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 SEPTEMBER 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
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Commission file number 1-14344
PATINA OIL & GAS CORPORATION
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DELAWARE 75-2629477
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1625 BROADWAY, DENVER, COLORADO 80202
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (303)389-3600
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Former name,former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
There were 19,295,832 Common Shares outstanding as of November 7, 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 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>
PATINA OIL & GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets
Cash and equivalents ...................................................... $ 1,000 $ 9,469
Accounts receivable ....................................................... 6,611 15,387
Inventory and other ....................................................... 2,000 2,669
----------- -----------
9,611 27,525
----------- -----------
Oil and gas properties, successful efforts method .............................. 333,513 551,908
Accumulated depletion, depreciation and amortization ...................... (118,919) (148,826)
----------- -----------
214,594 403,082
----------- -----------
Gas facilities and other ....................................................... 4,775 6,034
Accumulated depreciation .................................................. (4,459) (4,811)
------------ -----------
316 1,223
------------ -----------
Other assets, net .............................................................. - 3,528
------------ -----------
$ 224,521 $ 435,358
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .......................................................... $ 3,852 $ 15,480
Accrued liabilities ....................................................... 415 8,742
Payable to parent ......................................................... 5,344 56
------------ -----------
9,611 24,278
------------ -----------
Senior debt .................................................................... - 101,250
Subordinated notes ............................................................. - 103,264
Debt to parent ................................................................. 75,000 -
Other noncurrent liabilities ................................................... 26,247 6,657
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 19,867,232 shares
issued and outstanding ............................................... 140 199
Capital in excess of par value ............................................ - 193,387
Investment by parent ...................................................... 113,523 -
Retained earnings (deficit) ............................................... - (3,418)
------------ -----------
113,663 190,180
------------ -----------
$ 224,521 $ 435,358
============ ===========
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ---------------------
1995 1996 1995 1996
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales .................................. $ 11,423 $ 22,729 $ 38,571 $ 52,546
Other .............................................. - 368 29 661
-------- -------- -------- --------
........................................................ 11,423 23,097 38,600 53,207
-------- -------- -------- --------
Expenses
Direct operating ................................... 2,201 4,161 6,967 9,562
Exploration ........................................ 194 18 333 167
General and administrative ......................... 1,071 1,547 4,613 4,661
Interest and other ................................. 1,349 4,808 4,118 9,787
Depletion, depreciation and amortization ........... 7,372 13,232 24,323 31,955
-------- -------- -------- --------
Income (loss) before taxes .............................. (764) (669) (1,754) (2,925)
-------- -------- -------- --------
Provision (benefit) for income taxes
Current ............................................ - - - -
Deferred ........................................... (267) - (614) (394)
-------- -------- -------- --------
(267) - (614) (394)
-------- -------- -------- --------
Net income (loss) ....................................... $ (497) $ (669) $ (1,140) $ (2,531)
======== ======== ======== ========
Net income (loss) per common share ...................... $ (.04) $ (.07) $ (.08) $ (.23)
======== ======== ======== ========
Weighted average shares outstanding ..................... 14,000 19,866 14,000 17,271
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
<TABLE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<CAPTION>
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 ....................... - - 2 - 18 - -
Repurchase of common ..................... - - (135) (1) (922) - -
Preferred dividends ...................... - - - - - - (1,419)
Net loss subsequent to the Merger ........ - - - - - - (1,999)
------ ------ ------ ------ --------- --------- ---------
Balance, September 30, 1996
(Unaudited) 1,205 $ 12 19,867 $ 199 $ 193,387 $ - $ (3,418)
====== ====== ====== ====== ========= ========= ========
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
<TABLE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
------------------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Operating activities
Net income (loss) .................................................... $ (1,140) $ (2,531)
Adjustments to reconcile net income (loss) to net
cash provided by operations
Exploration expense ......................................... 333 167
Depletion, depreciation and amortization .................... 24,323 31,955
Deferred taxes .............................................. (614) (394)
Amortization of deferred credits ............................ (1,606) (605)
Changes in current and other assets and liabilities
Decrease in
Accounts receivable ................................. 3,151 4,904
Inventory and other ................................. - 304
Increase (decrease) in
Accounts payable .................................... (8,032) (4,085)
Accrued liabilities ................................. 535 1,428
Other liabilities ................................... - 2,357
---------- ---------
Net cash provided by operations ............................. 16,950 33,500
---------- ---------
Investing activities
Acquisition, development and exploration ............................. (20,625) (3,042)
Merger expenditures, net of cash acquired ............................ - (2,019)
Sale of oil and gas properties ...................................... 782 1,111
---------- ---------
Net cash used by investing .................................. (19,843) (3,950)
---------- ---------
Financing activities
Increase (decrease) in payable/debt to parent - (80,288)
Increase (decrease) in indebtedness ................................... (4,333) 79,783
Deferred credits ...................................................... 2,961 814
Change in investment by parent ........................................ 4,265 (7,514)
Cost of common stock issuance ......................................... - (11,534)
Repurchase of common stock ............................................ - (923)
Preferred dividends ................................................... - (1,419)
---------- ----------
Net cash realized (used) by financing ........................ 2,893 (21,081)
---------- ----------
Increase in cash ........................................................... - 8,469
Cash and equivalents, beginning of period .................................. 1,000 1,000
---------- ---------
Cash and equivalents, end of period $ 1,000 $ 9,469
========== =========
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 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 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 currently owns approximately 73% 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, GOG's certificate of incorporation
was amended to provide that all shares of GOG's preferred stock not exchanged in
the Original Exchange Offer be exchanged for the Company's preferred stock on
the same terms as the Original Exchange Offer. The expected dividend payments
resulting from this exchange have been accrued at September 30, 1996. Upon
consummation of this exchange, the Company will have approximately 1.6 million
preferred shares outstanding.
The above transactions were accounted for as a purchase of GOG. The
amounts and results of operations 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. Subsequent to September 30, 1996, both oil and natural gas prices
have increased considerably, however, there can be no assurance that these
increases will be sustained. 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
7
<PAGE>
unsuccessful. Costs of productive wells, unsuccessfuldevelopmental wells and
productive leases are capitalized and amortized on a unit-of-production basis
over the life of 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 fourth quarter 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 nine months ended September 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 nine months ended September 30, 1996 was
$1,603,000. Scheduled amortization for the next five years is $1,029,000 for the
remainder of 1996, $1,500,000 in 1997, $500,000 in 1998, and $250,000 in each of
1999 and 2000.
Section 29 Tax Credits
The Company from time to time enters into arrangements to monetize its
Section 29 tax credits. These arrangements result in revenue increases of
approximately $.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
gas revenues of $1.6 million and $1.2 million during the nine months ended
September 30, 1995 and 1996, respectively. These arrangements are expected to
increase revenues through 2002.
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 September 30, 1996 were insignificant.
Financial Instruments
The book value and estimated fair value of cash and equivalents was $1.0
million and $9.5 million at December 31, 1995 and September 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 $101.3 million at December 31, 1995
and September 30, 1996. The fair value is presented at face value given its
floating rate structure. The book value of the Senior Subordinated Notes
("Subordinated Notes" or "Notes") was $103.3 million and the estimated fair
value was $104.2 million at September 30, 1996. The fair value is estimated
based on their price on the New York Stock Exchange.
In September and October 1996, the Company entered into various swap
sales contracts with a weighted average oil price (NYMEX based) of $22.87 for
contract volumes of 295,000 barrels of oil for October 1996 through February
1997. The Company also sold calls for $255,000 on its production of 255,000
barrels of oil for October 1996 through March 1997 at a weighted average oil
price of $23.51 (NYMEX based).
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 nine
months ended September 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
8
<PAGE>
its debt to SOCO of $4.1 million and $1.6 million for the nine months ended
September 30, 1995 and through May 2, 1996, which was reflected as an increase
in debt to SOCO.
Certain amounts in prior period 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).
(3) OIL AND GAS PROPERTIES
The cost of oil and gas properties at December 31, 1995 and September 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>
NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Acquisition ............................................. $ 650 $ 216,864
Development ............................................. 12,141 2,642
Exploration ............................................. 416 167
Other ................................................... 13 47
---------- ---------
$ 13,220 $ 219,720
========== =========
</TABLE>
Due to management's focus on effectively combining the predecessor
companies, minimal development activity was undertaken during the first nine
months of 1996. With the recent increase in commodity prices and significant
progress made in consolidating the operations of GOG and SWAT, the Company has
begun to increase development expenditures. The Company anticipates incurring
development expenditures of approximately $5 million in the fourth quarter of
1996.
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>
NINE MONTHS ENDED SEPTEMBER 30,
1995 1996
------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenues ........................................................ $ 80,005 $ 70,157
Gross operating margin ................................................ $ 65,886 $ 57,396
Depletion, depreciation and amortization .............................. $ 49,968 $ 40,607
Net income (loss) ..................................................... $ (8,815) $ (6,191)
Net income (loss) per common share .................................... $ (.44) $ (.31)
Weighted average shares outstanding ................................... 20,000 19,943
</TABLE>
9
<PAGE>
(4) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Bank facilities ........................................ $ - $ 101,250
Less current portion ................................... - -
------------- -----------
Senior debt, net .................................. $ - $ 101,250
============= ===========
Subordinated notes ..................................... $ - $ 103,264
============= ===========
Debt to parent ......................................... $ 75,000 $ -
============= ===========
</TABLE>
As of November 4, 1996, the Company had approximately $195.2 million of
debt outstanding, consisting of $92.0 million of senior debt and $103.2 million
of Subordinated Notes.
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").
The Company Facility is a revolving credit facility in an aggregate
amount up to $102 million. The amount available for borrowing under the Company
Facility is limited to a semiannually adjusted borrowing base that equaled $102
million at September 30, 1996. At September 30, 1996, $73.3 million was
outstanding under the Company Facility. On November 1, 1996, the borrowing base
was adjusted to $85 million. Prior to September 30, 1996, the Company had a term
loan facility in an amount up to $87 million. This term loan facility was
available to fund GOG's repurchases of the Subordinated Notes. At September 30,
1996, the Company had not utilized the term loan facility and it was cancelled.
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 is
limited to a semiannually adjusted borrowing base that equaled $51 million at
September 30, 1996. At September 30, 1996, $28.0 million was outstanding under
the GOG Facility. On November 1, 1996, the borrowing base was adjusted to $35
million. 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% (the "Applicable Margin") or (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% (the "Eurodollar Margin"). During the period subsequent to the Merger
through September 30, 1996, the average interest rate under the facilities
approximated 6.9%.
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
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<PAGE>
Notes. The Company has also repurchased an additional $1.3 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 $103.3 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.
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, SOCO charged interest at a rate which approximated the average interest
rate being paid by SOCO under its revolving credit facility (7.0% and 6.9% for
the nine months ended September 30, 1995 and the five months ended May 2, 1996,
respectively).
Scheduled maturities of indebtedness for the next five years are zero for
the remainder of 1996, 1997 and 1998, $101.3 million in 1999 and zero in 2000.
The long-term portions 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 $8.2 million for the nine months
ended September 30, 1995 and 1996, respectively.
(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 September 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 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 135,400
shares of common stock for $923,000. Subsequent to September 30, 1996 the
Company repurchased 571,400 shares of common stock, 500,000 warrants issued to
Gerrity's former chief executive officer, and 80,549 warrants for total
consideration of $5.1 million. No dividends have been paid on common stock as of
September 30, 1996.
A total of 5 million preferred shares, $.01 par value, are authorized of
which 1.2 million were issued and outstanding at September 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 the
Original Exchange Offer. 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.
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<PAGE>
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 $1.1 million ($1.78 per 7.125% convertible share per annum) in
preferred dividends during the nine months ended September 30, 1996 and had
accrued an additional $701,000 at September 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 with an exercise price of $7.75 per common
share. 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 2,632 shares have been issued to date in 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 with an exercise price of $7.75 per
common share. The options vest over a three-year period (30%, 60%, 100%) and
expire five years from date of grant.
Earnings per share are computed by dividing net income, less dividends on
preferred stock, by weighted average common shares outstanding. Net loss
applicable to common for the nine months ended September 30, 1995 and 1996, was
$1,140,000 and $3,950,000, 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 nine months ended September 30, 1995 and 1996
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1995 1996
---------- ----------
<S> <C> <C>
Federal statutory rate ........................................... (35%) (35%)
Loss in excess of net deferred tax liability ..................... - 22%
---------- ----------
Effective income tax rate (35%) (13%)
========== ==========
</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 nine months ended September 30, 1995 and 1996, PanEnergy,
Inc. accounted for 54% and 33%, Amoco Production Company accounted for 22% and
20%, and Total Petroleum accounted for 17% and 12% of revenues, respectively.
12
<PAGE>
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) 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.
(9) COMMITMENTS AND CONTINGENCIES
In August 1995, SOCO was sued in the United States District Court of
Colorado by 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 various lease provisions.
Substantially all liability under this suit was assumed by Patina upon its
formation. In January 1996, GOG was also sued in a similar but separate action
filed in the Colorado State Court. The plaintiffs, in both suits, allege that
the companies improperly deducted unspecified "post-production" costs in
calculating royalty payments in breach of the relevant lease provisions and that
fact was fraudulently concealed 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. The Company, SOCO 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. 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 results 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 results 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
<PAGE>
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 purchase.
Total revenues for the three month and nine month periods ended September
30, 1996 increased to $23.1 million and $53.2 million. The amounts represented
increases of 102% and 38% 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 third quarter 1996 was $669,000 compared to
a net loss of $497,000 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 Subordinated Notes and higher depletion expense.
Oil and gas sales less direct operating expenses for the three months ended
September 30, 1996 were $18.6 million, a 101% increase from the prior year
period. Average daily production in the third quarter of 1996 was 5,529 barrels
and 74.8 MMcf (18,004 barrels of oil equivalent), increases of 60% and 37%,
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 68 wells
placed on production in the first nine months of 1995 compared to seven wells in
the first nine months of 1996. Total production volumes increased in the third
quarter due to the full quarter effect of the Merger and a modest drilling and
recompletion program which was initiated in the third quarter. However, in the
future, 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 commodity prices
being received for production. However, unless prices increase significantly,
development drilling is expected to remain limited.
Average oil prices increased to $19.92 per barrel compared to $15.90
received in the third quarter of 1995. Natural gas prices increased from $1.27
per Mcf in the third quarter of 1995 to $1.83 in 1996. The increase in natural
gas prices was primarily the result of prior year production being marketed
under term arrangements which were based on Rocky Mountain region pricing (which
was depressed) whereas the 1996 production benefitted from several factors. A
portion of these term arrangements expired during 1996 which 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. In addition,
enhanced marketing results combined with higher natural gas liquids prices
contributed to the overall price increase. Direct operating expenses increased
to $2.51 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 and the overall decline in production. 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 the third
quarter 1996 were $1.5 million, a 44% increase from the same period in 1995. The
increase is the result of the Merger partially offset by reductions in allocated
costs from 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.
Interest and other expense was $4.8 million compared to $1.3 million in the
third quarter of 1995. Interest expense increased as a result of higher 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 9.3% compared to 7.0% in the
third quarter 1995. This increase is due primarily to the Subordinated Notes.
14
<PAGE>
Depletion, depreciation and amortization expense for the third quarter
totalled $13.2 million, an increase of $5.9 million or 80% from the same period
in 1995. The increase resulted from the increase in production and an increased
depletion, depreciation and amortization rate of $7.99 per BOE compared to $6.39
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 nine months ended September 30, 1996, the Company incurred
$219.7 million in capital expenditures. Of this amount, $216.9 million related
to the acquisition of GOG by the issuance of stock of the Company. Capital
expenditures, exclusive of acquisitions, totalled only $2.8 million as the
Company has continued to limit its development activity based on Rocky Mountain
natural gas prices. With the recent increase in commodity prices, management
intends to increase the drilling and recompletion activity in the fourth quarter
of 1996. The Company anticipates incurring development capital expenditures of
approximately $5 million during this period.
FINANCIAL CONDITION AND CAPITAL RESOURCES
At September 30, 1996, the Company had total assets of $435.4 million.
Total capitalization was $394.7 million, of which 48% was represented by
stockholder's equity, 26% by senior debt and 26% by subordinated debt. During
the nine months ended September 30, 1996, net cash provided by operations was
$33.5 million, as compared to $16.9 million for the same period in 1995. As of
September 30, 1996, there were no commitments for capital expenditures. The
Company anticipates that 1996 expenditures for development drilling and
recompletion activity subsequent to the Merger, will be less than $9 million,
which will allow for a reduction of indebtedness, provide funds to pursue
acquisitions, or additional securities repurchases. 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 may need to be retained by GOG and
might therefore 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 is a revolving credit facility in an aggregate amount
up to $102 million. The amount available for borrowing under the Company
Facility is limited to a semiannually adjusted borrowing base that equaled $102
million at September 30, 1996. At September 30, 1996, $73.3 million was
outstanding under the Company Facility. On November 1, 1996, the borrowing base
was adjusted to $85 million. Prior to September 30, 1996, the Company had a term
loan facility in an amount up to $87 million. This term loan facility was
available to fund GOG's repurchases of the Subordinated Notes. At September 30,
1996, the Company had not utilized the term loan facility and it was cancelled.
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 is
limited to a semiannually adjusted borrowing base that equaled $51 million at
September 30, 1996. At September 30, 1996, $28.0 million was outstanding under
the GOG Facility. On November 1, 1996, the borrowing base was adjusted to $35
million. The GOG Facility was used primarily to refinance GOG's previous bank
credit facility and pay costs associated with the Merger.
15
<PAGE>
As of November 4, 1996, the Company had approximately $195.2 million of
debt outstanding, consisting of $92.0 million of senior debt and $103.2 million
of Subordinated Notes.
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.
The Company from time to time enters into arrangements to monetize its
Section 29 tax credits. These arrangements result in revenue increases of
approximately $.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
gas revenues of $1.6 million and $1.2 million during the nine months ended
September 30, 1995 and 1996, respectively. These arrangements are expected to
increase revenues through 2002.
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.
16
<PAGE>
INFLATION AND CHANGES IN PRICES
While certain of its costs are affected by the general level of inflation,
factors unique to the oil and gas 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.
The following table indicates the average oil and gas prices received over
the last four years and highlights the price fluctuations by quarter for 1995
and 1996. Average price computations exclude contract settlements and other
nonrecurring items to provide comparability. Average prices per equivalent
barrel indicate the composite impact of changes in oil and gas prices. Natural
gas production is converted to oil equivalents at the rate of 6 Mcf per barrel.
<TABLE>
<CAPTION>
AVERAGE PRICES
--------------------------------------------
NATURAL EQUIVALENT
CRUDE OIL GAS BARRELS
--------- --------- ---------
(Per Bbl) (Per Mcf) (Per BOE)
<S> <C> <C> <C>
ANNUAL
1992 ...................... $19.06 $1.82 $13.12
1993 ...................... 15.87 2.08 13.33
1994 ...................... 14.84 1.70 11.66
1995 ...................... 16.43 1.34 10.35
QUARTERLY
1995
First ..................... $16.37 $1.37 $10.51
Second .................... 17.24 1.19 9.84
Third ..................... 15.90 1.27 9.91
Fourth .................... 16.12 1.55 11.27
1996
First ..................... $18.31 $1.44 $11.27
Second .................... 20.24 1.60 12.75
Third ..................... 19.92 1.83 13.72
</TABLE>
In September 1996, the Company received an average of $21.07 per barrel and
$1.82 per Mcf for its production.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
10.1.2 Second Amendment to Credit Agreement effective October 8, 1996
by and among the Company, Gerrity Oil & Gas Corporation and
SOCO Wattenberg Corporation, as Borrowers, and Texas Commerce
Bank National Association, as Administrative Agent, and
certain commercial lending institutions.
10.1.3 Third Amendment to Credit Agreement effective November 1, 1996
by and among the Company, Gerrity Oil & Gas Corporation and
SOCO Wattenberg Corporation, as Borrowers, and Texas Commerce
Bank National Association, as Administrative Agent, and
certain commercial lending institutions.
10.4 Sublease Agreement dated as of October 7, 1996 by and between
Gerrity Oil & Gas Corporation, as Sublandlord, and Shadownet
Technologies, L.L.C.
27 Financial Data Schedule
18
<PAGE>
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 (DAVID J. KORNDER)
-------------------------------
David J. Kornder, Vice President
and Chief Financial Officer
November 7, 1996
19
EXHIBIT 10.1.2
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (this "Amendment") is entered
into effective as of the 8th day of October, 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, pursuant to that certain First Amendment to Credit Agreement,
dated as of June 28, 1996, by and among Borrowers, Agents and Banks, the parties
amended and revised certain provisions of the Credit Agreement, all as more
particularly described therein; and
WHEREAS, subject to the terms and conditions set forth herein, Borrowers,
Agents and Banks desire to further amend and waive certain provisions of the
Credit Agreement, all as more fully described herein.
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 October 8, 1996 (the "Effective Date") in the manner
provided in this Section 1.
1.1. Amendment to Definitions. The definition of "Loan Papers" contained in
<PAGE>
Section 1.1 of the Credit Agreement shall be amended to read in full as follows:
"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, the Second Amendment, all Mortgages now or
at any time hereafter delivered pursuant to Section 5.1, and all other
certificates, documents or instruments
1
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:
"Second Amendment" means the Second Amendment to Credit Agreement
dated effective as of October 8, 1996, entered into by and among
Borrowers, Agents, and Banks.
1.3. Restricted Payments Covenant. Section 9.2 of the Credit Agreement
shall be amended to read in full as follows:
SECTION 9.2. Restricted Payments. Neither any Borrower nor any
Restricted Subsidiary of any Borrower will declare or make any Restricted
Payment; provided, that, so long as no Default, Event of Default or
Borrowing Base Deficiency then exists, and provided that no Default or
Event of Default would result therefrom (a) Patina shall be permitted to
(i) declare and pay accrued dividends on the Preferred Stock, and (ii)
repurchase any of its Common Stock or Preferred Stock or warrants, options
or other rights to acquire such Common Stock or Preferred Stock, so long
as, at any date, the sum of (A) the aggregate amount of all such dividends
declared and paid pursuant to clause (a)(i) above during the period
commencing on the Closing Date to and including such date, plus (B) the
aggregate amount of all such Common Stock or Preferred Stock or warrants,
options or other rights to acquire such Common Stock or Preferred Stock
repurchased by Patina pursuant to clause (a)(ii) above, plus (C) the
aggregate amount of all Investments made by Patina to purchase Gerrity
Preferred Stock from the Closing Date to and including the date of such
declaration or payment (excluding Investments in Gerrity Preferred Stock
made in the form of Preferred Stock or Common Stock) shall not exceed the
Patina Restricted Payment Limit in effect at such time, and (b) Gerrity
<PAGE>
shall be permitted to (i) repurchase or redeem Subordinate Notes (A)
tendered to Gerrity for redemption on the Subordinate Note Redemption Date
pursuant to Section 4.08 of the Indenture, and (B) after the Subordinate
Note Redemption Date, and (ii) declare and pay accrued dividends on the
Gerrity Preferred Stock, so long as, at any date, the sum of (A) the
aggregate amount of all dividends declared and paid on the Gerrity
Preferred Stock during the period commencing on the Closing Date to and
including such date (excluding any such dividends paid to Patina), plus
(B) the excess of the aggregate repurchase or redemption price paid by
Gerrity for all Subordinate Notes repurchased or redeemed by Gerrity
subsequent to the Closing Date over the sum of (1) 101% of the aggregate
principal balance of all such Subordinate Notes on the date of
redemption or repurchase, plus (2) accrued but unpaid interest on all such
Subordinate Notes redeemed on the date of redemption or repurchase, shall
not exceed the Gerrity Restricted Payment Limit in effect on such date.
Nothing
contained in this Section 9.2 shall limit or impair the right and ability
of Gerrity to make Distributions to Patina or the right and ability of the
Restricted Subsidiaries of each Borrower to make Distributions to such
Borrower or to other Restricted Subsidiaries of such Borrower.
1.4. Hedge Transactions Covenant. Section 9.11 of the Credit Agreement
shall be amended to read in full as follows:
SECTION 9.11. _____ Oil and Gas Hedge Transactions. No Borrower
will, and no Borrower will permit any of its Restricted Subsidiaries to,
enter into Oil and Gas Hedge Transactions which would cause the volume of
(a) (i) the aggregate notional volume of oil which is the subject of oil
Oil and Gas Hedge Transactions in existence at any time to exceed
seventy-five percent (75%) of any such Borrower's and its Restricted
Subsidiaries' anticipated production of oil from proved, developed
producing reserves during the entire term of such existing Oil and Gas
Hedge Transactions, and (ii) the notional volume of oil with respect to
which a settlement is required on a particular settlement date under such
oil Oil and Gas Hedge Transactions to exceed (A) [ninety percent (90%)] of
any such Borrower's and its Restricted Subsidiaries' anticipated
production of oil from proved, developed producing reserves for the period
(a "Settlement Period") from the immediately preceding settlement date
under any oil Oil and Gas Hedge Transaction (or the commencement of such
Oil and Gas Hedge Transaction in the event there is no prior settlement
<PAGE>
date) to such settlement date in the case of any Settlement Period ending
on or prior to January 31, 1997, and (B) seventy five percent (75%) of any
such Borrower's and its Restricted Subsidiaries' anticipated production of
oil from proved, developed producing reserves for any Settlement Period
thereafter, and (b) (i) the aggregate notional volume of gas which is the
subject of gas Oil and Gas Hedge Transactions in existence at any time to
exceed seventy-five percent (75%) of any such Borrower's and its
Restricted Subsidiaries' anticipated production of gas from proved,
developed producing reserves during the entire term of such existing Oil
and Gas Hedge Transactions, and (ii) the notional volume of gas with
respect to which a settlement is required on a particular settlement date
under such gas Oil and Gas Hedge Transactions to exceed (A) [ninety
percent (90%)] of any such Borrower's and its Restricted Subsidiaries'
anticipated production of gas from proved, developed producing reserves
for the Settlement Period ending on such settlement date in the case of
any Settlement Period ending on or prior to January 31, 1997, and (B)
seventy-five percent (75%) of any such Borrower's and its Restricted
Subsidiaries' anticipated production of gas from proved, developed
producing reserves for any Settlement Period thereafter.
SECTION 2. Waiver Regarding September 15 Reserve Report. Banks hereby
waive Borrowers' obligation to comply with Section 4.1 of the Credit Agreement
to the extent, but only to the extent, that Section 4.1 requires Borrowers to
deliver to each Bank, by September 15, 1996, a Patina Reserve Report, Patina
Related Asset Report, Gerrity Reserve Report and Gerrity Related Asset Report
prepared as of June 30, 1996 (collectively, the "September 96 Reports"). Each
Borrower hereby acknowledges that such waiver is limited solely to Section 4.1
of the Credit Agreement, and solely to the September 96 Reports. Nothing
contained herein shall obligate Banks to grant any additional or future waiver
of Section 4.1 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) neither a Default nor an Event of Default has occurred which is
continuing; and
<PAGE>
(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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective Authorized Officers on October __, 1996, but
effective as of 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
<PAGE>
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:
1/209116.5
4
EXHIBIT 10.1.3
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement (this "Amendment") is entered
into effective as of the 1st day of November, 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 (as
amended through the date hereof, 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, pursuant to that certain First Amendment to Credit Agreement,
dated as of June 28, 1996, by and among Borrowers, Agents and Banks, the parties
amended and revised certain provisions of the Credit Agreement, all as more
particularly described therein; and
WHEREAS, pursuant to that certain Second Amendment to Credit Agreement,
dated as of October 8, 1996, by and among Borrowers, Agents and Banks, the
parties further amended and revised certain provisions of the Credit Agreement,
all as more particularly described therein; and
WHEREAS, subject to the terms and conditions set forth herein, Borrowers,
Agents and Banks desire to further amend certain provisions of the Credit
Agreement, all as more fully described herein.
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, each
Borrower, 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 November 1, 1996 (the "Effective Date") in the manner
provided in this Section 1.
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:
1/219276.2
1
<PAGE>
"Initial Restricted Payment Limit" means $11,000,000 and "Allocated
Shares of Initial Restricted Payment Limit" means (a) with respect to
Patina, $9,000,000, and (b) with respect to Gerrity, $2,000,000.
"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, the Second Amendment, the Third 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:
"Third Amendment" means the Third Amendment to Credit Agreement
dated effective as of November 1, 1996, entered into by and among
Borrowers, Agents, and Banks.
1.3. Gerrity Financial Covenant. Section 10.3(b) of the Credit Agreement
shall be amended to read in full as follows:
(b) Gerrity will not permit its ratio of Consolidated Funded Debt to
Consolidated Total Capital as of the end of any Fiscal Quarter ending on
or after September 30, 1996 to exceed .67 to 1.
SECTION 2. Borrowing Base.
(a) Patina Borrowing Base. In accordance with Section 4.2 of the Credit
Agreement, effective November 1, 1996 and continuing until the earlier of (i)
the next Patina Periodic Determination, or (ii) the next Patina Special
Determination, the Patina Borrowing Base shall be $85,000,000.
(b) Gerrity Borrowing Base. In accordance with Section 4.6 of the Credit
Agreement, effective November 1, 1996, and continuing until the earlier of (i)
the next Gerrity Periodic Determination, (ii) the next Gerrity Special
Determination, or (iii) the next Gerrity Readjustment Date, the Gerrity
Borrowing Base shall be $35,000,000.
SECTION 3. Patina Term Loan. Each Borrower, each Agent, and each Bank
acknowledge and agree that the Patina Term Loan (and the Patina Term Commitment
of each Bank) has been terminated effective as of September 30, 1996.
SECTION 4. Representations and Warranties. In order to induce Agents and
Banks to enter into this Amendment, 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) 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.
<PAGE>
SECTION 5. Miscellaneous.
5.1 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.
5.2 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.
5.3 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.
5.4 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.
5.5 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.
5.6 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 effective as of 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:
<PAGE>
GERRITY OIL & GAS CORPORATION,
a Delaware corporation
By:
Its:
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:
NATIONSBANK OF TEXAS, N.A.
By:
<PAGE>
Its:
CIBC, INC.
By:
Its:
CREDIT LYONNAIS NEW YORK BRANCH
By:
Its:
WELLS FARGO BANK, N.A.
By:
Its:
1/219276.2
2
EXHIBIT 10.4
SUBLEASE
THIS SUBLEASE is made this 7th day of October, 1996 between Gerrity Oil &
Gas Corporation (the "Lessee") and ShadowNet Mortgage Technologies, LLC, a
Colorado Limited Liability Company (the "Sublessee").
In consideration of the payment of rent and the performance of the
promises by the Sublessee set forth below, the Lessee does hereby lease 3560
rentable square feet located on the tenth floor of the Mountain Towers Office
Building (address below) to the Sublessee the following described premises
situated in the City and County of Denver, State of Colorado, the address of
which is: 4100 E. Mississippi Ave.
Denver, Colorado 80222
TO HAVE AND TO HOLD the same with all the appurtenances unto the said
Sublessee from 12 o'clock noon on the 1st day of November 1996, or the date of
substantial completion, whichever is later to 12 o'clock noon on the 31st day of
July, 2000 at and for a rental of $5,073.00 per month payable without notice and
in advance of the first day of each calendar month during the term of this
Sublease at the office of the Lessee at:
Patina Oil & Gas Corporation
1625 Broadway
Suite 2000
Denver, Colorado 80202
Attn: Steve Studer
The Sublessee, in consideration of the subleasing of the premises, agrees as
follows:
1. To pay the rent for the premises above-described.
2. At the expiration of this Sublease to surrender the premises in as good
a condition as when the Sublessee entered the premises, loss by fire, inevitable
accident, and ordinary wear excepted. To keep the premises in a clean and
sanitary condition as required by the ordinances of the city and county in which
the property is situated.
3. To sublet no part of the premises, and not to assign the sublease or
any interest therein without the written consent of the Lessee. The parties
contemplate that Sublessee may desire to sublet a portion of the premises in the
future, and Lessee will not unreasonably withhold consent to any such sublease.
Further, notwithstanding the foregoing, Sublessee may, with notice to Lessee,
sublet up to 20% of the premises to other individuals or entities who perform
<PAGE>
all or a portion of their services on behalf of the Sublessee or its clients.
Any such subleasing will be made subject to the terms of the primary lease
executed by Lessee on August 22, 1995 ("Primary Lease") and this Sublease.
Finally, any lawyer who is affiliated with Sublessee may provide legal and
related services to clients through an entity other than Sublessee.
4. To use the premises only for general office use and to use the premises
for no purposes prohibited by the laws of the United States or the State of
Colorado, or of the ordinances of the city or town in which said premises are
located, and for no improper or questionable purposes whatsoever, and to neither
permit nor suffer any disorderly conduct, noise or nuisance having a tendency to
annoy or disturb any persons occupying adjacent premises.
5. To neither hold nor attempt to hold the Lessee liable for any injury or
damage, either proximate or remote, occurring through or caused by the repairs,
alterations, injury or accident to the premises, or adjacent premises, or other
parts of the above premises not herein demised, or byreason of the negligence or
default of the owners or occupants thereof or any other person, nor to hold the
Lessee liable for any injury or damage occasioned by defective electric wiring,
or the breakage or stoppage of plumbing or sewerage upon said premises or upon
adjacent premises, whether by breakage or stoppage results from freezing or
otherwise; to neither permit nor suffer said premises, or the walls or floors
thereof, to be endangered by overloading, nor said premises to be used for any
purpose which would render the insurance thereon void or the insurance risk more
hazardous, nor make any alterations in or changes in, upon, or about said
premises without first obtaining written consent of the Lessee therefor.
6. To allow the Lessee to enter upon the premises at any reasonable
hour with reasonable prior notice.
7. This Sublease is subject to all of the terms and conditions of the
Primary Lease. Sublessee agrees to be bound by all terms and conditions of said
Lease, and agrees not to violate any of the terms and conditions thereof, or
cause the terms and conditions thereof to be violated.
8. No assent, express or implied, to any breach of any one or more of the
agreements hereof shall be deemed or taken to be a waiver of any succeeding or
other breach.
<PAGE>
9. Subject to the provisions of a lease of the premises between Sublessee
and the owner of the premises commencing upon termination of this Sublease as
described in Paragraph 5 of the Additional Provisions of this Sublease, if,
after the expiration of this Sublease, the Sublessee shall remain in possession
of the premises and continue to pay rent without a written agreement with Lessee
as to such possession, then such tenancy shall be regarded as a tenancy at
sufferance, at a monthly rental, payable in advance, equivalent to the rent
schedule outlined in the Additional Provisions of this Sublease, and subject to
all the terms and conditions of this Sublease.
10. If the premises are left vacant and any part of the rent reserved
hereunder is not paid, then the Lessee may, without being obligated to do so,
and without terminating this sublease, retake possession of the said premises
and rent the same for such rent, and upon such conditions as the Lessee may
think best, making such change and repairs as may be required, giving credit for
the amount of rent so received less all expenses of such changes and repairs,
and the Sublessee shall be liable for the balance of the rent herein reserved
until the expiration of the term of this sublease.
11. Security deposit is intentionally waived.
12. If any part of the rent provided to be paid herein is not paid when
due, or if there is a default by Sublessee in the observance or performance of
any condition or covenant of this Sublease, and such default continues for ten
(10) days after Lessee provides written notice thereof to Sublessee, Lessee may
treat the occurrence of such event as a default under this Sublease. If, at any
time, this sublease is terminated under this paragraph, the Sublessee agrees to
peacefully surrender the premises to the Lessee immediately upon termination,
and if the Sublessee remains in possession of the premises, the Sublessee shall
be deemed guilty of forcible entry and detainer of the premises, and, waiving
notice, shall be subject to eviction with due process of law.
13. In the event of any dispute arising under the terms of this sublease,
or in the event of non-payment of any sums arising under this sublease and in
the event the matter is turned over to an attorney, the party prevailing in such
dispute shall be entitled, in addition to other damages or costs, to receive
reasonable attorney's fees from the other party.
14. In the event any payment required hereunder is not made within ten
(10) days after the payment is due, a late charge in the amount of five percent
<PAGE>
(5%) of the payment will be due immediately by the Sublessee.
15. If (1) any petition shall be filed by or against Sublessee to declare
Sublessee a debtor under the Federal Bankruptcy Code, for the reorganization or
rehabilitation of Sublessee or to delay, reduce or modify Sublessee's debts or
obligations, or if any petition shall be filed or other action taken to
reorganize or modify Sublessee's capital structure if Sublessee is a corporation
or other entity, or if Sublessee be declared insolvent according to law; and (2)
the Landlord under the Primary Lease terminates the lease between it and
Sublessee with respect to the remainder of the floor on which the premises are
located, Lessee may declare this Sublease ended, and all rights of the Sublessee
shall terminate and cease.
1. ____ Sublessee agrees to carry liability insurance in the amount of $2
million or more, naming the Lessee as additional insured.
THIS SUBLEASE shall be binding on the parties, their personal
representatives, successors and assigns.
ADDITIONAL PROVISIONS:
1. ____ TENANT IMPROVEMENTS. Lessee agrees to complete tenant improvements on
behalf of Sublessee per the attached floor plan (see Exhibit A). Said
improvements shall be constructed by Lessee's contractors with a estimated
budget of $91,241.00. Any savings from this budgetary amount shall inure to the
benefit of Lessee. Lessee is responsible for all construction costs and design
fees per final construction documentation which shall be mutually agreed upon.
2. ____ OPERATING EXPENSES. Sublessee shall be responsible for its share of the
operating expenses as specified in the Primary Lease, except that Sublessee
shall have a 1996 base year expense stop. Sublessee shall pay any increases in
the operating expenses over Sublessee's base year expense stop. Lessee shall
pay, throughout the term of this sublease, the difference between the expense
stop in the primary lease and the 1996 base year expense stop.
3. FLOORPLATE. The floor plan (Exhibit A) by W.E. Kieding Associates
is attached and made a part hereof shall define the premises subleased by
Sublessee from Lessee.
4. PARKING. Lessee will provide three (3) structured surface spaces at no
charge for the term of this Sublease.
5. ____ This Sublease is subject to Sublessee executing a Lease modification
modifying its existing lease relating to the remainder of the floor on which the
premises are located extending that lease until at least October 31, 2001 and
<PAGE>
providing for the lease of the premises from August 1, 2000 until at least
October 31, 2001. In the event the Lease modification is not executed by October
1, 1996, this Sublease shall be void.
6. ____ Lessee shall not exercise any right to terminate the Primary Lease
pursuant to Paragraph 18 (Condemnation) or Paragraph 12.1 (Repair of Damage to
Premises) of the Primary Lease with respect to the premises without the prior
written consent of the Sublessee.
7. ____ Lessee shall not exercise any "Early Termination" rights in the Primary
Lease, including rights described in Paragraph 23.06 of the Primary Lease, with
respect to the premises without the prior written consent of Sublessee.
8. ____ If service is interrupted as described in Paragraph 7.5 of the Primary
Lease, and if the premises remain unusable for their intended purpose as a
result of such failure, interruption or reduction for a continuous period
exceeding one hundred twenty (120) days and Sublessee does not occupy the
premises as a result thereof, and Sublessee exercises its right to terminate its
lease for the remainder of the floor on which the premises are located,
Sublessee may terminate this Sublease upon ten (10) days prior written notice.
9. ____ Lessee warrants that it is not currently in default under the terms of
the Primary Lease. Lessee shall remain responsible for and shall timely pay to
the landlord under the Primary Lease all payments required under the Primary
Lease. If Lessee shall fail to make such payments, Sublessee may make payments
required under the Primary Lease directly to the landlord under the Primary
Lease.
10. Lessee shall be responsible for all broker fees in connection with this
Sublease, including fees due Commercial Broker Associates subject to the terms
and conditions of the separate commission agreement between LundeCommercial and
Commercial Broker Associates.
11. No waiver by Lessee of any breach by Sublessee of any term, condition or
covenant of this Sublease or of the Primary Lease shall constitute a waiver of
any other breach by Sublessee of any such term, condition or covenant.
_____________________________________ Date_____________________________
SUBLESSEE
\_____________________________________ Date _____________________________
LESSEE
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 9,469
<SECURITIES> 0
<RECEIVABLES> 15,387
<ALLOWANCES> 0
<INVENTORY> 2,502
<CURRENT-ASSETS> 27,525
<PP&E> 557,942
<DEPRECIATION> 153,637
<TOTAL-ASSETS> 435,358
<CURRENT-LIABILITIES> 24,278
<BONDS> 204,514
0
12
<COMMON> 199
<OTHER-SE> 189,969
<TOTAL-LIABILITY-AND-EQUITY> 435,358
<SALES> 52,546
<TOTAL-REVENUES> 53,207
<CGS> 37,948
<TOTAL-COSTS> 46,179
<OTHER-EXPENSES> 167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,729
<INCOME-PRETAX> <2,925>
<INCOME-TAX> <394>
<INCOME-CONTINUING> <2,531>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> <2,531>
<EPS-PRIMARY> <.23>
<EPS-DILUTED> <.23>
</TABLE>