<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. _______________
==============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
UPLAND ENERGY CORPORATION
(Name of Small Business Issuer in its Charter)
Utah 87-0430780
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 South Main Street, Suite 1423, Salt Lake City, Utah 84111
- --------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 537-5010
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
- ----------------------------------------
(Title of Class)
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<PAGE>
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UPLAND ENERGY CORPORATION
FORM 10-SB
TABLE OF CONTENTS
PART 1 Page
Item 1. Description of Business ..................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operation ... 8
Item 3. Description of Property...................................... 11
Item 4. Security Ownership of Certain Beneficial Owners
and Management.............................................. 13
Item 5. Directors, Executive Officers, Promoters
and Control Persons......................................... 14
Item 6. Executive Compensation....................................... 15
Item 7. Certain Relationships and Related Transactions............... 17
Item 8. Description of Securities.................................... 17
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters................. 19
Item 2. Legal Proceedings............................................ 20
Item 3. Changes in and Disagreements with Accountants................ 20
Item 4. Recent Sales of Unregistered Securities...................... 20
Item 5. Indemnification of Directors and Officers.................... 21
PART F/S
Financial Statements......................................... 23
PART III
Item 1. Index to Exhibits............................................ 23
Signatures................................................... 49
PAGE
<PAGE> 3
PART I
Item 1. Description of Business
Corporate History
- -----------------
Upland Energy Corporation, a Utah corporation (the "Company") was
originally organized in Utah on January 30, 1986, under the name Upland
Investment Corporation, to engage in the acquisition and/or development of
assets, properties or businesses of any kind. In connection with its
organization, the Company sold 3,340,000 shares of restricted common stock,
par value $0.001 per share (the "Common Stock") to its original officers and
directors and other founding shareholders for $12,500. In September, 1986,
the Company completed a public offering of 10,000,000 shares of common stock
at a price of $0.0125 per share which resulted in net proceeds to the Company
of approximately $98,897 after deducting sales commissions and other expenses
of the offering. The offering was conducted pursuant to the exemption from
the registration requirements of the Securities Act of 1933 provided by Rule
504 of Regulation D promulgated thereunder.
In October 1987, the Company granted options to John W. Hobbs, then a
new
director of the Company, entitling him to purchase up to 250,000 pre-split
shares of Common Stock at a price of $0.004 per share. The options were
exercised with respect to all 250,000 shares. In December, 1992, the Company
granted John W. Hobbs and Milo L. Carlston, officers and directors of the
Company, stock options entitling them to purchase a total of 400,000 shares
of
Common Stock at an exercise price equal to the book value of such shares on
the date of exercise. Such options were exercised with respect to all
400,000
shares in October 1993, at an exercise price of $0.0046 per share.
During the 1991 fiscal year, the Company conducted negotiations with
respect to the acquisition of a Florida corporation involved in the
development of a fluid level monitoring system for underground fuel storage
tanks. The acquisition was not completed; however, during the course of
negotiations, the Company loaned such company $25,000 pursuant to the terms
of
a promissory note. The note has not been repaid despite demand by the
Company
and the Company has concluded that the note is uncollectible.
In November 1993, the Company acquired G.S. & C., Inc., a Nevada
corporation ("GSC") in a stock for stock transaction. Prior to the
acquisition, the Company effected a 1-for-2 reverse split in its issued and
outstanding shares of Common Stock reducing the number of shares outstanding
immediately prior to the acquisition of GSC from 13,990,000 to 6,995,000.
The
Company then issued 25,297,500 post-split shares of its Common Stock to the
shareholders of GSC in exchange for all issued and outstanding shares of
GSC.
In connection with the transaction, the name of the Company was changed from
Upland Investment Corporation to Upland Energy Corporation to better reflect
the Company's business activities. For financial statement purposes, the
transaction has been accounted for as a "reverse acquisition" as if GSC had
acquired the Company. As a result, the financial statements included
herewith
present the operations of GSC from inception and include Upland's operations
only from the date of the acquisition.
PAGE
<PAGE> 4
GSC was organized under the laws of Nevada on September 1, 1993. Prior
to the Company's acquisition of GSC in November 1993, GSC had made the
following issuance of its Common Stock: (i) 3,000,000 shares to its officers,
directors and founding shareholders for $3,000; (ii) 365,834 shares to two
officers and directors and one other person providing finders' services in
connection with the acquisition of certain oil and gas properties in the
state
of Kansas; and (iii) 5,066,671 shares in a private placement to 20 investors
for $304,000. As a result, immediately prior to its acquisition by the
Company, GSC had 8,432,505 shares of Common Stock outstanding which were
exchanged for 25,297,500 shares of the Company's Common Stock on the basis of
approximately three shares of the Company for each share of GSC.
During 1994, the Company sold 7,490,000 shares of restricted Common
Stock
in a private placement at a price of $0.05 per share. The Company realized
net proceeds from the offering of approximately $344,516 after deducting
offering costs in the amount of $29,984.
In January 1995, the Company issued a total of 2,425,000 shares of
restricted stock to officers, consultants and third party contractors as
compensation for services provided to the Company. John W. Hobbs and T. Kent
Rainey, officers of the Company, received 250,000 and 950,000 shares Common
Stock, respectively.
On March 20, 1995, the Company effected a 1-for-20 reverse split in its
issued and outstanding shares of Common Stock which reduced the number of
issued and outstanding shares from 42,207,501 to approximately 2,110,375
shares. The share and per share data set forth herein and the accompanying
financial statements give effect to such reverse stock split. During the
third quarter of 1996, the Company engaged in a private placement raising
$350,000 through the sale of 500,000 units consisting of one share of Common
Stock and one common stock purchase warrant (the "Warrants"). Each Warrant
had an exercise price of $1.50 and was exercisable for a period of five
years. In February 1997, 500,000 warrants were exercised raising gross
proceeds of $750,000. (See: Item 4. "Recent Sales of Unregistered
Securities.")
Operations
The Company is engaged through the activities of its wholly-owned
subsidiary, GSC, in the business of exploring for and developing oil and gas
reserves. Unless otherwise indicated, GSC and Upland are collectively
referred to herein as the "Company."
On or about November 17, 1993, GSC entered into an operating agreement
(the "Operating Agreement") with KLM Exploration, Inc. and Kenneth L. Mason
(collectively "KLM") pursuant to which KLM transferred to GSC certain rights
and obligations of KLM under a farmout agreement (the "Farmout Agreement"),
dated August 28, 1993, entered into between KLM and Williams Natural Gas
Company ("Williams") with respect to certain property located in the state of
Kansas commonly referred to as the McLouth Natural Gas Storage Field
("McLouth
Field"). The Operating Agreement was approved by Williams and the Farmout
Agreement was amended to make certain changes agreed to by the parties. GSC
paid KLM $100,000 pursuant to the terms of an earlier agreement in principle
as consideration for KLM entering into the Operating Agreement. Through
these
agreements, GSC has turned over much of the daily control of these fields to
KLM and its operators. A summary of certain of the more significant
provisions
of the Operating Agreement is set forth below. Because the Operating
Agreement is a complex document which must be interpreted in accordance with
practices and terminology prevailing in the oil and gas industry, such
summary
is not purported to be complete and is qualified by reference to the
Operating
Agreement, the Farmout Agreement, and the amendment to the Farmout Agreement.
<PAGE> 5
The Operating Agreement generally provides as follows:
1. The Company had to submit a proposal to KLM and Williams with
respect
to the drilling of 8 wells on the Property prior to December 31, 1993. All 8
wells were drilled prior to December 31, 1993, and the Company and KLM
determined to complete 7 of the 8 wells.
2. All wells, including their location, depth, casing and cementing
program, equipment, drilling mud, and other items must be approved in advance
by Williams. KLM shall be the operator of wells drilled on the Property and
shall conduct or have full control over all operations of the wells drilled
on
the Property. KLM shall also be responsible for obtaining all operating
bonds
and permits and to maintain insurance coverage. For acting as operator, the
Company shall pay KLM $1,000 per well, over and above the invoice costs
incurred from contractors in connection with the drilling and completion of
each well, and shall pay KLM $100 per month for the first well completed and
$95 per month for each additional well completed which payments continue with
respect to all completed wells until such time as they are plugged and
abandoned. Notwithstanding the terms of the Operating Agreement, the Company
has provided a $10,000 standby letter of credit as partial security for the
performance of the obligations of KLM and the Company in connection with
drilling activities on the Property.
3. KLM grants the Company a first right of refusal to perform all
drilling on the Property, except with respect to approximately 6,000 acres
reserved to KLM as a result of its currently producing wells, pursuant to
which KLM must provide the Company with 30 days' advance notice of any third
party's drilling proposal and give the Company 30 days to match such
proposal. To date, KLM has not presented the Company with any competing
drilling proposals.
4. On the spud-in date of any wells drilled pursuant to the Operating
Agreement, KLM will convey or assign to the Company all leases to be secured
by such drilling. KLM also granted the Company the first right of refusal to
acquire KLM's interests in the Property in the event it should desire to sell
such interests to a third party and, in any event, the Company reserved the
right to 5,000 acres within the Property by completing its initial 8 well
drilling program.
5. The Company has the sole right to determine to whom it will sell the
production from wells drilled on the Property.
6. Unless otherwise provided in the Farmout Agreement, all costs and
liabilities incurred in operations shall be borne and paid and all equipment
acquired in the operations on the Property shall be owned as follows:
Interest Holder Type of Interest Interest
- --------------- ---------------- --------
The Company Working 75%
KLM Working, Carried through Tanks 25%
Williams Overriding Royalty 1/16 of 8/8
Existing Lease Holder Overriding Royalty 1/8 of 8/8
Land Man Overriding Royalty 1/100 of 8/8
In November 1993, GSC granted a 2 1/2% overriding royalty interest in
the
McLouth Field against its working interest to three persons who at the time
were directors of GSC as compensation for services rendered to GSC.
PAGE
<PAGE> 6
During 1995 and 1996, the Company focused on the McLouth Field.
However,
under the direction of the Company's current management, Felix Ascanio and
John Hobbs, the Company has changed its principal focus from the McLouth
Field
to the Hittle Field in central Kansas. Management refocused the Company's
efforts towards the Hittle Field based on management's' belief that the
McLouth Field would not prove as profitable over time as the Hittle Field and
due to the fact the McLouth Field was subject to Operating Agreements which
were restricting the Company's ability to develop the field the way current
management wanted. Additionally, the McLouth Field has been the subject of
litigation over KLM's operation of the field. (See Part II, "Item 2, Legal
Proceedings.")
The Hittle Field originally consisted of approximately 560 acres and was
acquired for $6,000 in cash and a 15.6% royalty interest in the leases. In
the
first quarter of 1997, the Company expanded its lease holdings on the Hittle
Field through the acquisition of an additional 580 acres at a cost of $1,400
with a 16.01% royalty interest remaining with the lessors. The Company is
seeking to expand its lease holdings on the Hittle Field through the
acquisition of additional acreage. There can be no assurance the Company
will
be successful in its efforts to acquire additional acreage. Failure to
acquire additional acreage will affect future earnings potential of the
Company.
The Company has drilled one initial well, the H-1, in the Hittle Field.
The H-1 has shown promising results but has not been completed for
production. The Company has made an application to the Kansas Corporation
Commission, which must approve the completion of the H-1 well, to complete
the
well with two laterals. Once approval is received from the Kansas
Corporation
Commission, the Company will commence the completion of the well. Although
initial shows from the well appear promising until the well is complete there
remains substantial uncertainty and risk as to the wells economic viability
and that of the Hittle Field.
Drilling and Exploration Activities
The Company depends greatly on the expertise and experience of its
president, Felix Ascanio, who is the companies only inside source for
expertise on oil and gas exploration and drilling. As a result of the
limited
human resources of the Company, and its limited financial resources, the
Company will only explore the Hittle Field for the immediate future. If the
Hittle Field should prove to contain quantities of oil to make it
economically
feasible to operate and a significant cash flow is generated from the field,
the Company will hire additional personnel to assist Mr. Ascanio and will
seek
other oil and gas leases and fields, initially in the Kansas area where Mr.
Ascanio has been studying the geology and oil and gas potential.
In the Company's exploration and drilling efforts the Company has relied
extensively on seismic data and computer modeling to identify sites it feels
posses the most potential of producing economic oil and gas wells. Even with
these scientific data, there is still substantial risk that wells will be dry
or oil will not be found in significant quantities to be economical to
produce.
Competition and Markets
The Company competes with numerous other firms and individuals in its
oil
and gas activities. The Company's competitors include major oil companies
and
other independent operators, many of which have financial resources, staffs,
and facilities substantially greater than those of the Company.
Additionally,
the Company faces intense competition in obtaining risk capital for test
drilling and may be at a competitive disadvantage as compared with companies
with proven records of successful operations.
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The Company also faces competitive pressures as it tries to acquire
additional oil and gas leases on the Hittle Field and surrounding area. The
Company believes if its H-1 well proves successful that lease speculators,
independent oil firms, and major oil companies, many of which may have larger
financial and other resources than the Company will attempt to acquire
leases. This may have the effect of driving the prices of leases up
substantially and make it difficult for the Company to obtain additional
leases. The ability to acquire leases is often determined by the amount of
cash paid to acquire the lease, the royalty or other interest retained by the
transferor, and the nature of any commitment to drill on the lease acreage.
In the case of a drilling commitment, the ability to acquire leases is also
determined by the perception of the lease holder of the Company's ability to
perform such commitment.
The Company believes there are several sources which will buy any oil or
gas it produces. The prices obtained for production of oil depends on a
number of factors beyond the Company's control, the effects of which cannot
be
accurately predicted. Such factors include the extent of domestic production
and imports of oil; the competitive position of oil and gas as a source of
energy compared to alternative sources such as coal, atomic energy,
hydroelectric power, and other energy forms; the refining capacity of
prospective purchasers; transportation costs; the availability and capacity
of
pipelines and other means of transportation; and the effect of federal and
state regulation on production, transportation, and sale of oil and gas.
Government Regulation
In conducting exploration, drilling and completion activities, the
Company will be subject to a number of state and federal regulations with
respect to well spacing, drilling depths, completion and plugging procedures
and other items. The Company intends to comply with such regulations and
does
not anticipate any adverse effect on its planned activities as a result of
such regulations. The Company must seek approval from the Kansas Corporation
Commission on any wells drilled and placed in operation in Kansas. In the
past, the Company has not had problems receiving approval from the Kansas
Corporation Commission although no assurance can be given on future
applications.
It is probable that state and federal environmental laws and regulations
will become more stringent in the future. There can be no assurance,
however,
that measures to further regulate the production and even the disposable of
oil waste will not have a significant impact on the operating costs of the
Company and the oil and gas industry in general, resulting in the potential
that certain wells may become uneconomical.
Operational Hazards and Insurance
The Company's operations are subject to the normal hazards incident to
the drilling for and the production of oil, such as blowouts, cratering,
explosions, uncontrollable flows of oil or well fluids, fires, pollution,
releases of toxic gas, and other environmental hazards and risks. These
hazards can cause personal injury and loss of life, severe damage to and
destruction of property and equipment, pollution or environmental damage, and
suspension of operations.
PAGE
<PAGE> 8
The Company maintains insurance of various types to cover its operation
including one million in general liability insurance. The Company's
insurance
does not cover every potential problem and may not be enough to cover any
particular incident. In particular, the Company does not have insurance on
certain types of environmental hazards. The occurrence of a significant
adverse event, the risks of which are not fully covered by insurance, could
have a materially adverse effect on the Company. Moreover, no assurance can
be given that adequate insurance will be available at reasonable rates or
that
the Company or the operators of wells in which the Company owns an interest
will elect to maintain certain types or amounts of insurance.
Employees
The Company has 2 employees consisting of its president, Felix Ascanio,
and its secretary, John Hobbs who are both directors of the Company. (See
"Directors and Executive Officers.")
Offices
The Company's principal executive offices are located at 175 South Main,
Suite 1423, Salt Lake City, Utah 84111. These offices are rented on a month
to month basis with monthly rent of $121. Additionally, the Company rents
offices in Lawrence, Kansas at a monthly rental of $500. The Company
believes that the above facilities are adequate for the foreseeable needs of
the Company; however, as the Company expands its employee base, it
anticipates
adding additional office space.
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
The Company had no significant operation until the acquisition of GSC in
November 1993. Through the acquisition of GSC, the Company moved into the
oil
and gas industry. From 1994 though the first part of 1996, the Company's
focus was primarily on the McLouth Field in Kansas and its development. In
mid 1996, the Company's focus changed under the direction of its new
president, Felix Ascanio, who felt other fields in Kansas offered greater
potential, particularly given the perceived problems with the Operating
Agreement between GS&C and KLM on the McLouth Field.
In 1996, the Company acquired an initial 560 acres in the Hittle Field
in
Kansas and began an exploration process on the field which led to a well, the
H-1, being drilled at the end of 1996. With initial test results seeming
promising on this well, the Company is seeking to acquire additional acreage
in the Hittle Field, having acquired an additional 580 acres since the
beginning of 1997, and intends to complete the initial well with two
laterals. Due to the unknowns in completing any well, no assurance can be
given that the well will actually produce and if it does produce that
sufficient quantities of oil will be produced to make the well economical.
The Company anticipates focusing on the development of the Hittle Field
in 1997 and reducing its focus on the McLouth Field unless the litigation is
resolved in a timely and successful manner. If sufficient revenues are
derived
from the Hittle Field, the Company would seek other oil and gas properties
which management felt were promising, but currently time and financing
constraints have prevented the Company from analyzing any other potential
projects.
<PAGE> 9
Plan of Operation
The Company intends to place the H-1 well on line in the second quarter
of 1997. Once the H-1 is completed, the Company has selected another site
where it intends to drill its second well in the Hittle Field. Due to the
man
power limitations of the Company, it is expected that, at present time, each
new site for a well will take approximately two months of study before
selecting. Accordingly, it is the Company's hope depending on how each new
well performs to drill new wells every two to three months in the Hittle
Field
over the next several years. If the H-1 produces oil in economic quantities,
the Company anticipates hiring an additional petroleum engineer to assist in
the analysis of future well sites and the operations of existing wells.
Future drilling will be dependent on the revenue derived from operation
and potentially on the Company's ability to raise additional funds.
Presently, with the completion of the Company's recent private placement, the
Company has approximately $650,000 in available funds. It is anticipated
that
the completion of the H-1 will cost approximately $100,000 to $120,000 and
each additional well will cost $100,000 and may go as high as $150,000 if
laterals are used in the completion process.
The Company hopes to resolve its disputes on the McLouth Field this year
and may seek a buyer for the field if the litigation proves successful. If
the Company ends up keeping the McLouth field, the Company's goal will be for
the McLouth Field to provide sufficient revenue for it to support its
operation and potential offset some of the Company's other expenses. The
Company does not anticipate that the McLouth Field will be a significant
revenue producer in the foreseeable future.
As the Company has limited revenue at this point, which is insufficient
to cover its overhead and ongoing exploration activities, the Company will be
heavily dependent on the success of the H-1 well and future wells. At this
point, there can be no assurance of any success from the H-1 well or any
future wells. The Company's future success may, therefore, be dependent on
its ability to raise additional capital to fund further drilling and
exploration.
Liquidity and Capital Resources
At December 31, 1996, the Company had working capital of $204,196 with
$978,754 in total assets and $14,536 in total liabilities. The assets of the
Company included $77,737 in a deferred tax asset and $26,776 in prepaid
assets
which were classified as current assets. Accordingly, at the end of 1996,
the
Company had only $114,217 in current assets which could be used for the
payment of expenses. In the first quarter of 1997, the Company completed a
private placement raising gross proceeds of $750,000 through the exercise of
500,000 warrants held by existing shareholders of the Company.
The Company has made a commitment to complete the H-1 well in the Hittle
Field at a cost of up to $120,000. With the cash the Company has on hand it
believes it can finish the H-1 well and drill three to four new wells in the
Hittle Field. However, as the Company has very little revenue from existing
wells, if these new wells are not successful, or if the price of oil should
fall, the Company would have to seek outside sources of funding to continue
its exploration activities. There can be no assurance that any outside
sources of funding could be found.
PAGE
<PAGE> 10
Results of Operations
1996
The Company entered 1996 in need of cash to continue its operation and
with the officers of the Company either foregoing being paid or taking
reduced
salaries. In an effort to continue operations, the Company engaged in a
private placement of its securities raising $350,000. The cash received from
the private placement allowed the Company to continue in operation and
commence new drilling activities on the Hittle Field.
Operating revenue in 1996 continued to stay fairly constant with
revenues
of $177,315. This revenue was not sufficient to offset expenses which
increased due to exploration cost of $80,510, additional professional fees
related to the private placement and litigation of $29,719 and general and
administrative expenses which increased to $349,454. The general and
administrative expenses showed the largest increase from 1995 with it
increasing $207,894. Although general and administrative expenses increased
substantially, the majority of the expenses were non cash. General and
administrative expenses included $210,100 in non cash items related to the
receipt of options by officers of the Company. These options were granted at
a below market price to help compensate the officers for what the Company
perceived as salaries which were substantially less then they could receive
elsewhere and for deferring some salary when the Company was in a cash
crunch. Both officers exercised their options in 1997.
As a result of the increase in expenses, the Company had a net loss of
$384,234 for the year ended December 31, 1996. The Company is hopeful that
the exploration cost incurred in 1996 will result in profitable well
operations in 1997 although there can be no assurance of profitability. The
Company does feel that it will be able to continue its current level of
exploration and drilling through 1997 with the funds received through the
exercise of the Company's outstanding Warrants. It will be necessary,
however, for the Company to start producing oil revenue in quantities
sufficient to offset expenses by the end of the year or future exploration
will be jeopardized.
1995
During the year ended December 31, 1995, the Company had revenue of
$177,316 with expenses of $258,311. The major expenses were in production
cost of $73,731 and general and administrative of $141,560. Although
production expense remained fairly constant from 1994 when it was $78,051,
the
general and administrative expenses jumped from $14,337 in 1994. This
increased included $48,500 in non-cash expenses related to options granted to
officers of the Company. Additionally, the Company began paying a salary to
Mr. Hobbs and hired Mr. Ascanio.
These additional expenses resulted in the Company losing $80,995 from
operations as opposed to the small amount of income from operations of
$12,002
in 1994. As a result of this loss and additional expenses the Company's cash
reserves were reduced to $17,619 from $47,995 in 1994.
PAGE
<PAGE> 11
Item 3. Description of Property
Oil and Gas Properties
The Company's oil and gas properties are located in Kansas. The
properties consist of two fields, the McLouth and Hittle Fields. The Hittle
Field has only recently had exploration activities on it by the Company with
only one well drilled to date which is pending completion. The McLouth Field
has 13 producing shallow oil and gas wells located on approximately 197
acres.
The McLouth field is subject to a farmout agreement with the Company
maintaining a 75% working interest of which 2½% has been transferred to
former officers of the Company. (See: Part I, Item 1. "Description of
Business").
In the oil and gas industry and as used herein, the word "gross" well or
acre is a well or acre in which a working interest is owned; the number of
gross wells is the total number of wells in which a working interest is
owned. A "net" well or acre is deemed to exist when the sum of fractional
ownership working interests in gross wells or acres equals one. The number
of
net wells or acres is the sum of the fractional working interests owned in
gross wells or acres.
Wells and Acreage
Shown below are tabulations of the productive oil (including casinghead
gas) wells and developed and undeveloped acreage owned by the Company as of
December 31, 1996.
Gross Acreage
-------------------------------
Productive Oil Wells Developed Undeveloped
- -------------------- --------- -----------
Gross Net(1) Gross Net(2) Gross Net(3)
----- ------ ----- ------ ----- ------
19 15.25 190 152.50 567 555.25
- -------------------
(1) Based on a 75% ownership working interest on the McLouth Field and a
100% ownership working interest on the Hittle Field.
(2) Calculated on 15 wells with a 75% ownership interest on the McLouth
Field and four wells with a 100% ownership interest on the Hittle Field.
(3) Corresponds to 47 undeveloped acres in the McLouth Field with a 75%
ownership interest and 520 undeveloped acres in the Hittle Field with 100 %
ownership interest.
Fifteen of the above oil wells are all located on the McLouth Field,
which as noted above, does not figure prominently in the Company's future
exploration or development program. See notes 3 and the supplemental
information to the Company's December 31, 1996 and 1995, financial statements
for additional information regarding the Company's oil and gas properties and
producing activities and oil and gas reserves. Such information is based on
a
report prepared by Felix Ascanio who is the Company's president, and
therefore, should not be considered independent.
PAGE
<PAGE> 12
Drilling Activities
Set forth below is a tabulation of wells completed in the period
indicated in which the Company have participated and the results thereof for
the three most recent years ended December 31, 1996.
Year Ended December 31,
--------------------------------------------------
1994 1995 1996
---- ---- ----
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Exploratory:
Dry -0- -0- -0- -0- -0- -0-
Oil -0- -0- -0- -0- -0- -0-
Gas -0- -0- -0- -0- -0- -0-
Totals -0- -0- -0- -0- -0- -0-
Development:
Dry 1 0.75 -0- -0- -0- -0-
Oil 15 11.25 3 3 1 1
Gas -0- -0- -0- -0- -0- -0-
Totals 16 12 3 3 1 1
Average Prices and Costs
The average sales prices of oil and gas for the current fiscal year and
the three previous fiscal years are as follows:
Average Sales Price
-------------------
Year Ended Oil Gas
December 31 (per BBL) (per MCF)
----------- --------- ---------
1994 $14.10 NA
1995 $14.50 NA
1996 $20.33 NA
Production costs for such wells per equivalent barrel, which includes lifting
costs (electricity, fuel, water disposal, repairs and maintenance, pumper,
transportation, etc.), and production taxes, was $4.70, $3.76, and $3.61, for
the years ended December 31, 1996, 1995, and 1994, respectively. As noted
all
of these figures are for the McLouth Field and may not accurately reflect the
cost for the wells on the Hittle Field from which there is currently no
information.
Production and Sale of Oil and Gas
The oil from the McLouth Field is sold to one unaffiliated purchaser.
The sale of oil and gas is subject to price adjustments, production
curtailments, and similar provision in oil and gas purchase contracts, and
the
sale of both oil and gas is subject to general economic and political
conditions affecting the production and price of crude oil and natural gas.
PAGE
<PAGE> 13
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of the Company's
Common Stock, par value $0.001, held by each person who is believed to be the
beneficial owner of 5% or more of the 3,635,378 shares of the Company's
common
stock outstanding at April 25, 1997, based on the Company's transfer agent's
list, representations and affidavits from shareholders and beneficial
shareholder lists provided by the Depository Trust and securities broker
dealers, and the names and number of shares held by each of the Company's
officers and directors and by all officers and directors as a group.
Title of Name and Address Amount and Nature of Percent
Class Of Beneficial Owner Beneficial Ownership of Class
- -------- ------------------- --------------------- --------
Common Lee Jackson (1) 407,500 11.20
712 Arrowhead Lane
Murray, Utah 84107
Common Frank Gillen (2) 195,000 5.34
6425 South 2055 East
Salt Lake City, Utah 84121
Common Felix Ascanio 302,500 8.32
1422 Stone Meadows
Lawrence, Kansas 66049
Common The Depository Trust
(Cede & Co.) 1,198,947 32.98
P.O. Box 222
New York, New York 10274
Common Ervin Brown (3) 266,000 7.32
2594 West Pine Meadow Place
Salt Lake City, Utah 94118
Officers, Directors and Nominees
Common Felix A. Ascanio, President
and Director ---------See Above---------
Common Lee Jackson, Director ---------See Above---------
Common John W. Hobbs (4) 178,400 4.91
Secretary/Treasurer, Director
Common Ervin Brown, Director ---------See Above---------
All Officers, Directors, and
Nominees as a Group (4 Persons) 1,154,000 31.76
- --------------------------------
(1) Mr. Jackson owns 307,500 shares in his own name and 100,000 shares in Lee
Jackson Investments. Mr. Jackson also owns 25,000 warrants and 25,000 options
to purchase a like number of shares of Common Stock at an exercise price of
$2.00 per share.
(2) Mr. Gillen has 50,000 shares in his name and 30,000 in his IRA.
Additionally, Maven Properties, Ltd. which is a partnership controlled by Mr.
Gillen owns 115,000 shares of Common Stock. Mr. Gillen also owns 32,500
warrants to purchase a like number of shares of Common Stock at an exercise
price of $2.00 per share.
(3) Mr. Brown also owns 50,000 warrants and 25,000 options to purchase a like
number of shares of Common Stock at an exercise price of $2.00 per share.
(4) Mr. Hobbs has 153,000 shares which he holds jointly with his wife.
Additionally, Mr. Hobbs minor daughter has 8,000 shares and two adult
daughters that live in his home own 16,000 shares.
<PAGE> 14
Item 5. Directors, Executive Officers, Promoters and Control Persons
The names of the Comapny's executive officers and directors and the
positions held by each of them are set forth below:
Name Position
- ---- --------
Felix A. Ascanio President and Director
John W. Hobbs Secretary, Treasurer and Director
Lee Jackson Director
Ervin Brown Director
The term of office of each director is one year and until his successor
is elected at the Company's annual shareholders' meeting and is qualified,
subject to removal by the shareholders. The term of office for each officer
is for one year and until a successor is elected at the annual meeting of the
board of directors and is qualified, subject to removal by the board of
directors.
Biographical Information
Set forth below is certain biographical information with respect to each
of the Company's officers and directors.
Felix A. Ascanio, age 41, was appointed the president and a director of
the Company in May 1995. Mr. Ascanio has worked in the oil and gas industry
since 1979 as a petroleum engineer and oil field supervisor. Prior to joining
the Company, Mr. Ascanio worked as the general manager of exploration and
production for KLM Exploration, Co. in Kansas in 1994 and as a planning and
economics evaluation engineer in Caracas, Venezuela for Maraven, S.A. in
1993. From 1990 to 1992, Mr. Ascanio was completing advanced studies at the
University of Kansas. Mr. Ascanio has a B.S. Degree in Petroleum Engineering
from University of Louisiana in 1979 and a masters degree in petroleum
management from University of Kansas in 1992. Mr. Ascanio was the
Distinguished 1992 Graduate Business Scholar at the University of Kansas.
Mr.
Ascanio is a native of Venezuela. Mr. Ascanio's previous business experience
as a petroleum engineer and supervisor were for the Venezuela government.
John W. Hobbs, age 52, is and has since October 1987 been an officer and
a director of the Company. From 1988 to the present, Mr. Hobbs has been
involved in the development of recreational real estate properties in Idaho.
From 1978 through 1988, he was the owner/operator of Hobbs and Staples, a
wholesale distributor of costume jewelry. From 1972 through 1978, he worked
for Movitz Company as a sales representative in the costume jewelry
business.
Mr. Hobbs attended Utah State University from 1962 through 1967.
Lee Jackson, age 71, has been retired since 1993 and spends his time
focusing on real estate management and investments. Prior to retiring, Mr.
Jackson owned Jackson Insurance Agency which he later sold to his son. Prior
to establishing his own insurance agency, Mr. Jackson was a real estate agent
and broker. Mr. Jackson was employed by Allstate Insurance for 17 years
where
he was an agent, a commercial sales supervisor and sales manager. Mr.
Jackson
received his bachelor of science degree in business from the University of
Utah in 1951.
<PAGE> 15
Ervin Brown, age 36, is a private investor. Mr. Brown worked at Daw
Construction for thirteen years focusing on special projects. Mr. Brown
attended Brigham Young University for two years.
ITEM 6. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning
the
compensation paid or accrued for each of the Company's last three completed
fiscal years to the Company's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation
in
excess of $100,000 during such period (as determined at December 31, 1996,
the
end of the Company's last completed fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options
LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs
Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ -------
- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Felix A. Ascanio 1996 $60,000 -0- -0- -0- 325,000(1)
- -0- -0-
President and CEO 1995 $45,000 -0- -0- -0- -0-
- -0- -0-
T. Kent Rainey, 1994 -0- -0- -0- 950,000(2) -0-
- -0- -0-
</TABLE>
(1) Mr. Ascanio received 300,000 options at $0.20 and 25,000 options at
$2.00
during 1996.
(2) The 950,000 shares are prior to the 20 to 1 reverse split
Options/SAR Grants in Last Fiscal Year
The Following table sets forth information respecting all individual grants
of
options and stock appreciation rights ("SARs") made during the fiscal year
ended December 31, 1996, to the named executive officer of the Company.
<TABLE>
<CAPTION>
% of Total
# of Securities Options/SARS
Underlying Granted to Market
Price
Options/SARs Employees in Exercise or Base on Date of
Name Granted Fiscal Year Price ($/Share)
Grant Expiration Date
- ---- --------------- ------------ ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Felix Ascanio 300,000 49% $0.20
$0.75 Sept. 1, 2001
25,000 4% $2.00
$1.625 Dec. 15, 2001
</TABLE>
<PAGE> 16
Bonuses and Deferred Compensation
None
Compensation Pursuant to Plans
All options received are pursuant to the Company's 1996 Stock Option
Plan
which has reserved 650,000 shares for issuance under the plan. Options are
issued under the plan at the discretion of the Company's board of directors.
Pension Table
Not Applicable
Other Compensation
None
Compensation of Directors
Directors of the Company receive only $100 per directors meeting
attended. Each director received 25,000 option under the Company's 1996
Stock
Option Plan in 1996. The options have an exercise price of $2.00, vest
immediately and may be exercised at any time within five years of the date of
their grant.
Termination of Employment and Change of Control Arrangement
Mr. Ascanio has a clause in his employment contract calling for the
severance payment of $60,000 if he is terminated without cause during the
term
of his employment agreement. Accordingly, any termination except in the case
of gross negligence or the like will trigger the payment of the severance to
Mr. Ascanio.
Officer and Director Remuneration
Felix Ascanio entered into an employment contract with the Company on
May
1, 1995, which was revised in November 1996 (the "Ascanio Agreement").
Pursuant to the terms of the Ascanio Agreement, Mr. Ascanio is employed as
the
president of the Company with an annual salary of $60,000 per year for a
period of three years. In addition to Mr. Ascanio annual salary, he will
receive additional compensation of $1.50 per barrel of oil shipped over 2,000
barrels in any given month based on the Company's working interest.
Additionally, under the terms of the Ascanio Agreement, Mr. Ascanio received
300,000 options to purchase a like number of shares of the Company's common
stock, at an exercise price of $0.20 per share, all of which have been
exercised. The Company may terminate Mr. Ascanio's employment, with or
without cause; however, if there is no cause for the termination, the Company
must pay Mr. Ascanio a severance of $60,000.
<PAGE> 17
Jack Hobbs entered into an employment agreement with the Company on May
1, 1995, which was revised in November 1996 (the "Hobb's Agreement"). The
Hobb's Agreement is for a term of two years with an annul salary of $24,000
the first year and $36,000 the second year. Additionally, pursuant to the
terms of the Hobb's Agreement, Mr. Hobbs received 150,000 options to purchase
a like number of shares of Common Stock, at exercise prices of $0.20 and
$0.70
per share, all of which have been exercised. The Company may terminate Mr.
Hobb's employment, with or without cause; however, if there is no cause for
the termination, the Company must pay Mr. Hobbs a severance of $30,000.
In December 1996, all directors of the Company received 25,000 options
each with an exercise price of $2.00. Except for the foregoing, the Company
is not currently paying any direct or indirect compensation to its officers
or
directors except for $100 provided each director per director meeting. The
Company's officers and directors are also reimbursed for their actual
out-of-pocket expenses for travel, telephone charges and miscellaneous items
incurred on behalf of the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1997, Felix Ascanio, the Company's president, and John Hobbs,
the Company's secretary, exercised options in the Company delivering
promissory notes in the amount of $55,000 and $80,000, respectively, to the
Company for their exercise price. The promissory notes are due January 17,
2001, with interest at eight and one half percent (8½%). Due to Messrs.
Ascanio and Hobbs relationship to the Company, this transaction should not be
considered arms length.
Item 8. Description of Securities
Description of Securities
General
The Company is authorized to issue fifty million shares of capital
stock,
par value $0.001 per share designated as Common Stock. There are 3,635,378
shares of Common Stock currently issued and outstanding as of April 14,
1997.
Additionally, the Company has 300,000 common stock purchase warrants (the
"Warrants") outstanding to purchase a like number of shares of Common Stock
at
an exercise price of $1.50 and $2.00 per share for 50,000 and 250,000
Warrants, respectively.
Common Stock
The holders of Common Stock are entitled to one vote per share on each
matter submitted to a vote at any meeting of shareholders. Shares of Common
Stock do not carry cumulative voting rights and, therefore, a majority of the
shares of outstanding Common Stock will be able to elect the entire board of
directors and, if they do so, minority shareholders would not be able to
elect
any persons to the board of directors. The Company's bylaws provide that a
majority of the issued and outstanding shares of the Company constitutes a
quorum for shareholders' meetings, except with respect to certain matters for
which a greater percentage quorum is required by statute or the bylaws.
<PAGE> 18
Shareholders of the Company have no preemptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is
not subject to redemption and carries no subscription or conversion rights.
In the event of liquidation of the Company, the shares of Common Stock are
entitled to share equally in corporate assets after satisfaction of all
liabilities.
Holders of Common Stock are entitled to receive such dividends as the
board of directors may from time to time declare out of funds legally
available for the payment of dividends. The Company seeks growth and
expansion of its business through the reinvestment of profits, if any, and
does not anticipate that it will pay dividends in the foreseeable future
Warrants
The Company has 300,000 Warrants outstanding with exercise prices of
$1.50 and $2.00 on 50,000 and 250,000 Warrants, respectively. Except for the
exercise price and duration of the Warrants, the terms and conditions of the
Warrants are identical. The 50,000 Warrants with an exercise price of $1.50
are exercisable for a five year period beginning in July of 1996. The
250,000
Warrants are exercisable for five years commencing in February 1997. No
trading market currently exist for the Warrants, and it is unlikely one will
ever develop. The following statements are subject to the detailed
provisions
of the Warrant, which are attached hereto as an exhibit.
Each Warrant entitles the holder thereof to purchase one share of the
Company's Common Stock, at an exercise price of either $1.50 and $2.00 per
share, depending on the Warrant, at any time within five years from the date
of issuance of the Warrant (the "Warrant Exercise Period"). The holder of a
Warrant will not posses any rights as a shareholder of the Company until
exercise of the Warrant and full payment of the exercise price.
Shares of Common Stock issueable on exercise of the Warrants will be
"restricted securities" as that term is defined under the Securities Act, and
consequently, will be subject to the restrictions on transfer set forth in
the
Securities Act and, applicable regulations unless an effective registration
statement is in effect at the time of exercise of the Warrants. Further
restrictions on transfer may be imposed by state securities statues.
Therefore, the securities would have to be held indefinitely, unless
subsequently registered or qualified under applicable federal and state
securities laws or sold in a transaction exempt from such registration and
qualification requirements.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the number of shares of Common Stock purchasable on
exercise of the Warrants in certain events. In the event the number of
shares
Common Stock purchasable is increased through the operation of the
antidilution provisions, the exercise price will be reduced proportionately.
Conversely, if the number of shares of Common Stock purchasable is decreased,
the exercise price will be increased proportionately.
The Warrants contain registration provisions providing that shares of
Common Stock issueable on exercise of the Warrants must be included in any
registration statement that the Company files during the exercise period.
The
cost of registration will be borne by the Company.
PAGE><PAGE
<PAGE> 19
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters
The Company's Common Stock is quoted on the National Association of
Securities Dealers Electronic Bulletin Board under the symbol "UPLC." Set
forth below are the high and low bid prices for the Company's Common Stock
for
the last three years. Although the Common Stock is quoted on the Electronic
Bulletin Board it has traded sporadically with low volume. Consequently, the
information provided below may not be indicative of the Common Stock price
under different conditions. All prices listed herein reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not
represent
actual transactions.
Quarter Ended High Bid Low Bid
- ------------- -------- -------
January 1995* $0.12 $0.10
April 1995 $2.00 $1.625
July 1995 $1.875 $1.375
October 1995 $1.50 $1.25
January 1996 $0.75 $0.625
April 1996 $1.25 $1.00
July 1996 $1.75 $1.50
October 1996 $1.12 $0.875
January 1997 $2.675 $2.25
April 1997 $3.25 $2.75
* The per share price is prior to a 20 to 1 reverse split which all
subsequent
numbers reflect.
At April 25, 1997, the bid and asked price for the Common Stock was
$2.50
and $2.75 respectively.
Since its inception, the Company has not paid any dividends on its
Common
Stock, and the Company does not anticipate that it will pay dividends in the
foreseeable future.
As of April 25, 1997, there were 3,635,378 shares of common stock
outstanding held by approximately 142 active holders of record, including
broker-dealers and clearing corporations holding shares on behalf of their
customers, as reported by the Company's transfer agent.
PAGE><PAGE
<PAGE> 20
Item 2. Legal Proceedings
The Company's subsidiary GSC has filed a lawsuit against KLM Exploration
Company, Inc. in the District Court of Jefferson County, Kansas. The lawsuit
entitled G.S.&C., Inc. vs. KLM Exploration Company, Inc., et al., case no.
96C-92, seeks to remove KLM as operator of GSC's oil leases in the McLouth
Field, and for damages in excess of $500,000 for breach of contract, and for
an accounting. KLM has filed its answer denying GSC's allegations, and
counterclaimed for alleged unpaid operating expenses of $5,963.02, plus
damages
in excess of $500,000 for breach of contract. Williams Natural Gas has
answered, and crossclaimed against KLM and counterclaimed against GSC for
attorneys fees. All counterclaims and crossclaims have been answered. There
are no pending motions. The Court will call a scheduling conference in the
near future to set a timetable for discovery. As the case is in its early
stages, the Company cannot say with any degree of certainty what the outcome
will be or the potential cost of the lawsuit.
The Company's subsidiary GSC had a lawsuit filed against it on September
11, 1995, by the landowner of certain property in Kansas where the Company
has
been drilling. The lawsuit, entitled Herbert N. Edmonds and Eelsa D. Edmonds
vs. G.S. & C., Inc., in the District Court of Jefferson County, Kansas, case
no. 95-C-67, seeks cancellation of the lease to GSC from the plaintiff and
quieting of title, plus cost, attorneys' fees and expenses. The case is in
the early stages and no discovery has occurred. On February 8, 1996, the
court granted plaintiffs leave to amend their petition to add additional
parties. GSC has answered the lawsuit denying plaintiffs' claims and
asserting a counterclaim and affirmative defenses. GSC intends to vigorously
defend this lawsuit and is hopeful of a positive outcome; however, as the
lawsuit is in the early stages, the Company cannot say with any degree of
certainty what the outcome will be or the potential cost of the lawsuit.
Item 3. Changes in and Disagreements with Accountants
The Company has not changed nor had any disagreements with its
independent certified accountants.
Item 4. Recent Sales of Unregistered Securities
During the past three years the Company has engaged in three private
placements under regulation D, rule 506 of the rules and regulations
promulgated under the Securities Act.
During 1994, the Company sold 7,490,000 shares of restricted common
stock
in a private placement at a price of $0.05 per share. The Company realized
net proceeds from the offering of approximately $344,516 after deducting
offering costs in the amount of $29,984. The offering was conducted with the
assistance of Alpine Securities Corporation, a broker-dealer located in Salt
Lake City, Utah. The offering was designed to meet federal and state
non-public offering rules and accordingly, no form of general solicitation
was
used, and offers were made to only limited individuals who were either
accredited investors as that term is defined in the Securities Act or due to
their investment experience where deemed sophisticated investors.
PAGE
<PAGE> 21
In 1996, the Company sold 500,000 units at an offering price of $0.70
per
Unit in a private placement designed to be exempt from the registration
provisions of the Securities Act under regulation D, rule 506 of the rules
and
regulations promulgated under the Securities Act. Each unit consisted of one
share or restricted common stock of the Company and one common stock purchase
warrant to purchase one share of Common Stock at an exercise price of $1.50
per share at any time up to five years from the date of the warrant. The
offering was also conducted through the assistance of Alpine Securities
Corporation who received a commission of 50,000 units for their efforts. The
offering was limited to only a select group of individuals, most of whom had
existing relationships with the Company, were accredited investors or due to
their investment acumen were deemed suitable investors.
In the first quarter of 1997, the Company needed additional financing
and
sought to have its warrant holders exercise their Warrants received in the
1996 offering. To encourage the warrant holders to exercise their warrants,
the Company offered to all warrant holders the right to receive one new
warrant for every two warrants exercised. The new warrant received would
have
a $2.00 exercise price. The Company had 500,000 warrants exercised and
issued
250,000 new warrants. The offering was structured to be exempt from the
registration provisions of the Securities Act under regulation D, rule 506 of
the rules and regulations promulgated under the Securities Act.
Item 5. Indemnification of Directors and Officers
The Company's articles of incorporation and bylaws provide for
indemnification of directors and officers by the Company. The articles of
incorporation of the Company limit or eliminate the personal liability of
directors for damages for breaches of their fiduciary duty, unless the
director has engaged in intentional misconduct, fraud, or a knowing violation
of law, or paid a dividend in violation of the Utah Revised Business
Corporation Act.
The bylaws of the Company provide for indemnification for directors and
officers to the full extent provided by the Utah Revised business corporation
act Section 16-10a-901 et. seq. The following is a brief summary of certain
indemnification provisions of the Company's certificate of incorporation and
the Utah Revised Business Corporation Act. This summary is qualified in its
entirety by reference to the text thereof.
Section 16-10a-901 through 909 of the Utah Revised Business Corporation
Act, as amended ("Corporation Act") permits a Utah corporation to indemnify
its directors and officers for certain of their acts. More specifically,
Section 16-10a-902 and 16-10a-907 grants authority to any corporation to
indemnify directors and officers against any judgments, fines, amounts paid
in
settlement and reasonable expenses, including attorneys' fees, by reason of
his having been such a corporate director or officer. Such provision is
limited to instances where the director or officer acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, or, in criminal proceedings, he had no reasonable cause
to
believe his conduct was unlawful. Such section confers on the director or
officer an absolute right to indemnification for expenses, including
attorney's fees, actually and reasonably incurred by him to the extent he is
successful on the merits or otherwise in defense of any claim, issue, or
matter.
<PAGE> 22
The corporation may not indemnify a director if the director is adjudged
liable to the corporation or deemed to have derived an improper personal
benefit in an action in which the director is adjudged liable. Section 16
10a-906 of the Corporation Act expressly makes indemnification contingent
upon
a determination that indemnification is proper in the circumstances. Such
determination must be made by the board of directors acting through a
quorum
of disinterested directors, or by the board of directors acting on the advice
of independent legal counsel, or by the shareholders. Further, Section 16
10a-904 of the Corporation Act permits a corporation to pay attorneys' fees
and other litigation expenses on behalf of a director or officer in advance
of
the final disposition of the action upon receipt of an undertaking by or on
behalf of such director or officer to repay such expenses to the corporation
if it is ultimately determined that he is not entitled to be indemnified by
the corporation or to the extent the expenses so advanced by the corporation
exceed the indemnification to which he is entitled. Such indemnification
provisions do not exclude other indemnification rights to which a director or
officer may be entitled under the certificate of incorporation, bylaws, an
agreement, a vote of shareholders, or otherwise. The corporation may also
purchase and maintain insurance to provide indemnification.
The foregoing discussion of indemnification merely summarizes certain
aspects of indemnification provisions and is limited by reference to the
above
discussed sections of the Corporation Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to members of the board of directors, officers,
employees, or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
(The rest of this page intentionally left blank.)
PAGE
<PAGE> 23
PART F/S
Financial Statements and Supplementary Data
CONTENTS
PAGE
_ Independent Auditors' Report 24
_ Consolidated Balance Sheets, December 31,
1996 and 1995 25
_ Consolidated Statements of Operations for
the years ended December 31, 1996, 1995
and 1994 26
_ Consolidated Statement of Stockholders' Equity,
from inception on September 1, 1993 through
December 31, 1996 27
_ Consolidated Statements of Cash Flows for
the years ended December 31, 1996, 1995
and 1994 29
_ Notes to Consolidated Financial Statements 31
_ Supplemental Information - Unaudited 42
PAGE
<PAGE> 24
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
430 East 400 South
Salt Lake City, Utah 84111
INDEPENDENT AUDITORS' REPORT
Board of Directors
UPLAND ENERGY CORPORATION AND SUBSIDIARY
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of
Upland Energy Corporation and Subsidiary at December 31, 1996 and
1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December
31, 1996, 1995 and 1994. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by
us present fairly, in all material respects, the consolidated
financial position of Upland Energy Corporation and Subsidiary as
of December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for the years ended December
31, 1996, 1995 and 1994.
As discussed in Note 3, the ultimate realization of the company's
investment in oil and gas properties is dependent upon the
Company being able to economically recover and sell its oil and
gas reserves. The estimates of oil and gas reserves were
produced internally by management and others who were not
independent with respect to the Company. The financial
statements do not include any adjustments related to the
uncertainty that the Company might not recover its estimated
reserves.
/s/PRITCHETT, SILER & HARDY, P.C.
February 17, 1997
Salt Lake City, Utah
<PAGE> 25
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
_____________________________
1996 1995
_____________ _____________
CURRENT ASSETS:
Cash $ 105,472 $ 17,619
Oil revenue receivable 8,745 12,556
Interest receivable - 29
Prepaid assets 26,778 6,444
Short term deferred tax asset 77,737 -
_____________ _____________
Total Current Assets 218,732 36,648
PROPERTY AND EQUIPMENT, net 3,888 4,536
OIL AND GAS PROPERTIES, net 746,134 663,243
RESTRICTED CASH 10,000 -
_____________ _____________
$ 978,754 $ 704,427
_____________ _____________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term notes payable -
related party $ 800 $ 10,000
Accounts payable 13,636 13,633
Accrued liabilities 100 179
_____________ _____________
Total Current Liabilities 14,536 23,812
LONG TERM DEFERRED TAX LIABILITY 77,737 -
_____________ _____________
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value,
50,000,000 shares authorized,
2,710,378 and 2,110,378 shares
issued and outstanding
at 1996 and 1995, respectively 2,710 2,110
Capital in excess of par value 1,358,320 768,820
Retained earnings (deficit) (474,549) (90,315)
_____________ _____________
Total Stockholders' Equity 886,481 680,615
_____________ _____________
$ 978,754 $ 704,427
_____________ _____________
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 26
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
________________________________________________
1996 1995 1994
___________ ___________ ___________
REVENUE:
Oil sales $177,315 $177,316 $ 186,135
___________ ___________ ___________
Total Revenue 177,315 177,316 186,135
___________ ___________ ___________
EXPENSES:
Production expense 70,515 73,731 78,051
Depreciation, depletion and
amortization 11,028 14,002 32,251
Dryhole, unsuccessful
recompletions and
exploration costs 80,510 - 24,571
General and administrative
costs 349,454 141,560 14,337
Professional fees 29,719 14,538 15,391
Travel expense 23,880 14,480 9,532
___________ ___________ ___________
Total Expenses 565,106 258,311 174,133
___________ ___________ ___________
INCOME (LOSS) FROM
OPERATIONS (387,791) (80,995) 12,002
OTHER INCOME (EXPENSE):
Interest Income 3,951 1,126 1,453
Interest expense (394) (79) -
___________ ___________ ___________
INCOME (LOSS) BEFORE
INCOME TAXES (384,234) (79,948) 13,455
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
___________ ___________ ___________
NET INCOME (LOSS) $(384,234) $(79,948) $ 13,455
___________ ___________ ___________
EARNING (LOSS) PER COMMON
SHARE $ (.16) $ (.04) $ .01
___________ ___________ ___________
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,342,072 2,099,748 1,770,581
____________ ___________ ___________
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 27
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCEPTION OF SUBSIDIARY ON SEPTEMBER 1, 1993 THROUGH
DECEMBER 31, 1996
[RESTATED]
<TABLE>
<CAPTION>
Common Stock Capital
in Retained
_________________ Excess
of Earnings
Shares Amount Par
Value (Deficit)
_____________________________________________
<S> <C> <C> <C>
<C>
BALANCE, September 1, 1993
- $ - $
- - $ -
Stock issued for cash to members of the
Board of Directors at $.0066 per share,
Directors at $.0066 per share,
September, 1993 450,000 450
2,550 -
Stock issued for non-cash consideration
finders fees, September, 1993, at
$.40 per share 54,875 55
21,895 -
Stock issued pursuant to private placement
at $.38 per share, October, 1993 760,000 760
286,519 -
Recapitalization in a manner similar to a
reverse purchase, November 12, 1993 349,750 350
65,336 -
Net loss for the period ended
December 31, 1993 - -
- - (23,822)
________________________________________________
BALANCE, December 31, 1993 1,614,625 1,615
376,300 (23,822)
Stock issued pursuant to private
placement at $1.00 per share,
February through August, 1994, net
of stock offering costs of $29,985 374,500 374
344,141 -
Net income for the year ended
December 31, 1994 - -
- - 13,455
_________________________________________________
BALANCE, December 31, 1994 1,989,125 1,989
720,441 (10,367)
Stock issued for services at $.40
per share, February, 1995 121,250 121
48,379 -
Fractional share adjustment in
connection with one for twenty
reverse stock split, March, 1995 3 -
- - -
Net loss for the year ended
December 31, 1995 - -
- - (79,948)
_______________________________________________
BALANCE, December 31, 1995 2,110,378 2,110
768,820 (90,315)
</TABLE>
[Table Continued on Next Page]
PAGE
<PAGE> 28
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM INCEPTION OF SUBSIDIARY ON SEPTEMBER 1, 1993 THROUGH
DECEMBER 31, 1996
[RESTATED]
[CONTINUED]
<TABLE>
<CAPTION>
Common Stock Capital
in Retained
_________________ Excess
of Earnings
Shares Amount Par
Value (Deficit)
_____________________________________________
<S> <C> <C> <C>
<C>
Stock issued pursuant to private placement
at $.70 per share, August 1996, net of
non-cash offering costs of $35,000 500,000 500
314,500 -
Stock issued pursuant to private placement
as commissions, valued at $35,000 50,000 50
34,950 -
Director/officer options exercised at
$.10 per share, November 1996 including
additionalcompensation expense of $26,251
or $.52 per share recorded in accordance
with APB Opinion No. 25) 50,000 50
31,201 -
Compensation recorded, in accordance with
APB Option No. 25, upon grant of options
to directors/officers where the exercise
price was less than the market price
average of $.51 per share - -
183,849 -
Options granted for legal services to be
rendered and accounted for as a
charge to additional paid-in capital
valued at $25,000 - -
25,000 -
Net loss for the year ended December 31,
1996 - -
- - (384,234)
_______________________________________________
BALANCE, December 31, 1996 2,710,378 $2,710
$1,358,320
$(474,549)
_______________________________________________
</TABLE>
The accompanying notes are an integral part of this consolidated
financial statement.
<PAGE> 29
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
________________________________________________
1996 1995 1994
___________ ___________ ___________
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income (loss) $(384,234) $(79,948) $ 13,455
___________ ___________ ___________
Adjustments to reconcile
net loss to net cash used
by operating activities:
Depreciation 11,029 14,002 32,251
Non-cash expenses 25,000 48,500 -
Additional compensation
expense recorded in
accordance with APB
Opinion No. 25 210,100 - -
Change in assets and
liabilities:
(Increase) decrease in
receivables 3,840 1,373 (13,958)
(Increase) decrease in
prepaid assets (20,334) 5,514 (11,958)
Increase (decrease) in
notes payable (9,200) 10,000 -
Increase (decrease) in
accounts payable 3 6,696 (5,126)
Increase (decrease) in
accrued liabilities (79) 79 -
___________ ___________ ___________
Total Adjustments 220,359 86,164 1,209
___________ ___________ ___________
Net Cash Provided
(Used) by Operating
Activities (163,875) 6,216 14,664
___________ ___________ ___________
Cash Flows from Investing
Activities:
Purchase of property and
equipment (500) (4,536) (579)
Purchase of oil and gas
properties (92,772) (32,056) (408,267)
Purchase of certificate of
deposit (10,000) - -
___________ ___________ ___________
Net Cash (Used) by
Investing Activities (103,272) (36,592) (408,846)
___________ ___________ ___________
Cash Flows from Financing
Activities:
Issuance of common stock 355,000 - 374,500
Stock offering costs - - (29,985)
___________ ___________ ___________
Net Cash Provided by
Financing Activities 355,000 - 344,515
___________ ___________ ___________
Net Increase (Decrease) in
Cash 87,853 (30,376) (49,667)
Cash at Beginning of Period 17,619 47,995 97,662
___________ ___________ ___________
Cash at End of Period $ 105,472 $ 17,619 $ 47,995
___________ ___________ ___________
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the year for
Interest $ 394 $ - $ -
Income taxes $ - $ - $ -
[Continued]
</TABLE>
<PAGE> 30
UPLAND ENERGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CONTINUED]
Supplemental Disclosure of Non-cash Investing and Financing
Activities:
For the year ended December 31, 1996
The Company issued 50,000 shares of common stock valued at
$.70 per share ($35,000) for commissions in connection with
the private placement offering.
The Company granted 50,000 options t o purchase common stock
under employment agreements with officers and recorded
compensation of $26,251 in accordance with APB No. 25.
The Company granted 425,000 options to purchase common stock
under employment agreements with officers.
The Company granted 60,000 options to legal counsel for
services to be performed in the amount of $25,000. The cost
of the service is a prepaid asset and a charge to additional
paid-in capital.
For the year ended December 31, 1995
The Company issued 121,250 shares of common stock valued at
$.40 per share for services rendered.
For the year ended December 31, 1994
None
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 31
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Upland Energy Corporation ["PARENT"], was
incorporated under the laws of the State of Utah on January
30, 1986 as Upland Investment Corporation. Parent changed its
name to Upland Energy Corporation during November, 1993. G. S.
& C., Inc. ["SUBSIDIARY"], was incorporated under the laws of
the State of Nevada on September 1, 1993 and is engaged in the
development, production and selling of oil and gas in the
State of Kansas.
During November, 1993 PARENT acquired SUBSIDIARY in a
transaction accounted for as a recapitalization of subsidiary
in a manner similar to a reverse purchase. Accordingly,
Subsidiary is treated as the purchaser entity in the
transaction.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its wholly-
owned subsidiary. All significant intercompany transactions
have been eliminated in consolidation.
Accounting Estimates - The preparation of the financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimated.
Property and Equipment - Property and equipment are recorded
at cost which is depreciated over the estimated useful lives
of the related assets. Depreciation is computed using the
straight-line method for financial reporting purposes, with
accelerated methods used for income tax purposes. The
estimated useful lives of property and equipment for purposes
of financial reporting range from three to seven years.
Oil and Gas Properties - The Company uses the successful
efforts method of accounting for oil and gas producing
activities. Under that method, costs are accounted for as
follows:
a. Geological and geophysical costs and costs of carrying
and retaining undeveloped properties are charged to
expense as incurred.
b. Costs of drilling exploratory wells and exploratory-type
stratigraphic test wells that do not find proved reserves
are charged to expense when the wells do not find proved
reserves.
PAGE
<PAGE> 32
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
c. Costs of acquiring properties, costs of drilling
development wells and development-type stratigraphic test
wells, and costs of drilling successful exploratory wells
and exploratory-type stratigraphic test wells are
capitalized.
d. The capitalized costs of wells and related equipment are
amortized over the life of proved developed reserves that
can be produced from assets represented by those
capitalized costs. Mineral acquisition costs (leasehold)
are amortized as the proved reserves are produced.
e. Costs of unproved properties are assessed periodically,
and a loss is recognized if the properties are impaired.
Revenue Recognition - The Company's revenue is generated
primarily by the production and sale of oil and gas from
properties currently producing. Revenue from oil and gas
sales is recognized when the product is transferred to the
purchaser.
Earnings (Loss) Per Share - The computation of earnings (loss)
per share of common stock is based on the weighted average
number of shares outstanding during the periods presented.
Fully diluted earnings (loss) per share is not presented as
its effect is anti-dilutive.
Cash Flow Statement - For purposes of the statements of cash
flows, the Company considers all highly liquid debt
investments purchased with a maturity of three months or less
to be cash equivalents.
Restatement of Financial Statements - The financial statements
for all periods presented have been restated to reflect a one
for twenty reverse stock split by Parent during March, 1995
and for a one for two reverse stock split by Parent during
November, 1993.
Reclassification of Financial Statements - The financial
statements for periods prior to December 31, 1995 have been
reclassified to conform to the titles and headings used in the
December 31, 1996 financial statements.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of property and equipment, software development cost and
liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of
revenues and expenses during the reported period. Actual results
could differ from those estimated.
<PAGE> 33
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at
cost, less accumulated depreciation as of December 31:
1996 1995
______________________
Furniture and office equipment 6,373 5,873
Less: accumulated depreciation (2,485) (1,337)
______________________
Total $ 3,888 $ 4,536
______________________
Depreciation expense charged to operations was $1,148, $1,136
and $176 for the periods ended December 31, 1996, 1995 and
1994.
NOTE 3 - OIL AND GAS PROPERTIES
Upon placing oil and gas properties and productive equipment
in use, the unit-of-production method, based upon estimates of
proven developed and undeveloped reserves, is used in the
computation of depreciation and depletion. For the year ended
December 31, 1996 and 1995, the Company recorded depletion of
$9,880 and $12,866, respectively.
The estimates of oil and gas reserves used by the Company were
produced internally by management and others who were not
independent with respect to the Company. The ultimate
realization of the Company's investment in oil and gas
properties is dependent upon the Company being able to
economically recover a minimum quantity of its reserves. The
financial statements do not include any adjustments related to
the uncertainty that the Company might not recover its
estimated reserves.
During 1996, the Company's drilling activities included the
drilling of one well for which the Company is still obtaining
permits. The Company also attempted to bring three existing
wells back into production. The attempt was unsuccessful and
the Company incurred expenses of $80,510.
During the year ended December 31, 1995, the Company included
$12,532 in oil and gas properties for an initial investment in
a new oil lease. The lease agreement provides for the Company
to lease the property for a term of two years for the
production of oil in return for a cash payment of $6,000 and a
15.6% royalty interest in the lease. In January, 1996, the
company finalized the lease agreement. For the years ended
December 31, 1996 and 1995, no depletion was recorded for the
lease because proved reserves were uncertain and production
on the lease had not yet begun.
PAGE
<PAGE> 34
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - OIL AND GAS PROPERTIES [Continued]
During September, 1993 the Company entered into a "farm-out"
agreement with Kenneth L. Mason, individually and KLM
Exploration, Inc., a Kansas corporation (collectively referred
to as "KLM"), wherein the Company will perform drilling and
production operations on leases currently "farmed-out" to KLM.
The agreement provided that KLM would assign its interests and
other agreements to the Company in return for a cash payment
of $100,000 and a 25% working interest in the location,
carried through the tanks resulting in a net royalty interest
of 58.5%. As of December 31, 1995, the Company had completed
drilling a total of 18 wells all of which are located in a
single oil field in Kansas; 15 wells are part of the Company's
three producing tank batteries and the other three wells were
dryholes. Two dryholes were written-off to expense during 1994
and the third dryhole was assigned to another company and accounted
for as an addition to leasehold acquisition costs during 1994.
NOTE 4 - RELATED PARTY TRANSACTIONS
During 1996 a shareholder and an officer of the Company
advanced the Company $3,600. Of the $3,600 that was advanced
the Company paid $3,000 during the year leaving a balance of
$600. The advances are non-interest bearing.
During December, 1995 the Company entered into a loan
agreement with an entity related to a shareholder and director
of the Company. The unsecured loan consists of a short term
note payable for $10,000 with an interest rate of 12% per
annum. The note provides for four monthly payments commencing
January 25, 1996 and ending April 25, 1996. The $10,000 plus
interest was paid in full during 1996.
The Company issued 121,250 shares of restricted common stock
valued at $48,500 ($.40 per share) in February, 1995, to
officers, directors and others as compensation for services
rendered.
NOTE 5 - INCOME TAXES
The Company adopted Statement of Financial Accounting
Standards No. 109 Accounting for Income Taxes [FASB 109]
during Fiscal 1993. FASB 109 requires the Company to provide
a net deferred tax asset or liability equal to the expected
future tax benefit or expense of temporary reporting
differences between book and tax accounting and any available
operating loss or tax credit carryforwards. At December 31,
1996 and 1995, the total of all deferred tax assets was
$392,956 and $197,164 and the total of the deferred tax
liabilities was $189,772 and $146,585. The amount of and
ultimate realization of the benefits from the deferred tax
assets for income tax purposes is dependent, in part, upon
the tax laws in effect, the Company's future earnings, and
other future events, the effects of which cannot be
<PAGE> 35
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INCOME TAXES [Continued]
determined. Because of the uncertainty surrounding the
realization of the deferred tax assets, the Company has
established a valuation allowance of $203,184 and $50,580 as
of December 31, 1996 and 1995, which has been offset against
the deferred tax assets. The net change (increase) in the
valuation allowance during the years ended December 31, 1996
and 1995, was $(152,604) and $(25,716), respectively.
The Company has available at December 31, 1996, unused tax
operating loss carryforwards of approximately $852,000, which
may be applied against future taxable income and which expire
in various years through 2010.
The components of income tax expense from continuing
operations for the years ended December 31, 1996, 1995 and
1994 consist of the following:
December 31,
_______________________________
1996 1995 1994
_______________________________
Current income tax expense:
Federal $ - $ - $ -
State - - -
_______________________________
Net current tax expense - - -
_______________________________
Deferred tax expense (benefit) arising from:
Excess of tax over financial
accounting depreciation $43,187 $16,863 $80,193
Net operating loss carryforwards (118,017) (42,579) (75,218)
Contribution carryover (37) - -
Excess of financial accounting
over tax compensation - APB 25 (77,737) - -
Valuation allowance 152,604 25,716 (4,975)
______________________________
Net deferred tax expense $ - $ - $ -
______________________________
Deferred income tax expense results primarily from the
reversal of temporary timing differences between tax and
financial statement income.
PAGE
<PAGE> 36
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES [Continued]
A reconciliation of income tax expense at the federal
statutory rate to income tax expense at the Company's
effective rate is as follows:
December 31,
_______________________________
1996 1995 1994
_______________________________
Computed tax at the expected federal
statutory rate $(130,639) $(27,183) $ 4,575
Excess of tax over financial
accounting depreciation (78) 82 (4)
Excess of financial accounting over
tax compensation - APB 25 (10,115) - -
State income taxes, net of federal
income tax benefits (11,527) (2,398) 404
Net operation loss carry forward 4,612 3,783 -
Valuations allowance 147,747 25,716 (4,975)
______________________________
Computed tax at the effective income
tax rates $ - $ - $ -
______________________________
The temporary differences gave rise to the following deferred
tax asset (liability) at December 31, 1996 and 1995:
Year Ended December 31,
_____________________________
1996 1995
________________________
Excess of tax over book accounting
depreciation (189,772) (146,585)
Excess of financial accounting over
tax compensation - APB 25 77,737 -
Contribution carryover 37 -
NOL carryforwards 315,182 197,164
The deferred taxes are reflected in the consolidated balance
sheet as follows:
Year Ended December 31,
_____________________________
1996 1995
________________________
Short term asset (liability) $ 77,737 $ -
Long term asset (liability) $(77,737) $ -
PAGE
<PAGE> 37
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK TRANSACTIONS
During August 1996, the Company issued 500,000 units, for cash
at $.70 per unit, which consisted of one share of common stock
and one common stock purchase warrant in a private placement
offering. The purchase warrant is to purchase another share
of common stock at an exercise price of $1.50. Total proceeds
amounted to $350,000. The Company issued 50,000 shares of
common stock for commissions of $35,000 in connection with the
private placement offering.
The Company's officers exercised options of 50,000 shares of
common stock previously granted for $.10 per share. Total
proceeds amounted to $5,000.
On October 1, 1996, the Board of Directors resolved that
120,000 (initial shares) and 155,000 (restricted shares)
unissued shares of common stock be granted upon exercise of
options granted to an officer of the Company under the term of
his employment agreement with the Company. The 120,000
(initial shares) and 155,000 (restricted shares) options have
an exercise price of $.20, vest on September 1, 1996 and
expire on August 31, 1998 [See Note 8].
During November, 1996 the Board of Directors resolved that
150,000 unissued shares of common stock be granted upon
exercise of options, under a stock option plan, be granted to
an officer of the Company under the terms of his employment
agreement with the Company. Of the 150,000 options granted,
50,000 options have an exercise price of $.20, vest on
November 12, 1996 and expire on August 31, 1998. The
remaining 100,000 options have an exercise price of $.70, vest
on November 12, 1996 and expire on August 31, 1998 [See Note
8].
On December 15, 1996 the Board of Directors resolved that
100,000 shares of common stock be reserved for issuance upon
exercise of options granted to four officers of the Company.
The exercise price for the options is $2.00, vest on December
15, 1996 and expire on December 15, 2001.
On December 16, 1996 the Board of Directors resolved that
60,000 shares of common stock be reserved for issuance upon
exercise of options granted to legal counsel for services to
be performed in the amount of $25,000. The exercise price for
the options is $2.00, vest on December 16, 1996, and expire on
December 16, 2001. The cost of the services has been
accounted for as an addition to prepaid expenses and a charge
to additional paid-in capital.
With the new employment agreement the common stock reserved in
May, 1995 for issuance upon exercise of options granted to
certain officers of the Company under their employment
agreements were canceled. During 1996, 50,000 shares of
common stock were issued upon exercise of the options granted
to certain officers from the previous employment agreement.
<PAGE> 38
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6- COMMON STOCK TRANSACTIONS [Continued]
The Company issued 121,250 shares of common stock during
February, 1995 to officers, directors and others for services
rendered, valued at $48,500 ($.40 per share).
On March 20, 1995 The company initiated a reverse split of its
outstanding common stock on the basis of one new share issued
for each twenty shares previously issued. Immediately prior
to the reverse split there were 40,097,123 shares outstanding
and 2,110,378 shares were outstanding immediately after. The
$.001 common stock par value was not changed with the reverse
stock split. The financial statements for all periods
presented have been restated to reflect the reverse stock
split. In connection with the acquisition of subsidiary, the
Company previously reverse split its stock during November,
1993 on the basis of one share for each two shares then
outstanding.
During 1994, a total of 374,500 shares of common stock were
issued pursuant to a private placement at $1.00 per share.
Total proceeds amounted to $374,500 and offering costs of
$29,985 were recorded as an offset to capital in excess of par
value.
Stock Options - The Company applies APB Option No. 25 in
accounting for its options granted under the employment
agreements. Compensation of $210,100 and $0 was recorded in 1996
and 1995 respectively. The Corporation has adopted the
disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
The effect on net income from the adoption of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock
Based Compensation" would be the same.
The fair value of each option granted is estimated on the date
granted using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants during
the period ended December 31, 1996 and 1995 risk-free interest
rates of 5.9% and 6.0% expected dividend yields of zero,
expected life of 2 and 3 years, and expected volatility 59%
and 75%.PAGE
<PAGE> 39
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK TRANSACTIONS [Continued]
A summary of the status of the options granted under the
Company's stock option plan at December 31, 1996, and 1995,
and changes during the periods then ended is presented in the
table below:
Year Ended Period Ended
December 31, 1996 December 31, 1995
____________________________________________________
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
__________________________ _________________________
Outstanding
at beginning
of period 375,000 $ .19 - $ -
Granted 525,000 .64 375,000 .19
Exercised (50,000) .10 - -
Forfeited - - - -
Canceled (325,000) .20 - -
__________________________ __________________________
Outstanding
at end of
Period 525,000 .64 375,000 .19
__________________________ __________________________
Weighted
average
fair value
of options
granted 525,000 $ .35 375,000 $ 1.30
_________________________ ____________________________
A summary of the status of the options outstanding under the
Company's stock option plan at December 31, 1996 is presented
below:
Options Outstanding Options Exercisable
______________________________________________________________________
Weighted-
Average Weighted Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
______________________________________________________________________
.20 325,000 2 years .20 325,000 .20
.70 100,000 2 years .70 100,000 .70
2.00 100,000 5 years 2.00 100,000 2.00
______________________________________________________________________
525,000 525,000
PAGE
<PAGE> 40
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CONTINGENCIES
During 1996, the Company filed a lawsuit against an operator
of the wells in the McLouth Field. The Company claims the operator
has failed to service, maintain and operate the wells in a
reasonable manner. The Company is asking for damages in excess
of $500,000. There is no guarantee that the Company will prevail
in the suit, management and their counsel believe there is a
likelihood of a favorable outcome. Consequently, no adjustments or
accruals were made to the financial statements with regards to this
lawsuit.
During 1995, a lawsuit was filed against the Company by the
landowners of one of the Company's three developed oil leases,
generally referred to as the "B" lease. The "B" lease
contains two of the Company's fifteen productive wells.
During the year ended 1995 the Company chose not to produce or
further develop on the "B"
lease until resolution of the lawsuit with the landowners.
The Company has answered the suit, denied the plaintiffs'
claims, and asserted a counterclaim and affirmative defenses.
The Company disputes the plaintiffs' claims and will defend
the case vigorously to protect its interest in the lease.
While there is no guarantee that the Company will prevail in
the suit, management and their counsel believe there is a
likelihood of a favorable outcome. Consequently, no
adjustments or accruals were made to the financial statements
with regards to this lawsuit.
Management is not aware of any pending or threatened claims
against the Company for environmental clean up or
environmental related contingencies and believe there are no
material liabilities that are required to be accrued or
disclosed in connection with the clean up of environmental
hazards related to the Company's operations.
NOTE 8 - COMMITMENTS AND AGREEMENTS
Employment Agreements - During October, 1996 the Company
entered into employment agreements with two of its officers.
The agreement with the president of the Company has a two year
term and provides for a minimum salary of $60,000 per year
during the term of the agreement. The agreement also provides
for commissions of $1.50 per barrel of oil shipped in any
month in excess of 2,000 barrels. Lastly, the agreement
provides for stock options to purchase up to 275,000 shares of
common stock. The options may be exercised at any time after
September 1, 1996. [See Note 6]. The agreement with the
secretary/treasurer of the Company has a two year term and
provides for a minimum salary of $36,000. The
secretary/treasurer also received options to purchase up to
150,000 shares of common stock which may be exercised at any
time after November 12, 1996. [See Note 6].
PAGE
<PAGE> 41
UPLAND ENERGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND AGREEMENTS [Continued]
Rental Agreements - The Company has entered into various
office space and equipment rental agreements in the normal
course of its business. The agreements are on a month to
month basis and, accordingly, are accounted for on a monthly
basis. The minimum amounts presently being paid on those
agreements is approximately $2,400 per month.
NOTE 9 - RESTRICTED CASH
The Company has a $10,000 certificate of deposit with an
interest rate of 4.60% annually. The certificate of deposit
is renewed annually and is pledged as collateral for a
performance bond related to the Company's oil and gas
operations.
NOTE 10 - SIGNIFICANT CUSTOMERS
The Company sells substantially all of its oil production to
one purchaser because it is able to negotiate more favorable
terms with the purchaser. If the purchaser stopped buying
products from the Company, the Company would be forced to
contract with other purchasers available in the areas where
the oil is produced. The effect of a purchaser pulling out
would at least put a temporary downward pressure on prices in
the area but it is not currently possible for the Company to
estimate how the Company would be affected. Management
believes that it's oil is a commodity that is readily
marketable and that the marketing method it follows is typical
of similar companies in the industry.
NOTE 11 - SUBSEQUENT EVENTS
During January 1997, the president and the secretary/treasurer
of the Company exercised 425,000 options in connection with
their employment agreements. The two officers gave notes to
the Company in the amount of $55,000 and $80,000.
Subsequent to year end the Company made an offering to the
holders of the Company's currently outstanding common stock
purchase warrants who exercised their existing warrants by
February 21, 1997, to receive one half of a new common stock
purchase warrant for every existing warrant exercised. The
offering was exempt from registration with the Securities and
Exchange Commission under Rule 506 of Regulation D as
promulgated under the Securities Act of 1933, as amended. The
existing warrants were exercisable into one share of common
stock at an exercise price of $1.50 per share. Each new
warrant is exercisable into one share of common stock at an
exercise price of $2.00 per share. Of the 500,000 warrants
exercised, two holders of the common stock purchase warrants
did not exercise 50,000 warrants. The Company received total
proceeds of $750,000.
<PAGE> 42
UPLAND ENERGY CORPORATION AND SUBSIDIARY
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES
Generally Accepted Accounting Principles require disclosure, on
an unaudited basis, of reserve and production quantities and
changes of the quantities on an annual basis as well as
calculation of possible impairment and other costs of the
properties. This disclosure was not included in the financial
statements as of December 31, 1993 since all wells were in
progress at December 31, 1993, there was no production during
1993 and reserve information was uncertain at that time.
Oil and Gas Reserves - Users of this information should be aware
that the process of estimating oil and gas reserves is very
complex, requiring significant subjective decisions in the
evaluation of available geological, engineering, and economic
data for each reservoir. The data for a given reservoir may
change substantially over time as a result of, among other
things, additional development activity, production history and
viability of production under varying economic conditions;
consequently, material revisions to existing reserve estimates
may occur in the future. Although every reasonable effort is
made to ensure that the reserve estimates reported represent the
most accurate assessment possible, the significance of the
subjective decisions required, and variances in available data
for various reservoirs make these estimates generally less
precise than other estimates presented in connection with
financial statement disclosure.
Proved reserves are estimated quantities of natural gas, crude
oil and condensate, and natural gas liquids which geological and
engineering data demonstrate, with reasonable certainty, to be
recoverable in future years from known reservoirs under existing
economic and operating conditions.
Proved developed reserves are proved reserves that can be
expected to be recovered through existing wells with existing
equipment and operating methods.
The oil and gas reserve information presented in the following
tables as of December 31, 1995, is based upon reports of
petroleum engineers and management's estimate. The engineers and
others who assisted and produced the reserve reports were not
independent with respect to the Company. All reserves presented
are proved reserves, all of which are located within the United
States, and are defined as estimated quantities which geological
and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions. Such reserves are estimates
only and should not be construed as exact amounts. The Company
does not have proved reserves applicable to long term supply
agreements with foreign governments.
PAGE
<PAGE> 43
UPLAND ENERGY CORPORATION AND SUBSIDIARY
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Changes in Net Proved Reserves
[Volumes in Thousands]
1996 1995
______________________________
Oil Gas Oil Gas
(MBbls) (MMcf)(MBbls)(MMcf)
_____________________________
Estimated quantity at beginning
of period 563 - 356 -
Revisions of previous estimates (3) - 219 -
Discoveries and extensions - - - -
Purchase of reserves in place - - - -
Production (15) - (12) -
Sale/disposal of reserves in place - - - -
____________________________
Estimated quantity at end of
period 545 - 563 -
_____________________________
Proved developed reserves:
Beginning of period 563 - 253 -
End of period 545 - 563 -
_____________________________
Company's proportional interest
in reserves of investees accounted
for by the equity method - end
of year - - - -
______________________________
PAGE
<PAGE> 44
UPLAND ENERGY CORPORATION AND SUBSIDIARY
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Costs Incurred in Oil and Gas Property Acquisition,
Exploration and Development Activities
December 31,
_____________________
1996 1995
_________________
[In Thousand of Dollars]
Acquisition of properties:
Undevelopment leases $ 93 $ 13
Proved producing leases - -
Exploration costs - -
Development costs - 19
_______ _______
Total Additions to Oil and Gas
Properties $ 93 $ 32
_______ _______
Company's share of equity method
investees' costs of property
acquisition, exploration and
development costs $ - $ -
_______ _______
Capitalized Costs Relating to Oil and Gas Producing Activities
Capitalized costs as of the end of the
period: [In thousands of dollars]
Proved properties $ 801 $ 708
Unproved properties - -
_______ _______
Total Capitalized Costs 801 708
Less: accumulated depreciation and
depletion (55) (45)
_______ _______
Net Capitalized Costs $ 746 $ 663
_______ _______
Company's share of equity method
investees' net capitalized costs $ - $ -
_______ _______
PAGE
<PAGE> 45
UPLAND ENERGY CORPORATION AND SUBSIDIARY
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Results of Operations for Producing Activities
December 31,
_____________________
1996 1995
________________
[In Thousand of Dollars]
Oil and gas sales $ 177 $ 177
Production costs (71) (74)
Exploration costs - -
Depreciation and depletion (10) (13)
_______ _______
Income (loss) from operations 96 90
Income tax benefit (expense) (33) (31)
_______ _______
Results of Operations from Producing
Activities [Excluding Corporate Overhead
and Interest Costs] 63 59
_______ _______
Company's share of equity method investees'
results of operations for producing activities - -
_______ _______
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The information that follows has been developed pursuant to
procedures prescribed by SFAS No. 69, and utilizes reserve and
production data estimated by management and independent petroleum
engineers. The information may be useful for certain comparison
purposes, but should not be solely relied upon in evaluating the
Company or its performance. Moreover, the projections should not
be construed as realistic estimates of future cash flows, nor
should the standardized measure be viewed as representing current
value.
The future cash flows are based on sales, prices, costs, and
statutory income tax rates in existence at the dates of the
projections. Material revisions to reserve estimates may occur in
the future, development and production of the oil and gas reserves
may not occur in the periods assumed, and actual prices realized
and actual costs incurred are expected to vary significantly from
those used. Management does not rely upon the information that
follows in making investment and operating decisions; rather,
those decisions are based upon a wide range of factors, including
estimates of probable reserves as well as proved reserves, and
different price and cost assumptions than those reflected herein.
PAGE
<PAGE> 46
UPLAND ENERGY CORPORATION AND SUBSIDIARY
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The following tables set forth the standardized measure of
discounted future net cash flows from projected production of the
Company's proved oil and gas reserves:
December 31,
_____________________
1996 1995
________________
[In Thousand of Dollars]
Future reserves $8,248 $4,915
Future production and development
costs 553 641
Future income tax expenses 2,537 1,363
_______ _______
Future net cash flows 5,158 2,911
Discount to present value at 10 percent 2,578 1,196
_______ _______
Standardized measure of discounted
future net cash flows $2,580 $1,715
_______ _______
Company's share of equity method
investees' standardized measure of
discounted future net cash flows $ - $ -
_______ _______
PAGE
<PAGE> 47
UPLAND ENERGY CORPORATION AND SUBSIDIARY
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The following table sets forth the changes in standardized
measure of discounted future net cash flows:
December 31,
_____________________
1996 1995
________________
[In Thousand of Dollars]
Balance at beginning of period $ 1,715 $ 1,819
Sales of oil and gas net of production
costs (106) (103)
Changes in prices and costs - -
Changes in quantity estimates and
timing of production 2,145 21
Acquisition of reserves in place - -
Current year discoveries, extensions
and improved recoveries - -
Estimated future development and
production costs related to current
year acquisitions, discoveries,
extensions and improved recoveries - -
Net change in income taxes (1,174) (22)
Sales of reserves in place - -
Accretion of discount - -
Other - change in ten percent
discount - -
_______ _______
Balance at End of Period $ 2,580 $ 1,715
_______ _______
PAGE
<PAGE> 48
PART III
ITEM 1. INDEX TO EXHIBITS
Copies of the following documents are included as exhibits to this Form
10-SB pursuant to item 601 of regulation S-B.
SEC
Exhibit Reference
No. No. Title of Document
- ------- --------- -----------------
1 2 Exchange Agreement by and between GSC and the Company
2 3 Articles of Incorporation of the Company and related
Amendments
3 3 Bylaws of the Company
4 4 Specimen Stock Certificate
5 4 Article IV of the Articles of Incorporation (See Exhibit
No. 3)
6 4 Form of Warrant Agreement ($1.50 Exercise Price)
7 4 Form of Warrant Agreement ($2.00 Exercise Price)
8 10 Farmout Agreement between Williams Natural Gas Company
And KLM Exploration, Inc., dated August 28, 1992
9 10 Amendment to Farmout Agreement between Williams Natural
Gas Company and KLM Exploration, Inc.
10 10 Operating Agreement between Kenneth L. Mason, KLM
Exploration, Inc. and GSC, dated November 10, 1993
11 10 Employment and Option Agreements between the Company and
Felix Ascanio, dated October 1, and September 1, 1996,
respectively
12 10 Employment Agreement between the Company and John Hobbs,
Dated November 1, 1996
13 10 Option Agreement between the Company and John Hobbs, dated
November 1, 1996
14 10 1996 Stock Option Plan and related amendments
15 10 Form of Directors Stock Option
16 10 Promissory Notes related to exercise of options
17 22 Schedule of Subsidiary of the Registrant
18 17 Financial Data Schedule
PAGE
<PAGE> 49
In accordance with Section 12 of the Securities Exchange Act of 1934,
the
Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunder duly authorized.
UPLAND ENERGY CORPORATION
By: /S/ Felix Ascanio, President
In accordance with Section 12 of the Securities Exchange Act of 1934,
the
Registrant caused this registration statement to be signed on its behalf by
the undersigned in the capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
/S/ Felix Ascanio President, Director April 29, 1997
/S/ John W. Hobbs Secretary/Treasurer, Director April 29, 1997
/S/ Ervin Brown Director April 29, 1997
/S/ Lee Jackson Director April 29, 1997
<PAGE> 1
Exhibit No. 1
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (hereinafter referred to as this "Agreement"), is
entered into as of the 29th day of October, 1993, by and between Upland
Investment Corporation, a Utah corporation (hereinafter referred to as
"Upland"); G.S. & C., Inc., a Nevada corporation (hereinafter referred to as
"GSC"); and the persons listed on the signature pages to this Agreement who
constitute the holders of all issued and outstanding shares of capital stock
of GSC (hereinafter referred to as the "GSC Shareholders"), based on the
following:
ther rights for its stocks, bonds, or other corporate securities calling for
the issuance thereof; (ii) borrowed or agreed to borrow any funds or incurred,
or become subject to, any material obligation or liability (absolute or
contingent) except liabilities incurred in the ordinary course of business;
(iii) paid any material obligation or liability (absolute or contingent) other
than current liabilities reflected in or shown on the most recent GSC balance
sheet, and current liabilities incurred since that date in the ordinary course
of business; (iv) sold or transferred, or agreed to sell or transfer, any of
its assets, properties, or rights (except assets, properties, or rights not
used or useful in its business which, in the aggregate have a value of less
than $5,000), or canceled, or agreed to cancel, any debts or claims (except
debts or claims which in the aggregate are of a value of less than $5,000);
(v) made or permitted any amendment or termination of any contract, agreement,
or license to which it is a party if such amendment or termination is
material, considering the business of GSC; or (vi) issued, delivered, or
agreed to issue or deliver any stock, bonds, or other corporate securities
including debentures (whether authorized and unissued or held as treasury
stock); and
<PAGE> 4
(d) GSC is not in violation of any law or regulation the violation of
which would materially and adversely affect the business, operations,
properties, assets, or condition of GSC.
Section 1.08 Title and Related Matters. GSC has good and marketable
title to all of its properties, inventory, interests in properties, and
assets, real and personal, which are reflected in the GSC financial statements
or acquired after that date (except properties, interests in properties, and
assets sold or otherwise disposed of since such date in the ordinary course of
business), free and clear of all liens, pledges, charges, or encumbrances
except (a) statutory liens or claims not yet delinquent; and (b) such
imperfections of title and easements as do not and will not materially detract
from or interfere with the present or proposed use of the properties subject
thereto or affected thereby or otherwise materially impair present business
operations on such properties.
Section 1.09 Litigation and Proceedings. There are no actions,
suits, or proceedings pending or, to the knowledge of GSC, threatened by or
against GSC, or affecting GSC or its properties, at law or in equity, before
any court or other governmental agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind. GSC does not have any
knowledge of any default on its part with respect to any judgment, order,
writ, injunction, decree, award, rule, or regulation of any court, arbitrator,
or governmental agency or instrumentality.
Section 1.10 Contracts.
(a) Except as included or described in the GSC Schedules, there are
no material contracts, agreements, franchises, license agreements, or other
commitments to which GSC is a party or by which it or any of its properties
are bound, which are material to the operations of GSC taken as a whole;
(b) GSC is not a party to or bound by, and the properties of GSC are
not subject to, any contract, agreement, other commitment or instrument; any
charter or other corporate restriction; or any judgment, order, writ,
injunction, decree, or award which materially and adversely affects, or in the
future may (as far as GSC can now foresee) materially and adversely affect,
the business, operations, properties, assets, or condition of GSC; and
(c) Except as included or described in the GSC Schedules or reflected
in the GSC financial statements, GSC is not a party to any oral or written (i)
contract for the employment of any officer or employee which is not terminable
on 30 days (or less) notice; (ii) profit sharing, bonus, deferred
compensation, stock option, severance pay, pension benefit or retirement plan,
agreement, or arrangement covered by Title IV of the Employee Retirement
Income Security Act, as amended; (iii) agreement, contract, or indenture
relating to the borrowing of money; (iv) guaranty of any obligation, other
than one on which GSC is a primary obligor, for the borrowing of money or
otherwise, excluding endorsements made for collection and other guaranties of
obligations, which, in the aggregate do not exceed $5,000; (v) consulting or
other similar contracts with an unexpired term of more than one year or
providing for payments in excess of $5,000 in the aggregate; (vi) collective
bargaining agreement; (vii) agreement with any present or former officer or
director of GSC; or (viii) contract, agreement, or other commitment involving
payments by it of more than $5,000 in the aggregate.
<PAGE> 5
Section 1.11 Material Contract Defaults. GSC is not in default in
any material respect under the terms of any outstanding contract, agreement,
lease, or other commitment which is material to the business, operations,
properties, assets, or condition of GSC, and there is no event of default or
other event which, with notice or lapse of time or both, would constitute a
default in any material respect under any such contract, agreement, lease, or
other commitment in respect of which GSC has not taken adequate steps to
prevent such a default from occurring.
Section 1.12 No Conflict With Other Instruments. The execution of
this Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed
of trust, or other material contract, agreement, or instrument to which GSC is
a party or to which any of its properties or operations are subject.
Section 1.13 Governmental Authorizations. GSC holds all licenses,
franchises, permits, and other governmental authorizations which are legally
required to enable GSC to conduct its business in all material respects as
conducted on the date hereof. Except for compliance with U.S. federal and
state securities and corporation laws, no authorization, approval, consent, or
order of, or registration, declaration, or filing with, any U.S. or foreign
court or other governmental body is required in connection with the execution
and delivery by GSC of this Agreement and the consummation by GSC of the
transactions contemplated hereby.
Section 1.14 Compliance With Laws and Regulations. GSC has complied
with all applicable U.S. and foreign statutes and regulations of any federal,
state, provincial, or other governmental entity or agency thereof, except to
the extent that noncompliance would not materially and adversely affect the
business, operations, properties, assets, or condition of GSC or except to the
extent that noncompliance would not result in any material liability for GSC.
Section 1.15 Insurance. All of the insurable properties of GSC are
insured for GSC's benefit in the amount of not less than 80% of their
replacement value against all risks customarily insured against by persons
owning and/or operating similar properties in the localities where such
properties are located and under valid and enforceable policies issued by
insurers of recognized responsibility. Such policy or policies containing
substantially equivalent coverage will be outstanding and in full force at the
Closing Date, as hereinafter defined.
Section 1.16 Approval of Agreement. The board of directors of GSC
has authorized the execution and delivery of this Agreement by GSC, has
approved the transactions contemplated hereby, and approved the submission of
this Agreement and the transactions contemplated hereby to the GSC
Shareholders for their approval with the recommendation that the exchange be
accepted.
PAGE
<PAGE> 6
Section 1.17 Material Transactions or Affiliations. Set forth in the
GSC Schedules is a description of every material contract, agreement, or
arrangement between GSC and any predecessor and any person who was at the time
of such contract, agreement, or arrangement an officer, director, or person
owning of record, or known by GSC to own beneficially, 10% or more of the
issued and outstanding common stock of GSC and which is to be performed in
whole or in part after the date hereof. There are no commitments by GSC,
whether written or oral, to lend any funds to, borrow any money from, or enter
into any other material transaction with, any such affiliated person.
Section 1.18 Labor Relations. GSC has never had a work stoppage
resulting from labor problems. To the best knowledge of GSC, no union or
other collective bargaining organization is organizing or attempting to
organize any employee of GSC.
Section 1.19 Ownership of GSC Shares. Each of the GSC Shareholders
hereby represents and warrants with respect to himself or herself that he or
she is the legal and beneficial owner of the number of GSC shares set forth
opposite his or her name at the foot of this agreement, free and clear of any
claims, charges, equities, liens, security interests, and encumbrances
whatsoever, and that he or she has full right, power, and authority to
transfer, assign, convey, and deliver his or her GSC shares; and that delivery
of such shares at the Closing will convey to Upland good and marketable title
to such shares, free and clear of any claims, charges, equities, liens,
security interests, and encumbrances whatsoever.
Section 1.20 GSC Schedules. GSC has delivered to Upland the
following schedules, which are collectively referred to as the "GSC Schedules"
and which consist of separate schedules dated as of the date of execution of
this Agreement and instruments and data as of such date, all certified by the
chief executive officer of GSC as complete, true, and correct:
(a) a schedule containing complete and correct copies of the articles
of incorporation and bylaws of GSC and any amendments thereto in effect as of
the date of this Agreement;
(b) a schedule including the financial statements of GSC identified
in paragraph 1.04(a);
(c) a schedule setting forth a description of any material adverse
change in the business, operations, property, inventory, assets, or condition
of GSC since the most recent GSC balance sheet required to be provided
pursuant to section 1.07 hereof;
(d) a schedule containing true and correct copies of all material
contracts, agreements, or other instruments to which GSC is a party or by
which it or its properties are bound, together with a description of all
contracts, leases, agreements, and other instruments, whether or not deemed
material, including oral agreements, to which GSC is a party or by which it or
its properties are bound, specifically including all contracts, agreements, or
arrangements referred to in section 1.10;
<PAGE> 7
(e) a schedule containing copies of all licenses, permits, and other
governmental authorizations, requests, or applications therefor pursuant to
which GSC carries on or proposes to carry on its business (except those which,
in the aggregate, are immaterial to the present or proposed business of GSC);
(f) a schedule describing any material transactions with affiliates
pursuant to section 1.17 of this Agreement;
(g) a list of all executive employees of GSC, setting forth a job
description and the current compensation of each and indicating whether such
employees are employed pursuant to written agreements;
(h) a schedule containing a list of every debt, mortgage, security
interest, pledge, lien, encumbrance, or claim of any nature whatsoever in
excess of $5,000 to which GSC is a party or to which any of its properties are
subject; and
(i) a schedule setting forth any other information, together with any
required copies of documents, required to be disclosed in the GSC Schedules by
sections 1.01 through 1.19.
GSC shall cause the GSC Schedules and the instruments and data delivered
to Upland hereunder to be updated after the date hereof up to and including
the Closing Date.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF UPLAND
As an inducement to, and to obtain the reliance of, GSC and the GSC
Shareholder, Upland represents and warrants as follows:
Section 2.01 Organization. Upland is a corporation duly organized,
validly existing, and in good standing under the laws of the state of Utah,
and has the corporate power and is duly authorized, qualified, franchised, and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, and there is
no jurisdiction in which it is not qualified in which the character and
location of the assets owned by it or the nature of the business transacted by
it requires qualification and where failure to qualify would have a materially
adverse effect on Upland. Included in the Upland Schedules (as hereinafter
defined) are complete and correct copies of the articles of incorporation and
bylaws of Upland as in effect on the date hereof. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, violate any provision of Upland's articles of
incorporation or bylaws. Upland has taken all action required by law, its
articles of incorporation, its bylaws, or otherwise to authorize the execution
and delivery of this Agreement, except for obtaining the approval of its
shareholders. Except for such approval, Upland has full power, authority, and
legal right and has taken all action required by law, its articles of
incorporation, bylaws, or otherwise to consummate the transactions herein
contemplated.
<PAGE> 8
Section 2.02 Capitalization. Upland's authorized capitalization
consists of 50,000,000 shares of common stock, $0.001 par value, 13,990,000 of
which are issued and outstanding. All issued and outstanding shares are
legally issued, fully paid, and nonassessable. Following the reverse split
described in Section 3.01(a), Upland will have a total of 6,995,000 shares of
common stock outstanding.
Section 2.03 Subsidiaries. Upland does not have any subsidiaries and
does not own, beneficially or of record, shares of any other corporation or
any partnership or other similar interest in any other entity.
Section 2.04 Financial Statements.
(a) Included in the Upland Schedules are the audited balance sheets
of Upland as December 31, 1992 and 1991, and the related audited statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1992 and 1991, together with the notes to such financial statements and
the opinion of Peterson, Siler & Stevenson, P.C., certified public
accountants, with respect thereto. All of such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved. The Upland balance
sheets present fairly as of their respective dates the financial condition of
Upland. Upland did not have, as of the date of any such Upland balance sheet,
except as and to the extent reflected or reserved against therein, any
liabilities or obligations (absolute or contingent) which should be reflected
in a balance sheet or the notes thereto prepared in accordance with generally
accepted accounting principles, and all assets reflected therein are properly
reported and present fairly the value of the assets of Upland, in accordance
with generally accepted accounting principles. The statements of operations,
stockholders' equity, and cash flows reflect fairly the information required
to be set forth therein by generally accepted accounting principles.
(c) Upland has no liabilities with respect to the payment of any
federal, state, county, local, or other taxes (including any deficiencies,
interest, or penalties), except for taxes accrued but not yet due and payable.
(d) Upland has filed all state, federal, and local income tax returns
required to be filed by it from inception through the date hereof.
(e) The books and records, financial and others, of Upland are in all
material respects complete and correct and have been maintained in accordance
with good business and accounting practices.
(f) Except as set forth in the Upland Schedules, the most recent
Upland financial statements, or the notes thereto, Upland (i) has no
receivables; (ii) has no accounts payable, except immaterial payables incurred
in the course of its business which do not exceed an aggregate of $500 and
legal and accounting expenses incurred in connection with this Agreement; and
(iii) has no material contingent liabilities, direct or indirect, matured or
unmatured.
<PAGE> 9
Section 2.05 Information. The information concerning Upland set
forth in this Agreement and the Upland Schedules is complete and accurate in
all material respects and does not contain any untrue statement of a material
fact or omit to state a material fact required to make the statements made, in
light of the circumstances under which they were made, not misleading.
Section 2.06 Options or Warrants. There are no existing options,
warrants, calls, or commitments of any character relating to authorized and
unissued stock of Upland except options, warrants, calls, or commitments, if
any, to which Upland is not a party and by which it is not bound.
Section 2.07 Absence of Certain Changes or Events. Except as
described herein or in the Upland Schedules, since December 31, 1992:
(a) there has not been (i) any material adverse change in the
business, operations, properties, assets, or condition of Upland; or (ii) any
damage, destruction, or loss to Upland (whether or not covered by insurance)
materially and adversely affecting the business, operations, properties,
assets, or condition of Upland;
(b) Upland has not (i) amended its articles of incorporation or
bylaws; (ii) declared or made, or agreed to declare or make any payment of
dividends or distributions of any assets of any kind whatsoever to
stockholders or purchased or redeemed, or agreed to purchase or redeem, any of
its capital stock; (iii) waived any rights of value which in the aggregate are
extraordinary or material considering the business of Upland; (iv) made any
material change in its method of management, operation, or accounting; (v)
entered into any other material transactions; (vi) made any accrual or
arrangement for or payment of bonuses or special compensation of any kind or
any severance or termination pay to any present or former officer or employee;
(vii) increased the rate of compensation payable or to become payable by it to
any of its officers or directors or any of its employees whose monthly
compensation exceeds $500; or (viii) made any increase in any profit sharing,
bonus, deferred compensation, insurance, pension, retirement, or other
employee benefit plan, payment, or arrangement, made to, for, or with its
officers, directors, or employees;
(c) Upland has not (i) granted or agreed to grant any options,
warrants, or other rights for its stocks, bonds, or other corporate securities
calling for the issuance thereof; (ii) borrowed or agreed to borrow any funds
or incurred, or become subject to, any material obligation or liability
(absolute or contingent) except liabilities incurred in the ordinary course of
business; (iii) paid any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or shown on the most
recent Upland balance sheet, and current liabilities incurred since that date
in the ordinary course of business; (iv) sold or transferred, or agreed to
sell or transfer, any of its assets, property, or rights (except assets,
property, or rights not used or useful in its business which, in the aggregate
have a value of less than $500), or canceled, or agreed to cancel, any debts
or claims (except debts or claims which in the aggregate are of a value of
less than $500); (v) made or permitted any amendment or termination of any
contract, agreement, or license to which it is a party if such amendment or
termination is material, considering the business of Upland; or (vi) issued,
delivered, or agreed to issue or deliver any stock, bonds, or other corporate
securities including debentures (whether authorized and unissued or held as
treasury stock); and
<PAGE> 10
(d) to the best knowledge of Upland, it has not become subject to any
law or regulation which materially and adversely affects, or in the future may
adversely affect, the business, operations, properties, assets, or condition
of Upland.
Section 2.08 Title and Related Matters. Upland owns no real
property. Upland has good title to all of the assets which are reflected in
the Upland balance sheet or acquired after that date (except assets sold or
otherwise disposed of since such date in the ordinary course of business),
free and clear of all liens, pledges, charges, or encumbrances except
statutory liens or claims not yet delinquent.
Section 2.09 Litigation and Proceedings. There are no actions,
suits, or proceedings pending or, to the knowledge of Upland, threatened by or
against or affecting Upland, at law or in equity, before any court or other
governmental agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind. Upland does not have any knowledge of any default on
its part with respect to any judgment, order, writ, injunction, decree, award,
rule, or regulation of any court, arbitrator, or governmental agency or
instrumentality.
Section 2.10 Contracts.
(a) There are no material contracts, agreements, franchises, license
agreements, or other commitments to which Upland is a party or by which it or
any of its properties are bound;
(b) Upland is not a party to any contract, agreement, commitment, or
instrument or subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, or award which materially and
adversely affects, or in the future may (as far as Upland can now foresee)
materially and adversely affect, the business, operations, properties, assets,
or condition of Upland; and
(c) Upland is not a party to any material oral or written (i)
contract for the employment of any officer or employee which is not terminable
on 30 days (or less) notice; (ii) profit sharing, bonus, deferred
compensation, stock option, severance pay, pension, benefit, or retirement
plan, agreement, or arrangement covered by Title IV of the Employee Retirement
Income Security Act, as amended; (iii) agreement, contract, or indenture
relating to the borrowing of money; (iv) guaranty of any obligation; (v)
consulting or other similar contract with an unexpired term of more than one
year or providing for payments in excess of $500 in the aggregate; (vi)
collective bargaining agreement; (vii) agreement with any present or former
officer or director of Upland; or (viii) contract, agreement, or other
commitment involving payments by it of more than $500 in the aggregate.
Section 2.11 No Conflict With Other Instruments. The consummation of
the transactions contemplated by this Agreement will not result in the breach
of any term or provision of, or constitute a default under, any indenture,
mortgage, deed of trust, or other material agreement or instrument to which
Upland is a party or to which any of its assets or operations are subject.
<PAGE> 11
Section 2.12 Governmental Authorizations. Upland has all licenses,
franchises, permits, and other government authorizations that are legally
required to enable it to conduct its business operations in all material
respects as conducted on the date hereof. Except for compliance with federal
and state securities or corporation laws, no authorization, approval, consent,
or order of, or registration, declaration, or filing with, any court or other
governmental body is required in connection with the execution and delivery by
Upland of this Agreement and the consummation by Upland of the transactions
contemplated hereby.
Section 2.13 Compliance With Laws and Regulations. Upland has
complied with all applicable statutes and regulations of any federal, state,
or other applicable governmental entity or agency thereof, except to the
extent that noncompliance would not materially and adversely affect the
business, operations, properties, assets, or condition of Upland or except to
the extent that noncompliance would not result in any material liability to Upla
nd.
Section 2.14 Insurance. Upland owns no insurable properties and
carries no casualty or liability insurance.
Section 2.15 Approval of Agreement. The board of directors of Upland
has authorized and approved the execution and delivery of this Agreement by
Upland and consummation of the transactions contemplated hereby and will
submit this Agreement and the transactions contemplated hereby for
consideration by its shareholders with the recommendation that such proposals
be approved.
Section 2.16 Continuity of Business Enterprise. Upland has no
commitment or present intention to liquidate GSC or sell or otherwise dispose
of a material portion of GSC's business or assets following the consummation
of the transactions contemplated herein.
Section 2.17 Material Transactions or Affiliations. Except as
disclosed herein and in the Upland Schedules, there exists no material
contract, agreement, or arrangement between Upland and any person who was at
the time of such contract, agreement, or arrangement an officer, director, or
person owning of record or known by Upland to own beneficially, 10% or more of
the issued and outstanding common stock of Upland and which is to be performed
in whole or in part after the date hereof or was entered into not more than
three years prior to the date hereof. Neither any officer, director, or 10%
shareholder of Upland has, or has had during the last preceding full fiscal
year, any known interest in any material transaction with Upland which was
material to the business of Upland. Upland has no commitment, whether written
or oral, to lend any funds to, borrow any money from, or enter into any other
material transaction with any such affiliated person.
Section 2.18 Previous Public Offering. In September 1986, Upland
completed a public offering of 10,000,000 shares of common stock at a price of
$0.0125 per share which resulted in net proceeds to Upland of approximately
$98,897 after deducting sales commissions and other expenses of the offering.
The offering was conducted in reliance on the exemption from the registration
requirements of the Securities Act of 1933 provided by Rule 504 of Regulation
D promulgated thereunder and was registered by qualification with the Utah
Securities Division.
<PAGE> 12
Section 2.19 Labor Relations. Upland has never had a work stoppage
resulting from labor problems. Upland has no employees other than its
officers and directors.
Section 2.20 Upland Schedules. Upland has delivered to GSC the
following schedules, which are collectively referred to as the "Upland
Schedules," which are dated the date of this Agreement, all certified by an
officer of Upland to be complete, true, and accurate:
(a) a schedule containing complete and accurate copies of the
articles of incorporation and bylaws of Upland and any amendments thereto as
in effect as of the date of this Agreement;
(b) The financial statements identified in section 2.04(a);
(c) Upland's Corporate Information Statement pursuant to Rule 15c2-11
of the Securities Exchange Act of 1934 and Rule 14.2m of the Utah Securities
Division, dated March 29, 1992;
(d) a schedule setting forth any other information required to be
disclosed in the Upland Schedules by sections 2.01 through 2.19.
Upland shall cause the Upland Schedules and the instruments to be
delivered to GSC hereunder to be updated after the date hereof up to and
including the Closing Date.
ARTICLE III
PLAN OF EXCHANGE
Section 3.01 The Exchange.
(a) Prior to Closing, Upland shall effect a 1-for-2 reverse split in
its issued and outstanding shares of common stock reducing the number of
shares of outstanding common stock from 13,990,000 to approximately
6,995,000.
(b) On the terms and subject to the conditions set forth in this
Agreement, on the Closing Date (as defined in section 3.02), the GSC
Shareholders shall assign, transfer, and deliver to Upland, free and clear of
all liens, pledges, encumbrances, charges, restrictions, or claims of any
kind, nature, or description, all issued and outstanding shares of common
stock of GSC, and Upland agrees to acquire such shares on such date by issuing
and delivering in exchange therefor an aggregate of 25,297,500 post-split
restricted shares of Upland common stock (the "Exchanged Common Stock"). Such
shares shall be issued on the basis of approximately three (3) shares of
Exchanged Common Stock for each share of GSC common stock rounded to the
nearest ten shares as indicated on the signature pages to this Agreement.
Following the issuance of shares to the GSC shareholders, Upland will have a
total of 32,292,500 shares of common stock outstanding, of which 6,995,000
shares or 21.7% will be held by the current shareholders of Upland and
25,297,500 shares or 78.3% will be held by the former shareholders of GSC.
<PAGE> 13
(b) At the Closing, the GSC Shareholders shall, on the surrender of
their certificates representing the GSC shares togetherreement and the
transactions herein contemplated.
Section 3.02 Closing. The closing ("Closing") of the transactions
contemplated by this Agreement shall be on a date and at such time as the
parties may agree ("Closing Date"), within the ten day period commencing with
the last to occur of the Upland and GSC shareholders' meetings (or date of
unanimous or majority consents in lieu of such meetings) or such date as may
be prescribed by any federal or state regulatory agency or authority, pursuant
to any federal, state, or provincial law, rule, or regulation, prior to which
the consummation of the transactions contemplated hereby may not be
effectuated. Such Closing shall take place at a mutually agreeable time and
place.
Section 3.03 Closing Events. At the Closing, each of the respective
parties hereto shall execute, acknowledge, and deliver (or shall cause to be
executed, acknowledged, and delivered) any and all certificates, opinions,
financial statements, schedules, agreements, resolutions, or other instruments
required by this Agreement to be so delivered at or prior to the Closing,
together with such other items as may be reasonably requested by the parties
hereto and their respective legal counsel in order to effectuate or evidence
the transactions contemplated hereby.
Section 3.04 Termination.
(a) This Agreement may be terminated by the board of directors of
either Upland or GSC at any time prior to the Effective Date if:
(i) there shall be any actual or threatened action or proceeding
before any court or any governmental body which shall seek to restrain,
prohibit, or invalidate the transactions contemplated by this Agreement and
which, in the judgment of such board of directors, made in good faith and
based on the advice of its legal counsel, makes it inadvisable to proceed with
the exchange contemplated by this Agreement;
(ii) any of the transactions contemplated hereby are disapproved
by any regulatory authority whose approval is required to consummate such
transactions or in the judgment of such board of directors, made in good faith
and based on the advice of counsel, there is substantial likelihood that any
such approval will not be obtained or will be obtained only on a condition or
conditions which would be unduly burdensome, making it inadvisable to proceed
with the exchange;
(iii) there shall have been any change after the date of the
latest balance sheets of Upland and GSC, respectively, in the assets,
properties, business, or financial condition of Upland or GSC, which could
have a materially adverse affect on the value of the business of Upland or
GSC, respectively, except any changes disclosed in the Upland or GSC
Schedules, as the case may be, dated as of the date of execution of this
Agreement; or
<PAGE> 14
(iv) the Closing has not occurred by December 31, 1993.
In the event of termination pursuant to this paragraph (a) of section 3.04, no
obligation, right, or liability shall arise hereunder, and each party shall
bear all of the expenses incurred by it in connection with the negotiation,
drafting, and execution of this Agreement and the transactions herein
contemplated.
(b) This Agreement may be terminated at any time prior to the Closing
by action of the board of directors of Upland if GSC or the GSC Shareholder
shall fail to comply in any material respect with any of their covenants or
agreements contained in this Agreement or if any of the representations or
warranties of GSC contained herein shall be inaccurate in any material
respect. If this Agreement is terminated pursuant to this paragraph (b) of
section 3.04, this Agreement shall be of no further force or effect, and no
obligation, right, or liability shall arise hereunder, except that GSC shall
reimburse Upland for all costs and expenses actually incurred by it in
connection with this Agreement, which were incurred from and after the date
hereof.
(c) This Agreement may be terminated at any time prior to the Closing
by action of the board of directors of GSC if Upland shall fail to comply in
any material respect with any of its covenants or agreements contained in this
Agreement or if any of the representations or warranties of Upland contained
herein shall be inaccurate in any material respect. If this Agreement is
terminated pursuant to this paragraph (c) of section 3.04, this Agreement
shall be of no further force or effect and no obligation, right, or liability
shall arise hereunder, except that Upland shall reimburse GSC for all costs
and expenses actually incurred in connection with Agreement, which were
incurred from and after the date hereof.
ARTICLE IV
SPECIAL COVENANTS
Section 4.01 Stockholder Action of GSC. GSC shall, as soon as
practicable following execution of this Agreement, cause a meeting of the GSC
shareholders to be duly called and held for the purpose of authorizing and
approving this Agreement and the consummation of the transactions contemplated
herein, all in accordance with the applicable provisions of the laws of the
state of Nevada. GSC may utilize a unanimous written consent of shareholders
in lieu of a formal meeting if and to the extent such action is provided for
under Nevada law.
Section 4.02 Stockholder Action of Upland. Upland shall, at a
special meeting of its stockholders to be held as soon as practicable
following execution of this Agreement, present for the authorization and
approval of such stockholders, this Agreement and the consummation of the
transactions contemplated herein. Upland shall also submit to its
shareholders at such meeting proposals to: (a) effect a 1-for-2 reverse split
in the issued and outstanding shares of Upland common stock so that the
13,990,000 shares outstanding will be reduced to approximately 6,995,000
shares; (b) change the name of Upland to "Upland Energy Corporation," or some
derivation thereof as determined by the board of directors; (c) elect the
designees of GSC as directors of Upland, effective on the closing of the
transactions contemplated hereby; and (d) take such other actions as may be
mutually agreed upon by Upland and GSC.
<PAGE> 15
Section 4.03 Access to Properties and Records. Upland and GSC will
each afford to the officers and authorized representatives of the other full
access to the properties, books, and records of Upland and GSC, as the case
may be, in order that each may have full opportunity to make such reasonable
investigation as it shall desire to make of the affairs of the other, and each
will furnish the other with such additional financial and operating data and
other information as to the business and properties of Upland and GSC, as the
case may be, as the other shall from time to time reasonably request.
Section 4.04 Special Covenants and Representations Regarding the
Exchanged Upland Stock. The consummation of this Agreement and the
transactions herein contemplated, including the issuance of the Exchanged
Common Stock to the GSC Shareholders as contemplated hereby, constitutes the
offer and sale of securities under the Securities Act and applicable state
statutes. Such transaction shall be consummated in reliance on exemptions
from the registration and prospectus delivery requirements of such statutes
which depend, inter alia, upon the circumstances under which the GSC
Shareholders acquire such securities. In connection with reliance upon
exemptions from the registration and prospectus delivery requirements for such
transactions, at the Closing, the GSC Shareholders shall deliver to Upland a
letter of representation in the form attached hereto as Exhibit "A."
Section 4.05 Third Party Consents. Upland and GSC agree to cooperate
with each other in order to obtain any required third party consents to this
Agreement and the transactions herein contemplated.
Section 4.06 Actions Prior to Closing.
(a) From and after the date of this Agreement until the Closing Date
and except as set forth in the Upland or GSC Schedules or as permitted or
contemplated by this Agreement, Upland and GSC, respectively, will each:
(i) carry on its business in substantially the same manner as it
has heretofore;
(ii) maintain and keep its properties in states of good repair
and condition as at present, except for depreciation due to ordinary wear and
tear and damage due to casualty;
(iii) maintain in full force and effect insurance comparable in
amount and in scope of coverage to that now maintained by it;
(iv) perform in all material respects all of its obligations
under material contracts, leases, and instruments relating to or affecting its
assets, properties, and business;
(v) use its best efforts to maintain and preserve its business
organization intact, to retain its key employees, and to maintain its
relationship with its material suppliers and customers; and
(vi) fully comply with and perform in all material respects all
obligations and duties imposed on it by all federal and state laws and all
rules, regulations, and orders imposed by federal or state governmental
authorities.
<PAGE> 16
(b) From and after the date of this Agreement until the Closing Date,
neither Upland nor GSC will:
(i) make any change in their respective certificates of
incorporation or bylaws except to the extent expressly permitted hereby;
(ii) take any action described in section 1.07 in the case of
GSC, or in section 2.07, in the case of Upland, (all except as permitted
therein or as disclosed in the applicable party's schedules); or
(iii) enter into or amend any contract, agreement, or other
instrument of any of the types described in such party's schedules, except
that a party may enter into or amend any contract, agreement, or other
instrument in the ordinary course of business involving the sale of goods or
services.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF UPLAND
The obligations of Upland under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 5.01 Accuracy of Representations. The representations and
warranties made by GSC in this Agreement were true when made and shall be true
at the Closing Date with the same force and effect as if such representations
and warranties were made at and as of the Closing Date (except for changes
therein permitted by this Agreement), and GSC shall have performed or complied
with all covenants and conditions required by this Agreement to be performed
or complied with by GSC prior to or at the Closing. Upland shall be furnished
with a certificate, signed by a duly authorized officer of GSC and dated the
Closing Date, to the foregoing effect.
Section 5.02 Stockholder Approval. The stockholders of Upland shall
have approved the proposed plan of exchange, the reverse split, the change in
name and the election of the designees of GSC to the board of directors of
Upland.
Section 5.03 Definitive Agreement with KLM. GSC shall have entered
into a definitive agreement with Kenneth Mason and KLM Exploration, Inc.
(collectively referred to as "KLM") with respect to GSC's acquisition of KLM's
rights under a farmout agreement with Williams Natural Gas Company ("WNG"),
which agreement shall be on terms which do not differ materially from those
set forth in the Agreement in Principle between GSC and KLM dated September
22, 1993. In addition, WNG shall have approved such agreement or given
reasonable assurances that it will approve such agreement.
Section 5.04 Officer's Certificate. Upland shall have been furnished
with a certificate dated the Closing Date and signed by a duly authorized
officer of GSC to the effect that no litigation, proceeding, investigation, or
inquiry is pending or, to the best knowledge of GSC, threatened, which might
result in an action to enjoin or prevent the consummation of the transactions
contemplated by this Agreement.
<PAGE> 17
Section 5.05 No Material Adverse Change. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial
condition, business, or operations of GSC, nor shall any event have occurred
which, with the lapse of time or the giving of notice, may cause or create any
material adverse change in the financial condition, business, or operations of
GSC.
Section 5.06 Good Standing. Upland shall have received a certificate of
good standing from the Nevada Secretary of State or other appropriate office,
dated as of a date within 20 days prior to the Closing Date certifying that
GSC is in good standing as a corporation in the state of Nevada.
Section 5.07 Other Items. GSC shall have taken or performed any and all
actions to be taken by GSC pursuant to the provisions of Article IV herein,
and Upland shall have received such further documents, certificates, or
instruments relating to the transactions contemplated hereby as Upland may
reasonably request.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF GSC
The obligations of GSC under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 6.01 Accuracy of Representations. The representations and
warranties made by Upland in this Agreement were true when made and shall be
true as of the Closing Date (except for changes therein permitted by this
Agreement) with the same force and effect as if such representations and
warranties were made at and as of the Closing Date, and Upland shall have
performed and complied with all covenants and conditions required by this
Agreement to be performed or complied with by Upland prior to or at the
Closing. GSC shall have been furnished with a certificate, signed by a duly
authorized executive officer of Upland and dated the Closing Date, to the
foregoing effect.
Section 6.02 Stockholder Approval. The GSC Shareholders shall have
approved the proposed plan of exchange and the transactions contemplated
thereby.
Section 6.03 Officer's Certificate. GSC shall have been furnished with a
certificate dated the Closing Date and signed by a duly authorized executive
officer of Upland to the effect that no litigation, proceeding, investigation,
or inquiry is pending or, to the best knowledge of Upland, threatened, which
might result in an action to enjoin or prevent the consummation of the
transactions contemplated by this Agreement.
Section 6.04 No Material Adverse Change. Prior to the Closing Date, there
shall not have occurred any material adverse change in the financial
condition, business, or operations of Upland, taken as a whole.
PAGE
<PAGE> 18
Section 6.05 Good Standing. GSC shall have received a certificate of good
standing from the Secretary of State or other appropriate office of the state
of Utah with respect to Upland dated as of a date within 20 days prior to the
Closing Date certifying that Upland is in good standing as a corporation in
the state of Utah.
Section 6.06 Other Items. Upland shall have taken or performed any and
all actions to be taken by Upland pursuant to the provisions of Article IV
herein, and GSC shall have received such further documents, certificates, or
instruments relating to the transactions contemplated hereby as GSC may
reasonably request.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Brokers. Upland and GSC agree that they are not obligated to
pay any compensation to any finders or brokers for bringing the parties
together or who were instrumental in the negotiation, execution, or
consummation of this Agreement. Each party agrees to indemnify the other
against any claim by any third person for any commission, brokerage, or
finders' fee or other payment with respect to this Agreement or the
transactions contemplated hereby based on any alleged agreement or
understanding between such party and such third person, whether express or
implied, from the actions of such party.
Section 7.02 Governing Law. This Agreement shall be governed by,
enforced, and construed under and in accordance with the laws of the United
States of America and, with respect to matters of state law, with the laws of
Utah.
Section 7.03 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if personally delivered to it
or sent by registered mail or certified mail, postage prepaid, or by prepaid
telegram addressed as follows:
If to Upland, to:
John W. Hobbs, President
Upland Investment Corporation
2464 Arnett Drive
Salt Lake City, Utah 84109
If to GSC, to:
T. Kent Rainey, President
G.S. & C., Inc.
175 South Main Street, Suite 1410
Salt Lake City, Utah 84111
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication
shall be deemed to have been given as of the date so delivered, mailed, or
telegraphed.
PAGE
<PAGE> 19
Section 7.04 Attornevs' Fees. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 7.05 Confidentiality. Each party hereto agrees with the other
parties that, unless and until the transactions contemplated by this Agreement
have been consummated, they and their representatives will hold in strict
confidence all data and information obtained with respect to another party or
any subsidiary thereof from any representative, officer, director, or
employee, or from any books or records or from personal inspection, of such
other party, and shall not use such data or information or disclose the same
to others, except (i) to the extent such data or information is published, is
a matter of public knowledge, or is required by law to be published; and (ii)
to the extent that such data or information must be used or disclosed in order
to consummate the transactions contemplated by this Agreement.
Section 7.06 Schedules: Knowledge. Each party is presumed to have full
knowledge of all information set forth in the other party's schedules
delivered pursuant to this Agreement.
Section 7.07 Third Party Beneficiaries. This contract is solely between
Upland and GSC and, except as specifically provided, no director, officer,
stockholder, employee, agent, independent contractor, or any other person or
entity shall be deemed to be a third party beneficiary of this Agreement.
Section 7.08 Entire Agreement. This Agreement represents the entire
agreement between the parties relating to the subject matter hereof. This
Agreement alone fully and completely expresses the agreement of the parties
relating to the subject matter hereof. There are no other courses of dealing,
understandings, agreements, representations, or warranties, written or oral,
except as set forth herein. This Agreement may not be amended or modified,
except by a written agreement signed by all parties hereto.
Section 7.09 Survival: Termination. The representations, warranties, and
covenants of the respective parties shall survive the Closing Date and the
consummation of the transactions herein contemplated.
Section 7.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
PAGE
<PAGE> 20
Section 7.11 Amendment or Waiver. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred
herein, at law, or in equity, and may be enforced concurrently herewith, and
no waiver by any party of the performance of any obligation by the other shall
be construed as a waiver of the same or any other default then, theretofore,
or thereafter occurring or existing. At any time prior to the Closing Date,
this Agreement may be amended by a writing signed by all parties hereto, with
respect to any of the terms contained herein, and any term or condition of
this Agreement may be waived or the time for performance hereof may be
extended by a writing signed by the party or parties for whose benefit the
provision is intended.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ATTEST: UPLAND INVESTMENT CORPORATION
/S/ Milo Carlston, Secretary By: /S/ John W. Hobbs, President
ATTEST: G.S.& C., Inc.
/S/ Stephanie Gillen By: /S/ T. Kent Rainey, President
Secretary
<PAGE> 1
Exhibit 2
ARTICLES OF INCORPORATION
OF
UPLAND INVESTMENT CORPORATION
WE, THE UNDERSIGNED natural persons of the age of twenty-one (21) years or
more, acting as incorporators of a corporation under the Utah business
Corporation Act, adopt the following Articles of incorporation for such
corporation.
ARTICLE I - NAME
The name of the corporation is Upland Investment Corporation.
ARTICLE 11 - DURATION
The duration of the corporation is perpetual.
ARTICLE III - PURPOSES
The purpose or purposes for which this corporation is engaged
are:
(a) To engage In the specific business of making investments, including
Investment in, purchase and ownership of any and all kinds of property, assets
or business, whether alone or in conjunction with others. Also, to acquire,
develop, explore and otherwise deal in and with all kinds of real and personal
property and all related activates. and for any and all other lawful purposes.
(b) To acquire by purchase. exchange, gift, bequest, subscription or
otherwise and to hold, own, mortgage, pledge, hypothecate, sell, assign,
transfer, exchange, or otherwise dispose of or deal in or with its own
corporate securities or stock or other securities including, without
limitations, any shares of stock, bonds, debentures, notes, mortgages, or
other obligations, and any certificates, receipts or other instruments
representing rights or interests therein on any property or assets created or
issued by any person, firm, associate, or corporation, or instrumentalities
thereof; to make payment therefor in any lawful manner or to issue in exchange
therefor its unreserved earned surplus for the purchase of its own shares, and
to exercise as owner or holder of any securities, any and all rights, powers,
and privileges in respect thereof.
(c) To do each and everything necessary, suitable, or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the subjects herein enumerated, or which may, at any time, appear conducive to
or expedient for the protection or benefit of this corporation, and to do said
acts as fully and to the same extent an natural persons might, or could do in
any part of the world as principals, agents, partners, trustees, or otherwise,
either alone or in conjunction with any other person, association, or
corporation.
(d) The foregoing clauses shall be construed both as purposes and powers
and shall not be held to limit or restrict In any manner the general powers of
the corporation, and the enjoyment and exercise thereof, as conferred by the
laws of the State of Utah; and it is the intention that the purposes and power
specified in each of the paragraphs of this Article III shall be regarded as
independent purposes and powers.
<PAGE> 2
ARTICLE IV - STOCK
The aggregate number of shares which this corporation shall have
authority to issue is 50,000,000 shares of Common Stock having $.001 par value
per share. All stock of the corporation shall be of the some class, common,
and shall have the same rights and preferences. Fully-paid stock of this
corporation shall not be liable to any further call or assessment.
ARTICLE V - AMENDMENT
These Articles of Incorporation may be amended by the affirmative vote of
"a majority" of the shares entitled to vote on each such amendment.
ARTICLE VI - SHAREHOLDERS RIGHTS
The authorized and treasury stock of this corporation may be issued at
such time, upon such terms and conditions and for such consideration an the
Board of Directors shall determine. Shareholders shall not have pre-emptive
rights to acquire unissued shares of the stock of this corporation.
ARTICLE VII - CAPITALIZATION
This corporation will not commence business until consideration of a
value of at least $1,000 has been received for the issuance of said shares.
ARTICLE VIII - INITIAL OFFICE AND AGENT
Robert W. Carlson
1361 North Main
Centerville, Utah 84014
ARTICLE IX - DIRECTORS
The directors are hereby given the authority to do any act on behalf of
the corporation by law and in each instance where the Business Corporation Act
provides that the directors may act in certain instances where the Articles of
Incorporation authorize such action by the directors, the directors are hereby
given authority to act in such instances without specifically numerating such
potential action or instance herein.
The directors are specifically given the authority to mortgage or pledge
any or all assets of the business without stockholders' approval.
The number of directors constituting the initial Board of Directors of
this corporation in three. The names and addresses of persons who are to
serve as Directors until the first annual meeting of stockholders or until
their successors are elected and qualify, are:
PAGE
<PAGE> 3
NAME ADDRESS
---- -------
Robert W. Carlson 1361 North Main Centerville, Utah 84014
John D. Hunter 65 South 750 East Bountiful, Utah 84010
Steven J. Carlson 1361 North Main Centerville, Utah 84014
ARTICLE X - INCORPORATORS
The name and address of each incorporator is:
NAME ADDRESS
---- -------
Thomas G. Kimble 311 South State St., Suite 440, SLC, UT 84111
Van L. Butler 311 South State St., Suite 440, SLC, UT 84111
Leon W. Crockett 311 South State St., Suite 440, SLC, UT 84111
ARTICLE XI
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this corporation and any one or
more of its directors or any other corporation, firm, association, or entity
in which one or more of its directors or officers are financially interested,
shall be either void or voidable because of such relationship or interest, or
because such director or directors are present at the meeting of the Board of
Directors, or a committee thereof, which authorizes, approves, or ratifies
such contract or transaction, or because his or their votes are counted for
such purpose if: (a) the fact of such relationship or interest to disclosed or
known to the Board of Directors or committee which authorizes, approves, or
ratifies the contract or transaction by vote or consent sufficient for the
purpose without counting the votes or consents of such interested director or
(b) the fact of such relationship or interest is disclosed or known to the
stockholders entitled to vote and they authorize, approve, or ratify such
contract or transaction by vote or written consent, or (c) the contract or
transaction is fair and reasonable to the corporation.
Common or interested directors way be counted in determining the presence
of a quorum at a meeting of the Board of Directors or committee thereof which
authorizes, approves. or ratifies such contract or transaction.
Under penalties of perjury, we declare that these Articles of
Incorporation have been examined by us and are, to the beat of our knowledge
and belief, true, correct and complete.
DATED this 30th day of January, 1986.
/S/ Thomas G. Kimble
/S/ Van L. Butler
/S/ Leon W. Crockett
/S/Robert W. Carlson, as Registered Agent
PAGE
<PAGE> 4
AMENDMENT TO
ARTICLES OF INCORPORATION OF
UPLAND INVESTMENT CORPORATION
Pursuant to section 16-1Oa-1003 of the Utah Revised Business Corporation
Act, Upland Investment Corporation, a Utah corporation, hereinafter referred
to as the "Corporation,' hereby adopts the following Amendment to its Articles
of Incorporation.
1. The Articles of Incorporation of the Corporation are hereby
amended by deleting Article I thereof in its entirety and inserting the
following in lieu thereof:
ARTICLE I - NAME
The name of this corporation is Upland Energy Corporation.
2. The Articles of Incorporation of the Corporation are hereby
amended by inserting the following new provision as Article IV-A:
ARTICLE IV-A - REVERSE STOCK SPLIT
At the effective time of this Amendment, the Corporation shall effect a
reverse split in its issued and outstanding shares of Common Stock so that the
13,990,000 shares currently issued and outstanding shall be reverse split, or
consolidated, on a 1-for-2 basis, and stockholders shall receive one share of
the Corporation's post-split Common Stock (hereinafter the "Consolidated
Common Stock"), for each 2 shares of Common Stock, $0.001 par value, held by
them on the effective date of the reverse split. No scrip or fractional shares
will be issued in connection with the reverse split and any fractional
interests will be rounded to the nearest whole share. ne reverse split will
not result in any modification of the rights of shareholders, and will have no
effect on the shareholders' equity in the Corporation. All shares returned to
the Corporation as a result of the reverse split will be canceled and returned
to the status of authorized and unissued shares.
3. The Articles of Incorporation of the Corporation are hereby
amended by inserting the following new provision as Article XII:
ARTICLE XII - ACTION WITHOUT SHAREHOLDERS' MEETING
Pursuant to and in accordance with the requirements of section 16-1Oa-704 of
the Utah Revised Business Corporation Act, any action which may be taken at
any annual or special meeting of shareholders may be taken without a meeting
and without prior notice, if one or more consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding shares
having not less than the minimum number of votes that would be necessary to
authorize or take the action at a meeting at which all shares entitled to vote
thereon were present and voted.
4. The Articles of Incorporation of the Corporation are hereby
amended by inserting the following new provision as Article XIII:
PAGE
<PAGE> 5
ARTICLE XIII - LIMITATION ON LIABILITY OF DIRECTORS
A director of the Corporation shall have no personal liability to the
Corporation or its stockholders for monetary damages for any action taken or
failure to take any action, as a director, except (i) the amount of a
financial benefit received by a director to which he is not entitled (ii) the
intentional infliction of harm on the Corporation or the shareholders (iii)
for liability arising from any action under section 16-10a-842 of the Utah
Revised Business Corporation Act as it may from time to time be amended or any
successor provision thereto, or (iv) an intentional violation of criminal law.
5. Except a specifically provided herein, the Corporation's Articles
of Incorporation shall remain unamended and shall continue in full force and
effect.
6. By execution of this Amendment to Articles of Incorporation, the
president and secretary of the Corporation do hereby certify that the
foregoing Amendment to Articles of Incorporation of Upland Investment
Corporation, was duly authorized and adopted by the shareholders of (be
Corporation at special meeting held November 12, 1993, at which a total of
7,358,330 shares of the Corporation's outstanding common stock were
represented in person or by proxy and of which 7,358,330 shares, or 52.5%,
voted in favor of this Amendment and -0- shares voted against this Amendment.
DATED the 12th day of November, 1993.
By:/S/ John W. Hobbs, President
By:/S/ Milo Carlston, Secretary
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE)
On this 12th day of November, 1993, personally appeared before me John W.
Hobbs and Milo Carlston, who being by me duly sworn did say that they are the
president and secretary, respectively, of Upland Investment Corporation, a
Utah corporation, that they are the persons who executed the foregoing
Amendment to Articles of Incorporation on behalf of said corporation by
authority of its board of directors and shareholders, and each duly
acknowledged to me that said corporation executed the same and that the seal
affixed is the seal of said corporation.
[Notary Seal] /S/Mark N. Schneider
Notary Public
<PAGE> 1
Exhibit No. 3
REVISED BYLAWS OF UPLAND ENERGY CORPORATION
A UTAH CORPORATION
ARTICLE I
OFFICES
Section 1.1 Business Office. The principal office of the corporation shall
be located at any place either within or outside the state of Utah as
designated in the corporation's most current annual report filed with the Utah
Division of Corporations and Commercial Code. The corporation may have such
other offices, either within or without the state of Utah, as the board of
directors may designate or as the business of the corporation may require from
time to time. The corporation shall maintain at its principal office a copy
of certain records, as specified in section 2.18 of Article II.
Section 1.2 Registered Office. The registered office of the corporation,
required by section 16-10a-501 of the Utah Revised Business Corporation Act
(the "Act") or any section of like tenor as from time to time amended shall be
located within Utah and may be, but need not be, identical with the principal
office (if located within Utah). The address of the registered office may be
changed from time to time.
ARTICLE II
SHAREHOLDERS
Section 2.1 Annual Shareholder Meeting. The annual meeting of the
shareholders shall be held within 150 days of the close of the corporation's
fiscal year, at a time and date as is determined by the corporation's board of
directors, for the purpose of electing directors and for the transaction of
such other business as may come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday in the state of Utah, such meeting
shall be held on the next succeeding business day.
If the election of directors shall not be held on the day designated herein
for any annual meeting of the shareholders, or at any subsequent continuation
after adjournment thereof, the board of directors shall cause the election to
be held at a special meeting of the shareholders as soon thereafter as
convenient. The failure to hold an annual or special meeting does not affect
the validity of any corporate action or work a forfeiture or dissolution of
the corporation.
Section 2.2 Special Shareholder Meetings. Special meetings of the
shareholders, for any purpose or purposes described in the meeting notice, may
be called by the president or by the board of directors and shall be called by
the president at the request of the holders of not less than one- tenth of all
outstanding votes of the corporation entitled to be cast on any issue at the
meeting.
Section 2.3 Place of Shareholder Meetings. The board of directors may
designate any place, either within or without the state of Utah, as the place
of meeting for any annual or any special meeting of the shareholders, unless
by written consents, which may be in the form of waivers of notice or
otherwise, a majority of shareholders entitled to vote at the meeting may
designate a different place, either within or without the state of Utah, as
the place for the holding of such meeting. If no designation is made by
either the directors or majority action of the voting shareholders, the place
of meeting shall be the principal office of the corporation.
<PAGE> 2
Section 2.4 Notice of Shareholder Meetings.
(a) Required Notice. Written notice stating the place, day, and time of any
annual or special shareholder meeting shall be delivered not less than 10 nor
more than 60 days before the date of the meeting, either in person, by any
form of electronic communication, by mail, by private carrier, or by any other
manner provided for in the Act, by or at the direction of the president, the
board of directors, or other persons calling the meeting, to each shareholder
of record, entitled to vote at such meeting and to any other shareholder
entitled by the Act or the articles of incorporation to receive notice of the
meeting. Notice shall be deemed to be effective at the earlier of: (1) when
deposited in the United States mail, addressed to the shareholder at his
address as it appears on the stock transfer books of the corporation, with
postage thereon prepaid; (2) on the date shown on the return receipt if sent
by registered or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee; (3) when received; or (4) five days
after deposit in the United States mail, if mailed postpaid and correctly
addressed to an address other than that shown in the corporation's current
record of shareholders.
(b) Adjourned Meeting. If any shareholder meeting is adjourned to a different
date, time, or place, notice need not be given of the new date, time, and
place, if the new date, time, and place is announced at the meeting before
adjournment. If a new record date for the adjourned meeting is, or must be
fixed (see section 2.5 of this Article II) or if the adjournment is for more
than 30 days, then notice must be given pursuant to the requirements of
paragraph (a) of this section 2.4, to those persons who are shareholders as of
the new record date.
(c) Waiver of Notice. The shareholder may waive notice of the meeting (or any
notice required by the Act, articles of incorporation, or bylaws), by a
writing signed by the shareholder entitled to the notice, which is delivered
to the corporation (either before or after the date and time stated in the
notice) for inclusion in the minutes or filing with the corporate records.
(d) Shareholder Attendance. A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the meeting,
unless the shareholder at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting; and
(2) waives objection to consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
unless the shareholder objects to considering the matter when it is presented.
(e) Contents of Notice. The notice of each special shareholder meeting shall
include a description of the purpose or purposes for which the meeting is
called. Except as provided in this section 2.4(e), the articles of
incorporation, or otherwise in the Act, the notice of an annual shareholder
meeting need not include a description of the purpose or purposes for which
the meeting is called.
<PAGE> 3
If a purpose of any shareholder meeting is to consider either: (1) a proposed
amendment to the articles of incorporation (including any restated articles
requiring shareholder approval); (2) a plan of merger or share exchange; (3)
the sale, lease, exchange, or other disposition of all, or substantially all
of the corporation's property; (4) the dissolution of the corporation; or (5)
the removal of a director, the notice must so state and, to the extent
applicable, be accompanied by a copy or summary of the: (1) articles of
amendment; (2) plan of merger or share exchange; (3) agreement for the
disposition of all or substantially all of the corporation's property; or (4)
the terms of the dissolution. If the proposed corporate action creates
dissenters' rights, the notice must state that shareholders are, or may be
entitled to assert dissenters' rights, and must be accompanied by a copy of
the provisions of the Act governing such rights.
Section 2.5 Meetings by Telecommunications. Any or all of the shareholders
may participate in an annual or special meeting of shareholders by, or the
meeting may be conducted through the use of, any means of communication by
which all persons participating in the meeting can hear each other during the
meeting. A shareholder participating in a meeting by this means is considered
to be present in person at the meeting.
Section 2.6 Fixing of Record Date. For the purpose of determining
shareholders of any voting group entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
distribution or dividend, or in order to make a determination of shareholders
for any other proper purpose, the board of directors may fix in advance a date
as the record date. Such record date shall not be more than 70 days prior to
the meeting of shareholders or the payment of any distribution or dividend.
If no record date is so fixed by the board of directors for the determination
of shareholders entitled to notice of, or to vote at a meeting of
shareholders, or shareholders entitled to receive a share dividend or
distribution, or in order to make a determination of shareholders for any
other proper purpose, the record date for determination of such shareholders
shall be at the close of business on:
(a) With respect to an annual shareholder meeting or any special shareholder
meeting called by the board of directors or any person specifically authorized
by the board of directors or these bylaws to call a meeting, the day before
the first notice is delivered to shareholders;
(b) With respect to a special shareholders' meeting demanded by the
shareholders, the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date the board of
directors authorizes the share dividend;
(d) With respect to actions taken in writing without a meeting (pursuant to
Article II, section 2.12), the date the first shareholder signs a consent; and
(e) With respect to a distribution to shareholders (other than one involving a
repurchase or reacquisition of shares), the date the board authorizes the
distribution.
<PAGE> 4
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section 2.6, such determination
shall apply to any adjournment thereof unless the board of directors fixes a
new record date. A new record date must be fixed if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
Section 2.7 Shareholder List. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make a complete record of
the shareholders entitled to vote at each meeting of shareholders, arranged in
alphabetical order with the address of and the number of shares held by each.
The list must be arranged by voting group (if such exists, see Article II,
section 2.8) and within each voting group by class or series of shares. The
shareholder list must be available for inspection by any shareholder,
beginning on the earlier of ten days before the meeting for which the list was
prepared or two business days after notice of the meeting is given for which
the list was prepared and continuing through the meeting. The list shall be
available at the corporation's principal office or at a place identified in
the meeting notice in the city where the meeting is to be held. A
shareholder, or his agent or attorney, is entitled, on written demand, to
inspect and, subject to the requirements of section 2.18 of this Article II
and sections 16-10a-1602 and 16-10a-1603 of the Act, or any sections of like
tenor as from time to time amended, to inspect and copy the list during
regular business hours, at his expense, during the period it is available for
inspection. The corporation shall maintain the shareholder list in written
form or in another form capable of conversion into written form within a
reasonable time.
Section 2.8 Shareholder Quorum and Voting Requirements. If the articles of
incorporation or the Act provides for voting by a single voting group on a
matter, action on that matter is taken when voted upon by that voting group.
Shares entitled to vote as a separate voting group may take action on a matter
at a meeting only if a quorum of those shares exists with respect to that matter
. Unless the articles of incorporation, a bylaw adopted pursuant to section
2.9 of this Article II, or the Act provides otherwise, a majority of the votes
entitled to be cast on the matter by the voting group constitutes a quorum of
that voting group for action on that matter.
If the articles of incorporation or the Act provides for voting by two or more
voting groups on a matter, action on that matter is taken only when voted upon
by each of those voting groups counted separately. Action may be taken by one
voting group on a matter even though no action is taken by another voting
group entitled to vote on the matter.
Once a share is represented for any purpose at a meeting, it is deemed present
for quorum purposes for the remainder of the meeting and for any adjournment
of that meeting unless a new record date is or must be set for that adjourned
meeting.
PAGE
<PAGE> 5
If a quorum exists, action on a matter (other than the election of directors)
by a voting group is approved if the votes cast within the voting group
favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation, a bylaw adopted pursuant to section 2.9 of this
Article II, or the Act require a greater number of affirmative votes.
Section 2.9 Increasing Either Quorum or Voting Requirements. For purposes of
this section 2.9, a "supermajority" quorum is a requirement that more than a
majority of the votes of the voting group be present to constitute a quorum;
and a "supermajority" voting requirement is any requirement that requires the
vote of more than a majority of the affirmative votes of a voting group at a
meeting.
The shareholders, but only if specifically authorized to do so by the articles
of incorporation, may adopt, amend, or delete a bylaw which fixes a
"supermajority" quorum or "supermajority" voting requirement.
The adoption or amendment of a bylaw that adds, changes, or deletes a
"supermajority" quorum or voting requirement for shareholders must meet the
same quorum requirement and be adopted by the same vote and voting groups
required to take action under the quorum and voting requirement then in effect
or proposed to be adopted, whichever is greater.
A bylaw that fixes a supermajority quorum or voting requirement for
shareholders may not be adopted, amended, or repealed by the board of
directors.
Section 2.10 Proxies. At all meetings of shareholders, a shareholder may vote
in person, or vote by proxy, executed in writing by the shareholder or by his
duly authorized attorney-in-fact. Such proxy shall be filed with the
secretary of the corporation or other person authorized to tabulate votes
before or at the time of the meeting. No proxy shall be valid after 11 months
from the date of its execution unless otherwise provided in the proxy.
Section 2.11 Voting of Shares. Unless otherwise provided in the articles of
incorporation, each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote at a meeting of shareholders.
Except as provided by specific court order, no shares held by another
corporation, if a majority of the shares entitled to vote for the election of
directors of such other corporation are held by the corporation, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting; provided, however, the
prior sentence shall not limit the power of the corporation to vote any
shares, including its own shares, held by it in a fiduciary capacity.
Redeemable shares are not entitled to vote after notice of redemption is
mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company, or other financial institution under an
irrevocable obligation to pay the holders the redemption price on surrender of
the shares.
<PAGE> 6
Section 2.12 Corporation's Acceptance of Votes.
(a) If the name signed on a vote, consent, waiver, or proxy appointment or
revocation corresponds to the name of a shareholder, the corporation if acting
in good faith is entitled to accept the vote, consent, waiver, or proxy
appointment or revocation and give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver, or proxy appointment or
revocation does not correspond to the name of its shareholder, the
corporation, if acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, or proxy appointment or revocation and give it effect
as the act of the shareholder if:
(1) the shareholder is an entity as defined in the Act and the name signed
purports to be that of an officer or agent of the entity;
(2) the name signed purports to be that of an administrator, executor,
guardian, or conservator representing the shareholder and, if the corporation
requests, evidence of fiduciary status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, or proxy appointment or
revocation;
(3) the name signed purports to be that of receiver or trustee in bankruptcy
of the shareholder and, if the corporation requests, evidence of this status
acceptable to the corporation has been presented with respect to the vote,
consent, waiver, or proxy appointment or revocation;
(4) the name signed purports to be that of a pledgee, beneficial owner, or
attorney-in-fact of the shareholder and, if the corporation requests, evidence
acceptable to the corporation of the signatory's authority to sign for the
shareholder has been presented with respect to the vote, consent, waiver, or
proxy appointment or revocation; and
(5) two or more persons are the shareholder as co-tenants or fiduciaries and
the name signed purports to be the name of at least one of the co-owners and
the person signing appears to be acting on behalf of all the co-owners.
(c) The corporation is entitled to reject a vote, consent, waiver, or proxy
appointment or revocation if the secretary or other officer or agent
authorized to tabulate votes, acting in good faith, has reasonable basis for
doubt about the validity of the signature or about the signatory's authority
to sign for the shareholder.
(d) The corporation and its officer or agent who accepts or rejects a vote,
consent, waiver, or proxy appointment or revocation in good faith and in
accordance with the standards of this section are not liable in damages to the
shareholder for the consequences of the acceptance or rejection.
(e) Corporate action based on the acceptance or rejection of a vote, consent,
waiver, or proxy appointment or revocation under this section 2.12 is valid
unless a court of competent jurisdiction determines otherwise.
<PAGE> 7
Section 2.13 Inspectors of Election. There shall be appointed at least one
inspector of the vote. Such inspector shall first take and subscribe an oath
or affirmation faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. Unless
appointed in advance of any such meeting by the board of directors, such
inspector shall be appointed for the meeting by the presiding officer. In the
absence of any such appointment, the secretary of the corporation shall act as
the inspector. No candidate for the office of director (whether or not then a
director) shall be appointed as such inspector. Such inspector shall be
responsible for tallying and certifying each vote, whether made in person or
by proxy.
Section 2.14 Shareholder Action Without Meeting. Any action required or
permitted to be taken at a meeting of the shareholders, except for the
election of directors as set forth in section 2.15 of this Article II, may be
taken without a meeting and without prior notice if one or more consents in
writing, setting forth the action so taken, shall be signed by shareholders
having not less than the minimum number of votes that would be necessary to
authorize or take the action at a meeting at which all shares entitled to vote
with respect to the subject matter thereof are present. Directors may be
elected without a meeting of shareholders by the written consent of the
shareholders holding all of the shares entitled to vote for the election of
directors. Unless the written consents of all shareholders entitled to vote
have been obtained, notice of any shareholder approval without a meeting shall
be given at least ten days before the consummation of the action authorized by
the approval to (i) those shareholders entitled to vote who have not consented
in writing, and (ii) those shareholders not entitled to vote and to whom the
Act requires that notice of the proposed action be given. If the act to be
taken requires that notice be given to nonvoting shareholders, the corporation
shall give the nonvoting shareholders written notice of the proposed action at
least ten days before the action is taken. The notice shall contain or be
accompanied by the same material that would have been required if a formal
meeting had been called to consider the action. A consent signed under this
section 2.14 has the effect of a meeting vote and may be described as such in
any document. The written consents are only effective if received by the
corporation within a 60 day period and not revoked prior to the receipt of the
written consent of that number of shareholders necessary to effectuate such
action. Action taken pursuant to a written consent is effective as of the
date the last written consent necessary to effect the action is received by
the corporation, unless all of the written consents necessary to effect the
action specify a later date as the effective date of the action, in which case
the later date shall be the effective date of the action. If the corporation
has received written consents signed by all shareholders entitled to vote with
respect to the action, the effective date of the action may be any date that
is specified in all the written consents as the effective date of the action.
Such consents may be executed in any number of counterparts or evidenced by
any number of instruments of substantially similar tenor.
PAGE
<PAGE> 8
Section 2.15 Election of Directors. At all meetings of the shareholders at
which directors are to be elected, except as otherwise set forth in any stock
designation with respect to the right of the holders of any class or series of
stock to elect additional directors under specified circumstances, directors
shall be elected by a plurality of the votes cast at the meeting. The
election need not be by ballot unless any shareholder so demands before the
voting begins. Except as otherwise provided by law, the articles of
incorporation, any preferred stock designation, or these bylaws, all matters
other than the election of directors submitted to the shareholders at any
meeting shall be decided by a majority of the votes cast with respect thereto.
Section 2.16 Business at Annual Meeting. At any annual meeting of the
shareholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the board of directors or (b)
by any shareholder of record of the corporation who is entitled to vote with
respect thereto. Notwithstanding anything in these bylaws to the contrary, no
business shall be brought before or conducted at an annual meeting except in
accordance with the provisions of this section. The officer of the
corporation or other person presiding at the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with such provisions, and if
such presiding officer should so determine and declare to the meeting that
business was not properly brought before the meeting in accordance with such
provisions and if such presiding officer should so determine, such presiding
officer shall so declare to the meeting, and any such business so determined
to be not properly brought before the meeting shall not be transacted.
Section 2.17 Conduct of Meeting. The board of directors of the corporation
shall be entitled to make such rules or regulations for the conduct of
meetings of shareholders as it shall deem necessary, appropriate, or
convenient. Subject to such rules and regulations of the board of directors,
if any, the chairman of the meeting shall have the right and authority to
prescribe such rules, regulations, and procedures and do all such acts as, in
the judgment of such chairman, are necessary, appropriate, or convenient for
the proper conduct of the meeting, including, without limitation, establishing
an agenda or order of business for the meeting, rules and procedures for
maintaining order at the meeting, and the safety of those present, limitations
on participation in such meeting to shareholders of record of the corporation
and their duly authorized and constituted proxies, and such other persons as
the chairman shall permit, restrictions on entry to the meeting after the time
fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and
closing of the polls for balloting on matters which are to be voted on by
ballot, unless, and to the extent, determined by the board of directors or the
chairman of the meeting, meetings of shareholders shall not be required to be
held in accordance with rules of parliamentary procedure.
PAGE
<PAGE> 9
Section 2.18 Shareholder's Rights to Inspect Corporate Records.
(a) Minutes and Accounting Records. The corporation shall keep as permanent
records minutes of all meetings of its shareholders and board of directors, a
record of all actions taken by the shareholders or board of directors without
a meeting, and a record of all actions taken by a committee of the board of
directors in place of the board of directors on behalf of the corporation.
The corporation shall maintain appropriate accounting records.
(b) Absolute Inspection Rights of Records Required at Principal Office. If a
shareholder gives the corporation written notice of his demand at least five
business days before the date on which he wishes to inspect and copy, such
shareholder (or his agent or attorney) has the right to inspect and copy,
during regular business hours, any of the following records, all of which the
corporation is required to keep at its principal office:
(1) its articles or restated articles of incorporation and all amendments to
the articles of incorporation currently in effect;
(2) its bylaws or restated bylaws and all amendments to the bylaws currently
in effect;
(3) the minutes of all shareholders' meetings, and records of all action taken
by shareholders without a meeting, for the past three years;
(4) all written communications to shareholders within the past three years;
(5) a list of the names and business addresses of its current directors and
officers;
(6) the most recent annual report of the corporation delivered to the Utah
Division of Corporations and Commercial Code; and
(7) all financial statements prepared for periods ending during the last three
years that a shareholder could request under section 2.19.
(c) Conditional Inspection Right. In addition, if a shareholder gives the
corporation a written demand made in good faith and for a proper purpose at
least five business days before the date on which such shareholder wishes to
inspect and copy, such shareholder describes with reasonable particularity his
purpose and the records he desires to inspect, and the records are directly
connected with his purpose, such shareholder of the corporation (or his agent
or attorney) is entitled to inspect and copy, during regular business hours at
a reasonable location specified by the corporation, any of the following
records of the corporation:
(1) excerpts from minutes of any meeting of the board of directors, records of
any action of a committee of the board of directors acting on behalf of the
corporation, minutes of any meeting of the shareholders, and records of action
taken by the shareholders or board of directors without a meeting, to the
extent not subject to inspection under paragraph (b) of this section 2.18;
<PAGE> 10
(2) accounting records of the corporation; and
(3) the record of shareholders (compiled no earlier than the date of the
shareholder's demand).
(d) Copy Costs. The right to copy records includes, if reasonable, the right
to receive copies made by photographic, xerographic, or other means. The
corporation may impose a reasonable charge, covering the costs of labor and
material (including third-party costs) for copies of any documents provided to
the shareholder. The charge may not exceed the estimated cost of production
or reproduction of the records.
(e) Shareholder Includes Beneficial Owner. For purposes of this section 2.18,
the term "shareholder" shall include a beneficial owner whose shares are held
in a voting trust or by a nominee on his behalf.
Section 2.19 Financial Statements Shall be Furnished to the Shareholders.
Upon written request of any shareholder, the corporation shall mail to such
shareholder its most recent annual or quarterly financial statements showing
in reasonable detail its assets and liabilities and the results of its
operations.
Section 2.20 Dissenters' Rights. Each shareholder shall have the right to
dissent from and obtain payment for such shareholder's shares when so
authorized by the Act, the articles of incorporation, these bylaws, or in a
resolution of the board of directors.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. Unless the articles of incorporation have
dispensed with or limited the authority of the board of directors, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the corporation shall be managed under the direction
of, the board of directors.
Section 3.2 Number, Tenure, and Qualification of Directors. Unless permitted
by the Act, the authorized number of directors shall be not less than three.
The current number of directors shall be as determined (or as amended from
time to time) by resolution adopted from time to time by either the
shareholders or directors. Each director shall hold office until the next
annual meeting of shareholders or until removed. However, if his term
expires, he shall continue to serve until his successor shall have been
elected and qualified, or until there is a decrease in the number of
directors. A decrease in the number of directors does not shorten an
incumbent director's term. Unless required by the articles of incorporation,
directors do not need to be residents of Utah or shareholders of the
corporation.
PAGE
<PAGE> 11
Section 3.3 Regular Meetings of the Board of Directors. A regular meeting of
the board of directors shall be held without other notice than this bylaw
immediately after, and at the same place as, the annual meeting of
shareholders. The board of directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution.
Section 3.4 Special Meetings of the Board of Directors. Special meetings of
the board of directors may be called by or at the request of the president or
any one director. The person authorized to call special meetings of the board
of directors may fix any place as the place for holding any special meeting of
the board of directors.
Section 3.5 Notice of, and Waiver of Notice for, Special Director Meetings.
Unless the articles of incorporation provide for a longer or shorter period,
notice of any special director meeting shall be given at least two days prior
thereto either orally, in person, by telephone, by any form of electronic
communication, by mail, by private carrier, or by any other manner provided
for in the Act. Any director may waive notice of any meeting. Except as
provided in the next sentence, the waiver must be in writing, signed by the
director entitled to the notice, and filed with the minutes or corporate
records. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business and at the
beginning of the meeting (or promptly upon his arrival) objects to holding the
meeting or transacting business at the meeting, and does not thereafter vote
for or assent to action taken at the meeting. Unless required by the articles
of incorporation or the Act, neither the business to be transacted at, nor the
purpose of, any special meeting of the board of directors need be specified in
the notice or waiver of notice of such meeting.
Section 3.6 Director Quorum. A majority of the number of directors in office
immediately before the meeting begins shall constitute a quorum for the
transaction of business at any meeting of the board of directors, unless the
articles of incorporation require a greater number.
Any amendment to this quorum requirement is subject to the provisions of
section 3.8 of this Article III.
Section 3.7 Directors, Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present when the vote is
taken shall be the act of the board of directors unless the articles of incorpor
ation require a greater percentage. Any amendment which changes the number of
directors needed to take action, is subject to the provisions of section 3.8
of this Article III.
Unless the articles of incorporation provide otherwise, any or all directors
may participate in a regular or special meeting by, or conduct the meeting
through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A
director participating in a meeting by this means is deemed to be present in
person at the meeting.
<PAGE> 12
A director who is present at a meeting of the board of directors or a
committee of the board of directors when corporate action is taken is deemed
to have assented to the action taken unless: (1) he objects at the beginning
of the meeting (or promptly upon his arrival) to holding it or transacting
business at the meeting; or (2) his dissent or abstention from the action
taken is requested by such director to be entered in the minutes of the
meeting; or (3) he delivers written notice of his dissent or abstention to the
presiding officer of the meeting before its adjournment or to the corporation
immediately after adjournment of the meeting. The right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
Section 3.8 Establishing a "Supermajority" Quorum or Voting Requirement for
the Board of Directors. For purposes of this section 3.8, a "supermajority"
quorum is a requirement that requires more than a majority of the directors in
office to constitute a quorum; and a "supermajority" voting requirement is any
requirement that requires the vote of more than a majority of those directors
present at a meeting at which a quorum is present to be the act of the
directors.
A bylaw that fixes a supermajority quorum or supermajority voting requirement
may be amended or repealed:
(1) if originally adopted by the shareholders, only by the shareholders
(unless otherwise provided by the shareholders); or
(2) if originally adopted by the board of directors, either by the
shareholders or by the board of directors.
A bylaw adopted or amended by the shareholders that fixes a supermajority
quorum or supermajority voting requirement for the board of directors may
provide that it may be amended or repealed only by a specified vote of either
the shareholders or the board of directors.
Subject to the provisions of the preceding paragraph, action by the board of
directors to adopt, amend, or repeal a bylaw that changes the quorum or voting
requirement for the board of directors must meet the same quorum requirement
and be adopted by the same vote required to take action under the quorum and
voting requirement then in effect or proposed to be adopted, whichever is
greater.
Section 3.9 Director Action Without a Meeting. Unless the articles of
incorporation provide otherwise, any action required or permitted to be taken
by the board of directors at a meeting may be taken without a meeting if all
the directors sign a written consent describing the action taken, and such
consent is filed with the records of the corporation. Action taken by consent
is effective when the last director signs the consent, unless the consent
specifies a different effective date. A signed consent has the effect of a
meeting vote and may be described as such in any document. Such consent may
be executed in any number of counterparts, or evidenced by any number of
instruments of substantially similar tenor.
<PAGE> 13
Section 3.10 Removal of Directors. The shareholders may remove one or more
directors at a meeting called for that purpose if notice has been given that
the purpose of the meeting is such removal. The removal may be with or
without cause unless the articles of incorporation provide that directors may
only be removed with cause. If a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in
the vote to remove him. If cumulative voting is authorized, a director may
not be removed if the number of votes sufficient to elect him under cumulative
voting is voted against his removal. If cumulative voting is not authorized,
a director may be removed only if the number of votes cast to remove him
exceeds the number of votes cast against such removal.
Section 3.11 Board of Director Vacancies. Unless the articles of
incorporation provide otherwise, if a vacancy occurs on the board of
directors, including a vacancy resulting from an increase in the number of
directors, the shareholders may fill the vacancy. During such time that the
shareholders fail or are unable to fill such vacancies, then and until the
shareholders act:
(1) the board of directors may fill the vacancy; or
(2) if the directors remaining in office constitute fewer than a quorum of the
board, they may fill the vacancy by the affirmative vote of a majority of all
the directors remaining in office.
If the vacant office was held by a director elected by a voting group of
shareholders, only the holders of shares of that voting group are entitled to
vote to fill the vacancy if it is filled by the shareholders. If two or more
directors are elected by the same voting group, only remaining directors
elected by such voting group are entitled to vote to fill the vacancy of a
director elected by the voting group if it is filled by directors.
A vacancy that will occur at a specific later date (by reason of resignation
effective at a later date) may be filled before the vacancy occurs but the new
director may not take office until the vacancy occurs.
The term of a director elected to fill a vacancy expires at the next
shareholders' meeting at which directors are elected. However, if his term
expires, he shall continue to serve until his successor is elected and
qualified or until there is a decrease in the number of directors.
Section 3.12 Director Compensation. Unless otherwise provided in the articles
of incorporation, by resolution of the board of directors, each director may
be paid his expenses, if any, of attendance at each meeting of the board of
directors, and may be paid a stated salary as director or a fixed sum for
attendance at each meeting of the board of directors or both. No such payment
shall preclude any director from serving the corporation in any other capacity
and receiving compensation therefor.
PAGE
<PAGE> 14
Section 3.13 Director Committees.
(a) Creation of Committees. Unless the articles of incorporation provide
otherwise, the board of directors may create one or more committees and
appoint members of the board of directors to serve on them. Each committee
must have two or more members, who serve at the pleasure of the board of
directors.
(b) Selection of Members. The creation of a committee and appointment of
members to it must be approved by the greater of (1) a majority of all the
directors in office when the action is taken or (2) the number of directors
required by the articles of incorporation to take such action (or if not
specified in the articles of incorporation, the number required by section 3.7
of this Article III to take action).
(c) Required Procedures. Sections 3.4, 3.5, 3.6, 3.7, 3.8, and 3.9 of this
Article III, which govern meetings, action without meetings, notice and waiver
of notice, quorum and voting requirements of the board of directors, apply to
committees and their members.
(d) Authority. Unless limited by the articles of incorporation, each
committee may exercise those aspects of the authority of the board of
directors which the board of directors confers upon such committee in the
resolution creating the committee; provided, however, a committee may not:
(1) authorize distributions to shareholders;
(2) approve, or propose to shareholders, action that the Act requires be
approved by shareholders;
(3) fill vacancies on the board of directors or on any of its committees;
(4) amend the articles of incorporation pursuant to the authority of directors
to do so granted by section 16-10a-1002 of the Act or any section of like
tenor as from time to time amended;
(5) adopt, amend, or repeal bylaws;
(6) approve a plan of merger not requiring shareholder approval;
(7) authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the board of directors; or
(8) authorize or approve the issuance or sale or contract for sale of shares
or determine the designation and relative rights, preferences, and limitations
of a class or series of shares, except that the board of directors may
authorize a committee (or a senior executive officer of the corporation) to do
so within limits specifically prescribed by the board of directors.
PAGE
<PAGE> 15
ARTICLE IV
OFFICERS
Section 4.1 Number of Officers. The officers of the corporation shall be a
president and a secretary, both of whom shall be appointed by the board of
directors. Such other officers and assistant officers as may be deemed
necessary, including any vice-presidents, may be appointed by the board of
directors. If specifically authorized by the board of directors, an officer
may appoint one or more officers or assistant officers. The same individual
may simultaneously hold more than one office in the corporation.
Section 4.2 Appointment and Term of Office. The officers of the corporation
shall be appointed by the board of directors for a term as determined by the
board of directors. If no term is specified, such term shall continue until
the first meeting of the directors held after the next annual meeting of
shareholders. If the appointment of officers shall not be made at such
meeting, such appointment shall be made as soon thereafter as is convenient.
Each officer shall hold office until his successor shall have been duly
appointed and shall have qualified, until his death, or until he shall resign
or shall have been removed in the manner provided in section 4.3 of this
Article IV.
Section 4.3 Removal of Officers. Any officer or agent may be removed by the
board of directors or an officer authorized to do so by the board of directors
at any time either before or after the expiration of the designated term, with
or without cause. Such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Neither the appointment of an
officer nor the designation of a specified term shall create any contract
rights.
Section 4.4 President. The president shall be the principal executive officer
of the corporation and, subject to the control of the board of directors,
shall in general supervise and control all of the business and affairs of the
corporation. The president shall, when present, preside at all meetings of
the shareholders and of the board of directors, if the chairman of the board
is not present. The president may sign, with the secretary or any other
proper officer of the corporation thereunto authorized by the board of
directors, certificates for shares of the corporation and deeds, mortgages,
bonds, contracts, or other instruments arising in the normal course of
business of the corporation and such other instruments as may be authorized by
the board of directors, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or by these
bylaws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of president and such other duties as may be
prescribed by the board of directors from time to time.PAGE
<PAGE> 16
Section 4.5 Vice-Presidents. If appointed, in the event of the president's
death or inability to act, the vice-president (or in the event there be more
than one vice-president, the executive vice-president or, in the absence of
any designation, the senior vice-president in the order of their appointment)
shall perform the duties of the president, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the president. A
vice-president, if any, may sign, with the secretary or an assistant
secretary, certificates for shares of the corporation the issuance of which
has been authorized by resolution of the board of directors; and shall perform
such other duties as from time to time may be assigned to him by the president
or by the board of directors.
Section 4.6 Secretary. The secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the board of directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law; (c) be
custodian of the corporate records and of any seal of the corporation and, if
there is a seal of the corporation, see that it is affixed to all documents
the execution of which on behalf of the corporation under its seal is duly
authorized; (d) when requested or required, authenticate any records of the
corporation; (e) keep a register of the post office address of each
shareholder which shall be furnished to the secretary by such shareholders;
(f) sign with the president, or a vice-president, certificates for shares of
the corporation, the issuance of which has been authorized by resolution of
the board of directors; (g) have general charge of the stock transfer books of
the corporation; and (h) in general perform all duties incident to the office
of secretary and such other duties as from time to time may be assigned to him
by the president or by the board of directors.
Section 4.7 Treasurer. The treasurer, if any, and in the absence thereof of
the secretary, shall: (a) have charge and custody of and be responsible for
all funds and securities of the corporation; (b) receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies, or other depositories as shall be selected by the board of
directors; and (c) in general perform all of the duties incident to the office
of treasurer and such other duties as from time to time may be assigned to him
by the president or by the board of directors. If required by the board of
directors, the treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the board of directors
shall determine.
Section 4.8 Assistant Secretaries and Assistant Treasurers. Any assistant
secretary, when authorized by the board of directors, may sign with the
president or a vice-president certificates for shares of the corporation the
issuance of which has been authorized by a resolution of the board of
directors. Any assistant treasurer shall, if required by the board of
directors, give bonds for the faithful discharge of his duties in such sums
and with such sureties as the board of directors shall determine. Any
assistant secretary or assistant treasurer, in general, shall perform such
duties as shall be assigned to them by the secretary or the treasurer,
respectively, or by the president or the board of directors.
<PAGE> 17
Section 4.9 Salaries. The salaries of the officers shall be fixed from time
to time by the board of directors or by a duly authorized officer.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES
Section 5.1 Indemnification of Directors. The corporation shall indemnify any
individual made a party to a proceeding because such individual was a director
of the corporation to the extent permitted by and in accordance with section
16-10a-901, et seq. of the Act or any amendments of successor sections of like
tenor.
Section 5.2 Advance Expenses for Directors. To the extent permitted by
section 16-10a-904 of the Act or any section of like tenor as amended from
time to time, the corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding, if:
(a) the director furnishes the corporation a written affirmation of his good
faith belief that he has met the standard of conduct described in the Act;
(b) the director furnishes the corporation a written undertaking, executed
personally or on his behalf, to repay advances if it is ultimately determined
that he did not meet the standard of conduct (which undertaking must be an
unlimited general obligation of the director but need not be secured and may
be accepted without reference to financial ability to make repayment); and
(c) a determination is made that the facts then known to those making the
determination would not preclude indemnification under section 5.1 of this
Article V or section 16-10a-901 through section 16-10a-909 of the Act or
similar sections of like tenor as from time to time amended.
Section 5.3 Indemnification of Officers, Agents, and Employees Who are not
Directors. Unless otherwise provided in the articles of incorporation, the
board of directors may authorize the corporation to indemnify and advance
expenses to any officer, employee, or agent of the corporation who is not a
director of the corporation, to the extent permitted by the Act.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 6.1 Certificates for Shares.
(a) Content. Certificates representing shares of the corporation shall at
minimum, state on their face the name of the issuing corporation and that it
is formed under the laws of the state of Utah; the name of the person to whom
issued; and the number and class of shares and the designation of the series,
if any, the certificate represents; and be in such form as determined by the
board of directors. Such certificates shall be signed (either manually or by
facsimile) by the president or a vice-president and by the secretary or an
assistant secretary and may be sealed with a corporate seal or a facsimile
thereof. Each certificate for shares shall be consecutively numbered or
otherwise identified.
<PAGE> 18
(b) Legend as to Class or Series. If the corporation is authorized to issue
different classes of shares or different series within a class, the
designations, relative rights, preferences, and limitations applicable to each
class and the variations in rights, preferences, and limitations determined
for each series (and the authority of the board of directors to determine
variations for future series) must be summarized on the front or back of each
certificate. Alternatively, each certificate may state conspicuously on its
front or back that the corporation will furnish the shareholder this
information without charge on request in writing.
(c) Shareholder List. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation.
(d) Transferring Shares. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed, or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the
corporation as the board of directors may prescribe.
Section 6.2 Shares Without Certificates.
(a) Issuing Shares Without Certificates. Unless the articles of incorporation
provide otherwise, the board of directors may authorize the issuance of some
or all the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
(b) Written Statement Required. Within a reasonable time after the issuance
or transfer of shares without certificates, the corporation shall send the
shareholder a written statement containing at minimum:
(1) the name of the issuing corporation and that it is organized under the
laws of the state of Utah;
(2) the name of the person to whom issued; and
(3) the number and class of shares and the designation of the series, if any,
of the issued shares.
If the corporation is authorized to issue different classes of shares or
different series within a class, the written statement shall describe the
designations, relative rights, preferences, and limitations applicable to each
class and the variation in rights, preferences, and limitations determined for
each series (and the authority of the board of directors to determine
variations for future series). Alternatively, each written statement may
state conspicuously that the corporation will furnish the shareholder this
information without charge on request in writing.
PAGE
<PAGE> 19
Section 6.3 Registration of the Transfer of Shares. Registration of the
transfer of shares of the corporation shall be made only on the stock transfer
books of the corporation. In order to register a transfer, the record owner
shall surrender the shares to the corporation for cancellation, properly
endorsed by the appropriate person or persons with reasonable assurances that
the endorsements are genuine and effective. Unless the corporation has
established a procedure by which a beneficial owner of shares held by a
nominee is to be recognized by the corporation as the record owner of such
shares on the books of the corporation shall be deemed by the corporation to
be the owner thereof for all purposes.
Section 6.4 Restrictions on Transfer of Shares Permitted. The board of
directors (or shareholders) may impose restrictions on the transfer or
registration of transfer of shares (including any security convertible into,
or carrying a right to subscribe for or acquire, shares). A restriction does
not affect shares issued before the restriction was adopted unless the holders
of the shares are parties to the restriction agreement or voted in favor of
the restriction.
A restriction on the transfer or registration of transfer of shares is
authorized:
(a) to maintain the corporation's status when it is dependent on the number or
identity of its shareholders;
(b) to preserve entitlements, benefits, or exemptions under federal, state, or
local law; and
(c) for any other reasonable purpose.
A restriction on the transfer or registration of transfer of shares may:
(a) obligate the shareholder first to offer the corporation or other persons
(separately, consecutively, or simultaneously) an opportunity to acquire the
restricted shares;
(b) obligate the corporation or other persons (separately, consecutively, or
simultaneously) to acquire the restricted shares;
(c) require the corporation, the holders of any class of its shares, or
another person to approve the transfer of the restricted shares, if the
requirement is not manifestly unreasonable; and
(d) prohibit the transfer of the restricted shares to designated persons or
classes of persons, if the prohibition is not manifestly unreasonable.
A restriction on the transfer or registration of transfer of shares is valid
and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this section 6.4 and such person has knowledge of
the restriction or its existence is noted conspicuously on the front or back
of the certificate or is contained in the written statement required by
section 6.2 of this Article VI with regard to shares issued without
certificates. Unless so noted, a restriction is not enforceable against a
person without knowledge of the restriction.
<PAGE> 20
Section 6.5 Acquisition of Shares. The corporation may acquire its own shares
and unless otherwise provided in the articles of incorporation, the shares so
acquired constitute authorized but unissued shares.
If the articles of incorporation prohibit the reissuance of acquired shares,
the number of authorized shares is reduced by the number of shares acquired by
the corporation, effective upon amendment of the articles of incorporation,
which amendment may be adopted by the shareholders or the board of directors
without shareholder action. The articles of amendment must be delivered to
the Utah Division of Corporations and Commercial Code for filing and must set
forth:
(a) the name of the corporation;
(b) the reduction in the number of authorized shares, itemized by class and
series;
(c) the total number of authorized shares, itemized by class and series,
remaining after reduction of the shares; and
(d) if applicable, a statement that the amendment was adopted by the board of
directors without shareholder action and that shareholder action was not
required.
ARTICLE VII
DISTRIBUTIONS
The corporation may make distributions (including dividends on its outstanding
shares) as authorized by the board of directors and in the manner and upon the
terms and conditions provided by law and in the corporation's articles of
incorporation.
ARTICLE VIII
CORPORATE SEAL
The board of directors may provide for a corporate seal which may have
inscribed thereon any designation including the name of the corporation, Utah
as the state of incorporation, and the words "Corporate Seal."
ARTICLE IX
DIRECTORS CONFLICTING INTEREST TRANSACTIONS
A director's conflicting interest transaction may not be enjoined, be set
aside, or give rise to an award of damages or other sanctions, in a proceeding
by a shareholder or by or in the right of the corporation, solely because the
director, or any person with whom or which the director has a personal,
economic, or other association, has an interest in the transaction, if:
(a) directors' action respecting the transaction was at any time taken in
compliance with section 16-10a-852 of the Act or any section of like tenor as
amended from time to time;
<PAGE> 21
(b) shareholders' action respecting the transaction was at any time taken in
compliance with section 16-10a-853 of the Act or any section of like tenor as
amended from time to time; or
(c) the transaction, judged according to the circumstances at the time of
commitment, is established to have been fair to the corporation.
ARTICLE X
AMENDMENTS
The corporation's board of directors may amend or repeal the corporation's
bylaws unless:
(a) the Act or the articles of incorporation reserve this power exclusively to
the shareholders in whole or part; or
(b) the shareholders in adopting, amending, or repealing a particular bylaw
provide expressly that the board of directors may not amend or repeal that
bylaw; or
(c) the bylaw either establishes, amends, or deletes, a supermajority
shareholder quorum or voting requirement (as defined in Article II, section
2.9).
Any amendment which changes the voting or quorum requirement for the board
must comply with Article III, section 3.8, and for the shareholders, must
comply with Article II, section 2.9.
The corporation's shareholders may amend or repeal the corporation's bylaws
even though the bylaws may also be amended or repealed by its board of
directors.
ARTICLE XI
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the board
of directors in consultation with the financial and tax advisors of the
corporation.
CERTIFICATE OF OFFICER
The undersigned does hereby certify that such person is the Secretary of
Upland Energy Corporation, a corporation duly organized and existing under and
by virtue of the laws of the state of Utah; that the above and foregoing
bylaws of said corporation were duly and regularly adopted as such by the
board of directors of said corporation by unanimous consent dated June 3,
1996, and that the above and foregoing bylaws are now in full force and effect
and supersede and replace any prior bylaws of the corporation.
DATED this 3rd day of June, 1996.
/S/ John W. Hobbs, Secretary
<PAGE> 1
Exhibit No. 4 - SPECIMEN STOCK CERTIFICATE
INCORPORATED UNDER THE LAWS OF THE STATE OF UTAH
- ---xxx--- --VOID--
UPLAND ENERGY CORPORATION
50,000,000 AUTHORIZED SHARES
$0.001 PAR VALUE NON-ASSESSABLE
CUSIP NO. 915383 20 2
This Certifies that ----------SPECIMEN-------------- is the registered holder
of --------------------VOID-------------------- Shares, of UPLAND ENERGY
CORPORATION, transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ----- day of ----------- A.D. 19xx.
/s/John W. Hobbs [Corporate Seal] /s/Felix Ascanio
Secretary President
Countersigned:
Colonial Stock Transfer
440 East 400 South, #1
Salt Lake City, Utah 84111
By:----------------------
<PAGE> 1
Exhibit No. 7
Date: ________________, 1997
FORM OF WARRANT
UPLAND ENERGY CORPORATION
COMMON STOCK PURCHASE WARRANT
EXERCISABLE FOR THREE YEARS
FROM DATE OF ISSUE
- -----------------------------------------------------------------
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS OF THE
APPLICABLE STATE OR A "NO-ACTION" OR INTERPRETIVE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL TO THE EFFECT THAT THE
SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH
STATE STATUTES.
- -----------------------------------------------------------------
This warrant for the purchase of shares of common stock, par value $0.001
per share, (this "Warrant"), of Upland Energy Corporation, a Utah corporation
(the "Company"), certifies that for value received, _____________________, or
registered assigns (the "Holder" or "Holders"), is entitled, at any time or
from time to time on or after the date hereof, and on or before 11:59 p.m.
Mountain time three years from the date hereof, (the "Exercise Period"), to
subscribe for, purchase, and receive one shares of the Company's common stock
(the "Shares"), at a price of $2.00 per share of common stock (the "Exercise
Price"), by paying in full and in lawful money of the United States of America
cash or cashier's check for the Exercise Price for the Shares, based on, and
complying with, all the terms and conditions hereinafter set forth. The
number of Shares to be received on exercise of this Warrant and the Exercise
Price may be adjusted on the occurrence of such events as described herein.
If the subscription rights represented hereby are not exercised by 11:59 p.m.
Mountain Time three years from the date hereof, (the "Expiration Date"), this
Warrant shall automatically become void and of no further force or effect, and
all rights represented hereby shall cease and expire.
This Warrant is subject to the following further terms and material
provisions:
1. Term of Warrant; Exercise of Warrant. The Holder of this Warrant shall
have the right, which may be exercised for a period from the date of this
Warrant, through 11:59 p.m. Mountain time three years from the date of
issuance of this Warrant from the Company _________________ (__________) fully
paid and nonassessable shares of the Company's common stock, par value $0.001
per share, (the "Shares" or "Common Stock"), upon presentation and surrender
of this Warrant with the subscription form attached hereto as Exhibit "A,"
accompanied by payment in lawful money of the United States of America in cash
or by official bank or certified check payable to the Company of $2.00 per
share. On the exercise of all or any portion of this Warrant in the manner
provided above, the Holder exercising the same shall be deemed to have become
a holder of record of the Shares for all purposes, and certificates for the
securities so purchased shall be delivered to the Holder within a reasonable
time, but in no event longer than ten days after this Warrant shall have been
exercised as set forth above. If this Warrant shall be exercised in respect
to only a part of the Shares covered hereby, the Holder shall be entitled to
receive a similar Warrant of like tenor and date covering the number of Shares
with respect to which this Warrant shall not have been exercised.
<PAGE> 2
2. Warrant Price. The price at which the Warrant Shares shall be
purchasable on exercise of the Warrant (the "Exercise Price") shall be $2.00
per share of Common Stock purchased. The Exercise Price and number of
Warrants shall be subject to adjustment pursuant to Section 5 hereof.
3. Reservation of Warrant Shares. The Company has reserved out of the
authorized and unissued shares of Common Stock a number of shares sufficient
to provide for the exercise of the rights of purchase represented by this
Warrant. All Warrants surrendered in exercise of the rights hereby evidenced
shall be canceled by the Company. Promptly after the date of expiration of
the Warrants no shares of Common Stock shall be subject to reservation in
respect to the Warrants. This Warrant shall obligate the Company and any
successor corporation who merges with the Company or purchases substantially
all of the assets of the Company to issue the Shares upon the exercise of the
Warrant.
4. Fully Paid Shares. The Company covenants and agrees that the Shares
which may be issued on the exercise of the rights represented by this Warrant
will, on issuance, be fully paid and nonassessable, and free form all taxes,
liens, and charges with respect to the issue thereof.
5. Adjustments. The number of Shares issuable upon exercise of this
Warrant may be subject to adjustment from time to time as follows:
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding Common
Stock, (iii) combine its outstanding Common Stock into a smaller number of
shares, (iv) issue by reclassification of its Common Stock other securities of
the Company, or (v) enter into any plan of capital reorganization or of
reclassification of the Common Stock; the number of Shares purchasable on
exercise of each Warrant immediately prior thereto shall be adjusted so that
the Holder of each Warrant shall be entitled to receive, the kind and number
of Shares or other securities of the Company which he or she would have owned
or have been entitled to receive after the happening of any of the events
described above, had such Warrant(s) been exercised immediately prior to the
happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the record
date for such event.
(b) No adjustment in the number of Shares purchasable hereunder shall
be required unless such adjustment would require an increase or decrease of at
least 1% in the number of Shares purchasable on the exercise of each Warrant;
provided, however, that any adjustments which by reason of this paragraph (b)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. Neither the purchase or other acquisition by the
Company of any Shares nor the sale or other disposition by the Company of any
Shares shall affect any adjustment of the Exercise Price or be taken into
account in computing any subsequent adjustment of the Exercise Price.
(c) Whenever the number of Shares purchasable on the exercise of each
Warrant is adjusted, as herein provided, the Exercise Price payable on
exercise of each Warrant shall be adjusted by multiplying such Exercise Prices
immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of Shares purchasable on the exercise of each Warrant
immediately prior to such adjustment and of which the denominator shall be the
number of Shares so purchasable immediately thereafter.
<PAGE> 3
(d) Whenever the number of Shares purchasable on the exercise of each
Warrant or the Exercise Prices of such Shares are adjusted, as herein
provided, the Company shall promptly mail by first class mail, postage
prepaid, to each Holder of a Warrant or Warrants notice of such adjustment or
adjustments setting forth the number of Shares purchasable on the exercise of
each Warrant and the Exercise Price of such Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
(e) For the purpose of this subsection, the term "common stock" shall
mean (i) the class of stock designated as the common stock of the Company at
the date of this Agreement, (ii) any other class of stock resulting form
successive changes or reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value
to par value; or (iii) as a result of a merger, consolidation or
reorganization of the Company into another company shall be those shares of
securities designated as "common stock" by the successor corporation, and if
such corporation's stock is traded, those series of stock which are traded.
In the event that at any time, as a result of an adjustment made pursuant to
paragraph (a), above, the holders of a Warrant or Warrants shall become
entitled to purchase any securities of the Company other than Shares,
thereafter the number of such other securities so purchasable on exercise of
each Warrant and the Exercise Prices of such securities shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to each share of Common Stock
contained in paragraphs (a) through (d), inclusive, above.
6. Fractional Interest. The Company shall not be required to issue
fractional shares on the exercise of Warrants. If more than one Warrant shall
be presented for exercise in full at the same time by the same Holder, the
number of full shares which shall be issuable on the exercise thereof shall be
computed on the basis of the aggregate number of shares represented by the
Warrants so presented. The Company shall pay an amount in cash equal to the
current value of such fraction computed on the basis of the Exercise Price
per-share of the Warrants being exercised.
7. No Right as Shareholder; Notices to Warrant Holders. Nothing contained
in this Warrant shall be construed as conferring on the Holder or its
transferee the right to vote or to receive dividends or to consent or to
receive notice as shareholders in respect of the meeting of shareholders for
the election of directors of the Company or any other matter, or any rights
whatsoever as shareholder of the Company.
8. Restrictions. The holder of this Warrant, by acceptance hereof, both
with respect to the Warrant and the Shares to be issuable upon exercise of the
Warrant (unless issued pursuant to an effective registration statement under
the Securities Act), represents and warrants as follows:
(a) The Warrant and the Shares are being acquired for the holder's
own account to be held for investment purposes only and not with a view to, or
for, resale in connection with any distribution of such Warrant or Shares or
any interest therein without registration or other compliance under the
Securities Act, and the holder hereof has no direct or indirect participation
in any such undertaking or in underwriting such an undertaking.
PAGE
<PAGE> 4
(b) The holder hereof has been advised and understands that the
Warrant and the Shares have not been registered under the Securities Act and
the Warrant and/or the Shares must be held and may not be sold, transferred,
or otherwise disposed of for value unless they are subsequently registered
under the Securities Act or an exemption from such registration is available;
except as set forth herein, the Company is under no obligation, except as set
forth in paragraph 9 hereof, to register the Warrant and/or the Shares under
the Securities Act; in the absence of such registration, sale of the Warrant
or Shares may be impracticable; the Company's registrar and transfer agent
will maintain stop-transfer orders against registration of transfer of the
Warrant and the Shares; and the certificates to be issued for any Shares will
bear on their face a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ( THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS OF THE
APPLICABLE STATE OR A "NO-ACTION" OR INTERPRETIVE LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER AND ITS COUNSEL TO THE EFFECT THAT THE SALE OR TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH STATE STATUTES.
(c) The Company may refuse to transfer the Warrant and/or the Shares
unless the holder thereof provides an opinion of legal counsel reasonably
satisfactory to the Company or a "no-action" or interpretive response from the
Securities and Exchange Commission to the effect that the transfer is proper;
further, unless such letter or opinion states that the Warrant and/or Shares
are free from any restrictions under the Securities Act, the Company may
refuse to transfer the Warrant and/or the Shares to any transferee who does
not furnish in writing to the Company the same representations and agree to
the same conditions with respect to such Warrant or Shares if any set forth
herein. The Company may also refuse to transfer the Warrant or Shares if any
circumstance is present reasonably indicating that the transferee's
representations are not accurate.
9. Registration Rights. The Company agrees to register the Shares (but
not the Warrants) for sale as follows:
(a) To pay all expenses of such registration statement, including,
without limitation, printing charges, legal fees, and disbursements of counsel
for the Company, blue sky expenses, accounting fees, and filing fees, but not
including legal fees and disbursements of counsel to the Holders;
(b) If the Company, in its sole discretion, determines to file a
registration statement or registration statements during the Exercise Period,
except for registration statements for the sole purpose of registering shares
for employees, directors or consultants of the Company, it shall take all
steps reasonably necessary to permit the exercise of the Warrants and the
issuance of the Shares under the applicable state securities laws of those
states in which the Warrants were issued were originally registered or
qualified for sale and issuance by the Company. The Company will take such
reasonable steps which it determines, in its sole discretion, are necessary to
permit the exercise of Warrants and the issuance of the Shares under the laws
of any other state in which a Holder then resides on the written request to do
so by such Holder, but in no event shall the Company be required to take such
steps in any state other than those states in which the Warrants were
originally qualified or registered, and the Company shall not be obligated to
<PAGE> 5
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
Holders who reside in any state where the Company cannot, with the exercise of
reasonable diligence, obtain qualification for the exercise of the Warrants,
and the issuance of the Shares may not, as a result thereof be able to
exercise their Warrants, and the Company is under no obligation to make such
exercise possible in such circumstances. In the event that the Company
determines to proceed with the qualification of the exercise of the Warrants
and the issuance of the Shares under the securities laws of a particular
state, then the exercise of such Warrants shall not be effective and the
Shares shall not be issued until such qualification becomes effective. When
qualification under applicable state securities laws is required, the Company
shall take such action within ten days following the date on which the Company
first files the registration statement. The costs of obtaining such state
qualification shall be borne by the Company.
(c) The Company shall promptly notify the Holder of the effective
date of any registration statement filed by the Company and the date on which
the Shares become qualified or registered under the state securities laws of
any state in which the Company obtains qualification or registration with
respect to such Shares. The Company shall not issue any Shares with respect
to any Warrant surrendered for exercise unless such Warrants are surrendered
and received by the Company or its transfer agent during a period that a
registration statement is effective. Furthermore, the Company shall not issue
any Shares on the exercise of any Warrants received from a Holder who is a
resident of a state with respect to which the Shares issuable on exercise of
the Warrants are not qualified or registered.
(d) Notwithstanding any provisions to the contrary contained herein,
the Company shall not be required to include any of the Shares in any
registration statement or post-effective amendment with respect to shares
offered in any underwriting:
(i) Unless the Holders of the Shares and Warrants agree to offer
such Shares, on the same terms and conditions as the Company's shares of
Common Stock are being offered, and to sign an underwriting agreement in the
form to be signed by the other offerors; or
(ii) If, in the good faith and reasonable opinion of the
managing underwriter of the offering, the sale of the Shares to be included
would be materially detrimental to the remainder of the offerors.
(e) The shareholders desiring to sell Shares pursuant to the
registration rights granted herein shall provide the Company with all
information relating to such sale and on which the Company shall be entitled
to rely and to include such information in any such registration statement.
The Holder shall indemnify and save harmless the Company (and all other
persons who may be subject to liability under the Act or otherwise) from and
against any and all claims, actions, suits, liabilities, losses, damages, and
expenses of every nature and character (including, but not by way of
limitation, all reasonable attorneys' fees and all amounts paid in settlement
of any claim, action, or suit) which arise or result directly or indirectly
from any untrue statement of a material fact furnished by such Holder in
connection with such registration or qualification, or from the failure of the
Holder of the Shares to furnish material information in connection with the
facts required to be included in such registration statement, notification,
or post-effective amendment necessary to make the statements therein not
misleading, or from any sales or offers of the Shares so registered after
ninety (90) days from the effective date of such registration statement or
notification.
<PAGE> 6
(f) All sales pursuant to any such registration statement shall be
made in accordance with the provisions of the Securities Act and the
Securities Exchange Act of 1934, as amended, and the Company shall not be
required to include any such Shares in any registration until it has received
written assurances satisfactory in form and substance to the Company from the
shareholders offering such Shares that such sales shall be so conducted. On
notice to any shareholder offering Shares covered by a registration statement
that such registration statement or prospectus relating thereto requires
revision, such holder will immediately cease to make offers or sales pursuant
to such registration statement, return all such registration statements and
prospectuses to the Company, and not resume offers until he or she has been
provided with an updated prospectus by the Company. All registration rights
granted herein may apply only to Shares issued on exercise of Warrants. The
Company is under no obligation to maintain the effectiveness of any
registration statement for more than an aggregate of 90 days.
10. Redemption of Warrants by the Company. The Warrants are subject to
redemption by the Company during the Exercise Period if a current registration
statement pertaining to the Warrants is in effect at a redemption price of
$0.10 per Warrant, on 30 days written notice to the Holders if the closing bid
price for the Common Stock as reported on the National Associations of
Securities Dealers Electronic Bulletin Board is $2.00 per share or more for
ten consecutive trading days or is $2.00 per share or more for 15 trading
days in any 30 trading day period. To redeem the Warrants, the Company must
provide notice to the Warrant holder stating that the Warrants will be
automatically redeemed 30 days from the date of such notice unless earlier
exercised in accordance with the terms of the Warrants. Each Holder of the
Warrants remaining unexercised after the expiration of the 30 day period shall
be required to tender their Warrant or Warrants, duly endorsed, to the Company
at its address. On surrender of the Warrants, the Company will deliver the
redemption amounts to the Warrant Holder. Warrant Holders have the right to
exercise their Warrants in accordance with, and complying with, the terms of
the Warrant during the 30 days prior to redemption. Once the 30 day
redemption period has expired, no Warrant may be exercised.
11. Adjustment to Warrant. Due to the uncertainties regarding the future
exercise of the Warrants, and the nature of the Company's proposed activities,
the board of directors has the authority, in its sole discretion, to reduce
the exercise price of the Warrants, extend the exercise period, or otherwise
modify the terms of such Warrants in a manner not prejudicial to the Warrant
holders. Any such modification shall be effective on notice in writing to the
holders of record of the Warrants.
12. Severability. In case any provision in this Warrant shall be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
13. Governing Law. This Warrant shall be governed by and construed and
interpreted in accordance with the laws of the state of Utah.
14. Legal Holidays. In any case where any date provided herein shall not
be a business day, then (notwithstanding any other provision of this Warrant)
the event required or permitted on such date shall be required or permitted,
as the case may be, on the next succeeding business day with the same force
and effect as if made on the date upon which such event was required or
permitted pursuant hereto.
<PAGE> 7
15. Mutilated or Missing Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction, or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen, or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
and upon reimbursement of the Company's reasonable incidental expenses, the
Company shall execute and deliver to the Holder a new Warrant of like date,
tenor, and denomination.
16. Attorneys Fees. In any action at law or in equity to enforce any of
the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by a court in a final judgment or decree, shall pay
the successful party or parties all costs, expenses, and reasonable attorneys'
fees incurred therein by such party or parties (including without limitation
such costs, expenses, and fees on any appeal), and if such successful party
shall recover judgment in any such action or proceeding, such costs, expenses,
and attorney's fees shall be included as part of such judgment.
17. Headings. The headings of this Warrant have been inserted as a matter
of convenience and shall not affect the construction thereof.
DATED effective as of the day of 1997.
ATTEST: UPLAND ENERGY CORPORATION
By:__________________________________ By: _______________________________
Its Secretary Its President
PAGE
<PAGE> 8
FORM OF EXERCISE
(To be executed by the Holder at the time of exercise)
Date:________________________
UPLAND ENERGY CORPORATION
175 South Main
Suite 1423
Salt Lake City, Utah 84111
Re: Exercise of Warrant
Gentlemen:
The undersigned, the Holder of this Warrant hereby irrevocably exercises
its right to purchase this Warrant or the portion hereof designated, into
shares of Common Stock, par value $0.001 per share, of Upland Energy
Corporation, in accordance with the terms of this Warrant, and directs that
the shares issuable and deliverable upon the exercise, together with any check
in payment for fractional shares, be issued in the name of and delivered to
the undersigned unless a different name has been indicated below. If shares
are to be issued in the name of a person other than the undersigned, the
undersigned will pay any transfer taxes payable with respect thereto.
Number of Warrants Exercised: __________
Exercised Price Attached: $_________
_________________________________________
(Signature, must conform in all respects
to the name of Holder as specified on the
face of the Warrant)
FILL IN FOR REGISTRATION OF SHARES
_________________________________________
(Printed Name)
_________________________________________
(Social Security or Tax I.D. Number)
_________________________________________
(Street Address)
_________________________________________
(City, State, and Zip Code)
_________________________________________
Portion to be exercised (if less than all)
<PAGE> 1
Exhibit No. 6
Date: ________________, 1996
FORM OF WARRANT
UPLAND ENERGY CORPORATION
COMMON STOCK PURCHASE WARRANT
EXERCISABLE FOR THREE YEARS
FROM DATE OF ISSUE
- -----------------------------------------------------------------
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS OF THE
APPLICABLE STATE OR A "NO-ACTION" OR INTERPRETIVE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL TO THE EFFECT THAT THE
SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH
STATE STATUTES.
- -----------------------------------------------------------------
This warrant for the purchase of shares of common stock, par value $0.001
per share, (this "Warrant"), of Upland Energy Corporation, a Utah corporation
(the "Company"), certifies that for value received, _____________________, or
registered assigns (the "Holder" or "Holders"), is entitled, at any time or
from time to time on or after the date hereof, and on or before 11:59 p.m.
Mountain time three years from the date hereof, (the "Exercise Period"), to
subscribe for, purchase, and receive one shares of the Company's common stock
(the "Shares"), at a price of $1.50 per share of common stock (the "Exercise
Price"), by paying in full and in lawful money of the United States of America
cash or cashier's check for the Exercise Price for the Shares, based on, and
complying with, all the terms and conditions hereinafter set forth. The
number of Shares to be received on exercise of this Warrant and the Exercise
Price may be adjusted on the occurrence of such events as described herein.
If the subscription rights represented hereby are not exercised by 11:59 p.m.
Mountain Time three years from the date hereof, (the "Expiration Date"), this
Warrant shall automatically become void and of no further force or effect, and
all rights represented hereby shall cease and expire.
This Warrant is subject to the following further terms and material
provisions:
1. Term of Warrant; Exercise of Warrant. The Holder of this Warrant shall
have the right, which may be exercised for a period from the date of this
Warrant, through 11:59 p.m. Mountain time three years from the date of
issuance of this Warrant from the Company _________________ (__________) fully
paid and nonassessable shares of the Company's common stock, par value $0.001
per share, (the "Shares" or "Common Stock"), upon presentation and surrender
of this Warrant with the subscription form attached hereto as Exhibit "A,"
accompanied by payment in lawful money of the United States of America in cash
or by official bank or certified check payable to the Company of $1.50 per
share. On the exercise of all or any portion of this Warrant in the manner
provided above, the Holder exercising the same shall be deemed to have become
a holder of record of the Shares for all purposes, and certificates for the
securities so purchased shall be delivered to the Holder within a reasonable
time, but in no event longer than ten days after this Warrant shall have been
exercised as set forth above. If this Warrant shall be exercised in respect
to only a part of the Shares covered hereby, the Holder shall be entitled to
receive a similar Warrant of like tenor and date covering the number of Shares
with respect to which this Warrant shall not have been exercised.
<PAGE> 2
2. Warrant Price. The price at which the Warrant Shares shall be
purchasable on exercise of the Warrant (the "Exercise Price") shall be $1.50
per share of Common Stock purchased. The Exercise Price and number of
Warrants shall be subject to adjustment pursuant to Section 5 hereof.
3. Reservation of Warrant Shares. The Company has reserved out of the
authorized and unissued shares of Common Stock a number of shares sufficient
to provide for the exercise of the rights of purchase represented by this
Warrant. All Warrants surrendered in exercise of the rights hereby evidenced
shall be canceled by the Company. Promptly after the date of expiration of
the Warrants no shares of Common Stock shall be subject to reservation in
respect to the Warrants. This Warrant shall obligate the Company and any
successor corporation who merges with the Company or purchases substantially
all of the assets of the Company to issue the Shares upon the exercise of the
Warrant.
4. Fully Paid Shares. The Company covenants and agrees that the Shares
which may be issued on the exercise of the rights represented by this Warrant
will, on issuance, be fully paid and nonassessable, and free form all taxes,
liens, and charges with respect to the issue thereof.
5. Adjustments. The number of Shares issuable upon exercise of this
Warrant may be subject to adjustment from time to time as follows:
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding Common
Stock, (iii) combine its outstanding Common Stock into a smaller number of
shares, (iv) issue by reclassification of its Common Stock other securities of
the Company, or (v) enter into any plan of capital reorganization or of
reclassification of the Common Stock; the number of Shares purchasable on
exercise of each Warrant immediately prior thereto shall be adjusted so that
the Holder of each Warrant shall be entitled to receive, the kind and number
of Shares or other securities of the Company which he or she would have owned
or have been entitled to receive after the happening of any of the events
described above, had such Warrant(s) been exercised immediately prior to the
happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the record
date for such event.
(b) No adjustment in the number of Shares purchasable hereunder shall
be required unless such adjustment would require an increase or decrease of at
least 1% in the number of Shares purchasable on the exercise of each Warrant;
provided, however, that any adjustments which by reason of this paragraph (b)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. Neither the purchase or other acquisition by the
Company of any Shares nor the sale or other disposition by the Company of any
Shares shall affect any adjustment of the Exercise Price or be taken into
account in computing any subsequent adjustment of the Exercise Price.
(c) Whenever the number of Shares purchasable on the exercise of each
Warrant is adjusted, as herein provided, the Exercise Price payable on
exercise of each Warrant shall be adjusted by multiplying such Exercise Prices
immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of Shares purchasable on the exercise of each Warrant
immediately prior to such adjustment and of which the denominator shall be the
number of Shares so purchasable immediately thereafter.
<PAGE> 3
(d) Whenever the number of Shares purchasable on the exercise of each
Warrant or the Exercise Prices of such Shares are adjusted, as herein
provided, the Company shall promptly mail by first class mail, postage
prepaid, to each Holder of a Warrant or Warrants notice of such adjustment or
adjustments setting forth the number of Shares purchasable on the exercise of
each Warrant and the Exercise Price of such Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
(e) For the purpose of this subsection, the term "common stock" shall
mean (i) the class of stock designated as the common stock of the Company at
the date of this Agreement, (ii) any other class of stock resulting form
successive changes or reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value
to par value; or (iii) as a result of a merger, consolidation or
reorganization of the Company into another company shall be those shares of
securities designated as "common stock" by the successor corporation, and if
such corporation's stock is traded, those series of stock which are traded.
In the event that at any time, as a result of an adjustment made pursuant to
paragraph (a), above, the holders of a Warrant or Warrants shall become
entitled to purchase any securities of the Company other than Shares,
thereafter the number of such other securities so purchasable on exercise of
each Warrant and the Exercise Prices of such securities shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to each share of Common Stock
contained in paragraphs (a) through (d), inclusive, above.
6. Fractional Interest. The Company shall not be required to issue
fractional shares on the exercise of Warrants. If more than one Warrant shall
be presented for exercise in full at the same time by the same Holder, the
number of full shares which shall be issuable on the exercise thereof shall be
computed on the basis of the aggregate number of shares represented by the
Warrants so presented. The Company shall pay an amount in cash equal to the
current value of such fraction computed on the basis of the Exercise Price
per-share of the Warrants being exercised.
7. No Right as Shareholder; Notices to Warrant Holders. Nothing contained
in this Warrant shall be construed as conferring on the Holder or its
transferee the right to vote or to receive dividends or to consent or to
receive notice as shareholders in respect of the meeting of shareholders for
the election of directors of the Company or any other matter, or any rights
whatsoever as shareholder of the Company.
8. Restrictions. The holder of this Warrant, by acceptance hereof, both
with respect to the Warrant and the Shares to be issuable upon exercise of the
Warrant (unless issued pursuant to an effective registration statement under
the Securities Act), represents and warrants as follows:
(a) The Warrant and the Shares are being acquired for the holder's
own account to be held for investment purposes only and not with a view to, or
for, resale in connection with any distribution of such Warrant or Shares or
any interest therein without registration or other compliance under the
Securities Act, and the holder hereof has no direct or indirect participation
in any such undertaking or in underwriting such an undertaking.
PAGE
<PAGE> 4
(b) The holder hereof has been advised and understands that the
Warrant and the Shares have not been registered under the Securities Act and
the Warrant and/or the Shares must be held and may not be sold, transferred,
or otherwise disposed of for value unless they are subsequently registered
under the Securities Act or an exemption from such registration is available;
except as set forth herein, the Company is under no obligation, except as set
forth in paragraph 9 hereof, to register the Warrant and/or the Shares under
the Securities Act; in the absence of such registration, sale of the Warrant
or Shares may be impracticable; the Company's registrar and transfer agent
will maintain stop-transfer orders against registration of transfer of the
Warrant and the Shares; and the certificates to be issued for any Shares will
bear on their face a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ( THE "SECURITIES ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS OF THE
APPLICABLE STATE OR A "NO-ACTION" OR INTERPRETIVE LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER AND ITS COUNSEL TO THE EFFECT THAT THE SALE OR TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH STATE STATUTES.
(c) The Company may refuse to transfer the Warrant and/or the Shares
unless the holder thereof provides an opinion of legal counsel reasonably
satisfactory to the Company or a "no-action" or interpretive response from the
Securities and Exchange Commission to the effect that the transfer is proper;
further, unless such letter or opinion states that the Warrant and/or Shares
are free from any restrictions under the Securities Act, the Company may
refuse to transfer the Warrant and/or the Shares to any transferee who does
not furnish in writing to the Company the same representations and agree to
the same conditions with respect to such Warrant or Shares if any set forth
herein. The Company may also refuse to transfer the Warrant or Shares if any
circumstance is present reasonably indicating that the transferee's
representations are not accurate.
9. Registration Rights. The Company agrees to register the Shares (but
not the Warrants) for sale as follows:
(a) To pay all expenses of such registration statement, including,
without limitation, printing charges, legal fees, and disbursements of counsel
for the Company, blue sky expenses, accounting fees, and filing fees, but not
including legal fees and disbursements of counsel to the Holders;
(b) If the Company, in its sole discretion, determines to file a
registration statement or registration statements during the Exercise Period,
except for registration statements for the sole purpose of registering shares
for employees, directors or consultants of the Company, it shall take all
steps reasonably necessary to permit the exercise of the Warrants and the
issuance of the Shares under the applicable state securities laws of those
states in which the Warrants were issued were originally registered or
qualified for sale and issuance by the Company. The Company will take such
reasonable steps which it determines, in its sole discretion, are necessary to
permit the exercise of Warrants and the issuance of the Shares under the laws
of any other state in which a Holder then resides on the written request to do
so by such Holder, but in no event shall the Company be required to take such
steps in any state other than those states in which the Warrants were
originally qualified or registered, and the Company shall not be obligated to
<PAGE> 5
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
Holders who reside in any state where the Company cannot, with the exercise of
reasonable diligence, obtain qualification for the exercise of the Warrants,
and the issuance of the Shares may not, as a result thereof be able to
exercise their Warrants, and the Company is under no obligation to make such
exercise possible in such circumstances. In the event that the Company
determines to proceed with the qualification of the exercise of the Warrants
and the issuance of the Shares under the securities laws of a particular
state, then the exercise of such Warrants shall not be effective and the
Shares shall not be issued until such qualification becomes effective. When
qualification under applicable state securities laws is required, the Company
shall take such action within ten days following the date on which the Company
first files the registration statement. The costs of obtaining such state
qualification shall be borne by the Company.
(c) The Company shall promptly notify the Holder of the effective
date of any registration statement filed by the Company and the date on which
the Shares become qualified or registered under the state securities laws of
any state in which the Company obtains qualification or registration with
respect to such Shares. The Company shall not issue any Shares with respect
to any Warrant surrendered for exercise unless such Warrants are surrendered
and received by the Company or its transfer agent during a period that a
registration statement is effective. Furthermore, the Company shall not issue
any Shares on the exercise of any Warrants received from a Holder who is a
resident of a state with respect to which the Shares issuable on exercise of
the Warrants are not qualified or registered.
(d) Notwithstanding any provisions to the contrary contained herein,
the Company shall not be required to include any of the Shares in any
registration statement or post-effective amendment with respect to shares
offered in any underwriting:
(i) Unless the Holders of the Shares and Warrants agree to offer
such Shares, on the same terms and conditions as the Company's shares of
Common Stock are being offered, and to sign an underwriting agreement in the
form to be signed by the other offerors; or
(ii) If, in the good faith and reasonable opinion of the
managing underwriter of the offering, the sale of the Shares to be included
would be materially detrimental to the remainder of the offerors.
(e) The shareholders desiring to sell Shares pursuant to the
registration rights granted herein shall provide the Company with all
information relating to such sale and on which the Company shall be entitled
to rely and to include such information in any such registration statement.
The Holder shall indemnify and save harmless the Company (and all other
persons who may be subject to liability under the Act or otherwise) from and
against any and all claims, actions, suits, liabilities, losses, damages, and
expenses of every nature and character (including, but not by way of
limitation, all reasonable attorneys' fees and all amounts paid in settlement
of any claim, action, or suit) which arise or result directly or indirectly
from any untrue statement of a material fact furnished by such Holder in
connection with such registration or qualification, or from the failure of the
Holder of the Shares to furnish material information in connection with the
facts required to be included in such registration statement, notification,
or post-effective amendment necessary to make the statements therein not
misleading, or from any sales or offers of the Shares so registered after
ninety (90) days from the effective date of such registration statement or
notification.
<PAGE> 6
(f) All sales pursuant to any such registration statement shall be
made in accordance with the provisions of the Securities Act and the
Securities Exchange Act of 1934, as amended, and the Company shall not be
required to include any such Shares in any registration until it has received
written assurances satisfactory in form and substance to the Company from the
shareholders offering such Shares that such sales shall be so conducted. On
notice to any shareholder offering Shares covered by a registration statement
that such registration statement or prospectus relating thereto requires
revision, such holder will immediately cease to make offers or sales pursuant
to such registration statement, return all such registration statements and
prospectuses to the Company, and not resume offers until he or she has been
provided with an updated prospectus by the Company. All registration rights
granted herein may apply only to Shares issued on exercise of Warrants. The
Company is under no obligation to maintain the effectiveness of any
registration statement for more than an aggregate of 90 days.
10. Redemption of Warrants by the Company. The Warrants are subject to
redemption by the Company during the Exercise Period if a current registration
statement pertaining to the Warrants is in effect at a redemption price of
$0.10 per Warrant, on 30 days written notice to the Holders if the closing bid
price for the Common Stock as reported on the National Associations of
Securities Dealers Electronic Bulletin Board is $2.00 per share or more for
ten consecutive trading days or is $2.00 per share or more for 15 trading
days in any 30 trading day period. To redeem the Warrants, the Company must
provide notice to the Warrant holder stating that the Warrants will be
automatically redeemed 30 days from the date of such notice unless earlier
exercised in accordance with the terms of the Warrants. Each Holder of the
Warrants remaining unexercised after the expiration of the 30 day period shall
be required to tender their Warrant or Warrants, duly endorsed, to the Company
at its address. On surrender of the Warrants, the Company will deliver the
redemption amounts to the Warrant Holder. Warrant Holders have the right to
exercise their Warrants in accordance with, and complying with, the terms of
the Warrant during the 30 days prior to redemption. Once the 30 day
redemption period has expired, no Warrant may be exercised.
11. Adjustment to Warrant. Due to the uncertainties regarding the future
exercise of the Warrants, and the nature of the Company's proposed activities,
the board of directors has the authority, in its sole discretion, to reduce
the exercise price of the Warrants, extend the exercise period, or otherwise
modify the terms of such Warrants in a manner not prejudicial to the Warrant
holders. Any such modification shall be effective on notice in writing to the
holders of record of the Warrants.
12. Severability. In case any provision in this Warrant shall be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
13. Governing Law. This Warrant shall be governed by and construed and
interpreted in accordance with the laws of the state of Utah.
14. Legal Holidays. In any case where any date provided herein shall not
be a business day, then (notwithstanding any other provision of this Warrant)
the event required or permitted on such date shall be required or permitted,
as the case may be, on the next succeeding business day with the same force
and effect as if made on the date upon which such event was required or
permitted pursuant hereto.
<PAGE> 7
15. Mutilated or Missing Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction, or mutilation of this Warrant,
and of indemnity reasonably satisfactory to the Company, if lost, stolen, or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
and upon reimbursement of the Company's reasonable incidental expenses, the
Company shall execute and deliver to the Holder a new Warrant of like date,
tenor, and denomination.
16. Attorneys Fees. In any action at law or in equity to enforce any of
the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by a court in a final judgment or decree, shall pay
the successful party or parties all costs, expenses, and reasonable attorneys'
fees incurred therein by such party or parties (including without limitation
such costs, expenses, and fees on any appeal), and if such successful party
shall recover judgment in any such action or proceeding, such costs, expenses,
and attorney's fees shall be included as part of such judgment.
17. Headings. The headings of this Warrant have been inserted as a matter
of convenience and shall not affect the construction thereof.
DATED effective as of the day of 1996.
ATTEST: UPLAND ENERGY CORPORATION
By:__________________________________ By: _______________________________
Its Secretary Its President
PAGE
<PAGE> 8
FORM OF EXERCISE
(To be executed by the Holder at the time of exercise)
Date:________________________
UPLAND ENERGY CORPORATION
175 South Main
Suite 1423
Salt Lake City, Utah 84111
Re: Exercise of Warrant
Gentlemen:
The undersigned, the Holder of this Warrant hereby irrevocably exercises
its right to purchase this Warrant or the portion hereof designated, into
shares of Common Stock, par value $0.001 per share, of Upland Energy
Corporation, in accordance with the terms of this Warrant, and directs that
the shares issuable and deliverable upon the exercise, together with any check
in payment for fractional shares, be issued in the name of and delivered to
the undersigned unless a different name has been indicated below. If shares
are to be issued in the name of a person other than the undersigned, the
undersigned will pay any transfer taxes payable with respect thereto.
Number of Warrants Exercised: __________
Exercised Price Attached: $_________
_________________________________________
(Signature, must conform in all respects
to the name of Holder as specified on the
face of the Warrant)
FILL IN FOR REGISTRATION OF SHARES
_________________________________________
(Printed Name)
_________________________________________
(Social Security or Tax I.D. Number)
_________________________________________
(Street Address)
_________________________________________
(City, State, and Zip Code)
_________________________________________
Portion to be exercised (if less than all)
<PAGE>
Exhibit No. 8
AGREEMENT
THIS AGREEMENT is made and entered into this 28th day of August, 1992, by
and between WILLIAMS NATURAL GAS COMPANY ("WNG") and KIM EXPLORATION, INC.
("OPERATOR").
WHEREAS, WNG has mineral interest and/or gas storage rights in, on and
under tile following described real property;
Certain properties located in Jefferson and Leavenworth Counties in the
State of Kansas, commonly referred to as the McLOUTH STORAGE FIELD, said
properties fully described in Exhibit "A" attached hereto and made a part
hereof, and hereinafter referred to as the "LOCATION," and;
WHEREAS, WNG is actively engaged in an underground natural gas storage
operation in the proximity of the LOCATION from the surface to twenty fee,
below the top of the Mississippi Lime, and
WHEREAS, OPERATOR intends to conduct a fully integrated study of the
McLouth Field which will include seismic tests and following such study
intends to drill for and produce oil that may occur in the LOCATION;
NOW, THEREFORE, in consideration of the premises and the. mutual
covenants and agreements of the parties hereto which are set forth herein, WNG
and OPERATOR agree as follows:
1. (a) During and following the completion of the seismic study,
OPERATOR may commence the drilling of a well or wells at the LOCATION and
thereafter shall proceed with the drilling of said wells diligently and
without unnecessary delay and in a workmanlike manner. All well locations
still be submitted to and approved by WNG prior to the commencement of
drilling, OPERATOR shall commence the initial well as provided above not later
than One (1) year from the date of this agreement set forth above.
(b) Within ninety days (90) days of the date of this Agreement
OPERATOR will propose a geophysical program which will be mutually agreed upon
prior to commencement. OPERATOR will provide WNG with copies of all seismic
studies, all well logs, and any other relevant tests or studies conducted on
any well in McLouth or dealing with the McClouth field.
(c) Within twenty-four months (24) of the date of this Agreement,
OPERATOR will assign WNG all right title and interest in ten wells drilled in
MeLouth under this Agreement. All wells will be drilled on mutual agreeable
well sites following a technical review of geophysical and geological data.
2. (a) This agreement shall remain in force and effect for a term of one
(1) year from the date set forth above and so long thereafter as oil is
produced from the leased premises in commercial Quantities provided that in
the event production of oil shall cease then OPERATOR shall have a reasonable
time, not to exceed one hundred eighty (180) (lays, in which to reestablish
oil production in commercial quantities before tile lease is terminated for
non-production. If, at the expiration of the primary term of this agreement,
oil is not being produced oil tile leased premises in commercial quantities
but OPERATOR is then engaged in drilling for oil and the Underlying line has
not expired, then this agreement shall continue in force so long as drilling
operations are being continuously prosecuted on the leased premises. Drilling
operations shall be considered to be continuously prosecuted if not more than
thirty days shall elapse between the completion or abandonment of one well and
the spudding of a subsequent well, If oil shall be discovered and produced in
commercial quantities from any such well or wells drilled or being drilled at
<PAGE>
or after the expiration of the primary term of this agreement, this agreement
shall continue in force so long as oil shall be produced from the leased
premises in commercial quantities and OPERATOR complies with the terms of the
lease.
(b) The parties understand and agree that WNG is engaged in storing
natural gas in the McLouth Sand which is located within two hundred fifty feet
(250) feet above the top of the Mississippi and WNG specifically reserves the
right to such stored gas in such formation or any other formations in which
said stored gas might be found from the surface to twenty feet below the top
of the Mississippi Lime.
3. (a) The OPERATOR shall deliver to WNG, free of cost, on the lease,
or into the pipeline to which OPERATOR may connect its wells the equal of 1/16
of 8/8, part hereby reserved unto WNG as an Overriding Royalty of all oil
produced and saved from the leases premises, or at WNG's option to pay to WNG
for such one-sixteenth (1/16) Overriding Royalty the market value for oil of
like grade and gravity prevailing on the day such oil is run into the pipeline
or into storage tanks.
(b) Except for that gas provided pursuant to paragraph 4 (1) all gas
produced shall be returned to WNG at OPERATOR's cost and expense at a mutually
agreeable location in WNG's pipeline or mutually agreeable formation, and if
into the pipeline, against the prevailing pressures contained in WNG's
pipeline from time to time and shall be of normal pipeline quality and shall
not contain over 1/4 grain H2S nor over 20 grains of total Sulphur per 100
cubic feet, nor over 2% by volume of C02 nor over 1% by volume of oxygen. A
gas return program shall be agreed upon as soon as it becomes necessary in
order to properly return any gas produced from any wells drilled under this
Agreement. WNG shall determine, in its sole discretion whether dehydration is
necessary.
4. (a) If operations for the drilling of a well are not completed on
said land on or before the date one (1) year from the date set forth above,
this Agreement shall terminate as to both parties.
(b) At least thirty (30) days prior to startup a well, OPERATOR shall
obtain WNG's approval of OPERATOR's contractor and proposed drilling
programs. This shall include, without limitation, the zone to be produced,
the casing and cementing program , equipment to be used in drilling the well,
the drilling mud and additives and the volume and method of zone,
stimulation. Prior to the plugging and abandonment of any well or wells,
OPERATOR shall obtain WNG's, approval of the plugging program to be used. No
well shall be drilled within three hundred thirty (330) feet of any gas
storage well without the prior written approval of WNG. OPERATOR shall
minimize the volume of gas vented during testing and development.
(c) OPERATOR agrees to furnish WNG with daily progress reports on
each well which shall include, without limitation, drilling depths, all shows
of oil and gas, results of drill stem tests, electrical logging surveys,
samples of cores and cuttings if requested, well log upon completion, and
plugging record. WNG shall have the right to observe OPERATOR's operation at
all reasonable nines.
(d) OPERATOR agrees to complete and/or plug any well or wells in a
manner that will not allow WNG's stored gas to escape or interfere with WNG's
underground gas storage operations.
<PAGE> 3
(e) Any and all gas produced by OPERATOR's well or wells shall remain
the property of WNG and will be delivered to WNG as described in 3 above.
(f) WNG has the option to take over, at OPERATOR's salvage value, any
abandoned well or wells, or surface facilities related to oil production.
(g) OPERATOR may re-inject gas only into the McLouth Sand formation
at a mutually agreeable location and with mutually agreeable quality and
measurement equipment.
(h) OPERATOR shall not strip condensate from gas except by normal
oilfield mechanical separation equipment, drips, sluggers, and tile like.
(i) With respect to returned gas, WNG shall have the sole discretion
in the selection and approval of the owner or operator of the dehydration
facilities and OPERATOR will pay that owner or operator directly for such
services. When WNG is the owner or operator of the dehydration facilities,
charges for dehydration by WNG will be according to WNG's rates for
dehydration at the time dehydration is performed.
(j) With respect to returned gas, OPERATOR shall hold WNG harmless
for oil production problems or delays in the event WNG experiences system
equipment operating problems.
(k) If requested by WNG all undrilled spacing units shall be released
within one year after the last well completed by OPERATOR on the Location.
(1) WNG shall provide sufficient lease gas for compression fuel, heat
treaters, and dehydration facilities, The volume of such lease gas used on a
monthly basis shall be subject to WNG's approval.
(m) OPERATOR agrees to conduct its operation at its sole risk and
expense and shall defend, indemnify, and hold harmless WNG, its parent,
subsidiaries, and affiliates and their respective directors, officers,
employees, representatives, and agents from and against any claim, demand,
cause of action, liability, loss or expense (including without limitation,
penalties, interest and attorney fees) arising from or related in any way to
(i) actual or asserted failure of OPERATOR, or its contractors, if any, to
comply with any law, ordinance, code, regulation, rule., or order of any
governmental body; (ii) injury to or death of persons (including, without
limitation, the employees of WNG, OPERATOR and its contractors, and suppliers,
if any, and their respective directors, officers, employees, representatives
and agents and any third party, whether or not legally on the premises or at
the location site); or (iii) damage to or loss of property (including, without
limitation, the property of WNG); all arising directly or indirectly out of
the acts or emissions of OPERATOR, its contractors or suppliers, if any, and
their respective officers, employees, representatives, or agents, incident to
the operations to be performed and operations to be conducted, irrespective of
whether WNG was concurrently or jointly negligent and whether actively or
passively, but excepting injury or death of persons or damage or loss of
property caused by the sole negligence or willful misconduct of WNG.
(n) (i) OPERATOR and its contractors, if any, shall at their sole
cost maintain insurance coverages throughout the entire term of this Agreement
as described in Paragraphs (1) through (5) below with insurance companies
acceptable to WNG. The limits set forth are minimum limits and shall not be
construed to limit OPERATOR's liability. All costs and deductible amounts
shall be for the sole. account of the OPERATOR or contractor.
<PAGE> 4
(1) Worker's Compensation insurance and Employer's Liability
Insurance with a limit of $100,000 each accident, including occupational
disease coverage with a limit of $100,000 each employee, $500,000 aggregate
limit.
(2) Commercial General Liability Insurance with a combined
single limit of $1,000,000 each occurrence, $1,000,000 aggregate, against
claims for bodily injury, death, and property damage, including coverage for
blanket contractual liability .(covering tile indemnity obligations under
Paragraph 4(m), broad form property damage, personal injury liability,
products/completed operations, and XC&U.
(3) Automobile Liability with combined single limit for bodily
injury and property damage of $1,000,000 each occurrence to include
coverage
for all owned, non-owned, and hired vehicles.
(4) If drilling occurs, excess or umbrella liability insurance
with a combined single lit-nit of not less than $1,000,000 per occurrence, to
be in excess of the liability coverages in items 1, 2 and 3 above.
(5) Control of Well insurance in an amount not less than
$1,000,000, that includes expense for cleanup, containment, seepage, and
pollution.
(ii) Irrespective of the requirements of insurance to be
carried, the insolvency, bankruptcy, or failure of any such insurance company
carrying insurance for OPERATOR, or the failure of any such insurance company
to pay claims that occur shall not be held to waive any of the provisions
hereof. All the above described policies, together with all other insurance
now owned or purchased in the future, relating to the operations to be
performed hereunder, shall provide that the insurance companies shall have no
right of subrogation against WNG, its parent, subsidiaries, or affiliates,
(iii) Modification or cancellation of policies providing
coverage hereunder, as it affects the interest of WNG, shall be effective only
after written notice is received by WNG from the insurance company thirty (30)
days in advance of any such modification or cancellation. Prior to commencing
operations hereunder, OPERATOR shall deliver to WNG certificates in form
satisfactory to WNG evidencing trial existence of the insurance coverages
provided for above.
(iv) OPERATOR agrees, upon request of WNG, to submit the
original or a certified copy of its insurance policies for inspection by WNG
at any time.
(o) OPERATOR shall comply with all terms, conditions ,and covenants
(express or implied) of the underlying lease(s).
(p) OPERATOR shall not commence any manner or form of secondary or
tertiary recovery under this agreement or on the leases subject to this
agreement.
5. It is understood and agreed by and between WNG and OPERATOR that the
responsibility for pollution and contamination shall be as follows:
<PAGE> 5
(a) OPERATOR shall assume all responsibility for, including control
and removal of, and protect, defend and save harmless from and against all
claims, demands and causes of action of every kind and character arising from
pollution or contamination, which originates above the surface of the land or
water from spills of fuels, lubricants, motor oils, crude oil and natural gas
and the components thereof, drilling fluid, pipe dope, paints, solvents,
ballast, bilge and garbage.
(b) OPERATOR shall assume all responsibility for, including control
and removal of, and protect, defend, indemnify and save WNG harmless from and
against all claims, demands, and causes of action of every kind and character
arising directly or indirectly from all other pollution or contamination which
any occur during the conduct of operations hereunder, including but not
limited to, that which may result from fire, blowout, cratering, seepage or
any other uncontrolled flow of oil, gas, water or other substance, as well as,
the use or disposition of drill mud, oil emulsion, oil base or chemically
treated drilling fluids, contaminated cuttings or cavings, lost circulation
and fish recovery materials and fluids.
(c) In the event a third part), commits an act or emission which
results in pollution or contamination for which either WNG or OPERATOR; for
whom such party is performing work, is held to be legally liable, the
responsibility therefor shall be considered, as between WNG and OPERATOR, to
be the same as if the party for whom the work was performed had performed the
same and all of the obligations respecting defense, indemnity, holding
harmless and limitation of responsibility and liability, as set forth in (a)
and (b) above, shall be specifically applied.
6. (a) In the event WNCI owns a less interest in the above described
land than the entire and undivided mineral interest therein, then tile
overriding royalty herein provided for shall be paid WNG in the proportion
which its interest bears to the whole and undivided mineral interest.
However, such overriding royalty shall be increased after any revision occurs
to cover the interest so acquired.
(b) OPERATOR acknowledges that WNG has granted Farmout Agreements, or
other agreements allowing drilling activities in the McLouth Storage Field
prior to the date of this Agreement, and that said agreements are still in
force and effect due to commercial production being present, or other legal
conditions. WNG will advise OPERATOR of the leases involved in such
agreements prior to OPERATOR attempting to include such leases under this
Agreement. Upon the expiration or termination of such agreements for any
reason said leases will automatically become included under the terms and
conditions of this Agreement,
7. No waiver by either WNG or OPERATOR of one or more defaults of the
other in the performance of any of the provisions of this agreement shall be a
waiver of any future default(s), whether of like or different character.
8. OPERATOR shall bury its pipelines at least 42 inches below the surface
of tile ground. OPERATOR shall pay for all damages to the landowner, or
tenant, caused by its operation, e.g. damages to crops. Provided OPERATOR
shall have first fulfilled a its obligations, covenants and agreements under
this agreement then OPERATOR shall have the right to remove all machinery and
fixtures it has placed on the premises, following a WNG's approved
environmental audit.
<PAGE> 6
9. OPERATOR agrees that if any of its operations should interfere with
WNG's storage field, OPERATOR shall immediately stop any such operation(s) and
do everything necessary to stop said interference. Should WNG determine
additional work or precaution are necessary to insure protection of its
storage fields, OPERATOR agrees to institute such additional precautions at
once and at OPERATOR's sole expense. OPERATOR agrees that any operations
conducted on said lands, while gas is stored under said lands, shall be
conducted to prevent the escape of gas from and the intrusion of water and
other substances into any formation in which gas is so stored.
10. All notices or other correspondence to be given hereunder shall be in
writing, delivered in person or by U.S. Mail, addressed as follows:
Williams Natural Gas Company
One Williams Center
P.O. Box 3288
Tulsa, Oklahoma 74101
Attention: Vice President,
Supply and Gas Management
KLM Exploration, Inc,
P. 0. Box 151
McLouth, Kansas 66054
11. WNC; makes no representation or warranty, express, implied or
otherwise, as to the interest or rights of WNG in the mineral rights, the
interest granted hereunder, or otherwise.
12. (a) In the event the OPERATOR does not comply with the provisions
of this Agreement and commence the drilling of a well within the time period
set out herein, or when this Agreement otherwise terminates by its terms or by
agreement of the parties, all lights of the OPERATOR in and to the Location
shall be immediately automatically terminated and revert to WNG without the
necessity of any document of reconveyance.
(b) Further, in the event production in paying quantities shall be
obtained from the Location by OPERATOR, but thereafter such production in
paying quantities shall cease, or if OPERATOR shall subsequently cease or
suspend production from the Location for more than one hundred eight (180)
days, all rights of OPERATOR in and to the Location shall immediately and
automatically terminate and revert to WNG without the necessity of any
document of reconveyance. In addition, OPERATOR shall not have the authority
to release any part of the underlying oil and gas lease, and any attempt by
OPERATOR to so release any part of such lease shall cause all rights of
OPERATOR in and to the Location to immediately and automatically terminate and
revert to WNG without the necessity of any document of reconveyance and such
purported release shall be of no force and effect.
13. OPERATOR shall not assigns sublet or transfer this instrument or the
rights accruing hereunder without WNG's prior written consent, If the estate
of either party hereto is assigned, the covenants hereof shall extend to their
heirs, executors, administrators, successors, or assigns.
14. It is explicitly understood and agreed by and between the parties
hereto that this document is not intended to convey any interest whatsoever in
the property described herein other than the right to enter upon the property
and drill for and sell oil which relay be produced pursuant to the provisions
set out in this Agreement.
<PAGE> 7
15. (a) OPERATOR agrees to provide a performance bond to comply fully
with the conditions of the Agreement and which will provide for well plugging
expenses in the event any well operated by the OPERATOR on the Location
requires plugging and is not done in a timely manner by the OPERATOR. The
bond shall be executed by a corporate surety authorized to do business in the
state-of Kansas and shall be renewed and continued in effect until the
conditions have been met or released by WNG. OPERATOR agrees to provide a
performance bond in the amount of one million dollars.
(b) Notwithstanding the absence of a performance bond, OPERATOR remains
responsible for a costs of plugging of any well or wells on the Location in a
manner that will not allow WNG's stored gas to escape or interfere with WNG's
underground storage operations, and OPERATOR agrees to indemnify and hold WNG
harmless from all such costs and expenses of plugging,
16. OPERATOR may at any time surrender or cancel this agreement in whole
or iii part by delivering or mailing a release of this agreement to WNG, and
by WNG placing same of record in the appropriate county.
17. A11 provisions of this agreement, express or implied, shall be subject
to all federal and state laws and the orders, rules, or regulations of all
governmental agencies administering the same.
18. This agreement and all its terms, conditions, and stipulations she
extend to and be binding on all respective heirs, successors, and assigns of
WNG and OPERATOR.
19. OPERATOR shall obtain Landowner ratification prior to commencing
drilling activities on any lease. Ratifications may be obtained as the
drilling program proceeds as long as they are received by WNG prior to
OPERATOR entering onto any lease for the purpose of commencing a well.
IN WITNESS WHEREOF, this agreement has been signed the day and year first
above written.
ATTEST: WILLIAMS NATURAL GAS COMPANY
/S/ [Illegible] By: /S/ Steven J. Malcolm, V.P.
ATTEST: KLM EXPLORATION, INC.
/S/ Douglas L. Baker, Asst. Secretary By: Kenneth Mason
PAGE
<PAGE> 8
STATE OF KANSAS )
:ss.
COUNTY OF JEFFERSON)
On this 23rd day of July, 1992, before me, the undersigned, a Notary
Public duly commissioned in and for the county and state aforesaid, came
Kenneth Mason, president of KLM Exploration Co., Inc., a corporation of the
State of Kansas, personally known to be such officer, and to be the same for
himself and for said corporation for the uses and purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and official seat on the
day and year as above written.
[Notary Seal]
/S/ Ross M. Bolinger
STATE OF OKLAHOMA)
:ss.
COUNTY OF TULSA )
On this 28th day of August 1992, before me, the undersigned, a Notary
Public, duly commissioned for the county and state aforesaid, came Stephen J.
Malcolm, Vice President of WILLIAMS NATURAL GAS COMPANY, a corporation of the
State of Delaware, personally known to me to be such officer, and to be the
same person who executed as such officer the foregoing Instrument of writing
in behalf of said corporation, and he duly acknowledged the execution of the
same for himself and for said corporation for the uses and purposes therein
set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal on the
day and year as above written.
[Notary Seal]
/S/Cynthia D. Thulin
My Commission Expires:
October 16, 1996
PAGE
<PAGE> 9
ADDENDUM TO AGREEMENT BETWEEN
WILLIAMS NATURAL GAS COMPANY AND
KLM EXPLORATION, INC.
DATED AUG. 28, 1992
Notwithstanding any provisions of the above captioned Agreement, or the
Gas Storage Lease covering said property, the undersigned landowners do hereby
approve, ratify and confirm said Agreement and that certain Gas Storage Lease
recorded ,at Book ______, Pages _____ in the Office of Deeds, Jefferson
County, Kansas.
LANDOWNERS
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
Williams Natural Gas Company
By_______________________________ Attest__________________________
Title Secretary
PAGE
<PAGE> 10
EXHIBIT A
[Map of McLOUTH Storage Field]
<PAGE> 1
Exhibit 9
AMENDMENT
THIS AMENDMENT entered into this 3rd day of December, 1993 by and between
WILLIAMS NATURAL GAS COMPANY (WNG) and KLM EXPLORATION, INC. (OPERATOR) amends
the terms and conditions of the Agreement entered into on the 28th of August
1992.
1. Delete Section 1 of the Agreement in its entirety and replace with the
following:
1. (a) Within ninety days (90) of the date of this Amendment
OPERATOR will commence its drilling program. All well locations shall be
submitted to and approved by WNG prior to the commencement of drilling.
OPERATOR will provide WNG with copies of all seismic studies, all well logs,
and any other relevant tests or studies conducted on any well in McLouth or
dealing with the McLouth field.
(b) It is the intent of the parties that WNG shall be entitled
to a minimum of ten wells from this program. The first four WNG wells will be
drilled during 1994, two the first six months and two the second six months.
This same procedure shall apply for 1995 and 1996, but limited to two wells
during 1996 for a total of ten wells. Following the completion of each
OPERATOR selected well drilled hereunder, and in the event OPERATOR makes a
decision that the well is not a commercial well, WNG shall have the option to
take over the well for its storage operations. The well may be a well that
produces too much gas and is not economically feasible for oil production. If
WNG elects to accept the well it shall be assigned to WNG and OPERATOR will
have no further interest in said well. Should WNG elect to not take an
assignment of a well, it shall notify OPERATOR within fifteen days of
receiving written notice from OPERATOR that the well is not commercial.
Within thirty days of receiving WNG's notice of its non-interest in the well,
OPERATOR shall plug the well in accordance with WNG's well-plugging
procedures. An OPERATOR selected well site which is noncommercial and which
is rejected by V;NG will not count towards WNG's ten wells. However, in the
event WNG selects a well site to be drilled for the storage program, and that
well is not acceptable as a storage well, that well will nevertheless count as
one of WNG's ten wells.
2. Delete Section 2 (a) of the Agreement in its entirety and replace with
the following:
2. (a) This Agreement shall remain in force and effect as long as
OPERATOR pursues the drilling of wells in McLouth at a rate of not less than
six wells every six months, with the initial six month period commencing
January 1, 1994. In addition thereto, OPERATOR will drill wells for WNG's
account as set forth in paragraph 1. (b).
3. Delete Section 4 (a) in its entirety.
4. Delete Section 4 (k) in its entirety.
5. Paragraph 12 (b), first sentence, change the words "the Location" where
first found to "a lease"; and thereafter in the first sentence change the
words "the Location" to "the lease".PAGE
<PAGE> 2
6. Paragraph 15 (a), add to the end of the paragraph:
Operator may substitute an Irrevocable Letter of Credit in the amount of
$25,000 for a performance bond in a form agreeable to WNG. Such Letter of
Credit shall be irrevocable and unconditional, have a term of at least one
year, and must contain an "evergreen clause" which prevents the expiration of
the Letter of Credit without due notice of at least sixty (60) days from the
issuer.
7. Paragraph 15 (b), add "or letter of credit" after the words
"performance bond", in the first line of the paragraph.
8. All other terms and conditions of the Agreement shall remain in effect,
in the case of any inconsistencies between the Agreement and the Amendment the
language of the Amendment shall control.
IN WITNESS WHEREOF, this Amendment has been signed the day and year first
written above.
ATTEST: WILLIAMS NATURAL GAS COMPANY
/S/ ?Armstrong By: Ron Mercer
Asst. Secretary By: Vice President [PAK]
ATTEST: KLM EXPLORATION
____________________________________ By: /S/Kenneth L. Mason
Asst. Secretary
G.S.C., Inc., hereby acknowledges receipt of this Amendment and hereby
consents and agrees with and ratifies said Amendment and the terms and
conditions above set forth this 12-3, 1993.
G.S.C., INC.
/S/ T. Kent Rainey, President
<PAGE> 1
Exhibit 10
OPERATING AGREEMENT
THIS OPERATING AGREEMENT made and entered into effective November __,
1993, by and between KENNETH L MASON, individually and KLM EXPLORATION, INC.,
a Kansas corporation (collectively referred to as "KLM"), and G.S.&C., Inc., a
Nevada corporation ("GS&C").
PREMISES
A. WHEREAS, KLM has entered into a farmout agreement dated August 28,
1992 (the Williams Agreement"), with Williams Natural Gas Company ("Williams")
with respect tocertain properties located in the state of Kansas, commonly
referred to as the McLouth Storage Field, said properties fully described in
Exhibit "A" attached hereto and made apart hereof and hereinafter referred to
as the 'Location," which property excludes such property currently held by
production by KLM, and;
B. WHEREAS, KLM is currently negotiating with Williams to modify the
terms of the Williams Agreement with Williams to provide for drilling on a
well by well basis (the "Amendment"), and OS&C will be a ratifying party to
the Amendment; and
C. WHEREAS, KLM and GS&C have entered into an Agreement in Principal
dated September 22, 1993, wherein GS&C will cause to be performed drilling for
the purpose of producing oil from the Location.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements of the parties hereto which are set forth herein KLM and GS&C
agree as follows:
1. Interests of the Parties in Oil and Gas. If any party owns an oil and
gas interest in the Location, the owner thereof shall be deemed to own both
the royalty interest and the interest of the lessee. In connection with the
drilling of wells pursuant to this Agreement KIM agrees that on the spud-in
date for each well, KLM will convey or assign to GS&C all leases to be secured
by such drilling. KLM and GS&C agree that if any time during this Agreement,
KLM desires to sell any or all of its interest in the Location, or working
interest, GS&C shall have a 1st right of refusal to match any said offer
within thirty (30) days. In any event, GS&C shall reserve the right to 5,000
acres within the Location.
2. Interests of Parties in Costs of Production. Unless otherwise provided
in the Williams Agreement, the Amendment, and this Agreement, all costs and
liabilities incurred in operations under this Agreement shall be borne and
paid, and all equipment and materials acquired in operations of the Location
shall be owned, by the parties as their interests are set forth below:
Interest Holder Type of Interest Interest
--------------- ---------------- --------
Williams Natural Gas Company Overriding Royalty 1/16 of 8/8
Existing Lease Holder Overriding Royalty 1/8 of 8/8
Landman Overriding Royalty 1/100 of 8/8
KLM Working, carried to the tanks 25%
GS&C Working 75%
<PAGE> 2
In the same manner, the parties shall also own production of oil from the
Location subject to the payment of royalties as set forth herein.
3. Excess Royalties, Overriding Royalties, and Other Payments. Unless
otherwise provided in the Williams Agreement the Amendment and this Agreement,
if the interest of any party in any lease covered hereby is subject to any
royalty, over-riding royalty, production payment or other burden on production
in excess of the amount stipulated in paragraph 2 above, such party so
burdened shall assume and alone bear all such excess obligations and shall
indemnify and hold the other parties hereto harmless from any and all claims
and demands for payment asserted by owners of such excess burden.
4. Subsequently Created Interests. If any party should after the date of
this Agreement create an overriding royalty, production payment or other
burden payable out of production attributable to its working interest
hereunder (any such interest being hereinafter referred to as "subsequently
created interest' and the party out of whose working interest the subsequently
created interest is derived being hereinafter referred to as the "burdened
party") and if the burdened party is required under this Agreement to assign
or relinquish to any other party, or parties, all or a portion of its working
interest and/or the production attributable thereto, said other party, or
parties, shall receive said assignment and/or production free and clear of
said subsequently created interest and the burdened party shall indemnify and
save said other parties harmless from any and all claims and demands for
payment asserted by owners of the subsequently created interest; and
5. Designation and Responsibility of Operation and Driller. KLM shall be
the Operator of the wells drilled on the Location and shall conduct and direct
and have full control of all operations of the wells drilled on the Location
as permitted and required by and within the limits of this Agreement, the
Williams Agreement, and the Amendment, and KLM shall conduct all such
operations in good and workmanlike manner, but it shall have no liability as
Operator to the other parties for losses sustained or liabilities incurred,
except as may result from gross negligence or willful misconduct.
6. Consideration to Operator. GS&C agrees to pay to KLM for supervising
the day-to-day operations of the wells to be drilled on the Location, $1,000
per well over and above the invoice costs incurred from all contractors in
connection with the drilling and completion of each well. In addition, GS&C
will pay to KLM monthly, a fee of $100 for the first well completed and $75
for each additional well completed on the Location until such well is plugged
and abandoned.
7. Operating Bond and Permits. KLM agrees to be responsible for obtaining
all operating bonds and permits as may be specified in the Williams Agreement
and the Amendment, including obtaining all regulatory permits and licenses as
may be required to permit the drilling specified pursuant to this Agreement.
Further, KLM, will at its sole cost maintain insurance coverage in those
amounts set forth in the Williams Agreement and the Amendment.
8. Drilling and Development. GS&C shall prepare and submit a drilling
proposal to KLM, and on approval of the parties of the well locations, GS&C
shall commence drilling (8) wells prior to December 31, 1993. GS&C shall cause
to be commenced drilling on the Location prior to Nov. 10, 1993.
PAGE
<PAGE> 3
9. Other Drilling and Development. KLM shall give GS&C a first right of
refusal to perform all drilling on the Location, except drilling performed by
KLM, on property within the Location currently defined as property held by
production. Should KLM receive a proposal from a third parties to drill on
the location, KLM will provide GS&C with a copy of the third party's drilling
proposal and give GS&C up to 30 days to match such drilling proposal. If OS&C
fails to submit a drilling proposal to KLM within 30 days from receipt from
KLM of a copy of the third party's drilling proposal, GS&C will forfeit its
right to drill on the acreage in the Location covered by the proposal, unless
KLM does not proceed with the drilling proposal with the third party.
10. Access to Location and Information. KLM, GS&C, and William shall have
access to the Location at all reasonable times to inspect or observe
operations, and shall have access at reasonable times to information
pertaining to the development or operation thereto. Operator, upon request,
shall furnish each of the other parties with copies of all forms or reports
filed with governmental agencies, day drilling reports, well logs, tank
tables, daily gauge and run tickets and reports of stock on hand at the first
of each month, and shall make available samples of any cores or cuttings taken
from any well drilled on the Location.
11. Abandonment of Wells. Except as may be otherwise provided in the
Williams Agreement or the Amendment, any well drilled pursuant to this
Agreement that is proposed to be completed as a dry hole shall not be plugged
and abandoned without the consent of all parties. All such wells shall be
plugged and abandoned in accordance with applicable regulations. GS&C shall
be responsible for complying with all plugging requirements, including
obtaining a plugging bond, as may be required by the state of Kansas or
Williams.
12. Liabilities and Expenditures. The liabilities of the parties shall be
several, not joint or collective. Each party shall be responsible only for
its obligations and shall be liable only for its proportionate share of the
costs of developing and operating the wells on the Location. Except as
otherwise provided herein, GS&C shall promptly pay and discharge expenses
incurred in the development and operation of the wells drilled on the
Location. GS&C shall be responsible for all out-of-pocket expenses incurred
by KLM in connection with operation of the wells drilled on the Location,
including pre-approved extraordinary expenses. GS&C shall be responsible for
any additional costs borne by KLM of which GSC has had a material part and has
caused KLM expenses above normal operating costs. Such costs shall be
allocated in proportion to KLMs and GSC&C responsibilities. GS&C shall be
responsible for new lease acquisition costs covered under the Agreement
acreage. KLM shall be responsible for its proportionate share of all
operating expenses incurred after the tanks, which amount shall be withheld
from any payments due KLM under this Agreement as a result of their 25%
working interest through the tanks.
13. Purchaser and Payment of Production Income. GS&C will have sole right
to determine to whom it will sell and whom shall be entitled to purchase the
production from the wells drilled on the location. Such purchaser shall be
provided with a division order stipulating the owners of interest in the
production and for calculation of royalties, including the designation of
which costs and taxes shall be deducted from the royalty amount.PAGE
<PAGE> 4
14. Indemnification Against Claims by Third Parties. KLM agrees to
indemnify GS&C against any claim by a third party for any commission,
brokerage, or finder's fee or other payment with respect to this Agreement or
the transactions contemplated hereby based on any alleged agreement or
understanding between such parties and such third party, whether express or
implied, from the actions of such parties.
15. Force Majeure. If any party is rendered unable, wholly or in part, by
force majeure to carry out its obligations under this Agreement, other than
the obligation to make money payments, that party shall give to all other
parties prompt written notice of the force majeure with reasonably full
particulars concerning it; thereupon, the obligations of the party giving
notice, so far as they are affected by the force majeure, shall be suspended
during, but no longer than, the continuance of the force majeure. The
affected party shall use all reasonable diligence to remove the force majeure
situation as quickly as practicable. The term 'force majeure' as herein
employed shall mean an act of God, strike, lockout, or other industrial
disturbance, act of the public enemy, war, blockade, public riot, lightning,
fire, storm, flood, explosion, governmental action, governmental delay,
restraint or inaction, unavailability of equipment, and any other cause,
whether of the kind specifically enumerated above or otherwise, which is not
reasonably within the control of the party claiming suspension.
16. Term of the Agreement. This Agreement shall remain in full force and
effect to the leases and interest subject hereto so long as any of the leases
subject to this Agreement remain or are continued in force as to any part of
the Location, whether by production, extension, renewal or otherwise.
17. Laws, Regulations, and Orders. This Agreement shall be subject to the
conservation laws of the state in which the Location is located, to the valid
rules, regulations, and order of any duly constituted regulatory body of the
same state, and to all other applicable federal state, and local laws,
ordinances, rules, regulations, and orders.
18. Third-Party Consent. The parties recognize that the consent of
Williams is required in order to affect the covenants and terms of this
Agreement, which consent is indicated within the signatories set forth below.
19. Governing Law. This Agreement shall be governed by and construed
under and in accordance with the of the state of Kansas.
20. Execution in Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and an of which taken
together shall be but a single instrument.
21. Attorneys' Fees. If either party to this action defaults on any of the
provisions contained herein, the defaulting party agrees to pay all costs of
enforcing this Agreement, including attorneys' fees, costs, and expenses.
22. No Waiver. In the event that any party institutes any action or
permitted other action to enforce this Agreement or to secure relief from any
default hereunder or breach hereof the breaching party or parties shall
reimburse the non-breaching party or parties for all costs, including
reasonable attorneys' fees, incurred in connection therewith and in enforcing
or collecting any arbitration award or arbitration judgment rendered therein.
PAGE
<PAGE> 5
IN WITNESS WHEREOF, the parties to this Agreement have executed the same
the day and year first above written.
G.S.C, INC.
By: /S/ T. Kent Rainey
Its Duly Authorized Officer
KLM EXPLORATION, INC.
By: /S/ Kenneth L. Mason
President
By: /S/ Kenneth L. Mason
Individually
Williams Natural Gas Company, hereby acknowledges receipt of this
Agreement and hereby consents and agrees with said Agreement and the terms and
conditions above set forth this Nov. 17, 1993.
WILLIAMS NATURAL GAS COMPANY
By: /S/ Ron Mercer
Its Vice President
<PAGE> 1
Exhibit 11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into effective
this lst day of October, 1996, by and between Upland Energy Corporation, a
Utah corporation (the "Employer"), and Felix Ascanio (the "Executive").
Recitals
A. Executive is currently employed as president of the Employer.
B. Employer wants to extend the previous employment contract with
Executive and to alter some of the terms of compensation.
C. Executive has agreed to the extension of the employment contract
and to alter some of the terms of the prior employment agreement in accordance
with this Agreement.
Agreement
FOR AND IN CONSIDERATION of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Employment. Employer hereby employs Executive to perform those duties
generally described in this Agreement, and Executive hereby accepts and agrees
to such employment on the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence effective as of
September 1, 1996, and end on August 31, 1998.
3. Duties. During the term of this Agreement, Executive shall be employed
by Employer as its President, with the duties generally set forth in Exhibit
A. In addition to the office of President, Executive agrees to serve in such
other office or position with Employer or any subsidiary of Employer and such
as shall, from time to time, be determined by Employer's board of directors.
Executive agrees to continue to serve as a member of the Employer's board of
directors for no additional compensation. Executive shall devote
substantially all of his working time and efforts to the business of
Employer. The term "Working Time" shall be defined as a normal forty hour
work week.
4. Compensation. For all services rendered by Executive, Employer shall
pay to Executive a salary of $60,000 a year throughout the term of this
Agreement, payable in bimonthly installments of $2,500 each. All salary
payments shall be subject to withholding and other applicable taxes. The rate
of salary may be increased at any time as the board of directors may
determine, based on earnings, increased activities of the Employer, or such
other factors as the board of directors may deem appropriate. Executive shall
receive bonus compensation as and if declared by the board of directors. In
addition to any <bonus compensation provided by the board of directors,
Executive shall receive bonus compensation of $1.50 per barrel of oil on any
amounts shipped over 2,000 barrels in any given month. Gas produced and sold
will be computed as barrels of oil equivalent according to the American
Petroleum Institute rules. Barrels of oil shipped and the 2,000 minimum shall
be based on Employer's or a subsidiary of Employer's working interest.
Accordingly, for purpose of illustration and not limitation, if employer
shipped 5,000 gross barrels of oil a month and had a 75% working interest in
the field the barrels were produced in, the number of barrels of oil deemed to
have been shipped would be 2,250, calculated as follows: [(5,000 - 2,000) x
0.75]. Accordingly, the bonus amount would be $3,375, calculated as follows:
2,250 x $1.50 = $3,375. All bonuses based on barrels of oil shipped will be
paid by the 5th day of the following month after receiving the oil purchaser's
final statement.
<PAGE> 2
5. Stock Options. In addition to the above compensation, Executive shall
be entitled to receive stock options in Employer pursuant to any written stock
option plan at the discretion of the board of directors. In addition to any
stock options awarded under a stock option plan, Executive shall be entitled
to receive stock options as set forth in the Stock Option Agreement to be
entered into by Employer and Executive that is in a form similar to that in
Exhibit "B" attached hereto and made a part hereof by this reference.
6. Other Benefits. The Employer shall provide Executive with the following
additional benefits:
(a) Expenses. The Employer will reimburse Executive for expenses
incurred in connection with Employer's business, including expenses for
travel, lodging, meals, beverages, entertainment, and other items on
Executive's periodic presentation of an account of such expenses. Unless
Employer has provided a company vehicle for Executive's use, Employer shall
reimburse Executive for business use of his personal vehicle at the rate of
$0.30 per mile. The rate of $0.30 shall be increased from time to time in the
same amount as the mileage reimbursement rate allowed by the Internal Revenue
Service is increased from time to time. Executive may use any company
provided vehicle for personal use, so long as such use is kept to a minimum.
(b) Medical Insurance. Major medical insurance, which shall insure
Executive and his wife and minor children, if any, with a policy selected by
Employer and approved by Executive that is similar to the Hanover Insurance
policy that Executive currently has in force.
(c) Term Life Insurance. Employer shall provide Executive with a
group term life insurance policy with a face amount of $50,000, issued through
an insurance company that has an A.M. Best rating of A+ or better.
(d) Paid Vacation. Employer shall provide Executive two weeks paid
vacation per year, which if not fully used in any one year may be accrued from
year to year.
(e) Sick Leave. Employer shall provide Executive with a maximum of
two weeks paid sick leave each year. No unused sick leave may be accrued from
year to year.
7. Termination for Cause. Employer may terminate this Agreement during
its term with cause ("Cause") by showing that Executive has materially
breached its terms; that Executive, in the determination of the board, has
substantially failed to meet written standards established by Employer and
agreed to by Executive for the performance of his duties; or that he has
engaged in material willful misconduct in the performance of his duties
hereunder.
8. Termination Upon Transfer of Business. Notwithstanding any provision of
this Agreement to the contrary, Executive may terminate this Agreement upon
the happening of any of the following events: (a) the sale by Employer of
substantially all of its assets to a single purchaser or to a group of
associated purchasers; (b) the sale, exchange, or other disposition to a
single entity or group of entities under common control in one transaction or
series of related transactions of greater than 50% of the outstanding shares
of Employer's common stock; (c) the decision by Employer to terminate its
business and liquidate its assets; or (d) the merger or consolidation of
Employer in a transaction in which the shareholders of the Employer
immediately prior to such merger or consolidation receive less than 50% of the
outstanding voting shares of the new or continuing corporation.
<PAGE> 3
In the event Executive elects to terminate this Agreement as set forth in this
Section 8, Employer shall immediately pay to Executive the severance payment
of Sixty Thousand Dollars ($60,000) set forth in Section 9 of this Agreement.
In the event Executive does not elect to terminate this Agreement upon the
happening of any of the events noted above, and as a result of such event,
Employer is not the surviving entity, the provisions of this Agreement shall
inure to the benefit of and be binding upon the surviving or resulting
entity. If as a result of the merger, consolidation, transfer of assets, or
other event listed above, the duties of Executive are increased, then the
compensation of Executive provided for in paragraph 4 of this Agreement shall
be reasonably adjusted upward for the additional duties and responsibilities
assumed.
9. Termination Payments. If Executive's employment is terminated by the
Employer for reasons other than Cause as defined in paragraph 7 of this
Agreement, Employer agrees to pay Executive a severance payment equal to
Sixty-Thousand Dollars ($60,000). Such severance payment shall be paid
immediately following the termination of Executive's employment.
10. Other Business Activity. Employer and Executive each hereby
acknowledge that before the time of his employment, Executive had identified
certain oil and gas investment opportunities, some of which have not been
offered to Employer. Employer hereby agrees that Executive may take advantage
of any such opportunities not previously offered to Employer, without first
offering such opportunities to Employer, so long as such opportunities do not
interfere with his duties or activities and do not occur during normal Working
Time as defined above. In addition, Executive may from time to time in the
future identify and investigate other possible investment opportunities that
Executive may take advantage of, so long as such opportunities are first
offered to the Employer, and do not interfere with his duties and such
activity does not occur during normal Working Time as defined above.
11. Nontransferability. Neither Executive, Executive's spouse, Executive's
designated contingent beneficiary, nor their estates shall have any right to
anticipate, encumber, or dispose of any payment due under this Agreement.
Such payments and other rights are expressly declared nonassignable and
nontransferable except as specifically provided herein.
12. Indemnification. Employer shall indemnify Executive and hold Executive
harmless from liability for acts or decisions made by Executive while
performing services for Employer to the greatest extent permitted by
applicable law. Employer shall use its best efforts to obtain coverage for
Executive under any insurance policy now in force or hereafter obtained during
the term of this Agreement insuring officers and directors of Employer against
such liability.
13. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other party.
14. Entire Agreement. This Agreement is and shall be considers the only
agreement or understanding between the parties hereto with respect to the
employment of Executive by Employer. All negotiations, commitments, and
understandings acceptable to both parties have been incorporated herein. No
letter, telegram, or communication passing between the parties hereto covering
any matter during this contract period, or any plans or period thereafter,
shall be deemed a part of this Agreement; nor shall it have the effect of
modifying or adding to this Agreement unless it is distinctly stated in such
letter, telegram, or communication that is to constitute a part of this
Agreement and is attached as an amendment to this Agreement and is signed by
the parties to this Agreement.
<PAGE> 4
15. Enforcement. Each of the parties to this Agreement shall be entitled
to any remedies available in equity or by statute with respect to the breach
of the terms of this Agreement by the other party.
16. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the state of Utah.
17. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
18. Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to
exercise any right or remedy consequent upon a breach hereof shall constitute
a waiver of any such breach or of any covenant, agreement, term, or condition.
19. Litigation Expenses. In the event that it shall be necessary or
desirable to for the Executive to retain legal counsel and/or incur other
costs and expenses in connection with the enforcement of any and all of
Executive's rights under this Agreement, Executive shall be entitled to
recover from the Employer reasonable attorneys' fees, costs, and expenses
incurred by Executive in connection with the enforcement of said rights.
AGREED AND ENTERED INTO as of the date first above written.
EMPLOYER:
UPLAND ENERGY CORPORATION, a Utah corporation
By: /S/ John W. Hobbs
Duly Authorized Officer
Date: 11/6/96
By: /S/ Lee Jackson, Director
Date: 11/6/96
By: /S/ Ervin Brown, Director
EXECUTIVE:
By: /S/ Felix Ascanio
Date: 11/6/96
PAGE
<PAGE> 5
EXHIBIT A
DUTIES
Duties to be performed by Mr. Ascanio will include, but not be limited to
the following:
1 . Develop and maintain overall vision of the company, and oversee optimum
development of production, reservoir management and enhancement of the
Company's assets. Identify and implement strategies for reaching corporate
goals.
2. Direct staffing, training and performance evaluations with respect to
Company personnel.
3. Manage and plan the development of the Company's existing oil and gas
fields through the application of state of the art enhanced oil recovery
technology and transfer models. Direct and coordinate activities concerned
with research and development of concepts, ideas, specifications and
applications for the Company's development techniques.
4. Identify new oil and gas prospects.
5. Any other duties mutually agreed to by Mr. Ascanio and the Company's
Board of Directors.
PAGE
<PAGE> 6
EXHIBIT B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into effective
this 1st day of September, 1996, by and between Upland Energy Corporation, a
Utah corporation (the "Employer"), and Felix Ascanio (the "Executive").
1. Award of Option. Executive shall be granted an option to purchase
120,000 shares of the common stock, par value $0.001 (the "Initial Shares")
and 155,000 shares of the common stock, par value $0.001 (the "Restricted
Shares") of Employer for $0.20 per share. The options granted by Employer
will be exercisable at any time during the period beginning with the date
these options are granted, and ending four years from the date of this
Agreement; provided, however, these options shall automatically expire if not
exercised within such period. Executive shall have the right to exercise the
option either to acquire Initial Shares or the Restricted Shares at any time,
but if the option to acquired Initial Shares is exercised, all of such shares
shall be purchased by Executive at the same time.
2. No Risk of Forfeiture. No option, or the shares acquired thereby, shall
be subject to risk of forfeiture after the date of the issuance of the option.
3. Shares Restricted. Except as otherwise provided in Section 4, Executive
acknowledges that the Restricted Shares to be issued upon exercise of the
option to purchase such shares will constitute restricted securities that have
not been registered under applicable federal or state securities laws and
which must be held for investment. Executive agrees to sign the usual and
customary investment representation letter on the exercise of the option to
purchase Restricted Shares.
4. Registration Rights. Subject to the provisions of Paragraph (b) hereof,
if Employer files a registration statement to register any of its shares for
sale to the public, Employer agrees to register any shares of common stock
already issued to Executive as a result of Executive's exercise of his option
as follows:
(a) To pay all expenses of such registration statement, including,
without limitation, printing charges, legal fees, and disbursements of counsel
for Employer, blue sky expenses, accounting fees, and filing fees, but not
including Executive's personal legal fees.
(b) With respect to any shares that are subject to Executive's
option, but which Executive has not yet exercised the option to purchase, if
in its sole discretion, determines to file a registration state statements to
register any of its shares for sale to the put registration statements on form
S-8, which are specifically covered in paragraph (g) hereof, Employer will
notify Executive at least 30 days prior to the filing of such registration
statement and will, upon the written exercise by Executive of his option to
purchase shares delivered at least 15 days prior to such filing, include in
any such registration statement such information as may be required to
register such number of shares as Executive elects to purchase pursuant to the
exercise of his option.PAGE
<PAGE> 7
(c) Executive and Employer shall each include customary
representations, warranties, indemnifications, and contribution provisions in
any underwriting agreement entered into in connection with registration.
Employer shall also take all steps reasonably necessary to permit the exercise
of the option and the issuance of the shares under the applicable state
securities laws of those states in which the option was issued by Employer.
Employer will take such reasonable steps which it determines, in its sole
discretion, are necessary to permit the exercise of the option and the
issuance of the shares under the laws of any other state in which Executive
then resides on the written request to do so by such Executive, but in no
event shall Employer be required to take such steps in any state other than
those states in which the option was originally qualified or registered, and
Employer shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction. In the event that Employer determines to
proceed with the qualification of the exercise of the option and the issuance
of the shares under the securities laws of a particular state, then the
exercise of such option shall not be effective and the shares shall not be
issued until such qualification becomes effective. When qualification under
applicable state securities laws is required, Employer shall take such action
within ten days following the date on which Employer first files the
registration statement. The costs of obtaining such state qualification shall
be borne by Employer.
(d) Employer shall promptly notify the Executive of the effective
date of any registration statement filed by Employer and the date on which the
shares become qualified or registered under the state securities laws of any
state in which Employer obtains qualification or registration with respect to
such shares.
(e) Notwithstanding any provisions to the contrary contained herein,
Employer shall not be required to include any of the shares in any
registration statement or post-effective amendment with respect to shares
offered in any underwriting unless the Executive agrees to offer such shares,
on the same terms and conditions as Employer's shares of common stock are
being offered, and to sign an underwriting agreement in the form to be sign by
the other offerors; or
(f) Executive desiring to sell shares pursuant to the registration
rights granted herein shall provide Employer with all information relating to
such sale and on which Employer shall be entitled to rely and to include such
information in any such registration statement. Executive shall indemnify and
save harmless Employer (and all other person who may be subject to liability
under the Act or otherwise) from and against any and all claims, actions,
suits, liabilities, losses, damages, and expenses of every nature and
character (including, but not by way of limitation, all reasonable attorneys'
fees and all amounts paid in settlement of any claim, action, or suit) which
arise or result directly or indirectly from any untrue statement of a material
fact furnished by such Executive in connection with such registration or
qualification, or from the failure of the Executive to furnish material
information in connection with the facts required to be included in such
registration statement, notification, or post-effective amendment necessary to
make the statements therein not misleading, or from any sales or offers of the
shares to be registered after ninety (90) days from the effective date of such
registration statement or notification.
PAGE
<PAGE> 8
(g) All sales pursuant to any such registration statement shall be
made in accordance with the provisions of the Securities Act and the
Securities Exchange Act of 1934, as amended, and Employer shall not be
required to include any shares in any registration until it has received
written assurances satisfactory in form and substance to Employer from the
Executive that such sales shall be so conducted. On notice to Executive that
such registration statement or prospectus relating thereto requires revision,
Executive will immediately cease to make offers or sales pursuant to such
registration statement, return all such registration statement and
prospectuses to Employer, and not resume offers until the investors have been
provided with an updated prospectus by Employer. All registration rights
granted herein apply only to shares issued on exercise of the option.
Employer is under no obligation to maintain the effectiveness of any
registration statement for more than an aggregate of 90 days.
(h) If Employer files a registration statement on form S-8 to
register shares of common stock issuable to officers, directors and employees
of Employer, Executive shall be permitted to have all shares that have been
issued or that are issuable on the exercise of the options included in such
registration statement.
5. Sales of Securities Under Rule 144, If Applicable.
(a) Employer will use its best efforts to at all times satisfy the
current public information requirements of rule 144 promulgated under the
Securities Act so that Executive can sell restricted securities that have been
held for two years or more or such other restricted period as required by rule
144 as it is from time to time amended.
(b) Upon being informed in writing by Executive that he intends to
sell any shares under rule 144 promulgated under the Securities Act (including
any rule adopted in substitution or replacement thereof), Employer will
certify in writing to Executive that Employer is in compliance with rule 144
current public information requirements to enable Executive to sell his
restricted stock under rule 144, as may be applicable under the circumstances.
(e) If any certificate representing any such restricted stock is
presented to Employer's transfer agent for registration or transfer in
connection with any sales heretofore made under rule 144, provided such
certificate is duly endorsed for transfer by the appropriate person(s) or
accompanied by a separate stock power duly executed by the appropriate
person(s) in each case with reasonable assurances that such endorsements are
genuine and effective, and is accompanied by an opinion of counsel
satisfactory to Employer and its counsel that such transfer has complied with
the requirements of rule 144, as the case may be, Employer will promptly
instruct its transfer agent to register such transfer and to issue one or more
new certificates representing such shares to the transferee and, if
appropriate under the provisions of rule 144, as the case may be, free of any
stop transfer order or restrictive legend.
6. Method of Exercise. The Option to purchase the Initial Shares or the
shares may be exercised, in accordance with all of the terms and conditions
set forth in this Option by delivery of a written notice of exercise by
Executive setting forth the number of Options to be exercised along with
either:
(a) A certified check or bank check payable to the order of Employer
in the amount of the full exercise price of the shares being purchased;
<PAGE> 9
(b) A promissory note, in form satisfactory to Employer executed by
Executive and evidencing the obligation of Executive to pay the exercise price
to Employer in three equal annual installments payable on the first
anniversary of the date of such exercise of the Option, together with interest
at a rate, as of the date of exercise, equivalent to that published in the
Wall Street Journal as the prime rate, which is the base rate on corporate
loans at large U.S. money center commercial banks;
(c) Initial Shares of Employer already owned by Executive equal to
the exercise price with the shares valued at its fair market value based on
the closing bid quotation for such stock on the close of business on the day
last preceding the date of exercise of such Option, as reported or quoted on
the NASDA System or, if not included in the NASDA System, shall mean the
closing bid quotation for such stock as determined by Employer through any
other reliable means of determination available on the close of business on
the day last preceding the date of such Option;
(d) Options or other rights to purchase shares valued at the amount
by which the closing bid quotations as determined in accordance with clause
(c) above of the shares subject to the options or other rights exceeds the
exercise or purchase price provided on such options or rights; or
(e) Cancellation of debt owed by Employer to Executive including debt
from professional fees, services, employment relationships or otherwise, upon
presentation of an invoice for services provided to Employer.
As soon as practicable after receipt by Employer of such notice a certificate
or certificates representing such Initial Shares or shares shall be issued in
the name of Executive, or, if Executive shall so request in the notice
exercising the Option, in the name of Executive and another person jointly,
with right of survivorship, and shall be delivered to Executive.
7. Treatment as Non-Statutory Stock Options and Put Option. Employer and
Executive hereby acknowledge that the stock options to be issued pursuant to
this Agreement shall be treated as non-qualified stock options for federal tax
purposes. Thus, upon the exercise, Executive will be treated as receiving
compensation income based on the difference between the fair market value of
the stock, and the option price. Employer shall withhold such amounts from
Executive's pay as are legally required, or Executive shall remit to Employer
amounts sufficient to pay for any withholding obligations of the Employer.
Employer agrees to pay the cost of any appraisal necessary to establish the
fair market value of the Employer's shares and/or the amount of any blockage
discount to be applied to the Initial Shares, if any. The Executive and
Employer shall mutually agree on the selection of an appraiser, but if they
cannot agree, the appraiser shall be selected by the Executive. In addition,
Executive shall have the right to sell to the Employer, or a person designated
by Employer, and the Employer or such person must purchase sufficient number
of shares to pay the tax liability incurred by Executive upon the exercise of
either the option to purchase the Initial Shares or the shares, calculated
based on the Executive's marginal federal and state income tax rate; provided,
however, Executive agrees to attempt to sell sufficient Initial Shares in the
open market to pay such liability, so long as such sales do not have a
material adverse effect on the market price of Employer's shares. This put
option shall be exercised based on the same fair market value for the shares
as determined by the appraiser, and shall exercised in the same manner and at
the same time as the Executive's option to purchase shares is exercised.
<PAGE> 10
8. Governing Law. This Agreement shall be governed by Utah law. If
required by Utah law, Employer agrees to obtain the ratification of this
Agreement, and the options granted pursuant to this Agreement, by the
shareholders of the Corporation at the next regularly scheduled annual meeting
of the shareholders. The Employer shall comply with all federal securities
laws concerning the proper manner of notification and proxy material to be
provided to shareholders to obtain such proper ratification.
AGREED AND ENTERED INTO as of the date first above written.
EMPLOYER:
UPLAND ENERGY CORPORATION, a Utah corporation
By: /S/ John W. Hobbs
Duly Authorized Officer
Date: 11/6/96
By: /S/ Lee Jackson, Director
Date: 11/6/96
By: /S/ Ervin Brown, Director
Date: 11/6/96
EXECUTIVE:
By: /S/ Felix Ascanio
Date: 11/6/96
<PAGE> 1
Exhibit No. 12
REVISED EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into effective
this 1st day of November, 1996, by and between Upland Energy Corporation, a
Utah corporation (the "Employer"), and John W. "Jack" Hobbs (the "Executive").
Premises
A) Employer previously employed Executive as secretary/treasurer of the
Employer.
B) Employer wants to extend the previous employment contract and to change
some of the terms of compensation.
C) Executive has agreed to the extension of the employment contract and to
the change of some of the terms of the prior employment agreement.
Agreement
FOR AND IN CONSIDERATION of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Employment. Employer hereby employs Executive to perform those
duties generally described in this Agreement, and Executive hereby accepts and
agrees to such employment on the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence on September 1,
1996, and end on August 31, 1998.
3. Duties. During the term of this Agreement, Executive shall be
employed by Employer as its secretary/treasure. In addition to the office of
secretary/treasure, Executive agrees to serve in such other office or position
with Employer or any subsidiary of Employer and such as shall, from time to
time, be determined by Employer's board of directors. Executive agrees to
continue to serve as a member of the Employer's board of directors for no
additional compensation.
4. Compensation. For all services rendered by Executive, Employer
shall pay to Executive a salary of $36,000 per year throughout the term of
this Agreement, payable in two equal monthly installments. All salary
payments shall be subject to withholding and other applicable taxes. The rate
of salary may be increased at any time as the board of directors may
determine, based on earnings, increased activities of the Employer, or such
other factors as the board of directors may deem appropriate. Executive shall
receive bonus compensation as declared by the president of the Company.
5. Stock Options. In addition to the above compensation,
Executive shall be entitled to receive stock options in Employer pursuant to
any written stock option plan at the discretion of the board of directors.
6. Expenses. Employer will reimburse Executive for expenses incurred
in connection with Employer's business, including expenses for travel,
lodging, meals, beverages, entertainment, and other items on Executive's
periodic presentation of an account of such expenses. Employer shall
reimburse Executive for business use of his personal vehicle.
7. Working Facilities. Employer shall provide to Executive offices
and facilities appropriate to Executive's position and suitable for the
performance of Executive's duties as set forth in this Agreement.
<PAGE> 2
8. Termination for Cause. Employer may not terminate this Agreement
during its term without cause ("Cause") by showing that Executive has
materially breached its terms; that Executive, in the determination of the
board, has been grossly negligent in the performance of his duties; that he
has substantially failed to meet written standards established by Employer for
the performance of his duties; or that he has engaged in material willful or
gross misconduct in the performance of his duties hereunder.
9. Termination Upon Transfer of Business. Notwithstanding any
provision of this Agreement to the contrary, Executive may terminate this
Agreement upon the happening of any of the following events: (a) the sale by
Employer of substantially all of its assets to a single purchaser or to a
group of associated purchasers; (b) the sale, exchange, or other disposition
to a single entity or group of entities under common control in one
transaction or series of related transactions of greater than 50% of the
outstanding shares of Employer's common stock; (c) the decision by Employer
to terminate its business and liquidate its assets; or (d) the merger or
consolidation of Employer in a transaction in which the shareholders of the
Employer immediately prior to such merger or consolidation receive less than
50% of the outstanding voting shares of the new or continuing corporation. In
the event Executive does not elect to terminate this Agreement upon the
happening of any of the events noted above, and as a result of such event,
Employer is not the surviving entity, then the provisions of this Agreement
shall inure to the benefit of and be binding upon the surviving or resulting
entity. If as a result of the merger, consolidation, transfer of assets, or
other event listed above, the duties of Executive are increased, then the
compensation of Executive provided for in paragraph 4 of this Agreement shall
be reasonably adjusted upward for the additional duties and responsibilities
assumed.
10. Termination Payments. In the event the Executive's employment is
terminated by the Employer during the term hereof for reasons other than Cause
as defined in paragraph 7 of this Agreement, his salary, as provided in
paragraph 4 of this Agreement shall continue through the term hereof.
11. Death During Employment. If Executive dies during the term of
this Agreement, Employer shall pay to the estate of Executive in six equal
monthly installments commencing on the first day of the month immediately
following the month in which Executive dies, an amount equal to one year's
salary provided for in paragraph 4 of this Agreement.
12. Illness or Incapacity. If Executive is unable to perform
Executive's services by reason of illness or incapacity for a period of more
than six consecutive months, the compensation thereafter payable to Executive
during the second consecutive six-month period shall be 50% of the
compensation provided for herein. During such period of illness or incapacity,
Executive shall be entitled to receive incentive compensation if any.
Notwithstanding the foregoing, if such illness or incapacity does not cease to
exist within a 12 consecutive month period, Executive shall not be entitled to
receive any further compensation nor any payments for such illness or
incapacity, and Employer may terminate this Agreement without further
liability to Executive. Any existing options to purchase Employer's common
stock held by Executive at the time of termination shall be governed by the
terms of the option and not affected by this provision. At the termination of
such illness or incapacity, Executive shall be entitled to receive Executive's
full compensation payable pursuant to the terms of this Agreement.
13. Nontransferability. Neither Executive, Executive's spouse,
Executive's designated contingent beneficiary, nor their estates shall have
any right to anticipate, encumber, or dispose of any payment due under this
Agreement. Such payments and other rights are expressly declared
nonassignable and nontransferable except as specifically provided herein.
<PAGE> 3
14. Indemnification. Employer shall indemnify Executive and hold
Executive harmless from liability for acts or decisions made by Executive
while performing services for Employer to the greatest extent permitted by
applicable law. Employer shall use its best efforts to obtain coverage for
Executive under any insurance policy now in force or hereafter obtained during
the term of this Agreement insuring officers and directors of Employer against
such liability.
15. Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party.
16. Entire Agreement. This Agreement is and shall be considered to
be the only agreement or understanding between the parties hereto with respect
to the employment of Executive by Employer. All negotiations, commitments,
and understandings acceptable to both parties have been incorporated herein.
No letter, telegram, or communication passing between the parties hereto
covering any matter during this contract period, or any plans or periods
thereafter, shall be deemed a part of this Agreement; nor shall it have the
effect of modifying or adding to this Agreement unless it is distinctly stated
in such letter, telegram, or communication that is to constitute a part of
this Agreement and is attached as an amendment to this Agreement and is signed
by the parties to this Agreement.
17. Enforcement. Each of the parties to this Agreement shall be
entitled to any remedies available in equity or by statute with respect to the
breach of the terms of this Agreement by the other party.
18. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the state of Utah.
19. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
20. Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement, or condition of this Agreement
or to exercise any right or remedy consequent upon a breach hereof shall
constitute a waiver of any such breach or of any covenant, agreement, term, or
condition.
21. Litigation Expenses. In the event that it shall be necessary or
desirable for the Executive to retain legal counsel and/or incur other costs
and expenses in connection with the enforcement of any and all of Executive's
rights under this Agreement, Executive shall be entitled to recover from the
Employer reasonable attorneys' fees, costs, and expenses incurred by Executive
in connection with the enforcement of said rights if Executive should prevail
in such action. Payment shall be made upon the conclusion of such action.
AGREED AND ENTERED INTO as of the date first above written.
EMPLOYER: Upland Energy Corporation
By /S/
Duly Authorized Officer
EXECUTIVE:
By: /S/ John W. "Jack" Hobbs
<PAGE> 1
Exhibit No. 13
NONQUALIFIED STOCK OPTION
THIS NONQUALIFIED STOCK OPTION (this "Option") is granted this 1st day of
November, 1996, by UPLAND ENERGY CORPORATION, a Utah corporation (the
"Company"), pursuant to a resolution of the board of directors of the Company,
under the terms of the 1996 Stock Option Plan of the Company (the "Stock
Option Plan") to John W. "Jack" Hobbs ("Optionee").
Grant
1. Grant of Option. The Company hereby irrevocably grants to Optionee the
right and option to purchase all or any part of an aggregate of one hundred
fifty thousand (150,000) shares of the Company's common stock, par value
$0.001 per share (the "Common Stock") on the terms and conditions hereinafter
set forth and subject to the conditions and limitations of the Stock Option
Plan
2. Exercise Price. The exercise price of this Option shall be twenty
cents ($0.20) per share for fifty thousand (50,000) Options and seventy cents
($0.70) per share, the approximate market price for the Common Stock on the
date of grant, for one hundred thousand (100,000) Options.
3. Term of Option. Subject to the other provisions contained herein, this
Option may be exercised, in whole or in part, at any time prior to 12:00
midnight five years from the date of this Option.
4. Shareholder's Rights. The Optionee shall have the rights of a
shareholder only with respect to Common Stock fully paid for by Optionee under
this Option.
5. Persons Entitled to Exercise. During the Optionee's lifetime, this
Option can only be exercised by the Optionee, and neither this Option nor any
right hereunder can be transferred other than by testamentary disposition or
the laws of descent and distribution. Neither this Option nor any right
hereunder shall be subject to lien, attachment, execution, or similar
process. In the event of any alienation, assignment, pledge, hypothecation,
or other transfer of this Option or any right hereunder or in the event of any
levy, attachment, execution, or similar process, this Option and all rights
granted hereunder shall be immediately null and void.
6. Adjustment to Number of Shares of Common Stock. The number of shares
of Common Stock subject to this Option shall be adjusted to take into account
any stock split, stock dividend, or recapitalization of the Common Stock of
the Company as provided in the Stock Option Plan.
7. Method of Exercise. This Option may be exercised, in accordance with
all of the terms and conditions set forth in this Option and the Stock Option
Plan, by delivery of a notice of exercise, a form of which is attached hereto
as Exhibit "A" and incorporated herein by this reference, setting forth the
number of Options to be exercised along with either:
(a) A certified check or bank check payable to the order of the
Company in the amount of the full exercise price of the Common Stock being
purchased;
(b) A promissory note, in form satisfactory to the Company, executed
by the Optionee and evidencing the obligation of the Optionee to pay the
exercise price to the Company in equal annual installments payable on the
first anniversary of the date of such exercise of the Option, together with
interest at a rate, as of the date of exercise, equivalent to that published
in the Wall Street Journal as the prime rate, which is the base rate on
corporate loans at large U.S. money center commercial banks;
<PAGE> 2
(c) Shares of Common Stock of the Company already owned by the
Optionee equal to the exercise price with the Common Stock valued at its fair
market value based on the closing bid quotation for such stock on the close of
business on the day last preceding the date of exercise of such Option, as
reported or quoted on the NASDAQ System or, if not included in the NASDAQ
System, shall mean the closing bid quotation for such stock as determined by
the Company through any other reliable means of determination available on the
close of business on the day last preceding the date of such Option;
(d) Options or other rights to purchase Common Stock valued at the
amount by which the closing bid quotations as determined in accordance with
Clause (c) above of the Common Stock subject to the options or other rights
exceeds the exercise or purchase price provided on such options or rights; or
(e) Cancellation of debt owed by the Company to the Option Holder,
including debt from professional fees, services, employment relationships or
otherwise, upon presentation of an invoice for services provided to the
Company.
As soon as practicable after receipt by the Company of such notice a
certificate or certificates representing such shares of Common Stock shall be
issued in the name of the Optionee, or, if the Optionee shall so request in
the notice exercising the Option, in the name of the Optionee and another
person jointly, with right of survivorship, and shall be delivered to the
Optionee. If this Option is not exercised with respect to all Common Stock
subject hereto, Optionee shall be entitled to receive a similar Option of like
tenor covering the number of shares of Common Stock with respect to which this
Option shall not have been exercised.
8. Availability of Shares. During the term of this Option, the Company
shall at all times keep available for issuance the number of shares of Common
Stock subject to this Option.
9. Limitations on Right to Exercise. If the board of directors of the
Company, in its sole discretion, shall determine that it is necessary or
desirable to list, register, or qualify the Common Stock under any state or
federal law, this Option may not be exercised, in whole or part, until such
listing, registration, or qualification shall have been obtained free of any
conditions not acceptable to the board.
10. Restrictions on Transfer. The Option and the Common Stock subject to
the Option (collectively referred to as the "Securities") are subject to
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and any applicable state securities statutes. Optionee acknowledges
that unless a registration statement with respect to the Securities is filed
and declared effective by the Securities and Exchange Commission and the
appropriate state governing agency, the Securities have or will be issued in
reliance on specific exemptions from such registration requirements for
transactions by an issuer not involving a public offering and specific
exemptions under state statutes. Any disposition of the Securities may, under
certain circumstances, be inconsistent with such exemptions. The Securities
may be offered for sale, sold, or otherwise transferred only if (i) registered
under the Securities Act, and in come cases, under the applicable state
securities acts, or, if not registered, (ii) only if pursuant to an exemption
from such registration requirements and only after the Optionee provides an
opinion of counsel or other evidence satisfactory to the Company to the effect
that registration is not required. In some states, specific conditions must
be met or approval of the securities regulatory authorities may be required
before any such offer or sale. If rule 144 is available (and no assurance is
given that it will be), only routine sales of the Common Stock in limited
<PAGE> 3
amounts can be made after two years following the acquisition date of the
Securities, as determined under rule 144(d), in accordance with the terms and
conditions of rule 144. The Company is under no obligation to make rule 144
available. In the event rule 144 is not available, compliance with regulation
A or some other disclosure exemption may be required before the Optionee can
sell, transfer, or otherwise dispose of the Securities without registration.
The Company and its registrar and transfer agent will maintain a stop transfer
order against the transfer of the Securities, and any certificate representing
the Securities will bear a legend in substantially the following form so
restricting the sale or other transfer thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
If the Securities are not registered, the Company may refuse to transfer the
Securities to any transferee who does not furnish in writing to the Company
the same representations and warranties set forth in this paragraph and agree
to the same conditions with respect to such Securities as are set forth
herein. The Company may further refuse to transfer the Securities if certain
circumstances are present reasonably indicating that the proposed transferee's
representations are not accurate. In any event, in the absence of an
effective registration statement covering the Securities, the Company may
refuse to consent to any transfer in the absence of an opinion of legal
counsel, satisfactory to and independent of counsel of the Company, that such
proposed transfer is consistent with the above conditions and applicable
securities laws.
11. Record Owner. The Company may deem the Optionee as the absolute
owner of this Option for all purposes. This Option is exercisable only by the
Optionee or, by the Optionee's duly designated or appointed representative.
This Option is not assignable.
12. Validity and Construction. The validity and construction of this
Option shall be governed by the laws of the state of Utah.
EXECUTED as of the date first above written.
The Company: Optionee:
UPLAND ENERGY CORPORATION
By /S/ Duly Authorized Officer By: /S/ John W. "Jack" Hobbs
<PAGE>Exhibit A
Form of Exercise
(to be signed only upon exercise of Option)
TO: UPLAND ENERGY CORPORATION
The undersigned, the owner of the attached Option, hereby irrevocably
elects to exercise the purchase rights represented by the Option for, and to
purchase thereunder, _____ shares of Common Stock of Upland Energy
Corporation. Enclosed is payment in the amount of $_____, the exercise price
of the Common Stock to be acquired. Please have the certificate(s) registered
in the name of ______________ and delivered to ____________________. If this
exercise does not include all of the Common Stock covered by the attached
Option, please deliver a new option of like tenor for the balance of the
Common Stock to the undersigned at the foregoing address.
DATED this ____ day of ______________, 19__.
___________________________________________
Signature of Optionee
<PAGE> 1
Exhibit No. 14
UPLAND ENERGY CORPORATION
1996 Non-Qualified Stock Option Plan
Upland Energy Corporation, a Utah corporation (the "Company"), hereby
adopts this 1996 Non-Qualified Stock Option Plan (the "Plan"), this 10th day
of July, 1996, under which options to acquire stock of the Company may be
granted from time to time to employees and consultants of the Company or its
subsidiaries. In addition, at the discretion of the board of directors,
options to acquire stock of the Company may from time to time be granted under
this Plan to other individuals who contribute to the success of the Company or
its subsidiaries and are not employees of the Company, all on the terms and
conditions set forth herein.
1. Purpose of the Plan. The Plan is intended to aid the Company in
maintaining and developing a management team, attracting qualified officers
and employees capable of assisting in the future success of the Company, and
rewarding those individuals who have contributed to the success of the
Company. It is designed to aid the Company in retaining the services of
executives and employees and in attracting new personnel when needed for
future operations and growth and to provide such personnel with an incentive
to remain employees of the Company, to use their best efforts to promote the
success of the Company's business, and to provide them with an opportunity to
obtain or increase a proprietary interest in the Company. It is also designed
to permit the Company to reward those individuals who are not employees of the
Company but who are perceived by management as having contributed to the
success of the Company or who are important to the continued business and
operations of the Company. The above aims will be effectuated through the
granting of options ("Options") to purchase shares of common stock of the
Company, par value $0.001 per share (the "Stock"), subject to the terms and
conditions of this Plan.
2. Effective Date. The Plan shall become effective immediately on
adoption by the board of directors of the Company (the "Board").
3. Administration of the Plan. Administration of the Plan shall be
determined by the Board. Subject to compliance with applicable provisions of
the governing law, the Board may delegate administration of the Plan or
specific administrative duties with respect to the Plan, on such terms and to
such committees of the Board as it deems proper. Any Option approved by the
Board shall be approved by a majority vote of those members of the Board in
attendance at a meeting at which a quorum is present. Any Option approved by
a committee designated by the Board shall be approved as specified by the
Board at the time of delegation. The interpretation and construction of the
terms of the Plan by the Board or a duly authorized committee shall be final
and binding on all participants in the Plan absent a showing of demonstrable
error. No member of the Board or duly authorized committee shall be liable
for any action taken or determination made in good faith with respect to the
Plan.
4. Shares of Stock Subject to the Plan. A total of five hundred
thousand (500,000) shares of Stock may be subject to, or issued pursuant to,
Options granted under the terms of this Plan. Any shares subject to an Option
under the Plan, which Option for any reason expires or is forfeited,
terminated, or surrendered unexercised as to such shares, shall be added back
to the total number of shares reserved for issuance under the terms of this
Plan, and if any right to acquire Stock granted under the Plan is exercised by
the delivery of shares of Stock or the relinquishment of rights to shares of
Stock, only the net shares of Stock issued (the shares of Stock issued less
the shares of Stock surrendered) shall count against the total number of
shares reserved for issuance under the terms of this Plan.
<PAGE> 2
5. Reservation of Stock on Granting of Option. At the time of
granting any Option under the terms of this Plan, there will be reserved for
issuance on the exercise of the Option the number of shares of Stock of the
Company subject to such Option. The Company may reserve either authorized but
unissued shares or issued shares that have been reacquired by the Company.
6. Eligibility. Options under the Plan may be granted to employees,
including officers, and directors of the Company or its subsidiaries, as may
be existing from time to time, and to other individuals who are not employees
of the Company, but performed bona fide services to the Company, as may be
deemed in the best interest of the Company by the Board or a duly authorized
committee. Such Options shall be in the amounts, and shall have the rights
and be subject to the restrictions, as may be determined by the Board or a
duly authorized committee, all as may be within the general provisions of this
Plan.
7. Term of Options and Certain Limitations on Right to Exercise.
(a) Each Option shall have the term established by the Board or duly
authorized committee at the time the Option is granted but in no event may an
Option have a term in excess of five (5) years.
(b) The term of the Option, once it is granted, may be reduced only
as provided for in this Plan and under the written provisions of the Option.
(c) Unless otherwise specifically provided by the written provisions
of the Option, no holder or his or her legal representative, legatee, or
distributee will be, or shall be deemed to be, a holder of any shares subject
to an Option unless and until the holder exercises his or her right to acquire
all or a portion of the Stock subject to the Option and delivers the required
consideration to the Company in accordance with the terms of this Plan and
then only to the extent of the number of shares of Stock acquired. Except as
specifically provided in this Plan or as otherwise specifically provided by
the written provisions of the Option, no adjustment to the exercise price or
the number of shares of Stock subject to the Option shall be made for
dividends or other rights for which the record date is prior to the date the
Stock subject to the Option is acquired by the holder.
(d) Options under the Plan shall vest and become exercisable at such
time or times and on such terms as the Board or a duly authorized committee
may determine at the time of the grant of the Option.
(e) Options granted under the Plan shall contain such other
provisions, including, without limitation, further restrictions on the vesting
and exercise of the Option, as the Board or a duly authorized committee shall
deem advisable.
(f) In no event may an Option be exercised after the expiration of
its term.
8. Exercise Price. The exercise price of each Option issued under
the Plan shall be determined by the Board or a duly authorized committee on
the date of grant.
9. Payment of Exercise Price. The exercise of any Option shall be
contingent on receipt by the Company of cash, certified bank check to its
order, or other consideration acceptable to the Company; provided, that at the
discretion of the Board or a duly authorized committee, the written provisions
<<PAGE> 3
of the Option may provide that payment can be made in whole or in part in
shares of Stock of the Company, which Stock shall be valued at its then fair
market value as determined by the Board or a duly authorized committee, or by
the surrender or cancellation of other rights to Stock of the Company. Any
consideration approved by the Board or a duly authorized committee, that calls
for the payment of the exercise price over a period of more than one year
shall provide for interest, which shall not be included as part of the
exercise price, that is equal to or exceeds the imputed interest provided for
in section 483 of the Code or any amendment or successor section of like
tenor.
10. Withholding. If the grant or exercise of an Option pursuant to
this Plan is subject to withholding or other trust fund payment requirements
of the Code or applicable state or local laws, such requirements may, at the
discretion of the Board or a duly authorized committee and to the extent
permitted by the terms of the Option and the then governing provisions of the
Code and the Exchange Act, be met (i) by the holder of the Option either
delivering shares of Stock or canceling Options or other rights to acquire
Stock with a fair market value equal to such requirements; (ii) by the Company
withholding shares of Stock subject to the Option with a fair market value
equal to such requirements; or (iii) by the Company making such withholding or
other trust fund payment and the Option holder reimbursing the Company such
amount paid within 10 days after written demand therefor from the Company.
11. Dilution or Other Adjustment. In the event that the number of
shares of Stock of the Company from time to time issued and outstanding is
increased pursuant to a stock split or a stock dividend, the number of shares
of Stock then covered by each outstanding Option granted hereunder shall be
increased proportionately, with no increase in the total purchase price of the
shares then so covered, and the number of shares of Stock subject to the Plan
shall be increased by the same proportion. In the event that the number of
shares of Stock of the Company from time to time issued and outstanding is
reduced by a combination or consolidation of shares, the number of shares of
Stock then covered by each outstanding Option granted hereunder shall be
reduced proportionately, with no reduction in the total purchase price of the
shares then so covered, and the number of shares of Stock subject to the Plan
shall be reduced by the same proportion. In the event that the Company should
transfer assets to another corporation and distribute the stock of such other
corporation without the surrender of Stock of the Company, and if such
distribution is not taxable as a dividend and no gain or loss is recognized by
reason of section 355 of the Code or any amendment or successor statute of
like tenor, then the total purchase price of the Stock then covered by each
outstanding Option shall be reduced by an amount that bears the same ratio to
the total purchase price then in effect as the market value of the stock
distributed in respect of a share of the Stock of the Company, immediately
following the distribution, bears to the aggregate of the market value at such
time of a share of the Stock of the Company plus the stock distributed in
respect thereof. In the event that the Company distributes the stock of a
subsidiary to its shareholders, makes a distribution of a major portion of its
assets, or otherwise distributes significant portion of the value of its
issued and outstanding Stock to its shareholders, the number of shares then
subject to each outstanding Option and the Plan, or the exercise price of each
outstanding Option, may be adjusted in the reasonable discretion of the Board
or a duly authorized committee. All such adjustments shall be made by the
Board or duly authorized committee, whose determination upon the same, absent
demonstrable error, shall be final and binding on all participants under the
Plan. No fractional shares shall be issued, and any fractional shares
resulting from the computations pursuant to this section shall be eliminated
<PAGE> 4
from the respective Option. No adjustment shall be made for cash dividends,
for the issuance of additional shares of Stock for consideration approved by
the Board, or for the issuance to stockholders of rights to subscribe for
additional Stock or other securities.
12. Options to Foreign Nationals. The Board or a duly authorized
committee may, in order to fulfill the purposes of this Plan and without
amending the Plan, grant Options to foreign nationals or individuals residing
in foreign countries that contain provisions, restrictions, and limitations
different from those set forth in this Plan and the Options made to United
States residents in order to recognize differences among the countries in law,
tax policy, and custom. Such grants shall be made in an attempt to provide
such individuals with essentially the same benefits as contemplated by a grant
to United States residents under the terms of this Plan.
13. Assignment. No Option granted under this Plan shall be
transferable other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined in the Code.
Except as permitted by the foregoing, each Option granted under the Plan and
the rights and privileges thereby conferred shall not be transferred,
assigned, pledged, or hypothecated in any way (whether by operation of law or
otherwise), and shall not be subject to execution, attachment, or similar
process. On any attempt to transfer, assign, pledge, hypothecate, or
otherwise dispose of the Option, or of any right or privilege conferred
thereby, contrary to the provisions thereof, or on the levy of any attachment
or similar process on such rights and privileges, the Option and such rights
and privileges shall immediately become null and void.
14. Effect of Termination of Employment. In the event that any
holder is terminated or resigns from his or her position with the Company or a
subsidiary within six months of the grant of an award, any unexercised portion
of such Option shall immediately become null and void and such holder shall
have no further rights thereunder. In the event that any officer or employee
of the Company or a subsidiary is terminated at any time for, in the determinati
on of the Board or a duly authorized committee, gross negligence in the
performance of his or her duties, substantial failure to meet written
standards established by the Company for the performance of his or her duties,
criminal misconduct, or willful or gross misconduct in the performance of his
or her duties, the Board or a duly authorized committee may cancel any and all
rights such individual may have in the unexercised portion of any Option held
at the time of termination. The Board or a duly authorized committee may, at
the time of the grant of the Option, establish any other restrictions on the
exercise of such Option subsequent to the termination or resignation of any
individual that it deems appropriate. The foregoing paragraph shall not apply
to consultants who are issued options.
15. Listing and Registration of Shares. Each Option shall be subject
to the requirement that if at any time the Board shall determine, in its sole
discretion, that it is necessary or desirable to list, register, or qualify
the shares covered thereby on any securities exchange or under any state or
federal law, or obtain the consent or approval of any governmental agency or
regulatory body as a condition of, or in connection with, the granting of such
Option or the issuance or purchase of shares thereunder, such Option may not
be exercised in whole or in part unless and until such listing, registration,
consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Board.
<PAGE> 5
16. Expiration and Termination of the Plan. The Plan may be
abandoned or terminated at any time by the Board or a duly authorized
committee except with respect to any Options then outstanding under the Plan.
The Plan shall otherwise terminate on the earlier of the date that is: (i)
ten years after the date the Plan is adopted by the Board; or (ii) ten years
after the date the Plan is approved by the shareholders of the Company.
17. Form of Options. Options granted under the Plan shall be
represented by a written agreement which shall be executed by the Company and
the holder and which shall contain such terms and conditions as may be
determined by the Board or a duly authorized committee and permitted under the
terms of this Plan.
18. No Right of Employment. Nothing contained in this Plan or any
Option awarded pursuant to this Plan shall be construed as conferring on a
director, officer, or employee any right to continue or remain as a director,
officer, or employee of the Company or its subsidiaries.
19. Amendment of the Plan. This Plan may not be amended more than
once during any six month period, other than to comport with changes in the
Code or the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder. Subject to the foregoing and the
limitations, the Board or a duly authorized committee may modify and amend the
Plan in any respect.
20. Exclusion from Plan. Options granted during 1996 to Felix
Ascanio, exclusive of any options granted to all directors of the Company, are
not covered under the Plan.
Upland Energy Corporation
By:/S/ Felix Ascanio
ATTEST:
The undersigned hereby attests to this Upland Energy Corporation 1996
Non-Qualified Stock Option Plan.
Upland Energy Corporation
By: /S/ John W. Hobbs, Secretary
PAGE
<PAGE> 6
UPLAND ENERGY COPRORATION
Amendment No. 1
to the
1996 Non-Qualified Stock Option Plan
Upland Energy Corporation, a Utah corporation (the "Company"), hereby
adopts the following Amendment No. 1 (the "Amendment") to its 1996
Non-Qualified Stock Option Plan (the "Plan"), this 15th day of December, 1996,
under which options to acquire stock of the Company may be granted from time
to time to employees and consultants of the Company or its subsidiaries. In
addition, at the discretion of the board of directors, options to acquire
stock of the Company may from time to time be granted under this Plan to other
individuals who contribute to the success of the Company or its subsidiaries
and are not employees of the Company, all on the terms and conditions set
forth herein.
1) Amendment. Pursuant to the terms of the Plan, the Company's board
of directors has approved and the Company hereby amends paragraph 4 of the
Plan to increase the shares of the Company's common stock, par value $0.001
per share (the "Common Stock") subject to the Plan from five hundred thousand
(500,000) shares to six hundred and fifty thousand (650,000) shares of Common
Stock with a corresponding number of shares to be reserved for issuance under
the Plan.
2) Ratification. Except as expressly amended hereby, the terms of
the Plan are hereby ratified and approved.
Dated the year and date first above written.
Upland Energy Corporation,
a Utah corporation
By:/S/ John W. Hobbs, Secretary
<PAGE> 1
Exhibit No. 15
FORM OF DIRECTORS
NON-QUALIFIED STOCK OPTION
THIS NONQUALIFIED STOCK OPTION (this "Option") is granted this 1st day of
November, 1996, by UPLAND ENERGY CORPORATION, a Utah corporation (the
"Company"), pursuant to a resolution of the board of directors of the Company,
under the terms of the 1996 Stock Option Plan of the Company (the "Stock
Option Plan") to _________________ ("Optionee").
Grant
1. Grant of Option. The Company hereby irrevocably grants to
Optionee the right and option to purchase all or any part of an aggregate of
____________________ (_____________) shares of the Company's common stock, par
value $0.001 per share (the "Common Stock") on the terms and conditions
hereinafter set forth and subject to the conditions and limitations of the
Stock Option Plan
2. Exercise Price. The exercise price of this Option shall be two
dollars ($2.00) per share.
3. Term of Option. Subject to the other provisions contained herein,
this Option may be exercised, in whole or in part, at any time prior to 12:00
midnight five years from the date of this Option.
4. Shareholder's Rights. The Optionee shall have the rights of a
shareholder only with respect to Common Stock fully paid for by Optionee under
this Option.
5. Persons Entitled to Exercise. During the Optionee's lifetime,
this Option can only be exercised by the Optionee, and neither this Option nor
any right hereunder can be transferred other than by testamentary disposition
or the laws of descent and distribution. Neither this Option nor any right
hereunder shall be subject to lien, attachment, execution, or similar
process. In the event of any alienation, assignment, pledge, hypothecation,
or other transfer of this Option or any right hereunder or in the event of any
levy, attachment, execution, or similar process, this Option and all rights
granted hereunder shall be immediately null and void.
6. Adjustment to Number of Shares of Common Stock. The number of
shares of Common Stock subject to this Option shall be adjusted to take into
account any stock split, stock dividend, or recapitalization of the Common
Stock of the Company as provided in the Stock Option Plan.
7. Method of Exercise. This Option may be exercised, in accordance
with all of the terms and conditions set forth in this Option and the Stock
Option Plan, by delivery of a notice of exercise, a form of which is attached
hereto as Exhibit "A" and incorporated herein by this reference, setting forth
the number of Options to be exercised along with either:
(a) A certified check or bank check payable to the order of the
Company in the amount of the full exercise price of the Common Stock being
purchased;
(b) A promissory note, in form satisfactory to the Company, executed
by the Optionee and evidencing the obligation of the Optionee to pay the
exercise price to the Company in equal annual installments payable on the
first anniversary of the date of such exercise of the Option, together with
interest at a rate, as of the date of exercise, equivalent to that published
in the Wall Street Journal as the prime rate, which is the base rate on
corporate loans at large U.S. money center commercial banks;
<PAGE> 2
(c) Shares of Common Stock of the Company already owned by the
Optionee equal to the exercise price with the Common Stock valued at its fair
market value based on the closing bid quotation for such stock on the close of
business on the day last preceding the date of exercise of such Option, as
reported or quoted on the NASDAQ System or, if not included in the NASDAQ
System, shall mean the closing bid quotation for such stock as determined by
the Company through any other reliable means of determination available on the
close of business on the day last preceding the date of such Option;
(d) Options or other rights to purchase Common Stock valued at the
amount by which the closing bid quotations as determined in accordance with
Clause (c) above of the Common Stock subject to the options or other rights
exceeds the exercise or purchase price provided on such options or rights; or
(e) Cancellation of debt owed by the Company to the Option Holder,
including debt from professional fees, services, employment relationships or
otherwise, upon presentation of an invoice for services provided to the
Company.
As soon as practicable after receipt by the Company of such notice a
certificate or certificates representing such shares of Common Stock shall be
issued in the name of the Optionee, or, if the Optionee shall so request in
the notice exercising the Option, in the name of the Optionee and another
person jointly, with right of survivorship, and shall be delivered to the
Optionee. If this Option is not exercised with respect to all Common Stock
subject hereto, Optionee shall be entitled to receive a similar Option of like
tenor covering the number of shares of Common Stock with respect to which this
Option shall not have been exercised.
8. Availability of Shares. During the term of this Option, the
Company shall at all times keep available for issuance the number of shares of
Common Stock subject to this Option.
9. Limitations on Right to Exercise. If the board of directors of
the Company, in its sole discretion, shall determine that it is necessary or
desirable to list, register, or qualify the Common Stock under any state or
federal law, this Option may not be exercised, in whole or part, until such
listing, registration, or qualification shall have been obtained free of any
conditions not acceptable to the board.
10. Restrictions on Transfer. The Option and the Common Stock
subject to the Option (collectively referred to as the "Securities") are
subject to registration under the Securities Act of 1933, as amended (the
"Securities Act"), and any applicable state securities statutes. Optionee
acknowledges that unless a registration statement with respect to the
Securities is filed and declared effective by the Securities and Exchange
Commission and the appropriate state governing agency, the Securities have or
will be issued in reliance on specific exemptions from such registration
requirements for transactions by an issuer not involving a public offering and
specific exemptions under state statutes. Any disposition of the Securities
may, under certain circumstances, be inconsistent with such exemptions. The
Securities may be offered for sale, sold, or otherwise transferred only if (i)
registered under the Securities Act, and in come cases, under the applicable
state securities acts, or, if not registered, (ii) only if pursuant to an
exemption from such registration requirements and only after the Optionee
provides an opinion of counsel or other evidence satisfactory to the Company
to the effect that registration is not required. In some states, specific
conditions must be met or approval of the securities regulatory authorities
may be required before any such offer or sale. If rule 144 is available (and
no assurance is given that it will be), only routine sales of the
<PAGE> 3
Common Stock in limited amounts can be made after two years following the
acquisition date of the Securities, as determined under rule 144(d), in
accordance with the terms and conditions of rule 144. The Company is under no
obligation to make rule 144 available. In the event rule 144 is not
available, compliance with regulation A or some other disclosure exemption may
be required before the Optionee can sell, transfer, or otherwise dispose of
the Securities without registration. The Company and its registrar and
transfer agent will maintain a stop transfer order against the transfer of the
Securities, and any certificate representing the Securities will bear a legend
in substantially the following form so restricting the sale or other transfer
thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
If the Securities are not registered, the Company may refuse to transfer
the Securities to any transferee who does not furnish in writing to the
Company the same representations and warranties set forth in this paragraph
and agree to the same conditions with respect to such Securities as are set
forth herein. The Company may further refuse to transfer the Securities if
certain circumstances are present reasonably indicating that the proposed
transferee's representations are not accurate. In any event, in the absence
of an effective registration statement covering the Securities, the Company
may refuse to consent to any transfer in the absence of an opinion of legal
counsel, satisfactory to and independent of counsel of the Company, that such
proposed transfer is consistent with the above conditions and applicable
securities laws.
11. Record Owner. The Company may deem the Optionee as the
absolute owner of this Option for all purposes. This Option is exercisable
only by the Optionee or, by the Optionee's duly designated or appointed
representative. This Option is not assignable.
12. Validity and Construction. The validity and construction of this
Option shall be governed by the laws of the state of Utah.
EXECUTED as of the date first above written.
The Company: Optionee:
UPLAND ENERGY CORPORATION
By_____________________________ _____________________________
Duly Authorized Officer
PAGE
<PAGE> 4
Exhibit A
Form of Exercise
(to be signed only upon exercise of Option)
TO: UPLAND ENERGY CORPORATION
The undersigned, the owner of the attached Option, hereby irrevocably
elects to exercise the purchase rights represented by the Option for, and to
purchase thereunder, _____ shares of Common Stock of Upland Energy
Corporation. Enclosed is payment in the amount of $_____, the exercise price
of the Common Stock to be acquired. Please have the certificate(s) registered
in the name of ______________ and delivered to ____________________. If this
exercise does not include all of the Common Stock covered by the attached
Option, please deliver a new option of like tenor for the balance of the
Common Stock to the undersigned at the foregoing address.
DATED this ____ day of ______________, 19__.
____________________________________
Signature of Optionee
<PAGE> 1
Exhibit No. 16
$55,000.00(U.S.) Dated: January 17, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, Felix Ascanio ("Maker"), promises to pay to Upland
Energy Corporation, a Utah corporation ("Holder"), or order, fifty five
thousand dollars ($55,000.00).
1. Payments. The principal on the obligation represented hereby
shall be repaid in full on or before January 17, 2001, through the payment of
three equal annual installments of principal and interest. All payments shall
first be made to interest and then to a reduction of principal.
2. Interest. The obligation shall bear simple interest at the
rate of eight and one half percent (8½%) per annum, with the entire
unpaid interest payable on or before January 17, 2001.
3. Type and place of Payments. Payment of principal and interest
shall be made in lawful money of the United States of America to the above
named holder at its offices in Salt Lake City, Utah, or order.
4. Prepayment. Advance payment or payments may be made on the
principal and interest, without penalty or forfeiture. There shall be no
penalty for any prepayment.
5. Default. Upon the occurrence or during the continuance of
any one or more of the events hereinafter enumerated, Holder or the holder of
this Note may forthwith or at any time thereafter during the continuance of
any such event, by notice in writing to the Maker, declare the unpaid balance
of the principal and interest on the Note to be immediately due and payable,
and the principal and interest shall become and shall be immediately due and
payable without presentation, demand, protest, notice of protest, or other
notice of dishonor, all of which are hereby expressly waived by Maker, such
events being as follows:
(a) Default in the payment of the principal and interest of this Note
or any portion thereof when the same shall become due and payable, whether at
maturity as herein expressed, by acceleration, or otherwise, unless cured
within five (5) days after notice thereof by Holder or the holder of such Note
to Maker;
(b) Maker shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, or shall file an answer admitting
the jurisdiction of the court and any material allegations of an involuntary
petition filed pursuant to any act of Congress relating to bankruptcy or to
any act purporting to be amendatory thereof, or shall be adjudicated bankrupt,
or shall make an assignment for the benefit of creditors, or shall apply for
or consent to the appointment of any receiver or trustee for Maker, or of all
or any substantial portion of its property, or Maker shall make an assignment
to any agent authorized to liquidate any substantial part of its assets; or
(c) An order shall be entered pursuant to any act of Congress
relating to bankruptcy or to any act purporting to be amendatory thereof
approving an involuntary petition seeking reorganization of the Maker, or an
order of any court shall be entered appointing any receiver or trustee of or
for Maker, or any receiver or trustee of all or any substantial portion of the
property of Maker, or a writ or warrant of attachment or any similar process
shall be
<PAGE> 2
issued by any court against all or any substantial portion of the property of
Maker, and such order approving a petition seeking reorganization or
appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment, or similar process is not released or bonded within 60
days after its entry or levy.
6. Attorneys' Fees. If this Note is placed with an attorney for
collection, or if suit be instituted for collection, herein, then in such
event, the undersigned agrees to pay reasonable attorneys' fees, costs, and
other expenses incurred by holder in so doing.
7. Construction. This Note shall be governed by and construed in
accordance with the laws of the state of Utah.
By: /S/ Felix Ascanio
PAGE
<PAGE> 3
$80,000.00(U.S.) Dated: January 17, 1997
PROMISSORY NOTE
FOR VALUE RECEIVED, John W. "Jack" Hobbs ("Maker"), promises to pay to
Upland Energy Corporation, a Utah corporation ("Holder"), or order, eighty
thousand dollars ($80,000.00).
1. Payments. The principal on the obligation represented hereby
shall be repaid in full on or before January 17, 2001, through the payment of
three equal annual installments of principal and interest. All payments shall
first be made to interest and then to a reduction of principal.
2. Interest. The obligation shall bear simple interest at the
rate of eight and one half percent (8½%) per annum, with the entire
unpaid interest payable on or before January 17, 2001.
3. Type and place of Payments. Payment of principal and interest
shall be made in lawful money of the United States of America to the above
named holder at its offices in Salt Lake City, Utah, or order.
4. Prepayment. Advance payment or payments may be made on the
principal and interest, without penalty or forfeiture. There shall be no
penalty for any prepayment.
5. Default. Upon the occurrence or during the continuance of
any one or more of the events hereinafter enumerated, Holder or the holder of
this Note may forthwith or at any time thereafter during the continuance of
any such event, by notice in writing to the Maker, declare the unpaid balance
of the principal and interest on the Note to be immediately due and payable,
and the principal and interest shall become and shall be immediately due and
payable without presentation, demand, protest, notice of protest, or other
notice of dishonor, all of which are hereby expressly waived by Maker, such
events being as follows:
(a) Default in the payment of the principal and interest of this Note
or any portion thereof when the same shall become due and payable, whether at
maturity as herein expressed, by acceleration, or otherwise, unless cured
within five (5) days after notice thereof by Holder or the holder of such Note
to Maker;
(b) Maker shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, or shall file an answer admitting
the jurisdiction of the court and any material allegations of an involuntary
petition filed pursuant to any act of Congress relating to bankruptcy or to
any act purporting to be amendatory thereof, or shall be adjudicated bankrupt,
or shall make an assignment for the benefit of creditors, or shall apply for
or consent to the appointment of any receiver or trustee for Maker, or of all
or any substantial portion of its property, or Maker shall make an assignment
to any agent authorized to liquidate any substantial part of its assets; or
(c) An order shall be entered pursuant to any act of Congress
relating to bankruptcy or to any act purporting to be amendatory thereof
approving an involuntary petition seeking reorganization of the Maker, or an
order of any court shall be entered appointing any receiver or trustee of or
for Maker, or any receiver or trustee of all or any substantial portion of the
property of Maker, or a writ or warrant of attachment or any similar process
shall be
<PAGE> 4
issued by any court against all or any substantial portion of the property of
Maker, and such order approving a petition seeking reorganization or
appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment, or similar process is not released or bonded within 60
days after its entry or levy.
6. Attorneys' Fees. If this Note is placed with an attorney for collec
tion, or if suit be instituted for collection, herein, then in such event, the
undersigned agrees to pay reasonable attorneys' fees, costs, and other
expenses incurred by holder in so doing.
7. Construction. This Note shall be governed by and construed in
accordance with the laws of the state of Utah.
/S/ John W. "Jack" Hobbs
<PAGE> 1
Exhibit No. 17
Schedule of Subsidiary of Registrant
Subsidiary
- ----------
G.S.&C., Inc., a Utah corporation
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[CASH] 105,472
[SECURITIES] 0
[RECEIVABLES] 8,745
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 218,732
[PP&E] 6,373
[DEPRECIATION] 2,485
[TOTAL-ASSETS] 978,754
[CURRENT-LIABILITIES] 14,536
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2,710
[OTHER-SE] 883,771
[TOTAL-LIABILITY-AND-EQUITY] 978,754
[SALES] 177,315
[TOTAL-REVENUES] 177,315
[CGS] 70,515
[TOTAL-COSTS] 70,515
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 394
[INCOME-PRETAX] (384,234)
[INCOME-TAX] 0
[INCOME-CONTINUING] (384,234)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (384,234)
[EPS-PRIMARY] (.16)
[EPS-DILUTED] 0
</TABLE>
