<PAGE>
UNITED STATES
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 QUARTER ENDED MARCH 31, 2000
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 0-9498
BELLWETHER EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 74-0437769
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1331 Lamar, Suite 1455 Houston, Texas 77010-3039
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: (713) 650-1025
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
- ----
As of May 4, 2000, 13,864,398 shares of common stock of Bellwether Exploration
Company were outstanding.
<PAGE>
BELLWETHER EXPLORATION COMPANY
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page #
<S> <C> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets:
March 31, 2000 (Unaudited) and December 31,1999................ 3
Condensed Consolidated Statements of Operations (Unaudited):
Three months ended March 31, 2000 and 1999..................... 5
Condensed Consolidated Statements of Cash Flows (Unaudited):
Three months ended March 31, 2000 and 1999..................... 6
Notes to Condensed Consolidated Financial Statements (Unaudited).... 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.......... 16
PART II. OTHER INFORMATION.................................................. 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
ASSETS
<TABLE>
March 31, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 112 $ 6,101
Accounts receivable and accrued revenues................... 16,954 14,354
Prepaid expenses and other................................. 2,368 1,562
-------- ---------
Total current assets.................................... 19,434 22,017
-------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Oil and gas properties (full cost)
United States - Unproved properties of $17,776 and
$16,325 excluded from amortization as of March 31,
2000 and December 31, 1999, respectively.............. 365,483 344,778
Latin America - Unproved properties of $728 and $404
excluded from amortization as of March 31, 2000 and
December 31, 1999, respectively....................... 2,029 1,246
Gas plant facilities....................................... 17,808 17,775
--------- ---------
385,320 363,799
Accumulated depreciation, depletion, amortization and
impairments............................................. (234,404) (227,226)
--------- ---------
150,916 136,573
--------- ---------
Leasehold, furniture and equipment......................... 1,041 438
Accumulated depreciation................................... (116) (74)
--------- ---------
925 364
--------- ---------
INVESTMENTS IN OUTSIDE COMPANIES........................... 4,554 4,554
NOTES RECEIVABLE........................................... 663 ---
DEFERRED INCOME TAXES...................................... 20,545 2,739
OTHER ASSETS............................................... 5,425 5,514
--------- ---------
$ 202,462 $ 171,761
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share information)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
March 31, December 31,
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities....................... $ 20,623 $ 18,247
---------- ----------
Total current liabilities..................................... 20,623 18,247
---------- ----------
LONG-TERM DEBT................................................. 134,900 130,000
OTHER LIABILITIES.............................................. 200 200
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized;
none issued................................................... --- ---
Common stock, $0.01 par value, 30,000,000 shares authorized,
13,864,291 and 13,857,791 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively............ 142 142
Additional paid-in capital..................................... 80,490 80,455
Retained earnings (deficit).................................... (31,988) (55,378)
Treasury stock, at cost, 311,000 shares........................ (1,905) (1,905)
---------- ----------
Total stockholders' equity................................... 46,739 23,314
---------- ----------
$202,462 $171,761
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share information)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
2000 1999
-------- ---------
<S> <C> <C>
REVENUES:
Oil and gas revenues.............................. $ 23,667 $12,727
Gas plant operations, net......................... 654 221
Interest and other income......................... 224 283
-------- -------
24,545 13,231
-------- -------
COST AND EXPENSES:
Production expenses............................... 6,314 5,612
Depreciation, depletion and amortization.......... 7,290 4,680
General and administrative expenses............... 1,876 1,394
Interest expense.................................. 3,409 2,829
-------- -------
18,889 14,515
-------- -------
Income (loss) before income taxes.................. 5,656 (1,284)
Income tax expense (benefit)....................... (17,734) ---
-------- -------
NET INCOME (LOSS).................................. $ 23,390 $(1,284)
======== =======
Net income (loss) per share........................ $ 1.69 $ (.09)
======== =======
Net income (loss) per share-diluted................ $ 1.67 $ (.09)
======== =======
Weighted average common shares
outstanding....................................... 13,859 13,854
======== =======
Weighted average common shares outstanding-
diluted........................................... 14,031 13,854
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
2000 1999
---------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS).................................................... $ 23,390 $(1,284)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization........................ 7,517 4,886
Deferred income taxes........................................... (17,806) ---
------------ -----------
13,101 3,602
Change in assets and liabilities:
Accounts receivable and accrued revenue............................. (2,600) 913
Accounts payable and other liabilities.............................. 2,376 (301)
Due from (to) related parties....................................... --- (973)
Other............................................................... (1,057) 890
------------ -----------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES..................... 11,820 4,131
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties and facilities.............................. (21,543) (7,796)
Additions to leasehold, furniture and equipment..................... (603) (12)
Notes receivable.................................................... (663) ---
Proceeds from sales of properties................................... 65 (80)
------------ -----------
NET CASH FLOWS USED IN INVESTING ACTIVITIES......................... (22,744) (7,888)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings............................................ 16,900 4,500
Payments of long-term debt.......................................... (12,000) ---
Exercise of stock options........................................... 35 ---
Purchase of treasury shares......................................... --- (1)
------------ -----------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES..................... 4,935 4,499
------------ -----------
Net (decrease) increase in cash and cash equivalents................ (5,989) 742
Cash and cash equivalents at beginning of period.................... 6,101 10
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 112 $ 752
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE>
BELLWETHER EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
(Amounts in thousands)
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................... $ 633 $ 87
Income taxes...................................... $ 41 $ ---
See accompanying notes to condensed consolidated financial statements
7
<PAGE>
BELLWETHER EXPLORATION COMPANY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-Q and, therefore,
do not include all disclosures required by generally accepted accounting
principles. However, in the opinion of management, these statements
include all adjustments, which are of a normal recurring nature, necessary
to present fairly the financial position at March 31, 2000 and December 31,
1999, and the results of operations and changes in cash flows for the
periods ended March 31, 2000 and 1999. These financial statements should
be read in conjunction with the consolidated financial statements and notes
to the consolidated financial statements in the December 31, 1999 Form 10-K
of Bellwether Exploration Company ("the Company") that was filed with the
Securities and Exchange Commission on March 24, 2000.
Certain reclassifications of prior period statements have been made to
conform with current reporting practices.
In order to prepare these financial statements in conformity with generally
accepted accounting principles, management of the Company has made a number
of estimates and assumptions relating to the reporting of assets and
liabilities, the disclosure of contingent assets and liabilities, and
reserve information. Actual results could differ from those estimates.
8
<PAGE>
BELLWETHER EXPLORATION COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. STOCKHOLDERS' EQUITY
SFAS No. 128 requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted
EPS computation. For the three months ended March 31, 1999, diluted
earnings per common share were not calculated since the issuance or
conversion of additional securities would have an antidilutive effect.
SFAS NO. 128 RECONCILIATION (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
March 31, 2000 March 31, 1999
--------------------------------------- -----------------------------------------
Income Shares Per Share Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ------------- ------------- ----------
INCOME (LOSS) PER COMMON SHARE:
<S> <C> <C> <C> <C> <C> <C>
Income (loss) available to common
stockholders................... $23,390 13,859 $1.69 $(1,284) 13,854 $(.09)
===== ======
EFFECT OF DILUTIVE SECURITIES:
Options and Warrants............ $ --- 172 $ --- ---
------- ------ ------- ------
INCOME (LOSS) PER COMMON
SHARE-DILUTED:
Income (loss) available to common
stockholders and assumed
conversions.................... $23,390 14,031 $1.67 $(1,284) 13,854 $(.09)
======= ====== ===== ======= ====== =====
</TABLE>
Options and warrants on 1,000 shares of common stock were not included in
computing diluted loss per share for March 31, 1999, because their effects
were antidilutive.
In September 1998, the Company's Board of Directors authorized the
repurchase of up to $5 million of the Company's common stock. As of March
31, 2000, 311,000 shares had been acquired at an aggregate price of
$1,905,000. These treasury shares are reported at cost as a reduction to
Stockholders' Equity.
9
<PAGE>
BELLWETHER EXPLORATION COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
3. LONG TERM DEBT
In April 1997, the Company entered into a senior unsecured revolving
credit facility ("Senior Credit Facility") which currently has a borrowing
base of $55.0 million and a maturity date of November 5, 2003. The Company
may elect an interest rate based either on a margin plus LIBOR or the
higher of the prime rate or the sum of 1/2 of 1% plus the Federal Funds
Rate. For LIBOR borrowings, the interest rate will vary from LIBOR plus
0.875% to LIBOR plus 1.25% based upon the borrowing base usage. As of March
31, 2000 there were $34.9 million borrowings outstanding under the Senior
Credit Facility and available borrowing capacity of $12.8 million, net of
outstanding lines of credit of $7.3 million.
The Senior Credit Facility contains various covenants including certain
required financial measurements for current ratio, consolidated tangible
net worth and interest coverage ratio. In addition, the Senior Credit
Facility includes certain limitations on restricted payments, dividends,
incurrence of additional funded indebtedness and asset sales.
In April 1997, the Company issued $100.0 million of 10-7/8% senior
subordinated notes ("Notes") that mature April 1, 2007. Interest on the
Notes is payable semi-annually on April 1 and October 1. The Notes contain
certain covenants, including limitations on indebtedness, liens, dividends
and other payment restrictions affecting restricted subsidiaries, issuance
and sales of restricted subsidiary stock, dispositions of proceeds of asset
sales and restrictions on mergers and consolidations or sales of assets.
Effective September 22, 1998, the Company entered into an eight and a half
year interest rate swap agreement with a notional value of $80 million.
Under the agreement, the Company receives a fixed interest rate and pays a
floating interest rate based on the simple average of three foreign LIBOR
rates. Floating rates are redetermined for a six month period each April 1
and October 1. The floating rate for the period from April 1, 2000 to
October 1, 2000 is 10.33%. Through April 1, 2002 the floating rate is
capped at 10.875% and capped at 12.875% thereafter.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes standards
of accounting for and disclosures of derivative instruments and hedging
activities. As amended, this statement is effective for fiscal quarters
beginning after January 1, 2001. The Company has not yet determined the
impact of this statement on the Company's financial condition or results of
operations.
10
<PAGE>
BELLWETHER EXPLORATION COMPANY
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
5. NATURAL GAS AND CRUDE OIL HEDGING
Oil and gas revenues decreased $1.2 million and $13,000 in the three months
ended March 31, 2000 and 1999, respectively, as a result of hedging
activity.
Since year end 1999, the Company has entered into additional swap contracts
as follows:
OIL HEDGES
----------
<TABLE>
<CAPTION>
NYMEX NYMEX
PERIOD BBLS TOTAL BBLS TYPE PRICE PRICE
PER DAY FLOOR CEILING
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 2000-Sept. 2000 4,000 368,000 Collar* $22.25 $24.75
- -------------------------------------------------------------------------------------
Oct. 2000-Dec. 2000 4,000 368,000 Collar** $23.00 $25.00
- -------------------------------------------------------------------------------------
</TABLE>
GAS HEDGES
----------
<TABLE>
<CAPTION>
NYMEX NYMEX
PERIOD MCF TOTAL MCF TYPE PRICE PRICE
PER DAY FLOOR CEILING
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
April 2000-Oct. 2000 35,000 7,490,000 Collar $2.30 $2.84
- -----------------------------------------------------------------------------------------
Nov. 2000- March 2001 20,000 3,020,000 Collar $2.30 $3.35
- -----------------------------------------------------------------------------------------
April 2001-Oct. 2001 30,000 6,420,000 Collar $2.30 $2.88
- -----------------------------------------------------------------------------------------
</TABLE>
* This agreement includes a put at $17.25 per barrel with a $0.50 cost per
barrel
** This agreement includes a put at $18.00 per barrel
The fair value at March 31, 2000 of all swap agreements was an unrealized
loss of $1.2 million.
6. INCOME TAXES
At December 31, 1999 the Company had a tax valuation allowance of $19.8
million against its deferred tax assets. As of March 31, 2000, the Company
determined that it was more likely than not that the deferred tax assets
would be realized, based on current projections of taxable income due to
higher commodity prices, and the valuation allowance was removed. The
$19.8 million benefit recorded for the removal of the valuation allowance
was offset by a $2.1 million deferred tax liability that was generated
during the three months ended March 31, 2000, resulting in an overall tax
benefit of $17.7 million for the quarter.
11
<PAGE>
BELLWETHER EXPLORATION COMPANY
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Company strives to maximize long-term shareholder value through aggressive
growth in reserves and cash flow using advanced technologies, implementation of
a low cost structure and maintenance of a capital structure supportive of
growth. The Company employs an integrated interdisciplinary team approach to a
balanced program of strategic acquisitions of producing oil and gas properties
and technology driven development and exploration activities. The funding of
these activities has historically been provided by operating cash flows, bank
financing, equity placements and sale of non-core assets. The Company invested
$21.5 million in oil and gas properties for the three months ended March 31,
2000 versus $7.8 million for the same period in 1999. Cash flows from operations
before changes in assets and liabilities were $13.1 million for the three months
ended March 31, 2000 compared to $3.6 million provided by operating activities
in the same period of 1999. In the latter half of 1999, the Company began an
aggressive drilling program in order to reduce the declining reserve base. This
strategy is reflected in the increased capital spending and corresponding
increased cash flows as compared to the same period last year. At March 31,
2000, the Company had $12.8 million of available debt capacity under the Senior
Credit Facility, net of $7.3 million in outstanding lines of credit.
2000 Capital Expenditures
During 2000, the Company anticipates investing approximately $55 million,
primarily for development and exploratory drilling activities and leasehold and
seismic acquisitions. The Company believes its cash flow provided by operating
activities and borrowings under its credit facilities will be sufficient to
meet these projected capital investments (See Note 3 of the Notes to Condensed
Consolidated Financial Statements). The Company continues to review acquisition
opportunities and the consummation of such a transaction will directly impact
anticipated capital expenditures.
Gas Balancing
It is customary in the industry for working interest partners to sell more or
less than their entitled share of natural gas. The settlement or disposition of
existing gas balancing positions is not anticipated to materially impact the
financial condition of the Company.
12
<PAGE>
BELLWETHER EXPLORATION COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Oil and Gas Property Accounting
The Company utilizes the full cost method of accounting for its investment in
oil and gas properties. Under this method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
as incurred. To the extent that capitalized costs of oil and gas properties,
net of accumulated depreciation, depletion and amortization, exceed the
discounted future net revenues of proved oil and gas reserves net of deferred
taxes, such excess capitalized costs would be charged to operations. No such
charges to operations were required during the three month periods ending March
31, 2000 or 1999.
Results of Operations
The following table sets forth certain operating information for the Company for
the periods presented:
Three Months Ended
March 31,
---------------------------
2000 1999
---------------------------
Production:
Oil and condensate (MBBLs)...................... 562 520
Natural gas (MMCF).............................. 5,008 4,785
Average sales price: (1)
Oil and condensate (per BBL).................... $19.32 $ 9.35
Natural gas (per MCF).......................... $ 2.56 $ 1.64
Average costs:
Production expenses (per BOE)................... $ 4.52 $ 4.26
General and administrative expense
(per BOE).................................... $ 1.34 $ 1.06
Depreciation, depletion and amortization
(per BOE)(2)................................. $ 4.95 $ 3.32
(1) Average sales prices include the effect of hedges, which decreased revenues
by $1.2 million and $13,000 in the three month period s ended March 31,
2000 and 1999, respectively.
(2) Excludes depreciation, depletion and amortization on gas plants and other
assets of $378,000 in the three month period in 2000, and of $306,000 in
the three month period ended in 1999.
13
<PAGE>
BELLWETHER EXPLORATION COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Three Months Ended March 31, 2000 and 1999
Net income for the quarter ended March 31, 2000 was $23.4 million or $1.67 per
share versus a net loss of $1.3 million or $.09 per share. A major contributor
to the increase was a tax benefit in deferred taxes of $17.8 million resulting
from the reversal of the Company's tax valuation allowance. Also contributing to
the increase were higher oil and gas prices and increased oil and gas production
as compared to the quarter ended March 31, 1999.
Oil and gas revenues for the three months ended March 31, 2000 were $23.7
million as compared to $12.7 million for the respective period in 1999. The 87%
increase in oil and gas revenues is primarily due to increased oil and gas
prices. Oil prices averaged $19.32 per barrel in the three month period ended
March 31, 2000 as compared to $9.35 per barrel in the comparable period of 1999.
This 107% increase in oil prices translates into a $5.2 million increase in oil
revenues. Gas prices averaged $2.56 per mcf in the three month period ended
March 31, 2000 as compared to $1.64 per mcf in the comparable period of 1999.
This 56% increase in gas prices translates into a $4.4 million increase in gas
revenues. Partially offsetting these pricing gains is a $1.2 million decrease in
oil and gas revenues due to oil and gas hedges in place in the quarter ended
March 31, 2000. Hedging activity resulted in a decrease in revenues of $13,000
for the same period of 1999.
Production volumes reflect an increase over normal declines as a result of the
Gulf of Mexico and New Mexico properties purchased in the last half of 1999. In
addition, we started production in our Ecuador Charapa field in February of
2000. Oil production increased 8% compared to the same quarter of 1999. The
Company produced 562,000 and 520,000 barrels for the three month periods ended
March 31, 2000 and 1999, respectively. Gas production increased 5% compared to
the same quarter of 1999 with production of 5,008 and 4,785 million cubic feet
(MMcf) for the three month periods ended March 31, 2000 and 1999, respectively.
Net gas plant operating profit was $654,000 in the three months ended March 31,
2000 and $221,000 in the same period of 1999. While volumes were comparable to
last year, the increased operating profit is primarily due to a 111% increase in
prices. Liquid prices increased from $9.17 per barrel in the quarter ended
March 31, 1999 to $19.33 per barrel in the quarter ended March 31, 2000.
Interest and Other Income decreased 21% from $283,000 at March 31, 1999 to
$224,000 at March 31, 2000 primarily as a result of the write off of certain
bad debts on receivables.
Production expenses for the three months ended March 31, 2000 totaled $6.3
million, or 13% above the $5.6 million for the three months ended March 31,
1999. On a per barrel equivalency basis (BOE), production expenses for the
quarter ended March 31, 2000 increased to $4.52 per BOE as compared to $4.26 per
BOE in the period ended March 31, 1999. Material expense workovers and
expenses associated with the new acquisitions in the Gulf of Mexico and New
Mexico mentioned above resulted in increased production expenses in the current
quarter.
14
<PAGE>
BELLWETHER EXPLORATION COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Depreciation, depletion and amortization was $7.3 million for the three months
ended March 31, 2000 and $4.7 million for the three month period ended March 31,
1999. A portion of the increase is due to increased production rates while the
remaining increase is due to the increased depreciation, depletion and
amortization rate per BOE. Increased capital expenditures and future
development costs resulted in the increased depreciation, depletion and
amortization rate per BOE. Depreciation, depletion and amortization per BOE was
$3.32 per BOE in 1999 and $4.95 per BOE in 2000.
General and administrative expenses totaled $1.9 million in the three months
ended March 31, 2000 as compared to $1.4 million for the comparable period of
1999. An increase in outsourcing costs from $.5 million to $1.0 million was
the major contribution to the increase. In 1999, the Company was charged a
management fee under its then current outsourcing contract which was based upon
a specified percentage of the average book value of the Company's total assets,
excluding cash, plus a percentage of operating cash flows. Due to the $73.9
million impairment charge in December 1998, the Company's total assets and
resulting percentage of such assets were reduced. In addition, with the
depressed oil and gas prices in the first quarter of 1999, management fees were
further reduced in such period. In October 1999, the Company became party to a
new Master Services Agreement ("MSA") and six specific contracts which covered
comparable outsourcing services as the 1999 contract. The new contracts have
varying terms and fees, but overall management fees have increased to levels
similar to 1998 management fee levels, a level management feels is appropriate.
On a BOE basis, general and administrative expenses were $1.34 per BOE in the
period ended March 31, 2000 and $1.06 per BOE in the period ended March 31,
1999.
Interest expense increased 21% to $3.4 million for the three months ended March
31, 2000 compared to $2.8 million in the same period of 1999. Increased
interest rates and higher borrowings outstanding resulted in the increase.
At December 31, 1999 the Company had a tax valuation allowance of $19.8 million
against its deferred tax assets. As of March 31, 2000, the Company determined
that it was more likely than not that the deferred tax assets would be realized,
based on current projections of taxable income due to higher commodity prices,
and the valuation allowance was removed. The $19.8 million benefit recorded for
the removal of the valuation allowance was offset by a $2.1 million deferred tax
liability that was generated during the three months ended March 31, 2000,
resulting in an overall tax benefit of $17.7 million for the quarter.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes standards of
accounting for and disclosures of derivative instruments and hedging activities.
As amended, this statement is effective for fiscal quarters beginning after
January 1, 2001. The Company has not yet determined the impact of this
statement on the Company's financial condition or results of operations
15
<PAGE>
BELLWETHER EXPLORATION COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Forward Look Statements
This Form 10-Q contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included herein, including without limitation,
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in the notes to the financial statements
regarding the Company's financial position, capital budget, intent to acquire
oil and gas properties, estimated quantities and net present values of reserves,
business strategy, plans and objectives of management of the Company for future
operations, and the effect of gas balancing, are forward-looking statements.
There can be no assurances that such forward looking statements will prove to
have been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") include the
volatility of oil and gas prices, operating hazards, government regulations,
exploration risks and other factors described in the Company's Form 10-K filed
with the Securities and Exchange Commission. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified by the Cautionary Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including adverse changes in commodity
prices and interest rates. Since year end 1999, the Company has entered into
additional swap contracts as follows:
OIL HEDGES
----------
<TABLE>
<CAPTION>
NYMEX NYMEX
PERIOD BBLS TOTAL BBLS TYPE PRICE PRICE
PER DAY FLOOR CEILING
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 2000-Sept. 2000 4,000 368,000 Collar* $22.25 $24.75
- -------------------------------------------------------------------------------------
Oct. 2000-Dec. 2000 4,000 368,000 Collar** $23.00 $25.00
- -------------------------------------------------------------------------------------
</TABLE>
GAS HEDGES
----------
<TABLE>
<CAPTION>
NYMEX NYMEX
PERIOD MCF TOTAL MCF TYPE PRICE PRICE
PER DAY FLOOR CEILING
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
April 2000-Oct. 2000 35,000 7,490,000 Collar $2.30 $2.84
- -----------------------------------------------------------------------------------------
Nov. 2000- March 2001 20,000 3,020,000 Collar $2.30 $3.35
- -----------------------------------------------------------------------------------------
April 2001-Oct. 2001 30,000 6,420,000 Collar $2.30 $2.88
- -----------------------------------------------------------------------------------------
</TABLE>
* This agreement includes a put at $17.25 per barrel with a $0.50 cost per
barrel
** This agreement includes a put at $18.00 per barrel
The fair value at March 31, 2000 of all swap agreements was an unrealized loss
of $1.2 million. A 10% increase in prices would increase the loss by $4.3
million while a 10% decrease in prices would decrease the loss by $1.2 million.
16
<PAGE>
BELLWETHER EXPLORATION COMPANY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following exhibits are filed with this Form 10-Q and they
are identified by the number indicated.
10.18 Employment Contract dated April 1, 2000 between the
Company and Cliff M. West, Jr. - included herewith.
10.19 Employment Contract dated April 1, 2000 between the
Company and Robert J. Bensh - included herewith.
27 Financial Data Schedule
b. Reports on Form 8-K.
None.
17
<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.
BELLWETHER EXPLORATION COMPANY
------------------------------
(Registrant)
Date: May 15, 2000 By: /s/ J.P. Bryan
------------- ------------------------------------------------
J. P. Bryan
Chairman and Chief Executive Officer
Date: May 15, 2000 By: /s/ Robert J.Bensh
--------------- -------------------------------------------------
Robert J. Bensh
Senior Vice President and Chief Financial Officer
18
<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") entered into effective as of
April 1, 2000, by and between Clifton M. West, Jr. (the "Executive"), and
Bellwether Exploration Company, a Delaware corporation having its principal
place of business at 1331 Lamar, Suite 1455, Houston, Texas 77010-3039 (the
"Company");
W I T N E S S E T H:
WHEREAS, The Company wishes to employ the Executive as the Senior Vice
President - Exploration and Exploitation and to perform services incident to
such position for the Company, and the Executive wishes to be so employed by the
Company, all upon the terms and conditions hereinafter set forth:
NOW THEREFORE, in consideration of the premises and mutual covenants and
obligations herein set forth and for other good and valuable consideration, the
receipt, sufficiency and adequacy of which is hereby acknowledged, accepted and
agreed to, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. EMPLOYMENT AND TERM. The Company hereby employs the Executive to serve
as the Senior Vice President - Exploration and Exploitation of the Company. The
term of this Agreement (the "Term of this Agreement") shall be effective as of
the date first above written and shall terminate twenty-four (24) months from
the date hereof (the "Termination Date"), unless earlier terminated by either
party hereto in accordance with the provisions of Section 5 hereof; provided,
however, that upon the occurrence of a Change of Control (as such term is
defined in Section 5(g) hereof), the Termination Date shall automatically
accelerate without any further action by the Company or the Executive. During
the term of this Agreement, the terms of employment shall be as set forth herein
unless modified by the Executive and the Company in accordance with the
provisions of Section 11 hereof. The Executive hereby agrees to accept such
employment and to perform the services specified herein, all upon the terms and
conditions hereinafter set forth.
2. POSITION AND RESPONSIBILITIES. The Executive shall serve as the Senior
Vice President - Exploration and Exploitation of the Company and shall report
to, and be subject to the general direction and control of, the Chief Executive
Officer and Chairman of the Board of the Company. The Executive shall have
other obligations, duties, authority and power to do all acts and things as are
customarily done by a person holding the same or equivalent position or
performing duties similar to those to be performed by executives in corporations
of similar size to the Company and shall perform such managerial duties and
responsibilities for the Company as may reasonably be assigned to him by the
Chief Executive Officer and Chairman of the Board of the Company. Unless
otherwise agreed to by the Executive, the Executive shall be based at the
Company's principal executive offices located in the greater Houston, Texas
metropolitan area.
<PAGE>
3. EXTENT OF SERVICE. The Executive shall devote his full business time
and attention to the business of the Company.
4. COMPENSATION.
(a) In consideration of the services to be rendered by the Executive to the
Company, the Company will pay the Executive a salary ("Salary") of $150,000 per
year during the Term of this Agreement. Such Salary will be payable in
conformity with the Company's prevailing practice for executives' compensation
as such practice shall be established or modified from time to time. Salary
payments shall be subject to all applicable federal and state withholding,
payroll and other taxes. From time to time during the Term of this Agreement,
the amount of the Executive's Salary may be increased by, and at the sole
discretion of, the Compensation Committee of the Company's Board of Directors,
which shall review the Executive's Salary no less regularly than annually.
(b) Any cash or stock bonuses paid to the Executive shall be based on
performance and be at the sole discretion of the Compensation Committee of the
Company's Board of Directors.
(c) During the term of this Agreement, the Company shall pay or reimburse
the Executive for all reasonable out-of-pocket expenses for travel, meals, hotel
accommodations, entertainment and the like incurred by him in connection with
the business of the Company upon submission by him of an appropriate statement
documenting such expenses as required by the Internal Revenue Code of 1986, as
amended (the "Code").
(d) The Executive shall be entitled to four (4) weeks of paid vacation
during each calendar year during the term of this Agreement. Vacation shall
accrue on the first day of each calendar year. The Company shall pay the
Executive for any accrued but unused portion of vacation and any such unused
portion of vacation shall not be carried forward to the next year.
(e) During the term of this Agreement, the Executive shall be entitled to
participate in and to receive all rights and benefits under any life,
disability, medical and dental, health and accident and profit sharing or
deferred compensation plans and such other plan or plans as may be implemented
by the Company during the term of this Agreement. The Executive shall also be
entitled to participate in and to receive all rights and benefits under any plan
or program adopted by the Company for any other or group of other executive
employees of the Company, including without limitation, the rights and benefits
under the directors' and officers' liability insurance currently in place under
the Company's insurance program for the directors and officers of the Company.
(f) During the term of this agreement, parking shall be provided for
Executive by the Company.
2
<PAGE>
5. TERMINATION.
(a) Termination by Company; Discharge for Cause. The Company shall be
entitled to terminate this Agreement and the Executive's employment with the
Company at any time and for whatever reason; or at any time for "Cause" (as
defined below) by written notice to the Executive. Termination of the
Executive's employment by the Company shall constitute a termination for "Cause"
if such termination is for one or more of the following reasons: (i) the willful
failure or refusal of the Executive to render services to the Company in
accordance with his obligations under this Agreement, including, without
limitation, the failure or refusal of the Executive to comply with the work
rules, policies, procedures, and directives as established by the Board of
Directors and consistent with this Agreement; such failure or refusal to be
uncured and continuing for a period of not less than fifteen (15) days after
notice outlining the situation is given by the Company to the Executive; (ii)
the commission by the Executive of an act of fraud or embezzlement; (iii) the
commission by the Executive of any other action with the intent to injure the
Company; (iv) the Executive having been convicted of a felony or a crime
involving moral turpitude; (v) the Executive having misappropriate the property
of the Company; (vi) the Executive having engaged in personal misconduct which
materially injures the Company; or (vii) the Executive having willfully violated
any law or regulation relating to the business of the company which results in
material injury to the Company. In the event of the Executive's termination by
the Company for Cause hereunder, the Executive shall be entitled to no severance
or other termination benefits except for any unpaid Salary accrued through the
date of termination. A termination of this Agreement by the Company without
Cause pursuant to this Section 5(a) shall entitle the Executive to the Severance
Payment and other benefits specified in Section 5(f) hereof.
(b) Death. If the Executive dies during the term of this Agreement and
while in the employ of the Company, this Agreement shall automatically terminate
and the Company shall have no further obligation to the Executive or his estate
except that the Company shall pay to the Executive's estate that portion of his
Salary and benefits accrued through the date of death. All such payments to the
Executive's estate shall be made in the same manner and at the same time as the
Executive's Salary.
(c) Disability. If during the term of this Agreement, the Executive shall
be prevented from performing his duties hereunder for a period of 60 days by
reason of disability, then the Company, on 30 days' prior notice to the
Executive, may terminate this Agreement. For purposes of this Agreement, the
Executive shall be deemed to have become disabled when the Board of Directors of
the Company, upon verification by a physician designated by the Company, shall
have determined that the Executive has become physically or mentally unable
(excluding infrequent and temporary absences due to ordinary illness) to perform
the essential functions of his duties under this Agreement with reasonable
accommodation. In the event of a termination pursuant to this paragraph (c),
the Company shall be relieved of all its obligations under this Agreement,
except that the Company shall pay to the Executive or his estate in the event of
his subsequent death, that portion of the Executive's Salary and benefits
accrued through the date of such termination. All such payments to the
Executive or his estate shall be
3
<PAGE>
made in the same manner and at the same time as his Salary and would have been
paid to him had he not become disabled.
(d) Termination for Good Reason. The Executive shall be entitled to
terminate this Agreement and his employment with the Company at any time upon
thirty (30) days written notice to the Company for "Good Reason" (as defined
below). The Executive's termination of employment shall be for "Good Reason" if
such termination is a result of any of the following events:
(i) The Executive is assigned any responsibilities or duties materially
inconsistent with his position, duties, responsibilities and status with the
Company as in effect at the date of this Agreement or as may be assigned to the
Executive pursuant to Section 2 hereof; or his title or offices as in effect at
the date of this Agreement or as the Executive may be appointed or elected to in
accordance with Section 2 are changed; or the Executive is required to report to
or be directed by any person other than the Chief Executive Officer and the
Chairman of the Board;
(ii) there is a reduction in the Salary (as such Salary shall have been
increased from time to time) payable to the Executive pursuant to Section 4(a)
hereof;
(iii) failure by the Company or any successor to the Company or its assets
to continue to provide to the Executive any material benefit, bonus, profit
sharing, incentive, remuneration or compensation plan, stock ownership or
purchase plan, stock option plan, life insurance, disability plan, pension plan
or retirement plan in which the Executive was entitled to participate in as at
the date of this Agreement or subsequent thereto, or the taking by the Company
of any action that materially and adversely affects the Executive's
participation in or materially reduces his rights or benefits under or pursuant
to any such plan or the failure by the Company to increase or improve such
rights or benefits on a basis consistent with practices in effect prior to the
date of this Agreement or with practices implemented and subsequent to the date
of this Agreement with respect to the executive employees of the Company
generally, which ever is more favorable to the Executive, but excluding such
action that is required by law;
(iv) without Executive's consent, the Company requires the executive to
relocate to any city or community other than one within a fifty (50) mile radius
of the greater Houston, Texas metropolitan area, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's business obligations under this Agreement; or
(v) there is any material breach by the Company of any provision of this
Agreement.
Upon the Executive's termination of this Agreement for Good Reason,
the Executive shall be entitled to the Severance Payment and other benefits
specified in Section 5(f) hereof.
4
<PAGE>
(e) Voluntary Termination. Notwithstanding anything to the contrary
herein, the Executive shall be entitled to voluntarily terminate this Agreement
and his employment with the Company at his pleasure upon sixty (60) days written
notice to such effect. In such event, the Executive shall not be entitled to
any further compensation other than any unpaid Salary and benefits accrued
through the date of termination. At the Company's option, the Company may pay
to the Executive the salary and benefits that the Executive would have received
during such sixty (60) day period in lieu of requiring the Executive to remain
in the employment of the Company for such sixty (60) day period.
(f) Termination Benefits Upon Involuntary Termination or Termination for
Good Reason. In the event that (i) the Company terminates this Agreement and
the Executive's employment with the Company for any reason other than for Cause
(as defined in Section 5(a) hereof) or the death or disability (as defined in
Section 5(c) hereof) of the Executive, or (ii) the Executive terminates this
Agreement and his employment with the Company for Good Reason (as set forth in
Section 5(d) hereof), then the Company shall pay the Executive, within thirty
(30) days after the date of termination, an amount (the "Severance Payment")
equal to (x) one (1) times the Executive's highest annual Salary in existence at
any time during the last two (2) years of employment immediately preceding the
date of termination, and (y) one (1) times the highest annual bonus paid to the
Executive during such two-year period, minus applicable withholding and
authorized salary reductions (the "Severance Payment"). In addition, following
other such termination, the Executive shall be entitled to the following
benefits (collectively, the "Additional Benefits");
(i) immediate vesting of any of the Executive's outstanding options to
purchase securities of the Company which were not vested by their own terms on
the date of termination and the extension of the Executive's right to exercise
all the Executive's options to purchase securities of the Company for a period
equal to the lesser of one (1) year following the date of termination or (B) the
remaining term of the applicable option;
(ii) continued coverage, at the Executive's cost, under the Company's group
health plan for the applicable coverage period under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA") but only if Executive
elects such COBRA continuation in accordance with the time limits and in
applicable COBRA regulations; and
(iii) an amount, in cash, equal to the sum of (A) any unreimbursed
expenses incurred by the Executive in the performance of his duties hereunder
through the date of termination, plus (B) any accrued and unused vacation time
or other unpaid benefits as of the date of termination.
The parties agree that, because there can be no exact measure of the
damages which would occur to the Executive as a result of termination of
employment, such payments contemplated in this Section 5(f) shall be deemed to
constitute liquidated damages and not a penalty and the Company agrees that the
Executive shall not be required to mitigate his damages.
5
<PAGE>
The termination compensation in this Section 5(f) shall be paid only if the
Executive executes a termination agreement releasing all legally waivable claims
arising from the Executive's employment.
(g) Termination and Benefits upon a Change in Control. In the event of a
Change in Control, as defined in this Section 5(g), then in lieu of the
Severance Payment contained in Section 5(f) hereof if the Executive is
terminated without Cause or the Executive terminates his employment for Good
Reason within the twelve (12) month period immediately following a Change of
Control, the Company shall pay to the Executive a lump sum amount equal to (x)
two (2) times the Executive's highest annual salary paid during the last two (2)
years immediately preceding the date of termination, and (y) two (2) times the
highest annual bonus paid to the Executive while employed by the Company, minus
applicable withholding and authorized salary reductions (the "Payment"). In the
event that the excise tax relating to "parachute payments" under Section 280G of
the Code applies to the Payment, then the Company shall pay the Executive an
additional payment in an amount such that, after payment of federal income taxes
(but not the excise tax) on such additional payment, the Executive retains an
amount equal to the excise tax originally imposed on the Payment. The Executive
shall also are entitled to receive the Additional Benefits. "Change of Control"
means or shall be deemed to have occurred if and when: (i) any "person" or
"group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 50% of the total voting
power of the outstanding voting stock of the Company; (ii) the Company is merged
with or into or consolidated with another Person and, immediately after giving
effect to the merger or consolidation, (a) less than 50% of the total voting
power of the outstanding voting stock of the surviving or resulting Person is
then "beneficially owned" (within the meaning of Rule 13d-3 under the Exchange
Act) in the aggregate by the stockholders of the Company immediately prior to
such merger or consolidation, and (b) any "person" or "group" (as defined in
Section 13(d)(3) or 14(d)(2) of the Exchange Act) has become the direct or
indirect "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 50% of the total voting power of the voting stock of the surviving or
resulting Person; (iii) the Company sells, assigns, conveys, transfers, leases
or otherwise disposes of all or substantially all of the Company assets (either
in one transaction or a series of related transactions); (iv) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a majority
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (v) the liquidation or dissolution
of the Company.
(h) Survival. Notwithstanding the termination of this Agreement under this
Section 5, the provisions of Sections 7 and 8 of this Agreement, and all other
provisions hereof which by their terms are to be performed following the
termination hereof shall survive such termination and be continuing obligations.
6
<PAGE>
6. CONSENT AND WAIVER BY THIRD PARTIES. The Executive hereby represents
and warrants that he has obtained all necessary waivers and/or consents from
third parties as to enable him to accept employment with the Company on the
terms and conditions set forth herein and to execute and perform this Agreement
without being in conflict with any other agreement, obligations or understanding
with any such third party.
7. CONFIDENTIAL INFORMATION. The Executive acknowledges that in the
course of his employment with the Company, he has received and will receive
access to confidential information of a special and unique value concerning the
Company and its business, including, without limitation, trade secrets, know-
how, lists of customers, employee records, books and records relating to
operations, costs or providing service and equipment, operating an maintenance
costs, pricing criteria and other confidential information and knowledge
concerning the business of the Company and its affiliates (hereinafter
collectively referred to as "information") which the Company desires to protect.
The Executive acknowledges that such information is confidential and the
protection of such confidential information against unauthorized use or
disclosure is of critical importance to the Company. The Executive agrees that
he will not reveal such information to any one outside the Company. The
Executive further agrees that during the term of this Agreement and thereafter
he will not use or disclose such information. Upon termination of his
employment hereunder, the Executive shall surrender to the Company all papers,
documents, writings and other property produced by him or coming into his
possession by or through his employment hereunder and relating to the
information referred to in this Section 7, and the Executive agrees that all
such materials will at all times remain the property of the Company. The
obligation of confidentiality, non-use and non-disclosure of know-how set forth
in this Section 7 shall not extend to know-how (i) which was in the public
domain prior to disclosure by the disclosing party, (ii) which comes into the
public domain other than through a breach of this Agreement, (iii) which is
disclosed to the Executive after the termination of this Agreement by a third
party having legitimate possession thereof and the unrestricted right to make
such disclosure, or (iv) which is necessarily disclosed in the course of the
Executive's performance of his duties to the Company as contemplated in this
Agreement. The agreements in this Section 7 shall survive the termination of
this Agreement.
8. NO SOLICITATION. To support the agreements contained in Section 7
hereof, from the date hereof and for a period twelve (12) months after the
Executive's employment with the Company is terminated for any reason, the
Executive shall not, either directly or indirectly, through any person, firm,
association or corporation with which the Executive is now or may hereafter
become associated, (i) hire, employ, solicit or engage any then current employee
of the Company or its affiliates, or (ii) use in any competition, solicitation
or marketing effort any information as to which the Executive has a duty of
confidential treatment under paragraph 7 above.
7
<PAGE>
9. NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be deemed to have been
delivered on the date personally delivered or on the date mailed, postage
prepaid, by certified mail, return receipt requested, or telegraphed and
confirmed if addressed to the respective parties as follows:
If to the Executive: Clifton M. West, Jr.
8606 LaFonte
Houston, Texas 77024
If to the Company: Bellwether Exploration Company
1331 Lamar, Suite 1455
Houston, Texas 77010-3039
Attn: Chairman, Compensation Committee
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
10. SPECIFIC PERFORMANCE. The Executive acknowledges that a remedy at law
for any breach or attempted breach of Section 7 or 8 of this Agreement will be
inadequate, agrees that the Company shall be entitled to specific performance
and injunctive and other equitable relief in case of any such a breach or
attempted breach, and further agrees to waive any requirement of the securing or
posting of any bond in connection with the obtaining of any such injunctive or
any other equitable relief.
11. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and the
rights and remedies of any provision hereof may be waived, only in accordance
with this Section 11. No modification or waiver by the Company shall be
effective without the consent of at least a majority of the Compensation
Committee of the Board of Directors then in office at the time of such
modification or waiver. No waiver by either party of any breach by the other or
any provision hereof shall be deemed to be a waiver of any later or other breach
thereof or as a waiver of any other provision of this Agreement. This Agreement
sets forth all the terms of the understandings between the parties with
reference to the subject matter set forth herein and may not be waived, changed,
discharged or terminated orally or by any course of dealing between the parties,
but only by an instrument in writing signed by the party against whom any
waiver, change, discharge or termination is sought.
12. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
13. SEVERABILITY. In case of one or more of the provisions contained in
this Agreement for any reason shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
contained herein.
8
<PAGE>
14. ARBITRATION. In the event that a dispute or controversy should arise
between the Executive and the Company as to the meaning or application of any
provision, term or condition of this Agreement, such dispute or controversy
shall be settled by binding arbitration in Houston, Texas and for said purpose
each of the parties hereto hereby expressly consents to such arbitration in such
place. Such arbitration shall be conducted in accordance with the existing
rules and regulations of the American Arbitration Association governing
commercial transactions. The expense of the arbitrator shall be borne by the
Company.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date and year first above written.
COMPANY:
BELLWETHER EXPLORATION COMPANY
By: /s/ J. P. Bryan
------------------------------------
J. P. Bryan, Chief Executive Officer
EXECUTIVE:
/s/ Cliff West
-----------------------------------------
Clifton M. West, Jr.
9
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") entered into effective as of
April 1, 2000, by and between Robert J. Bensh (the "Executive"), and Bellwether
Exploration Company, a Delaware corporation having its principal place of
business at 1331 Lamar, Suite 1455, Houston, Texas 77010-3039 (the "Company");
W I T N E S S E T H:
WHEREAS, The Company wishes to employ the Executive as the Senior Vice
President - Finance and to perform services incident to such position for the
Company, and the Executive wishes to be so employed by the Company, all upon the
terms and conditions hereinafter set forth:
NOW THEREFORE, in consideration of the premises and mutual covenants and
obligations herein set forth and for other good and valuable consideration, the
receipt, sufficiency and adequacy of which is hereby acknowledged, accepted and
agreed to, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. EMPLOYMENT AND TERM. The Company hereby employs the Executive to serve
as the Senior Vice President - Finance of the Company. The term of this
Agreement (the "Term of this Agreement") shall be effective as of the date first
above written and shall terminate twenty-four (24) months from the date hereof
(the "Termination Date"), unless earlier terminated by either party hereto in
accordance with the provisions of Section 5 hereof; provided, however, that upon
the occurrence of a Change of Control (as such term is defined in Section 5(g)
hereof), the Termination Date shall automatically accelerate without any further
action by the Company or the Executive. During the term of this Agreement, the
terms of employment shall be as set forth herein unless modified by the
Executive and the Company in accordance with the provisions of Section 11
hereof. The Executive hereby agrees to accept such employment and to perform
the services specified herein, all upon the terms and conditions hereinafter set
forth.
2. POSITION AND RESPONSIBILITIES. The Executive shall serve as the Senior
Vice President - Finance of the Company and shall report to, and be subject to
the general direction and control of, the Chief Executive Officer and Chairman
of the Board of the Company. The Executive shall have other obligations,
duties, authority and power to do all acts and things as are customarily done by
a person holding the same or equivalent position or performing duties similar to
those to be performed by executives in corporations of similar size to the
Company and shall perform such managerial duties and responsibilities for the
Company as may reasonably be assigned to him by the Chief Executive Officer and
Chairman of the Board of the Company. Unless otherwise agreed to by the
Executive, the Executive shall be based at the Company's principal executive
offices located in the greater Houston, Texas metropolitan area.
3. EXTENT OF SERVICE. The Executive shall devote his full business time
and attention to the business of the Company.
<PAGE>
4. COMPENSATION.
(a) In consideration of the services to be rendered by the Executive to the
Company, the Company will pay the Executive a salary ("Salary") of $120,000 per
year during the Term of this Agreement. Such Salary will be payable in
conformity with the Company's prevailing practice for executives' compensation
as such practice shall be established or modified from time to time. Salary
payments shall be subject to all applicable federal and state withholding,
payroll and other taxes. From time to time during the Term of this Agreement,
the amount of the Executive's Salary may be increased by, and at the sole
discretion of, the Compensation Committee of the Company's Board of Directors,
which shall review the Executive's Salary no less regularly than annually.
(b) Any cash or stock bonuses paid to the Executive shall be based on
performance and be at the sole discretion of the Compensation Committee of the
Company's Board of Directors.
(c) During the term of this Agreement, the Company shall pay or reimburse
the Executive for all reasonable out-of-pocket expenses for travel, meals, hotel
accommodations, entertainment and the like incurred by him in connection with
the business of the Company upon submission by him of an appropriate statement
documenting such expenses as required by the Internal Revenue Code of 1986, as
amended (the "Code").
(d) The Executive shall be entitled to four (4) weeks of paid vacation
during each calendar year during the term of this Agreement. Vacation shall
accrue on the first day of each calendar year. The Company shall pay the
Executive for any accrued but unused portion of vacation and any such unused
portion of vacation shall not be carried forward to the next year.
(e) During the term of this Agreement, the Executive shall be entitled to
participate in and to receive all rights and benefits under any life,
disability, medical and dental, health and accident and profit sharing or
deferred compensation plans and such other plan or plans as may be implemented
by the Company during the term of this Agreement. The Executive shall also be
entitled to participate in and to receive all rights and benefits under any plan
or program adopted by the Company for any other or group of other executive
employees of the Company, including without limitation, the rights and benefits
under the directors' and officers' liability insurance currently in place under
the Company's insurance program for the directors and officers of the Company.
(f) During the term of this agreement, the Executive shall be entitled to
receive a car allowance of $500.00 per month and parking shall be provided by
the Company.
2
<PAGE>
5. TERMINATION.
(a) Termination by Company; Discharge for Cause. The Company shall be
entitled to terminate this Agreement and the Executive's employment with the
Company at any time and for whatever reason; or at any time for "Cause" (as
defined below) by written notice to the Executive. Termination of the
Executive's employment by the Company shall constitute a termination for "Cause"
if such termination is for one or more of the following reasons: (i) the willful
failure or refusal of the Executive to render services to the Company in
accordance with his obligations under this Agreement, including, without
limitation, the failure or refusal of the Executive to comply with the work
rules, policies, procedures, and directives as established by the Board of
Directors and consistent with this Agreement; such failure or refusal to be
uncured and continuing for a period of not less than fifteen (15) days after
notice outlining the situation is given by the Company to the Executive; (ii)
the commission by the Executive of an act of fraud or embezzlement; (iii) the
commission by the Executive of any other action with the intent to injure the
Company; (iv) the Executive having been convicted of a felony or a crime
involving moral turpitude; (v) the Executive having misappropriate the property
of the Company; (vi) the Executive having engaged in personal misconduct which
materially injures the Company; or (vii) the Executive having willfully violated
any law or regulation relating to the business of the company which results in
material injury to the Company. In the event of the Executive's termination by
the Company for Cause hereunder, the Executive shall be entitled to no severance
or other termination benefits except for any unpaid Salary accrued through the
date of termination. A termination of this Agreement by the Company without
Cause pursuant to this Section 5(a) shall entitle the Executive to the Severance
Payment and other benefits specified in Section 5(f) hereof.
(b) Death. If the Executive dies during the term of this Agreement and
while in the employ of the Company, this Agreement shall automatically terminate
and the Company shall have no further obligation to the Executive or his estate
except that the Company shall pay to the Executive's estate that portion of his
Salary and benefits accrued through the date of death. All such payments to the
Executive's estate shall be made in the same manner and at the same time as the
Executive's Salary.
(c) Disability. If during the term of this Agreement, the Executive shall
be prevented from performing his duties hereunder for a period of 60 days by
reason of disability, then the Company, on 30 days' prior notice to the
Executive, may terminate this Agreement. For purposes of this Agreement, the
Executive shall be deemed to have become disabled when the Board of Directors of
the Company, upon verification by a physician designated by the Company, shall
have determined that the Executive has become physically or mentally unable
(excluding infrequent and temporary absences due to ordinary illness) to perform
the essential functions of his duties under this Agreement with reasonable
accommodation. In the event of a termination pursuant to this paragraph (c),
the Company shall be relieved of all its obligations under this Agreement,
except that the Company shall pay to the Executive or his estate in the event of
his subsequent death, that portion of the Executive's Salary and benefits
accrued
3
<PAGE>
through the date of such termination. All such payments to the Executive or his
estate shall be made in the same manner and at the same time as his Salary and
would have been paid to him had he not become disabled.
(d) Termination for Good Reason. The Executive shall be entitled to
terminate this Agreement and his employment with the Company at any time upon
thirty (30) days written notice to the Company for "Good Reason" (as defined
below). The Executive's termination of employment shall be for "Good Reason" if
such termination is a result of any of the following events:
(i) The Executive is assigned any responsibilities or duties materially
inconsistent with his position, duties, responsibilities and status with the
Company as in effect at the date of this Agreement or as may be assigned to the
Executive pursuant to Section 2 hereof; or his title or offices as in effect at
the date of this Agreement or as the Executive may be appointed or elected to in
accordance with Section 2 are changed; or the Executive is required to report to
or be directed by any person other than the Chief Executive Officer and the
Chairman of the Board of the Company;
(ii) there is a reduction in the Salary (as such Salary shall have been
increased from time to time) payable to the Executive pursuant to Section 4(a)
hereof;
(iii) failure by the Company or any successor to the Company or its assets
to continue to provide to the Executive any material benefit, bonus, profit
sharing, incentive, remuneration or compensation plan, stock ownership or
purchase plan, stock option plan, life insurance, disability plan, pension plan
or retirement plan in which the Executive was entitled to participate in as at
the date of this Agreement or subsequent thereto, or the taking by the Company
of any action that materially and adversely affects the Executive's
participation in or materially reduces his rights or benefits under or pursuant
to any such plan or the failure by the Company to increase or improve such
rights or benefits on a basis consistent with practices in effect prior to the
date of this Agreement or with practices implemented and subsequent to the date
of this Agreement with respect to the executive employees of the Company
generally, which ever is more favorable to the Executive, but excluding such
action that is required by law;
(iv) without Executive's consent, the Company requires the executive to
relocate to any city or community other than one within a fifty (50) mile radius
of the greater Houston, Texas metropolitan area, except for required travel on
the Company's business to an extent substantially consistent with the
Executive's business obligations under this Agreement; or
(v) there is any material breach by the Company of any provision of this
Agreement.
4
<PAGE>
Upon the Executive's termination of this Agreement for Good Reason, the
Executive shall be entitled to the Severance Payment and other benefits
specified in Section 5(f) hereof.
(e) Voluntary Termination. Notwithstanding anything to the contrary
herein, the Executive shall be entitled to voluntarily terminate this Agreement
and his employment with the Company at his pleasure upon sixty (60) days written
notice to such effect. In such event, the Executive shall not be entitled to
any further compensation other than any unpaid Salary and benefits accrued
through the date of termination. At the Company's option, the Company may pay
to the Executive the salary and benefits that the Executive would have received
during such sixty (60) day period in lieu of requiring the Executive to remain
in the employment of the Company for such sixty (60) day period.
(f) Termination Benefits Upon Involuntary Termination or Termination for
Good Reason. In the event that (i) the Company terminates this Agreement and
the Executive's employment with the Company for any reason other than for Cause
(as defined in Section 5(a) hereof) or the death or disability (as defined in
Section 5(c) hereof) of the Executive, or (ii) the Executive terminates this
Agreement and his employment with the Company for Good Reason (as set forth in
Section 5(d) hereof), then the Company shall pay the Executive, within thirty
(30) days after the date of termination, an amount (the "Severance Payment")
equal to (x) one (1) times the Executive's highest annual Salary in existence at
any time during the last two (2) years of employment immediately preceding the
date of termination, and (y) one (1) times the highest annual bonus paid to the
Executive during such two-year period, minus applicable withholding and
authorized salary reductions (the "Severance Payment"). In addition, following
other such termination, the Executive shall be entitled to the following
benefits (collectively, the "Additional Benefits");
(i) immediate vesting of any of the Executive's outstanding options to
purchase securities of the Company which were not vested by their own terms on
the date of termination and the extension of the Executive's right to exercise
all the Executive's options to purchase securities of the Company for a period
equal to the lesser of (A) one (1) year following the date of termination or (B)
the remaining term of the applicable option;
(ii) continued coverage, at the Executive's cost, under the Company's group
health plan for the applicable coverage period under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA") but only if Executive
elects such COBRA continuation in accordance with the time limits and in the
applicable COBRA regulations;
(iii) an amount, in cash, equal to the sum of (A) any unreimbursed
expenses incurred by the Executive in the performance of his duties hereunder
through the date of termination, plus (B) any accrued and unused vacation time
or other unpaid benefits as of the date of termination; and
5
<PAGE>
(iv) return of any unused baseball tickets previously transferred from
Executive to the Company.
The parties agree that, because there can be no exact measure of the
damages which would occur to the Executive as a result of termination of
employment, such payments contemplated in this Section 5(f) shall be deemed to
constitute liquidated damages and not a penalty and the Company agrees that the
Executive shall not be required to mitigate his damages. The termination
compensation in this Section 5(f) shall be paid only if the Executive executes a
termination agreement releasing all legally waivable claims arising from the
Executive's employment.
(g) Termination and Benefits upon a Change in Control. In the event of a
Change in Control, as defined in this Section 5(g), then in lieu of the
Severance Payment contained in Section 5(f) hereof, if the Executive is
terminated without Cause or the Executive terminates his employment for Good
Reason within the twelve (12) month period immediately following a Change in
Control the Company shall pay to the Executive a lump sum amount equal to: (x)
two (2) times the Executive's highest annual salary paid during the last two (2)
years immediately preceding the date of termination, and (y) two (2) times the
highest annual bonus paid to the Executive while employed by the Company, minus
applicable withholding and authorized salary reductions (the "Payment"). In the
event that the excise tax relating to "parachute payments" under Section 280G of
the Code applies to the Payment, then the Company shall pay the Executive an
additional payment in an amount such that, after payment of federal income taxes
(but not the excise tax) on such additional payment, the Executive retains an
amount equal to the excise tax originally imposed on the Payment. The Executive
shall also are entitled to receive the Additional Benefits. "Change of Control"
means or shall be deemed to have occurred if and when: (i) any "person" or
"group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 50% of the total voting
power of the outstanding voting stock of the Company; (ii) the Company is merged
with or into or consolidated with another Person and, immediately after giving
effect to the merger or consolidation, (a) less than 50% of the total voting
power of the outstanding voting stock of the surviving or resulting Person is
then "beneficially owned" (within the meaning of Rule 13d-3 under the Exchange
Act) in the aggregate by the stockholders of the Company immediately prior to
such merger or consolidation, and (b) any "person" or "group" (as defined in
Section 13(d)(3) or 14(d)(2) of the Exchange Act) has become the direct or
indirect "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 50% of the total voting power of the voting stock of the surviving or
resulting Person; (iii) the Company sells, assigns, conveys, transfers, leases
or otherwise disposes of all or substantially all of the Company assets (either
in one transaction or a series of related transactions); (iv) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a majority
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any
6
<PAGE>
reason to constitute a majority of the Board of Directors of the Company then in
office; or (v) the liquidation or dissolution of the Company.
(h) Survival. Notwithstanding the termination of this Agreement under this
Section 5, the provisions of Sections 7 and 8 of this Agreement, and all other
provisions hereof which by their terms are to be performed following the
termination hereof shall survive such termination and be continuing obligations.
6. CONSENT AND WAIVER BY THIRD PARTIES. The Executive hereby represents
and warrants that he has obtained all necessary waivers and/or consents from
third parties as to enable him to accept employment with the Company on the
terms and conditions set forth herein and to execute and perform this Agreement
without being in conflict with any other agreement, obligations or understanding
with any such third party.
7. CONFIDENTIAL INFORMATION. The Executive acknowledges that in the
course of his employment with the Company, he has received and will receive
access to confidential information of a special and unique value concerning the
Company and its business, including, without limitation, trade secrets, know-
how, lists of customers, employee records, books and records relating to
operations, costs or providing service and equipment, operating an maintenance
costs, pricing criteria and other confidential information and knowledge
concerning the business of the Company and its affiliates (hereinafter
collectively referred to as "information") which the Company desires to protect.
The Executive acknowledges that such information is confidential and the
protection of such confidential information against unauthorized use or
disclosure is of critical importance to the Company. The Executive agrees that
he will not reveal such information to any one outside the Company. The
Executive further agrees that during the term of this Agreement and thereafter
he will not use or disclose such information. Upon termination of his
employment hereunder, the Executive shall surrender to the Company all papers,
documents, writings and other property produced by him or coming into his
possession by or through his employment hereunder and relating to the
information referred to in this Section 7, and the Executive agrees that all
such materials will at all times remain the property of the Company. The
obligation of confidentiality, non-use and non-disclosure of know-how set forth
in this Section 7 shall not extend to know-how (i) which was in the public
domain prior to disclosure by the disclosing party, (ii) which comes into the
public domain other than through a breach of this Agreement, (iii) which is
disclosed to the Executive after the termination of this Agreement by a third
party having legitimate possession thereof and the unrestricted right to make
such disclosure, or (iv) which is necessarily disclosed in the course of the
Executive's performance of his duties to the Company as contemplated in this
Agreement. The agreements in this Section 7 shall survive the termination of
this Agreement.
7
<PAGE>
8. NO SOLICITATION. To support the agreements contained in Section 7
hereof, from the date hereof and for a period twelve (12) months after the
Executive's employment with the Company is terminated for any reason, the
Executive shall not, either directly or indirectly, through any person, firm,
association or corporation with which the Executive is now or may hereafter
become associated, (i) hire, employ, solicit or engage any then current employee
of the Company or its affiliates, or (ii) use in any competition, solicitation
or marketing effort any information as to which the Executive has a duty of
confidential treatment under paragraph 7 above.
9. NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be deemed to have been
delivered on the date personally delivered or on the date mailed, postage
prepaid, by certified mail, return receipt requested, or telegraphed and
confirmed if addressed to the respective parties as follows:
If to the Executive: Robert J. Bensh
2717 University
Houston, Texas 77005
If to the Company: Bellwether Exploration Company
1331 Lamar, Suite 1455
Houston, Texas 77010-3039
Attn: Chairman, Compensation Committee
Either party hereto may designate a different address by providing written
notice of such new address to the other party hereto.
10. SPECIFIC PERFORMANCE. The Executive acknowledges that a remedy at law
for any breach or attempted breach of Section 7 or 8 of this Agreement will be
inadequate, agrees that the Company shall be entitled to specific performance
and injunctive and other equitable relief in case of any such a breach or
attempted breach, and further agrees to waive any requirement of the securing or
posting of any bond in connection with the obtaining of any such injunctive or
any other equitable relief.
11. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and the
rights and remedies of any provision hereof may be waived, only in accordance
with this Section 11. No modification or waiver by the Company shall be
effective without the consent of at least a majority of the Compensation
Committee of the Board of Directors then in office at the time of such
modification or waiver. No waiver by either party of any breach by the other or
any provision hereof shall be deemed to be a waiver of any later or other breach
thereof or as a waiver of any other provision of this Agreement. This Agreement
sets forth all the terms of the understandings between the parties with
reference to the subject matter set forth herein and may not be waived, changed,
discharged or terminated orally or by any course of dealing between the
8
<PAGE>
parties, but only by an instrument in writing signed by the party against whom
any waiver, change, discharge or termination is sought.
12. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
13. SEVERABILITY. In case of one or more of the provisions contained in
this Agreement for any reason shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
contained herein.
14. ARBITRATION. In the event that a dispute or controversy should arise
between the Executive and the Company as to the meaning or application of any
provision, term or condition of this Agreement, such dispute or controversy
shall be settled by binding arbitration in Houston, Texas and for said purpose
each of the parties hereto hereby expressly consents to such arbitration in such
place. Such arbitration shall be conducted in accordance with the existing
rules and regulations of the American Arbitration Association governing
commercial transactions. The expense of the arbitrator shall be borne by the
Company.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date and year first above written.
COMPANY:
BELLWETHER EXPLORATION COMPANY
By: /s/ J. P. BRYAN
------------------------------------
J. P. Bryan, Chief Executive Officer
EXECUTIVE:
/s/ ROBERT BENSH
----------------------------------------
Robert J. Bensh
9
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