<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-14344
__________________________
PATINA OIL & GAS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2629477
(State or other jurisdiction of (IRS 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
Title of class Name of exchange on which listed
_______________________ ____________________________________
Common Stock, $.01 par value New York Stock Exchange
7.125% Convertible Preferred Stock, New York Stock Exchange
$.01 par value Common Stock Warrants New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 16,100,321 shares of common stock outstanding on May 5, 1998.
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
Patina Oil & Gas Corporation (the "Company") was formed in early 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 (the "Gerrity Acquisition") in May 1996. The results of operations
for periods prior to the Gerrity Acquisition 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>
PATINA OIL & GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 12,609 $ 9,106
Accounts receivable 15,307 10,188
Inventory and other 3,152 2,883
--------- ---------
31,068 22,177
--------- ---------
Oil and gas properties, successful efforts method 575,508 580,220
Accumulated depletion, depreciation and amortization (232,675) (243,049)
--------- ---------
342,833 337,171
--------- ---------
Gas facilities and other 5,930 6,193
Accumulated depreciation (3,807) (3,971)
--------- ---------
2,123 2,222
--------- ---------
Other assets, net 851 1,435
--------- ---------
$ 376,875 $ 363,005
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 20,451 $ 16,654
Accrued liabilities 9,846 4,796
--------- ---------
30,297 21,450
--------- ---------
Senior debt 49,000 48,000
Subordinated notes 97,435 96,508
Other noncurrent liabilities 11,702 10,692
Commitments and contingencies
Stockholders' equity
Preferred Stock, $.01 par, 5,000,000 shares
authorized, 3,094,363 and 3,128,919 shares issued
and outstanding 31 31
Common Stock, $.01 par, 40,000,000 shares
authorized, 16,450,425 and 16,210,321 shares
issued and outstanding 165 162
Capital in excess of par value 208,525 208,263
Deferred compensation (1,828) (2,222)
Retained earnings (deficit) (18,452) (19,879)
--------- ---------
188,441 186,355
--------- ---------
$ 376,875 $ 363,005
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues
Oil and gas sales $29,440 $20,343
Other 46 294
------- -------
29,486 20,637
------- -------
Expenses
Direct operating 4,975 4,637
Exploration 59 23
General and administrative 1,327 1,826
Interest and other 4,441 3,309
Depletion, depreciation and amortization 12,428 10,538
------- -------
Income before taxes 6,256 304
------- -------
Provision (benefit) for income taxes
Current - -
Deferred - -
------- -------
- -
------- -------
Net income $ 6,256 $ 304
======= =======
Net income (loss) per common share $ 0.29 $ (0.08)
======= =======
Weighted average shares outstanding 18,949 16,281
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL IN RETAINED
------------------- ------------------ EXCESS OF DEFERRED EARNINGS
SHARES AMOUNT SHARES AMOUNT PAR VALUE COMPENSATION (DEFICIT)
------ ------- ------ ------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,594 $16 18,887 $189 $194,066 $ - $ 1,965
Repurchase of common and preferred (126) (1) (3,101) (31) (32,723) - -
Issuance of common - - 664 7 7,958 (1,828) -
Issuance of preferred 1,600 16 - - 38,516 - -
Preferred dividends and accretion 26 - - - 708 - (3,346)
Common dividends - - - - - - (168)
Net loss - - - - - - (16,903)
----- ---- ------ ---- -------- ------ --------
Balance, December 31, 1997 3,094 31 16,450 165 208,525 (1,828) (18,452)
Repurchase of common - - (504) (5) (3,522) - -
Issuance of common - - 264 2 2,349 (687) -
Preferred dividends and accretion 35 - - - 911 - (1,565)
Common dividends - - - - - - (166)
Net income - - - - - 293 304
----- ---- ------ ---- -------- ------ --------
Balance, March 31, 1998 (Unaudited) 3,129 $31 16,210 $162 $208,263 (2,222) $(19,879)
===== ==== ====== ==== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Operating activities
Net income $ 6,256 $ 304
Adjustments to reconcile net income to net
cash provided by operations
Exploration expense 59 23
Depletion, depreciation and amortization 12,428 10,538
Deferred compensation expense - 293
Amortization of deferred credits - (168)
Changes in current and other assets and liabilities
Decrease (increase) in
Accounts receivable 5,069 5,119
Inventory and other (11) 298
Increase (decrease) in
Accounts payable 1,800 (3,797)
Accrued liabilities (3,977) (5,050)
Other liabilities 2,364 (1,034)
-------- -------
Net cash provided by operations 23,988 6,526
-------- -------
Investing activities
Acquisition, development and exploration (5,953) (4,915)
Other - (112)
-------- -------
Net cash used by investing (5,953) (5,027)
-------- -------
Financing activities
Decrease in indebtedness (10,231) (1,927)
Deferred credits - 266
Issuance of common stock - 1,006
Repurchase of common stock and preferred stock (4,479) (3,527)
Preferred dividends (677) (654)
Common dividends - (166)
-------- -------
Net cash used by financing (15,387) (5,002)
-------- -------
Increase (decrease) in cash 2,648 (3,503)
Cash and equivalents, beginning of period 6,153 12,609
-------- -------
Cash and equivalents, end of period $ 8,801 $ 9,106
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF BUSINESS
Patina Oil & Gas Corporation (the "Company" or "Patina"), a Delaware
corporation, was incorporated in early 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 ("Gerrity"). In May 1996, SOCO
contributed its Wattenberg assets to the Company in exchange for 14.0 million
common shares and Gerrity merged into a wholly owned subsidiary of the Company
("Gerrity Acquisition"). In the first quarter of 1997, Gerrity was merged into
the Company. The Company's operations currently consist of the acquisition,
development, exploitation and production of oil and natural gas properties in
the Wattenberg Field of Colorado's D-J Basin.
The Gerrity Acquisition was accounted for as a purchase. The amounts and
results of operations of the Company for periods prior to the Gerrity
Acquisition include the historical amounts and results of SOCO's Wattenberg
operations.
In October 1997, a series of transactions took place that eliminated SOCO's
majority ownership in the Company. The transactions included: (i) the sale by
SOCO of 10.9 million common shares of its Patina stock in a public offering,
(ii) the repurchase by the Company of SOCO's remaining 3.0 million common
shares, (iii) the sale by the Company of $40.0 million of 8.50% convertible
preferred stock and the issuance of 160,000 common shares to certain
institutional investors and (iv) the sale of 303,797 common shares at $9.875
per share and the grant of 496,250 restricted common shares by the Company to
certain officers and managers. As a result of these transactions, SOCO no
longer has any ownership in the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Producing Activities
The Company utilizes the successful efforts method of accounting for its
oil and natural 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 the remaining proved or proved developed reserves, as
applicable. Oil is converted to natural gas equivalents (Mcfe) at the rate of
one barrel to six Mcf. Amortization of capitalized costs has generally been
provided over the entire Wattenberg Field as the wells are located in the same
reservoirs. No accrual has been provided for estimated future abandonment costs
as management estimates that salvage value and certain payments will approximate
such costs.
7
<PAGE>
In 1995, the Company adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets." 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 three
months ended March 31, 1997 and 1998, the Company did not provide for any
impairments. During the fourth quarter of 1997, the Company recorded an
impairment of $26.0 million to oil and gas properties based on discounted cash
flows. In applying this statement, the Company determined that the estimated
future cash flows (undiscounted and without interest charges) expected to result
from use of these assets, largely proven undeveloped drilling locations, and
their disposition was less than the carrying amount (book value) of these
assets. The impairment primarily resulted from lower year-end oil and natural
gas prices. Changes in the underlying assumptions or the amortization units
could result in additional impairments in the future.
Other Assets
Prior to December 31, 1997, Other Assets reflected the value assigned to a
noncompete agreement. The value of this noncompete agreement was fully amortized
at December 31, 1997. Amortization expense for the three months ended March 31,
1997 was $1.0 million. Included in Other Assets at December 31, 1997 and March
31, 1998 is $850,000 and $1,434,000 of notes receivable from certain officers
and managers of the Company. See Note (9).
Section 29 Tax Credits
The Company has entered into arrangements to monetize its Section 29 tax
credits. These arrangements result in revenue increases of approximately $0.40
per Mcf on production volumes from qualified Section 29 properties. As a
result, the Company recognized additional gas revenues of $519,000 and $533,000
during the three months ended March 31, 1997 and 1998, 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,
1997 and March 31, 1998 were insignificant.
Financial Instruments
The book value and estimated fair value of cash and equivalents was $12.6
million and $9.1 million at December 31, 1997 and March 31, 1998. The book value
and estimated fair value of the Company's senior debt was $49.0 million and
$48.0 million at December 31, 1997 and March 31, 1998. The book value of these
assets and liabilities approximates fair value due to the short maturity or
floating rate structure of these instruments. The book value of the Senior
Subordinated Notes ("Subordinated Notes" or "Notes") was $97.4 million and
$96.5 million and the estimated fair value was $100.8 million and $99.4 at
December 31, 1997 and March 31, 1998. The fair value of the Notes is estimated
based on their price on the New York Stock Exchange.
From time to time, the Company enters into commodity contracts to hedge the
price risk of a portion of its production. Gains and losses on such contracts
are deferred and recognized in income as an adjustment to oil and gas sales
revenues in the period in which the physical product to which the contracts
relate, is actually sold.
The Company entered into various swap contracts for oil (NYMEX based) for
the first quarters of 1997 and 1998. The Company recognized a loss of $113,000
in the first quarter of 1997 and income of $238,000 in the first quarter of 1998
related to these swap contracts based on settlements during the respective
quarters. The Company entered into various CIG and PEPL index based swap
contracts for natural gas for the first quarters of 1997 and 1998. The Company
recognized $1.6 million in the first quarter of 1997 and $659,000 in the first
quarter of 1998 of income related to these swap contracts based on settlements
during the respective quarters.
8
<PAGE>
As of March 31, 1998, the Company had entered into various CIG and PEPL
index based swap contracts for natural gas for the months of April through
September 1998. The weighted average natural gas price for the CIG index based
contracts is $1.76 for contract volumes of 4,745,000 MMBtu's of natural gas and
for the PEPL index based contracts is $2.19 for contract volumes of 1,060,000
MMBtu's of natural gas. Subsequent to March 31, 1998, the Company entered into
various additional CIG and PEPL index based swap contracts for natural gas for
the months of June through October 1998. The weighted average natural gas price
for the CIG index based contracts is $2.07 for contract volumes of 733,000
MMBtu's of natural gas and for the PEPL index based contracts is $2.50 for
contract volumes of 382,000 MMBtu's of natural gas.
Stock Options and Awards
The Company accounts for its stock-based compensation plans under the
principles prescribed by the Accounting Principles Board's Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees." Accordingly, stock
options awarded under the Employee Plan and the Non-Employee Directors Plan are
considered to be "noncompensatory" and do not result in recognition of
compensation expense. However, the restricted stock awarded under the
Restricted Stock Plan is considered to be "compensatory" and the Company
recognized $293,000 of non-cash general and administrative expenses for the
quarter ended, March 31, 1998.
Per Share Data
The Company uses the weighted average number of shares outstanding in
calculating earnings per share data. When dilutive, options and warrants are
included as share equivalents using the treasury stock method and are included
in the calculation of diluted per share data. Common stock issuable upon
conversion of convertible preferred securities are also included in the
calculation of diluted per share data if their effect is dilutive.
Supplemental Cash Flow Information
The Company incurred the following significant non-cash items (in
thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
---- ----
<S> <C> <C>
Stock grant award................................ - $688,000
Dividends and accretion - 8.50% preferred stock.. - 911,000
</TABLE>
The stock grant award represents 100,000 common shares granted to the new
President in conjunction with his appointment in the first quarter of 1998 and
has been recorded as Deferred Compensation in the equity section of the
accompanying consolidated balance sheets. The Company recognized $293,000 of
non-cash general and administrative expenses related to this stock grant and the
stock grants awarded to certain officers and managers in the fourth quarter 1997
in conjunction with the redistribution of SOCO's majority ownership of the
Company. See Note (9).
Gas Facilities and Other
Depreciation of gas gathering and transportation facilities is provided
using the straight-line method over the estimated useful life of 10 years.
Equipment is depreciated using the straight-line method with estimated useful
lives ranging from three to five years.
9
<PAGE>
Risks and Uncertainties
Historically, the market for oil and natural gas has experienced
significant price fluctuations. Prices for natural gas in the Rocky Mountain
region have been particularly volatile in recent years. The price fluctuations
can result from variations in weather, levels of production in the region,
availability of transportation capacity to other regions of the country and
various other factors. Increases or decreases in prices received could have a
significant impact on the Company's future results.
Other
All liquid investments with an original maturity of three months or less
are considered to be cash equivalents. Certain amounts in prior period
consolidated financial statements have been reclassified to conform with current
classification.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. 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.
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 Annual
Report on Form 10-K for the year ended December 31, 1997.
(3) OIL AND GAS PROPERTIES
The cost of oil and gas properties at December 31, 1997 and March 31, 1998
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>
THREE
Year Ended Months Ended
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(In thousands)
<S> <C> <C>
Acquisition............ $ 2,225 $ 119
Development............ 17,013 4,746
Exploration and other.. 131 23
-------- -------
$ 19,369 $ 4,888
======== =======
</TABLE>
10
<PAGE>
(4) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
(In thousands)
<S> <C> <C>
Bank facilities....... $49,000 $48,000
Less current portion.. - -
------- -------
Senior debt, net...... $49,000 $48,000
======= =======
Subordinated notes.... $97,435 $96,508
======= =======
</TABLE>
In April 1997, the Company entered into an amended bank Credit Agreement
(the "Credit Agreement"). The Credit Agreement is a revolving credit facility in
an aggregate amount up to $140.0 million. The amount available under the
facility is adjusted semiannually and equaled $100.0 million at March 31, 1998,
with $48.0 million outstanding at that time.
The Company may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) prime rate plus a margin
equal to 0.25% (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 Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
0.625% to 1.125%, determined by a debt to EBITDA ratio. During the first quarter
of 1998, the average interest rate under the facility approximated 6.6%.
The 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 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 causes;
issuance of securities; and non-speculative commodity hedging. Borrowings under
the Credit Agreement mature in 2000, but may be prepaid at anytime. The Company
has periodically negotiated extensions of the Credit Agreement; however, there
is no assurance the Company will be able to do so in the future. The Company had
a restricted payment basket of $13.8 million as of March 31, 1998, which may be
used to repurchase common stock, preferred stock and warrants and pay dividends
on its common stock.
In conjunction with the Gerrity Acquisition, the Company assumed $100
million of 11.75% Senior Subordinated Notes due July 15, 2004. Under purchase
accounting, the Notes have been reflected in the accompanying financial
statements at a book value of 105.875% of their principal amount, their call
price as of July 15, 1999. Interest is payable each January 15 and July 15. The
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after July 15, 1999, initially at 105.875%, declining to 102.938% on
July 15, 2000, and declining to 100% on July 15, 2001. Upon a change of control,
as defined in the Notes, the Company is obligated to make an offer to purchase
all outstanding Notes at a price of 101% of the principal amount thereof. In
addition, the Company would be obligated, subject to certain conditions, to make
offers to purchase the Notes with the net cash proceeds of certain asset sales
at a price of 101% of the principal amount thereof. Subsequent to the Gerrity
Acquisition, the Company repurchased $8.8 million of the Notes, resulting in
$91.2 million of principal amount of Notes outstanding. These Notes are
reflected at a book value of $96.5 million at March 31, 1998 in the accompanying
financial statements. The Notes are unsecured general obligations and are
subordinated to all senior indebtedness and to any existing and future
indebtedness of the Company's subsidiaries.
11
<PAGE>
The Notes contain covenants that, among other things, limit the ability of
the Company 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 the Company from incurring indebtedness
(exclusive of the Notes) in excess of approximately $51.0 million, if after
giving effect to the incurrence of such additional indebtedness and the receipt
and application of the proceeds therefrom, the Company'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 the Company. The Company currently meets
these ratios and accordingly, is not limited in its ability to incur additional
debt.
Scheduled maturities of indebtedness for the next five years are zero for
1998 and 1999 and $48.0 million in 2000, and zero in 2001 and 2002. The long-
term portions of the credit facilities are scheduled to expire in 2000. It is
management's intent to review both the short-term and long-term facilities and
extend the maturities on a regular basis; however, there can be no assurance
that the Company will be able to do so.
Cash payments for interest totaled $7.0 million and $6.1 million for the
three months ended March 31, 1997 and 1998.
(5) STOCKHOLDERS' EQUITY
A total of 40.0 million common shares, $.01 par value, are authorized of
which 16.2 million were issued and outstanding at March 31, 1998. The Company
issued 6.0 million common shares and 3.0 million five year common stock warrants
exercisable at $12.50 (which expire in May 2001), in exchange for all of the
outstanding stock of Gerrity upon consummation of the Gerrity Acquisition.
Subsequent to the acquisition date, the Company has repurchased 4,721,200 shares
of common stock (including the 3.0 million common shares repurchased from SOCO
in conjunction with the redistribution of SOCO's majority ownership in October
1997), 125,682 shares of 7.125% preferred stock, 500,000 warrants issued to
Gerrity's former chief executive officer, and 80,549 five year common stock
warrants for total consideration of $46.0 million. Prior to December 1997, no
dividends had been paid on common stock. A cash dividend of one cent per common
share was declared and paid in December 1997 and March 1998.
A total of 5.0 million preferred shares, $.01 par value, are authorized. At
March 31, 1998, the Company had two issues of preferred stock outstanding
consisting of 1,467,926 shares of 7.125% preferred and 1,660,993 shares of 8.50%
preferred.
In May 1996, 1.2 million shares of 7.125% preferred stock were issued to
certain Gerrity preferred shareholders electing to exchange their preferred
shares (the "Original Exchange Offer"). There were no proceeds received related
to this issuance. In October 1996, Gerrity's certificate of incorporation was
amended to provide that all remaining shares of Gerrity's preferred stock be
exchanged for 7.125% preferred shares on the same terms as the Original Exchange
Offer. This exchange resulted in the issuance of an additional 389,000 preferred
shares. Each share of 7.125% preferred stock is convertible into common stock
at any time at $8.61 per share, or 2.9036 common shares. The 7.125% preferred
stock pays quarterly cash dividends, when declared by the Board of Directors,
based on an annual rate of $1.78 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 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 at an initial call price of $26.25 per
share. The liquidation preference of the 7.125% preferred stock is $25 per
share, plus accrued and unpaid dividends. As of March 31, 1998, there were
1,467,926 7.125% preferred shares outstanding with an aggregate liquidation
preference of $36.7 million. The 7.125% preferred stock is listed on the New
York Stock Exchange. Holders of the 7.125% preferred stock are not generally
entitled to vote, except with respect to certain limited matters. The Company
paid $710,000 and $654,000 ($.4453 per 7.125% convertible preferred share) in
preferred dividends during the three months ended March 31, 1997 and 1998, and
had accrued an additional $330,000, and $327,000 at March 31, 1997 and 1998,
respectively, for dividends.
12
<PAGE>
In October 1997, 1.6 million shares of 8.50% preferred stock and 160,000
common shares were issued to a group of private investors for $40.0 million.
The investors agreed not to sell, transfer or dispose of any shares of the 8.50%
preferred prior to October 1999. Each share of the 8.50% preferred stock is
convertible into common stock at any time at $9.50 per share or 2.6316 common
shares. The 8.50 % preferred stock pays quarterly dividends, when declared by
the Board of Directors, and are payable in-kind ("PIK Dividend") until October
1999, and in cash thereafter. The 8.50% preferred stock is redeemable at the
option of the Company at any time after October 2000 at 106% of its stated value
declining by 2% per annum thereafter. The liquidation preference is $25 per
share, plus accrued and unpaid dividends. As of March 31, 1998, there were
1,660,993 8.50% preferred shares outstanding with an aggregate liquidation
preference of $41.5 million. The 8.50% preferred is privately held. Holders of
the 8.50% preferred are entitled to vote with the common stock, based upon the
number of shares of common stock into which the shares of 8.50% preferred stock
are convertible. The Company paid $864,000 in PIK Dividends (issued an
additional 34,556 8.50% preferred shares) during the quarter ended March 31,
1998.
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share" during 1997. SFAS 128 specifies computation,
presentation and disclosure requirements for earnings per share for entities
with publicly held common stock or potential common stock. All prior period
earnings per share amounts have been restated in accordance with SFAS 128.
In accordance with SFAS 128, the Company computed the net income (loss) per
share by dividing the net income (loss), less dividends and accretion on
preferred stock, by the weighted average common shares outstanding during the
period. Net income (loss) applicable to common for the three months ended March
31, 1997 and 1998, was $5,579,000 and ($1,261,000), respectively.
Diluted net income (loss) per share was computed by dividing the net income
(loss), less dividends and accretion on preferred stock, by weighted average
common shares outstanding during the period and all dilutive potential shares
outstanding (zero for three months ended March 31, 1997 and 1998, respectively).
The 7.125% and 8.50% preferred stock potential common stock equivalents and
$12.50 common stock warrants and stock options were anti-dilutive for all
periods presented. Net income (loss) per common share and diluted net income
(loss) per common share were the same for all periods presented.
(6) EMPLOYEE BENEFIT PLANS
401(k) Savings
The Company has a 401(k) profit sharing and savings plan (the "401(k)
Plan"). The initial 401(k) Plan was established in May 1996. In conjunction with
the sale of SOCO's majority ownership of the Company in October 1997, a new plan
was adopted effective January 1, 1997. Eligible employees may make voluntary
contributions to the 401(k) Plan. The amount of employee contributions is
limited as specified in the 401(k) Plan. The Company may, at its discretion,
make additional matching or profit sharing contributions to the 401(k) Plan. The
Company has historically made profit sharing contributions to the 401(k) Plan,
which totaled $453,000 for 1997. The 1997 profit sharing contribution was made
in shares of the Company's common stock (59,901 shares).
Stock Purchase Plan
In February 1998, the Company adopted a stock purchase plan ("Stock
Purchase Plan"). Pursuant to the Stock Purchase Plan, certain officers,
directors and managers are eligible to purchase shares of common stock at prices
ranging from 50% to 85% of the closing price of the stock on the trading day
prior to the date of purchase ("Closing Price"). In addition, employee
participants may be granted the right to purchase shares pursuant to the Stock
Purchase Plan with all or a part of their salary and bonus. A total of 500,000
shares of common stock are reserved for possible purchase under the Stock
Purchase Plan. In February 1998, the Board of Directors approved 137,500 common
shares (exclusive of shares available for purchase with participants salaries
and bonuses) for possible purchase by participants at 75% of the
13
<PAGE>
Closing Price during the current Plan Year as defined in the Stock Purchase
Plan. As of March 31, 1998, participants have purchased 161,712 shares of common
stock, including 76,712 shares purchased with participant's 1997 bonuses, at
prices ranging from $6.94 to $7.13 per share ($5.20 to $5.34 net price per
share), resulting in cash proceeds to the Company of $849,000. The Company
recorded non-cash general and administrative expenses of $113,000 associated
with these purchases in the first quarter of 1998.
Stock Option and Award Plans
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, 271,000 options were issued in February 1997, with an exercise price of
$9.25 per common share, 485,000 options were issued in February1998 and 96,000
in March 1998, with exercise prices of $7.06 and $6.88 per common share,
respectively. The options vest over a three-year period (30%, 60%, 100%) and
expire five years from date of grant. In addition, 250,000 fully vested five
year options were granted in October 1997 at an exercise price of $9.875.
In 1996, the shareholders adopted a stock grant and option plan (the
"Directors' Plan") for nonemployee Directors. The Directors' Plan provides for
each eligible Director to receive common shares having a market value equal to
$2,500 quarterly in payment of one-half their retainer. A total of 3,632 shares
were issued in 1996, 4,512 shares were issued in 1997 and 2,184 shares were
issued in the first quarter of 1998. It also provides for 5,000 options to be
granted annually to each eligible Director. A total of 20,000 options were
issued in May 1996, with an exercise price of $7.75 per common share and 20,000
options were issued in May 1997, with an exercise price of $8.625. In addition,
10,000 options were issued in October 1997 with an exercise price of $10.313 and
10,000 options were issued in January 1998 with an exercise price of $7.19. The
options vest over a three-year period (30%, 60%, 100%) and expire five years
from date of grant.
In October 1997, the shareholders approved a special stock grant and
purchase plan for certain officers and managers ("Management Investors") in
conjunction with the redistribution of SOCO's majority ownership of the Company.
The plan, which was amended effective December 31, 1997, provided for the grant
of 496,250 restricted common shares, net of forfeitures, to the Management
Investors. These shares will vest at 25% per year on January 1, 1998, 1999, 2000
and 2001. The Company recognized $2.0 million of non-cash general and
administrative expenses in 1997 with respect to the stock grant. The non-vested
granted common shares have been recorded as Deferred Compensation in the equity
section of the accompanying consolidated balance sheets. The Management
Investors simultaneously purchased 303,797 common shares from the Company at
$9.875 per share. A portion of this purchase ($850,000) was financed by the
Company. See Note (9).
In conjunction with the appointment of a new President in March 1998, the
President was included in the stock grant and purchase plans. He was granted
100,000 restricted common shares that will vest at 33% per year in March 1999,
2000 and 2001. The non-vested granted common shares have been recorded as
Deferred Compensation in the equity section of the accompanying consolidated
balance sheets. The President simultaneously purchased 100,000 common shares
from the Company at $6.875 per share. A portion of this purchase ($584,000) was
financed by the Company. See Note (9).
The Company recognized $293,000 of non-cash general and administrative
expenses in the first quarter of 1998 with respect to the stock grants.
14
<PAGE>
(7) FEDERAL INCOME TAXES
Prior to the Gerrity Acquisition, the Company had been included SOCO's
consolidated tax. 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. Since the
Gerrity Acquisition, the Company has filed its own tax returns.
The reconciliation of the federal statutory rate to the Company's effective
tax rate for the three months ended March 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Federal statutory rate.................................. 35% 35%
Utilization of net deferred tax asset................... (35%) (35%)
----- -----
Effective income tax rate............................... - -
===== =====
</TABLE>
For tax purposes, the Company had regular net operating loss carryforwards
of $87.1 million and alternative minimum tax ("AMT") loss carryforwards of $51.2
million at December 31, 1997. Utilization of the regular and AMT net operating
loss carryfowards will be limited to approximately $12.5 million per year as a
result of the redistribution of SOCO's majority ownership in the Company in
October 1997. In addition, utilization of $31.9 million regular net operating
loss carryforwards and $31.6 million AMT loss carryforwards will be limited to
$5.2 million per year as a result of the Gerrity Acquisition in May 1996. These
carryforwards expire from 2006 through 2011. At December 31, 1997, the Company
had alternative minimum tax credit carryforwards of $447,000 which are available
indefinitely. No cash payments were made by the Company for federal taxes during
1996 and 1997.
(8) MAJOR CUSTOMERS
During the three months ended March 31, 1997 and 1998, Duke Energy Field
Services, Inc. accounted for 40% and 39%, Amoco Production Company accounted for
14% and 13% and Enron Capital & Trade Resources accounted for zero and 12%, of
oil and gas sales, respectively. Management believes that the loss of any
individual purchaser would not have a long-term material adverse impact on its
financial position or results of operations.
(9) RELATED PARTY
Prior to the Gerrity Acquisition, 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 Gerrity Acquisition, certain field, administrative and
executive employees of SOCO and Gerrity became employees of the Company. SOCO
has agreed to provide certain services to Patina under a corporate services
agreement through September 1998. However, by the end of the second quarter
1998, the Company does not expect to utilize any corporate services from SOCO.
During the three months ended March 31, 1997 and 1998, the Company paid
approximately $480,000 and $203,000 to SOCO under the corporate services
agreement.
In October 1997, certain officers and managers purchased 303,797 common
shares at $9.875 per share from the Company. A portion of this purchase
($850,000) was financed by the Company through the issuance of 8.50% recourse
notes. These notes are secured by the common stock purchased (101,265 shares)
and additional common shares granted (146,250 shares) to the respective officers
and managers. Interest is due annually and the notes mature in January 2001.
These notes have been reflected as Other Assets in the accompanying consolidated
balance sheets.
15
<PAGE>
In conjunction with the appointment of the new President of the Company in
March 1998, the President purchased 100,000 shares of common stock at $6.875 per
share. The Company loaned the President $584,000, or 85% of the purchase price,
represented by a recourse promissory note that bears interest at 8.5% per annum
payable each March 31 until the note is paid. The note matures in March 2001 and
is secured by all of the shares purchased and granted to him in connection with
his employment with the Company.
(10) COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under non-cancelable
operating leases. Future minimum lease payments under such leases approximate
$500,000 per year from 1998 through 2002.
In March 1996, a complaint was filed in the Court of Chancery for the State
of Delaware against Gerrity 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 defendants from consummating the
Gerrity Acquisition which will benefit the holders of Gerrity's common stock at
the expense of the holders of Gerrity's preferred stock and (b) to obtain a
declaration that the terms of the proposed Gerrity Acquisition constitute a
breach of the contractual rights of the preferred." The complaint sought, among
other things, certification as a class action on behalf of all holders of
Gerrity'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 Gerrity Acquisition and money damages. In April 1996,
the defendants were granted an indefinite extension of time in which to answer
the complaint and no answer has been filed to date. In February 1997, the
attorney for the plaintiff filed a Status Report with the court stating "Case
has been mooted. Plaintiff is preparing an application for counsel fees." No
such application was filed. In November 1997, the plaintiff filed an amended
complaint. The amended complaint realleges the substance of the original
complaint and includes an allegation that the defendants coerced the holders of
the Gerrity preferred stock into exchanging their stock for the 7.125% Preferred
Stock of the Company. The amended complaint also alleges the defendants
participated in a scheme to eliminate the outstanding Gerrity preferred by
forcing the exchange of those shares for shares of the Company's preferred in
October 1996. The amended complaint seeks rescission of the transactions
described in the complaint or money damages if rescission is impractical. On
January 5, 1998, defendants filed a motion to dismiss the amended complaint. No
further action has been taken with respect to the case. Defendants believe that
the amended complaint is without merit and intend to vigorously defend against
this 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 adverse effect 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.
16
<PAGE>
PATINA OIL & GAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1998 compared to three months ended March 31,
1997. Revenues for the first quarter of 1998 totaled $20.6 million, a 30%
decrease from the prior year period. The decrease was due primarily to lower oil
and gas prices and, to a lesser extent, lower production. Net income in the
first quarter 1998 fell to $304,000 from $6.3 million in the first quarter 1997.
The decrease was primarily attributed to lower prices.
Average daily production for the first quarter totaled 4,885 barrels and 69.4
MMcf (98.7 MMcfe), decreases of 8% and 6%, respectively, from the same period in
1997. Nine wells and 21 recompletions and refracs were placed on production
during the quarter, compared to 17 wells and 23 recompletions and refracs in the
same period of 1997. The Company's current development activity, the benefits of
certain minor acquisitions and continued success with the production enhancement
program should result in a reduction or elimination of the production decline by
late 1998. The decision to increase development activity is heavily dependent on
the prices being received for production.
Average oil prices decreased from $21.56 per barrel in the first quarter of
1997 to $15.35 in 1998. Average natural gas prices decreased from $2.87 per Mcf
for the first quarter of 1997 to $2.18 in 1998. The average oil price includes
hedging losses in the first quarter 1997 of $113,000 ($0.23 per barrel) and
hedging income of $285,000 ($0.65 per barrel) in 1998. The decrease in natural
gas prices was primarily the result of the decrease in the average CIG and PEPL
indexes for the first quarter 1998 compared to 1997 and lower natural gas
liquids prices. The average natural gas prices for the three months ended March
31, 1997 and 1998 include hedging income of $1.6 million ($0.24 per Mcf) and
$836,000 ($0.13 per Mcf). Direct operating expenses totaled $4.6 million for
the quarter compared to $5.0 million in the prior year period ($0.52 per Mcfe in
both periods).
General and administrative expenses, net of third party reimbursements, for
the first quarter of 1998 totaled $1.8 million, a $499,000 increase from the
same period in 1997. Over 80% of the increase was attributed to the expensing
of $293,000 related to the common stock grants awarded to the officers and
managers of the Company in conjunction with the redistribution of SOCO's
majority ownership of the Company and $113,000 related to the stock purchase
plan.
Interest and other expenses fell to $3.3 million in the first quarter of
1998, a 25% decline from the prior year period. Interest expense decreased as a
result of lower average debt levels. Since March 31, 1997, the Company has paid
down $42.9 million of debt. The Company's average interest rate for the quarter
was 10.3% compared to 9.5% in 1997. The increase in the average interest rate
reflects the sharp reduction in bank debt. The 11.75% Subordinated Notes have
not been significantly reduced.
Depletion, depreciation and amortization expense for the first quarter of
1998 totaled $10.5 million, a decrease of $1.9 million or 15% from the 1997
level. Depletion expense totaled $10.4 million or $1.17 per Mcfe, for first
quarter 1998 compared to $11.4 million or $1.19 per Mcfe for first quarter 1997.
The decrease in expense resulted from lower oil and natural gas production.
Depreciation and amortization expense for the three months ended March 31, 1998
totaled $169,000, or $0.02 per Mcfe compared to $1.1 million, or per Mcfe $0.11
per Mcfe for the three months ended March 31, 1997. Amortization expense
included $1.0 million in the first quarter of 1997 related to the expensing of a
noncompete agreement.
17
<PAGE>
DEVELOPMENT, ACQUISITION AND EXPLORATION
During the first quarter of 1998, the Company incurred $5.0 million in
capital expenditures, with development expenditures comprising $4.7 million.
During the period, the Company successfully drilled five wells, was in the
process of drilling one additional well, recompleted eight wells and refraced 14
wells. The Company anticipates incurring approximately $17.0 million on the
further development of its properties in the remainder of 1998.
FINANCIAL CONDITION AND CAPITAL RESOURCES
At March 31, 1998, the Company had $363.0 million of assets. Total
capitalization was $330.9 million, of which 56% was represented by stockholders'
equity, 15% by senior debt and 29% by subordinated debt. During the quarter,
net cash provided by operations totaled $6.5 million, as compared to $24.0
million in first quarter of 1997. At March 31, 1998, there were no significant
commitments for capital expenditures. The Company anticipates 1998 capital
expenditures, exclusive of acquisitions, will approximate $22.0 million. Based
on current projections, this will allow for a reduction of indebtedness, provide
funds to pursue acquisitions or additional security 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 bank borrowings. In addition,
joint ventures or future public and private offerings of debt or equity
securities may be utilized.
The Company entered into an amended Credit Agreement in April 1997. The
Credit Agreement consists of a revolving credit facility in an aggregate amount
up to $140.0 million. The amount available under the revolving credit facility
is adjusted semiannually and equaled $100.0 million at March 31, 1998, with
$48.0 million outstanding at that time.
The 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, a minimum current ratio and various other negative covenants
that could limit the Company's ability to incur other debt, consummate
acquisitions, dispose of assets, pay dividends or repurchase securities.
Borrowings under the Credit Agreement mature in 2000, but may be prepaid at
anytime. The Company has periodically negotiated extensions of the Credit
Agreement; however, there is no assurance the Company will be able to do so in
the future. The Company had a restricted payment basket of $13.8 million as of
March 31, 1998, which may be used to repurchase common stock, preferred stock
and warrants and pay dividends on its common stock.
The Company had $96.5 million of 11.75% Senior Subordinated Notes due July
15, 2004 outstanding on March 31, 1998. The Notes have been reflected in the
accompanying financial statements at a book value of 105.875% of their principal
amount ($91.2 million of principal amount outstanding as of March 31, 1998). The
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after July 15, 1999 at 105.875% of their principal amount. The Notes
are unsecured general obligations and are subordinated to all senior
indebtedness and to any existing and future indebtedness of the Company's
subsidiaries.
In October 1997, a series of transactions took place that eliminated SOCO's
majority ownership in the Company. The transactions included: (i) the sale by
SOCO of 10.9 million common shares of its Patina stock in a public offering,
(ii) the repurchase by the Company of SOCO's remaining 3.0 million common
shares, (iii) the sale by the Company of $40.0 million of 8.50% convertible
preferred stock and the issuance of 160,000 common shares to certain
institutional investors and (iv) the sale of 303,797 common shares at $9.875
per share and the grant of 496,250 restricted common shares by the Company to
certain officers and managers. As a result of these transactions, SOCO no
longer has any ownership in the Company.
18
<PAGE>
In conjunction with the appointment of a new President of the Company in
March 1998, the President purchased 100,000 shares of Common Stock at $6.875 per
share. The Company loaned the President $584,000, or 85% of the purchase price,
represented by a recourse promissory note that bears interest at 8.5% per annum
payable each March 31 until the note is paid. The note matures in March 2001 and
is secured by all of the shares purchased and granted to him in connection with
his employment with the Company
The Company has entered into arrangements to monetize its Section 29 tax
credits. These arrangements result in revenue increases of approximately $0.40
per Mcf on production volumes from qualified Section 29 properties. As a result,
the Company recognized additional natural gas revenues of $519,000 and $533,000
during the three months ended March 31, 1997 and 1998, respectively. These
arrangements are expected to increase revenues through 2002.
The Company's primary cash requirements will be to finance acquisitions,
development expenditures, repayment of indebtedness, and general working capital
needs. However, future cash flows are subject to a number of variables,
including the level of production and oil and natural 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.
The Company believes that available borrowings under the Credit Agreement and
the Company's cash on hand will be sufficient to cover its working capital,
capital expenditures, planned development activities and debt service
requirements for the next 12 months. In connection with consummating any
significant acquisition, the Company will require additional debt or equity
financing, which may not be available on terms that are acceptable to the
Company.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements that are not historical facts contained in this report are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Such statements address
activities, events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital, development and exploration expenditures (including the amount and
nature thereof), drilling of wells, reserve estimates (including estimates of
future net revenues associated with such reserves and the present value of such
future net revenues), future production of oil and natural gas, business
strategies, expansion and growth of the Company's operations, cash flow and
anticipated liquidity, prospect development and property acquisition, obtaining
financial or industry partners for prospect or program development, or marketing
of oil and natural gas. Factors that could cause actual results to differ
materially ("Cautionary Disclosures") are described, among other places, in the
Marketing, Competition, and Regulation sections in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 and under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Without limiting the Cautionary Disclosures so described,
Cautionary Disclosures include, among others: general economic conditions, the
market price of oil and natural gas, the risks associated with exploration, the
Company's ability to find, acquire, market, develop and produce new properties,
operating hazards attendant to the oil and natural gas business, uncertainties
in the estimation of proved reserves and in the projection of future rates of
production and timing of development expenditures, the strength and financial
resources of the Company's competitors, the Company's ability to find and retain
skilled personnel, climatic conditions, labor relations, availability and cost
of material and equipment, environmental risks, the results of financing
efforts, and regulatory developments. All written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the occurrence
of anticipated or unanticipated events.
19
<PAGE>
YEAR 2000 ISSUES
The Company is aware of the issues associated with the programming code in
many existing computer systems as the millennium approaches. The "Year 2000"
problem is pervasive; virtually every computer operation may be affected in some
way by the rollover of the two digit year value to 00. The risk is that computer
systems will not properly recognize sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail, resulting in business interruption.
The Company is currently being provided certain interim computer processing
services by SOCO. These services are not expected to be utilized after June
1998. The Company is in the process of purchasing and converting to its own in-
house computer system. In conjunction with this process, the Company is taking
steps to identify, correct or reprogram and test its existing systems for Year
2000 compliance. It is anticipated that all new systems, upgrades and
reprogramming efforts will be completed by mid 1998, allowing adequate time for
testing. As such, management believes the Year 2000 issues can be mitigated
without a significant potential effect on the Company's financial position or
operations. However, given the complexity of the Year 2000 issue, there can be
no assurance that the Company will be able to address the problem without costs
and uncertainties that might affect future financial results or cause reported
financial information not to be necessarily indicative of future operating
results or future financial condition.
20
<PAGE>
INFLATION AND CHANGES IN PRICES
While certain of its costs are affected by general 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 natural gas
prices. Although it is difficult to estimate future prices of oil and natural
gas, price fluctuations have had, and will continue to have, a material effect
on the Company.
The following table indicates the average oil and natural gas prices received
over the last five years and highlights the price fluctuations by quarter for
1997 and 1998. Average price computations exclude hedging gains and losses and
other nonrecurring items to provide comparability. Average prices per Mcfe
indicate the composite impact of changes in oil and natural gas prices. Oil
production is converted to natural gas equivalents at the rate of one barrel per
six Mcf.
<TABLE>
<CAPTION>
Average Prices
---------------------------------------
Natural Equivalent
Oil Gas Mcf
--- --- ---
(Per Bbl) (Per Mcf) (Per Mcfe)
<S> <C> <C> <C>
Annual
------
1993.................... $15.87 $2.08 $2.22
1994.................... 14.84 1.70 1.94
1995.................... 16.43 1.34 1.73
1996.................... 20.47 1.99 2.41
1997.................... 19.54 2.25 2.55
Quarterly
---------
1997
----
First................... $21.79 $2.63 $2.93
Second.................. 19.09 1.85 2.26
Third................... 18.53 1.92 2.26
Fourth.................. 18.80 2.61 2.76
1998
----
First....... $14.70 $2.04 $2.16
</TABLE>
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference from
Notes to Consolidated Financial Statements in Part 1 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-k
(a) Exhibits -
10.11 Stock Purchase Agreement dated March 16, 1998 by and between the
Company and Jay W. Decker.
10.12 Restricted Stock Agreement dated March 16, 1998 by and between the
Company and Jay W. Decker.
27 Financial Data Schedule
(b) No reports on Form 8-K were filled by Registrant during the quarter ended
March 31, 1998.
22
<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 /s/ David J. Kornder
--------------------------------------------
David J. Kornder, Vice President and Chief
Financial Officer
May 5, 1998
23
<PAGE>
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
BETWEEN
PATINA OIL & GAS CORPORATION
AND
JAY W. DECKER
MARCH 16, 1998
<PAGE>
STOCK PURCHASE AGREEMENT, dated March 16, 1998 (this "Agreement") between
Patina Oil & Gas Corporation, a Delaware corporation (the "Company"), and Jay W.
Decker ("Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser was elected President of the Company by the Board of
Directors effective March 16, 1998; and
WHEREAS, as an inducement to Purchaser to accept employment by the Company,
the Board of Directors agreed to sell to Purchaser up to 100,000 shares of the
Company's common stock, par value $.01 per share ("Common Stock") for a price
per share equal to the closing price of the Common Stock on March 13, 1998 on
the New York Stock Exchange; and
WHEREAS, the per share closing price of the Common Stock on the New York
Stock Exchange on March on March 13, 1998 was $6.875; and
WHEREAS, the Company, as a further inducement to Purchaser to accept
employment with the Company, has agreed to loan to Purchaser, on a recourse
basis, 85% of the purchase price, such loan to bear interest at 8.50% per annum;
and
WHEREAS, the Company as a further inducement to Purchaser to accept
employment with the Company, has agreed to grant to Purchaser, subject to the
Restricted Stock Agreement as herein defined, shares of Common Stock equal in
number to the number of shares of Common Stock Purchaser elects to purchase; and
WHEREAS, Purchaser has elected to purchase 100,000 shares of Common Stock
from the Company for a total purchase price of $687,500 and will therefore be
granted 100,000 shares of Common Stock all being subject to the terms of this
Agreement, the Promissory Note, the Pledge Agreement and the Restricted Stock
Agreement as herein defined.
NOW THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE I.
Definitions
-----------
Section 1.01. Definitions. As used in this Agreement, the following terms
-----------
shall have the meanings set forth below:
"Agreement" shall have the meaning set forth in the recitals hereto.
---------
"Common Stock" shall have the meaning set forth in the recitals hereto.
------------
2
<PAGE>
"Company" shall have the meaning set forth in the recitals hereto.
-------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
------------
"Person" or "person" shall mean an individual, corporation, association,
------ ------
partnership, trust, joint venture, business trust or unincorporated
organization, or a government or any agency or political subdivision thereof.
"Pledge Agreement" shall have the meaning set forth in Section 2.02(b).
----------------
"Promissory Note" shall have the meaning set forth in Section 2.02(b).
---------------
"Purchase Price" shall mean $6.875 per Common Share.
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"SEC" shall mean the United States Securities and Exchange Commission.
---
ARTICLE II.
Sale and Purchase of Common Stock
---------------------------------
Section 2.01. Sale and Purchase of Common Stock. Subject to all of the
---------------------------------
terms and conditions of this Agreement, and in reliance upon the representations
and warranties hereinafter set forth, the Company will sell Purchaser, and
Purchaser will purchase from the Company 100,000 shares of Common Stock at the
Purchase Price for a total of $687,500.
Section 2.02. Closing.
-------
(a) Subject to the satisfaction or waiver of the conditions set forth
in this Agreement, the sale and purchase of the Common Stock pursuant to
Section 2.01 (the "Closing") shall take place at the offices of the Company
-------
on March 18, 1998 (the "Closing Date"), or at such other time and place as
------------
may be mutually agreed upon by the Purchaser and the Company.
(b) At the Closing, or as soon thereafter as reasonably practicable:
(i) the Company will deliver to Purchaser a certificate or
certificates for the Common Stock being sold to Purchaser in
accordance with the provisions of Section 2.01, registered in the
Purchaser's name;
(ii) Purchaser will deliver to the Company in full payment for
the Common Stock to be purchased pursuant to Section 2.01, (A) a
Promissory Note dated the date of the Closing, in a principal
amount of $584,375 and in substantially
3
<PAGE>
the form attached hereto as Exhibit A ("Promissory Note"), and
---------
(B) a check in the amount of $103,125 for the remaining balance
of the aggregate Purchase Price for the shares of Common Stock to
be purchased by Purchaser,
(iii) a Pledge Agreement of Purchaser dated the date of the
Closing, in substantially the form attached hereto as Exhibit B
(each a "Pledge Agreement"); and
----------------
(iv) each party shall take or cause to happen such other
actions, and shall execute and deliver such other instruments or
documents, as shall be required under Article V hereof.
ARTICLE III.
Recommendations and Warranties
------------------------------
Section 3.01. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, the Purchaser as follows:
(a) Organization and Good Standing. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its
business as it is now being conducted.
(b) Authorization. The Company has full corporate power and authority to
-------------
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby has been duly
authorized by the Compensation Committee of the Board of Directors of the
Company. No other corporate proceedings on the part of the Company are
necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company and this Agreement
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, by general equity
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and by an implied covenant of good faith
and fair dealing.
(c) Newly Issued Shares of Common Stock. The shares of Common Stock to be
-----------------------------------
issued and sold hereunder have been duly authorized to be so issued and
sold by all necessary corporate action. When issued and sold against
receipt of the consideration therefor, the shares of Common Stock to be
issued and sold hereunder will be validly issued, fully paid and
nonassessable, will not subject the holders thereof to any personal
liability and will not be subject to any preemptive rights of any other
stockholder of the
4
<PAGE>
Company. At the Closing, the Purchaser will receive valid title to the
Common Stock to be purchased on such date, free and clear of any claim,
lien, security interest or other encumbrance.
Section 3.02. Representations and Warranties of Purchaser. Purchaser
-------------------------------------------
represents and warrants to, and agrees with, the Company as follows:
(a) Legal Capacity. Purchaser has the legal capacity to execute, deliver
--------------
and perform this Agreement.
(b) Authorization. The execution, delivery and performance of this
-------------
Agreement and the consummation of the transactions contemplated hereby have
been authorized by all necessary action on behalf of Purchaser. No other
proceedings on the part of such Purchaser are necessary to authorize the
execution, delivery and performance of this Agreement and the transactions,
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Purchaser and this Agreement constitutes a valid and binding
obligation of Purchaser enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law) and by an implied covenant of good faith and fair dealing.
(c) Securities Act.
--------------
(i) Purchaser is acquiring the Common Stock solely for the purpose of
investment and not with a view to, or for resale in connection with,
any distribution thereof in violation of the Securities Act. Purchaser
has been given the opportunity to obtain any and all relevant
information and documents relating to the Common Stock and to ask
questions and receive answers about the Company and its business which
Purchaser deems necessary to evaluate the merits and risks related to
an investment in the Common Stock, and Purchaser has relied solely on
such information.
(ii) Purchaser further represents and warrants that (A) his financial
condition is such that he can afford to bear the economic risk of
holding the Common Stock for an indefinite period of time and has
adequate means for providing for his current needs and personal
contingencies, (B) Purchaser can afford to suffer a complete loss of
his investment in the Common Stock, (C) he understands and has taken
cognizance of all risk factors related to the purchase of the Common
Stock, and (D) Purchaser's knowledge and experience in financial and
business matters are such that he is capable of evaluating the merits
and risks of his purchase of the Common Stock as contemplated by this
Agreement.
5
<PAGE>
(d) Brokers and Finders. Purchaser has not utilized any broker, finder,
-------------------
placement agent or financial advisor or incurred any liability for any fees
or commissions in connection with any of the transactions contemplated
hereby.
ARTICLE IV.
Additional Agreements of the Parties
------------------------------------
Section 4.01. Taking of Necessary Action. Each of the parties hereto
--------------------------
agrees to use all reasonable efforts promptly to take or cause to be taken all
action and promptly to do or cause to be done all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. Without limiting the
foregoing, the Company and the Purchaser will, and the Company shall cause its
subsidiaries to, each use all reasonable efforts to make all filings and obtain
all consents of governmental entities or other persons relating to such party
which may be necessary or, in the opinion of the Company or the Purchaser, as
the case may be, advisable for the consummation of the transactions contemplated
by this Agreement.
Section 4.02. Restrictions on Sale or Transfer; Legend:
----------------------------------------
(a) The Purchaser hereby acknowledges and agrees that shares of Common
Stock to be purchased by him hereunder will be, upon the sale and purchase
of such shares in accordance with the terms hereof, "restricted securities"
under the Securities Act. The Purchaser agrees that he will not, directly
or indirectly, offer, sell, transfer, assign or otherwise dispose of the
beneficial ownership of (any such act, a "Transfer") any such shares of
--------
Common Stock, except as permitted under the Securities Act and the rules
and regulations thereunder (including, without limitation, Transfers
pursuant to Rule 144 under the Securities Act).
(b) The Purchaser acknowledges and agrees that as of the date hereof the
shares of Common Stock issued and sold hereunder have not been and will not
be registered under the Securities Act or the securities laws of any state
and that they may be sold or otherwise disposed of only in one or more
transactions registered under the Securities Act (and, where applicable,
such laws) or as to which an exemption from the registration requirements
of the Securities Act (and where applicable, such laws) is available. The
Purchaser acknowledges that, except as provided in this Agreement, he has
no right to require the Company to register the shares of Common Stock
purchased hereunder. The Purchaser further acknowledges and agrees that
each certificate for the Common Stock purchased hereunder shall bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1993, AS AMENDED, AND MAY NOT BE TRANSFERRED, SOLD
OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION IS IN EFFECT UNDER
SUCH ACT AND APPLICABLE STATE
6
<PAGE>
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS. THIS CERTIFICATE IS ISSUED PURSUANT TO AND SUBJECT TO THE
RESTRICTIONS ON TRANSFER, VOTING AND OTHER PROVISIONS OF A STOCK PURCHASE
AGREEMENT DATED MARCH 16, 1998 BETWEEN THE COMPANY AND THE PURCHASER, A COPY OF
WHICH IS ON FILE WITH THE COMPANY. EXCEPT AS PROVIDED IN SUCH STOCK PURCHASE
AGREEMENT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT TRANSFERABLE
AND ANY PURPORTED TRANSFER IN VIOLATION OF THE PROVISIONS OF SUCH STOCK PURCHASE
AGREEMENT SHALL BE VOID AND OF NO FORCE AND EFFECT.
Section 4.03. New York Stock Exchange Listing. As promptly as practicable
-------------------------------
following the Closing Date, the Company will apply to the New York Stock
Exchange to list the shares of Common Stock issued and sold hereunder, and the
Company will use its reasonable efforts to cause such shares to be listed on the
New York Stock Exchange as promptly thereafter as practicable.
Section 4.04. Piggyback Registration Rights. If the Company proposes to
-----------------------------
file a registration statement under the Securities Act with respect to an
offering for its own account of any class of its equity securities (other than a
registration statement on Form S-8 (or any successor form) or any other
registration statement relating solely to director and/or employee benefit plans
or filed in connection with an exchange offer, a transaction to which Rule 145
(or any successor rule) under the Securities Act applies or an offering of
securities solely to the Company's existing stockholders), then the Company
shall in each case give written notice of such proposed filing to the Purchaser
as soon as practicable before the anticipated filing date, and such notice shall
offer the Purchaser the opportunity to register such number of shares of Common
Stock purchased hereunder and such number of shares of Common Stock which have
vested pursuant to the Restricted Stock Agreement, in each case as the Purchaser
may request; provided that the Company shall not be required to deliver such
--------
notice to the Purchaser at the time such notice is to be delivered if he is able
to transfer, pursuant to Rule 144 under the Securities Act, all the shares of
Common Stock owned by him that could otherwise be included in the Company's
registered offering. If the Purchaser desires to have his shares included in
such registration statement, he shall so advise the Company in writing within
five business days after the date of the Company's notice, setting forth the
amount of his shares for which registration is requested. If the Company's
offering is to be an underwritten offering, the Company shall use its reasonable
efforts to cause the managing underwriter or underwriters of a proposed
underwritten offering to permit the Purchaser's shares to be included in the
registration for such offering to include such securities in such offering on
the same terms and conditions as any similar securities of the Company included
therein, provided that:
--------
(i) if the registration of which the Company gives notice involves an
underwriting, the right of the purchaser to registration pursuant to this
Section shall, unless the Company otherwise agrees, to be conditioned upon
the Purchaser's participation as a seller in such underwriting and
execution of an underwriting agreement with the managing underwriter or
underwriters selected by the Company, and
7
<PAGE>
(ii) if the managing underwriter or underwriters of such offering informs
the Company that the success of the offering would be materially and
adversely affected by the inclusion of the Purchaser's shares requested to
be included, then the Company shall not be required to include such shares
in such offering.
ARTICLE V.
Conditions Precedent
--------------------
Section 5.01. Conditions to the Purchaser's Obligations. The obligation
-----------------------------------------
of the Purchaser to consummate the Closing hereunder shall be subject to the
satisfaction on the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Company contained in this Agreement which are qualified as to
materiality shall be true and correct, and which are not so qualified shall
be true and correct in all material respects, in each case, as of the date
of this Agreement and on and as of the Closing Date with the same effect as
though made on and as of such dates.
(b) Covenants. The Company shall have performed in all material respects
---------
all obligations and complied with all agreements, undertakings, covenants
and conditions required by it to be performed at or prior to the Closing.
(c) Restricted Stock Agreement. The Company shall have executed and
--------------------------
delivered to the Purchaser the Restricted Stock Agreement.
(d) Additional Certificates, Etc. The Company shall have executed and
-----------------------------
delivered, or caused to be executed and delivered to the Purchaser the
certificates and other documents related to the consummation of the
transactions contemplated hereby as may be reasonably requested by the
Purchaser.
Section 5.02. Conditions to the Company's Obligations. The obligation of
---------------------------------------
the Company to consummate the Closing hereunder shall be subject to the
satisfaction on the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Purchaser contained in this Agreement which are qualified as to
materiality shall be true and correct, and which are not so qualified shall
be true and correct in all material respects, in each case, as of the date
of this Agreement and on and as of the Closing Date with the same effect as
though made on and as of such dates.
(b) Covenants. The Purchaser shall have performed in all material respects
---------
all obligations and complied with all agreements, undertakings, covenants
and conditions required by it to be performed at or prior to the Closing.
8
<PAGE>
(c) Promissory Notes and Pledge Agreements. Purchaser shall have executed
--------------------------------------
and delivered to the Company a Promissory Note and a Pledge Agreement, in
each case substantially in the form of Exhibits A and B attached hereto,
----------------
respectively.
(d) Additional Certificates, Etc. Purchaser shall have executed and
-----------------------------
delivered, or caused to be executed and delivered, to the Company such
certificates and other documents related to the consummation of the
transactions contemplated hereby as may be reasonably requested by the
Company.
ARTICLE VI.
Term
----
Section 6.01. Termination. This Agreement may be terminated on or any
-----------
time prior to the Closing by the mutual written consent of the Purchaser and the
Company.
Section 6.02. Effect of Termination. In the event of the termination of
---------------------
this Agreement as provided herein, this Agreement shall forthwith become void
except for the provisions set forth in Article VII and there shall be no
liability or obligation on the part of the parties hereto except as otherwise
provided in this Agreement.
ARTICLE VII.
Miscellaneous
-------------
Section 7.01. No Survival of Representations and Warranties No
---------------------------------------------
representation or warranty made herein or in any certificates delivered in
connection with the Closing shall survive the Closing.
Section 7.02. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given, if delivered
personally, by telecopier or sent by overnight courier as follows:
(a) If to the Purchaser, to the Purchaser, c/o the Company at its address
set forth below or such other address as set forth in writing by Purchaser;
and
(b) If to the Company, to:
Patina Oil & Gas Corporation
1625 Broadway, Suite 2000
Denver, Colorado 80202
Phone: 303-389-3600
Fax: 303-595-7408
Attention: General Counsel
9
<PAGE>
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
Section 7.03. Entire Agreement; Amendment. This Agreement and the
---------------------------
documents described herein and therein or attached or delivered pursuant hereto
or thereto set forth the entire agreement among the parties hereto with respect
to the transactions contemplated by this Agreement. Any provision of this
Agreement may be amended or modified in whole or in part at any time by an
agreement in writing among the parties hereto executed in the same manner as
this Agreement.
Section 7.04. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same documents.
SECTION 7.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE.
Section 7.06. Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Neither this Agreement nor any of the parties' rights,
interests or obligations hereunder shall be assignable by any party hereto
without the prior written consent of the other parties hereto. No assignment
shall relieve the assigning party of any of its obligations hereunder. Any
attempted assignment of this Agreement in breach of this provision shall be void
and of no effect.
Section 7.07. No Third Party Rights. Nothing in this Agreement, expressed
---------------------
or implied, shall or is intended to confer upon any person other than the
parties hereto or their respective successors or assigns any rights or remedies
of any nature or kind whatsoever under or by reason of this Agreement.
Section 7.08. Captions. The captions contained in this Agreement are for
--------
reference purposes only and are not part of this Agreement.
Section 7.09. Severability. Should any part of this Agreement for any
------------
reason be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in full force and effect
as if this Agreement had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Agreement without
including therein any such part or parts which may, for any reason, be hereafter
declared invalid.
Section 7.10. Mutual Waiver of Jury Trial. Because disputes arising in
---------------------------
connection with complex financial transactions are most quickly and economically
resolved by an experienced and expert person and the parties wish applicable
state and federal laws to apply (rather than
10
<PAGE>
arbitration rules), the parties desire that their disputes be resolved by a
judge applying such applicable laws. Therefore, to achieve the best combination
of the benefits of the judicial system and of arbitration, the parties hereto
waive all right to trial by jury in any action, suit or proceeding brought to
enforce or defend any rights or remedies under this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
or by their respective duly authorized officers, all as of the date first above
written.
PATINA OIL & GAS CORPORATION
By: /s/ Brian J. Cree
-------------------------------------
Brian J. Cree
Executive Vice President
PURCHASER
By: /s/ Jay W. Decker
-------------------------------------
Jay W. Decker
11
<PAGE>
EXHIBIT 10.12
PATINA OIL & GAS CORPORATION
RESTRICTED STOCK AGREEMENT
________________________________________________________________________________
DATE OF GRANT: March 16, 1998 (the "Grant Date:")
W I T N E S S E T H:
1. Grant of Restricted Stock. Patina Oil & Gas Corporation (the
-------------------------
"Company") on the above date has granted, and this Agreement evidences the grant
to Jay W. Decker ("Grantee"), subject to the terms and conditions which follow,
a total of 100,000 shares of Common Stock, par value $.01 per share ("Common
Stock"), of the Company. The restrictions against the transfer of the shares of
Common Stock granted to the Grantee shall lapse at the rate of 33.33% per year,
commencing on March 15, 1999 (the "Initial Lapsing Date").
2. Receipt and Delivery of Stock. (a) The Grantee waives receipt from
-----------------------------
the Company of a certificate or certificates representing the shares of Common
Stock granted hereunder, registered in the Grantee's names and bearing a legend,
in the form provided in Section 2(b) below. The Grantee acknowledges and agrees
that the Company shall retain custody of such certificate or certificates until
the restrictions on the transfer imposed by Section 3 on such shares lapse.
Concurrently with the execution of this Agreement, the Grantee has delivered to
the Company an irrevocable stock power endorsed in blank.
(b) The Grantee acknowledges and agrees that each certificate for the
Common Stock granted hereunder shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION IS
IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THIS CERTIFICATE IS
ISSUED PURSUANT TO AND SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER
PROVISIONS OF RESTRICTED STOCK AGREEMENT DATED MARCH 16, 1998 BETWEEN THE
COMPANY AND THE GRANTEE REFERRED TO THEREIN A COPY OF WHICH IS ON FILE WITH THE
COMPANY. EXCEPT AS PROVIDED IN SUCH RESTRICTED STOCK AGREEMENT, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE NOT TRANSFERABLE AND ANY PURPORTED TRANSFER
IN VIOLATION OF THE
<PAGE>
PROVISONS OF SUCH RESTRICTED STOCK AGREEMENT SHALL BE VOID AND OF NO FORCE AND
EFFECT.
3. Restrictions on Transfer of Stock. (a) The Grantee hereby
---------------------------------
acknowledges and agrees that the shares of Common Stock granted hereunder are
"restricted securities" under the Securities Act of 1933, as amended (the
"Securities Act"). The Grantee agrees not to, directly or indirectly, offer,
sell, transfer, assign or otherwise dispose of the beneficial ownership (any
such act, a "Transfer") of any such shares of Common Stock, except as permitted
hereunder and under the Securities Act and the rules and regulations thereunder
(including, without limitation, Transfers pursuant to Rule 144 under the
Securities Act).
(b) The restrictions on the Transfer of shares of Common Stock
granted hereunder shall lapse as follows:
(i) on the Initial Lapsing Date, as to 33.33% of the Common Stock
granted hereunder;
(ii) on the first anniversary of the Initial Lapsing Date, as to
66.66% of the Common Stock granted hereunder;
(iii) on the second anniversary of the Initial Lapsing Date, as to
100% of the Common Stock granted hereunder; and
provided that, so long as the shares of Common Stock granted hereunder remain
pledged by the Grantee to the Company pursuant to that certain Pledge Agreement,
dated March 16, 1998, made by the Grantee to the Company, the Grantee will not
Transfer any share of Common Stock granted hereunder. Notwithstanding the
foregoing, the restrictions on Transfer shall lapse as to all of the Common
Stock granted hereunder in the event that the Grantee's employment is terminated
on account of death or "Disability" of Grantee (as defined in the Company's
Long-Term Disability plan) and upon the death or Disability of Grantee at any
time prior to the third anniversary of the Initial Lapsing Date, the forfeiture
provisions of paragraph 4. hereof shall not apply to any shares of Common Stock
granted to such Grantee which remain subject to the restrictions of paragraph
3(a).
(c) The Grantee acknowledges and agrees that the shares of Common
Stock granted hereunder may be transferred only in one or more transactions
registered under the Securities Act (and, where applicable, the securities laws
of any state) or as to which an exemption from the registration requirements of
the Securities Act (and, where applicable, such laws) is available. As the
restrictions on Transfer imposed by this Section on shares of Common Stock
granted hereunder lapse, the shares of Common Stock as to which such
restrictions have lapsed shall be delivered to the Grantee without the
restrictive legend on the certificate for such shares.
4. Forfeiture of Stock. (a) In the event the Grantee's employment
-------------------
terminates (other than as a result of death or Disability) prior to the second
anniversary of the Initial Lapsing Date,
2
<PAGE>
the Grantee's rights in the shares of Common Stock granted hereunder as to which
the restrictions in Section 3(a) have not lapsed shall be as follows (it being
understood that the Grantee shall not forfeit, following any termination of such
Grantee's employment with the Company, any shares of Common Stock granted
hereunder as to which the restrictions in Section 3 have lapsed):
(i) if such termination is by the Company without Cause (as defined
below) or by the Grantee for Good Reason (as defined below), the
Grantee shall be entitled to a pro rata portion of the shares of
Common Stock scheduled to vest on the next succeeding anniversary
of the Initial Vesting Date (based on the number of days such
Grantee continues to be employed during the relevant one-year
period prior to such anniversary date), and all remaining shares
of Common Stock granted hereunder as to which the restrictions in
Section 3 have not lapsed will be forfeited;
(ii) if such termination is by the Company for Cause or by the Grantee
without Good Reason, all shares of Common Stock granted hereunder
as to which the restrictions in Section 3 have not lapsed will be
forfeited;
(b) The Compensation Committee of the Company's Board of Directors or
its agent shall act promptly to record forfeitures pursuant to this Section on
the stock transfer books of the Company.
(c) As used herein, the following terms shall have the following
meanings:
(i) "Cause" shall mean (A) an act or acts of dishonesty by the
Grantee constituting a felony under applicable law and/or (B) any
act resulting or intending to result directly or indirectly in
gain to or personal enrichment of the Grantee at the Company's
expense. Notwithstanding the foregoing, the Grantee shall not be
deemed to have been terminated for Cause unless and until there
shall have been delivered to the Grantee a copy of a resolution
duly adopted by the affirmative vote of not less than a majority
of the Compensation Committee of the Board called and held for
the purpose (after reasonable notice and opportunity for the
Grantee, together with counsel, to be heard before the
Compensation Committee of the Board), finding that in the good
faith opinion of the Compensation Committee of the Board the
Grantee engaged in the conduct described above.
(ii) "Good Reason" shall mean, without Grantee's written consent, (A)
a change in status, position or responsibilities which, in the
Grantee's reasonable judgment, does not represent a promotion
from existing status, position or responsibilities as in effect
on the date of this Agreement (the "Effective Date") or the
assignment of any duties or responsibilities which, in the
Grantee's reasonable judgment, are inconsistent with such status,
position or responsibilities or any removal from or failure to
reappoint or reelect the Grantee to any of such positions, except
in connection with the
3
<PAGE>
termination for total and permanent disability, death or cause or
by him other than for Good Reason; (B) a reduction by the Company
in the Grantee's base salary as in effect on the Effective Date;
(C) the relocation of the Grantee by the Company to any place not
within 25 miles of the location at which the Grantee performed
duties on the Effective Date, except for required travel on the
Company's business to an extent substantially consistent with
business travel obligations on the Effective Date; (D) the
failure of the Company to continue in effect any incentive, bonus
or other compensation plan in which the Grantee participates,
including but not limited to the Company's stock option and
deferred compensation plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan),
evidenced by the Grantee's written consent, has been made with
respect to such plan, or the failure by the Company to continue
the Grantee's participation therein, or any action by the Company
which would directly or indirectly materially reduce
participation therein; (E) the failure by the Company to continue
to provide the Grantee with benefits substantially similar to
those enjoyed or entitled under any of the Company's pension,
profit sharing, life insurance, medical, dental, health and
accident, or disability plans at the Effective Date, the taking
of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the Grantee of
any material fringe benefit enjoyed or entitled to at the
Effective Date, or the failure by the Company to provide the
number of paid vacation and sick leave days to which the Grantee
is entitled on the basis of years of service with the Company in
accordance with the Company's normal vacation policy in effect on
the Effective Date; or (F) any request by the Company that the
Grantee participate in an unlawful act or take any action
constituting a breach of the Grantee's professional standard of
conduct.
5. Dividends; Voting. If the Grantee is a shareholder of record
-----------------
on any applicable record date, the Grantee shall receive any dividends on the
Common Stock granted hereunder when paid regardless of whether the restrictions
imposed by Section 3 hereof have lapsed. If the Grantee is a shareholder of
record on any applicable record date, the Grantee shall have the right to vote
the Common Stock granted hereunder regardless of whether the restrictions
imposed by Section 3 hereof have lapsed.
6. No Right to Employment. The execution and delivery of this
----------------------
Agreement and the granting of Common Stock hereunder shall not constitute or be
evidence of any agreement or understanding, either express or implied, on the
part of the Company or its subsidiaries to employ the Grantee for any specific
period or in any particular capacity and shall not prevent the Company or its
subsidiaries from terminating the Grantee's employment at any time with or
without cause.
7. Registration. The registration of the Common Stock granted
------------
hereunder shall be governed by the Stock Purchase Agreement, dated March 16,
1998 (the "Stock
4
<PAGE>
Purchase Agreement"), between the Company and the Grantee. Except as provided in
the Stock Purchase Agreement, the Grantee acknowledges that the Grantee has no
right to require the Company to register the shares of Common Stock granted
hereunder.
8. Change in Control. In the event of a Change in Control (as
-----------------
defined in the Company's Change in Control Plan (the "Change in Control Plan"),
vesting of the Common Stock granted hereunder shall be in accordance with the
Company's Change in Control Plan.
9. Application of Laws. The granting of Common Stock hereunder shall
-------------------
be subject to all applicable laws, rules and regulations and to such approvals
of any governmental agencies as may be required.
10. Taxes. Any taxes required by federal, state of local laws to be
-----
withheld by the Company on the delivery of Common Stock hereunder shall be paid
to the Company by the Grantee by the time such taxes are required to be paid or
deposited by the Company. Prior to the lapse of restrictions, the Grantee shall
be given the option to satisfy any tax obligations by (i) tendering cash to the
Company prior to the time of delivery or (ii) authorizing the conversion to cash
by the Company of a sufficient amount of Common Stock prior to delivery.
11. Notices. Any notices required to be given hereunder to the
-------
Company shall be addressed to Patina Oil & Gas Corporation, 1625 Broadway, Suite
2000, Denver, Colorado 80202 (Phone (303) 389-3600; Fax (303) 595-7408)
Attention: General Counsel, and any notice required to be given hereunder to
the Grantee shall be sent to the Grantee's address as shown of the records of
the Company.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and
the Grantee have executed this agreement as amended and restated in duplicate as
of the Grant Date first above written.
PATINA OIL & GAS CORPORATION
By: /s/ Brian J. Cree
------------------------------
Brian J. Cree
Executive Vice President,
Chief Operating Officer
GRANTEE
/s/ Jay W. Decker
------------------------------
By: Jay W. Decker
5
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,106
<SECURITIES> 0
<RECEIVABLES> 10,510
<ALLOWANCES> (322)
<INVENTORY> 2,566
<CURRENT-ASSETS> 22,177
<PP&E> 586,413
<DEPRECIATION> 247,020
<TOTAL-ASSETS> 363,005
<CURRENT-LIABILITIES> 21,450
<BONDS> 144,508
0
31
<COMMON> 162
<OTHER-SE> 186,162
<TOTAL-LIABILITY-AND-EQUITY> 363,005
<SALES> 20,343
<TOTAL-REVENUES> 20,637
<CGS> 13,815
<TOTAL-COSTS> 17,001
<OTHER-EXPENSES> 23
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,278
<INCOME-PRETAX> 304
<INCOME-TAX> 0
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<CHANGES> 0
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<EPS-PRIMARY> (.08)
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