FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------------------------------------------
Commission file number 1-14344
PATINA OIL & GAS CORPORATION
Delaware 75-2629477
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1625 Broadway, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (303)389-3600
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
There were 19,866,012 Common Shares outstanding as of August 13, 1996, of
which 2,000,000 are designated as Series A Common Shares.
<PAGE>
PART I. FINANCIAL INFORMATION
Patina Oil & Gas Corporation (the "Company") was incorporated in January
1996 to hold the assets and operations of Snyder Oil Corporation ("SOCO") in the
Wattenberg Field and to facilitate the acquisition of Gerrity Oil & Gas
Corporation ("GOG"). Previously, SOCO's Wattenberg operations had been conducted
through SOCO or its wholly owned subsidiary, SOCO Wattenberg Corporation
("SWAT"). On May 2, 1996, SOCO contributed the balance of its Wattenberg assets
to SWAT and transferred all of the shares of SWAT to the Company. Immediately
thereafter, GOG merged into another wholly owned subsidiary of the Company ("the
Merger"). As a result of these transactions, SWAT and GOG became wholly owned
subsidiaries of the Company. The results of operations of the Company for
periods prior to the Merger reflected in these financial statements include only
the historical results of SOCO's Wattenberg operations.
The financial statements included herein have been prepared in conformity
with generally accepted accounting principles. The statements are unaudited but
reflect all adjustments which, in the opinion of management, are necessary to
fairly present the Company's financial position and results of operations.
2
<PAGE>
<TABLE>
<CAPTION>
PATINA OIL & GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, June 30,
1995 1996
-------------- --------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and equivalents $ 1,000 $ 13,213
Accounts receivable 6,611 18,907
Inventory and other 2,000 2,958
------------- -------------
9,611 35,078
------------- -------------
Oil and gas properties, successful efforts method 333,513 551,473
Accumulated depletion, depreciation and amortization (118,919) (136,861)
------------- -------------
214,594 414,612
------------- -------------
Gas facilities and other 4,775 5,922
Accumulated depreciation (4,459) (4,627)
------------- --------------
316 1,295
------------- -------------
Other assets, net - 4,490
------------- -------------
$ 224,521 $ 455,475
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,852 $ 15,065
Accrued liabilities 415 10,362
Payable to parent 5,344 4,329
------------ -----------
9,611 29,756
------------ -----------
Senior debt - 116,296
Senior subordinated notes - 104,617
Debt to parent 75,000 -
Other noncurrent liabilities 26,247 3,527
Preferred stock of subsidiary - 9,729
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par, 5,000,000 shares
authorized, -0- and 1,204,847 shares issued
and outstanding - 12
Common stock, $.01 par, 40,000,000 shares
authorized, 14,000,000 and 19,866,012 shares
issued and outstanding 140 199
Capital in excess of par value - 193,378
Investment by parent 113,523 -
Retained earnings (deficit) - (2,039)
------------ -----------
113,663 191,550
------------ ----------
$ 224,521 $ 455,475
============ ===========
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
---------------- -------------------
1995 1996 1995 1996
(Unaudited)
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales $ 12,887 $ 19,182 $ 27,148 $ 29,816
Other 3 274 29 294
-------- -------- -------- --------
12,890 19,456 27,177 30,110
-------- -------- -------- --------
Expenses
Direct operating 2,503 3,446 4,766 5,401
Exploration 41 81 139 149
General and administrative 1,323 1,570 3,542 3,113
Interest and other 1,351 3,732 2,769 4,979
Depletion, depreciation and amortization 8,331 11,756 16,951 18,723
-------- -------- -------- -------
Income (loss) before taxes (659) (1,129) (990) (2,255)
-------- -------- --------- -------
Provision (benefit) for income taxes
Current - - - -
Deferred (231) - (347) (394)
-------- -------- --------- --------
(231) - (347) (394)
-------- -------- --------- --------
Net income (loss) $ (428) $ (1,129) $ (643) $ (1,861)
======== ======== ======== ========
Net income (loss) per common share $ (.03) $ (.10) $ (.05) $ (.16)
======== ======== ======== ========
Weighted average shares outstanding 14,000 17,919 14,000 15,959
======== ======== ======== =======
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(In thousands)
Preferred Stock Common Stock Capital in Retained
------------------ --------------- Excess of Investment Earnings
Shares Amount Shares Amount Par Value By Parent (Deficit)
------ ----- ------ ----- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 - $ - 14,000 $ 140 $ - $ 115,706 $ -
Credit in lieu of taxes - - - - - 1,107 -
Change in investment by parent - - - - - (1,196) -
Net loss - - - - - (2,094) -
--------- --------- --------- ---------- --------- --------- ---------
Balance, December 31, 1995 - - 14,000 140 - 113,523 -
Credit in lieu of taxes - - - - - 171 -
Change in investment by parent - - - - - (7,514) -
Net loss through the Merger date - - - - - (532) -
Merger 1,205 12 6,000 60 194,291 (105,648) -
Issuance of common - - 1 - 9 - -
Repurchase of common - - (135) (1) (922) - -
Preferred dividends - - - - - - (710)
Net loss subsequent to the Merger
date - - - - - - (1,329)
--------- ---------- --------- --------- ---------- -------- ---------
Balance, June 30, 1996
(Unaudited) 1,205 $ 12 19,866 $ 199 $ 193,378 $ - $ (2,039)
======== ========== ========= ========= ========== ======== =========
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended June 30,
-------------------------
1995 1996
------ ----
(Unaudited)
<S> <C> <C>
Operating activities
Net loss $ (643) $ (1,861)
Adjustments to reconcile net loss to net
cash provided by operations
Exploration expense 139 149
Depletion, depreciation and amortization 16,951 18,723
Deferred taxes (347) (394)
Amortization of deferred credits (860) (646)
Changes in current and other assets and liabilities
Decrease in
Accounts receivable 1,605 1,384
Inventory and other -- 102
Increase (decrease) in
Accounts payable (11,647) (5,052)
Accrued liabilities 357 1,504
Other liabilities -- 1,059
--------- --------
Net cash provided by operations 5,555 14,968
-------- --------
Investing activities
Acquisition, development and exploration (18,613) (1,375)
Merger expenditures, net of cash acquired -- (1,040)
--------- --------
Net cash used by investing (18,613) (2,415)
--------- --------
Financing activities
Increase (decrease) in payable/debt to parent 4,331 (78,615)
Increase (decrease) in indebtedness (4,333) 96,108
Deferred credits 1,402 624
Change in investment by parent 11,658 (7,514)
Cost of common stock issuance -- (9,310)
Repurchase of common stock -- (923)
Preferred dividends -- (710)
-------- ---------
Net cash realized (used) by financing 13,058 (340)
-------- --------
Increase in cash -- 12,213
Cash and equivalents, beginning of period 1,000 1,000
-------- --------
Cash and equivalents, end of period $ 1,000 $ 13,213
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
6
<PAGE>
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF BUSINESS
Patina Oil & Gas Corporation (the "Company"), a Delaware corporation, was
incorporated in January 1996 to hold all of the assets of Snyder Oil Corporation
("SOCO") in the Wattenberg Field and to facilitate the acquisition of Gerrity
Oil & Gas Corporation ("GOG"). Previously, SOCO's Wattenberg operations had been
conducted through SOCO or its wholly owned subsidiary, SOCO Wattenberg
Corporation ("SWAT"). On May 2, 1996, SOCO contributed the balance of its
Wattenberg assets to SWAT and transferred all of the shares of SWAT to the
Company. Immediately thereafter, GOG merged into another wholly owned subsidiary
of the Company (the "Merger"). As a result of these transactions, SWAT and GOG
became wholly owned subsidiaries of the Company. The Company's operations
currently consist of the acquisition, development, production and exploration of
oil and gas properties in the Wattenberg Field.
SOCO owns approximately 70% of the common stock of the Company. In
conjunction with the Merger, the Company offered to exchange the Company's
preferred stock for GOG's preferred stock (the "Original Exchange Offer"). A
total of 1,204,847 shares were issued in exchange for approximately 75% of GOG's
preferred stock. Subsequent to quarter end, the Company announced that it
intended to amend GOG's certificate of incorporation to provide that all
remaining shares of GOG's preferred stock would be exchanged for the Company's
preferred stock based on the same terms as the Original Exchange Offer. The
expected dividend payments resulting from this exchange have been accrued at
June 30, 1996. Upon consummation of this second exchange, the Company expects to
have approximately 1.6 million preferred shares outstanding.
The above transactions were accounted for as a purchase of GOG. The amounts
and results of the Company for periods prior to the Merger reflected in these
financial statements include the historical amounts and results of SOCO's
Wattenberg operations. Certain amounts in the accompanying financial statements
have been allocated in a reasonable and consistent manner in order to depict the
historical financial position, results of operations and cash flows of the
Company on a stand-alone basis prior to the Merger.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Risks and Uncertainties
Historically, the market for oil and gas has experienced significant
price fluctuations. Prices for natural gas in the Rocky Mountain region have
traditionally been particularly volatile and have been depressed since 1994. In
large part, the decreased prices are the result of mild weather, increased
production in the region and limited transportation capacity to other regions of
the country. Increases or decreases in prices received could have a significant
impact on the Company's future results of operations.
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 assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Producing Activities
The Company utilizes the successful efforts method of accounting for its
oil and gas properties. Consequently, leasehold costs are capitalized when
incurred. Unproved properties are assessed periodically within specific
geographic areas and impairments in value are charged to expense. Exploratory
expenses, including geological and geophysical expenses and delay rentals, are
charged to expense as incurred. Exploratory drilling costs are initially
capitalized, but charged to expense if and when the well is determined to be
unsuccessful. Costs of productive wells, unsuccessful developmental wells and
productive leases are capitalized and amortized on a unit-of-production basis
over the life of
7
<PAGE>
the remaining proved or proved developed reserves, as applicable. Gas is
converted to equivalent barrels at the rate of 6 Mcf to 1 barrel. Amortization
of capitalized costs has generally been provided over the entire DJ Basin as the
wells are located in the same reservoir. The Company expects to review the
appropriateness of this policy in the second half of 1996. No accrual has been
provided for estimated future abandonment costs as management estimates that
salvage value will approximate such costs.
During the fourth quarter of 1995, the Company adopted Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 121 requires the Company to assess the need for an impairment of
capitalized costs of oil and gas properties on a field-by-field basis. During
the six months ended June 30, 1995 and 1996, the Company did not provide for any
impairments. Changes in the underlying assumptions or the amortization units
could, however, result in impairments in the future.
Other assets reflect the value assigned to a noncompete agreement entered
into as part of the Merger. The value is being amortized over five years at a
rate intended to approximate the decline in the value of the agreement.
Amortization expense for the two months ended June 30, 1996 was $640,000.
Scheduled amortization for the next five years is $1,924,000 for the remainder
of 1996, $1,540,000 in 1997, $513,000 in 1998, and $257,000 in each of 1999 and
2000.
Gas Imbalances
The Company uses the sales method to account for gas imbalances. Under
this method, revenue is recognized based on the cash received rather than the
Company's proportionate share of gas produced. Gas imbalances at December 31,
1995 and June 30, 1996 were insignificant.
Financial Instruments
The book value and estimated fair value of cash and equivalents was $1.0
million and $13.2 million at December 31, 1995 and June 30, 1996. The book value
approximates fair value due to the short maturity of these instruments. The book
value and estimated fair value of the Company's debt to parent and senior debt
combined was $75.0 million and $116.3 million at December 31, 1995 and June 30,
1996. The fair value is presented at face value given its floating rate
structure. The book value of the senior subordinated notes was $104.6 million at
June 30, 1996. The estimated fair value was $104.1 million at that date. The
fair value is estimated based on their price on the New York Stock Exchange.
Other
All liquid investments with an original maturity of three months or less
are considered to be cash equivalents.
All cash payments for income taxes were made by SOCO during the six
months ended June 30, 1995 and through May 2, 1996 at which point the Company
began paying its own taxes. The Company was charged interest by SOCO on its debt
to SOCO of $2.7 million and $1.6 million for the six months ended June 30, 1995
and 1996, which was reflected as an increase in debt to SOCO.
Certain amounts in prior periods consolidated financial statements have
been reclassified to conform with current classification.
In the opinion of management, those adjustments to the financial
statements (all of which are of a normal and recurring nature) necessary to
present fairly the financial position and results of operations have been made.
These interim financial statements should be read in conjunction with the
Company's Proxy Statement/Prospectus dated April 2, 1996 (SEC Registration No.
333-572).
8
<PAGE>
(3) OIL AND GAS PROPERTIES
The cost of oil and gas properties at December 31, 1995 and June 30, 1996
includes no significant unevaluated leasehold. Acreage is generally held for
exploration, development or resale and its value, if any, is excluded from
amortization. The following table sets forth costs incurred related to oil and
gas properties.
<TABLE>
<CAPTION>
Six
Year Ended Months Ended
December 31, June 30,
1995 1996
------------ -------------
(In thousands)
<S> <C> <C>
Acquisition $ 650 $218,297
Development 12,141 736
Exploration 416 149
Other 13 47
--------- --------
$ 13,220 $219,229
========= ========
</TABLE>
On May 2, 1996, the Merger discussed in Note 1 was consummated. The
following table summarizes the unaudited pro forma effects on the Company's
financial statements assuming that the Merger and the Exchange Offer had been
consummated on January 1, 1995 and 1996. Future results may differ substantially
from pro forma results due to changes in these assumptions, changes in oil and
gas prices, production declines and other factors. Therefore, pro forma
statements cannot be considered indicative of future operations.
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1995 1996
-------- ---------
(In thousands, except per share data)
<S> <C> <C>
Total revenues $ 56,560 $ 47,060
Depletion, depreciation and amortization $ 32,443 $ 37,756
Production direct operating margin $ 45,585 $ 27,945
Net income (loss) $ (884) $ (3,653)
Net income (loss) per common share $ (.12) $ (.25)
Weighted average shares outstanding 20,000 20,000
Production volume (MBOE) 5,146 3,684
</TABLE>
(4) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
----------- ---------
(In thousands)
<S> <C> <C>
Bank credit facilities $ - $116,296
Less current portion - -
-------- --------
Senior debt, net $ - $116,296
======== ========
Senior subordinated notes $ - $104,617
======== ========
Debt to parent $ 75,000 $ -
======== ========
</TABLE>
Simultaneously with the Merger, the Company entered into a bank credit
agreement. The agreement consists of (a) a facility provided to the Company and
SOCO Wattenberg (the "Company Facility") and (b) a facility provided to GOG (the
"GOG Facility").
9
<PAGE>
The Company Facility consists of a term loan facility (the "Company Term
Facility") in an amount up to $87 million and a revolving credit facility (the
"Company Revolving Facility") in an aggregate amount up to $102 million. The
Company Term Facility will be available to fund loans from Patina and/or SOCO
Wattenberg to GOG (the "Intercompany Loan") to finance purchases of the GOG
11.75% Senior Subordinated Notes until the first anniversary of the Merger. At
June 30, 1996, the Company had not utilized the Company Term Facility. The
amount available for borrowing under the Company Revolving Facility will be
limited to a semiannually adjusted borrowing base that equaled $102 million at
June 30, 1996. At June 30, 1996, $81.8 million was outstanding under the Company
Revolving Facility.
The GOG Facility is a revolving credit facility in an aggregate amount up
to $51 million. The amount available for borrowing under the GOG Facility will
be limited to a fluctuating borrowing base that equaled $51 million at June 30,
1996. At June 30, 1996, $34.5 million was outstanding under the GOG Facility.
The GOG Facility was used primarily to refinance GOG's previous bank credit
facility and pay costs associated with the Merger.
The borrowers may elect that all or a portion of the credit facilities
bear interest at a rate per annum equal to: (i) the higher of (a) prime rate
plus a margin equal to .25% with respect to the GOG Facility and the Company
Revolving Facility and .75% increasing by 1% on the first anniversary of the
Merger and by .5% every six months thereafter with respect to the Company Term
Facility (the "Applicable Margin") and (b) the Federal Funds Effective Rate plus
.5% plus the Applicable Margin, or (ii) the rate at which eurodollar deposits
for one, two, three or six months (as selected by the applicable borrower) are
offered in the interbank eurodollar market in the approximated amount of the
requested borrowing (the "Eurodollar Rate") plus 1.25%, with respect to the GOG
Facility and the Company Revolving Facility, and 1.5% increasing by 1% on the
first anniversary of the Merger and by .5% every six months thereafter with
respect to the Company Term Facility (the "Eurodollar Margin"). During the
period subsequent to the Merger through June 30, 1996, the average interest rate
under the facilities approximated 7.0%.
The bank credit agreement contains certain financial covenants, including
but not limited to a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio and a minimum current ratio. The bank credit agreement also
contains certain negative covenants, including but not limited to restrictions
on indebtedness; certain liens; guaranties, speculative derivatives and other
similar obligations; asset dispositions; dividends, loans and advances; creation
of subsidiaries; investments; leases; acquisitions; mergers; changes in fiscal
year; transactions with affiliates; changes in business conducted; sale and
leaseback and operating lease transactions; sale of receivables; prepayment of
other indebtedness; amendments to principal documents; negative pledge clauses;
issuance of securities; and non-speculative commodity hedging.
Simultaneously with the Merger, the Company recorded $100 million of
Senior Subordinated Notes due July 15, 2004 issued by GOG on July 1, 1994. In
connection with the Merger, the Company repurchased $1.2 million of the notes.
As part of the purchase accounting, the remaining notes have been reflected in
the accompanying financial statements at a market value of $104.6 million or
105.875% of their principal amount. Interest is payable each January 15 and July
15. The Notes are redeemable at the option of GOG, in whole or in part, at any
time on or after July 15, 1999, initially at 105.875% of their principal amount,
declining to 100% on or after July 15, 2001. Upon the occurrence of a change of
control, as defined in the Notes, GOG would be obligated to make an offer to
purchase all outstanding Notes at a price of 101% of the principal amount
thereof. In addition, GOG would be obligated, subject to certain conditions, to
make offers to purchase Notes with the net cash proceeds of certain asset sales
or other dispositions of assets at a price of 101% of the principal amount
thereof. The Notes are unsecured general obligations of GOG and are subordinated
to all senior indebtedness of GOG and to any existing and future indebtedness of
GOG's subsidiaries.
The Notes contain covenants that, among other things, limit the ability
of GOG to incur additional indebtedness, pay dividends, engage in transactions
with shareholders and affiliates, create liens, sell assets, engage in mergers
and consolidations and make investments in unrestricted subsidiaries.
Specifically, the Notes restrict GOG from incurring indebtedness (exclusive of
the Notes) in excess of approximately $51 million, if after giving effect to the
incurrence of such additional indebtedness and the receipt and application of
the proceeds therefrom, GOG's interest coverage ratio is less than 2.5:1 or
adjusted consolidated net tangible assets is less than 150% of the aggregate
indebtedness of GOG. GOG currently does not meet the interest coverage ratio
necessary to incur indebtedness in excess of approximately $51 million primarily
as a result of lower than anticipated commodity prices.
10
<PAGE>
Prior to the Merger, SOCO financed all of the Company's activities. A
portion of such financing was considered to be an investment by parent in the
Company with the remaining portion being considered Debt to parent. The portion
considered to be Debt to parent versus an investment by parent was a
discretionary percentage determined by SOCO after consideration of the Company's
internally generated cash flows and level of capital expenditures. Subsequent to
the Merger, the $75 million debt to parent was paid in full and the Company does
not expect SOCO to provide any additional funding.
On the portion of such financing which was considered to be Debt to
parent, interest was charged by SOCO to the Company. The Company was charged
interest on the debt payable to SOCO at a rate which approximated the average
interest rate being paid by SOCO under its revolving credit facility (7.0% and
6.4% for 1995 and the six months ended June 30, 1996).
Scheduled maturities of indebtedness for the next five years are zero for
the remainder of 1996, 1997 and 1998, $116.3 million in 1999 and zero in 2000.
The long-term portion of the credit facilities are scheduled to expire in 1999;
however, it is management's intent to review both the short-term and long-term
facilities and extend the maturities on a regular basis.
Cash payments for interest were zero and $649,000, respectively, for the
six months ended June 30, 1995 and 1996.
(5) STOCKHOLDERS' EQUITY
A total of 40 million common shares, $.01 par value, are authorized of
which 19.9 million were issued and outstanding at June 30, 1996. The Company
issued 6.0 million shares in exchange for all of the outstanding stock of GOG
upon consummation of the Merger. Of the 19.9 million shares outstanding, 2.0
million are designated as Series A Common Stock. The Series A Common Stock is
identical to the common shares except that the Series A Common Stock is entitled
to three votes per share rather than one vote per share. The Series A Common
Stock is owned by SOCO and reverts to regular common shares upon certain
conditions. During the second quarter 1996, the Company repurchased 135,000
shares of common stock for $923,000. No dividends have been paid on the
Company's common stock as of June 30, 1996.
A total of 5 million preferred shares, $.01 par value, are authorized of
which 1.2 million were issued and outstanding at June 30, 1996. In May 1996, 1.2
million shares of 7.125% preferred stock were issued to certain GOG preferred
shareholders electing to exchange their preferred shares in an exchange offer
related to the consummation of the Merger. Thus there were no proceeds received
related to this issuance. The stock is convertible into common stock at any time
at $8.61 per share. The 7.125% preferred stock is redeemable at the option of
the Company at any time after May 2, 1998 if the average closing price of the
Patina common stock for 20 of the 30 days prior to not less than five days
preceding the redemption date is greater than $12.92 per share or at any time
after May 2, 1999. The liquidation preference is $25 per share, plus accrued and
unpaid dividends. The Company paid $536,000 ($1.78 per 7.125% convertible share
per annum) in preferred dividends during the six months ended June 30, 1996 and
had accrued an additional $528,000 at June 30, 1996 for dividends.
In 1996, the shareholders adopted a stock option plan for employees
providing for the issuance of options at prices not less than fair market value.
Options to acquire up to three million shares of common stock may be outstanding
at any given time. The specific terms of grant and exercise are determinable by
a committee of independent members of the Board of Directors. A total of 512,000
options were issued in May 1996. The options vest over a three-year period (30%,
60%, 100%) and expire five years from date of grant.
In 1996, the shareholders adopted a stock grant and option plan (the
"Directors' Plan") for non-employee Directors of the Company. The Directors'
Plan provides for each non-employee Director to receive common shares having a
market value equal to $2,250 quarterly in payment of one-half their retainer. A
total of 1,412 shares were issued in June 1996. It also provides for 5,000
options to be granted annually to each non-employee Director. A total of 20,000
options were issued in May 1996. The options vest over a three-year period (30%,
60%, 100%) and expire five years from date of grant.
11
<PAGE>
Earnings per share are computed by dividing net income (loss), less
dividends on preferred stock, by weighted average common shares outstanding. Net
income (loss) available to common for the six months ended June 30, 1995 and
1996, was $(643,000) and $(2.6) million, respectively. Differences between
primary and fully diluted earnings per share were insignificant for all periods
presented.
(6) FEDERAL INCOME TAXES
Prior to the Merger, the Company had been included in the tax return of
SOCO. Current and deferred income tax provisions allocated by SOCO were
determined as though the Company filed as an independent company, making the
same tax return elections used in SOCO's consolidated return. Subsequent to the
Merger, the Company will not be included in the tax return of SOCO.
A reconciliation of the statutory rate to the Company's effective rate as
they apply to the benefit for the six months ended June 30, 1995 and 1996
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1995 1996
--------- --------
<S> <C> <C>
Federal statutory rate (35%) (35%)
Loss in excess of net deferred tax liability - 18%
----- -----
Effective income tax rate (35%) (17%)
===== =====
</TABLE>
For tax purposes, the Company had regular net operating loss
carryforwards of $44.9 million and alternative minimum tax loss carryforwards of
$3.2 million at December 31, 1995. These carryforwards expire between 2005 and
2009. No cash payments were made by the Company for federal taxes during 1994
and 1995. As discussed in Note 1, the accompanying financial statements include
certain Wattenberg operations previously owned directly by SOCO. Accordingly,
certain operating losses generated by these properties were retained by SOCO. In
addition, certain taxable income generated by SOCO did not offset the Company's
net operating loss carryforwards. The effect of such items has been reflected as
a charge or credit in lieu of taxes in the Company's statement of changes in
stockholder's equity.
(7) MAJOR CUSTOMERS
During the six months ended June 30, 1995 and 1996, Associated Natural
Gas, Inc. accounted for 54% and 59%, Amoco Production Company accounted for 22%
and 19%, and Total Petroleum accounted for 17% and 14% of revenues,
respectively. Management believes that the loss of any individual purchaser
would not have a long-term material adverse impact on the financial position or
results of operations of the Company.
(8) DEFERRED CREDITS
In 1992, the Company formed a partnership to monetize its Section 29
tax credits. Through May 1996, a revenue increase of more than $.40 per Mcf was
realized on production volumes from qualified Section 29 properties in this
arrangement. The Company recognized $860,000 and $646,000 of this revenue during
the six months ended June 30, 1995 and 1996, respectively. In May 1996, the
Company terminated the partnership and simultaneously entered into a new
agreement to monetize Section 29 tax credits. The new agreement provides for the
Company to receive proceeds from Section 29 tax credits via a variable
production payment. As a result, this arrangement is expected to increase
revenue by more than $.40 per Mcf through 2002. Subsequent to June 30, 1996, the
Company negotiated an agreement whereby additional Section 29 tax credits will
be monetized under this same type of structure.
(9) RELATED PARTY
Prior to the Merger, the Company did not have its own employees.
Employees, certain office space and furniture, fixtures and equipment were
provided by SOCO. SOCO allocated general and administrative expenses to the
Company based on its estimate of expenditures incurred on behalf of the Company.
Subsequent to the Merger, certain field, administrative and executive employees
of SOCO and GOG became employees of the Company. SOCO will continue to provide
certain services to Patina under a corporate services agreement.
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(10) COMMITMENTS AND CONTINGENCIES
In August 1995, SOCO was sued in the United States District Court of
Colorado by seven plaintiffs purporting to represent all persons who, at any
time since January 1, 1960, have had agreements providing for royalties from gas
production in Colorado to be paid by SOCO under a number of various lease
provisions. Substantially all liability under this suit has been assumed by
Patina. In January 1996, GOG was also sued in a similar but separate action
filed in the District Court in and for the City and County of Denver. The
plaintiffs, in both suits, allege that the companies improperly deducted
unspecified "post-production" costs incurred by the companies prior to
calculating royalty payments in breach of the relevant lease provisions and that
the companies fraudulently concealed that fact from the plaintiffs. The
plaintiffs seek unspecified compensatory and punitive damages and a declaratory
judgment that the companies are not permitted to deduct post-production costs
prior to calculating royalties paid to the class. SOCO, Patina and GOG believe
that costs deducted in calculating royalties are and have been proper under the
relevant lease provisions, and they intend to defend these and any similar suits
vigorously. At this time, the Company is unable to estimate the range of
potential loss, if any, from this uncertainty. However, the Company believes the
resolution of this uncertainty should not have a material adverse effect upon
the Company's financial position, although an unfavorable outcome in any
reporting period could have a material impact on the Company's results of
operations for that period.
In March 1996, a complaint was filed in the Court of Chancery for the State
of Delaware against GOG and each of its directors, Brickell Partners v. Gerrity
Oil & Gas Corporation, C.A. No. 14888 (Del. Ch.). The complaint alleges that the
"action is brought (a) to restrain the defendants from consummating a merger
which will benefit the holders of GOG's common stock at the expense of the
holders of the Preferred and (b) to obtain a declaration that the terms of the
proposed merger constitute a breach of the contractual rights of the Preferred."
The complaint seeks, among other things, certification as a class action on
behalf of all holders of GOG's preferred stock, a declaration that the
defendants have committed an abuse of trust and have breached their fiduciary
and contractual duties, an injunction enjoining the Merger and money damages.
Defendants believe that the complaint is without merit and intend to vigorously
defend against the action. At this time, the Company is unable to estimate the
range of potential loss, if any, from this uncertainty. However, the Company
believes the resolution of this uncertainty should not have a material adverse
effect upon the Company's financial position, although an unfavorable outcome in
any reporting period could have a material impact on the Company's results of
operations for that period.
The Company is a party to various other lawsuits incidental to its
business, none of which are anticipated to have a material adverse impact on its
financial position or results of operations.
13
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PATINA OIL & GAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
On May 2, 1996, Gerrity Oil & Gas Corporation ("GOG") was merged into a
wholly owned subsidiary of the Company (the "Merger"). This transaction was
accounted for as a purchase of GOG. Accordingly, the results of operations since
the Merger reflect the impact of the acquisition.
Total revenues for the three month and six month periods ended June 30,
1996 increased to $19.5 million and $30.1 million. The amounts represented
increases of 51% and 11% as compared to the respective prior year periods. The
revenue increases are due to the effect of the Merger and improved product
prices in 1996. The net loss for the second quarter 1996 was $1.1 million
compared to a net loss of $428,000 for the same period in 1995. The increase in
net loss is primarily attributed to a significant increase in interest expense
related to higher average debt balances outstanding and higher average interest
rates due to the 11.75% Senior Subordinated Notes.
Oil and gas sales less direct operating expenses were $15.7 million, a 52%
increase from the prior year quarter. Average daily production in the second
quarter of 1996 was 4,908 barrels and 69.8 MMcf (16,538 barrels of oil
equivalent), increases of 28% and 10%, respectively. The production increases
resulted solely from the Merger. Exclusive of the Merger, production continued
to decline due to the Company's reduced development schedule and expected
initial declines on the large number of wells drilled and completed in 1994 and
early 1995. There were 64 wells placed on production in the first six months of
1995 compared to 1 well in the first six months of 1996. Total production
volumes are expected to increase in the third quarter due to the full quarter
effect of the Merger and a modest drilling and recompletion program initiated in
the third quarter. However, from that point, while production is not expected to
continue to decline at the current rate, a decrease is expected unless
development drilling activity is substantially increased or additional
acquisitions are consummated. The decision to increase development drilling is
heavily dependent on the current prices being received for production. Unless
prices increase significantly, development drilling is expected to be limited.
Average oil prices increased to $20.24 per barrel compared to $17.24
received in the second quarter of 1995. Natural gas prices increased from $1.19
per Mcf in the first quarter of 1995 to $1.60 in 1996. The increase was
primarily the result of prior year production being marketed under term
arrangements which were based on Rocky Mountain region pricing (which remains
depressed) whereas the 1996 production benefitted from a portion of these
agreements expiring. This allowed the production to be sold at local spot prices
which had increased as a result of higher demand and overall declining
production in the DJ Basin. Direct operating expenses increased to $2.29 per BOE
compared to $1.91 in the prior year quarter. The increase is primarily
attributed to focusing more attention on enhancing production through performing
workovers on existing properties rather than through development drilling. As a
result of the Merger, the Company expects to realize efficiencies which will
help hold direct operating expenses per BOE constant even if production
continues to decline.
General and administrative expenses, net of reimbursements, for second
quarter 1996 were $1.6 million, a 19% increase from the same period in 1995 but
only a 2% increase over first quarter 1996. The increases are the result of the
Merger partially offset by reductions in allocated costs by SOCO. Prior to the
Merger, the Company did not have its own employees. Employees and certain office
space and furniture, fixtures and equipment were provided by SOCO. SOCO
allocated general and administrative expenses based on estimates of expenditures
incurred on behalf of the Company. The general and administrative expenses in
1996 through the Merger were lower than the expenses for the comparable period
in 1995, reflecting the lower overhead associated with the reduced drilling
activity and the Company's overall reduction in personnel.
Interest and other expense was $3.7 million compared to $1.4 million in the
second quarter of 1995. The increase is the result of an increase in the average
outstanding debt levels due to additional debt recorded as a result of the
Merger as well as debt incurred to finance certain costs related to the Merger.
The Company's average interest rate climbed to 9.1% compared to 7.0% in the
second quarter 1995. This increase is due primarily to the 11.75% Senior
Subordinated Notes.
14
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Depletion, depreciation and amortization expense for the second quarter
totalled $11.8 million, an increase of $3.4 million or 41% from the same period
in 1995. The increase resulted from the increase in production and an increased
depletion, depreciation and amortization rate of $7.81 per BOE compared to $6.36
in 1995. The primary cause for the increased rate was a downward revision in
reserve quantities due to proved undeveloped reserves being classified as
uneconomic at year end 1995 prices and the inclusion of the amortization of a
noncompete agreement entered into in conjunction with the Merger.
Development, Acquisition and Exploration
During the six months ended June 30, 1996, the Company incurred $219.2
million in capital expenditures. Of this amount, $218.3 million related to the
acquisition of GOG by the issuance of stock of the Company. Capital
expenditures, exclusive of acquisitions, totalled only $932,000 as the Company
has continued to limit its development activity based on current Rocky Mountain
natural gas prices.
Financial Condition and Capital Resources
At June 30, 1996, the Company had total assets of $455.5 million. Total
capitalization was $412.5 million, of which 46% was represented by stockholder's
equity, 28% by senior debt and 26% by subordinated debt. During the six months
ended June 30, 1996, net cash provided by operations was $15.0 million, as
compared to $5.6 million for the same period in 1995. As of June 30, 1996, there
were no commitments for capital expenditures. The Company anticipates that 1996
expenditures for development drilling, giving effect to the Merger, will be less
than $10 million, which will allow for a reduction of indebtedness or provide
funds to pursue additional acquisitions. The level of these and other future
expenditures is largely discretionary, and the amount of funds devoted to any
particular activity may increase or decrease significantly, depending on
available opportunities and market conditions. The Company plans to finance its
ongoing development, acquisition and exploration expenditures using internal
cash flow, proceeds from asset sales and its bank credit facilities. In
addition, joint ventures or future public and private offerings of debt or
equity securities may be utilized. Due to restrictions outlined in GOG's various
credit agreements, cash generated by GOG will be retained by GOG and will not be
available to fund the Company's other operations.
Prior to the Merger, SOCO financed all of the Company's activities. A
portion of such financing was considered to be an investment by parent in the
Company with the remaining portion being considered debt payable to SOCO. In
conjunction with the Merger, the $75 million debt payable to SOCO was paid in
full and the Company does not expect SOCO to provide any additional funding.
Simultaneously with the Merger, the Company entered into a bank credit
agreement. The agreement consists of (i) a facility provided to the Company and
SOCO Wattenberg (the "Company Facility") and (ii) a facility provided to GOG
(the "GOG Facility").
The Company Facility consists of a term loan facility in an amount up to
$87 million and a revolving credit facility in an aggregate amount up to $102
million. The term loan facility will be available to finance purchases of the
GOG 11.75% Senior Subordinated Notes until the first anniversary of the Merger.
At June 30, 1996, the Company had not utilized the term loan facility. The
amount available for borrowing under the revolving credit facility will be
limited to a semiannually adjusted borrowing base that equaled $102 million at
June 30, 1996. At June 30, 1996, $81.8 million was outstanding under the
revolving credit facility.
The GOG Facility is a revolving credit facility in an aggregate amount up
to $51 million. The amount available for borrowing under the GOG Facility will
be limited to a fluctuating borrowing base that equaled $51 million at June 30,
1996. At June 30, 1996, $34.5 million was outstanding under the GOG Facility.
The GOG Facility was used primarily to refinance GOG's previous bank credit
facility and pay costs associated with the Merger.
The bank credit agreement contains certain financial covenants, including
but not limited to a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio and a minimum current ratio. The bank credit agreement also
contains certain negative covenants, including but not limited to restrictions
on indebtedness; certain liens; guaranties, speculative derivatives and other
similar obligations; asset dispositions; dividends, loans and advances; creation
of subsidiaries; investments; leases; acquisitions; mergers; changes in fiscal
year; transactions with affiliates;
15
<PAGE>
changes in business conducted; sale and leaseback and operating lease
transactions; sale of receivables; prepayment of other indebtedness; amendments
to principal documents; negative pledge clauses; issuance of securities; and
non-speculative commodity hedging.
In 1992, the Company formed a partnership to monetize its Section 29 tax
credits. Through May 1996, a revenue a increase of more than $.40 per Mcf was
realized on production volumes from qualified Section 29 properties in this
arrangement. The Company recognized $860,000 and $646,000 of this revenue during
the six months ended June 30, 1995 and 1996, respectively. In May 1996, the
Company terminated the partnership and simultaneously entered into a new
agreement to monetize Section 29 tax credits. The new agreement provides for the
Company to receive proceeds from Section 29 tax credits via a variable
production payment. As a result, this arrangement is expected to increase
revenue by more than $.40 per Mcf through 2002. Subsequent to June 30, 1996, the
Company negotiated an agreement whereby additional Section 29 tax credits will
be monetized under this same type of structure.
The Company believes that its capital resources are adequate to meet the
requirements of its business. However, future cash flows are subject to a number
of variables including the level of production and oil and gas prices, and there
can be no assurance that operations and other capital resources will provide
cash in sufficient amounts to maintain planned levels of capital expenditures or
that increased capital expenditures will not be undertaken.
Inflation and Changes in Prices
While certain of its costs are affected by the general level of inflation,
factors unique to the petroleum industry result in independent price
fluctuations. Over the past five years, significant fluctuations have occurred
in oil and gas prices. Although it is particularly difficult to estimate future
prices of oil and gas, price fluctuations have had, and will continue to have, a
material effect on the Company.
16
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
10.1.1 First Amendment to Credit Agreement dated June 28, 1996 by
and among Patina, Gerrity Oil & Gas Corporation and SOCO
Wattenberg Corporation, as Borrowers, and Texas Commerce
Bank National Association, as Administrative Agent, and
certain commercial lending institutions.
10.3 Agreement dated July 16, 1996 by and between F. H. Smith,
employee, and Patina Oil & Gas Corporation.
10.4 Sublease Agreement dated as of May 1, 1996 by and between
Snyder Oil Corporation, as Sublandlord, and Patina Oil & Gas
Corporation, as Subtenant.
27 Financial Data Schedule
(b) Reports on Form 8-K -
On May 17, 1996, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K. The Report disclosed under
Item 1 information regarding the approval of the Amended Agreement and
Plan of Merger among Snyder Oil Corporation, the Company, Patina
Merger Corporation and Gerrity Oil & Gas Corporation.
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATINA OIL & GAS CORPORATION
By /s/ David J. Kornder
--------------------------------
David J. Kornder, Vice President
August 13 1996
18
EXHIBIT 10.73
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (this "AMENDMENT") is entered
into as of the 28th day of June, 1996, by and among Patina Oil & Gas Corporation
("PATINA"), SOCO Wattenberg Corporation ("SWAT"), Gerrity Oil & Gas Corporation
("GERRITY"), (Patina, SWAT and Gerrity are each individually referred to herein
as "BORROWER" and collectively as "BORROWERS"), Texas Commerce Bank National
Association, as Administrative Agent ("ADMINISTRATIVE AGENT"), NationsBank of
Texas, N.A., as Documentary Agent ("DOCUMENTARY AGENT"), Wells Fargo Bank, N.A.,
CIBC, Inc. and Credit Lyonnais New York Branch, as Co-Agents ("CO-AGENTS") and
the financial institutions listed on Schedule 1 to the Credit Agreement (as
hereinafter defined) as Banks (individually a "BANK" and collectively "BANKS").
W I T N E S E T H:
WHEREAS, Borrowers, Administrative Agent, Documentary Agent, Co-Agents and
Banks are parties to that certain Credit Agreement dated as of May 2, 1996 the
"CREDIT AGREEMENT") (unless otherwise defined herein, all terms used herein with
their initial letter capitalized shall have the meaning given such terms in the
Credit Agreement); and
WHEREAS, pursuant to the Credit Agreement the Banks have made certain Loans
to Borrowers; and
WHEREAS, Borrowers have advised Banks that Patina has repurchased 135,400
shares of Common Stock in market transactions for an aggregate consideration of
$923,345.00 (the "PATINA COMMON STOCK REPURCHASE"); and
WHEREAS, the Patina Common Stock Repurchase violates SECTION 9.2 of the
Credit Agreement and constitutes an Event of Default under the Credit Agreement;
and
WHEREAS, Borrowers have requested that the Banks waive the Event of
Default resulting from the Patina Common Stock Repurchase; and
WHEREAS, the Banks have agreed to grant such waiver on the condition that
the Credit Agreement be amended in certain respects.
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed,
Borrowers, each Agent, and each Bank hereby agree as follows:
SECTION 1. AMENDMENTS. In reliance on the representations, warranties,
covenants and agreements contained in this Amendment, the Credit Agreement shall
be amended effective June 28, 1996 (the "EFFECTIVE DATE") in the manner provided
in this Section 1.
1
<PAGE>
1.1. AMENDMENT TO DEFINITIONS. The definitions of "INITIAL RESTRICTED
PAYMENT LIMIT" and "LOAN PAPERS" contained in Section 1.1 of the Credit
Agreement shall be amended to read in full as follows:
"Initial Restricted Payment Limit" means $11,000,000; provided that
such amount shall be allocated by Borrowers between Patina and Gerrity on
or before August 15, 1996, and Borrowers shall notify Banks in writing of
such allocation together with the delivery to Banks of the financial
statements for the Fiscal Quarter ended June 30, 1996 required by SECTIONS
8.1(B), (D) and (E); provided, further, that not more than $5,000,000 of
the Initial Restricted Payment Limit shall be allocated to Patina.
"Allocated Shares of Initial Restricted Payment Limit" means, with respect
to Patina or Gerrity, that portion of the Initial Restricted Payment Limit
allocated to Patina or Gerrity (as applicable) pursuant to this
definition.
"Loan Papers" means this Agreement, the Notes, the Patina Guarantees,
the Collateral Assignment of Intercompany Loan, the Tax Credit Transaction
Agreement, the Patina Pledge Agreement, the Gerrity Pledge Agreement, the
First Amendment, all Mortgages now or at any time hereafter delivered
pursuant to SECTION 5.1, and all other certificates, documents or
instruments delivered in connection with this Agreement, as the foregoing
may be amended from time to time.
1.2. ADDITIONAL DEFINITIONS. Section 1.1 of the Credit Agreement shall be
amended to add the following definition to such Section:
"First Amendment" means the First Amendment to Credit Agreement dated
as of June 28, 1996, entered into by and among Borrowers, Agents, and
Banks.
SECTION 2.WAIVER REGARDING PATINA COMMON STOCK REPURCHASE. Banks hereby
waive Borrowers' obligation to comply with SECTION 9.2 of the Credit Agreement
to the extent, but only to the extent, that SECTION 9.2 of the Credit Agreement
prohibits the Patina Common Stock Repurchase, and Banks waive the Event of
Default resulting from such Patina Common Stock Repurchase. Each Borrower hereby
acknowledges that such waiver is limited solely to SECTION 9.2 of the Credit
Agreement, and solely to the Patina Common Stock Repurchase. Nothing contained
herein shall obligate Banks to grant any additional or future waiver of SECTION
9.2 of the Credit Agreement or any other provision of any other Loan Paper.
SECTION 3.REPRESENTATIONS AND WARRANTIES. In order to induce Agents and
Banks to enter into this Amendment and grant the waiver contained in SECTION 2
hereof, each Borrower hereby represents and warrants to each Agent and each Bank
that:
(a) each representation and warranty of each Borrower and the
Restricted Subsidiaries contained in the Loan Papers are true and correct
in all material respects as of the date hereof (except to the extent that
such representations and warranties are expressly made as of a particular
date, in which event such representations and warranties were true and
correct as of such date);
(b) except for the Event of Default under Section 9.2 of the Credit
Agreement resulting from the Patina Common Stock Repurchase, neither a
Default nor an Event of Default has occurred which is continuing; and
(c) Borrowers have no defenses to payment, counterclaims or rights of
set-off with respect to the Obligations on the date hereof.
SECTION 4.MISCELLANEOUS.
4.1 REAFFIRMATION OF LOAN PAPERS; EXTENSION OF LIENS. Any and all of the
terms and provisions of the Credit Agreement and the Loan Papers shall, except
as amended and modified hereby, remain in full force and effect. Each Borrower
hereby extends the Liens securing the Obligations until the Obligations have
been paid in full, and agrees that the amendments and modifications herein
contained shall in no manner affect or impair the Obligations or the Liens
securing payment and performance thereof.
4.2 PARTIES IN INTEREST. All of the terms and provisions of this Amendment
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns.
4.3 LEGAL EXPENSES. Each Borrower hereby agrees to pay on demand all
reasonable fees and expenses of counsel to Administrative Agent incurred by
Administrative Agent in connection with the preparation, negotiation and
execution of this Amendment and all related documents.
4.4 COUNTERPARTS. This Amendment may be executed in counterparts, and all
parties need not execute the same counterpart; however, no party shall be bound
by this Amendment until this Amendment has been executed by Borrowers and
Required Banks at which time this Amendment shall be binding on, enforceable
against and inure to the benefit of Borrowers, Agents and all Banks. Facsimiles
shall be effective as originals.
4.5 COMPLETE AGREEMENT. THIS AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER
LOAN PAPERS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
4.6 HEADINGS. The headings, captions and arrangements used in this
Amendment are, unless specified otherwise, for convenience only and shall not be
deemed to limit, amplify or modify the terms of this Amendment, nor affect the
meaning thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective Authorized Officers on the date and year first
above written.
BORROWERS:
PATINA OIL & GAS CORPORATION,
a Delaware corporation
By:
Its:
SOCO WATTENBERG CORPORATION,
a Delaware corporation
By:
Its:
GERRITY OIL & GAS CORPORATION,
a Delaware corporation
By:
Its:
2
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ADMINISTRATIVE AGENT:
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By:
Its:
DOCUMENTARY AGENT:
NATIONSBANK OF TEXAS, N.A.
By:
Its:
CO-AGENTS:
CIBC, INC.
By:
Its:
CREDIT LYONNAIS NEW YORK BRANCH
By:
Its:
BANKS:
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By:
Its:
3
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By:
Its:
CIBC, INC.
By:
Its:
CREDIT LYONNAIS NEW YORK BRANCH
By:
Its:
WELLS FARGO BANK, N.A.
By:
Its:
4
AGREEMENT
THIS AGREEMENT is made and entered into this 16th day of July, 1996, but
effective on July 31, 1996, by and between F.H. Smith (Employee) and Patina Oil
& Gas Corporation ("Patina or the Company").
RECITALS
1. Employee is employed by Patina as a Vice President of Operations.
2. Employee's employment with Patina commenced on May 2, 1996 as a result of the
closing of the transactions contemplated by an amended and restated Agreement
and Plan of Merger dated as of January 16, 1996 and amended and restated as of
March 20, 1996 by and among Snyder Oil Corporation, Patina Oil & Gas
Corporation, Patina Merger Corporation and Gerrity Oil & Gas Corporation (the
"Merger").
3. As a result of the Merger, Patina determined that certain positions held by
former Snyder Oil Corporation employees and former Gerrity Oil & Gas employees
were no longer necessary and certain employees were laid off as a result of the
Merger. Employee's position initially was not one identified as being no longer
necessary as a consequence of the Merger.
4. While Employee's position was not initially identified as one to be
eliminated as a result of the Merger, it has now been identified as being
duplicative and no longer necessary for the ongoing operations of Patina.
5. As a result, Employee and Patina have agreed to enter into this Agreement
pursuant to which Employee is being laid off as a direct consequence of the
Merger.
AGREEMENT
In consideration of a payment by Patina to Employee of the amounts set
forth herein, and in further consideration of the mutual covenants, conditions
and stipulations set forth in this Agreement, Employee and Patina agree,
effective as provided in paragraph 7 as follows:
1. Employee's employment with Patina will terminate effective 5:00 p.m.,
Mountain Daylight Time, July 31, 1996. On July 31, 1996, Employee will be paid
his regular salary for July 1996, subject to normal and standard deductions for
FICA, Medicare, tax, state and federal taxes, all as applicable. In addition,
Employee will be paid the sum of $75,000 (subject to applicable withholdings and
deductions, if any) as a severance allowance. In addition, as of July 31, 1996,
Employee will have accrued 20.75 days of vacation for which he will be paid.
Employee may purchase from Patina, the Company vehicle he currently is utilizing
for Company business if Patina and Employee agree on a purchase price on or
before July 25, 1996. If Employee purchases the vehicle, the purchase price for
the vehicle will be deducted from Employee's severance allowance and accrued
vacation payment. If Employee purchases the vehicle, clear title to the vehicle
will be delivered to Employee on July 31, 1996.
<PAGE>
2. In consideration of the foregoing, Employee hereby knowingly and voluntarily,
fully and finally releases, acquits, and forever discharges Patina, Gerrity Oil
& Gas Corporation and SOCO Wattenberg Corporation and any affiliates and their
past and present officers, directors, (in their capacity as officers and
directors), stockholders, partners, trustees, beneficiaries, managers,
employees, attorneys, agents, successors or assigns (collectively, the "Company
and Related Release Parties"), from any and all claims, charges, complaints,
liens, demands, causes of action, obligations, damages and liabilities, whether
known or unknown, that he had, now has, or may after claim to have against the
Company and Related Release Parties arising out of or relating in any way to
Employee's relationship with Patina and/or its subsidiaries as an officer,
director, employee, or in any other capacity, except those arising out of this
Agreement and Rights to Indemnification under the Patina Certificate of
Incorporation, By-Laws and Delaware law and directors and officers insurance as
currently in effect. This Release expressly extends to, without limiting the
generality of the foregoing, any claims arising under Title VII of the Civil
Rights Act of 1964 as amended, Age Discrimination and Employment Act, as
amended, the United States Constitution, any State Constitutions and any other
federal, state or local statute, regulation or ordinance governing the
employment relationship.
5. It is expressly understood and agreed that there are no claims or provisions
or liabilities other than those set forth or otherwise referenced in this
Agreement and with respect to the Agreement, Employee covenants and agrees that
he shall forever refrain from initiating, prosecuting, maintaining or pressing
any action, suit or claim in any jurisdiction against the Company and Related
Release Parties based upon the termination of his employment as a result of the
Merger or holding of any office with the Company and Related Release Parties or
any of their subsidiaries prior to the effective date hereof.
6. Employee represents and warrants that there has been no assignment or other
transfer of any interest in any claim he may have against the Company and
Related Release Parties, or any of them, and Employee agrees to indemnify and
hold harmless the Company and Related Release of Parties and each of them from
any liability, claims, demands, damages, costs, expenses and attorneys fees
incurred by any such Company and Released Parties, or any of them, as a result
of any such assignment or transfer.
7. Employee represents and acknowledges that he is aware that he has the right
to review this Agreement, and specifically, the provisions regarding the
release, with legal counsel of his choice prior to signing the Agreement and
that he has done so. Employee further represents and acknowledges that he is
aware that he has a 21 day period within which to consider the provisions of
this Agreement, although he may sign and return such Agreement sooner, that he
has the right to revoke the Agreement for a period of seven days after signing
it, and that the Agreement shall not be effective or enforceable until such
seven day revocation expires without revocation.
8. Employee represents that this Agreement has been carefully read by him and
that he knows and understands the contents hereof. Employee has received
independent legal advise from attorneys of his choice with respect to the
preparation, review and advisability of executing this Agreement. Employee
further represents and acknowledges that he has freely and voluntarily executed
this Agreement after independent investigation and without fraud, duress or
undue influence and that in
<PAGE>
executing this Agreement he has not relied on any representations or statement
not set forth herein with regard to the subject matter, basis, or effect of this
Agreement or otherwise.
9. This Agreement will be governed by and construed in force under the laws of
the State of Colorado without regard to its conflict of laws rules.
10. While the provisions contained in this Agreement are considered by the
parties to be reasonable in all circumstances, it is recognized that provisions
of the nature in question may fail for technical reasons and, accordingly, it is
hereby agreed and declared that if any one or more of such provisions shall,
either by itself or themselves or taken with others, be judged to be invalid as
exceeding what is reasonable in all circumstances for the protection of the
interests of Patina, but would be valid if any particular provision or
provisions were deleted or restricted or limited in any particular manner or if
the period thereof were reduced or curtailed, then such provisions shall apply
with such deletion, restriction, limitation, reduction, curtailment or
modification as may be necessary to make them valid and effective.
11. This Agreement constitutes the entire Agreement relating to the matters set
forth herein between the parties who have executed and supersedes any and all
other Agreements, understandings, negotiations, or discussions either oral or in
writing express or implied, between the parties to this Agreement. The parties
to this Agreement each acknowledge, except as otherwise set forth herein, that
no representations, inducements, promises, agreements or warranties, or
otherwise have been made by them or anyone acting on their behalf, which are not
embodied to this Agreement, that they have not executed this Agreement in
reliance on any such representation, inducement, promise, agreement or warranty
and that no representation, inducement, promise, agreement or warranty not
contained in this Agreement including but not limited to, any purported
supplements, modifications, waivers or terminations of this Agreement shall be
valid or binding, unless executed in writing by all the parties to this
Agreement.
12. Employee agrees that he will not make any disparaging comments or remarks
specifically directed at Patina, Gerrity Oil & Gas Corporation, SOCO Wattenberg
Corporation, Snyder Oil Corporation or any affiliated party or any officer or
director thereof.
13. As further consideration of this Agreement, Patina and Employee hereby agree
and acknowledge that certain Stock Option Agreement dated May 3, 1996 is hereby
terminated and the same has no further force or effect.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date and
year first set forth above, effective, for all purposes, at 5:00 p.m. Mountain
Time, July 31, 1996.
PATINA OIL & GAS CORPORATION
By: /s/Brian J. Cree
Brian J. Cree
Executive Vice President and
Chief Operating Officer
<PAGE>
EMPLOYEE
/s/ F.H. Smith
By: F. H. Smith
Subscribed and sworn to before me this ____ day of July, 1996.
WITNESS my hand and official seal.
My commission expires:
[SEAL] ______________________________
Notary Public
SUBLEASE
THIS SUBLEASE is made and entered into as of May 1, 1996 (the
"Commencement Date"), by and between SNYDER OIL CORPORATION, a Delaware
corporation ("Sublandlord"), and PATINA OIL & GAS CORPORATION, a Delaware
corporation ("Subtenant").
RECITALS
A. Sublandlord, as Tenant, has entered into a Lease of Office Space (the
"Lease Agreement") dated June 5, 1991, with Brookfield Minnesota Inc., a
Colorado corporation (now known as Brookfield Denver Inc.), as Landlord
(hereinafter, "Lessor"), for the lease of certain premises in an office building
(the "Building") located at 1625 Broadway, Denver, Colorado, being a portion of
the World Trade Center, more particularly defined in the Lease Agreement as the
"Project."
B. The Lease Agreement has been amended and supplemented by various leases
of additional space, surrenders of leases and space and amendments of which the
following remain effective: (1) Lease of Additional Office Space dated as of
September 9, 1992; (2) Second Lease of Additional Office Space dated June 17,
1993; (3) Amended and Restated Second Lease of Additional Office Space dated
September 13, 1993; (4) Sixth Lease of Additional Office Space and First
Amendment and Extension of Lease dated June 2, 1994; (5) First Partial Surrender
of Lease dated September 8, 1994; (6) Second Amendment of Lease dated February
22, 1995; (7) Third Amendment of Lease dated June 27, 1995; and (8) Second
Partial Surrender and Fourth Amendment of Lease dated April 18, 1996,
(collectively, the "Lease Amendments").
C. The Lease Agreement, as amended by the Lease Amendments, all of which
are attached hereto as Exhibit A, are hereinafter collectively referred to as
the "Master Lease." The entire premises leased to Sublandlord under the Master
Lease is hereinafter referred to as the "Premises."
D. Sublandlord desires to sublease to Subtenant, and Subtenant desires to
sublease from Sublandlord a portion of the Premises (the "Subleased Premises,"
as further defined in this Sublease) on the terms and conditions set forth in
this Sublease.
For and in consideration of the foregoing Recitals, the mutual promises
and covenants of the parties, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Sublandlord and
Subtenant hereby agree as follows:
1. Sublease. Sublandlord hereby leases the Subleased Premises to Subtenant,
and Subtenant leases the Subleased Premises from Sublandlord on the terms and
conditions set forth in this Sublease.
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2. Subleased Premises. The "Subleased Premises" shall mean the 28,628
square feet of rentable area, being all of the 19th and 20th floors of the
Building, as depicted on Exhibit B to this Sublease.
3. Term. The term of this Sublease will begin as of the Commencement Date
and will terminate on November 30, 2001.
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4. Condition of Subleased Premises. THE SUBLEASED PREMISES SHALL BE
DELIVERED ON AN "AS IS" CONDITION, WITHOUT ANY REPRESENTATIONS OR WARRANTIES AS
TO ITS CONDITION OR FITNESS FOR A PARTICULAR USE. Except for the possible
payment of a Future Expansion Allowance and an Improvement Allowance to which
Subtenant may be entitled pursuant to the terms of Sections 20 and 21 of this
Sublease, Sublandlord shall have no responsibility to arrange, effect or make
any changes, alterations, modifications, additions or repairs to the Subleased
Premises, nor to bear any cost or expense incident to any such changes,
alterations, modifications, additions or repairs which may be desired, requested
or undertaken by Subtenant in the future.
5. Annual Rent. Subtenant shall pay to Sublandlord an Annual Rent in the
amount of $1,894,067.09, payable in the manner provided in this Section 5. For
purposes of calculating the Annual Rent payable under this Sublease, 17,892.5
square feet of rentable area of the Subleased Premises shall be referred to as
the "Pass Through Space" and the remaining 10,735.5 square feet of rentable area
shall be referred to as the "Base Year Space."
(a) Pass Through Space Annual Rent. Subtenant shall pay to
Sublandlord as Annual Rent for the Pass Through Space the sum of
$1,110,080.60, payable in advance, without notice, demand, offset or
counterclaim, in monthly installments according to the following schedule:
(i) The sum of $80,516.28 for the period from the Commencement
Date through October 31, 1996, calculated at $9.00 per rentable
square foot per annum, payable in monthly installments of
$13,419.38, on the first day of each calendar month during this
period;
(ii) The sum of $357,850.08 for the period from November 1,
1996 through October 31, 1998, calculated at $10.00 per rentable
square foot per annum, payable in monthly installments of $14,910.42
on the first day of each calendar month during this period;
(iii) The sum of $205,763.76 for the period from November 1,
1998 through October 31, 1999, calculated at $11.50 per rentable
square foot per annum, payable in monthly installments of $17,146.98
on the first day of each calendar month during this period; and
(iv) The sum of $465,950.50 for the period from November 1,
1999 through November 30, 2001, calculated at $12.50 per rentable
square foot per annum, payable in monthly installments of $18,638.02
on the first day of each calendar month during this period.
(b) Base Year Space Annual Rent. Subtenant shall pay to Sublandlord
as Annual Rent for the Base Year Space the sum of $783,986.49 for the
period from September 1, 1996 through November 30, 2001, calculated at
$13.91 per rentable square foot per annum, payable in advance, without
notice, demand, offset or counterclaim, in monthly installments of
$12,444.23 on the first day of each calendar month during this period.
(c) General. If the Commencement Date is other than the first day of
the month or if the term ends on other than the last day of the month, rent
shall be appropriately prorated, and the
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Annual Rent for such partial first month shall be payable in advance on the
Commencement Date. All Rent payable under this Sublease shall be paid to
Sublandlord at Sublandlord's address as set forth in this Sublease.
6. Additional Rent. During the term of this Sublease, Subtenant shall pay
to Sublandlord, in addition to the Annual Rent, as and when due under the Master
Lease, all other Rent which may be due and payable pursuant to the Master Lease
which is attributable to the Subleased Premises including, but not limited to:
(a) Any Occupancy Costs which Sublandlord is required to pay
pursuant to Article 4 of the Master Lease which is attributable to the
Pass Through Space;
(b) Any Occupancy Costs which Sublandlord is required to pay
pursuant to Article 4 of the Master Lease which is attributable to the
Base Year Space in excess of $6.75 per rentable square foot per annum;
(c) Any other rent or other sums payable as additional rent under
the Master Lease attributable to the Subleased Premises or Subtenant's
activities; and
(d) Any Rent and other payments which Sublandlord is required to pay
under Article 13.00 of the Master Lease by reason of Subtenant remaining
in possession of the Subleased Premises after the expiration of the term
of the Master Lease or this Sublease.
If the term of this Sublease commences after the beginning of or terminates
before the end of a Fiscal Year, any amount payable by Subtenant for Occupancy
Costs shall be adjusted proportionately.
7. Parking. Subtenant shall have the option of subleasing the
following parking spaces from Sublandlord, all of which spaces shall be at
the rates set by Lessor from time to time:
(a) Three (3) parking spaces underneath the Project, one (1) of
which is currently a reserved space but may be converted to an unreserved
space at any time by Lessor; and
(b) Nineteen (19) unreserved parking spaces at the Tremont Parking
Center, located at 15th and Tremont Streets, representing one space for
each 1,500 square feet of rentable area within the Subleased Premises.
Subtenant shall exercise such options by executing and delivering to Sublandlord
a written notice of exercise. Payment of charges for parking spaces subleased
hereunder shall be deemed additional rent due and payable in advance on the
first day of each calendar month during the term of this Sublease. If Subtenant
fails to pay for any parking charges in a timely manner, Sublandlord shall not
be required to advance any amounts for Subtenant, Subtenant shall be in default
and, in addition to any other rights Sublandlord may have, Sublandlord shall
have the right to cancel the sublease of the parking spaces for which payment
was not received.
As of the date of this Sublease, Sublandlord is subleasing to third parties
some or all of the parking spaces which are to be made available to Subtenant
hereunder. Sublandlord has the right to terminate the existing subleases upon 30
days' notice to the parties subleasing those spaces. Upon Subtenant exercising
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its options hereunder, Sublandlord will give termination notices to the parties
subleasing those spaces, and will make the spaces available to Subtenant as soon
as reasonably practicable hereunder. Sublandlord shall have no liability for
delays in delivering such spaces to Subtenant. Subtenant's sole remedy shall be
delay in paying for such spaces until they are made available to Subtenant.
If Subtenant no longer desires to sublease some or all of the parking
spaces, Subtenant may cancel its sublease of any or all of the parking spaces
from time to time by giving written notice to Sublandlord. Unless otherwise
agreed to in writing by Sublandlord, such cancellation shall be effective only
at the end of a calendar month and no sooner than the last day of the second
full calendar month after the notice of cancellation is delivered to
Sublandlord.
If Subtenant's sublease of any parking space is cancelled, such spaces
shall no longer be deemed available to Subtenant, and Sublandlord shall be under
no obligation to provide those spaces to Subtenant. If Subtenant seeks to again
sublease all or a portion of the parking spaces so relinquished, Sublandlord
shall use reasonable efforts re-sublease such parking spaces to Subtenant, but
in no event will Sublandlord be obligated to re-sublease such parking spaces if
they are not available from the Lessor or if Sublandlord has other uses for such
spaces (including but not limited to use of such spaces by Sublandlord or the
sublease or license of such spaces to other users). Subtenant's rights to
parking under the Sublease shall at all times be subject to the terms and
availability of such parking under the Master Lease.
8. Services. Sublandlord shall not be obligated to provide any services to
Subtenant or repairs or maintenance to the Subleased Premises, the Building or
the Project. Subtenant's sole source of services shall be the Lessor pursuant to
the terms of the Master Lease; provided, however, upon the reasonable request of
Subtenant, Sublandlord will provide commercially reasonable assistance to
Subtenant in enforcing the terms of the Master Lease which require Lessor to
provide services, repairs or maintenance to the Subleased Premises or the
Building. Sublandlord shall not be required to incur any out-of-pocket expenses
in providing such assistance, and Sublandlord may condition its providing such
assistance upon any such expenses being paid by Subtenant as they become due. In
the event that Sublandlord and Subtenant are both involved in enforcing such
terms of the Master Lease, Subtenant shall only be responsible for its
proportionate share of such expenses allocated to the Subleased Premises. If
there is any reduction or discontinuance of service as required to be provided
to the Subleased Premises by Lessor under the Master Lease and as a result of
same Sublandlord is entitled to abatement of Rent or other sums, if any, payable
under the Master Lease, with respect to the Subleased Premises, then Subtenant
shall be entitled to an abatement of Rent and other sums, if any, payable under
this Sublease, but only to the extent the abatement afforded to Sublandlord
relates to the Subleased Premises. Subtenant shall reimburse Sublandlord for an
equitable portion of Sublandlord's out-of-pocket cost incurred in enforcing an
abatement of Rent affecting the Subleased Premises. Sublandlord makes no
representations or warranties as to the availability or adequacy of services.
Except as provided herein, Subtenant's covenants to pay Rent under this Sublease
are separate and independent from any covenant of Sublandlord or Lessor to
provide services or other amenities hereunder.
Subtenant shall not request any additional services from Lessor without
Sublandlord's prior approval, which approval shall not be unreasonably withheld,
provided Subtenant is not then in default. Subtenant shall promptly pay Lessor
directly for such services and provide Sublandlord with evidence of payment.
9. Signage. Sublandlord shall cooperate with Subtenant in having
Subtenant's name and location of its office placed on the Building directory in
the lobby of the Building, its name placed near the
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<PAGE>
elevator on the floor on which the Subleased Premises are located and otherwise
in placing a placard designating Subtenant's name, either on the entrance to the
Subleased Premises or immediately adjacent thereto. All such signage shall be
standard signage for the Building and subject to the approval of Lessor.
10. Master Lease. This Sublease is subject and subordinate to the Master
Lease. The provisions of the Master Lease are incorporated into this Sublease as
the agreement of Sublandlord and Subtenant and are applicable to this Sublease
with the same force and effect as though Sublandlord was landlord under the
Master Lease, and Subtenant was tenant under the Master Lease. Subtenant assumes
and agrees to make all payments with respect to the Subleased Premises and to
perform and be bound by all of Sublandlord's covenants and obligations contained
in the Master Lease with respect to the Subleased Premises. In the event of any
conflict between the terms and provisions of the Master Lease and this Sublease,
the terms and provisions of the Master Lease shall prevail and control.
11. Default by Subtenant. Subtenant shall not cause or allow to be caused
any default under the Master Lease, nor shall Subtenant permit anything to be
done which would cause the Master Lease to be terminated or forfeited by reason
of any right of termination or forfeiture reserved or vested in Lessor under the
Master Lease. In the event of any breach by Subtenant under the Master Lease or
this Sublease, Sublandlord shall have all the rights against Subtenant as would
be available to the landlord against the tenant under the Master Lease if such
breach were by the tenant thereunder including, but not limited to, the right to
terminate Subtenant's right to possession of the Subleased Premises and any
options granted under this Sublease and all other rights and remedies upon
default as set forth in the Master Lease.
12. Subtenant Indemnification. In addition to all other obligations it may
have under this Sublease, Subtenant shall indemnify, defend and hold Sublandlord
harmless from and against any losses, liabilities, obligations, damages, costs
and expenses (including reasonable attorneys' fees and costs) arising out of any
default under the Sublease or the Master Lease caused solely by Subtenant or its
employees, agents or contractors; provided, however, Subtenant shall have no
obligation to indemnify Sublandlord for matters arising out of the default,
negligence or willful misconduct of Sublandlord or its employees, agents or
contractors.
13. Lessor Consent. This Sublease is contingent upon Lessor consenting to
this Sublease and Lessor not exercising its rights of first offer under Section
11.03 of the Master Lease. Sublandlord shall submit this Sublease to Lessor for
its approval promptly after execution of this Sublease by Sublandlord and
Subtenant. Subtenant shall cooperate with Sublandlord in providing Lessor any
and all information concerning Subtenant as Lessor may request in connection
with its review of this Sublease and Subtenant. If Lessor's consent is
conditioned and Subtenant and Sublandlord accept the consent notwithstanding
such conditions, this Sublease shall be subject to the conditions of Lessor's
consent.
14. Future Assignment or Sublease. Subtenant shall not assign or otherwise
transfer, mortgage, pledge, hypothecate or encumber this Sublease or the
Subleased Premises, or any interest therein, and shall not sublet the Subleased
Premises or any part thereof, or any right or privilege appurtenant thereof, or
permit any other party to occupy the Subleased Premises, or any portion thereof,
without the written consent of Lessor and Sublandlord, which consent shall not
be unreasonably withheld by Sublandlord. Sublandlord's consent to any
assignment, transfer or subletting by Subtenant shall not relieve Subtenant from
any of its obligations under this Sublease.
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15. Tenant Alterations. Subtenant shall make no alteration, change,
improvement, repair, replacement or addition to the Subleased Premises without
the prior written consent of Lessor and Sublandlord. Sublandlord agrees that it
will not unreasonably withhold its consent to any of the foregoing. Subtenant
shall provide to Sublandlord copies of any and all plans, specifications,
notices and other correspondence delivered by Subtenant to Lessor which relate
to Subtenant's request for Lessor's approval hereunder. Notwithstanding anything
in this Sublease that may imply to the contrary, Subtenant is not entitled to
and shall not receive from Sublandlord any Expansion Allowance, Painting
Allowance, Other Improvement Allowance (as those terms are defined in the Master
Lease) or any other allowance now or hereafter granted or made available by
Lessor to Sublandlord, except Subtenant may be entitled to an Improvement
Allowance under Section 21 and a Future Expansion Option under Section 20 of
this Sublease, if the terms and conditions of those Sections are satisfied.
16. Insurance. Subtenant shall maintain, throughout the term of this
Sublease, such policy or policies of insurance with respect to the Subleased
Premises as Sublandlord is required to maintain pursuant to the Master Lease
including, but not limited to, the policies required pursuant to Section 9.02 of
the Master Lease. The required liability policies shall name Sublandlord and
Lessor as additional insureds, shall insure performance of the indemnities of
Subtenant contained in this Sublease and shall be primary coverage in the
instance of Subtenant's indemnities, so that any insurance coverage obtained by
Lessor or Sublandlord shall be in excess thereto. All policies required under
this Sublease shall be endorsed to provide a waiver of subrogation as to
Sublandlord and Lessor. Upon Sublandlord's request from time to time, Subtenant
shall promptly deliver to Sublandlord evidence that all premiums have been paid
and all policies are in full force and effect, all in such form as Sublandlord
may reasonably request. All policies required under this Sublease shall include
an agreement by the insurer that the policy shall not be canceled, terminated,
modified or allowed to expire without 15 days' written notice to Sublandlord.
17. Hazardous Materials. Subtenant shall not (either with or without
negligence) cause or permit the escape, disposal or release of any biologically
or chemically active or other hazardous substances or materials on or about the
Subleased Premises or any other portion of the Project, nor shall Subtenant
allow the storage or use of such substances or materials on or about the
Subleased Premises or any other portion of the Project, nor allow to be brought
into the Subleased Premises or any portion of the Project any such materials or
substances. Without limitation, hazardous substances and materials shall include
those described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act, the Superfund
Amendments and Re-Authorization Act of 1986, the Occupational Safety and Health
Act, the Clean Water Act, and any amendments to such acts, and any federal,
state or municipal laws, ordinances, regulations or common law which may now or
hereafter impose liability on Lessor or Sublandlord with respect to hazardous
substances. Subtenant shall be solely responsible for and shall defend,
indemnify and hold Lessor and Sublandlord, their agents and employees, harmless
from and against all claims, costs and liabilities, including attorneys' fees,
court costs and other expenses of litigation (1) arising out of or in connection
with any breach of this Section, or (2) arising out of or in any connection with
the removal, cleanup and restoration work and materials necessary to return the
Subleased Premises and the Project and any other property of whatever nature
located therein to their condition existing prior to the introduction of
hazardous materials in or about the Sublease Premises or Project. If any lender
or governmental agency shall ever require testing to ascertain whether or not
there has been any hazardous material on or about the Subleased Premises (or, as
a result of Subtenant's actions, on or about other portions of the Project),
then the cost thereof shall be reimbursed by Subtenant to Sublandlord upon
demand. In addition, Subtenant shall execute affidavits, representations and the
like from time to time at Lessor's or Sublandlord's request concerning
Subtenant's knowledge and belief regarding the presence of
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hazardous substances or materials on the Subleased Premises. The within
covenants and indemnities shall survive the expiration or earlier termination of
the term of this Sublease.
18. Termination of Master Lease. Sublandlord shall not do or suffer or
permit anything to be done which would constitute a default under the Master
Lease or would cause the Master Lease to be canceled, terminated or forfeited by
virtue of any rights of cancellation, termination or forfeiture reserved or
vested in the Lessor under the Master Lease. Notwithstanding the foregoing,
Sublandlord may voluntarily terminate the Master Lease during the term of this
Sublease provided Lessor agrees in writing to treat such termination as an
assignment of this Sublease by Sublandlord to Lessor. In the event of any such
termination, Subtenant shall be bound to Lessor for the balance of the term of
this Sublease as if Lessor were the Sublandlord under this Sublease, Subtenant
shall attorn to Lessor as its landlord, Sublandlord shall be released from any
liability with respect to such termination and no liability or obligation shall
thereafter accrue against Sublandlord with respect to this Sublease.
19. Sublandlord Indemnification. Sublandlord shall perform all of its
obligations as tenant under the Master Lease. Sublandlord shall indemnify,
defend and hold Subtenant harmless from and against any and all losses,
liabilities, obligations, damages, costs and expenses (including reasonable
attorneys' fees and costs) arising out of any default under the Master Lease
caused solely by Sublandlord or its employees, agents or contractors; provided,
however, Sublandlord shall have no obligation to indemnify Subtenant for matters
arising out of the default, negligence or willful misconduct of Subtenant or its
employees, agents or contractors.
20. Rights of First Offer. Pursuant to Articles 30.00 and 31.00 of the
Master Lease, Sublandlord has been granted certain rights of first offer (the
"Rights of First Offer") to lease additional space in the Building. Provided
Subtenant is not then in default under this Sublease and provided further that
Sublandlord does not intend to lease the subject Offer Space for its own use,
Sublandlord will promptly forward to Subtenant a copy of any written notice of
available First Offer Space or Second Offer Space (the "Offer Space") which
Sublandlord receives from Lessor under Article 30.00 or Article 31.00 of the
Master Lease. Upon all of the following conditions being satisfied, Sublandlord
will exercise its right to lease the Offer Space, in which event Subtenant shall
sublease the Offer Space specified in such notice upon the terms and conditions
herein set forth:
(a) Subtenant shall deliver to Sublandlord an unconditional, written
notice of Subtenant's exercise of its right to lease such Offer Space,
which notice must be received by Sublandlord at least one business day
prior to the date upon which Sublandlord is required to deliver to Lessor
its notice of exercise under Section 30.02 or 31.02 of the Master Lease;
(b) Subtenant shall not be in default beyond any applicable notice
and cure period under the Sublease at the time Lessor gives notice, or at
the commencement date of the Sublease of the Offer Space and there shall
have been no material adverse change in the financial condition of
Subtenant from the date of this Sublease;
(c) Sublandlord does not desire to use the subject Offer Space for
its own use, it being understood that Subtenant's rights under the Rights
of First Offer shall at all times be subordinate to the rights of
Sublandlord; and
(d) Lessor in fact leases such Offer Space to Sublandlord.
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The terms of any sublease of the Offer Space will be exactly the same as those
on which Sublandlord leases such space from Lessor, the terms of which are set
forth in the Master Lease, including the right to any Future Expansion
Allowance, but only to the extent actually paid by Lessor and allocable to the
Offer Space which Subtenant subleases hereunder. Any payments of Future
Expansion Allowance to Subtenant shall be contingent upon Sublandlord receiving
payment from Lessor, and Sublandlord's receipt and approval of invoices and such
other evidence that such funds have been spent for the design and construction
of improvements with the subject Offer Space, as Subtenant may request. It is
the intent of the parties that any sublease of Offer Space be a net sublease to
Sublandlord, and Subtenant shall reimburse Sublandlord for any reasonable
out-of-pocket expenses incurred by Sublandlord in leasing the Offer Space
hereunder. The obligation of Subtenant to sublease the Offer Space shall be
automatic upon satisfaction of the foregoing conditions. Nonetheless, within 15
days of receipt from Sublandlord, Subtenant shall execute an amendment to this
Sublease to evidence any lease under this Section, provided such amendment is
consistent with the terms hereof. Sublandlord shall use good faith efforts in
providing Subtenant with notices from Lessor hereunder and otherwise attempting
to make available to Subtenant any Offer Space which is offered to Sublandlord
under the Rights of First Offer. Subtenant's remedies for Sublandlord's failure
to deliver any Offer Space in accordance with the provisions of this Sublease
shall be limited to $10,000, and Subtenant shall have no claim for and hereby
waives all rights to any other damages, specific performance or any other legal
or equitable relief against Sublandlord or any other party.
21. Improvement Allowance. Sublandlord shall provide an improvement
allowance not to exceed $35,000 (the "Improvement Allowance") for the purpose of
contributing toward the cost of any design, engineering and construction of
approved improvements within the Subleased Premises (the "Leasehold
Improvements") upon the terms and conditions set forth herein. Within 75 days
after receipt of substantiating invoices and lien waivers acceptable to
Sublandlord and Lessor, Sublandlord shall pay to Tenant an amount equal to
invoices submitted for Leasehold Improvements, but not to exceed the Improvement
Allowance. Any portion of the Improvement Allowance for which invoices have not
been submitted as of November 1, 1999 shall be deemed Sublandlord's and no
longer available to Subtenant, and no Rent or any other amounts owed hereunder
shall be offset by such amount. Subtenant acknowledges that all or part of the
Improvement Allowance will be funded by Sublandlord from allowances granted to
Sublandlord under the Master Lease. Subtenant shall cooperate with Sublandlord
in promptly providing to Sublandlord any and all invoices, plans,
specifications, drawings and other documentation as Sublandlord may reasonably
request, including, but not limited to, any such documents as may be required by
Lessor, in order to assure Sublandlord and Lessor that the Improvement Allowance
is properly payable hereunder.
22. Governing Law. This Sublease shall be governed by and construed in
accordance with the laws of the State of Colorado.
23. Severability. Should any of the provisions of this Sublease to any
extent be held to be invalid or unenforceable, the remainder of this Sublease
shall continue in full force and effect.
24. Entire Agreement. This Sublease embodies the entire understanding and
agreement among the parties relative to the matters contained herein, and
supersedes all prior negotiations, understandings or agreements in regard
thereto, whether written or oral.
25. Waiver. No provision of this Sublease may be waived, except by an
agreement in writing signed by all of the parties hereto. A waiver of any term
or provision shall not be construed as a waiver of any other term or provision.
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26. Headings. The subject headings used in this Sublease are included for
purposes of reference only, and shall not affect the construction or
interpretation of any of its provisions.
27. Amendment. This Sublease may be amended, altered or revoked only by
written instrument executed by all of the parties.
28. Notices. All notices required or permitted by this Agreement shall be
in writing and shall be given by personal delivery or sent to the address of the
party set forth below by registered or certified mail, postage prepaid, return
receipt requested, or by reputable overnight courier, prepaid, receipt
acknowledged. Notices shall be deemed received on the earlier of the date of
actual receipt or, in the case of notice by mail or overnight courier, the date
of receipt marked on the acknowledgment of receipt. Rejection or refusal to
accept or the inability to deliver because of change of address of which no
notice was given shall be deemed to be received as of the date such notice was
deposited in the mail or delivered to the courier.
If to Sublandlord: Snyder Oil Corporation
1625 Broadway, Suite 2200
Denver, CO 80202
Attn: Rodney L. Waller
If to Subtenant: Patina Oil & Gas Corporation
1625 Broadway, Suite 2000
Denver, CO 80202
Attn: General Counsel
Any party may change its address to which notices should be sent to it by giving
the other parties written notice of the new address in the manner set forth in
this paragraph.
29. Notices from Lessor. Sublandlord and Subtenant shall use good faith
efforts to promptly forward to one another copies of any notices applicable to
this Sublease or the Subleased Premises which either of them may receive from
Lessor under the Master Lease.
30. Construction. All terms used in this Sublease shall have the same
meaning as assigned to them in the Master Lease except as otherwise expressly
provided herein.
31. Further Acts. Upon reasonable request from a party hereto, from time
to time, each party shall execute and deliver such additional documents and
instruments and take such other actions as may be reasonably necessary to give
effect to the intents and purposes of this Sublease.
32. Attorneys' Fees. In the event of any litigation or arbitration
proceedings between the parties hereto concerning the subject matter of this
Sublease, the prevailing party in such litigation or proceeding shall be
awarded, in addition to the amount of any judgment or other award entered
therein, the costs and expenses, including reasonable attorneys' fees, incurred
by the prevailing party in the litigation or proceeding.
- 10 -
Patina sub lease
<PAGE>
33. Binding Effect. This Sublease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
34. Brokers. Each party represents and warrants to the other that it has
not dealt with any real estate broker or finder in connection with this
Sublease. Each party shall indemnify and hold harmless the other from any loss,
claim, damage, obligation, cost or expense, including reasonable attorneys'
fees, arising out of any claim made by any other broker or finder claiming by,
through or under such party.
35. Authority. Each party represents and warrants unto the other that (a)
it is a duly organized and existing legal entity under the laws of the State in
which it is organized, and in good standing and authorized to do business in the
State of Colorado, (b) it has full right and authority to execute, deliver and
perform this Sublease, (c) the person executing this Sublease is authorized to
do so, and (d) upon request of Sublandlord, such person executing on behalf of
Subtenant will deliver satisfactory evidence of his or her authority to execute
this Sublease on behalf of Subtenant.
36. Effective Date. Pursuant to the Agreement and Plan of Merger between,
among others, Subtenant and Sublandlord, Subtenant is responsible for the
occupancy costs for two floors of Sublandlord's space under the Master Lease as
of May 1, 1996. The Subleased Premises represents the two floors contemplated by
that Agreement. As of the Commencement Date, some of Subtenant's employees are
occupying a portion of the Premises other than the Subleased Premises, and some
of Sublandlord's employees may be occupying a portion of the Subleased Premises.
Subtenant and Sublandlord will relocate their respective employees to the
Subleased Premises and the balance of the Premises, respectively, within 15 days
following written notice given by the other party. Notwithstanding the
foregoing, Subtenant acknowledges that it has accepted delivery of the Subleased
Premises as of the Commencement Date.
THIS SUBLEASE is executed by the parties effective as of the date first
above written, notwithstanding the actual date of execution.
SUBLANDLORD:
SNYDER OIL CORPORATION,
a Delaware corporation
By:
Its:
- 11 -
Patina sub lease
<PAGE>
SUBTENANT:
PATINA OIL & GAS CORPORATION,
a Delaware corporation
By:
Its:
- 12 -
Patina sub lease
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