authorized to make or
allow any exceptions to these Rules.
(x) Every parker is required to park and lock his own car.
(xi) Loss or theft of parking identification, key cards, or other such devices
must be reported to Landlord and garage manager immediately. Any parking
devices reported lost or stolen found on any unauthorized car will be
confiscated and the illegal holder will be subject to prosecution. Lost
or stolen devices found by Tenant or its employees must be reported to
the office of the garage immediately.
(xii) Washing, waxing, cleaning, or servicing except windshield, flat tire,
dead battery, or towing of any vehicles by the customer and/or his agents
is prohibited. Parking spaces may be used only for parking automobiles.
(xiii) By signing this Parking Agreement, Tenant agrees to acquaint all persons
to whom Tenant assigns parking spaces with these Rules.
6. NO LIABILITY. TENANT ACKNOWLEDGES AND AGREES THAT TO THE FULLEST EXTENT
PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE TO
TENANT OR TENANT'S PROPERTY (INCLUDING WITHOUT LIMITATIONS, ANY LOSS OR DAMAGE
TO TENANT'S AUTOMOBILE OR THE CONTENT THEREOF DUE TO THEFT, VANDALISM, OR
ACCIDENT) ARISING FROM OR RELATED TO TENANT'S USE OF THE BUILDING GARAGE OR
EXERCISE OF ANY RIGHTS UNDER THIS AGREEMENT, WHETHER OR NOT SUCH LOSS OR DAMAGE
RESULTS FROM LANDLORD'S ACTIVE NEGLIGENCE OR NEGLIGENT OMISSION. THE LIMITATION
ON LANDLORD'S LIABILITY UNDER THE PRECEDING SENTENCE SHALL NOT APPLY, HOWEVER,
TO LOSS OR DAMAGE ARISING DIRECTLY FROM LANDLORD'S WILLFUL MISCONDUCT.
7. Release of Liability. Without limiting the provisions of Paragraph 6 above,
Tenant hereby voluntarily releases, discharges, waives, and relinquishes any and
all actions or causes of action for personal injury or property damage occurring
to Tenant arising as a result of parking in the Building Garage, or any
activities incidental thereto, wherever or however the same may occur, and
further agrees that Tenant will not prosecute any claim for personal injury or
property damage against Landlord or any of its officers, agents, servants, or
employees for any said cause of action. It is the intention of Tenant by this
instrument, to exempt and relieve Landlord from liability for personal injury or
property damage caused by negligence.
(Bottom of page left intentionally blank. Signature blocks on following page.)
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Tenant acknowledges that Tenant has read the provisions of Paragraph 7, has been
fully and completely advised of the potential dangers incidental to parking in
the Building Garage, and is fully aware of the legal consequences of signing
this instrument.
IN WITNESS WHEREOF, Landlord and Tenant have executed the Exhibit in multiple
original counterparts as of the day and year first above written.
LANDLORD: EOP-One Civic Center Plaza, L.L.C.,
a Delaware limited liability
company
By: EOP Operating Limited Partnership, a
Delaware limited partnership, its sole
member
By: Equity Office Properties Trust,
a Maryland real estate investment
trust, its managing general
partner
ATTEST:
- --------------------------------------- BY:
-------------------------
NAME (print): NAME:
-------------------------- -----------------------
TITLE:
----------------------
TENANT: United States
Exploration, Inc., a
Colorado corporation
ATTEST:
- ---------------------------------------- BY:
-------------------------
NAME (print): NAME:
-------------------------- ---------------------
TITLE:
NAME (print): --------------------
---------------------------
46
<PAGE> 1
EXHIBIT 21
Producers Service, Incorporated, a corporation organized under the
laws of the State of Kansas, is the Company's sole subsidiary.
In January 1999, the Company sold all of the stock of Performance
Petroleum Corporation, Pacific Osage, Inc. and United States Gas Gathering Co.,
Inc.
<PAGE> 1
Consent of Independent Auditors
We have issued our report dated March 6, 1998, accompanying the consolidated
financial statements included in the Annual Report of United States Exploration,
Inc. on Form 10-KSB for the year ended December 31, 1998. We hereby consent to
the incorporation by reference of said report in the Registration Statement of
United States Exploration, Inc. on Form S-8 (File No. 333-60983).
/s/ Grant Thornton LLP
Wichita, Kansas
April 14, 1999
<PAGE> 1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-60983) pertaining to the Amended and Restated 1989 Incentive Stock
Option Plan, Amended and Restated 1990 Nonqualified Stock Option Plan, Directors
Fee Stock Option Plan and Employment Agreement with Bruce D. Benson of United
States Exploration, Inc. of our report dated April 9, 1999, with respect to the
1998 consolidated financial statements of United States Exploration, Inc.
included in the Annual Report (Form 10-KSB) for the year ended December 31,
1998.
/s/ Ernst & Young LLP
Denver, Colorado
April 14, 1999
<PAGE> 1
EXHIBIT 24
POWERS OF ATTORNEY
<PAGE> 2
POWER OF ATTORNEY
I, the undersigned director of United States Exploration, Inc., do
hereby constitute and appoint Bruce D. Benson and F. Michael Murphy, or either
of them, to be my true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, and in my name, place and stead, in any and
all capacities, to sign to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998 and any and all amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith and about the premises, as fully to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Dated this 15th day of April, 1999.
/s/ Richard L. Robinson
-----------------------------------------
Richard L. Robinson, Director
<PAGE> 3
POWER OF ATTORNEY
I, the undersigned director of United States Exploration, Inc., do
hereby constitute and appoint Bruce D. Benson and F. Michael Murphy, or either
of them, to be my true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, and in my name, place and stead, in any and
all capacities, to sign to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998 and any and all amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith and about the premises, as fully to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Dated this 15th day of April, 1999.
/s/ Thomas W. Gamel
-----------------------------------------
Thomas W. Gamel, Director
<PAGE> 4
POWER OF ATTORNEY
I, the undersigned director of United States Exploration, Inc., do
hereby constitute and appoint Bruce D. Benson and F. Michael Murphy, or either
of them, to be my true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, and in my name, place and stead, in any and
all capacities, to sign to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998 and any and all amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith and about the premises, as fully to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Dated this 15th day of April, 1999.
/s/ Robert J. Malone
-----------------------------------------
Robert J. Malone, Director
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