<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission file number 1-13513
UNITED STATES EXPLORATION, INC.
------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1120323
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1560 Broadway, Suite 1900, Denver, Colorado 80202
- ------------------------------------------- --------
(Address or principal executive offices) (Zip Code)
(303) 863-3550
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class of Stock Amount Outstanding
- ------------------------------ -----------------------------
Common Stock, $.0001 par value 15,620,631 shares outstanding
at May 5, 2000
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<PAGE> 2
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
"Part II, Item 6. Exhibits and Reports on Form 8-K".)
FORWARD LOOKING STATEMENTS
See "Special Note Regarding Forward Looking Statements" at the end of "Part
I, Item 2. Management's Discussion and Analysis or Plan of Operation" for
cautionary statements concerning forward looking information contained in this
report.
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<PAGE> 3
UNITED STATES EXPLORATION, INC.
Index
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Part I - FINANCIAL INFORMATION
Item 1 Financial Statements.......................................................................... 4
Item 2 Management's Discussion and Analysis or Plan of Operation...................................... 11
Part II - OTHER INFORMATION......................................................................................... 17
SIGNATURES........................................................................................................... 18
EXHIBIT INDEX...................................................................................................... 19
</TABLE>
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<PAGE> 4
UNITED STATES EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,295,961 $ 3,096,691
Accounts receivable 1,633,114 1,308,015
Due from related parties 73,094 41,764
Inventory 2,080 2,792
Prepaid expenses and deposits 38,820 64,717
------------ ------------
Total current assets 5,043,069 4,513,979
PROPERTY AND EQUIPMENT, AT COST, NET:
Oil and gas property and equipment 24,847,044 24,720,045
Natural gas gathering systems 926,973 949,229
Other equipment and leasehold improvements 283,167 313,661
------------ ------------
26,057,184 25,982,935
OTHER ASSETS
Land held for resale 300,000 300,000
Pipeline lease, less accumulated amortization
of $311,546 at March 31, 2000 and
of $298,915 at December 31, 1999 395,763 408,393
Loan costs, less accumulated
amortization of $134,086 at March 31, 2000
and $116,208 at December 31, 1999 339,685 357,563
------------ ------------
1,035,448 1,065,956
------------ ------------
Total assets $ 32,135,701 $ 31,562,870
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 3,008,143 $ 2,885,830
Accrued liabilities 200,300 260,265
Due related parties 6,778 14,878
Due bank under credit facility 31,250,000 31,250,000
Accrued Interest - Credit Facility 2,222,509 1,288,458
------------ ------------
Total current liabilities 36,687,730 35,699,431
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock-$.01 par value
Authorized-100,000,000 shares;
issued and outstanding Series C Cumulative
Convertible-443,166 shares at March 31,
2000 and December 31, 1999
(liquidation preference of $3,031,256 and
$2,978,076 at March 31, 2000 and
December 31, 1999, respectively) 2,658,996 2,658,996
Common stock-$.0001 par value
Authorized-500,000,000 shares;
issued and outstanding-15,620,631 shares at
March 31, 2000 and 15,591,831 shares at
December 31, 1999 respectively 1,561 1,559
Capital in excess of par 32,937,040 32,901,042
Accumulated deficit (40,149,626) (39,698,158)
------------ ------------
Total stockholders' deficit (4,552,029) (4,136,561)
------------ ------------
Total liabilities and stockholders' equity $ 32,135,701 $ 31,562,870
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
UNITED STATES EXPLORATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
REVENUES
Sale of purchased gas $ 275,013 $ 135,826
Sale of company produced oil and gas 2,304,859 1,322,823
Contracting and operating fees 20,936 14,644
------------ ------------
2,600,808 1,473,293
COSTS AND EXPENSES
Gas acquisition costs 156,324 42,781
Gathering and transmission costs 100,325 82,494
Production costs-oil and gas 700,567 589,832
Other operating costs (41) 58,625
Depletion, depreciation, and amortization 711,055 595,369
General and administrative expenses 458,387 674,827
------------ ------------
2,126,617 2,043,928
Earnings (loss) from operations 474,191 (570,635)
OTHER INCOME (EXPENSE)
Interest income 20,267 15,723
Interest expense (934,051) (580,190)
Other (11,875) 5,549
------------ ------------
(925,659) (558,918)
------------ ------------
NET LOSS (451,468) (1,129,553)
Preferred stock dividends attributable to period (53,180) (59,180)
------------ ------------
Net loss applicable to common stockholders $ (504,648) $ (1,188,733)
============ ============
Basic and diluted loss per common share $ (0.03) $ (0.08)
============ ============
Weighted average common shares outstanding 15,620,631 15,491,831
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 7
UNITED STATES EXPLORATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
---------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net loss $ (451,468) $ (1,129,553)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation, depletion and amortization 711,055 595,369
Loss (gain) on sale of assets 11,875 (99)
Stock issued as compensation 36,000 24,000
Decrease (increase) in accounts receivable (net) (325,099) 1,718,017
Increase in due from related parties (31,330) (70,244)
Decrease in inventory 712 1,545
Decrease in prepaid expenses 25,897 713,992
Increase (decrease) in accounts payable
and accrued expenses 996,398 (118,981)
Decrease in due to related parties (8,100) (47,379)
Other -- (1)
------------ ------------
Net cash provided by operating activities 965,940 1,686,666
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (771,670) (1,300,526)
Proceeds from sale of properties and equipment 5,000 1,825,000
------------ ------------
Net cash provided by (used in) investing activities (766,670) 524,474
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable to bank -- (2,600,000)
Proceeds from debt -- 2,700,000
------------ ------------
Net cash provided by financing activities -- 100,000
Net increase (decrease) in cash and cash equivalents 199,270 2,311,140
Cash and cash equivalents-beginning of period 3,096,691 1,000,661
------------ ------------
Cash and cash equivalents-end of period $ 3,295,961 $ 3,311,801
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 8
United States Exploration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - COMPANY HISTORY AND NATURE OF OPERATIONS
History and Operations
United States Exploration, Inc. (the "Company") was incorporated on January 9,
1989. The Company operates as a producer of oil and gas and as an operator of
gas gathering systems. The Company's operations are currently located in
southeast Kansas and, effective May 1998, northeast Colorado. The Company's
properties in Oklahoma were sold in three separate transactions during January
and May of 1999.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
United States Exploration, Inc. and its wholly owned subsidiaries Producers
Service Incorporated, Performance Petroleum Co., Pacific Osage, Inc., and United
States Gas Gathering Co., Inc. (formerly ZCA Gas Gathering, 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.
The foregoing financial information is unaudited. In the opinion of management,
the unaudited financial information includes all adjustments necessary to
reflect properly the results of operations for the interim periods presented.
The adjustments consist only of normal recurring accruals. The results of
operations for the three months ended March 31, 2000 are not necessarily
indicative of the results to be expected for the year.
NOTE B - FINANCIAL STATEMENTS
In accordance with applicable rules of the Securities and Exchange Commission,
substantially all footnotes relating to the condensed financial statements of
the Company have been omitted. The condensed financial statements should be read
in conjunction with the Company's audited financial statements contained in its
Annual Report on Form 10-KSB for the year ended December 31, 1999.
NOTE C - LOSS PER COMMON 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 were converted into
common stock. Basic and diluted loss per share are the same for all periods
presented
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<PAGE> 9
as the exercise of stock options and the conversion of preferred stock would
have an anti-dilutive effect on all periods.
NOTE D - COMMITMENTS
Effective July 1, 1998, the Company entered into a 117 month lease 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 during the first quarter
of 1999. The approximate minimum aggregate rental commitment under the office
space lease is as follows:
<TABLE>
<S> <C>
2000 177,804
2001 177,804
2002 177,804
2003 219,150
2004 232,932
Thereafter 757,029
------------
$1,742,523
============
</TABLE>
The Company has committed to drill 20 wells by November 30, 2000 under the
Exploration Agreement which is a part of the May, 1998 acquisition of Colorado
properties from Union Pacific Resources Company (UPR). At April 30, 2000 eleven
wells have been drilled pursuant to the Exploration Agreement. Liquidated
damages of $125,000 per commitment well not drilled or commenced by November 30,
2000 will be due UPR.
NOTE E - 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). At March 31, 2000, the Company
was in default under the Credit Agreement for failure to make scheduled interest
and principal payments and to meet certain financial ratios and net worth
requirements contained in the Credit Agreement. In April 2000, the Company
entered into an agreement with ING in which ING granted the Company (or its
designee) an option to purchase the ING loan for $17,000,000. On May 18, 2000,
the Company exercised that option and settled all of its obligations to ING. The
Company is no longer in default under any loan or credit agreement.
The funds for the ING settlement were obtained from several sources. First, the
Company sold its interest in 60 wells and associated undeveloped acreage in the
Wattenburg Field of Northeastern Colorado to an unaffiliated oil and gas company
for approximately $7.15 million, subject to customary adjustments. Second, the
Company sold 3,000,000 shares of its common stock to Bruce D. Benson, its
Chairman, Chief Executive Officer and President, for $1.10 per share, or a total
of $3.3 million. Third, Benson Mineral Group, Inc. ("BMG"), a private company
owned by Mr. Benson, provided $4 million in debt financing. BMG paid that amount
directly to ING in return for the note, credit agreement and related security
documents entered into in connection with the ING loan. The Company entered into
an amendment to the note and credit agreement that reduces the outstanding
principal balance of the note to $4 million, forgives all interest and fees
accruing prior to the date of the amendment, provides for interest on the
reduced principal amount of the note at 9% per annum and requires the Company to
pay the note and accrued interest in a lump sum not later than May 17, 2001. The
Company agreed to use its best efforts to refinance or otherwise prepay the note
prior to that date. The balance of the payment to ING was made with existing
Company funds.
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<PAGE> 10
NOTE F - 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, the proceeds of
the sales 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>
In May, 1999, the Company sold its oil and gas properties located in Logan,
Noble and Kay Counties, Oklahoma for $750,000. Proceeds of this sale were used
to reduce the Company's borrowings.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Introduction
As a result of the losses experienced by the Company in recent periods and
defaults under our principal loan agreement (which have since been settled as
described below), our auditors included a "going concern" qualification in their
opinions on our 1999 and 1998 financial statements.
Liquidity and Capital Resources
Bank Credit Facility
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").
At March 31, 2000, we owed ING $31,250,000 plus accrued interest of
approximately $2,222,500 and were in default under the Credit Agreement. On May
18, 2000, we settled our obligations to ING for an aggregate payment of
$17,000,000.
The Company obtained the funds to effect the settlement from several
sources. First, the Company sold its interests in 60 producing wells and
associated undeveloped acreage in the Wattenburg field of Northeastern Colorado
to an unaffiliated oil and gas company for approximately $7.15 million, subject
to customary adjustments. Second, the Company sold 3,000,000 shares of its
common stock to Bruce D. Benson, its chairman of the board, chief executive
officer and president, for $1.10 per share, or a total of $3.3 million. Third,
Benson Mineral Group, Inc. ("BMG"), a private company owned by Mr. Benson,
provided $4 million in debt financing to the Company. The balance of the payment
to ING was made from internally generated Company funds.
The shares purchased by Mr. Benson were issued pursuant to an agreement
entered into on April 21, 2000. The closing price of the Company's common stock
on April 20, 2000 was $0.56 per share. Pursuant to that agreement, at the time
the shares were purchased, Mr. Benson's employment agreement was amended to
extend its term for an additional year, or until August 6, 2001, and Mr. Benson
voluntarily relinquished options to purchase 4,000,000 shares of common stock
that were granted pursuant to his employment agreement. The amendment also
provides for a severance payment of $1 million to Mr. Benson in the event that
he is terminated by the Company without cause prior to the end of the term of
the agreement, a majority of the board of directors changes during the period or
the Company defaults under the Agreement.
The proceeds of the debt financing provided by BMG were paid directly to
ING and ING assigned to BMG the Note, Credit Agreement and related security
documents entered into in connection with the ING loan. Upon that assignment,
BMG and the Company entered into an amendment to the Credit Agreement and the
Note that reduces the outstanding principal balance of the Note to $4 million,
forgives all interest and fees accruing prior to the date of the amendment,
provides for interest on the reduced principal amount at 9% per annum and
requires the Company to pay the Note in a lump sum no later than May 17, 2001.
In that amendment, the Company acknowledges that the financing was provided by
BMG as an accommodation and agrees to use its best efforts to refinance or
otherwise prepay the Note as soon as possible. The Company intends to seek
financing from a bank or other lender to pay the Note held by BMG and to provide
funds for the further development of its properties. In addition, the Note may
be paid from Company cash flow or the proceeds of additional property sales.
The Company had previously announced a letter of intent with a lender to
provide the funds necessary to settle with ING and to develop its properties.
The Company decided not to complete that financing because the terms of the
transactions described above were significantly more favorable to the Company.
The lender would have required a 6% overriding royalty on all of the Company's
Colorado properties, in addition to interest at 10% per annum.
At March 31, 2000, the Company had a stockholders' deficit of approximately
$4.55 million. If the ING settlement and related transactions had been effected
as of that date, the Company would have had stockholders' equity of over $14
million. The Company estimates that the operating cash flow from the properties
sold was approximately $423,000 in the quarter ended March 31, 2000 or
approximately 25% of total operating cash flow for the quarter. However, the
cash savings to the Company of the transactions described above, as compared to
the 6% overriding royalty interest and other costs of the proposed lending
arrangements previously announced, approximately offset the reduction in
operating cash flow from the properties sold. In addition, with only $4 million
of debt, as compared to $31.25 million under the ING loan or $12 million under
the alternative proposed lending arrangement, the Company is in a much stronger
financial position. The Company had been accruing interest at the rate of over
$300,000 per month at the default rate on the ING loan. Interest accruals under
the interim loan will be $30,000 per month.
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<PAGE> 12
Capital Expenditures
We intend to seek financing from a bank or other lender to repay the $4
million bridge financing from BMG and fund the further development of our
properties. We believe that our stronger financial position resulting from the
settlement of the ING loan and our continuing cash flow will enable us to
obtain the necessary financing. However, there can be no assurance that we will
be able to do so.
Under the Exploration Agreement with UPR, we have an obligation to drill 20
commitment wells prior to December 1, 2000. As of March 31, 2000, eleven of
these wells had been drilled. If the remaining 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.
Capital expenditures in the first quarter of 2000 were generally completion
costs incurred during the first quarter of 2000 relating to wells commenced
during late 1999.
Cash Balances and Cash Flow
As of May 22, 2000 the Company had cash and cash equivalents of
approximately $500,000. Higher commodity prices and the continuing
implementation of cost reduction measures allow us to project positive cash flow
before capital spending for the remainder of the year. However, there can be no
assurance that prices will remain at current levels and that cash flow will
remain positive.
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<PAGE> 13
Series C Preferred Stock
At March 31, 2000, unpaid and undeclared dividends totaled $372,260. Under
the terms of the Series C Convertible Preferred Stock, if dividends have not
been paid in an amount equal to at least six quarterly dividends, the number of
directors on the Company's Board is automatically increased by two and the
holders of the Series C Convertible Preferred Stock are entitled to elect the
two new directors. The Company is obligated to call a meeting of the holders of
the Series C Preferred Stock for the purpose of electing those directors upon
the written request of the holders of two-thirds of the outstanding shares of
Series C Preferred Stock. Upon payment of the dividend arrearages, the size of
the Board is reduced by two and the terms of the directors elected by the
holders of the Series C Preferred Stock automatically terminate. On December 31,
1999, the dividend arrearages on the Series C Convertible Preferred Stock
totaled six quarters and this right of the holders to elect two directors arose.
At May 5, 2000, no written request from the holders of the Series C Preferred
had been received by the Company. No preferred stock dividends may be paid under
the terms of the existing credit facility. No preferred stock dividends may be
paid under the letter of intent terms with the proposed new lender.
Results of Operations
Quarter Ended March 31, 2000
The Company realized a net loss of $451,468 for the first quarter of 2000
compared to a loss of $1,129,553 for the first quarter of 1999. Including
preferred stock dividends, the loss for the first quarter of 2000 was $504,648
or $.03 per share.
Sales of purchased gas less the related gas acquisition costs and gathering
and transmission costs produced an operating profit of $18,364 for the first
quarter of 2000 compared to an operating profit of $10,551 for the first quarter
of 1999. No depreciation or amortization expense is included in these
calculations. Although natural gas prices have increased, more throughput is
needed to increase profitability.
Net oil and gas production (after royalties) and weighted average sales
prices for the Company's products for the three months ended March 31, 2000 and
March 31, 1999 are shown in the table below:
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<PAGE> 14
Net Oil and Gas Production and Sales Prices
<TABLE>
<CAPTION>
Three months ended March 31
--------------------------------------------------------------------
2000 1999
---------------------------- ------------------------------------
Kansas and
Kansas Colorado Total Oklahoma Colorado Total
------ -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Production
Oil - mbbl .31 30.79 31.10 4.22 23.30 27.53
Natural Gas - mmcf 18.40 534.40 552.80 28.13 577.71 605.84
Total - mmcfe 20.26 719.14 739.40 53.46 717.53 770.99
Weighted Average Prices
Oil - $/bbl 21.53 26.38 26.33 12.75 10.67 10.99
Natural Gas - $/mcf 1.56 2.73 2.69 1.84 1.58 1.59
</TABLE>
Of the production for the first quarter of 2000, approximately 6.00 mbbl of oil
and 131.90 mmcf of gas were attributable to the properties sold on May 18, 2000.
The increase in oil and gas production costs from $589,832 for the first quarter
of 1999 to $700,567 for the first quarter of 2000 is largely attributable to an
increase of $77,086 in production taxes related to the higher value of oil and
gas sold.
Other operating costs decreased $58,667 from the first quarter of 1999 to the
first quarter of 2000. This decrease is attributable to the closing of the
Company's field offices.
Interest expense is $934,051 for the first quarter of 2000 compared to $580,190
for the first quarter of 1999. The increase in interest expense reflects higher
rates and accrual of interest for the first quarter of 2000 at a default rate,
including interest on unpaid interest. As a result of the settlement of our
obligations to ING, interest accruable will decrease from over $300,000 per
month in the first quarter of 2000 to $30,000 per month.
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:
Need for Additional Financing. The settlement of the Company's obligations
to ING used substantially all of its available cash. The Company is obligated to
drill 20 commitment wells under the Exploration Agreement with UPR prior to
December 1, 2000, of which 11 had been drilled as of March 31, 2000. In
addition, the Company is obligated to use its best efforts to prepay the $4
million bridge financing provided by BMG. In order to meet these obligations and
to further develop its existing properties, the Company will need to obtain a
credit facility from a bank or other lender. Although management believes that
the Company's stronger financial position resulting from the settlement of the
ING loan will enable it to obtain such a credit facility, there can be no
assurance that it will be able to do so.
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<PAGE> 15
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. Revisions in
reserve estimates can affect the Company in various ways, including changes in
the borrowing base under its loan agreement, changes in depreciation, depletion
and amortization expense and, in the case of reductions in reserve estimates,
the need to create a provision for impairment of its oil and gas assets.
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.
Effects 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. The Company expanded its facilities and personnel in anticipation of
growth in its operations staff that has not occurred to date as a result of the
Company's lack of resources to pursue the development of its Colorado properties
at the anticipated rate and other factors. Personnel costs have subsequently
been reduced but the expansion has resulted in increased general and
administrative expenses, principally the rent on additional space leased by the
Company. The Company is attempting to reduce its overhead by subleasing this
additional space, but there can be no assurance that it will be able to do so.
In the meantime, these increased general and administrative expenses will
continue to adversely affect the Company's results of operations and financial
condition.
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.
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. Price declines have in
the past and may in the future adversely affect the Company, both in lower
prices received for its oil and gas and in reductions in the estimated proved
reserves attributable to the Company's properties. In addition, the Company's
revenues depend upon the marketability of production, which is influenced by the
availability and capacity of gas gathering
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<PAGE> 16
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.
Most of these factors are beyond the control of the Company. Investors are
cautioned not to place undue reliance on forward-looking statements.
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<PAGE> 17
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
Item 1. Legal Proceedings.
No report required.
Item 2. Changes in Securities.
No report required.
Item 3. Defaults Upon Senior Securities.
</TABLE>
At March 31, 2000 the Company was in default under its Credit Agreement
with ING (U.S.) Capital LLC. The amount outstanding at March 31, 2000 was
$31,250,000 of principal and $2,222,508 of unpaid interest. On May 18, 2000, the
Company settled its obligations to ING as more fully described in Part I, Item 2
of this report and is no longer in default under any loan agreement.
At December 31, 1999, cash dividends on the Company's Series C Convertible
Preferred Stock were unpaid for six quarters. Pursuant to the terms under which
the Series C Preferred Stock was issued, the number of directors on the
Company's board automatically increased by two on that date and the holders of
the Series C Convertible Preferred Stock are entitled to elect the two new
directors. No directors have been elected to fill those vacancies. Dividends
have not been declared or paid since the second quarter of 1998. Unpaid
dividends from July 1, 1998 through May 15, 2000 approximate $398,850. The
Series C Convertible Preferred Stock is not registered stock.
<TABLE>
<S> <C> <C>
Item 4. Submission of Matters to a Vote of Security Holders.
No report required.
Item 5. Other Information.
No report required.
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits:
10.1 Agreement between ING (U.S.) Capital LLC and United
States Exploration, Inc. dated April 14, 2000.
10.2 Bruce D. Benson Offer to Purchase Common Stock dated
April 21, 2000.
10.3 Purchase and Sale Agreement dated May 18, 2000
between the Company and HS Resources, Inc.
10.4 Closing Agreement dated as of May 18, 2000 by and
among Benson Mineral Group, Inc., the Company,
Producers Service Incorporated and HS Resources, Inc.
10.5 First Amendment to Executive Employment Agreement
dated May 18, 2000 between the Company and Bruce D.
Benson.
10.6 Registration Rights Agreement dated May 18, 2000
between the Company and Bruce D. Benson.
10.7 Amendment to Credit Agreement and Note dated as of
May 18, 2000 among the Company, Producers Service
Incorporated and Benson Mineral Group, Inc.
27.1 Financial Data Schedule.
B. Reports on Form 8-K.
None.
</TABLE>
- 17 -
<PAGE> 18
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNITED STATES EXPLORATION, INC.
Date: May 22, 2000 By: /s/ Bruce D. Benson
-----------------------------------------
Bruce D. Benson, President,
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: May 22, 2000 By: /s/ F. Michael Murphy
-----------------------------------------
F. Michael Murphy, Vice President,
Secretary and Chief Financial Officer
(Principal Financial Officer)
- 18 -
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Item Page No.
- ------- ---- --------
<S> <C> <C>
10.1 Agreement between ING (U.S.) Capital LLC and United
States Exploration, Inc. dated April 14, 2000.
10.2 Bruce D. Benson Offer to Purchase Common Stock dated
April 21, 2000.
10.3 Purchase and Sale Agreement dated May 18, 2000
between the Company and HS Resources, Inc.
10.4 Closing Agreement dated as of May 18, 2000 by and
among Benson Mineral Group, Inc., the Company,
Producers Service Incorporated and HS Resources, Inc.
10.5 First Amendment to Executive Employment Agreement
dated May 18, 2000 between the Company and Bruce D.
Benson.
10.6 Registration Rights Agreement dated May 18, 2000
between the Company and Bruce D. Benson.
10.7 Amendment to Credit Agreement and Note dated as of
May 18, 2000 among the Company, Producers Service
Incorporated and Benson Mineral Group, Inc.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of April 14, 2000 by and
between ING (U.S.) Capital LLC, successor in interest by merger to ING (U.S.)
Capital Corporation, as Agent ("Agent") and Lender ("Lender"), and United States
Exploration, Inc. ("Borrower") and Producers Service Incorporated ("Producers";
Borrower and Producers are herein collectively referred to as the "Related
Parties" and each individually as a "Related Party").
RECITALS:
1. Borrower, Agent, and Lender are parties to that certain Credit Agreement
dated as of May 15, 1998 (as amended, supplemented, or restated to the date
hereof, the "Credit Agreement"), pursuant to which Lender extended credit to,
and for the account of, Borrower under that certain Promissory Note executed by
Borrower to the order of Lender in the original principal amount of $35,000,000
dated as of May 15, 1998 (the "Note").
2. Producers has guaranteed the payment and performance of Borrower's
obligations under the Credit Agreement and the Note pursuant to that certain
Guaranty dated as of May 15, 1998 (as amended, supplemented, or restated to the
date hereof, the "Guaranty").
3. Borrower executed and delivered to Agent for the benefit of Lender (a)
that certain Pledge Agreement dated as of May 15, 1998 (as amended,
supplemented, or restated to the date hereof, the "Pledge Agreement") pursuant
to which Borrower granted a security interest to Agent for the benefit of Lender
in such properties of Borrower as described therein, to secure the payment and
performance of the Note and other therein described obligations of Borrower to
Agent and/or Lender and (b) that certain Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement dated as of May 15, 1998 (as
amended, supplemented, or restated to the date hereof, the "Mortgage") pursuant
to which Borrower mortgaged, conveyed, and granted a security interest to Agent
for the benefit of Lender in such properties of Borrower as described therein,
to secure the payment and performance of the Note and other therein described
obligations of Borrower to Agent and/or Lender.
4. Agent, Lender, and the Related Parties desire to enter into this
Agreement in order describe the terms and conditions under which Agent and
Lender shall assign to Borrower or a Permitted Designee (as such term is defined
below) certain of Agent's and Lender's rights, titles, and interests in and to
the Credit Agreement, the Note, the Guaranty, the Pledge Agreement, the
Mortgage, and the other Loan Documents (as such term is defined in the Credit
Agreement).
<PAGE> 2
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to each party hereto hereunder, and of Ten Dollars and other good and
valuable consideration, the receipt and sufficiency of all of which are hereby
acknowledged, each Related Party hereby agrees with Agent and Lender as follows:
AGREEMENTS:
Section 1. Definitions. Reference is hereby made to the Credit Agreement
for all purposes. All terms used in this Agreement which are defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
when used herein. All references herein to any Loan Document, or other document
or instrument refer to the same as from time to time amended, supplemented or
restated. As used herein, the terms "Agreement", "Agent", "Lender", "Borrower",
"Producers", "Related Parties", "Related Party", "Credit Agreement", "Note",
"Guaranty", "Pledge Agreement", and "Mortgage" shall have the meanings given
such term in the recitals hereto. As used herein the following terms shall have
the following meanings:
"Assignment Agreement" means the Assignment of Notes and Liens attached
hereto as Exhibit A.
"Closing Date" shall mean the date on which the Final Payment is made by
Borrower to Agent, which date shall be no later than the Termination Date.
"Final Payment" means either (a) $16,500,000 or (b) in the event the
Termination Date is extended pursuant to Section 2(b) hereof, $16,000,000.
"Initial Option Payment" means the amount of $500,000.
"Officers' Certificate" means the Certificate of the President and
Secretary of each Related Party in the form of Exhibit C hereto.
"Option Period" means the period from the date hereof until 3:00 p.m.
E.D.T. on the Termination Date.
"Permitted Designee" means any Person designated in writing by Borrower to
purchase the Loans and the Transaction Documents pursuant to Section 2(a).
"Release Agreement" means the Release Agreement attached hereto as Exhibit
B.
"Reserved Interests" shall mean all of the rights and benefits (on an
unsecured basis) equivalent to those provided in the Loan Documents with respect
to any Related Party's obligation to indemnify or hold harmless any of Agent or
Lender or any of their respective members, managers, directors, officers,
agents, attorneys, employees, representatives and Affiliates, including, without
limitation the rights and benefits (on an unsecured basis) provided
2
<PAGE> 3
in Section 10.4(b) of the Credit Agreement and other similar provisions of the
other Loan Documents; provided, however, that the Reserved Interests shall not
include any right to be indemnified against loss arising from the failure of the
Related Parties to pay the Note or from the sale of Note hereunder.
"Second Option Payment" means the amount of $500,000.
"Termination Date" means May 15, 2000.
"Transaction Documents" means the Credit Agreement, the Note, the Guaranty,
the Pledge Agreement, the Mortgages, and the other Loan Documents.
Section 2. Borrower's Option to Purchase the Loans.
(a) Borrower or a Permitted Designee may, at such Person's option at any
time during the Option Period, purchase from Agent and Lender all of Agent's and
Lender's respective right, title, and interest in, to, and under the Loans and
the Transaction Documents upon the terms and conditions of this Agreement;
provided however, that if each of the conditions precedent described in Section
6 hereof is not satisfied in Agent's sole and absolute discretion before the end
of the Option Period, this Agreement shall terminate and Agent and Lender shall
be under no obligation to sell to Borrower or any Permitted Designee any of
Agent's or Lender's respective right, title, and interest in and to the Loans
and the Transaction Documents.
(b) Notwithstanding the foregoing Section 2(a), if Borrower or any
Permitted Designee pays to Agent the Second Option Payment in accordance with
Section 4(c) hereof on or before 3:00 p.m. E.D.T. on May 15, 2000, the
Termination Date shall be extended to May 31, 2000; provided however, that if
(after the payment of the Second Option Payment to Agent) each of the conditions
precedent described in Section 6 hereof is not satisfied in Agent's sole and
absolute discretion before the end of the Option Period, this Agreement shall
terminate and Agent and Lender shall be under no obligation to sell to Borrower
or any Permitted Designee any of Agent's or Lender's respective right, title,
and interest in and to the Loans and the Transaction Documents.
Section 3. Sale and Conveyance of Loans and Transaction Documents; Delivery
of Note. Subject to the satisfaction of each of the conditions described in
Section 6 hereof, on the Closing Date:
(a) Agent and Lender, by their execution and delivery to Borrower or a
Permitted Designee of the Assignment Agreement, shall sell, transfer, assign,
set over and convey to such Person all of Agent's and Lender's right, title, and
interest in the Transaction Documents, including the Loan and the security
interests represented thereby, as of the Closing Date; PROVIDED, HOWEVER, THAT
AGENT AND LENDER SHALL NOT SELL, TRANSFER, ASSIGN, SET OVER AND
3
<PAGE> 4
CONVEY TO SUCH PERSON ANY OF THE RESERVED INTERESTS, WHICH RESERVED INTERESTS
WILL BE EVIDENCED BY SECTION 4 OF THE RELEASE AGREEMENT;
(b) Lender shall deliver to Borrower or a Permitted Designee the original
counterpart of the Note, endorsed to such Person as follows:
PAY TO THE ORDER OF ______________________ WITHOUT RECOURSE OR WARRANTY,
EXPRESS OR IMPLIED.
ING (U.S.) CAPITAL LLC, successor in interest by merger to ING (U.S.)
CAPITAL CORPORATION
By:______________________________
Name:
Title:
(c) Agent and Lender shall execute and deliver to the Related Parties the
Release Agreement.
Section 4. Payments.
(a) On the date hereof, Borrower shall pay to Agent the Initial Option
Payment in order to induce Agent and Lender to enter into this Agreement.
(b) On the Closing Date, Borrower or a Permitted Designee shall pay to
Agent the Final Payment in order to induce Agent and Lender to deliver the
Assignment Agreement and the Note to Borrower or a Permitted Designee and the
Release Agreement to the Related Parties on the Closing Date.
(c) All payments made by Borrower or a Permitted Designee pursuant to this
Section 4 shall be made by wire transfer of immediately available funds in
accordance with the following instructions:
<TABLE>
<S> <C>
Pay: The Chase Manhattan Bank, New York
ABA No: 021-000-021
Account Name: ING Capital Loan/Agency Account
Account No: 066297311
Reference: United States Exploration
Attention: Peter Y. Clinton
</TABLE>
4
<PAGE> 5
Section 5. Option Payments.
(a) Each Related Party hereby acknowledges (i) that the Initial Option
Payment is irrevocable and non-refundable to the Borrower and (ii) that the
Initial Option Payment is being paid by Borrower in order to induce Agent and
Lender to enter into this Agreement.
(b) Each Related Party hereby acknowledges (i) that the Second Option
Payment, if paid pursuant to Section 2(b) hereof, shall be irrevocable and
non-refundable to the payor thereof and (ii) that the Second Option Payment
shall be paid by Borrower or a Permitted Designee in order to induce Agent and
Lender to extend the Termination Date to May 31, 2000.
Section 6. Conditions Precedent. Agent and Lender shall be under no
obligation to execute and deliver the Assignment Agreement to Borrower or any
Permitted Designee unless and until each of the following conditions precedent
shall have been satisfied before the end of the Option Period:
(a) Borrower shall have paid to Agent the Final Payment in accordance with
Section 4(b) hereof;
(b) each Related Party shall have executed and delivered to Agent the
Release Agreement;
(c) Borrower shall have paid to Agent in immediately available funds (i)
the amount of $31,000 in satisfaction of fees and expenses of Agent's legal
counsel incurred as of the date hereof plus (ii) such additional fees and
expenses of Agent's legal counsel incurred as of the Closing Date; and
(d) Each Related Party shall have executed and delivered to Agent the
Officers' Certificate.
Section 7. Assignment. This Agreement may not be assigned by Borrower and
the other Related Persons to any Person other than a Permitted Designee.
Section 8. Loan Document. This Agreement is a Loan Document, and all
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
SECTION 9. TIME IS OF THE ESSENCE. TIME IS OF THE ESSENCE OF THIS
AGREEMENT.
5
<PAGE> 6
SECTION 10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA IN ALL RESPECTS, INCLUDING
CONSTRUCTION, VALIDITY AND PERFORMANCE.
Section 11. Counterparts. This Agreement may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
ING (U.S.) CAPITAL LLC, as Agent and Lender
By: /s/ Peter Y. Clinton
------------------------------------------------
Peter Y. Clinton
Director
UNITED STATES EXPLORATION, INC.
By: /s/ Bruce D. Benson
------------------------------------------------
Bruce D. Benson
President and Chief Executive Officer
PRODUCERS SERVICE INCORPORATED
By: /s/ Bruce D. Benson
------------------------------------------------
Bruce D. Benson
President and Chief Executive Officer
<PAGE> 7
Exhibit A
.
ASSIGNMENT OF NOTE AND LIENS
ING (U.S.) Capital LLC, successor in interest by merger to ING (U.S.)
Capital Corporation (hereinafter referred to as "Assignor"), as Agent and Lender
under the Credit Agreement (as defined below), for good and valuable
consideration in hand paid, the receipt and sufficiency of which are hereby
acknowledged, has TRANSFERRED, SOLD, ASSIGNED, GRANTED and CONVEYED and by these
presents does TRANSFER, SELL, ASSIGN, GRANT and CONVEY unto
_____________________, a ___________________ ("Assignee"), and its successors
and assigns, the following note and instruments (the "Instruments"), the sums
payable thereunder, and all of Assignor's rights, title and interest in the
property therein described, SAVE AND EXCEPT THE RESERVED INTERESTS (AS DEFINED
BELOW), together with all its remedies, powers, benefits, monies, payments, fees
and revenues pertaining thereto, with good right to collect, enforce, release
and discharge the same, as well as any and all other liens, security interests,
assignments or financing statements now or hereafter existing and securing the
obligations in and under the Instruments:
1. That certain promissory note (the "Note") dated May 15, 1998, in
the original principal amount of $35,000,000, executed by United States
Exploration, Inc. ("Borrower") and payable to the order of Assignor
together with interest thereon as therein provided.
2. Those certain instruments described on Schedule I attached hereto.
To have and hold each of the said Instruments described herein, together
with all right, title, interest, liens, privileges, claims, demands and equities
existing and to exist in connection therewith or as security therefor (OTHER
THAN THE RESERVED INTERESTS) unto Assignee, its successors and assigns forever.
Assignor expressly waives and releases any and all rights that Assignor may
now have or hereafter have to establish or enforce any lien or security interest
securing payment of any of the Instruments, including, without limitation, those
existing under any of the Instruments as security for the payment of any other
or future indebtedness of Borrower to Assignor.
Assignor hereby represents, covenants and warrants to Assignee, its
successors and assigns that: (a) Assignor is the present legal and equitable
owner and holder of each of the Instruments described herein, the indebtedness
evidenced thereby, and all liens and security interests granted to Assignor to
secure such Instruments and indebtedness (the "Liens"); (b) Assignor has the
full right and authority to transfer and convey each of the Instruments
described herein, the indebtedness evidenced thereby and the Liens, and to
execute this agreement and other than consents already obtained, no consents,
notices, filings or approvals are required to be made to or received from any
person for the sale and assignment hereunder; and (c) Assignor has not assigned,
mortgaged, hypothecated, granted a security interest in, or otherwise encumbered
1
<PAGE> 8
any of said Instruments, the indebtedness evidenced thereby or the Liens to any
other parties. Other than the original counterpart of the Note which is being
delivered to Assignee concurrently herewith, Assignor will promptly deliver to
Assignee the original counterparts of the Instruments, to the extent that such
counterparts are in the possession or control of Assignor.
OTHER THAN AS STATED HEREIN, THE ASSIGNMENT AND TRANSFER OF THE
INSTRUMENTS IS MADE BY ASSIGNOR WITHOUT RECOURSE, REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED (INCLUDING, WITHOUT LIMITATION, ANY
REPRESENTATION OR WARRANTY OF ANY KIND AS TO THE PRIORITY, VALIDITY,
ENFORCEABILITY OR THE SUFFICIENCY OF THE INSTRUMENTS OR THE LIENS).
Capitalized terms used but not defined herein shall have the meanings given
them in that certain Credit Agreement dated as of May 15, 1998, by and between
Assignor, as Agent and Lender, and Borrower (as amended, supplemented, or
restated to the date hereof, the "Credit Agreement"). As used herein, "Reserved
Interests" means all of the rights and benefits (on an unsecured basis)
equivalent to those provided in the Loan Documents with respect to any
Restricted Person's obligation to indemnify or hold harmless Assignor, as Agent
or Lender, or any of its members, managers, directors, officers, agents,
attorneys, employees, representatives and Affiliates, including, without
limitation the rights and benefits (on an unsecured basis) provided in Section
10.4(b) of the Credit Agreement and other similar provisions of the other Loan
Documents as set forth in that certain Release Agreement of even date herewith
by and among Assignor, as Agent and Lender, Borrower, and Producers Service
Incorporated; provided, however, that the Reserved Interests shall not include
any right to be indemnified against loss arising from the failure of the
Restricted Persons to pay the Note or from the sale of the Note to Assignee.
2
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this ___ day
of May, 2000.
ING (U.S.) CAPITAL LLC, as Agent and Lender
By:
-----------------------------------------
Peter Y. Clinton
Director
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
This instrument was acknowledged before me on May __, 2000, by Peter Y.
Clinton, Director of ING (U.S.) Capital LLC, on behalf of ING (U.S.) Capital
LLC.
-----------------------------------------
Name:
-----------------------------------------
Notary Public, State of New York
My Commission Expires:
- ----------------------
[Seal]
3
<PAGE> 10
Schedule I
Recording Schedule
4
<PAGE> 11
Exhibit B
RELEASE AGREEMENT
THIS RELEASE AGREEMENT (this "Release Agreement") is made as of May ___,
2000 by and between ING (U.S.) Capital LLC, successor in interest by merger to
ING (U.S.) Capital Corporation, as Agent ("Agent") and Lender ("Lender"), and
United States Exploration, Inc. ("Borrower") and Producers Service Incorporated
("Producers"; Borrower and Producers are herein collectively referred to as the
"Related Parties" and each individually as a "Related Party").
RECITALS:
1. Borrower, Agent, and Lender are parties to that certain Credit Agreement
dated as of May 15, 1998 (as amended, supplemented, or restated to the date
hereof, the "Credit Agreement"), pursuant to which Lender extended credit to,
and for the account of, Borrower under that certain Promissory Note executed by
Borrower to the order of Lender in the original principal amount of $35,000,000
dated as of May 15, 1998 (the "Note").
2. Each Related Party, Agent, and Lender are parties to that certain
Agreement dated as of April __, 2000 (as amended, supplemented, or restated to
the date hereof, the "Agreement") pursuant to which Agent and Lender agreed to
sell, transfer, assign, set over and convey to Borrower or a Permitted Designee
all of Agent's and Lender's right, title, and interest in the Credit Agreement,
the Note, and the other Loan Documents (other than the Reserved Interests) upon
the satisfaction of certain conditions precedent specified in the Agreement (all
of the right, title, and interest of Agent and Lender assigned pursuant to the
Agreement are herein referred to as the "Assigned Interests").
3. The execution and delivery of this Release Agreement is a condition
precedent to Agent's and Lender's obligation to sell, transfer, assign, set over
and convey to Borrower or a Permitted Designee all of Agent's and Lender's
right, title, and interest in the Credit Agreement, the Note, and the other Loan
Documents (other than the Reserved Interests).
NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to each party hereto hereunder, of the sale, transfer, and assignment
of by Agent and Lender of their respective interests in the Credit Agreement,
the Note, and the other Loan Documents, and of Ten Dollars and other good and
valuable consideration, the receipt and sufficiency of all of which are hereby
acknowledged, each Related Party hereby agrees with Agent and Lender as follows:
AGREEMENTS:
Section 1. Definitions. Reference is hereby made to the Credit Agreement
for all purposes. All terms used in this Release Agreement which are defined in
the Credit Agreement and not otherwise defined herein shall have the same
meanings when used herein. All references herein to any Loan Document, or other
document or instrument refer to the same as from time to
1
<PAGE> 12
time amended, supplemented or restated. As used herein, (a) "Reserved Interests"
shall have the meaning given such term in Section 4 hereof, and (b) "Permitted
Designee" shall have the meaning given to such term in the Agreement.
Section 2. Release by each Related Party. Subject to Section 6 hereof, EACH
RELATED PARTY - ON BEHALF OF ITSELF AND, TO THE EXTENT IT IS PERMITTED BY LAW OR
IS OTHERWISE EXPRESSLY AUTHORIZED TO DO SO, ON BEHALF OF ALL OF ITS AFFILIATES
(COLLECTIVELY, "RELEASING PARTIES") -- HEREBY GENERALLY RELEASES AND FOREVER
DISCHARGES EACH OF AGENT AND LENDER AND EACH OF THEIR RESPECTIVE AFFILIATES
(COLLECTIVELY, "RELEASED PARTIES"), FROM ANY AND ALL CLAIMS, DEMANDS, AND CAUSES
OF ACTION OF WHATEVER KIND OR CHARACTER WHICH SUCH RELEASING PARTY HAS, OR MAY
HAVE IN THE FUTURE, BASED ON ANY ACTIONS, FAILURES TO ACT, OR EVENTS THAT HAVE
OCCURRED PRIOR TO THE DATE HEREOF, WHICH IN ANY WAY RELATE TO OR ARE BASED UPON
(I) ANY TRANSACTIONS OF ANY KIND AMONG THE RELEASING PARTIES, ON THE ONE HAND,
AND THE RELEASED PARTIES, ON THE OTHER HAND, OR (II) ANY ACTUAL OR ALLEGED
NEGOTIATIONS, DISCUSSIONS, REPRESENTATIONS, WARRANTIES, PROMISES, OR OTHER
UNDERTAKINGS BY RELEASED PARTIES IN CONNECTION WITH ANY OF THE FOREGOING (THE
"RELEASED CLAIMS"). THIS RELEASE IS TO BE CONSTRUED AS THE BROADEST TYPE OF
GENERAL RELEASE AND COVERS AND RELEASES ANY AND ALL RELEASED CLAIMS, WHETHER
KNOWN OR UNKNOWN AND HOWEVER OR WHENEVER ARISING, WHETHER BY CONTRACT OR
AGREEMENT, AT LAW OR UNDER ANY STATUTE (INCLUDING WITHOUT LIMITATION ANY LAW OR
STATUTE PERTAINING TO NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY, FRAUD,
DECEPTIVE TRADE PRACTICES, NEGLIGENT MISREPRESENTATION, SECURITIES VIOLATIONS,
BREACH OF FIDUCIARY DUTY, BREACH OF CONTRACT, TRADE REGULATION, REGULATION OF
BUSINESS OR COMPETITION, CONSPIRACY OR RACKETEERING), OR OTHERWISE ARISING, AND
EXPRESSLY INCLUDING ANY CLAIMS FOR PUNITIVE OR EXEMPLARY DAMAGES, ATTORNEYS'
FEES, OR PENALTIES. TO THE EXTENT THAT ANY RELEASED CLAIMS WITH RESPECT TO
RELEASED PARTIES HAVE NOT BEEN RELEASED HEREBY, EACH RELEASING PARTY HEREBY
ASSIGNS SUCH RELEASED CLAIMS TO RELEASED PARTIES.
Section 3. Release by Agent and Lender. Subject to Section 6 hereof and
excluding the Assigned Interests, EACH OF AGENT AND LENDER - ON BEHALF OF ITSELF
AND, TO THE EXTENT IT IS PERMITTED BY LAW OR IS OTHERWISE EXPRESSLY AUTHORIZED
TO DO SO, ON BEHALF OF ALL OF ITS AFFILIATES (COLLECTIVELY, "RELEASING PARTIES")
- -- HEREBY GENERALLY RELEASES AND FOREVER DISCHARGES EACH
2
<PAGE> 13
RELATED PARTY AND EACH OF ITS RESPECTIVE AFFILIATES (COLLECTIVELY, "RELEASED
PARTIES"), FROM ANY AND ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION OF WHATEVER
KIND OR CHARACTER WHICH SUCH RELEASING PARTY HAS, OR MAY HAVE IN THE FUTURE,
BASED ON ANY ACTIONS, FAILURES TO ACT, OR EVENTS THAT HAVE OCCURRED PRIOR TO THE
DATE HEREOF (OTHER THAN THE RESERVED INTERESTS), WHICH IN ANY WAY RELATE TO OR
ARE BASED UPON (I) ANY TRANSACTIONS OF ANY KIND AMONG THE RELEASING PARTIES, ON
THE ONE HAND, AND THE RELEASED PARTIES, ON THE OTHER HAND, OR (II) ANY ACTUAL OR
ALLEGED NEGOTIATIONS, DISCUSSIONS, REPRESENTATIONS, WARRANTIES, PROMISES, OR
OTHER UNDERTAKINGS BY RELEASED PARTIES IN CONNECTION WITH ANY OF THE FOREGOING
(THE "RELEASED CLAIMS"). THIS RELEASE IS TO BE CONSTRUED AS THE BROADEST TYPE OF
GENERAL RELEASE AND COVERS AND RELEASES ANY AND ALL RELEASED CLAIMS, WHETHER
KNOWN OR UNKNOWN AND HOWEVER OR WHENEVER ARISING, WHETHER BY CONTRACT OR
AGREEMENT, AT LAW OR UNDER ANY STATUTE (INCLUDING WITHOUT LIMITATION ANY LAW OR
STATUTE PERTAINING TO NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY, FRAUD,
DECEPTIVE TRADE PRACTICES, NEGLIGENT MISREPRESENTATION, SECURITIES VIOLATIONS,
BREACH OF FIDUCIARY DUTY, BREACH OF CONTRACT, TRADE REGULATION, REGULATION OF
BUSINESS OR COMPETITION, CONSPIRACY OR RACKETEERING), OR OTHERWISE ARISING, AND
EXPRESSLY INCLUDING ANY CLAIMS FOR PUNITIVE OR EXEMPLARY DAMAGES, ATTORNEYS'
FEES, OR PENALTIES. TO THE EXTENT THAT ANY RELEASED CLAIMS WITH RESPECT TO
RELEASED PARTIES HAVE NOT BEEN RELEASED HEREBY, EACH RELEASING PARTY HEREBY
ASSIGNS SUCH RELEASED CLAIMS TO RELEASED PARTIES.
Section 4. Reserved Interests. Notwithstanding anything to the contrary
contained herein, each Related Party agrees to indemnify each of Agent and
Lender, upon demand, from and against any and all liabilities, obligations,
claims, losses, damages, penalties, fines, actions, judgments, suits,
settlements, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this section collectively called "liabilities and costs") which to any
extent (in whole or in part) may be imposed on, incurred by, or asserted against
Agent or Lender growing out of, resulting from or in any other way associated
with any of the Collateral, the Loan Documents and the transactions and events
(including the enforcement or defense thereof) at any time associated therewith
or contemplated therein (including any violation or noncompliance with any
Environmental Laws by any Related Party or any liabilities or duties of any
Related Party or any Agent or Lender with respect to Hazardous Materials found
in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
3
<PAGE> 14
LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART,
UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN
PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY AGENT OR LENDER,
provided only that neither Agent nor Lender shall be entitled under this section
to receive indemnification for that portion, if any, of any liabilities and
costs which is proximately caused by its own individual gross negligence or
willful misconduct, as determined in a final judgment. If any Person (including
any Related Party) ever alleges such gross negligence or willful misconduct by
either Agent or Lender, the indemnification provided for in this section shall
nonetheless be paid upon demand, subject to later adjustment or reimbursement,
until such time as a court of competent jurisdiction enters a final judgment as
to the extent and effect of the alleged gross negligence or willful misconduct.
As used in this section the term "Agent" and "Lender" shall refer not only to
the Persons designated as such in the recitals hereto, but also to each member,
manager, director, officer, agent, attorney, employee, representative and
affiliate of such Persons. The obligations of the Related Parties to indemnify
Agent and Lender pursuant to this Section 4 are collectively referred to herein
as the "Reserved Interests"; provided, however, that the Reserved Interests
shall not include any right of Agent or Lender to be indemnified against loss
arising from the failure of the Related Parties to pay the Note or from the sale
of the Note in accordance with the Agreement.
Section 5. Representations and Warranties.
(a) Each Related Party hereby represents and warrants to Agent and Lender
that it has not assigned any Released Claim to any Person.
(b) Each of Agent and Lender represents to each Related Party that, to its
knowledge without investigation, as of the date hereof there is no pending or
threatened claim with respect to which the Related Parties have an obligation to
indemnify Agent or Lender pursuant to the foregoing Section 4.
Section 6. Survival of Agreements. All representations, warranties,
covenants and agreements of the Related Parties herein or in any certificate or
instrument delivered in connection herewith or the Agreement shall survive the
execution and delivery of this Release Agreement and the performance hereof. All
statements and agreements contained in any certificate or instrument delivered
by any Related Party hereunder or under the Agreement to Agent or Lender shall
be deemed to constitute representations and warranties by, or agreements and
covenants of, such Related Party under this Release Agreement and under the
Agreement. EACH RELATED PARTY HEREBY ACKNOWLEDGES THAT NEITHER AGENT NOR LENDER
HAS RELEASED ANY RESERVED INTERESTS AND THAT ALL SUCH RESERVED INTERESTS HAVE
BEEN RETAINED BY AGENT AND LENDER.
4
<PAGE> 15
Section 7. Loan Document. This Release Agreement is a Loan Document, and
all provisions in the Credit Agreement pertaining to Loan Documents apply
hereto.
SECTION 8. GOVERNING LAW. THIS RELEASE AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA IN ALL RESPECTS, INCLUDING
CONSTRUCTION, VALIDITY AND PERFORMANCE.
Section 9. Counterparts. This Release Agreement may be separately executed
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Release Agreement.
IN WITNESS WHEREOF, this Release Agreement is executed as of the date first
written above.
ING (U.S.) CAPITAL LLC, as Agent and Lender
By:
-----------------------------------------
Peter Y. Clinton
Director
UNITED STATES EXPLORATION, INC.
By:
-----------------------------------------
Bruce D. Benson
President and Chief Executive Officer
PRODUCERS SERVICE INCORPORATED
By:
-----------------------------------------
Bruce D. Benson
President and Chief Executive Officer
5
<PAGE> 16
Exhibit C
OFFICERS' CERTIFICATE
Reference is made to that certain Agreement dated as of April 17, 2000 (the
"Agreement"), between United States Exploration ("Borrower"), Producers Service
Incorporated ("Producers"), and ING (U.S.) Capital LLC, as Agent and Lender (the
"Agreement"). Terms which are defined in the Agreement and which are used but
not defined herein shall have the meanings given them in the Agreement. The
undersigned, Bruce D. Benson and , do hereby certify that they are the duly
elected, qualified, and acting President and Chief Executive Officer and
Secretary, respectively, of each of Borrower and Producers, and that:
1. Attached hereto as Exhibit A is a true, correct and complete copy of
certain resolutions duly adopted by the Board of Directors of Borrower in
accordance with Borrower's Articles of Incorporation and Bylaws and none of such
resolutions has been rescinded, revoked, modified, or amended in any respect,
and all of such resolutions are in full force and effect on the date hereof.
2. Attached hereto as Exhibit B is a true, correct and complete copy of
certain resolutions duly adopted by the Board of Directors of Producers in
accordance with Producers' Articles of Incorporation and Bylaws and none of such
resolutions has been rescinded, revoked, modified, or amended in any respect,
and all of such resolutions are in full force and effect on the date hereof.
3. Bruce D. Benson is the duly elected, qualified and acting President and
Chief Executive Officer of each of Borrower and Producers. _______________ is
the duly elected, qualified and acting Secretary of each of Borrower and
Producers. Bruce D. Benson is duly authorized to execute and deliver the
Agreement and the Release Agreement on behalf of each Related Party.
4. Each Related Party has duly taken all action necessary to authorize the
execution and delivery by it of the Agreement and the Release Agreement and to
authorize the consummation of the transactions contemplated thereby and the
performance of its obligations thereunder.
5. The execution and delivery by each Related Party of the Agreement and
the Release Agreement, the performance by each Related Party of its obligations
thereunder and the consummation of the transactions contemplated thereby do not
and will not conflict with any provision of law, statute, rule or regulation or
of the articles of incorporation and bylaws of any Related Party, or of any
material agreement, judgment, license, order or permit applicable to or binding
upon any Related Party, or result in the creation of any lien, charge or
encumbrance upon any assets or properties of any Related Party. Except for those
which have been obtained, no consent, approval, authorization or order of any
court or governmental authority or third party is
1
<PAGE> 17
required in connection with the execution and delivery by any Related Party of
the Agreement or the Release Agreement or to consummate the transactions
contemplated thereby.
6. When duly executed and delivered, each of the Agreement and the Release
Agreement will be a legal and binding obligation of each Related Party,
enforceable in accordance with its terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the enforcement of
creditors' rights and by equitable principles of general application.
IN WITNESS WHEREOF, this instrument is executed by the undersigned as of
May __, 2000.
UNITED STATES EXPLORATION, INC.
By:
-----------------------------------------
Bruce D. Benson
President and Chief Executive Officer
By:
-----------------------------------------
Name:
Secretary
PRODUCERS SERVICE
INCORPORATED
By:
-----------------------------------------
Bruce D. Benson
President and Chief Executive Officer
By:
-----------------------------------------
Name:
Secretary
2
<PAGE> 1
EXHIBIT 10.2
[BRUCE D. BENSON LETTERHEAD]
April 21, 2000
United States Exploration, Inc.
1560 Broadway, Suite 1900
Denver, Colorado 80202
Re: Offer to Purchase Common Stock
Gentlemen:
This letter contains my offer to purchase 3,000,000 shares (the "Shares")
of the Common Stock of United States Exploration, Inc. (the "Company").
1. Price. I will pay $1.10 per Share, or a total of $3,300,000, for the
Shares.
2. Use of Proceeds. The proceeds from the sale of the Shares shall be paid
to ING (U.S.) Capital, LLC, successor by merger to ING (U.S.) Capital Inc.
("ING"), as part of the full satisfaction of the Company's loan from ING (the
"ING Loan"). Alternatively, the proceeds may be paid to ING as part of the price
to be paid to ING for the sale of the ING Loan to another lender who has agreed
to provide the financing contemplated by paragraphs 3(c) and (d) below and to
reduce the amount of the ING Loan to the amount of the financing actually
provided by such lender (a "Substitute Lender").
3. Conditions. My obligation to purchase the Shares is subject to the
following conditions:
(a) The Company shall have entered into a written agreement with ING to
accept $17,000,000 in full satisfaction of or as the full purchase price for the
ING Loan.
(b) The Company shall contemporaneously pay to ING, from internally
generated funds, all amounts necessary (in addition to the proceeds from the
sale of the Shares and the proceeds of the loan described in (c) below) to fully
satisfy the Company's obligations to ING or to pay the purchase price of the ING
Loan in a sale to a Substitute Lender.
(c) The Company shall contemporaneously close a loan with a lender
selected by it, on terms reasonably satisfactory to me, in the amount of at
least $12,000,000, and the
<PAGE> 2
United States Exploration, Inc.
April 21, 2000
Page 2
proceeds of that loan (together with the proceeds of the sale of the Shares and
internally generated Company funds) shall be used to fully satisfy the
obligations of the Company to ING or to pay the purchase price of the ING Loan
in a sale to a Substitute Lender.
(d) The Company shall have made arrangements reasonably satisfactory to
me for additional debt or equity financing in the amount of at least $12,000,000
to fund further development of its oil and gas properties.
(e) The American Stock Exchange shall have approved the listing of the
Shares and shall have indicated that it does not intend to de-list the Company's
Common Stock if the Company's obligations to ING are satisfied in the manner
contemplated herein.
(f) The Company shall have executed and delivered to me an amendment to
my Executive Employment Agreement in the form attached as Exhibit A (the
"Amendment").
(g) The Company shall have executed and delivered to me a registration
rights agreement in the form attached as Exhibit B (the "Registration Rights
Agreement").
4. Closing. The consummation of the purchase and sale of the Shares (the
"Closing") will occur at the Company's offices upon the fulfillment of the
conditions described in paragraph 3. At the closing, (a) the Company will
deliver to me a certificate representing the Shares, bearing no legend or
restriction other than a standard "restricted stock" legend as required by
applicable securities laws, and the Amendment and the Registration Rights
Agreement duly executed by the Company, and (b) I will deliver to the Company by
wire transfer the purchase price for the Shares and the Amendment and the
Registration Rights Agreement, duly executed by me. If the conditions described
in paragraph 3 have not been fulfilled on or before May 15, 2000 (or, if later,
the last date on which the Company is entitled to satisfy or purchase the ING
Loan for $17,000,000 under the terms of a written agreement with ING as
described in paragraph 3(a)), this letter agreement shall automatically
terminate and neither party will have any further obligations hereunder.
5. Arbitration. All disputes concerning the transaction will be subject to
arbitration in Denver, Colorado before the Judicial Arbiter Group or, if the
Judicial Arbiter Group is unavailable, another arbitral body acceptable to the
parties.
6. Expenses; Indemnification. The Company will reimburse me for all
reasonable expenses incurred in connection with the transaction including,
without limitation, the fees and expenses of my counsel (such fees of counsel
not to exceed $50,000). The Company will indemnify me and hold me harmless from
and against any loss, liability, cost or expense, including fees and expenses of
counsel and amounts paid in settlement, incurred by me or any affiliate of mine
<PAGE> 3
United States Exploration, Inc.
April 21, 2000
Page 3
in or as a result of any investigation, administrative proceeding, litigation or
arbitration, or threatened investigation, administrative proceeding, litigation
or arbitration, to which I may become subject arising out of or based in whole
or in part upon this letter agreement or the transactions contemplated by this
letter agreement; provided, however, that, if an arbitrator or a court of
competent jurisdiction has finally determined, beyond possibility of appeal,
that I have breached the express terms of this Agreement, I shall not be
entitled to be indemnified against claims based solely on such breach. The
Company will make advances to me to pay expenses as incurred and I will repay
the Company any advances so received if I am ultimately determined not to be
entitled to indemnification against such expenses. In no event shall I be liable
for any indirect or consequential damages for any breach of this Agreement.
7. Securities Law Matters. I represent and warrant to and agree with the
Company that:
(a) I am buying the Shares for my own account and with no view to the
distribution thereof.
(b) I have had access to all material information concerning the Shares
and the Company.
(c) I understand that the Shares have not been registered under the
Securities Act of 1933, as amended, or the securities laws of any state and
therefore cannot be offered or sold by me unless subsequently so registered or
unless exemptions from the registration requirements of that Act and all
applicable state securities laws are available for the transaction, as
established to the reasonable satisfaction of the Company, by opinion of counsel
or otherwise.
(d) I am an accredited investor, as defined in Regulation D of the
Securities and Exchange Commission.
8. Assignment. I will be entitled to cause the Shares to be purchased in
whole or in part by one or more other accredited investors instead of or in
addition to me, subject to compliance with applicable securities laws. Each such
purchaser would (i) be entitled to become a party to the Registration Rights
Agreement at the Closing, (ii) together with me, be entitled to all of the
rights and benefits of this Agreement, including, without limitation, those set
forth in paragraph 6, and (iii) required to sign the representations, warranties
and agreements set forth in paragraph 7.
<PAGE> 4
United States Exploration, Inc.
April 21, 2000
Page 4
If the foregoing correctly sets forth your understanding of our agreement,
please execute this letter agreement in the space provided below, whereupon this
letter agreement shall constitute a binding contract between us.
Yours truly,
/s/ Bruce D. Benson
------------------------------
Bruce D. Benson
The foregoing is accepted and
agreed to this 21st day of April, 2000.
United States Exploration, Inc.
By: /s/ F. Michael Murphy
------------------------------------
F. Michael Murphy, Vice President,
acting at the direction of the Special Committee
of the Board of Directors
<PAGE> 5
EXHIBIT A
FIRST AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
FILED AS EXHIBIT 10.5 TO THIS REPORT
<PAGE> 6
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
FILED AS EXHIBIT 10.6 TO THIS REPORT
<PAGE> 1
EXHIBIT 10.3
PURCHASE AND SALE AGREEMENT
by and between
UNITED STATES EXPLORATION, INC. ("Seller")
and
HS RESOURCES, INC. ("Buyer")
dated
May 18, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I
Definitions.........................................................1
1.1 Allocated Value(s)................................1
1.2 Basic Documents...................................1
1.3 Closing...........................................2
1.4 Defensible Title..................................2
1.5 Effective Date....................................2
1.6 Lands.............................................2
1.7 Lease or Leases...................................2
1.8 Permitted Encumbrances............................2
1.9 Property or Properties............................3
1.10 Records...........................................4
1.11 Title Defect......................................4
1.12 Wells.............................................4
ARTICLE II
Purchase and Sale...................................................5
2.1 Purchase and Sale.................................5
2.2 Purchase Payment..................................5
2.3 Transfer of Ownership.............................5
ARTICLE III
Purchase Price......................................................5
3.1 Purchase Price....................................5
3.2 Allocation of the Purchase Price..................5
3.3 Manner of Payment of Purchase Price...............6
3.4 Adjustments to Preliminary Purchase Price.........6
ARTICLE IV
Inspection and Title Examinations...................................7
4.1 Inspection of Files and Records...................7
4.2 On-Site Tests and Inspections.....................8
ARTICLE V
Assumption of Obligations; Indemnities..............................8
5.1 Buyer.............................................8
5.2 Seller............................................8
ARTICLE VI
Seller's Representations and Warranties.............................8
6.1 Seller............................................8
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE VII
Buyer's Representations and Warranties.............................12
7.1 Buyer............................................12
ARTICLE VIII
Additional Agreements of the Parties...............................12
8.1 Transfer Orders..................................12
8.2 Suspense Accounts................................12
8.3 Closing Obligations..............................13
8.4 Further Assurances...............................13
8.5 Post-Closing Adjustments.........................14
8.6 Support of Pipeline Decertification Efforts......14
ARTICLE IX
Miscellaneous......................................................14
9.1 Notices..........................................14
9.2 Binding Effect...................................15
9.3 Counterparts.....................................15
9.4 Expenses.........................................15
9.5 Section Headings.................................15
9.6 Entire Agreement.................................15
9.7 Governing Law....................................16
9.8 Survival of Representations and Warranties.......16
9.9 Public Announcements.............................16
9.10 Notices After Closing............................16
</TABLE>
-ii-
<PAGE> 4
EXHIBITS
A Leases
B Wells
C Allocated Values
D Equipment Inventory
E Gas Imbalances
F Pending Litigation
-iii-
<PAGE> 5
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made
and entered into as of May 18, 2000, by and between UNITED STATES EXPLORATION,
INC., a Colorado corporation with an office at 1560 Broadway, Suite 1900,
Denver, Colorado 80202 ("UXP" or "Seller") and HS RESOURCES, INC., a Delaware
corporation with an office at 1999 Broadway, Suite 3600, Denver, Colorado 80202
("HSR" or "Buyer").
Recitals
A. Seller owns certain interests in oil and gas properties
located in Weld County, Colorado, as more fully described on Exhibit "A" hereto,
with respect to the oil and gas wells identified on Exhibit "B" hereto;
B. Seller desires to sell and assign to Buyer and Buyer
desires to purchase from Seller all of Seller's interest in and to the oil and
gas leases described on Exhibit "A" hereto and in and to the oil and gas wells
identified on Exhibit "B" hereto, upon the terms and conditions and for the
consideration hereinafter set forth.
Agreement
In consideration of these premises, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Seller and Buyer agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms, in
addition to the other capitalized terms used in this Agreement which are defined
elsewhere herein, shall have the meanings set forth below:
1.1 ALLOCATED VALUE(S) - Those values allocated to the Properties
pursuant to the first sentence of Section 3.2 and described on Exhibit "C".
1.2 BASIC DOCUMENTS - The contractually binding arrangements to which
the Properties may be subject and that will be binding on the Properties or on
Buyer after the Closing, including, without limitation, all Leases comprising a
portion of the Properties, assignments of interests or overriding royalties or
similar interests; division orders; operating agreements; oil, gas, liquids,
casinghead gas and condensate purchase, sales, marketing, processing, gathering,
treatment, compression, brokerage, and transportation agreements;
-1-
<PAGE> 6
farmout or farmin agreements; joint venture, limited or general partnership, dry
hole, bottom hole, acreage contribution, purchase and acquisition agreements and
options; area of mutual interest agreements; salt water disposal agreements;
servicing, equipment or materials contracts; unitization, unit operating,
communitization or pooling agreements, declarations or orders; easements,
rights-of-way, surface leases, permits, licenses, servitudes or other interests
pertaining to the Properties.
1.3 CLOSING - The consummation of the purchase and sale transaction
contemplated by this Agreement.
1.4 DEFENSIBLE TITLE - Such record title that: (a) entitles Seller to
receive not less than the "Net Revenue Interest" set forth on Exhibit "B" of all
oil, gas, and associated liquid and gaseous hydrocarbons and other associated
gases covered by the Leases produced, saved and marketed from the Properties for
the productive life of such Properties; (b) obligates Seller to bear costs and
expenses relating to the maintenance, development and operation of the
Properties in an amount not greater than the "Working Interest" set forth on
Exhibit "B" unless there is a proportionate increase in the Net Revenue
Interest; and (c) is free and clear of any and all encumbrances, liens and Title
Defects, subject only to the Permitted Encumbrances.
1.5 EFFECTIVE DATE - May 1, 2000.
1.6 LANDS - The lands covered by the Leases and located in the lands
described on Exhibit "A" under the heading "Units", irrespective if such lands
conform with the spacing units established by order of the Colorado Oil and Gas
Conservation Commission ("COGCC").
1.7 LEASE OR LEASES - Those oil, gas and mineral leases described on
Exhibit "A" and all extensions, renewals, replacements, substitutions,
protective or other leases covering or purporting to cover the interests covered
or purported to be covered by the described leases.
1.8 PERMITTED ENCUMBRANCES
(a) Lessor's royalties, overriding royalties, net profit
interests, carried interests, reversionary interests and other similar
burdens existing of record on the Effective Date, and all agreements
having to do with operating the Properties and marketing hydrocarbons
therefrom if the net cumulative effect of such burdens or agreements
does not operate to (x) reduce the net revenue interest of any Property
to less than the "Net Revenue Interest" set forth on Exhibit "B," or
(y) increase the leasehold working interest of any Property to more
than the "Working Interest" set forth on Exhibit "B" without a
proportionate increase in the Net Revenue Interest;
(b) preferential rights to purchase and required third-party
consents to assignments and similar agreements affecting the transfer
of the interests contemplated herein, with respect to which prior to
the date of this Agreement (i) written waivers or consents are obtained
from the appropriate parties or (ii) the appropriate time period for
asserting such rights has expired without an exercise of such rights;
(c) liens for taxes or assessments not yet due or not yet
delinquent or, if delinquent, that are being and will be contested in
good faith in the normal course of business;
-2-
<PAGE> 7
(d) easements, rights-of-way, servitudes, permits, surface
leases, conditions, covenants or other restrictions and easements for
surface operations, roads, highways, pipelines, telephone lines, power
lines, railways and other easements and rights-of-way, on, over or in
respect of any of the Properties, provided that such rights shall not
have a material adverse effect on the ownership, use, operation or
value of the Properties;
(e) operator's liens granted under operating agreements and
relating to obligations not yet due or pursuant to which Seller is not
in default that are not such as will interfere materially with the
ownership, operation, value or use of the Properties, and other
inchoate liens, including but not limited to mechanics', materialman's
and laborer's liens; and
(f) the "Loan Documents" identified in that certain Closing
Agreement to be executed by Buyer, Seller and others concurrently with
the execution of this Agreement, to the extent that the "Mortgage" and
"Financing Statements" associated with the "Loan Documents" are
properly conveyed to Benson Mineral Group, Inc. an Oklahoma corporation
("BMG"), and properly released by BMG with respect to the Properties
concurrent with the execution of this Agreement in accordance with the
terms of the Closing Agreement.
1.9 PROPERTY OR PROPERTIES - All of Seller's undivided right, title and
interest in, to and under the Leases as to all depths, insofar and only insofar
as the Leases cover the Lands as set forth on Exhibit "A," including Seller's
working interests, overriding royalty interests, reversionary interests, net
profits interests, net revenue interests and any other similar interests, and
the underlying oil, gas and mineral leasehold estates associated therewith,
including all of Seller's right, title and interest in, to, under and derived
from:
(a) petroleum, hydrocarbons and associated gases stored upon
or produced from the Leases, or allocated thereto in any unit of which
the Leases are a part;
(b) the leasehold estates and rights created by the Leases,
licenses, permits and other agreements affecting the Leases and Lands;
(c) all contractual interests and rights under all
unitization, communitization, and pooling agreements, working interest
units created by operating agreements, and orders covering the Leases,
or any portion thereof, and lands pooled or unitized therewith, and the
units and pooled or communitzed areas created thereby, only insofar as
they cover the Lands;
(d) the Basic Documents;
(e) the Records;
(f) the right to use the surface of any of the Lands or other
properties of Seller which is currently being used for access to the
Leases;
-3-
<PAGE> 8
(g) presently existing and valid pooling, communitization and
unitization agreements and the properties covered and/or the units
created thereby affecting the Leases, Wells or other Properties;
(h) seismic data covering the Lands which is or can be made
assignable to Buyer;
(i) the Wells; and
(j) the equipment and other personal and mixed property,
improvements, structures, buildings, pipelines, related facilities,
easements, rights-of-way, permits, licenses, servitudes, surface
leases, surface use agreements and any other estates in land situated
in or upon, or used or useful, or held for future use in connection
with the exploration, development and production of oil, gas and other
minerals, associated liquid and gaseous hydrocarbons, and other
associated gas from any of the Properties or the treatment, storage or
transportation of such substances therefrom, water lines, gas lines,
buildings, fixtures, machinery, gas gathering or processing systems or
pipelines, power lines, telephone lines, roads and all other fixtures
and improvements now or as of the Effective Date which are appurtenant
to the Leases.
With respect to the Properties, Seller waives and releases all rights it holds
under current agreements, including but not limited to that certain Exploration
Agreement dated as of April 9, 1998 between Union Pacific Resources Company and
Seller, to drill and earn, or otherwise develop for oil and gas, but only
insofar as such agreements cover and affect the Lands.
1.10 RECORDS - With the exception of all of Seller's corporate,
financial and general tax records, computer programs and proprietary seismic or
other such data, such term shall include copies of all non-proprietary seismic
data files, lease files, land files, well files, contract files including gas
and oil sales contract files, gas processing files, division order files,
abstracts, title opinions, and all other books, files and records, information
and data (including engineering and geological data, interpretation and
analysis), and all rights thereto, of Seller, insofar as the same are related to
any of the Properties.
1.11 TITLE DEFECT - Any encumbrance, lien, encroachment, claim,
irregularity, defect in or objection to Seller's title to any portion of the
Properties, expressly excluding Permitted Encumbrances, that alone or in
combination with other defects does or may render Seller's title to any portion
of the Properties less than Defensible Title.
1.12 WELLS - The wells identified on Exhibit "B," including the
personal property, fixtures and improvements as of the Effective Date, but with
all additions thereto and deletions therefrom occurring in the ordinary course
of the conduct of business from the Effective Date through Closing, located upon
the Lands or lands pooled therewith or appurtenant thereto, or used in the
production, treatment, sale, disposal or injection of hydrocarbons, water or
brine produced therefrom or attributable thereto, including, without limitation:
(a) all wells, equipment, casing, tubing, pumps, lines, separators, wellhead and
in-hole equipment, pipes, tanks, motors, pipelines, meters, regulators,
gathering lines, fixtures, buildings, structures and all other oilfield
equipment and
-4-
<PAGE> 9
material, installed and in inventory, used or useful in the operation of the
Properties; (b) the equipment, materials and supplies described on Exhibit "D";
and (c) crude oil, condensate and products in storage and in pipelines.
ARTICLE II
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Subject to the terms, provisions, conditions and
exceptions set forth in this Agreement, Seller agrees to sell, convey, transfer,
assign, set over and deliver or cause to be sold, conveyed, transferred,
assigned, set over and delivered on the date of this Agreement, but effective as
of the Effective Date, and Buyer agrees to purchase on the date of this
Agreement, but effective as of the Effective Date as provided in this Agreement,
the Properties, subject to the Permitted Encumbrances.
2.2 PURCHASE PAYMENT. Buyer shall deliver to the Seller the Preliminary
Purchase Price set forth in Article III and as adjusted pursuant thereto.
2.3 TRANSFER OF OWNERSHIP. Subject only to final approval by
appropriate governmental agencies, if any, on the date of this Agreement,
ownership of all production attributable to the Properties conveyed to Buyer
shall pass as of the Effective Date and all other attributes of ownership shall
pass as of the date of this Agreement. All costs and expenses incurred by Seller
for operation of the Properties after the Effective Date, including but not
limited to (a) taxes on or measured by production and (b) the fixed rate
overhead charges prescribed by applicable operating agreements or, in the
absence of operating agreements, $500 per month shall be used for each producing
well (and, in each case, excluding any allocable general and administrative
expenses), shall be borne by Buyer. All such costs incurred prior to the
Effective Date shall be borne by Seller.
ARTICLE III
PURCHASE PRICE
3.1 PURCHASE PRICE. The purchase price payable by the Buyer to Seller
for the Properties shall be $7,150,000.00 (the "Preliminary Purchase Price").
3.2 ALLOCATION OF THE PURCHASE PRICE. The Preliminary Purchase Price
shall be allocated to the Properties in the manner set forth on Exhibit "C"
hereto.
3.3 MANNER OF PAYMENT OF PURCHASE PRICE. The Preliminary Purchase
Price, as adjusted pursuant to Section 3.4, shall be paid at the Closing by
Buyer to Seller, or its designee, by wire transfer of immediately available
funds or by such other method as may be agreed to by the parties hereto.
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3.4 ADJUSTMENTS TO PRELIMINARY PURCHASE PRICE. The Preliminary Purchase
Price shall be adjusted at the date of this Agreement and at the Final
Settlement Date (as hereinafter defined) as follows:
(a) The Preliminary Purchase Price shall be adjusted upward by
the following:
(1) the value of all merchantable oil in storage
owned by Seller above the storage tank take-off valve at the
Effective Date, and not previously sold by Seller or the
operator, that is credited to Seller's interest in the
Properties, such value to be the actual price to be received
on the Effective Date (if this price cannot be determined,
then the contract price, or if no contract is in effect, the
market price in effect as of the Effective Date), less taxes
and gravity adjustments deducted by the purchaser of such oil;
(2) an amount equal to the current value (computed on
the basis of the current contract price or market price,
whichever is applicable) of the gas volumes which Seller may
be entitled to take in excess of its working interest share in
the respective Wells as a result of underproduction by Seller
as of the Effective Date under the terms of applicable gas
balancing agreements, if any;
(3) the amount of all expenditures (including
royalties, rentals and other charges and expenses billed under
applicable operating agreements, or in the absence of an
operating agreement, expenses of the sort customarily billed
under such agreements, but excluding Seller's general and
administrative overhead expenses) with respect to the
Properties which relate to the period after the Effective Date
and are paid by or on behalf of Seller in connection with the
operation and development of the Properties from the Effective
Date to the date of this Agreement; and
(4) an amount equal to all prepaid expenses
attributable to the Properties that are paid by or on behalf
of Seller prior to the date of this Agreement and that are, in
accordance with generally accepted accounting principles,
attributable to the period after the Effective Date including,
without limitation, prepaid utility charges which are Buyer's
expenses in accordance with Section 2.3.
(b) The Preliminary Purchase Price shall be adjusted downward
by the following:
(1) proceeds actually received or accrued by or on
behalf of Seller, prior to the date of this Agreement,
attributable to the Properties and that are attributable to
the period of time from and after the Effective Date;
(2) an amount equal to the value (computed on the
basis of the current contract price or market price, whichever
is applicable) of the volumes of gas with respect to which
Seller is overproduced as of the Effective Date, and which
other
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parties may be entitled to recover in excess of their working
interest share in accordance with applicable gas balancing
agreements, if any;
(3) an amount equal to all unpaid ad valorem,
property, production, severance and similar taxes and
assessments based upon or measured by the ownership of the
property or production of hydrocarbons or the receipt of
proceeds therefrom accruing to the Properties in accordance
with generally accepted accounting principles prior to the
Effective Date (it being agreed that any tax measured on the
basis of production shall be deemed to be a tax assessed for
the period during which such production occurred regardless of
the actual year of assessment), which amount shall, to the
extent not actually assessed, be computed based upon such
taxes and assessments for the preceding calendar year, or, if
such taxes or assessments are assessed on other than a
calendar year basis, for the tax related year last ended. Ad
valorem and production taxes for the year 2000 shall be
prorated to the Effective Date based on 1999 production and
the most recent available tax rates. Such adjustments shall be
made on the Final Settlement Date and shall be final
settlement of such taxes between Seller and Buyer; and
(4) an amount equal to the sum of all adjustments
pursuant to Section 4.3 (including adjustments made under
Section 4.3 for the matters covered by Sections 4.4 and 4.5).
ARTICLE IV
INSPECTION AND TITLE EXAMINATIONS
4.1 INSPECTION OF FILES AND RECORDS. Prior to the date of this
Agreement, Seller has made available at Seller's offices for examination and
reproduction by Buyer's authorized representatives all documents (including, but
not limited to, all Basic Documents and Records) of every kind and character in
Seller's possession or to which Seller has access relating or in any way
pertaining to the Properties. Subject to the consent and cooperation of
operators and other third parties, Seller has cooperated with Buyer in Buyer's
efforts to obtain such additional information relating to the Properties as
Buyer desired, to the extent in each case that Seller could do so without
violating legal constraints or obligations of confidence or other contractual
commitments to a third party. Seller has caused its personnel to assist Buyer in
making such investigation and has caused the counsel, accountants, independent
petroleum consultants and engineers, employees and other representatives of
Seller to be reasonably available to Buyer for such purposes. During such
investigation, Buyer was given access to make copies of such records, files and
other materials as Buyer deemed advisable.
4.2 ON-SITE TESTS AND INSPECTIONS. Seller has allowed Buyer's
authorized representatives to consult with Seller's agents and employees and
allowed Buyer's authorized representatives to conduct on-site inspections, tests
and inventories of the Properties and inspect and examine the Wells.
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ARTICLE V
ASSUMPTION OF OBLIGATIONS; INDEMNITIES
5.1 BUYER. Buyer, as owner of the Properties acquired effective as of
the Effective Date, does hereby obligate itself to assume and timely discharge
all duties and obligations of the owner of the Properties which accrue or arise
from operations conducted from and after the Effective Date or relating to taxes
for periods prior to the Effective Date but due and payable after such date as
to which Buyer has received a reduction in the Preliminary Purchase Price
pursuant to Section 3.4, except those obligations accruing or arising from a
breach by Seller of any representation, warranty, covenant or agreement
contained herein, and except the obligation to plug, abandon or restore any well
not identified on Exhibit "B" hereto. Buyer does hereby agree to defend, hold
harmless and indemnify Seller, its officers, directors and stockholders, from
all loss, cost, expense (including attorneys' fees and expenses), penalties and
liabilities (a) arising out of any actions, suits, claims or demands incurred as
a result of or arising from failure of Buyer to discharge such duties and
obligations or (b) resulting from or related to any representation or warranty,
agreement or covenant of Buyer contained herein being breached.
5.2 SELLER. Seller shall defend, hold harmless and indemnify Buyer and
its successors and such parties' directors, officers and stockholders, as
appropriate, from all loss, cost, expense (including attorneys' fees and
expenses), penalties and liabilities (a) arising out of any actions, suits,
claims or demands incurred as a result of or arising from the ownership or
operation of the Properties prior to the Effective Date, except for amounts
resulting from the gross negligence or willful misconduct of Buyer as operator
of the Properties, (b) resulting from or relating to any representation or
warranty of Seller contained herein being untrue or any warranty, agreement or
covenant of Seller contained herein being breached or (c) relating to the
plugging, abandoning or restoration of any well not listed on Exhibit "B"
hereto.
ARTICLE VI
SELLER'S REPRESENTATIONS AND WARRANTIES
6.1 SELLER. Seller represents and warrants to Buyer as of the date
hereof that the following statements are true and complete:
(a) Seller is a duly organized, validly existing Colorado
corporation in good standing under the laws of the State of Colorado.
Seller has all requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder, including the
conveyance of the Properties to Buyer in accordance with this
Agreement.
(b) The execution and delivery of this Agreement, the
execution and delivery of all documents and instruments required to be
executed and delivered by Seller, and the consummation of the
transactions contemplated hereby have been duly and validly authorized
by all necessary action on the part of Seller.
(c) This Agreement constitutes the valid, legal and binding
obligation of Seller and is enforceable against Seller in accordance
with its terms. All instruments required
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hereunder to be executed and delivered by Seller constitute valid,
legal and binding obligations of Seller enforceable against Seller in
accordance with their terms.
(d) Seller's execution, delivery and performance of this
Agreement does not and will not conflict with, violate or result in any
liability to Seller or Buyer under any agreement governing Seller's
business or affairs, including its Articles of Incorporation, by-laws
or other governing documents, or any agreements or instruments to which
Seller may be a party or by which Seller or any of Seller's properties
are bound, any Basic Document, or any law, administrative regulation or
rule or court order, judgment or decree applicable to Seller or to the
Properties.
(e) There are no bankruptcy, reorganization, or arrangement
proceedings pending, being contemplated by or, to the best knowledge of
Seller, threatened against Seller.
(f) There is neither any claim, dispute, suit, action,
investigation or other proceeding pending before any court or
governmental agency, except as set forth on Exhibit "F", nor, to the
best knowledge of Seller, threatened against Seller or any affiliate of
Seller or any of the Properties which has or might result in the
impairment or loss of Seller's title to any of the Properties or the
value thereof or impede the operation of the Properties.
(g) To the best of Seller's knowledge there exists no
unrecorded document or agreement which may result in impairment or loss
of Seller's ability to convey the Properties.
(h) Seller warrants Defensible Title to the Properties against
the claims and demands of all persons lawfully claiming the same by,
through or under Seller but not otherwise; provided, however, Seller
shall subrogate Buyer to any warranty claim which Seller may have
against any third party, prior owner, vendor or assignor.
(i) Seller has not directly or indirectly created, reserved or
retained any recorded or unrecorded executory rights, overriding
royalty interests, net profits interests or production payments in any
of the Wells or the underlying Properties which would cause Buyer not
to receive Defensible Title.
(j) All ad valorem, property, production, excise, severance,
and similar taxes and assessments based on or measured by the ownership
of property or the production or removal of hydrocarbons or the receipt
of proceeds therefrom on the Properties, and due and payable as of the
date of this Agreement have been paid timely in all respects.
(k) All gas imbalances affecting the Properties are imbalances
between Seller and Buyer. Reconciliation of gas imbalances shall be
handled as a post-closing adjustment to the Preliminary Purchase Price
in accordance with Section 8.5. Exhibit "E" reflects the gas imbalances
which Buyer believes exist on the Properties as of the date set forth
therein, however, such imbalances have not been confirmed or agreed to
by Seller as of the date of this Agreement.
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(l) All Wells which Seller operates have been, in all material
respects, drilled, completed and operated in compliance with all Basic
Documents, applicable rules, regulations, permits, judgments, orders
and decrees of any court or the federal and state regulatory
authorities having jurisdiction thereof.
(m) The only gas purchase agreement in effect with respect to
the Properties is that certain Letter of Intent, Gas Purchase and Sale
Agreement, Greater Wattenberg Area dated June 17, 1999 between North
American Resources Company ("NARCO") and Seller, and Seller has
obtained from NARCO a release of the Properties from the dedication
thereunder upon expiration and termination of the Letter of Intent on
June 30, 2000.
(n) Except as provided in those Leases from Union Pacific
Resources Company ("UPRC") to Seller and as contained in that certain
Exploration Agreement dated effective June 1, 1998 between UPRC and
Seller, no person has any call upon, option to purchase or similar
rights under any agreement with respect to the Properties or to the
production therefrom which is not terminable within 30 days.
(o) Seller has not in any respect collected any proceeds from
the sale of hydrocarbons produced from the Properties which are subject
to refund.
(p) Proceeds from the sale of oil, condensate and gas from the
Properties are being received in all respects by Seller in a timely
manner and are not being held in suspense for any reason.
(q) The Basic Documents:
(i) all are valid and legally binding obligations of
Seller and are enforceable against Seller in accordance with
their respective terms;
(ii) Seller is not in breach or default with respect
to any of its obligations under any Basic Document or any
regulations incorporated therein or governing same in any
material respect;
(iii) all payments (including, without limitation,
royalties, delay rentals, shut-in royalties, and joint
interest or other billings under unit or operating agreements)
due thereunder from Seller have been made or caused to be made
by Seller;
(iv) to the best of Seller's knowledge no other party
to any Basic Document (or any successor in interest thereto)
is in breach or default with respect to any of its obligations
thereunder;
(v) neither Seller nor, to the best of Seller's
knowledge, any other party to any Basic Document has given or
threatened to give notice of any action to terminate, cancel,
rescind or procure a judicial reformation of any Basic
Document or any provision thereof; and
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(vii) there are no current obligations to drill
additional wells or to engage in other current development
operations.
(r) With respect to the joint unit or other operating
agreements relating to the Properties which Seller operates: (i) there
are no outstanding calls or payments under authorities for expenditures
for payments which are due or which Seller has committed to make which
have not been paid; (ii) Seller has informed Buyer of the status of all
material operations by less than all parties; and (iii) there are no
operations under the operating agreements with respect to which Seller
has become a non-consenting party.
(s) Seller is not aware of any physical change in the Wells
and the Properties which Seller operates since the Effective Date
(other than operations and production in the ordinary course) which
materially affects the value, use or operation of the Wells and the
Properties (other than declines due to normal depletion).
(t) Seller has not incurred any liability, contingent or
otherwise, for brokers' or finders' fees in respect of this transaction
for which Buyer shall have any responsibility whatsoever.
(u) None of the Properties are subject to any tax
partnerships, entities or arrangements for which partnership returns
are or will be required to be filed for federal income tax purposes.
ARTICLE VII
BUYER'S REPRESENTATIONS AND WARRANTIES
7.1 BUYER. Buyer represents and warrants to Seller as follows:
(a) Buyer is a corporation duly organized and existing under
the laws of the State of Delaware.
(b) The execution and delivery of this Agreement, the
execution and delivery of all documents and instruments required to be
executed and delivered by Buyer and the consummation of the
transactions contemplated hereby have been duly and validly authorized
by all necessary action on the part of Buyer.
(c) This Agreement constitutes the valid and binding agreement
of Buyer enforceable against Buyer in accordance with its terms, and
all instruments required hereunder to be executed and delivered by
Buyer constitute valid and binding agreements of Buyer, enforceable
against Buyer in accordance with their respective terms.
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(d) Buyer's execution, delivery and performance of this
Agreement does not conflict with or violate or result in any liability
to Buyer or Seller under any material agreement governing Buyer's
organization, management, business or affairs, including Buyer's
Certificate of Incorporation or, in any material respect, any agreement
or instrument to which Buyer may be a party or by which Buyer is bound,
or any material law, administrative regulation or rule or court order,
judgment or decree applicable to Buyer.
(e) Buyer has incurred no liability, contingent or otherwise,
for brokers' or finders' fees in respect of this transaction for which
Seller shall have any responsibility whatsoever.
ARTICLE VIII
ADDITIONAL AGREEMENTS OF THE PARTIES
8.1 TRANSFER ORDERS. Seller and Buyer shall execute, acknowledge and
deliver Transfer Orders and letters in lieu of such orders within 30 days after
Closing directing all purchasers of production from the Properties to pay to
Buyer the proceeds attributable to production from the Properties from and after
the Effective Date.
8.2 SUSPENSE ACCOUNTS. Seller agrees to pay to Buyer all amounts held
in suspense by Seller (other than amounts held in suspense solely as offsets to
sums owed to Seller for periods prior to the Effective Date or amounts
attributable to the net revenue interest of Seller for periods prior to the
Effective Date) that relate to the Properties, together with a written
explanation (as contained in Seller's files) of why such moneys are held in
suspense. Buyer agrees to take and apply such moneys in a manner consistent with
prudent oil and gas business practices.
8.3 CLOSING OBLIGATIONS. Concurrent with the execution of this
Agreement, the following events shall occur, each being a condition precedent to
the others, and each being deemed to have occurred simultaneous with the others:
(a) Seller, Buyer, Benson Mineral Group, Inc. and Producers
Service Incorporated shall execute and deliver a Closing Agreement, and
the conditions precedent in the Closing Agreement shall have been fully
satisfied as of the Closing.
(b) Seller shall execute, acknowledge and deliver to Buyer a
mutually acceptable Assignment and Bill of Sale in sufficient
counterparts to facilitate recording, and such special forms of
assignment, if any, required for federal and state leases as may be
necessary, conveying the Properties (other than properties excluded
under Section 4.3), effective as of the Effective Date to Buyer;
(c) Seller and Buyer shall execute and deliver a settlement
statement showing the Preliminary Purchase Price adjusted in accordance
with this Agreement (the "Closing Amount");
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(d) Seller shall furnish Buyer evidence of the release or
termination statements, in form and substance satisfactory to Buyer and
its counsel, of the liens on the Properties associated with the Loan
Documents described in Section 1.8(f);
(e) Buyer shall deliver to Seller, or its designee, the
Closing Amount by wire transfer in immediately available funds;
(f) For each of the Properties which Seller operates, Seller
shall execute and deliver to Buyer a COGCC Form 10, Change of Operator,
and cooperate with Buyer and use its best efforts to assist Buyer in
assuming the timely operation and management of such Properties; and
(g) Seller shall deliver to Buyer exclusive possession of the
Properties (other than the Properties excluded under Section 4.3).
8.4 FURTHER ASSURANCES.
(a) From time to time after Closing, Seller and Buyer shall
execute, acknowledge and deliver to the other such further instruments,
and take such other action, as may be reasonably requested, in order
more effectively to assure to said party all of the respective
properties, rights, titles, interests and estates intended to be
assigned and delivered in consummation of the transactions contemplated
by this Agreement. Further, without limiting the generality of the
foregoing, Seller agrees to cooperate fully with Buyer and to assist in
obtaining the consent of the Bureau of Land Management or other
governmental agency to the assignments of working interests and
operating rights covering the Properties.
(b) From and after Closing, promptly after their receipt
thereof, but only to the extent that such proceeds shall not have been
the subject of an adjustment to the Preliminary Purchase Price, (i)
Seller agrees to pay promptly to Buyer any and all proceeds received by
Seller that are attributable to the production of hydrocarbons from the
Properties on or after the Effective Date and (ii) Buyer agrees to pay
to Seller any and all proceeds that are attributable to the production
of hydrocarbons from the Properties prior to the Effective Date. All
such payments to be made to Buyer shall include the royalty or mineral
owners' share of production which may be received by Seller and which
is not distributed to the royalty or mineral owner because of title
defect or other similar reasons.
8.5 POST-CLOSING ADJUSTMENTS. Within 60 days after the Closing, Buyer
shall prepare and deliver to Seller, in accordance with generally accepted
accounting principles, a statement (the "Final Settlement Statement") setting
forth each adjustment or payment, as provided in Section 3.4, that was not
finally determined as of the Closing and showing the calculation of such
adjustments and the resulting final purchase price (the "Final Purchase Price").
Not more than 30 days after receipt of the Final Settlement Statement, Seller
shall deliver to Buyer a written report containing any changes that Seller
proposes to be made to the preliminary Final Settlement Statement. The parties
undertake to agree with respect to the amounts due pursuant to such post-
Closing adjustments no later than 90 days after the date of this Agreement. The
date upon which such agreement is reached, and upon which the Final Purchase
Price is established, shall be herein called the "Final
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Settlement Date." In the event that (a) the Final Purchase Price is more than
the Closing Amount, Buyer shall pay to Seller the amount of such difference, or
(b) the Final Purchase Price is less than the Closing Amount, Seller shall pay
to Buyer the amount of such difference, in either event by wire transfer of
immediately available funds on the Final Settlement Date.
8.6 SUPPORT OF PIPELINE DECERTIFICATION EFFORTS. UXP, for itself and
its successors and assigns, agrees for a period of 5 years from the Effective
Date to not contest any action by Kinder Morgan, Inc., HSR, or any of their
respective affiliates, successors or assigns, or any other person or entity,
seeking to have released, abandoned or otherwise terminated the Natural Gas Act
jurisdictional status of the KN Wattenberg Transmission Limited Liability
Company gas pipeline system in the Denver-Julesburg Basin. UXP agrees to use
reasonable commercial efforts to cause its affiliates, agents, employees,
officers and directors to not interfere in any way with such release,
abandonment or termination efforts.
ARTICLE IX
MISCELLANEOUS
9.1 NOTICES. All communications required or permitted under this
Agreement shall be in writing, and any communication or delivery hereunder shall
be deemed to have been duly made when delivered to the address below, or when
facsimile transmission is completed to the fax number shown below, in either
case showing the proper party to whose attention the notice is directed. Any
party may, by written notice so delivered or transmitted to the other, change
the address or fax number to which delivery shall thereafter be made. Notices to
the Seller and Buyer shall be made at the addresses set forth below:
(a) If to Seller, to:
UNITED STATES EXPLORATION, INC.
1560 Broadway, Suite 1900
Denver, Colorado 80202
Fax No.: (303) 863-1932
ATTENTION: Bruce D. Benson
President
(b) If to Buyer, to:
HS RESOURCES, INC.
1999 Broadway, Suite 3600
Denver, Colorado 80202
Fax No.: (303) 296-3601
ATTENTION: Janet W. Pasque
Vice President - Land
9.2 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
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9.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which taken together shall constitute one and the same instrument
and each of which shall be considered an original for all purposes.
9.4 EXPENSES. Each party hereto will bear and pay its own expenses of
negotiating and consummating the transactions contemplated hereby.
9.5 SECTION HEADINGS. The section headings contained in this Agreement
are for convenient reference only and shall not in any way affect the meaning
and interpretation of this Agreement.
9.6 ENTIRE AGREEMENT. This Agreement, the documents to be executed
hereunder, the Five-Party Closing Agreement identified in Section 8.3(a) above,
and the exhibits attached hereto constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties pertaining to the subject matter hereof, and there are
no warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein or in documents delivered pursuant hereto. No supplement, amendment,
alteration, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the parties hereto. All of the Exhibits
referred to in this Agreement are hereby incorporated in this Agreement by
reference and constitute a part of this Agreement. This Agreement is additive
and additional to the obligations of the parties to the Closing Agreement, and
shall not be construed in any manner as conflicting with the obligations of
Seller under the Closing Agreement.
9.7 GOVERNING LAW. The validity of the various conveyances affecting
the title to real property shall be governed by and construed in accordance with
the law of the State of Colorado. This Agreement, the other documents delivered
pursuant hereto and the legal relations among the parties hereto shall be
governed by and construed in accordance with the law of the State of Colorado,
without regard to its conflict of laws principles.
9.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as expressly
provided herein, the respective representations, warranties, covenants and
agreements set forth in this Agreement shall survive the Closing and shall not
be merged with any instrument or agreement hereafter executed or delivered.
9.9 PUBLIC ANNOUNCEMENTS. The parties hereto agree that, prior to
making any public announcement or statement with respect to the transactions
consummated by this Agreement, the party desiring to make such public
announcement or statement shall consult with the other party hereto.
9.10 NOTICES AFTER CLOSING. Buyer and Seller hereby agree that each
party shall notify the other of its receipt, after the date of this Agreement,
of any instrument, notification or other document affecting the Properties while
owned by such other party.
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IN WITNESS WHEREOF, the parties have executed or caused this Agreement
to be executed as of the day and year first above written.
SELLER:
UNITED STATES EXPLORATION, INC.
By: /s/ Bruce D. Benson
--------------------------------
Name: Bruce D. Benson
Title: President
BUYER:
HS RESOURCES, INC.
By: /s/ Dale E. Cantwell
--------------------------------
Name: Dale E. Cantwell
Title: Vice President
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EXHIBITS OMITTED
<PAGE> 1
EXHIBIT 10.4
CLOSING AGREEMENT
THIS CLOSING AGREEMENT (this "Agreement") is made and entered into as
of May 18, 2000, by and among BENSON MINERAL GROUP, INC., an Oklahoma
corporation ("BMG"), UNITED STATES EXPLORATION, INC., a Colorado corporation
("UXP"), and PRODUCERS SERVICE INCORPORATED, a Kansas corporation which is
wholly-owed by UXP ("PSI"), all with an office at 1560 Broadway, Suite 1900,
Denver, Colorado 80202, and HS RESOURCES, INC., a Delaware corporation with an
office at 1999 Broadway, Suite 3600, Denver, Colorado 80202 ("HSR"). BMG, UXP,
PSI and HSR are individually referred to herein as a "Party" and collectively
referred to herein as the "Parties."
Recitals
A. ING (U.S.) Capital LLC ("ING") (as successor in interest by merger
with ING (U.S.) Capital Corporation) and UXP are parties to a loan arrangement
(the "Loan") as evidenced by the loan documents identified on Exhibit A attached
hereto (the "Loan Documents"). PSI guaranteed certain of UXP's obligations under
the Loan Documents. Various of the defined terms used in this Agreement are
defined in Exhibit A.
B. In exchange for certain option payments which have been timely made
(the "Option Payments"), ING has granted UXP (or its designee) an option to
purchase the Loan and Note for a total of $17,000,000.00, less the Option
Payments, pursuant to an Agreement dated April 14, 2000 between ING, UXP and PSI
(the "Option Agreement").
C. HSR desires to purchase certain oil and gas properties and interests
in 60 wells located in the Denver-Julesburg Basin (of which 56 are operated by
HSR) from UXP (the "Properties," as so defined in the Purchase Agreement, and
including all existing burdens thereon as of May 1, 2000 other than those
arising pursuant to the Loan Documents), as evidenced by a Purchase and Sale
Agreement between them of date even herewith (the "Purchase Agreement") which
will be executed concurrent with this Agreement. The Purchase Agreement requires
that the Properties be conveyed to HSR free and clear of the Loan, Note,
Mortgage and Financing Statements.
D. UXP has notified ING that BMG will be UXP's "Permitted Designee"
under the Option Agreement. As designee of UXP, BMG intends to purchase the Loan
and Note from ING.
FOR GOOD AND VALUABLE CONSIDERATION, the receipt of which is hereby
acknowledged, the Parties agree as follows:
Agreement
1. Conditions under the Option Agreement. UXP represents and warrants
that (i) the Loan Documents identified on Exhibit A constitute all of the
agreements, security instruments
1
<PAGE> 2
and filings associated with the Loan, (ii) the Option Agreement was properly
authorized and approved by UXP, is in full force and effect, is valid and
binding upon UXP, and does not conflict with any of the agreements binding upon
UXP, (iii) the Option Payments have been timely and properly made to ING under
the Option Agreement, (iv) except for payment of the "Final Payment" under the
Option Agreement which is being made contemporaneous with the payment of the
"Closing Amount' by HSR under the Purchase Agreement, all other conditions
precedent to the obligations of ING as "Agent" and "Lender" under the Option
Agreement are contemporaneously being timely and properly satisfied, and (v) UXP
has notified ING that BMG is UXP's "Permitted Designee" under the Option
Agreement.
2. No Impediments. UXP represents and warrants that except for the Loan
Documents and except for "Permitted Encumbrances" under the Purchase Agreement,
there are no dispositions, liens, encumbrances or security interests affecting
the Properties which have been created by, through or under UXP. BMG represents
and warrants that (i) except for the liens created by the Loan Documents and
except for "Permitted Encumbrances" under the Purchase Agreement, there are no
other liens, encumbrances or security interests affecting the Properties which
have been created by, through or under BMG, and (ii) it has not assigned, has
not entered into any agreement to assign, and will not assign any interest under
the Loan Documents to the extent they relate to the Properties, to anyone other
than HSR. Each of UXP and BMG severally represents that to its knowledge (i)
there are no judicial actions, orders or filings that would result in HSR not
receiving "Defensible Title" to the Properties pursuant to the Purchase
Agreement, or that contemplate the bankruptcy, reorganization, or arrangement of
UXP or BMG, and (ii) subsequent to the Option Agreement, there have been no
claims or notices from ING relating to the Properties under the Loan Documents
or relating to the Option Agreement that could prevent the transactions
contemplated by the Purchase Agreement, the Option Agreement or this Agreement
from being consummated as contemplated herein. The failure of any one or more of
the facts underlying any of the foregoing representations or warranties to be
true shall constitute an "Impediment" if such failure occurs prior to the time
all of the documents referred to in Section 4 below have been recorded in
accordance with Section 4.
3. Conditions Precedent. The closing of the transactions contemplated
by this Agreement and the Purchase Agreement are subject to the satisfaction of
the following conditions precedent, each of which will be deemed to occur if and
only if all occur simultaneously:
(a) Satisfaction of terms of Purchase Agreement. UXP and HSR shall
have executed and delivered to each other the Purchase Agreement, HSR shall have
delivered the "Closing Amount" due under the Purchase Agreement to UXP (or its
designee), and UXP shall have executed and delivered to HSR the assignment(s) of
the Properties, all in accordance with the terms of the Purchase Agreement.
(b) Transfer of Loan and Note. ING shall have transfered and
delivered, and BMG shall have received, the Note, all of the rights of ING under
the Loan, and assignments of the Mortgage and the Financing Statements. The
assignments to BMG shall be valid and binding.
2
<PAGE> 3
(c) Partial Release of Mortgage and Financing Statements. BMG shall
have executed and delivered to HSR a partial release of the Mortgage and the
Financing Statements as to all of the Properties which are the subject of the
Purchase Agreement, and to all personal property associated therewith, including
production therefrom. The releases shall be valid and binding.
(d) No Litigation, Filings in Foreclosure or Bankruptcy. There shall
be (i) no pending or threatened litigation involving the Purchase Agreement, the
Option Agreement or the transactions contemplated thereunder, and (ii) no
filings at any court of competent jurisdiction regarding any action against UXP
or BMG in foreclosure, bankruptcy, reorganization or arrangement.
4. Recording. Upon receipt by HSR of the assignments from ING to BMG of
the Mortgage and the Financing Statements, and of the partial releases from BMG
of the Mortgage and the Financing Statements with respect to the Properties, HSR
will or will cause others to promptly, within 2 business days after the closing
contemplated by this Agreement, record the following documents in the following
order in the real property and UCC records of Weld County, Colorado, and with
the Colorado Secretary of State, as appropriate:
(a) the assignments of the Mortgage and the Financing Statements
from ING to BMG;
(b) the partial releases of the Mortgage and the Financing
Statements from BMG insofar as they pertain to the Properties;
and
(c) the assignment(s) of the Properties from UXP to HSR.
5. Covenants and Indemnifications Regarding Impediments. Each Party
hereby individually covenants that it will take no action that could cause an
Impediment to occur, and if an Impediment does occur which relates to such Party
or its interests in the Properties or the Loan Documents, that Party will use
its best efforts to remove, extinguish or release the Impediment. UXP agrees to
defend, indemnify and hold HSR harmless against any claim or action, or any
loss, relating to or arising from any Impediment that arises by, through or
under UXP. BMG agrees to defend, indemnify and hold HSR harmless against any
claim or action, or any loss, relating to or arising from any Impediment that
arises by, through or under BMG. HSR shall not have any claim under this
Agreement unless it has made payment of the "Closing Amount" under the Purchase
Agreement. BMG agrees to execute and deliver to HSR any additional documents or
instruments as may be necessary or reasonably requested by HSR to release and
terminate any lien held or acquired by BMG from ING in the Properties as defined
in the Purchase Agreement or as such Properties and the description thereof may
be clarified, corrected or amended in the future.
6. Miscellaneous.
(a) This Agreement shall be binding on and inure to the benefit of
each of the Parties and their respective successors and assigns. No Party may
assign its rights or duties
3
<PAGE> 4
under this Agreement without the prior written consent of the other Parties, and
any attempted assignment without such consent shall be void.
(b) The Parties shall be expressly entitled to the equitable remedy
of specific performance under this Agreement, in addition to any other remedies
available to the Parties at law or in equity.
(c) This Agreement shall be governed by and construed in accordance
with the law of the State of Colorado, without regard to its conflict of laws
principles.
(d) This Agreement may be executed in any number of counterparts,
and after execution hereof by all Parties, all executed copies taken together
shall constitute one and the same instrument and each of which shall be
considered an original for all purposes.
(e) This Agreement is additive and additional to the obligations of
UXP under the Purchase Agreement, and shall not be construed in any manner as
conflicting with the obligations of UXP under the Purchase Agreement.
(f) The Parties agree that, prior to making any public announcement
or statement with respect to the transactions contemplated under and consummated
by this Agreement, the party desiring to make such public announcement or
statement shall consult with the other Parties hereto.
(g) The respective representations, warranties, covenants and
agreements set forth in this Agreement shall survive the execution and delivery
of this Agreement and shall not be merged with any instrument or agreement
hereafter executed or delivered.
[the remainder of this page is intentionally blank]
4
<PAGE> 5
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the day and year first written above.
BENSON MINERAL GROUP, INC. UNITED STATES EXPLORATION, INC.
By: /s/ Bruce D. Benson By: /s/ Bruce D. Benson
------------------------------- ---------------------------------
Name: Bruce D. Benson Name: Bruce D. Benson
Title: President Title: President and Chief Executive
Officer
PRODUCERS SERVICE INCORPORATED HS RESOURCES, INC.
By: /s/ Bruce D. Benson By: /s/ Dale E. Cantwell
------------------------------- ---------------------------------
Name: Bruce D. Benson Name: Dale E. Cantwell
Title: President Title: Vice President
5
<PAGE> 6
EXHIBIT A
LOAN DOCUMENTS
1. Credit Agreement dated as of May 15, 1998 (as amended, supplemented, or
restated to the date hereof) between UXP and ING.
2. Promissory Note executed by UXP in the principal amount of $35,000,000 dated
as of May 15, 1998 (the "Note")
3. Guaranty dated as of May 15, 1998 (as amended, supplemented, or restated to
the date hereof) by Producers Service Incorporated.
4. Pledge Agreement dated as of May 15, 1998 (as amended, supplemented, or
restated to the date hereof) between UXP and ING and recorded May 20, 1998 in
the Colorado Secretary of State records at Reception No. 19982033163.
5. Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement dated May 15, 1998 (as amended, supplemented, or restated to the date
hereof) between UXP and ING, and recorded in various locations, including but
not limited to the recording on May 22, 1998 at Reception No. 2614717 of the
real property records of Weld County, Colorado (the "Mortgage").
6. Various Financing Statements from UXP to ING and filed in various locations
including but not limited to the filings on May 22, 1998 at Reception Nos.
2614718, 2614719 and 2614720 of the real property records, and at Filing Nos.
274720, 274721 and 274722 of the Uniform Commercial Code ("UCC") records of Weld
County, Colorado, and recorded May 20, 1998 in the Colorado Secretary of State
records at Reception No. 19982033164 (collectively, the "Financing Statements").
7. Agreement dated as of April 14, 2000 (as amended, supplemented, or restated
to the date hereof) between ING, UXP and Producers Service Incorporated.
6
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT
TO
EXECUTIVE EMPLOYMENT AGREEMENT
This First Amendment to Executive Employment Agreement (this "Amendment")
is made as of the 18th day of May, 2000 by and between United States
Exploration, Inc., a Colorado corporation (the "Company"), and Bruce D. Benson,
a Colorado resident ("Executive").
RECITALS
A. The parties have previously entered into an Executive Employment
Agreement dated as of August 7, 1997 (the "Agreement") pursuant to which the
Company retained Executive to be its President and Chief Executive Officer for a
period of three years. The Agreement provides for automatic annual renewal at
the end of such three-year term unless either party gives notice of nonrenewal
at least 90 days prior to the end of such term. Executive has indicated his
intention to give notice of nonrenewal to the Company.
B. Contemporaneously with the execution of this Amendment, Executive is
making a substantial equity investment in the Company in order to enable the
Company to avoid foreclosure by its principal lender and the consequent loss of
all value to its shareholders. Executive is willing to make that investment only
if he is assured of a reasonable opportunity, as Chief Executive Officer of the
Company, to pursue the business objectives of the Company in an effort to
increase the market value of its stock for the benefit of all stockholders.
C. The Company and Executive have agreed to amend and extend the Agreement
to assure Executive of that opportunity and to assure the Company of the
continued availability of the Executive's services for a reasonable period of
time.
AGREEMENT
Accordingly, in consideration of the mutual covenants contained herein, the
parties agree as follows:
Section 1. Term. Section 1.3 of the Agreement is amended to read in its
entirety as follows:
1.3 Employment Period. Executive's employment under this Agreement
shall continue until August 6, 2001, unless previously terminated as
provided herein or extended by mutual agreement of the parties (the
"Employment Period").
<PAGE> 2
Section 2. Termination by Company. Section 1.4(a) of the Agreement is
amended to read in its entirety as follows:
(a) The Board has the right to terminate Executive's employment under
this Agreement only for "Cause" or upon the "Disability" of Executive. For
that purpose:
"Cause" means the occurrence of any of the following events:
(i) Executive's conviction, beyond possibility of appeal, of a
felony involving dishonesty, theft or fraud;
(ii) Executive's willful disregard of the express instructions
of the Board, provided that such instructions are not contrary to
applicable law or the provisions of this Agreement and that the Board
has given Executive written notice of such disregard and Executive has
failed to begin compliance with such instructions to the reasonable
satisfaction of the Board within 10 days after such notice;
(iii) Any willful act of gross misconduct by Executive that is
materially and demonstrably injurious to the Company; or
(iv) The repeated failure by Executive to perform his duties
and responsibilities hereunder after having been cautioned in writing
by the Board on at least two prior occasions over a period of at least
60 days.
No disagreement by the Board with decisions made by Executive or
dissatisfaction by the Board with the quality of Executive's
performance hereunder shall constitute Cause for purposes of this
Agreement.
"Disability" means Executive's inability, by virtue of illness or
physical or mental incapacity or disability, to perform Executive's
essential functions under this Agreement, whether with or without
reasonable accommodation, for a period exceeding 180 days.
Section 3. Termination by Executive. Clause (x) of the definition of
"Change of Control" in Section 1.4(b) of the Agreement is amended to read in its
entirety as follows:
<PAGE> 3
(x) a change, during any period of two consecutive years beginning on or
after the date hereof, in the membership of the Board such that the persons
who are members of the Board at the beginning of such two-year period do
not constitute at least a majority of the whole Board, including any
vacancies; provided, however, that in the event of the death, resignation
or failure to stand for re-election of any person who was a member of the
Board at the beginning of such two-year period, any person who is elected
to fill the resulting vacancy by the remaining directors or who is
nominated by the Board and elected by the Company's shareholders to succeed
such person on the Board shall be deemed to have been a director at the
beginning of such two-year period;
Section 4. Compensation. Executive did not receive any Base Salary (as
defined in the Agreement) from the Company during the third quarter of 1999.
Since October 1, 1999, Executive's Base Salary has been accrued but not paid.
The $75,000 in accrued salary for the period from October 1, 1999 through March
31, 2000 shall be paid upon the execution of this Amendment. Future payments of
Base Salary shall be made as provided in the Agreement.
Section 5. Options. All Options granted to Executive pursuant to Section
2.5 of the Agreement are hereby cancelled and shall be surrendered by Executive
to the Company.
Section 6. Termination Payment. A new Section 2.6 is added to the
Agreement as follows:
2.6 Payment Upon Termination. In the event that the Agreement is
terminated (a) by the Company in violation of the Agreement, (b) by
Executive pursuant to clause (i), (ii), (iii) or (iv) of Section 1.4(b) of
the Agreement or (c) by Executive pursuant to clause (v) of Section 1.4(b)
of the Agreement following a Change of Control described in clause (x) of
the definition of Change of Control set forth in Section 1.4(b), as amended
hereby, the Company shall pay Executive severance pay in the amount of
$1,000,000. In the event that an excise tax is payable by Executive under
Section 4999 of the Internal Revenue Code (or any comparable provision) in
respect of a payment made under this Section 2.6, the amount of the payment
due to Executive shall be increased so that the net amount received and
retained by Executive, after payment of such excise tax but before payment
of ordinary income taxes, equals $1,000,000. Such payment shall be made
within 10 days after the date of termination. Executive may, in his
discretion, require the Company to make such payment in cash, in shares of
the Company's Common Stock or in any combination thereof. If Executive
elects to have all or any portion of
<PAGE> 4
the payment made in Common Stock, the number of shares shall be determined
by dividing the amount of the payment to be made in stock by the average
closing price of the Common Stock on the principal market in which it is
then traded for the 20 trading days ending with the last trading day
preceding the date of termination. If the closing price for the Common
Stock is not reported for any day during that 20-trading-day period, the
closing price on that day shall be deemed to be the average of the high bid
and low asked prices of the Common Stock for that day.
Section 7. No Other Amendment. Except as amended hereby, the Agreement is
ratified and confirmed in accordance with its original terms.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
United States Exploration, Inc.
By: /s/ F. Michael Murphy
-----------------------------------------
Its: Vice President
-----------------------------------------
/s/ Bruce D. Benson
--------------------------------------------
Bruce D. Benson
<PAGE> 1
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of May 18,
2000, is between United States Exploration, Inc., a Colorado corporation (the
"Corporation"), and Bruce D. Benson (the "Investor").
RECITALS
The Investor is purchasing 3,000,000 shares of Common Stock, $.01 par value
("Common Stock"), of the Corporation pursuant to a letter agreement dated as of
April 21, 2000 (the "Letter Agreement"), between the Corporation and the
Investor. The execution and delivery of this Agreement is a condition precedent
to the obligations of the Investor under the Letter Agreement.
AGREEMENT
Accordingly, in consideration of the premises and the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. As used in this Agreement:
(a) "Affiliate" is used as defined in the Securities Act.
(b) "Commission" means the Securities and Exchange commission or any
other federal agency at the time administering the Securities Act.
(c) "Person" means a natural person, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
(d) "Registrable Shares" means at any time (i) the Common Stock
purchased by the Investor pursuant to the Letter Agreement, (ii) any other
shares of Common Stock owned by the Investor or any Affiliate of the Investor
that are not then eligible for sale to the public without restriction under the
Securities Act, whether as a result of the circumstances under which they were
issued or acquired or as a result of the fact that the Investor or such
Affiliate of the Investor is an Affiliate of the Company, (iii) any shares of
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of other
Registrable Shares; and (iv) any shares of Common Stock then issuable directly
or indirectly upon the conversion or exercise of other securities which were
issued as a dividend or other distribution
<PAGE> 2
with respect to or in replacement of other Registrable Shares; provided, that
Registrable Shares shall not include any shares (x) the sale of which has been
registered pursuant to the Securities Act and which shares have been sold
pursuant to such registration or (y) which have been sold to the public pursuant
to Rule 144 of the Commission under the Securities Act. For purposes of this
Agreement, a Person will be deemed to be a holder of Registrable Shares whenever
such Person has the then existing right to acquire such Registrable Shares (by
exercise, conversion or otherwise), whether or not such acquisition has actually
been effected.
(e) "Registration Expenses" has the meaning ascribed to it in Section 6
of this Agreement.
(f) "Securities Act," means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
(g) "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect from time to
time.
2. Demand Registrations.
(a) Requests for Registration. The holders of 50% or more of the then
existing Registrable Shares at any time may require the Corporation to register
under the Securities Act of all or part of their Registrable Shares. In order to
exercise that right, such holders shall give a written notice to the Corporation
requesting such registration and specifying the number of Registrable Shares to
be registered and the plan of distribution for such shares, including the
identity of the proposed managing underwriter or underwriters if the
registration relates to an underwritten public offering. Within ten days after
receipt of any request pursuant to this Section 2(a), the Corporation will give
written notice thereof to all other holders of Registrable Shares (including a
copy of the demand notice) and will include in such registration all Registrable
Shares with respect to which the Corporation has received written requests for
inclusion therein within 20 days after the receipt of the Corporation's notice.
A registration pursuant to this Section 2(a) is referred to as a "Demand
Registrations."
(b) Number of Demand Registrations. The Corporation shall be obligated
to register Registrable Shares in a Demand Registration on three occasions only.
However, a registration will not count as a Demand Registration until it has
become effective and unless the holders of Registrable Shares requesting such
Registration are able to register and sell at least 90% of the Registrable
Shares requested to be included in such registration; provided, however, that a
registration that is withdrawn at the request of the holders of Registrable
Shares who demanded such Demand Registration after it has been filed with the
Commission will count as a Demand Registration unless the Company is reimbursed
by holders of Registrable Shares for all reasonable out-of-pocket expenses
incurred by the Company in connection with such registration.
<PAGE> 3
The Corporation shall not be required to effect a Demand Registration if the
number of shares requested to be registered is less than 2% of the shares of
Common Stock then outstanding.
(c) Selection of Underwriter. If a Demand Registration relates to an
underwritten public offering, the holders of a majority of the Registrable
Shares specified in the original request notice under Section 2(a) may designate
the managing underwriters for such offering, subject to the approval of the
Corporation, which approval may not be unreasonably withheld.
(d) Priority in Demand Registrations. The Corporation shall not
include, or allow other holders to include, shares of Common Stock or other
securities in a Demand Registration without the written consent of the holders
of a majority of the Registrable Shares specified in the original request notice
under Section 2(a). If the number of Registrable Shares requested to be included
in a Demand Registration relating to an underwritten public offering exceeds the
number of shares which the managing underwriters believe can be sold in such
offering, the number of Registrable Shares to be included in the registration
shall be allocated pro rata among the respective holders who have requested that
Registrable Shares be included in such registration on the basis of the number
of Registrable Shares owned by such holders, with further successive pro rata
allocations among the holders of Registrable Shares if any such holder of
Registrable Shares has requested the registration of less than all such
Registrable Shares it is entitled to register.
(e) Restrictions on Registrations. The Corporation may postpone for up
to 120 days the filing of a registration statement for a Demand Registration if
the Corporation reasonably believes that such Demand Registration will have a
material adverse effect on any proposal or plan by the Corporation or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or other
significant transaction; provided that the Corporation shall have the right to
so postpone such filing only one time during any period of fourteen consecutive
months.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Corporation proposes to register
any of its securities under the Securities Act (other than a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Shares, the Corporation will give prompt written
notice to all holders of Registrable Shares of its intention to effect such a
registration (which notice shall be given not less than 30 days prior to the
date the registration statement is to be filed) and will include in such
registration all Registrable Shares with respect to which the Corporation has
received written requests for inclusion therein within 20 days after the receipt
of the Corporation's notice. A registration in which Registrable Shares are
included under this Section 3(a) is referred to as a "Piggyback Registration."
(b) Priority on Primary Piggyback Registrations. If a Piggyback
Registration is a primary registration on behalf of the Corporation in
connection with an underwritten
<PAGE> 4
\
public offering, and the managing underwriters advise the Corporation in writing
that in their opinion the number of securities requested to be included in such
registration by the Company and by other shareholders (including Registrable
Shares) exceeds the number which can be sold in such offering, the Corporation
will include in such registration (i) first, the securities the Corporation
proposes to sell, (ii) second, the number of Registrable Shares requested to be
included in such registration which in the opinion of such underwriters can be
sold, pro rata among the holders of such Registrable Shares on the basis of the
number of Registrable Shares owned by such holders, with further successive pro
rata allocations among the holders of Registrable Shares if any such holder of
Registrable Shares had requested the registration of less than all such
Registrable Shares it is entitled to register, and (iii) third, other securities
requested to be included in such registration.
(c) Priority on Secondary Piggyback Registrations. If a Piggyback
Registration is a secondary registration on behalf of holders of the
Corporation's securities in connection with an underwritten public offering, and
the managing underwriters advise the Corporation in writing that in their
opinion the number of securities (including Registrable Shares) requested to be
included in such registration by all prospective sellers exceeds the number
which can be sold in such offering, the Corporation will include in such
registration (i) first, the securities requested to be included therein by the
holders of the Corporation's securities demanding such registration pursuant to
a pre-existing contractual right to require the Corporation to effect the
registration, (ii) second, the number of Registrable Shares requested to be
included in such registration which in the opinion of such underwriters can be
sold, pro rata among the holders of such Registrable Shares on the basis of the
number of Registrable Shares owned by such holders, with further successive pro
rata allocations among the holders of Registrable Shares if any such holder of
Registrable Shares has requested the registration of less than all such
Registrable Shares it is entitled to register, and (iii) third, other securities
requested to be included in such registration.
(d) Other Registrations. If the Corporation has previously received a
demand for a Demand Registration pursuant to Section 2 or has previously filed a
registration statement with respect to Piggyback Registration pursuant to this
Section 3, and if such previous request or registration has not been withdrawn
or abandoned, without the written consent of the holders of a majority of the
Registrable Shares included or to be included in such registration, the
Corporation will not file or cause to be effected any other registration of any
of its equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the Securities Act (except on Form
S-8 or any successor form), whether on its own behalf or at the request of any
holder or holders of such securities, until a period of 180 days has elapsed
from the effective date of such Demand Registration or Piggyback Registration,
as the case may be.
4. Holdback Agreements.
(a) Each of the holders of Registrable Shares agrees not to effect any
public sale or distribution of equity securities of the Corporation, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 20 days prior to and the 180 days after
<PAGE> 5
the effective date of any underwritten Demand Registration (except as part of
such underwritten registration), unless the underwriters managing the registered
public offering otherwise agree.
(b) The Corporation agrees to use all reasonable efforts to cause each
holder of at least 1% (on a fully-diluted basis) of its equity securities (other
than equity securities acquired in a public trading market), or any securities
convertible into or exchangeable or exercisable for such securities, purchased
from the Corporation at any time after the date of this Agreement (other than in
a registered public offering) to agree not to effect any public sale or
distribution of any such securities during the periods described in Section 4(a)
(except as part of such underwritten registration, if otherwise permitted),
unless the underwriters managing the registered public offering otherwise agree.
5. Registration Procedures.
(a) Whenever the holders of Registrable Shares have demanded or
requested that any Registrable Shares be registered pursuant to this Agreement,
the Corporation will use its best efforts, as soon as reasonably practicable, to
effect the registration of such Registrable Shares in accordance with the
intended method of disposition thereof, and pursuant thereto the Corporation
will as expeditiously as possible:
(i) prepare and file with the Commission a registration statement
with respect to such Registrable Shares and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
reasonably necessary to effect the sale of such securities, not to exceed nine
months; provided, however, that (A) in the case of a Demand Registration, such
registration statement shall be filed not less than 45 days after the notice
requesting the registration is received under Section 2(a) and (B) in the case
of a Piggyback Registration, the Company shall at all times control the timing
of such registration and may elect not to file or withdraw such registration at
any time and for any reason;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than nine months (or such longer period as is necessary for
the underwriters in an underwritten offering to sell unsold allotments) and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(iii) furnish to each seller of Registrable Shares and the
underwriters of the securities being registered such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such seller or underwriters may reasonably request
in order to facilitate the disposition of the Registrable Shares owned by such
seller or the sale of such securities by such underwriters;
<PAGE> 6
(iv) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as any
seller reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Shares owned by such seller
(provided, however, that the Corporation will not be required to (x) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subsection or (y) consent to general service of
process in any such jurisdiction);
(v) cause all such Registrable Shares to be listed or authorized
for quotation on each securities exchange or automated quotation system on which
similar securities issued by the Corporation are then listed or quoted;
(vi) provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement;
(vii) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Shares being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Shares;
(viii) make available for inspection by the holders of
Registrable Shares included in the registration, any underwriter participating
in any disposition pursuant to such registration, and any attorney, accountant
or other agent retained by any such holder or underwriter, all financial and
other records, pertinent corporate documents and properties of the Corporation,
and cause the Corporation's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement;
(ix) notify each holder of Registrable Shares included in the
registration, promptly after it shall receive notice thereof, of the time when
such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(x) notify each holder of Registrable Shares included in the
registration of any request by the Commission for any amendment or supplement of
such registration statement or prospectus or for additional information;
(xi) prepare and file with the Commission, promptly upon the
request of any holder of Registrable Shares included in the registration, any
amendments or supplements to such registration statement or prospectus which, in
the opinion of counsel selected by the holders of a majority of the Registrable
Shares being registered, is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of Registrable Shares
by such holder;
<PAGE> 7
(xii) prepare and promptly file with the Commission, and promptly
notify each holder of Registrable Shares included in the registration of the
need to file and the filing of, any amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event shall have occurred
as the result of which the registration statement or prospectus as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(xiii) advise each holder of Registrable Shares included in the
registration, promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the Commission suspending the
effectiveness of such registration statement or the initiation or threatening of
any proceeding for such purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued;
(xiv) at least forty-eight hours prior to the filing of any
registration statement or prospectus or any amendment or supplement to such
registration statement or prospectus, furnish a copy thereof to each holder of
Registrable Shares included in the registration and refrain from filing any such
registration statement, prospectus, amendment or supplement to which counsel
selected by the holders of a majority of the Registrable Shares being registered
shall have objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, unless, in the case of an amendment or
supplement, in the opinion of counsel for the Corporation the filing of such
amendment or supplement is reasonably necessary to protect the Corporation from
any liabilities under any applicable federal or state law and such filing will
not violate applicable laws;
(xv) at the request of any holder of Registrable Shares included
in the registration in connection with an underwritten offering, furnish on the
date or dates provided for in the underwriting agreement: (x) an opinion of
counsel, addressed to the underwriters and the sellers of Registrable Shares,
covering such matters as such underwriters and sellers may reasonably request
and as are customarily covered by the issuer's counsel in an underwritten
offering; and (y) a letter or letters from the independent certified public
accountants of the Corporation addressed to the underwriters and the sellers of
Registrable Shares, covering such matters as such underwriters and sellers may
reasonably request and as are customarily covered in accountant's letters in
connection with an underwritten offering; and
(xvi) otherwise use its best efforts to comply and to enable the
sellers of Registrable Shares to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement in accordance with the intended method of disposition and
to make generally available to its security holders, as soon as reasonably
practicable, an earnings statement satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder.
<PAGE> 8
(b) Each holder of Registrable Shares that includes Registrable Shares
in a registration under this Agreement agrees as follows:
(i) Such holder shall cooperate as reasonably requested by the
Corporation in connection with the preparation of the registration statement,
and for so long as the Corporation is obligated to file and keep effective the
registration statement, shall provide to the Corporation, in writing, for use in
the registration statement, all such information regarding such seller and its
plan of distribution of the Registrable Shares as may be reasonably necessary to
enable the Corporation to prepare the registration statement and prospectus
covering the Registrable Shares, to maintain the currency and effectiveness
thereof and otherwise to comply with all applicable requirements of law in
connection therewith.
(ii) During such time as such holder may be engaged in a
distribution of the Registrable Shares, such seller shall (x) comply with
Regulation M promulgated under the Securities Exchange Act; (y) distribute the
Registrable Shares under the registration statement solely in the manner
described in the registration statement; and (z) not offer or sell such
Registrable Shares pursuant to such registration statement during the period
from such holder's receipt of written notice from the Corporation that the
registration statement or prospectus covering the Registrable Shares contains
any untrue statement of a material fact or omits a material fact required to be
stated therein or necessary to make the statements therein not misleading until
such holder's receipt of notice from the Company that an amendment or supplement
to the registration statement or prospectus has been filed and become effective
that corrects such untrue statement or omission.
6. Registration Expenses.
(a) All expenses incident to the Corporation's performance of or
compliance with this Agreement, including, without limitation, all registration
and filing fees, fees of transfer agents and registrars, fees and expenses of
compliance with securities or blue sky laws, fees of the National Association of
Securities Dealers, Inc., printing expenses, messenger and delivery expenses,
and fees and disbursements of counsel for the Corporation and its independent
certified public accountants, underwriters (excluding discounts and commissions
attributable to the Registrable Shares included in such registration) and other
Persons retained by the Corporation (all such expenses being herein called
"Registration Expenses"), will be borne by the Corporation. In addition, the
Corporation will pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or quarterly review, the
expense of any liability insurance obtained by the Corporation arid the expenses
and fees for listing or authorizing for quotation the securities to be
registered on each securities exchange on which any shares of common stock are
then listed or quoted.
(b) In connection with each Demand Registration and Piggyback
Registration effected pursuant to this Agreement, the Corporation will reimburse
the holders of
<PAGE> 9
Registrable Shares covered by such registration for the reasonable fees and
disbursements of one counsel for the holders chosen by the holders of a majority
of such Registrable Shares.
7. Indemnification.
(a) The Corporation agrees to indemnify each holder who includes
Registrable Shares in a registration pursuant to this Agreement, the officers
and directors of each such holder, each Person who controls any such holder
(within the meaning of the Securities Act or the Exchange Act), each underwriter
in an offering registered pursuant to this Agreement, the officers and directors
of any such underwriter and each Person who controls any such underwriter
(within the meaning of the Securities Act or the Exchange Act) against all
losses, claims, damages, liabilities and expenses (including, without
limitation, attorneys' fees except as limited by Section 7(c)) caused by or
arising from any untrue or alleged untrue statement of a material fact contained
in any registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities and expenses are caused by or arise from any information furnished
in writing to the Corporation by such holder or such underwriter expressly for
use therein or by such holder's or underwriter's failure to deliver a copy of
the prospectus or any amendments or supplements thereto after the Corporation
has furnished such holder or underwriter with a sufficient number of copies of
the same. In connection with an underwritten offering, the Corporation shall
enter into an underwriting agreement in customary form containing such
provisions for indemnification and contribution as shall be reasonably requested
by the underwriters. The reimbursements required by this Section 7(a) will be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(b) In connection with any registration statement in which a holder of
Registrable Shares is participating, each such holder will furnish to the
Corporation in writing such information as the Corporation reasonably requests
for use in connection with any registration statement or prospectus and, to the
fullest extent permitted by law, will indemnify the Corporation, its directors
and officers and each Person who controls the Corporation (within the meaning of
the Securities Act) against any losses, claims, damages, liabilities and
expenses (including, without limitation, attorneys' fees except as limited by
Section 7 (c)) resulting from any untrue statement of a material fact contained
in the registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information furnished in writing by such holder for use in
preparing such registration statement, prospectus, amendment or supplement;
provided that such liability of each holder will be limited to the net amount
received by such holder from the sale of Registrable Shares pursuant to such
registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification
<PAGE> 10
(provided that the failure to give such notice shall not limit the rights of
such Person) and (ii) unless in such indemnified party's reasonable judgment
(with written advice of counsel) a conflict of interest between such indemnified
and indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
(with written advice of counsel) of any indemnified party a conflict of interest
may exist between such indemnified party and any other of such indemnified
parties with respect to such claim.
(d) Each party hereto agrees that, if for any reason the
indemnification contemplated by Section 7(a) or Section 7(b) is unavailable to
or insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages, liabilities or expenses (or actions in respect thereof)
referred to therein, then the indemnifying party and the indemnified party or
parties shall contribute to the amount paid or payable as a result of such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party or parties as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and indemnified party or parties shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by such indemnifying party or indemnified party or parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The parties hereto agree that it
would not be just and equitable if contribution pursuant to this Section 7(d)
were determined by pro rata allocation (even if the holders or any underwriters
or all of them were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this Section 7(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above shall be deemed to include any
legal or other fees or expenses reasonably incurred by such indemnified party or
parties in connection with investigating or, except as provided in Section 7(c),
defending any such action or claim. Notwithstanding the provisions of this
Section 7 (d), no holder of Registrable Securities shall be required to
contribute an amount greater than the dollar amount of the net proceeds received
by such holder with respect to the sale of any Registrable Shares. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. No holder shall be required to
contribute under this Section 7(d) unless such holder would be obligated to
indemnify the Company under the literal wording of Section 7(b).
(e) The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf
<PAGE> 11
of the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities.
8. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
9. No Inconsistent Agreements. The Corporation will not hereafter enter
into any agreement with respect to its securities which is inconsistent with the
rights granted to the holders of the Registrable Shares in this Agreement.
10. Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
11. Amendments and Waivers. Except as otherwise expressly provided herein,
the provisions of this Agreement may be amended or waived at any time only by
the written agreement of the Corporation and the holders of 80 percent of the
then existing Registrable Shares; provided that any such amendment or waiver
shall apply equally to all holders of Registrable Shares. Any waiver, permit,
consent or approval of any kind or character on the part of any such holders of
any provision or condition of this Agreement must be made in writing and shall
be effective only to the extent specifically set forth in writing.
12. Successors and Assigns. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto, whether so expressed or not. In
addition and whether or not any express assignment has been made, the provisions
of this Agreement which are for the benefit of purchasers or holders of
Registrable Shares are also for the benefit of, and enforceable by, any
subsequent holder of Registrable Shares who consents in writing to be bound by
this Agreement. However, any successor, assign or holder to have the benefits of
this Agreement must at the request of the Corporation agree to be bound by the
terms hereof.
13. Final Agreement. This Agreement constitutes the final agreement of the
parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
14. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be
<PAGE> 12
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
15. Descriptive Heading. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
16. Notices. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service to the following addresses, or such other
addresses as shall be given by notice delivered hereunder, and shall be deemed
to have been given upon delivery, if delivered personally, three business days
after mailing, if mailed, or one business day after delivery to the courier, if
delivered by overnight courier service: (i) if to the holders of Registrable
Shares, to the addresses set forth on the record books of the Corporation; and
(ii) if to the Company, to its principal executive office.
17. Governing Law. The validity, meaning and effect of this Agreement shall
be determined in accordance with the laws of the State of Colorado applicable to
contracts made and to be performed in that state.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument. Each
party shall receive a duplicate original of the counterpart copy or copies
executed by it and the corporation.
19. Attorneys' Fees. In the event of any action or suit based upon or
arising out of any actual or alleged breach by any party of any representation,
warranty or agreement in this Agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and expenses of such action or suit
from the other party, in addition to any other relief ordered by the court.
This Registration Agreement was executed on the date first set forth above.
United States Exploration, Inc.
By: /s/ F. Michael Murphy
-----------------------------------------
F. Michael Murphy
Vice President, acting at the direction of the
Special Committee of the Board of Directors
/s/ Bruce D. Benson
-----------------------------------------
Bruce D. Benson
<PAGE> 1
EXHIBIT 10.7
AMENDMENT TO CREDIT AGREEMENT AND NOTE
This Amendment to Credit Agreement and Note is made as of May 18, 2000 by
United States Exploration, Inc., a Colorado corporation ("Borrower"), Producers
Service Incorporated, a Kansas corporation ("Guarantor"), and Benson Mineral
Group, Inc., an Oklahoma corporation ("BMG").
RECITALS
A. Pursuant to that certain Agreement dated as of April 14, 2000 (the "Note
Purchase Agreement") by and among ING (U.S.) Capital LLC, as successor-by-merger
to ING (U.S.) Capital Corporation ("Original Lender"), Borrower and the other
parties thereto, BMG as Permitted Designee under the Note Purchase Agreement is
contemporaneously purchasing from Original Lender on the date hereof (i) that
certain promissory note (the "Note") dated as of May 15, 1998, executed by
Borrower and payable to the order of Original Lender, in the original principal
amount of $35 million, (ii) Original Lender's interest in that certain Credit
Agreement dated as of May 15, 1998 (the "Credit Agreement") executed by and
between Borrower, as borrower, and Original Lender as "Agent" and "Lender" (as
such terms are defined in the Credit Agreement), and (iii) Original Lender's
interest under all other Loan Documents (as defined in the Credit Agreement).
B. BMG is paying $4,000,000 to the Original Lender for the Note and the
Original Lender's rights under the Credit Agreement and the other Loan
Documents. Borrower is contemporaneously paying or causing to be paid to the
Original Lender the balance of the purchase price of the Note and such rights as
specified in the Note Purchase Agreement. Borrower and BMG have agreed that the
payments made or caused to be made by Borrower to the Original Lender shall be
payments on the Note and that BMG will write the Note down to the amount
actually paid by it for the Note.
C. Pursuant to the terms and conditions of this Amendment, BMG and Borrower
desire to amend the Credit Agreement and the Note in certain other respects, on
the terms and subject to the conditions contained herein.
AGREEMENT
Accordingly, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, and subject to the
conditions set forth below, the parties hereto agree as follows:
Section 1. Amendment of Note.
1.1 Reduction of Principal Balance. The outstanding
principal balance of the Note is hereby reduced to $4,000,000.
<PAGE> 2
1.2 Interest; Repayment. The Note is hereby amended to
replace the third through the sixth grammatical paragraphs thereof with the
following language:
The principal amount of this Note shall bear interest from
and after May 18, 2000 at the rate of 9% per annum, compounded
quarterly. In the event that this Note is not paid when due or
declared due hereunder, the entire overdue amount, including
both principal and interest, shall thereafter bear interest at
the rate of 15% per annum, compounded quarterly, until fully
paid. Interest on overdue amounts shall be payable on demand.
The principal and all accrued interest on this Note shall
be due and payable in a single payment on May 17, 2001.
1.3 Legend on Note. Upon the delivery of the Note to BMG by
the Original Lender, BMG agrees to endorse the Note with the following legend:
This Note has been amended by an Amendment to Credit Agreement
and Note between the Maker and Benson Mineral Group, Inc.
dated May 18, 2000, and is subject to the terms of that
Amendment.
Section 2. Amendments to Credit Agreement. The Credit
Agreement is hereby amended as follows:
2.1 Certain References. All references to "Agent",
"Lender", "Lenders", "Bank Party" or "Bank Parties" shall be deemed or referred
to BMG.
2.2 Termination of Commitments. All commitments of the
Lenders to make further loans to Borrower or to issue letters of credit for the
benefit of Borrower are hereby terminated.
2.3 Default Rate. The definition of "Default Rate" in
Section 1.1 of the Credit Agreement is amended to read in its entirety as
follows:
"Default Rate" means 15% per annum, not to exceed the Highest
Lawful Rate.
2.4 Termination of Fees. The obligation of Borrower to
pay fees under Section 2.5 is hereby terminated.
2.5 Prepayments. Section 2.6 of the Credit Agreement
is amended to read in its entirety as follows:
- 2 -
<PAGE> 3
Borrower may prepay the Note in whole or in part at any time
without premium or penalty.
2.6 Repayment. Section 2.7 of the Agreement is amended
to read in its entirety as follows:
The principal amount of the Note and all accrued interest
thereon shall be due and payable in a single payment on May
17, 2001.
2.7 Place of Payment. Section 3.1 is amended to
provide that Borrower will make each payment under the Loan Documents to BMG at
BMG's offices in Denver, Colorado in immediately available funds, without
setoff, deduction or counterclaim.
2.8 Elimination of Financial Covenants. Sections 7.11,
7.12 and 7.13 of the Agreement are deleted.
2.9 Expenses. The expenses of BMG (including
attorneys' fees, travel costs and miscellaneous expenses) in connection with (i)
the negotiation, preparation, execution and delivery of this Amendment and all
other documents or instruments relating thereto, (ii) the filing, recording,
refiling and re-recording of any and all documents necessary to reflect the
acquisition by BMG of the Note and the rights of the Original Lender under the
Credit Agreement and the other Loan Documents, (iii) the acquisition of the
Note, the Credit Agreement and the other Loan Documents from the Original Lender
and any action reasonably required in the administration thereof following such
acquisition, (iv) monitoring or confirming (or preparation or negotiation of any
document related to) Borrower's compliance with any covenants or conditions
contained in the Credit Agreement or in any other Loan Document and (v) all
reasonable costs and expenses incurred by or on behalf of BMG (including
attorneys' fees, consultants' fees, and accounting fees) in connection with the
defense or enforcement of any of the Loan Documents or any exercise by BMG of
its rights hereunder or under the Credit Agreement or any other Loan Document,
are included as expenses payable by Borrower pursuant to Section 10.4.
Section 3. Forgiveness of Other Amounts Due. Except for the
principal amount of the Note as amended by Section 1.1 of this Amendment and
interest accruing thereon from and after the date hereof, BMG hereby irrevocably
forgives and discharges (i) the principal amount of the Note to the extent that
it exceeds the amended principal amount specified above, (ii) all interest on
the Note accruing prior to the date hereof, (iii) all fees owed by Borrower
under Section 2.5 of the Credit Agreement, (iv) all expenses owed by Borrower
under Section 10.4 of the Credit Agreement, other than expense of BMG as
provided in Section 2.9 above and (v) all defaults, breaches, violations or
other noncompliance by Borrower with the terms and conditions of the Credit
Agreement or any other Loan Document prior to the date hereof. Nothing contained
in this Amendment will excuse Borrower from its obligation to comply with the
terms and conditions of the Credit Agreement and the other Loan Documents from
and after the date hereof until all amounts owing under the Note, as amended
hereby, have been paid in full. It is the purpose and intent of
- 3 -
<PAGE> 4
Borrower and BMG that BMG shall have all of the rights and benefits of the
Original Lender under the Credit Agreement and the other Loan Documents with
respect to the amounts owing under the Note as amended hereby, and that Borrower
shall comply with all of the terms and conditions of the Credit Agreement, as
amended hereby, and the other Loan Documents from and after the date hereof.
Section 4. Release of Liens as to Certain Properties. BMG
agrees, simultaneously with its acquisition of the Note, to execute such
documents and instruments as the Borrower may reasonably request to release the
lien created by the Loan Documents on the leases and wells described in Exhibit
A hereto. Such release shall not affect BMG's continuing liens on the rest of
the collateral covered by the Loan Documents.
Section 5. Release of Liens Upon Kansas Properties. BMG
acknowledges that Borrower intends to sell its properties located in the State
of Kansas that are subject to the liens created by the Loan Documents. BMG
agrees, upon any such sale and at the request of Borrower, to release its liens
on such properties. In addition, if the sale also involves the stock of
Guarantor, BMG agrees to release its pledge of such stock and to release its
security interest in the assets of Guarantor. The proceeds of any such sale of
the Kansas properties or the stock of Guarantor shall be applied against the
Note.
Section 6. Acknowledgment of Assignment of Guarantee.
Guarantor acknowledges and consents to the assignment of its guarantee of the
obligations of Borrower under the Loan Documents to BMG and agrees that such
assignment shall not affect in any way its obligations under the Loan Documents.
Section 7. Agreement to Refinance or Prepay. Borrower
acknowledges that BMG has agreed to acquire the Note as an accommodation to
enable Borrower to exercise its option under the Note Purchase Agreement and
that the amended maturity of the Note is intended to give Borrower a reasonable
opportunity to refinance the indebtedness represented by the Note or otherwise
prepay the Note. Borrower agrees to use its best efforts to refinance the Note
as soon as reasonably possible and to use the proceeds of any such refinancing
to pay the Note or purchase the Note from BMG for an amount equal to the amended
principal thereof plus accrued interest thereon. Borrower acknowledges that the
terms of any such refinancing will probably be less favorable to Borrower than
the terms of the Note and Credit Agreement as amended hereby. If Borrower is
unable to refinance the Note or has not yet refinanced the Note when other funds
are available or can be obtained for prepayment, it agrees to use its best
efforts to prepay the Note from internally generated funds, proceeds of the sale
of properties or otherwise. Nothing contained in this Section 7 shall excuse
Borrower from its obligations to pay the Note, as amended, when due or declared
due under the Credit Agreement as amended hereby.
Section 8. Conditions Precedent. The effectiveness of this
Amendment and the obligations and agreements of BMG hereunder are subject to the
following conditions precedent:
- 4 -
<PAGE> 5
(a) Borrower shall have paid or caused to be paid to
the Original Lender such amounts as may be necessary, in addition to the amount
to be paid by BMG as indicated herein, to pay the full purchase price of the
Note under the Note Purchase Agreement;
(b) The Board of Directors of Borrower shall have
duly authorized this Amendment by all necessary corporate action and Borrower
shall have been duly executed and delivered this Amendment; and
(c) The Original Lender shall have delivered the Note
to BMG, endorsed as provided in the Note Purchase Agreement, and shall have
executed and delivered to BMG the Assignment of Note and Liens attached as
Exhibit A to the Note Purchase Agreement.
Section 9. No Other Amendments. Except as expressly amended
hereby, the Credit Agreement and the other Loan Documents shall remain in full
force and effect and are hereby ratified and confirmed by Borrower.
IN WITNESS WHEREOF, Borrower, Guarantor and BMG have executed
this Agreement as of the day and year first above written.
United States Exploration, Inc.
By: /s/ F. Michael Murphy
-------------------------------------------------
F. Michael Murphy, Vice-President acting at the,
direction of the Special Committee of the
Board of Directors
Producers Service, Incorporated
By: /s/ F. Michael Murphy
-------------------------------------------------
F. Michael Murphy, Vice-President, acting at the
direction of the Special Committee of the
Board of Directors
Benson Mineral Group, Inc.
By: /s/ Bruce D. Benson
-------------------------------------------------
Bruce D. Benson, President
- 5 -
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2,658,996
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