<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 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 0-20125
BASIN EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1143307
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 17TH STREET, SUITE 3400, DENVER, CO 80202
(Address of principal executive offices) (Zip Code)
(303) 685-8000
(Registrant's telephone number, including area code)
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
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class April 30, 1998
---------------------------- ------------------
<S> <C>
Common stock, $.01 par value 13,840,000 shares
</TABLE>
<PAGE>
BASIN EXPLORATION, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
December 31, 1997 and March 31, 1998............................... 3
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1998......................... 5
Consolidated Statements of Changes in
Stockholders' Equity............................................... 6
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1998......................... 7
Notes to Consolidated Financial Statements......................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 18
SIGNATURES.................................................................. 20
</TABLE>
2
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
(In thousands)
December 31, March 31,
1997 1998
----------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 531 $ 248
Accounts receivable 8,348 14,447
Prepaids and other 3,805 3,670
--------- ---------
12,684 18,365
--------- ---------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties, under the full
cost method of accounting
Proved 177,704 198,724
Unproved 15,669 14,934
Less accumulated depreciation,
depletion and amortization (46,284) (52,031)
--------- ---------
147,089 161,627
Furniture and equipment, net 2,086 1,954
--------- ---------
149,175 163,581
--------- ---------
OTHER ASSETS 100 4,051
--------- ---------
$ 161,959 $ 185,997
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands, except share data) December 31, March 31,
1997 1998
------------ ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 8,087 $ 10,149
Accrued liabilities 12,067 7,635
Accrued ad valorem taxes 2,394 2,014
Income taxes payable 19 19
Current portion of long-term debt 153 155
--------- ---------
22,720 19,972
--------- ---------
LONG-TERM DEBT, net of current portion 11,053 37,013
OTHER LONG-TERM OBLIGATIONS 266 373
DEFERRED INCOME TAXES 6,555 6,683
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01
per share; 10,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, par value $.01 per
share, 50,000,000 shares authorized,
13,833,000 and 13,999,000 shares
issued, respectively 138 140
Additional paid-in capital 110,627 112,044
Retained earnings 12,012 12,251
Common stock held in treasury, at cost,
120,000 and 180,000 shares, respectively (1,412) (2,479)
--------- ---------
Total stockholders' equity 121,365 121,956
--------- ---------
$ 161,959 $ 185,997
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
(In thousands, except per share data) 1997 1998
---- ----
<S> <C> <C>
REVENUE:
Oil sales $ 2,155 $ 2,690
Gas sales 1,082 7,545
Interest and other 175 21
------- -------
3,412 10,256
------- -------
COSTS AND EXPENSES:
Lease operating expenses 1,059 2,143
Production taxes 364 234
Depreciation, depletion and
amortization 1,160 5,986
General and administrative, net 786 1,112
Interest expense 29 413
------- -------
3,398 9,888
------- -------
INCOME BEFORE INCOME TAXES 14 368
Income tax provision 5 129
------- -------
NET INCOME $ 9 $ 239
------- -------
------- -------
EARNINGS PER SHARE:
Basic $ -- $ 0.02
------- -------
------- -------
Diluted $ -- $ 0.02
------- -------
------- -------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 10,701 13,784
Diluted 10,760 14,237
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
5
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------- PAID-IN ------------------- RETAINED STOCKHOLDERS
(In thousands) SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1997 10,757 $108 $ 59,219 (56) $ (132) $ 9,556 $ 68,751
Issuance of common stock 3,001 30 51,340 - - - 51,370
Common stock offering costs - - (499) - - - (499)
Purchase of treasury stock - - - (64) (1,280) - (1,280)
Issuance and vesting of
restricted stock 75 - 567 - - - 567
Net income - - - - - 2,456 2,456
--------------------------------------------------------------------------------------------
BALANCES, December 31, 1997 13,833 138 110,627 (120) (1,412) 12,012 121,365
Issuance and vesting of
restricted stock 90 1 351 - - - 352
Exercise of warrants for
common stock 76 1 1,066 (60) (1,067) - -
Net income - - - - - 239 239
--------------------------------------------------------------------------------------------
BALANCES, March 31, 1998 13,999 $140 $112,044 (180) $(2,479) $12,251 $121,956
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
(In thousands) 1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9 $ 239
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation, depletion and amortization 1,160 5,986
Deferred income tax expense 5 129
Stock compensation expense 65 202
Other (6) --
Changes in operating assets and liabilities -
Decrease (increase) in
Receivables 799 (6,104)
Prepaids and other (1,364) 174
(Decrease) increase in -
Accounts payable and accrued expenses 1,706 657
Ad valorem taxes and other 193 (273)
Income taxes payable (958) --
-------- --------
Net cash provided by operating activities 1,609 1,010
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (23,245) (23,281)
Deposits on offshore leases -- (3,989)
Proceeds from sale of property and equipment 184 20
-------- --------
Net cash used in investing activities (23,061) (27,250)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt -- 31,500
Principle payments on notes payable and long-term debt (110) (5,538)
Other -- (5)
-------- --------
Net cash provided by (used in) financing activities (110) 25,957
-------- --------
DECREASE IN CASH AND EQUIVALENTS (21,562) (283)
CASH AND EQUIVALENTS, beginning of period 22,023 531
-------- --------
CASH AND EQUIVALENTS, end of period $ 461 $ 248
-------- --------
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 23 $ 283
-------- --------
-------- --------
Cash paid for income taxes $ 958 $ -
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of Basin Exploration, Inc.
and its wholly-owned subsidiaries (collectively, "Basin" or the "Company") as
of March 31, 1998, and the results of operations and cash flows for the three-
month periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission's rules and regulations. The results of operations for
the periods presented are not necessarily indicative of the results to be
expected for the full year. Management believes the disclosures made are
adequate to ensure that the information is not misleading and suggests that
these financial statements be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
8
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto.
Basin Exploration, Inc. ("Basin" or the "Company") is a domestic independent
oil and gas company that conducts exploration in the shallow waters of the Gulf
of Mexico ("GOM") and acquisition and exploitation operations in the GOM and
selected areas onshore. Basin's revenue and results of operations are
significantly affected by oil and gas prices. Assuming level production, the
Company's revenues would generally be higher in the first and fourth quarters
due to typically higher natural gas prices resulting from greater demand during
colder months.
The Company commenced operations in 1981 and primarily acquired, developed and
exploited properties in the Denver-Julesberg ("D-J") Basin in eastern Colorado
through 1991. In 1992, the Company began expanding into other areas within the
Rocky Mountain region and initiated exploration activities. In 1996, the
Company sold its D-J Basin properties for $123.5 million (the "D-J Sales") and
initiated operations in the GOM.
The Company began GOM activities in 1996 with no initial property base in the
region and early investments related primarily to acquisitions of three-
dimensional seismic data and exploratory leasehold interests. The Company's
first significant discovery in the GOM was the Eugene Island Block 65 #1 well,
which was drilling at the end of 1996 and completed in 1997. First production
from GOM assets was realized in August 1997 when the Company brought two wells
drilled on Eugene Island Block 65 on-line. The Company added other proved
properties in the GOM in 1997 through both exploratory drilling and
acquisitions and at the beginning of the current year it owned interests in
five producing properties and had nine wells under development on eight lease
blocks. During the first quarter of 1998, two of these wells established
initial production and produced for a significant portion of the period. The
Company participated in drilling six GOM exploratory wells during the recent
quarter, of which three were apparent discoveries, two were dry holes and one
was in progress at the end of the period.
RESULTS OF OPERATIONS
The following operating and financial data is provided to assist in
understanding results of operations for the periods presented.
9
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended March 31 March 31
- -----------------------------------------------------------------------------------
1997 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
PRODUCTION:
Oil (MBbl) 106 183
Gas (MMcf) 403 3,400
Total gas equivalents (MMcfe) 1,039 4,498
REVENUE (IN THOUSANDS):
Oil sales $ 2,155 $ 2,690
Gas sales $ 1,082 $ 7,545
Total oil and gas sales $ 3,237 $ 10,235
AVERAGE SALES PRICE:
Oil (PER Bbl) $ 20.41 $ 14.69
Gas (PER Mcf) $ 2.69 $ 2.22
Total gas equivalents (PER Mcfe) $ 3.12 $ 2.27
EXPENSES (PER Mcfe):
Lease operating expenses $ 1.02 $ 0.48
Production taxes $ 0.35 $ 0.05
Depreciation, depletion and amortization $ 1.12 $ 1.33
General and administrative, net $ 0.76 $ 0.25
</TABLE>
REVENUE. Oil and gas sales revenue for the three months ended March 31, 1998
totaled $10,235,000, representing an increase of $6,998,000, or 216%, compared
to the first quarter of 1997. A 333% increase in net oil and gas production
was partially offset by a 27% decline in unit prices, based on net equivalent
unit measures. The significant increase in oil and gas production is
attributable to contributions in the current period from GOM properties. As
noted above, the Company's first GOM production was realized in August 1997.
Due to the addition of GOM production, which is predominantly natural gas, gas
increased from 39% of net equivalent units produced in the first quarter of
1997 to 76% of the Company's total oil and gas production in the first quarter
of 1998. See "Liquidity and Capital Resources" for additional discussion of
oil and gas production.
LEASE OPERATING EXPENSES. Due to increased production levels, lease operating
expenses for the three months ended March 31, 1998 increased by $1,084,000, or
102%, from the amount reported for the comparable period in the prior year.
However, lease operating costs per Mcfe produced declined by 53%, from $1.02 in
the quarter ended March 31, 1997 to $0.48 during the three months ended March
31, 1998, because of inclusion in the current period of production from GOM
wells, which typically have significantly lower average unit operating costs
than the Company's Rocky Mountain properties.
PRODUCTION TAXES. Production taxes for the three months ended March 31, 1998
were $234,000, representing a decrease of $130,000, or 36%, compared to 1997,
due primarily to reduced revenues from onshore properties caused by lower oil
and gas prices. Production taxes as a percent of oil and gas sales for the
three months ended March 31, 1998 were 2.3%, compared to 11.2% in 1997, due
10
<PAGE>
to inclusion of sales in 1998 from properties in federal waters offshore, which
are generally not subject to production taxes.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization expense for the three months ended March 31, 1998 was $5,986,000,
representing an increase of $4,826,000, or 416%, compared to 1997. The
increase was largely attributable to the 333% increase in production volumes in
1998 as compared to 1997. In addition, the depletion rate of $1.28 per Mcfe
produced in the three months ended March 31, 1998 represented a 42% increase
from the $0.90 per Mcfe average depletion rate during 1997. The higher rate is
due to proved reserves added at a higher average unit cost than the Company's
previous historical average and to the unfavorable impact on estimated proved
reserve quantities of using lower assumed future oil and gas prices at March
31, 1998 than one year earlier. The increased unit cost of additions reflects
the substantial portion of the Company's investments and reserve additions
during the past year that relate to the GOM, where higher unit costs are
generally associated with reserves having a higher value per unit than the
Company's onshore properties due to typically faster recovery rates, lower
production costs, and higher average realizable gas prices.
GENERAL AND ADMINISTRATIVE, NET. General and administrative expenses for the
three months ended March 31, 1998 were $1,112,000, reflecting an increase of
$326,000, or 41%, as compared to 1997. The increase resulted primarily from
greater stock-based incentive compensation accruals, reflecting, in part,
increases in the price of the Company's common stock.
INTEREST EXPENSE. Interest expense for the three months ended March 31, 1998
totaled $413,000 representing an increase of $384,000 as compared to 1997. The
increase was primarily attributable to higher average borrowings and
secondarily to higher average interest rates, as summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
<S> <C> <C>
Average borrowings (in thousands) $ 400 $22,600
Average interest rate on borrowings 6.6% 6.9%
</TABLE>
INCOME TAX BENEFIT (PROVISION). The income tax provisions for 1997 and 1998
approximate the amounts that would be calculated by applying statutory income
tax rates to income before income taxes.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's principal sources of capital have been cash flow
from operations, a revolving line of credit established with a group of banks
(the "Credit Facility"), proceeds from asset sales, and proceeds from sales of
common stock. The Company's principal uses of capital have been for
exploration, acquisition, development and exploitation of oil and gas
properties.
The Company's accrual-basis capital expenditures during the first quarter of
1998, plus deposits related to winning bids submitted for 12 leases at the
Central GOM lease sale held March 18, 1998, totaled approximately $24.4
million. Net cash provided by operations before changes in working capital
totaled $6.6 million during the recent three-month period. Other funds for
investments during the quarter came from borrowings under the Credit Facility,
which was also utilized during the period to increase net working capital by
approximately $8.4 million. The Company closed the first quarter of 1998 with
a working capital deficit of approximately $1.6 million, long-term debt of
$37.0 million, and stockholders' equity of $122.0 million.
The borrowing base under the Credit Facility was increased from $45 million to
$75 million effective as of May 1, 1998, in conjunction with a regular semi-
annual redetermination review.
The Company has established a preliminary budget of $80 million for exploration
and development activities in 1998, compared to approximately $57 million
invested in such activities in 1997. This budget is subject to revision during
the year to reflect future developments. Acquisitions of properties with
proved and probable reserves are also pursued as an integral part of the
Company's overall business strategy, but are not budgeted.
Factoring in projections of net oil and gas production for the remainder of the
current year and assuming no significant deterioration in prevailing oil and
gas prices during the period, management believes that cash flow from
operations and borrowing capacity under the Credit Facility will be sufficient
to fund the Company's operations and capital expenditures through the end of
1998 unless the Company consummates a substantial acquisition during the
period.
PRODUCTION AND CASH FLOW
In each of the four fiscal quarters following the D-J Sales (covering the
period from July 1, 1996 through June 30, 1997), the Company's net oil and gas
production was approximately 1,020 MMcfe, or an average of 11.2 MMcfe per day.
During this period, net cash provided by operations before working capital
changes ranged from $0.4 million to $2.2 million per quarter and averaged $1.3
million per quarter, varying primarily with oil and gas price levels. The flat
oil and gas production during this period reflected modest capital expenditures
on Rocky Mountain exploitation projects that offset natural declines on
producing properties. More significant investments were made in
12
<PAGE>
GOM exploration, development, and acquisition activities that did not begin to
impact production and cash flow until the middle of the third quarter of 1997.
During the third quarter of 1997, the Company's average daily net production
increased to 28.0 MMcfe and cash flow from operations increased to $5.0
million, due to commencement of production in August from two wells on Eugene
Island Block 65 that the Company drilled and completed earlier in the year.
Average daily net production increased to 43.8 MMcfe in the fourth quarter of
1997, as the result of a full period's contribution from Eugene Island Block 65
and a partial period's contribution from four productive GOM properties
acquired in late-November 1997 from the bankruptcy trustee for Midcon Offshore,
Inc. ("Midcon"). Cash flow from operations increased to $8.7 million in the
final quarter of 1997, reflecting this increase in production and higher
average unit prices attributable to strength in natural gas markets.
The Company's average daily net production increased in the first quarter of
1998 to approximately 50.0 MMcfe. This overall 14% increase over the prior
quarter reflected an increased contribution from the Midcon properties and
initial production from a 1997 discovery well on Eugene Island Block 83,
partially offset by a decline in production from Eugene Island Block 65.
Average daily net production at Eugene Island Block 65 declined from 27.5 MMcfe
in the fourth quarter of 1997 to 20.2 MMcfe in the recent quarter, reflecting
natural depletion and reductions caused by mechanical impediments that have
been partially remediated. Average production rates at Eugene Island Block 65
did not vary significantly from month to month during the first quarter of
1998.
Based on year-end 1997 reserve report estimations and recent developments, the
Company's average daily net production is expected to increase further in 1998.
The primary sources of increases are expected to be initial contributions from
GOM wells with proved nonproducing reserves at the end of March 1998 and
increased contributions from GOM wells that produced for only a portion of the
recent quarter, partially offset by depletion related declines on existing
producing wells. The Company had three relatively significant GOM wells on-
line for only a portion of the first quarter of 1998 and closed the period with
interests in ten additional GOM wells with proved nonproducing reserves that
were yet to establish sustained initial production, including three apparent
discovery wells drilled during the quarter. In "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in the
Company's Form 10-K for the year ended December 31, 1997, it was observed that
the Company anticipates that its net production in 1998 will be more than
triple its net production during 1997 of 8,653 MMcfe. Primarily because
certain GOM wells are now expected to commence production later in the year
than previously anticipated, management presently believes that total
production in the current year is not likely to exceed three times the level
achieved in 1997 unless contributions are obtained from wells drilled or
acquisitions consummated during the last nine months of the year. However,
1998 production is expected to be significantly
13
<PAGE>
higher than in 1997 and the Company's projections for its net production rate
late in the year are not significantly changed from estimates applicable at the
time of filing its latest Form 10-K.
The Company expects that its future net cash flow will be determined
substantially by production levels and oil and gas prices. Certain costs per
unit of production have significantly improved as the Company has added
production from GOM wells and are expected to continue to improve as scheduled
increases in GOM production occur. Production taxes are not applicable to
properties in federal waters. Lease operating expenses per unit tend to be
significantly lower in the GOM than for the Company's Rocky Mountain
properties, especially for flush production from relatively new GOM wells, and
the Company does not expect its general and administrative expenses to increase
proportionately as GOM production increases. As a result, net cash provided by
operations is expected to increase by a greater percentage than production
volumes, given an assumption of constant or rising oil and gas prices.
MARKETING AND HEDGING TRANSACTIONS
The Company's production is generally sold under month-to-month contracts at
prevailing prices. From time-to-time, however, as conditions are deemed to
warrant, Basin has entered into hedging transactions or fixed price sales
contracts for a portion of its oil and gas production. The purposes of these
transactions are to limit the Company's exposure to future oil and gas price
declines and achieve a more predictable cash flow. However, such contracts
also limit the benefits the Company would realize if prices increase.
Through May 10, 1998, Basin had entered into the following crude oil and
natural gas price swap or collar arrangements covering the period beginning
April 1, 1998:
<TABLE>
<CAPTION>
Bbls or Mcf Average Price
Product Per Month Or Collar Range Time Period
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Crude Oil 10,000 $ 21.30 4/98-10/98
Crude Oil 31,000 $17.80-19.85 5/98-8/98
Natural Gas 1,350,000 $ 2.29 4/98
Natural Gas 1,085,000 $ 2.34 5/98
Natural Gas 775,000 $ 2.35 6/98-9/98
</TABLE>
CREDIT FACILITY
The Credit Facility with a bank group led by NationsBank of Texas, N.A.
provides for the interest rate on the Company's borrowings to be determined by
reference to either NationsBank's prime rate or LIBOR, at the Company's
election. A varying spread of 0% to 0.5% is added to the prime rate, or 0.625%
to 1.25% is applied to LIBOR, based upon the Company's debt-to-capitalization
ratio at the time. The Credit Facility provides for borrowings to be revolving
loans through October 31,
14
<PAGE>
2001, at which time the outstanding balance will be converted into a four-year
amortizing term loan unless the Credit Facility has been amended to extend the
revolving period. The borrowing base under the Credit Facility, established at
$75 million as of May 1, 1998, is scheduled to be redetermined as of November
1, 1998 and generally at six-month intervals thereafter until converted into a
term loan.
At March 31, 1998, the principal balance outstanding under the facility was $37
million, with a weighted average interest rate of 6.4%. The Credit Facility
contains various covenants, including ones that could limit the Company's
ability to incur other debt, dispose of assets, pay dividends, or repurchase
stock. Pursuant to the agreement governing the Credit Facility, certain of the
Company's onshore properties are subject to mortgages in favor of the banks and
the Company's remaining properties are subject to a negative pledge.
CAPITAL EXPENDITURES
Since the beginning of 1996, Basin has focused its exploration activities in
the shallow waters of the GOM, primarily off the coast of Louisiana. The
Company's acquisition, development, and exploitation activities target
opportunities in the vicinity of the Company's GOM exploration operations, in
the Rocky Mountain region where Basin has a substantial existing base of
proved reserves and producing wells, and in certain other major domestic
producing basins where Basin believes significant upside potential exists.
The Company's capital expenditures are generally discretionary and activity
levels are determined by a number of factors, including oil and gas prices,
availability of funds, quantity and character of identified investment
projects, availability of service providers, and competition.
The Company currently estimates that its capital expenditures for
exploration and development in 1998 will be approximately $80 million.
This budget primarily provides for: participation in an estimated 15 to 20
(nine net) exploratory wells in the GOM; development of six GOM prospect
discoveries made in the second half of 1997; exploitation and development
of five GOM properties acquired last year, including two wells drilled in
1997 that were under development at year-end; development of projected 1998
prospect discoveries; investments in prospect leaseholds and seismic data;
and continued exploitation of the Company's Rocky Mountain properties.
During the first quarter of 1998, the Company's accrual-basis capital
expenditures totaled approximately $20.4 million, including $19.2 million for
exploration and development and $1.2 million for acquisitions of proved
property interests. The expenditures on exploration and development were
primarily for participation in six (2.2 net) GOM exploratory wells, related
completion costs on three (1.4 net) of these, development of several GOM
properties acquired or discovered during the prior year, and acquisitions of
additional GOM three-dimensional seismic data and leasehold interests. In
addition to capital expenditures made in the first quarter of 1998, the
15
<PAGE>
Company submitted deposits totaling $4.0 million related to 12 (11.25 net)
apparent winning bids made at the March 1998 Central Gulf of Mexico lease
sale that totaled $20.4 million net to the Company. Should the Minerals
Management Service approve all 12 of these high bids, the Company will owe
the remaining 80% of the respective bid amounts, or an additional total of
$16.4 million. Such amounts are provided for within the Company's estimate
of $80 million for exploration and development activities in the current year.
Although not budgeted, the Company intends to continue to pursue acquisitions
of properties with proved and probable reserves as an integral part of its
overall business strategy, with the expectation that such efforts will result
in potentially significant investment activity.
The amount and allocation of the Company's future capital expenditures will
depend on a number of factors that are not entirely within the Company's
control or ability to forecast, including drilling results, scheduling of
activities by other operators, availability of service providers, success in
acquiring prospect leaseholds, and success in consummating acquisitions of
proved properties. As a result, actual capital expenditures may vary
significantly from current expectations.
The Company may also significantly increase its capital expenditure budget
for 1998 to respond to drilling opportunities that develop during the year,
to fund development of a greater number or larger-sized exploratory successes
than anticipated, or for acquisitions of proved and probable reserves. In
such instance, the Company may consider raising additional capital through
issuance of debt and/or equity securities.
16
<PAGE>
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 accessibility of capital, development and exploration
expenditures (including the amount and nature thereof), drilling of wells,
timing and amount of future production of oil and gas, business strategies,
cash flow and anticipated liquidity, prospect development and property
acquisition, marketing of oil and gas, and the impact on the Company of Year
2000 compliance requirements both internally and externally. Factors that
could cause actual results to differ materially ("Cautionary Disclosures")
are described, among other places, in the Company's prospectus dated October
2, 1997 and prospectus supplement dated October 24, 1997 and in the
Marketing, Competition, and Regulation sections of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, all as filed with
the Securities and Exchange Commission, and under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herewith. Without limiting the Cautionary Disclosures so described,
Cautionary Disclosures include, among others: general economic conditions,
the market price of oil and 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 gas business, downhole
drilling and completion risks that are generally not recoverable from third
parties or insurance, the Company's relative inexperience in the GOM,
uncertainties in the estimation of proved reserves and in the projection of
future rates of production and timing of development expenditures, potential
mechanical failure or underperformance of individually significant productive
wells, 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, delays in
anticipated start-up dates, environmental risks, the results of financing
efforts, actions or in actions of third-party operators of the Company's
properties, regulatory developments, and third-party Year 2000 compliance
actions. 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.
17
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger between Sterling Energy
Corporation, Basin Energy, Inc. and Basin Exploration,
Inc. dated October 13, 1994(5)
2.2 -- Plan of Merger between Basin Sterling, Inc. and Basin
Exploration, Inc. dated November 22, 1994(5)
2.3 -- Plan of Merger between Basin Operating Company and Basin
Exploration, Inc. dated December 14, 1994(8)
3.1 -- Restated Certificate of Incorporation of Basin.(2)
3.2 -- Restated Bylaws of Basin.(2)
4.1 -- Common Stock Certificate of Basin.(2)
10.1 -- Equity Incentive Plan as amended February 2, 1998.(1)
10.3 -- Key Employee Participation Plan.(2)
10.4 -- Employment Agreement dated March 31, 1992 by and between
Basin and Michael S. Smith.(3)
10.5 -- Gulf Coast Geoscientist Overriding Royalty Interest Plan
dated November 30, 1995.(10)
10.6 -- Form of Rights Agreement dated as of February 24, 1996,
between Basin Exploration, Inc. and Corporate Stock Transfer,
Inc. as Rights Agent.(9)
10.7 -- Performance Shares Plan approved February 4, 1997.(12)
10.8 -- Change of Control Employment Agreement dated October 13, 1995
between Basin Exploration, Inc. and Howard L. Boigon.(10)
10.9 -- Employment Agreement dated August 28, 1995 between Basin
Exploration, Inc. and Samuel D. Winegrad.(10)
10.10 -- Employment Agreement dated June 28, 1995 between Basin
Exploration, Inc. and Neil L. Stenbuck.(10)
10.11 -- Employment Agreement dated November 10, 1995 between Basin
Exploration, Inc. and David A. Pustka.(10)
10.12 -- Employment Agreement dated February 23, 1996 between Basin
Exploration, Inc. and Thomas J. Corley.(12)
10.13 -- Assignment and Assumption of Lease dated December 18, 1995 by
and between Team, Inc., as original Tenant, Basin
Exploration, Inc., as New Tenant, and FC Tower Property
Partners, L.P., as Landlord.(9)
10.16 -- Agreement for Purchase and Sale of Assets (Monetization)
dated February 24, 1996 by and between Basin Exploration,
Inc., HS Resources, Inc. and Orion Acquisition, Inc.(7)
10.17 -- Agreement for Purchase and Sale of Assets (Wattenberg), dated
February 24, 1996 by and between Basin Exploration, Inc., HS
Resources, Inc. and Orion Acquisition, Inc.(7)
10.18 -- Lease of Office Space dated September 25, 1992, between
Brookfield Republic Inc. and Basin Operating Company, as
amended (4)(#)
10.19 -- First Lease of Additional Office Space dated as of December
1, 1994, between Brookfield Republic, Inc. and Basin
Operating Company.(6)(#)
10.20 -- Amended and Restated Credit Agreement dated August 6, 1996
between the Company and Colorado National Bank, Union Bank of
California, N.A. and NationsBank of Texas, N.A.(11)
10.21 -- Purchase and Sale Agreement dated February 13, 1997, between
Hall-Houston Oil Company et al as Sellers and Basin
Exploration, Inc. as Buyer.(12)(#)
10.22 -- First Amendment of Amended and Restated Credit Agreement
dated August 6, 1996 between the Company and Colorado
National Bank, Union Bank of California, N.A. and NationsBank
of Texas, N.A. dated June 11, 1997(14)
18
<PAGE>
10.23 -- Order of the United States Bankruptcy Court for the Southern
District of Texas Corpus Christi Division, dated November 18,
1997, with exhibits, including the Agreement of Purchase and
Sale.(15)
10.24 -- Second Amendment of Amended and Restated Credit Agreement
dated August 6, 1996 between the Company and Colorado
National Bank, Union Bank of California, N.A. and NationsBank
of Texas, N.A. dated November 1, 1997(16)
10.25 -- Third Amendment of Amended and Restated Credit Agreement
dated August 6, 1996 between the Company and U.S. Bank
National Association, Union Bank of California, N.A. and
NationsBank of Texas, N.A. dated April 30, 1998(1).
21 -- Subsidiaries.(16)
27 -- Financial Data Schedule(1)
</TABLE>
- ----------------------
(1) Filed herewith.
(2) Filed as an Exhibit to Basin's Registration Statement on Form S-1
as filed on March 17, 1992, Registration No. 33-46486, and
incorporated herein by reference.
(3) Filed as an Exhibit to Amendment No. 1 to Basin's Registration
Statement on Form S-1 as filed on April 21, 1992, Registration No.
33-46486, and incorporated herein by reference.
(4) Filed as an Exhibit to Basin's Registration Statement on Form S-1
as filed on October 25, 1993, Registration No. 33-70802, and
incorporated herein by reference.
(5) Filed as an Exhibit to Form 8-K filed on December 10, 1994, and
incorporated herein by reference.
(6) Filed as an Exhibit to Form 10-K/A-1 filed on June 26, 1995 and
incorporated herein by reference.
(7) Filed as an Exhibit to Form 8-K filed on March 6, 1996, and
incorporated herein by reference.
(8) Filed as an Exhibit to Form 10-K filed on March 28, 1995, and
incorporated herein by reference.
(9) Filed as an Exhibit to Form 8-K filed on February 26, 1996, and
incorporated herein by reference.
(10) Filed as an Exhibit to Form 10-K filed on March 28, 1996, and
incorporated herein by reference.
(11) Filed as an Exhibit to Form 10-Q filed on August 14, 1996, and
incorporated herein by reference.
(12) Filed as an Exhibit to Form 10-K filed on March 31, 1997, and
incorporated herein by reference.
(13) Filed as an Exhibit to Form 10-Q filed on May 15, 1997, and
incorporated herein by reference.
(14) Filed as an Exhibit to Form 10-Q filed on August 12, 1997, and
incorporated herein by reference.
(15) Filed as an Exhibit to Form 8-K filed on December 11, 1997, and
incorporated herein by reference.
(16) Filed as an Exhibit to Form 10-K filed on March 31, 1998, and
incorporated herein by reference.
# Confidential treatment has been granted for portions of these
Exhibits.
(b) Reports on Form 8-K
On February 9, 1998, the Company filed a report on Form 8-K/A Amendment No. 1
to the Form 8-K dated November 26, 1997, incorporating financial statements as
required under item 7.
19
<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.
BASIN EXPLORATION, INC.
(Registrant)
Date: May 12, 1998 By:/s/ Neil L. Stenbuck
-------------------------------------
Neil L. Stenbuck
Chief Financial Officer
Date: May 12, 1998 By:/s/ James A Tuell
-------------------------------------
James A. Tuell
Controller
(Principal Accounting Officer)
<PAGE>
Exhibit 10.1
BASIN EXPLORATION, INC.
EQUITY INCENTIVE PLAN
(as amended February 2, 1998)
SECTION 1
INTRODUCTION
1.1 ESTABLISHMENT. Basin Exploration, Inc., a Delaware corporation
(hereinafter referred to, together with its Affiliated Corporations (as defined
in subsection 2.1(a)) as the "Company" except where the context otherwise
requires), hereby establishes the Basin Exploration, Inc. Equity Incentive Plan
(the "Plan") for certain key employees, non-employee directors and consultants
of the Company.
1.2 PURPOSES. The purposes of the Plan are to provide participants with
added incentives to continue in the long-term service of the Company and to
create in such persons a more direct interest in the future success of the
operations of the Company by relating incentive compensation to increases in
stockholder value. With respect to key management employees, the Plan is
intended to help ensure that the income of these employees is more closely
aligned with the income of the Company's stockholders. The Plan is also
designed to attract key employees and to retain and motivate participants by
providing an opportunity for investment in the Company.
SECTION 2
DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) "AFFILIATED CORPORATION" means any corporation or other
entity (including but not limited to a partnership) which is affiliated with
Basin Exploration, Inc. through stock ownership or otherwise and is treated as a
common employer under the provisions of Sections 414(b) and (c) of the Internal
Revenue Code.
(b) "AWARD" means a grant made under this Plan in the form of
Stock, Options, Restricted Stock, Performance Shares, or Performance Units.
(c) "BOARD" means the Board of Directors of the Company.
(d) "EFFECTIVE DATE" means the effective date of the Plan,
March 9, 1992.
(e) "ELIGIBLE EMPLOYEES" means full-time key employees
(including, without limitation, officers and directors who are also employees)
of the Company or any Affiliated Corporation or any division thereof, upon whose
judgment, initiative and efforts the Company is, or will be, important to the
successful conduct of its business.
(f) "EMPLOYEE COMMITTEE" means a committee that may be
established by the Board and composed of one or more members of the Board of
Directors who may, but need not be, Non-Employee Directors. The Employee
Committee may be empowered by the Board to grant
<PAGE>
Awards to Eligible Employees who are not directors or "officers" of the Company
as that term is defined in Rule 16a-1(f), promulgated under the Securities
Exchange Act of 1934 (the "1934 Act"), and to establish the terms of such Awards
at the time of grant, but shall have no other authority with respect to the Plan
or outstanding Awards except as expressly set forth herein.
(g) "FAIR MARKET VALUE" means the officially quoted closing
price of the Stock on the NASDAQ National Market System on a particular date.
If there are no Stock transactions on such date, the Fair Market Value shall be
determined as of the immediately preceding date on which there were Stock
transactions. If no such prices are reported on the NASDAQ National Market
System, then Fair Market Value shall mean the average of the high and low sale
prices for the Stock (or if no sales prices are reported, the average of the
high and low bid prices) as reported by the principal regional stock exchange,
or if not so reported, as reported by NASDAQ or a quotation system of general
circulation to brokers and dealers. If the Stock is not publicly traded, the
Fair Market Value of the Stock on any date shall be determined in good faith by
the Incentive Plan Committee after such consultation with outside legal,
accounting and other experts as the Incentive Plan Committee may deem advisable,
and the Committee shall maintain a written record of its method of determining
such value.
(h) "INCENTIVE PLAN COMMITTEE" means a committee consisting of
at least two Non-Employee Directors who are empowered hereunder to take actions
in the administration of the Plan. The Incentive Plan Committee shall be so
constituted at all times as to permit the Plan to comply with Rule 16b-3 or any
successor rule promulgated under the 1934 Act. Members of the Incentive Plan
Committee shall be appointed from time to time by the Board, shall serve at the
pleasure of the Board, and may resign at any time upon written notice to the
Board.
(i) "INCENTIVE STOCK OPTION" means any Option designated as such
and granted in accordance with the requirements of Section 422 of the Internal
Revenue Code.
(j) "INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as it may be amended from time to time.
(k) "NON-EMPLOYEE DIRECTOR" means any member of the Board who
meets the definition of Non-Employee Director under Rule 16b-3 of the 1934 Act.
(l) "NON-STATUTORY OPTION" means any Option other than an
Incentive Stock Option.
(m) "OPTION" means a right to purchase Stock at a stated price
for a specified period of time.
(n) "OPTION PRICE" means the price at which shares of Stock
subject to an Option may be purchased, determined in accordance with
subsection 7.2(b).
-2-
<PAGE>
(o) "PARTICIPANT" means an Eligible Employee, Non-Employee
Director or consultant to the Company designated by the Incentive Plan Committee
from time to time during the term of the Plan to receive one or more Awards
under the Plan.
(p) "PERFORMANCE CYCLE" means the period of time as specified by
the Incentive Plan Committee over which Performance Share or Performance Units
are to be earned.
(q) "PERFORMANCE SHARES" means an Award made pursuant to
Section 9 which entitles a Participant to receive Shares, their cash equivalent
or a combination thereof based on the achievement of performance targets during
a Performance Cycle.
(r) "PERFORMANCE UNITS" means an Award made pursuant to
Section 9 which entitles a Participant to receive cash, Stock or a combination
thereof based on the achievement of performance targets during a Performance
Cycle.
(s) "PLAN YEAR" means each 12-month period beginning April 1 and
ending the following March 31, except that for the first year of the Plan it
shall begin on the Effective Date and extend to March 31 of the following year.
(t) "RESTRICTED STOCK" Means Stock granted under Section 8 that
is subject to restrictions imposed pursuant to said Section.
(u) "SHARE" means a share of Stock.
(v) "STOCK" means the common stock, $.01 par value, of the
Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the definition
of any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
The Plan shall be administered by the Board which may from time to time
delegate all or part of its authority under this Plan to the Incentive Plan
Committee and delegate part of its authority under this Plan with respect to
Employees who are not directors or "officers" of the Company (as that term is
defined in Rule 16a-1(f), promulgated under the 1934 Act) to the Employee
Committee. References herein to the Plan Administrator refer to the Board or,
to the extent the Board delegates its authority to the Incentive Plan Committee,
to the Incentive Plan Committee. In accordance with the provisions of the Plan,
each of the Plan Administrator and the Employee Committee, as applicable, shall,
in its sole discretion and except as specifically set forth at Section 7.1(b),
select Participants to whom Awards will be granted, the form of each Award, the
amount of each Award and any other terms and conditions of each Award as the
Plan Administrator or the Employee Committee, as applicable, may deem necessary
or desirable and consistent with the terms of the Plan. The Plan Administrator
or the Employee
-3-
<PAGE>
Committee, as applicable, shall determine the form or forms of the agreements
with Participants which shall evidence the particular provisions, terms,
conditions, rights and duties of the Company and the Participants with respect
to Awards granted pursuant to the Plan, which provisions need not be identical
except as may be provided herein. The Plan Administrator may from time to time
adopt such rules and regulations for carrying out the purposes of the Plan as it
may deem proper and in the best interests of the Company. The Plan
Administrator may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any agreement entered into hereunder in the
manner and to the extent it shall deem expedient and it shall be the sole and
final judge of such expediency. No member of the Plan Administrator or the
Employee Committee shall be liable for any action or determination made in good
faith, and all members of the Plan Administrator and the Employee Committee
shall, in addition to their rights as directors, be fully protected by the
Company with respect to any such action, determination or interpretation. The
determination, interpretations and other actions of the Plan Administrator and
the Employee Committee pursuant to the provisions of the Plan shall be binding
and conclusive for all purposes and on all persons.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Initially, 2,075,334 Shares are authorized for
issuance under the Plan in accordance with the provisions of the Plan and
subject to such restrictions or other provisions as the Plan Administrator may
from time to time deem necessary. This authorization shall be increased
automatically on each succeeding annual anniversary of May 5, 1998 (the
"Adjustment Date") by an amount equal to that number of Shares equal to one-half
of one percent of the Company's then issued and outstanding Shares. The Shares
may be divided among the various Plan components as the Plan Administrator shall
determine, except that (i) no more than 1,750,000 Shares shall be cumulatively
available for the grant of Incentive Stock Options under the Plan, (ii) no more
than 25,000 Shares or the equivalent thereof shall be cumulatively available for
discretionary grants to Non-Employee Directors of Non-Statutory Options under
Section 7.1(a), Restricted Stock under Section 8, and Performance Shares or
Performance Units under Section 9, and (iii) no more than 175,000 Shares shall
be cumulatively available for non-discretionary grants to Non-Employee Directors
of Non-Statutory Options under Section 7.1(b). Any portion of the Shares added
on each succeeding anniversary of the Adjustment Date which are unused during
the Plan Year beginning on such anniversary date shall be carried forward and be
available for grant and issuance in subsequent Plan Years, while up to 100% of
the Shares to be added in the next succeeding Plan Year (calculated on the basis
of the current Plan Year's allocation) may be borrowed for use in the current
Plan Year. Shares which may be issued upon the exercise of Options shall be
applied to reduce the maximum number of Shares remaining available for use under
the Plan. The Company shall at all times during the term of the Plan and while
any Options are outstanding retain as authorized and unissued Stock, or as
treasury Stock, at least the number of Shares from time to time required under
the provisions of the Plan, or otherwise assure itself of its ability to perform
its obligations hereunder.
-4-
<PAGE>
4.2 UNUSED AND FORFEITED STOCK. Any Shares that are subject to an Award
under this Plan which are not used because the terms and conditions of the Award
are not met, including any Shares that are subject to an Option which expires or
is terminated for any reason, any Shares which are used for full or partial
payment of the purchase price of Shares with respect to which an Option is
exercised and any Shares retained by the Company pursuant to Section 15.2 shall
automatically become available for use under the Plan. Notwithstanding the
foregoing, any Shares used for full or partial payment of the purchase price of
the Shares with respect to which an Option is exercised and any Shares retained
by the Company pursuant to Section 15.2 that were originally Incentive Stock
Option Shares must still be considered as having been granted for purposes of
determining whether the 1,750,000 Share limitation on Incentive Stock Option
grants provided for in Section 4.1 has been reached.
4.3 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If the Company
shall at any time increase or decrease the number of its outstanding Shares of
Stock or change in any way the rights and privileges of such Shares by means of
the payment of a stock dividend or any other distribution upon such Shares
payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, then in
relation to the Stock that is affected by one or more of the above events, the
numbers, rights and privileges of the following shall be increased, decreased or
changed in like manner as if they had been issued and outstanding, fully paid
and nonassessable at the time of such occurrence: (i) the shares of Stock as to
which Awards may be granted under the Plan; and (ii) the Shares of Stock then
included in each outstanding Option, Performance Share or Performance Unit
granted hereunder.
4.4 DIVIDEND PAYABLE IN STOCK OF ANOTHER CORPORATION, ETC. If the
Company shall at any time pay or make any dividend or other distribution upon
the Stock payable in securities of another corporation or other property (except
money or Stock), a proportionate part of such securities or other property shall
be set aside and delivered to any Participant then holding an Award for the
particular type of Stock for which the dividend or other distribution was made,
upon exercise thereof in the case of Options, and the vesting thereof in the
case of other Awards. Prior to the time that any such securities or other
property are delivered to a Participant in accordance with the foregoing, the
Company shall be the owner of such securities or other property and shall have
the right to vote the securities, receive any dividends payable on such
securities, and in all other respects shall be treated as the owner. If
securities or other property which have been set aside by the Company in
accordance with this Section are not delivered to a Participant because an Award
is not exercised or otherwise vested, then such securities or other property
shall remain the property of the Company and shall be dealt with by the Company
as it shall determine in its sole discretion.
4.5 OTHER CHANGES IN STOCK. In the event there shall be any change,
other than as specified in Sections 4.3 and 4.4, in the number or kind of
outstanding shares of Stock or of any stock or other securities into which the
Stock shall be changed or for which it shall have been exchanged, and if the
Plan Administrator shall in its discretion determine that such change equitably
requires an adjustment in the number or kind of Shares subject to outstanding
Awards or which have been reserved for issuance pursuant to the Plan but are not
then subject to an Award, then such adjustments shall be made by the Plan
Administrator and shall be effective for all purposes of the
-5-
<PAGE>
Plan and on each outstanding Award that involves the particular type of stock
for which a change was effected.
4.6 RIGHTS TO SUBSCRIBE. If the Company shall at any time grant to the
holders of its Stock rights to subscribe pro rata for additional shares thereof
or for any other securities of the Company or of any other corporation, there
shall be reserved with respect to the Shares then subject to an Award held by
any Participant of the particular class of Stock involved, the Stock or other
securities which the Participant would have been entitled to subscribe for if
immediately prior to such grant the Participant had exercised his entire Option,
or otherwise vested in his entire Award. If, upon exercise of any such Option
or the vesting of any other Award, the Participant subscribes for the additional
Stock or other securities, the Participant shall pay to the Company the price
that is payable by the Participant for such Stock or other securities.
4.7 GENERAL ADJUSTMENT RULES. If any adjustment or substitution
provided for in this Section 4 shall result in the creation of a fractional
Share under any Award, the Company shall, in lieu of selling or otherwise
issuing such fractional Share, pay to the Participant a cash sum in an amount
equal to the product of such fraction multiplied by the Fair Market Value of a
Share on the date the fractional Share would otherwise have been issued. In the
case of any such substitution or adjustment affecting an Option, the total
Option Price for the shares of Stock then subject to an Option shall remain
unchanged but the Option Price per share under each such Option shall be
equitably adjusted by the Plan Administrator to reflect the greater or lesser
number of shares of Stock or other securities into which the Stock subject to
the Option may have been changed.
4.8 DETERMINATION BY PLAN ADMINISTRATOR, ETC. Adjustments under this
Section 4 shall be made by the Plan Administrator, whose determinations with
regard thereto shall be final and binding upon all parties thereto.
SECTION 5
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification or
change of outstanding Shares), or if all or substantially all of the assets or
more than 50% of the outstanding voting stock of the Company is acquired by any
other corporation, business entity or person (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company), or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of
Section 10 do not apply, the Plan Administrator, or the board of directors of
any corporation assuming the obligations of the Company, shall have the power
and discretion to prescribe the terms and conditions for the exercise of, or
modification of, any outstanding Awards granted hereunder. By way of
illustration, and not by way of limitation, the Plan Administrator may provide
for the complete or partial acceleration of the dates of exercise of the
Options, or may provide that such
-6-
<PAGE>
Options will be exchanged or converted into options to acquire securities of the
surviving or acquiring corporation, or may provide for a payment or distribution
in respect of outstanding Options (or the portion thereof that is currently
exercisable) in cancellation thereof. The Plan Administrator may remove
restrictions on Restricted Stock and may modify the performance requirements for
any other Awards. The Plan Administrator may provide that Stock or other Awards
granted hereunder must be exercised in connection with the closing of such
transaction, and that if not so exercised such Awards will expire. Any such
determinations by the Plan Administrator may be made generally with respect to
all Participants, or may be made on a case-by-case basis with respect to
particular Participants. The provisions of this Section 5 shall not apply to
any transaction undertaken for the purpose of reincorporating the Company under
the laws of another jurisdiction, if such transaction does not materially affect
the beneficial ownership of the Company's capital stock.
SECTION 6
PARTICIPATION
Participants in the Plan shall be those Eligible Employees, Non-Employee
Directors or consultants who, in the judgment of the Plan Administrator, are
performing, or during the term of their incentive arrangement will perform,
important services in the management, operation and development of the Company,
and significantly contribute, or are expected to significantly contribute, to
the achievement of long-term corporate economic objectives, or who are otherwise
granted Awards pursuant to the automatic grant provisions of Section 7.1(b).
Participants may be granted from time to time one or more Awards; provided,
however, that except as to Options granted pursuant to Section 7.1(b), the grant
of each such Award shall be separately approved by the Plan Administrator,
receipt of one such Award shall not result in automatic receipt of any other
Award, and written notice shall be given to such person, specifying the terms,
conditions, rights and duties related thereto; and further provided that
Incentive Stock Options shall not be granted to (i) consultants,
(ii) Non-Employee Directors or (iii) Eligible Employees of any partnership which
is included within the definition of an Affiliated Corporation but whose
employees are not permitted to receive Incentive Stock Options under the
Internal Revenue Code. Each Participant shall enter into an agreement with the
Company, in such form as the Plan Administrator shall determine and which is
consistent with the provisions of the Plan, specifying such terms, conditions,
rights and duties. Awards shall be deemed to be granted as of the date
specified in the grant resolution of the Plan Administrator, which date shall be
the date of any related agreement with the Participant. In the event of any
inconsistency between the provisions of the Plan and any such agreement entered
into hereunder, the provisions of the Plan shall govern.
SECTION 7
STOCK OPTIONS
7.1 (a) DISCRETIONARY GRANT OF OPTIONS. Coincident with the
following designation for participation in the Plan, and notwithstanding the
receipt of an Award or Awards pursuant to
-7-
<PAGE>
Section 7.1(b), a Participant may be granted one or more Options.
Notwithstanding any other provision of the Plan, Non-Employee Directors granted
an award under this Section 7.1(a) may only be awarded Non-Statutory Options.
The Board must approve each such Award and the interested Non-Employee Director
must abstain from voting on the Award. Eligible Employees may be awarded
Non-Statutory Options, Incentive Stock Options, or both in the Plan
Administrator's sole discretion. The Plan Administrator may grant both an
Incentive Stock Option and a Non-Statutory Option to the same Participant at the
same time or at different times. Incentive Stock Options and Non-Statutory
Options, whether granted at the same or different times, shall be deemed to have
been awarded in separate grants, shall be clearly identified, and in no event
shall the exercise of one Option affect the right to exercise any other Option
or affect the number of Shares for which any other Option may be exercised.
(b) NON-DISCRETIONARY GRANT OF OPTIONS. Upon the initial
election or appointment of a Non-Employee Director to the Company's Board, the
Non-Employee Director shall automatically be granted an Option to purchase
10,000 Shares (subject to adjustment pursuant to Section 10 hereof) effective as
of the date such person is elected or appointed to the Board, which shall vest
in equal installments on the first, second and third anniversaries of election
or appointment to the Board. In addition, each Non-Employee Director shall
automatically be granted an Option to purchase 3,000 Shares (subject to
adjustment pursuant to Section 4.3 hereof) effective as of each anniversary date
of such Non-Employee Directors' election to the Board, which Option shall vest
one year from the date of grant. The purchase price per Share for the Shares
subject to any Option granted under this Section 7.1(b) shall be 100% of the
Fair Market Value of a Share of Stock on the date on which the Option is
granted. Subject to the provisions of Section 7.2(d)(i), each Option granted
under this Section 7.1(b) shall expire ten years after the date on which it was
granted.
7.2 OPTION AGREEMENTS. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by the
Company and the Participant to whom the Option is granted (the "Option Holder"),
and which shall contain the following terms and conditions, as well as such
other terms and conditions not inconsistent therewith, as the Plan Administrator
may consider appropriate in each case.
(a) NUMBER OF SHARES. Each stock option agreement shall state
that it covers a specified number of Shares, as determined by the Plan
Administrator. Notwithstanding any other provision of the Plan, the aggregate
Fair Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by an Option Holder in any calendar year,
under the Plan or otherwise, shall not exceed $100,000. For this purpose, the
Fair Market Value of the Shares shall be determined as of the time an Option is
granted.
(b) PRICE. The price at which each Share covered by an Option
may be purchased shall be determined in each case by the Plan Administrator and
set forth in the stock option agreement, but in no event shall the Option Price
for each Share covered by an Incentive Stock Option be less than the Fair Market
Value of the Stock on the date the Option is granted; provided that the Option
Price for each Share covered by a Non-Statutory Option may be granted at any
price less than Fair Market Value, in the sole discretion of the Plan
Administrator. In addition, the Option
-8-
<PAGE>
Price for each Share covered by an Incentive Stock Option granted to an Eligible
Employee who then owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company must be at least 110% of the Fair Market Value of the
Stock subject to the Incentive Stock Option on the date the Option is granted.
(c) DURATION OF OPTIONS. Each stock option agreement shall
state the period of time, determined by the Plan Administrator, within which the
Option may be exercised by the Option Holder (the "Option Period"). The Option
Period must expire, in all cases, not more than ten years from the date an
Option is granted; provided, however, that the Option Period of an Incentive
Stock Option granted to an Eligible Employee who then owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company must expire not
more than five years from the date such an Option is granted. Each stock option
agreement shall also state the periods of time, if any, as determined by the
Plan Administrator, when incremental portions of each Option shall vest. Except
as provided in Sections 5 and 10, no portion of any Option shall vest before six
months after the date of grant of the Option. If any Option is not exercised
during its Option Period, it shall be deemed to have been forfeited and of no
further force or effect.
(d) TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. Except
as otherwise determined by the Plan Administrator, each stock option agreement
shall provide as follows with respect to the exercise of the Option upon
termination of the directorship, employment, consultancy or the death of the
Option Holder:
(i) TERMINATION OF DIRECTORSHIP OF NON-EMPLOYEE DIRECTORS.
(A) If a Non-Employee Director's term as a director of
the Company shall terminate for any reason other than death or disability, any
Options held by the Option Holder, to the extent exercisable under the
applicable stock option agreement(s), shall remain exercisable after termination
of his director status for a period of three months, but in no event beyond the
applicable Option Period.
(B) If a Non-Employee Director's term as a director of
the Company terminates because the Participant dies or is disabled within the
meaning of Section 22(e)(3) of the Code while, or within three months after,
serving as a director, any Options then held by the Participant, to the extent
then exercisable under the applicable stock option agreement(s), shall remain
exercisable after the termination of his directorship for a period of twelve
months, but in no event beyond the applicable Option Period.
(ii) TERMINATION OF EMPLOYMENT OR CONSULTANCY.
(A) If the employment or consultancy of the Option
Holder is terminated within the Option Period for cause, as determined by the
Company, the Option shall thereafter be void for all purposes. As used in this
subsection 7.2(d), "cause" shall mean a gross
-9-
<PAGE>
violation, as determined by the Company, of the Company's established policies
and procedures. The effect of this subsection 7.2(d)(ii) shall be limited to
determining the consequences of a termination, and nothing in this
subsection 7.2(d)(ii) shall restrict or otherwise interfere with the Company's
discretion with respect to the termination of any employee or consultant.
(B) If the Option Holder terminates his employment or
consultancy with the Company in a manner determined by the Board, in its sole
discretion, to constitute retirement (which determination shall be communicated
to the Option Holder within 10 days of such termination), the Option may be
exercised by the Option Holder, or in the case of death by the persons specified
in subsection (C) of this subsection 7.2(d)(ii), within three months following
his or her retirement if the Option is an Incentive Stock Option or within
twelve months following his or her retirement if the Option is a Non-Statutory
Stock Option (provided in each case that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become exercisable on
or before the date of the Option Holder's termination of employment or
consultancy.
(C) If the Option Holder dies, or if the Option Holder
becomes disabled (within the meaning of Section 22(e) of the Internal Revenue
Code), during the Option Period while still employed or consulting, or within
the three-month period referred to in (D) below, or within the three or
twelve-month period referred to in (B) above, the Option may be exercised by
those entitled to do so under the Option Holder's will or by the laws of descent
and distribution within twelve months following the Option Holder's death or
disability (provided in each case that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become exercisable on
or before the date of the Option Holder's death or disability.
(D) If the employment or consultancy of the Option
Holder by the Company is terminated (which for this purpose means that the
Option Holder is no longer employed by the Company or by an Affiliated
Corporation) within the Option Period for any reason other than cause,
retirement as provided in (B) above, disability or the Option Holder's death,
the Option may be exercised by the Option Holder within three months following
the date of such termination (provided that such exercise must occur within the
Option Period), but not thereafter. In any such case, the Option may be
exercised only as to the Shares as to which the Option had become exercisable on
or before the date of termination of employment or consultancy.
(e) TRANSFERABILITY. Each stock option agreement shall provide
that the Option granted therein is not transferable by the Option Holder except
by will or pursuant to the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code,
Title I of the Employee Retirement Income Security Act ("ERISA"), and that such
Option is exercisable during the Option Holder's lifetime only by him or her,
or in the event of disability or incapacity, by his or her guardian or legal
representative.
-10-
<PAGE>
(f) EXERCISE, PAYMENTS, ETC.
(i) Each stock option agreement shall provide that the
method for exercising the Option granted therein shall be by delivery to the
Corporate Secretary of the Company of written notice specifying the number of
Shares with respect to which such Option is exercised (which must be in an
amount evenly divisible by 100) and payment of the Option Price. Such notice
shall be in a form satisfactory to the Plan Administrator and shall specify the
particular Option (or portion thereof) which is being exercised and the number
of Shares with respect to which the Option is being exercised. The exercise of
the Option shall be deemed effective upon receipt of such notice by the
Corporate Secretary and payment to the Company. The purchase of such Stock
shall take place at the principal offices of the Company upon delivery of such
notice, at which time the purchase price of the Stock shall be paid in full by
any of the methods or any combination of the methods set forth in (ii) below. A
properly executed certificate or certificates representing the Stock shall be
issued by the Company and delivered to the Option Holder. If certificates
representing Stock are used to pay all or part of the Option Price, separate
certificates for the same number of shares of Stock shall be issued by the
Company and delivered to the Option Holder representing each certificate used to
pay the Option Price, and an additional certificate shall be issued by the
Company and delivered to the Option Holder representing the additional shares,
in excess of the Option Price, to which the Option Holder is entitled as a
result of the exercise of the Option.
(ii) The exercise price shall be paid by any of the
following methods or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
(C) by delivery to the Company of certificates representing
the number of Shares then owned by the Option Holder, the Fair Market Value of
which equals the purchase price of the Stock purchased pursuant to the Option,
properly endorsed for transfer to the Company; provided however, that Shares
used for this purpose must have been held by the Option Holder for such minimum
period of time as may be established from time to time by the Plan
Administrator; for purposes of this Plan, the Fair Market Value of any Shares
delivered in payment of the purchase price upon exercise of the Option shall be
the Fair Market Value as of the exercise date; the exercise date shall be the
day the delivery of the certificates for the Stock used as payment of the Option
Price; or
(D) by delivery to the Company of a properly executed
notice of exercise together with irrevocable instructions to a broker to deliver
to the Company promptly the amount of the proceeds of the sale of all or a
portion of the Stock or of a loan from the broker to the Option Holder necessary
to pay the exercise price.
-11-
<PAGE>
(iii) In the discretion of the Plan Administrator, the
Company may guaranty a third-party loan obtained by a Participant to pay part or
all of the Option Price of the Shares provided that such loan or the Company's
guaranty is secured by the Shares.
(g) DATE OF GRANT. Except as provided in Section 7.1(b), an
option shall be considered as having been granted on the date specified in the
grant resolution of the Plan Administrator.
(h) WITHHOLDING.
(A) NON-STATUTORY OPTIONS. Each stock option agreement
covering Non-Statutory Options shall provide that, upon exercise of the Option,
the Option Holder shall make appropriate arrangements with the Company to
provide for the amount of additional withholding required by applicable federal
and state income tax laws, including payment of such taxes through delivery of
Stock or by withholding Stock to be issued under the Option, as provided in
Section 15.
(B) INCENTIVE OPTIONS. In the event that a Participant
makes a disposition (as defined in Section 424(c) of the Internal Revenue Code)
of any Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to the expiration of two years from the date on which the Incentive Stock
Option was granted or prior to the expiration of one year from the date on which
the Option was exercised, the Participant shall send written notice to the
Company at its principal office in Denver, Colorado (Attention: Corporate
Secretary) of the date of such disposition, the number of shares disposed of,
the amount of proceeds received from such disposition, and any other information
relating to such disposition as the Company may reasonably request. The
Participant shall, in the event of such a disposition, make appropriate
arrangements with the Company to provide for the amount of additional
withholding, if any, required by applicable federal and state income tax laws.
(i) ADJUSTMENT OF OPTIONS. Subject to the limitations contained
in Sections 7 and 14, the Plan Administrator may make any adjustment in the
Option Price, the number of shares subject to, or the terms of, an outstanding
Option and a subsequent granting of an Option by amendment or by substitution of
an outstanding Option. Such amendment, substitution, or re-grant may result in
terms and conditions (including Option Price, number of shares covered, vesting
schedule or exercise period) that differ from the terms and conditions of the
original Option. The Plan Administrator may not, however, adversely affect the
rights of any Participant to previously granted Options without the consent of
such Participant. If such action is affected by amendment, the effective date
of such amendment shall be the date of the original grant.
7.3 STOCKHOLDER PRIVILEGES. No Option Holder shall have any rights as a
stockholder with respect to any Shares covered by an Option until the Option
Holder becomes the holder of record of such Stock, and no adjustments shall be
made for dividends or other distributions or other rights as to which there is a
record date preceding the date such Option Holder becomes the holder of record
of such Stock, except as provided in Section 4.
-12-
<PAGE>
SECTION 8
RESTRICTED STOCK AWARDS
8.1 AWARDS GRANTED BY PLAN ADMINISTRATOR. Coincident with or following
designation for participation in the Plan, a Participant may be granted one or
more Restricted Stock Awards consisting of Shares. The number of Shares granted
as a Restricted Stock Award shall be determined by the Plan Administrator.
8.2 RESTRICTIONS. A Participant's right to retain a Restricted Stock
Award granted to him under Section 8.1 shall be subject to such restrictions,
including but not limited to his continuous employment by the Company for a
restriction period specified by the Plan Administrator, or the attainment of
specified performance goals and objectives, as may be established by the Plan
Administrator with respect to such award. The Plan Administrator may in its
sole discretion require different periods of employment or different performance
goals and objectives with respect to different Participants, to different
Restricted Stock Awards or to separate, designated portions of the Shares
constituting a Restricted Stock Award.
8.3 PRIVILEGES OF A STOCKHOLDER, TRANSFERABILITY. A Participant shall
have all voting, dividend, liquidation and other rights with respect to Stock in
accordance with its terms received by him as a Restricted Stock Award under this
Section 8 upon his becoming the holder of record of such Stock; provided,
however, that the Participant's right to sell, encumber or otherwise transfer
such Stock shall be subject to the limitations of Section 11.2 hereof.
8.4 ENFORCEMENT OF RESTRICTIONS. The Plan Administrator may in its sole
discretion require one or more of the following methods of enforcing the
restrictions referred to in Section 8.2 and 8.3:
(a) Placing a legend on the stock certificates referring to the
restrictions;
(b) Requiring the Participant to keep the stock certificates,
duly endorsed, in the custody of the Company while the restrictions remain in
effect; or
(c) Requiring that the stock certificates, duly endorsed, be
held in the custody of a third party while the restrictions remain in effect.
8.5 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. In the event of
the death or disability (within the meaning of Section 22(e) of the Internal
Revenue Code) of a Participant, or the retirement of a Participant as provided
in Section 7.2(d)(ii)(B), all employment period and other restrictions
applicable to Restricted Stock Awards then held by him shall lapse, and such
awards shall become fully nonforfeitable. Subject to Sections 5 and 10, in the
event of a Participant's termination of services for any other reason, any
Restricted Stock Awards as to which the employment period or other restrictions
have not been satisfied shall be forfeited.
-13-
<PAGE>
SECTION 9
PERFORMANCE SHARES AND PERFORMANCE UNITS
9.1 AWARDS GRANTED BY PLAN ADMINISTRATOR. Coincident with or following
designation for participation in the Plan, a Participant may be granted
Performance Shares or Performance Units.
9.2 AMOUNT OF AWARD. The Plan Administrator shall establish a maximum
amount of a Participant's Award, which amount shall be denominated in Shares in
the case of Performance Shares or in dollars in the case of Performance Units.
9.3 COMMUNICATION OF AWARD. Written notice of the maximum amount of a
Participant's Award and the Performance Cycle determined by the Plan
Administrator shall be given to a Participant as soon as practicable after
approval of the Award by the Plan Administrator.
9.4 AMOUNT OF AWARD PAYABLE. The Plan Administrator shall establish
maximum and minimum performance targets to be achieved during the applicable
Performance Cycle. Performance targets established by the Plan Administrator
shall relate to corporate, group, unit or individual performance and may be
established in terms of earnings, growth in earnings, ratios of earnings to
equity or assets, or such other measures or standards determined by the Plan
Administrator. Multiple performance targets may be used and the components of
multiple performance targets may be given the same or different weighting in
determining the amount of an Award earned, and may relate to absolute
performance or relative performance measured against other groups, units,
individuals or entities. Achievement of the maximum performance target shall
entitle the Participant to payment (subject to Section 9.6) at the full or
maximum amount specified with respect to the Award; provided, however, that
notwithstanding any other provisions of this Plan, in the case of an Award of
Performance Shares the Plan Administrator in its discretion may establish an
upper limit on the amount payable (whether in cash or Stock) as a result of the
achievement of the maximum performance target. The Plan Administrator may also
establish that a portion of a full or maximum amount of a Participant's Award
will be paid (subject to Section 9.6) for performance which exceeds the minimum
performance target but falls below the maximum performance target applicable to
such Award.
9.5 ADJUSTMENTS. At any time prior to payment of a Performance Share or
Performance Unit Award, the Plan Administrator may adjust previously established
performance targets or other terms and conditions to reflect events such as
changes in laws, regulations, or accounting practice, or mergers, acquisitions
or divestitures.
9.6 PAYMENTS OF AWARDS. Following the conclusion of each Performance
Cycle, the Plan Administrator shall determine the extent to which performance
targets have been attained, and the satisfaction of any other terms and
conditions with respect to an Award relating to such Performance Cycle. The
Plan Administrator shall determine what, if any, payment is due with respect to
an Award and whether such payment shall be made in cash, Stock or some
combination thereof. Payment shall be made in a lump sum or installments, as
determined by the Plan Administrator, commencing as promptly as practicable
following the end of the applicable Performance Cycle,
-14-
<PAGE>
subject to such terms and conditions and in such form as may be prescribed by
the Plan Administrator.
9.7 TERMINATION OF EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY. If a
Participant ceases to be an Eligible Employee, Non-Employee Director, or
consultant before the end of a Performance Cycle by reason of his death,
permanent disability or retirement as provided in Section 7.2(d)(ii)(B), the
Performance Cycle for such Participant for the purpose of determining the amount
of the Award payable shall end at the end of the calendar quarter immediately
preceding the date on which such Participant ceased to be an Eligible Employee,
Non-Employee Director or consultant. The amount of an Award payable to a
Participant to whom the preceding sentence is applicable shall be paid at the
end of the Performance Cycle and shall be that fraction of the Award computed
pursuant to the preceding sentence the numerator of which is the number of
calendar quarters during the Performance Cycle during all of which said
Participant was an Eligible Employee, Non-Employee Director or consultant and
the denominator of which is the number of full calendar quarters in the
Performance Cycle. Upon any other termination of services of a Participant
during a Performance Cycle, participation in the Plan shall cease and all
outstanding Awards of Performance Shares or Performance Units to such
Participant shall be canceled.
SECTION 10
CHANGE IN CONTROL
10.1 OPTIONS, RESTRICTED STOCK. In the event of a change in control of
the Company as defined in Section 10.3, then the Plan Administrator may, in its
sole discretion, without obtaining stockholder approval, to the extent permitted
in Section 14, take any or all of the following actions: (a) accelerate the
exercise dates of any outstanding Options or make all such Options fully vested
and exercisable; (b) grant a cash bonus award to any Option Holder in an amount
necessary to pay the Option Price of all or any portion of the Options then held
by such Option Holder; (c) pay cash to any or all Option Holders in exchange for
the cancellation of their outstanding Options in an amount equal to the
different between the Option Price of such Options and the greater of the tender
offer price for the underlying Stock or the Fair Market Value of the Stock on
the date of the cancellation of the Options; (d) make any other adjustments or
amendments to the outstanding Options and (e) eliminate all restrictions with
respect to Restricted Stock and deliver Shares free of restrictive legends to
any Participant.
10.2 PERFORMANCE SHARES AND PERFORMANCE UNITS. Under the circumstances
described in Section 10.1, the Plan Administrator may, in its sole discretion,
and without obtaining stockholder approval, to the extent permitted in
Section 14, provide for payment of outstanding Performance Shares and
Performance Units at the maximum award level or any percentage thereof.
10.3 DEFINITION. For purposes of the Plan, a "change in control" shall
be deemed to have occurred if (a) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
Mr. Michael Smith is or becomes the "beneficial owner" (as defined in Rule 13d-
-15-
<PAGE>
3 under the 1934 Act), directly or indirectly, of more than 33-1/3 percent of
the then outstanding voting stock of the Company; or (b) at any time during any
period of three consecutive years (not including any period prior to the
Effective Date), individuals who at the beginning of such period constitute the
Board (and any new director whose election by the Board or whose nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were 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 thereof;
or (c) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 80% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the stockholders approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
SECTION 11
RIGHTS OF EMPLOYEES; PARTICIPANTS
11.1 EMPLOYMENT; TENURE. Nothing contained in the Plan or in any Award
granted under the Plan shall confer upon any Participant any right with respect
to the continuation of his or her employment or consultancy by the Company or
tenure as a Non-Employee Director of the Company, or interfere in any way with
the right of the Company, subject to the terms of any separate agreement to the
contrary, at any time to terminate such employment or consultancy or to increase
or decrease the compensation of the Participant from the rate in existence at
the time of the grant of an Award. Whether an authorized leave of absence, or
absence in military or government service, shall constitute a termination of
services shall be determined by the Plan Administrator at the time. Nothing in
this Plan shall interfere in any way with the right of the stockholders of the
Company to remove a Participant Non-Employee Director from the Board pursuant to
the Delaware General Corporation Law and the Company's Certificate of
Incorporation and Bylaws.
11.2 NONTRANSFERABILITY. No right or interest of any Participant in an
Award granted pursuant to the Plan shall be assignable or transferable during
the lifetime of the Participant except pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code, Title I of ERISA,
either voluntarily or involuntarily, or be subjected to any lien, directly or
indirectly, by operation of law, or otherwise, including execution, levy,
garnishment, attachment, pledge or bankruptcy. In the event or a Participant's
death, a Participant's rights and interests in Options shall, to the extent
provided in Section 7, be transferable by testamentary will or the laws of
descent and distribution, and payment of any amounts due under the Plan shall be
made to, and exercise of any Options may be made by, the Participant's legal
representatives, heirs or legatees. If in the opinion of the Plan Administrator
a person entitled to payments or to exercise rights with respect to the Plan is
disabled from caring for his affairs because of mental condition, physical
condition or age, payment due such person may be made to, and such rights shall
be exercised by, such person's
-16-
<PAGE>
guardian, conservator or other legal personal representative upon furnishing the
Plan Administrator with evidence satisfactory to the Plan Administrator of such
status.
SECTION 12
GENERAL RESTRICTIONS
12.1 INVESTMENT REPRESENTATIONS. The Company may require any person to
whom an Option or other Award is granted, as a condition of exercising such
Option or receiving Stock under the Award, to give written assurances in
substance and form satisfactory to the Company and its counsel to the effect
that such person is acquiring the Stock subject to the Option or the Award for
his own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws. Legends evidencing such restrictions may be placed on the
certificates evidencing the Stock.
12.2 COMPLIANCE WITH SECURITIES LAWS. Each Award shall be subject to the
requirement that, if at any time counsel to the Company shall determine that the
listing, registration or qualification of the Shares subject to such Award upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a condition of,
or in connection with, the issuance or purchase of Shares thereunder, such Award
may not be accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Plan Administrator. Nothing herein
shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
12.3 STOCK RESTRICTION AGREEMENT. The Plan Administrator may provide
that shares of Stock issuable upon the exercise of an Option shall, under
certain conditions, be subject to restrictions whereby the Company has a right
of first refusal with respect to such shares or a right or obligation to
repurchase all or a portion of such shares, which restrictions may survive a
Participant's term of service with the Company. The acceleration of time or
times at which an Option becomes exercisable may be conditioned upon the
Participant's agreement to such restrictions.
SECTION 13
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or the grant or vesting of any other Award
shall not constitute "earnings" with respect to which any other employee
benefits of such participant are determined, including without limitation
benefits under any pension, profit sharing, life insurance or salary
continuation plan.
-17-
<PAGE>
SECTION 14
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time-to-time may amend or
modify, the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the stockholders
if stockholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if the Company, on the advice of
counsel, determines that stockholder approval is otherwise necessary or
desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Awards theretofore granted under the Plan, without the
consent of the Participant holding such Awards.
SECTION 15
WITHHOLDING
15.1 WITHHOLDING REQUIREMENT. The Company's obligations to deliver
Shares upon the exercise of an Option, or upon the vesting of any other Award,
shall be subject to the Participant's satisfaction of all applicable federal,
state and local income and other tax withholding requirements.
15.2 WITHHOLDING WITH STOCK. At the time the Plan Administrator grants
an Award, it may, in its sole discretion, grant the Participant an election to
pay all such amounts of tax withholding, or any part thereof, by electing to
transfer to the Company, or to have the Company withhold from Shares otherwise
issuable to the Participant, Shares having a value equal to the amount required
to be withheld or such lesser amount as may be elected by the Participant. All
elections shall be subject to the approval or disapproval of the Plan
Administrator. The value of Shares to be withheld shall be based on the Fair
Market Value of the Stock on the date that the amount of tax to be withheld is
to be determined (the "Tax Date"). Any such elections by Participants to have
Shares withheld for this purpose will be subject to the following restrictions:
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer or director of the Company
within the meaning of Section 16 of the 1934 Act ("Section 16"), the Participant
must satisfy the requirements of such Section 16 and any applicable rules
thereunder with respect to the use of Stock to satisfy such tax withholding
obligation.
-18-
<PAGE>
SECTION 16
BROKERAGE ARRANGEMENTS
The Plan Administrator, in its discretion, may enter into arrangements with
one or more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon exercise of Stock Options, including,
without limitation, arrangements for the simultaneous exercise of Stock Options
and sale of the Shares acquired upon such exercise.
SECTION 17
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of employees,
which the Company or any Affiliated Corporation now has lawfully put into
effect, including, without limitation, any retirement, pension, savings and
stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
SECTION 18
REQUIREMENTS OF LAW
18.1 REQUIREMENTS OF LAW. The issuance of stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
18.2 FEDERAL SECURITIES LAW REQUIREMENTS. If a Participant is an officer
or director of the Company within the meaning of Section 16 of the 1934 Act,
Awards granted hereunder shall be subject to all conditions required under
Rule 16b-3, or any successor rule promulgated under the 1934 Act, to qualify the
Award for any exception from the provisions of Section 16(b) of the 1934 Act
available under that Rule. Such conditions are hereby incorporated herein by
reference and shall be set forth in the agreement with the Participant which
describes the Award.
18.3 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Delaware.
-19-
<PAGE>
SECTION 19
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board of
Directors, and no Award shall be granted after such termination. If not sooner
terminated under the preceding sentence, the Plan shall fully cease and expire
at midnight on March 9, 2002. Awards outstanding at the time of the Plan
termination may continue to be exercised or earned in accordance with their
terms.
Amended: February 2, 1998 BASIN EXPLORATION, INC.
By /s/ MICHAEL S. SMITH
------------------------------
Michael S. Smith, President
-20-
<PAGE>
Exhibit 10.25
THIRD AMENDMENT OF
AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of April 30, 1998, is by and among BASIN EXPLORATION,
INC., a Delaware corporation ("Borrower"), U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK ("USB"), UNION BANK OF CALIFORNIA, N.A. ("Union"), and
NATIONSBANK OF TEXAS, N.A. ("NBT"), in its capacity as a Lender and as Agent for
Lenders. USB, Union and NBT are herein collectively referred to as "Lenders."
RECITALS
A. Borrower and Lenders entered into an Amended and Restated Credit
Agreement dated as of August 6, 1996 (the "Original Credit Agreement"), as
amended by a First Amendment of Amended and restated credit Agreement dated as
of June 11, 1997 and a Second Amendment of Amended and Restated Credit Agreement
dated as of November 1, 1997, in order to set forth the terms upon which Lenders
would make loans to Borrower and issue letters of credit at the request of
Borrower and by which such loans and letters of credit would be governed.
Capitalized terms used herein without definition shall have the same meanings as
set forth in the Original Credit Agreement, as amended as set forth above (the
"Credit Agreement").
B. The parties hereto wish to enter into this Amendment in order to amend
certain terms and provisions of the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Credit Agreement. effective as of the date of this Amendment,
the Credit Agreement shall be, and hereby is, amended as follows:
(a) The definition of "Borrowing Base" in Section 1.1 on page 3
of the Credit Agreement shall be deleted, and the following shall be substituted
therefor:
<PAGE>
"BORROWING BASE" means, at any time, the aggregate loan value of
the Borrowing Bas Properties, as determined by Lenders in accordance with the
provisions of Section 3.2 below; provided that the Borrowing Base for the time
period from April 30, 1998 through the date as of which the November, 1998
redetermination of the Borrowing base pursuant to Section 3.2. below becomes
effective shall be $75,000,000, unless Borrower and Lenders hereafter mutually
agree upon a different amount or unless the Borrowing Base is redetermined
pursuant to Section 3.2 below prior to such date.
(b) The definition of "Revolving Period" in Section 1.1 on page
12 of the Credit Agreement shall be deleted, and the following shall be
substituted therefore:
(c) "REVOLVING PERIOD" means the time period from the date of
this Agreement through October 31, 2001; provided that, upon the request of
Borrower, Lenders may, in their sole discretion, extend such time period at any
time and from time to time to a date not later than July 31, 2002.
(d) The last sentence of Section 2.8 on page 17 of the Credit
Agreement shall be revised to read as follows: "Borrower shall have no more
than eight Fixed Rate Portions in effect at any time."
(e) In Section 3.2 on page 21 of the Credit Agreement: (1)
"April 15" shall be changed to "May 1" in line 2; (2) "October 15" shall be
changed to "November 1" in line 2; and (3) "April, 1997' shall be changed to
"November, 1998' in line 3.
(f) In Section 6.1(b)(v) on pages 32 and 33 of the Credit
Agreement: (1) "March 1" shall be changed to "March 15" in line 1 on page 32;
and (2) "September 1" shall be changed to "September 15" in the seventh line of
the carryover portion on page 33.
2. Loan Documents. All references in any document to the Credit
Agreement shall refer to the Credit Agreement, as amended and supplemented
pursuant to this Amendment.
3. CONDITIONS PRECEDENT. The obligations of the parties under this
Amendment are subject, at the option of Lenders, to the prior satisfaction of
the condition that Borrower shall have executed and/or delivered, or caused to
have been executed and/or delivered, to or for the benefit of Lenders, the
following (all documents to be satisfactory in form and substance to Lenders):
<PAGE>
(a) This Amendment.
(b) Such certificates of officers of Borrower as may be required by
Lenders.
(c) Any and all other Loan Documents required by Lenders.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby certifies to Lenders
that as of the date of (and after giving effect to) this Amendment, except as
heretofore disclosed to and waived by Lenders: (a) all of Borrower's
representations and warranties contained in the Credit Agreement are true,
accurate and complete in all material respects, and (b) no Default or Event of
Default has occurred and is continuing under the Credit Agreement.
5. CONTINUATION OF THE CREDIT AGREEMENT. Except as specified in this
Amendment, the provisions of the Credit Agreement shall remain in full force and
effect, and if there is a conflict between the terms of this Amendment and those
of the Credit Agreement, the terms of this Amendment shall control. Borrower
hereby ratifies, confirms and adopts the Credit Agreement, as amended hereby.
6. EXPENSES. Borrower shall pay all reasonable expenses incurred in
connection with the transactions contemplated by this Amendment, including
without limitation all reasonable fees and reasonable expenses of Lenders'
attorneys and all recording and filing fees, charges and expenses.
7. MISCELLANEOUS. This Amendment shall be governed by and construed
under the laws of the State of Colorado and shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns. This
Amendment may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
Delivery of this Amendment and any and all documents to be delivered in
connections herewith by any party may be effected, without limitation, by faxing
a signed counterpart of this Amendment to NBT (any party that effects delivery
in such manner hereby agreeing to transmit promptly to NBT an actual signed
counterpart).
EXECUTED as of the date first above written.
BASIN EXPLORATION, INC.
By: /s/ Neil L. Stenbuck
------------------------------
Vice President/Chief Financial
Officer
<PAGE>
U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK
By: /s/ Kathryn A. Gaiter
------------------------------
Vice President
NATIONSBANK OF TEXAS, N.A., in its
capacity as a Lender and as Agent
For Lenders
By: /s/David C. Rubenking
------------------------------
Senior Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/
------------------------------
Vice President
By: /s/
------------------------------
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<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> 248
<SECURITIES> 0
<RECEIVABLES> 14,447
<ALLOWANCES> 0
<INVENTORY> 268
<CURRENT-ASSETS> 18,365
<PP&E> 219,792
<DEPRECIATION> 56,211
<TOTAL-ASSETS> 185,997
<CURRENT-LIABILITIES> 19,972
<BONDS> 37,013
0
0
<COMMON> 140
<OTHER-SE> 121,816
<TOTAL-LIABILITY-AND-EQUITY> 185,997
<SALES> 10,235
<TOTAL-REVENUES> 10,256
<CGS> 2,377
<TOTAL-COSTS> 9,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 413
<INCOME-PRETAX> 368
<INCOME-TAX> 129
<INCOME-CONTINUING> 239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
