<PAGE> 1
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 0-18886
----------------------------------------------------------
HS RESOURCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3036864
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Maritime Plaza, Fifteenth Floor
San Francisco, California 94111
- ---------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 433-5795
-----------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock, $.001 par value, outstanding as of the close
of business on April 30, 1998: 18,501,477 after deducting 191,851 shares in
treasury.
<PAGE> 2
HS RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements:
Consolidated Balance Sheets - March 31, 1998 (Unaudited) and
December 31, 1997 ..............................................................3
Unaudited Consolidated Statements of Operations - For the Three Months
Ended March 31, 1998 and 1997 ..................................................5
Consolidated Statements of Stockholders' Equity - For
the Years Ended December 31, 1997 and 1996 and the Three Months Ended
March 31, 1998 (Unaudited) .....................................................6
Unaudited Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 1998 and 1997 .............................7
Notes to Unaudited Consolidated Financial Statements ...........................8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .........................................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings & Environmental Issues ......................................25
Item 2. Changes in Securities .........................................................26
Item 3. Defaults Upon Senior Securities ...............................................26
Item 4. Submission of Matters to a Vote of Security Holders ...........................26
Item 5. Other Information .............................................................26
Item 6. Exhibits and Reports on Form 8-K ..............................................27
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
--------------- ---------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 5,172,315 $ 6,907,708
Margin deposits 203,152 3,996
Accounts receivable
Oil and gas sales 24,021,586 23,052,931
Trading and transportation 15,254,952 14,366,469
Trade 6,108,495 3,579,327
Other 5,703,504 4,711,805
Lease and well equipment inventory, at cost 1,785,489 1,424,301
Prepaid expenses and other 720,368 628,797
--------------- ---------------
Total current assets 58,969,861 54,675,334
--------------- ---------------
Oil and Gas Properties, at cost, using the full cost method
Undeveloped acreage 194,300,436 189,064,119
Costs subject to depreciation, depletion and amortization 977,481,596 951,678,001
Less accumulated depreciation, depletion and amortization (199,239,272) (181,205,919)
--------------- ---------------
Net oil and gas properties 972,542,760 959,536,201
--------------- ---------------
Gas Gathering and Transportation Facilities,
at cost, net of accumulated depreciation of $1,395,745 and
$1,322,382 at March 31, 1998 and December 31, 1997, respectively 4,484,140 4,540,806
--------------- ---------------
Other Assets
Deferred charges and other, net 9,793,393 10,254,796
Office and transportation equipment and other property, net of
accumulated depreciation of $5,374,457 and $5,083,746 at
March 31, 1998 and December 31, 1997, respectively 4,490,749 4,735,106
Investment in oil and gas limited partnership 885,284 860,288
--------------- ---------------
Total other assets 15,169,426 15,850,190
--------------- ---------------
Total Assets $ 1,051,166,187 $ 1,034,602,531
=============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
HS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
--------------- ---------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable
Trade $ 21,607,300 $ 18,888,306
Revenue 22,196,440 17,460,848
Gas purchases 8,157,545 7,854,715
Accrued expenses
Ad valorem and production taxes 9,979,414 8,432,221
Interest 9,954,447 3,691,983
Other 3,670,255 7,359,030
Current portion of long-term debt 30,000 30,000
--------------- ---------------
Total current liabilities 75,595,401 63,717,103
--------------- ---------------
Accrued Ad Valorem Taxes 11,647,873 10,606,402
--------------- ---------------
Deferred Revenue 9,090,367 9,872,870
--------------- ---------------
Long-Term Oil and Gas Production Note Payable 734,696 734,696
--------------- ---------------
Long-Term Bank Debt, Net of Current Portion 413,000,000 412,000,000
--------------- ---------------
9 7/8% Senior Subordinated Notes,
due 2003, net of unamortized discount of $331,500 and
$346,125 at March 31, 1998 and December 31, 1997,
respectively 74,668,500 74,653,875
--------------- ---------------
9 1/4% Senior Subordinated Notes,
due 2006, net of unamortized discount of $670,162 and
$689,587 at March 31, 1998 and December 31, 1997,
respectively 149,329,838 149,310,413
--------------- ---------------
Deferred Income Taxes 92,688,255 90,798,036
--------------- ---------------
Commitments and Contingencies
--------------- ---------------
Minority Interest in Oil and Gas Limited Partnership (2,115,796) (713,200)
--------------- ---------------
Stockholders' Equity
Preferred stock -- --
Common stock, $.001 par value, 30,000,000 shares
authorized; 18,693,328 and 18,654,545 shares issued and
outstanding at March 31, 1998 and December 31, 1997,
respectively 18,693 18,655
Additional paid-in capital 183,567,964 183,191,380
Retained earnings 46,064,514 42,773,142
Deferred compensation (428,112) (144,300)
Treasury stock, at cost, 191,851 and 160,358 shares at
March 31, 1998 and December 31, 1997, respectively (2,696,006) (2,216,541)
--------------- ---------------
Total stockholders' equity 226,527,053 223,622,336
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 1,051,166,187 $ 1,034,602,531
=============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues
Oil and gas sales $45,371,410 $36,024,176
Trading and transportation 16,324,016 28,839,618
Other gas revenues 1,869,223 1,095,602
Interest income and other 203,696 268,265
----------- -----------
Total revenues 63,768,345 66,227,661
----------- -----------
Expenses
Production taxes 2,997,951 2,806,254
Lease operating 7,145,546 6,430,212
Cost of trading and transportation 15,796,845 28,039,242
Depreciation, depletion and amortization 18,529,382 12,465,482
General and administrative 1,747,838 1,727,043
Interest 12,233,543 7,703,684
----------- -----------
Total expenses 58,451,105 59,171,917
----------- -----------
Income before Provision for Income Taxes 5,317,240 7,055,744
Provision for Income Taxes 2,025,868 2,688,238
----------- -----------
Net Income $ 3,291,372 $ 4,367,506
=========== ===========
Basic earnings per share $ 0.18 $ 0.26
=========== ===========
Diluted earnings per share $ 0.18 $ 0.25
=========== ===========
Weighted average number of common shares outstanding 18,472,000 17,017,000
=========== ===========
Weighted average number of common shares outstanding
assuming dilution 18,709,000 17,576,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
--------------------- Paid-In Retained Deferred ----------------------
Shares Amount Capital Earnings Compensation Shares Amount
--------------------- ------------ ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 10,948,680 $10,949 $ 97,717,908 $22,484,572 $ -- (75,077) $(1,039,303)
Purchase of treasury stock -- -- -- -- -- (113,817) (1,460,490)
Transfer of treasury stock to
401(k) Plan -- -- (53,961) -- -- 20,025 246,708
Issuance of common stock for
Tide West Merger 6,169,181 6,169 65,231,025 -- -- -- --
Exercise of options by issuance
of treasury stock, including
income tax benefit -- -- 48,606 -- -- 46,917 582,551
Issuance of restricted stock 10,000 10 171,290 -- (171,300) -- --
Net income -- -- -- 8,948,827 -- -- --
---------- ------- ------------ ----------- --------- -------- -----------
Balance, December 31, 1996 17,127,861 17,128 163,114,868 31,433,399 (171,300) (121,952) (1,670,534)
Purchase of treasury stock -- -- -- -- -- (101,247) (1,398,669)
Transfer of treasury stock to
401(k) Plan -- -- (68,011) -- -- 35,894 485,287
Issuance of common stock for
Amoco Acquisition 1,200,000 1,200 19,998,800 -- -- -- --
Exercise of options by issuance
of treasury stock, including
income tax benefit -- -- (34,355) -- -- 26,947 367,375
Issuance of restricted stock 2,500 3 44,997 -- (45,000) -- --
Amortization of deferred
compensation -- -- -- -- 72,000 -- --
Exercise of stock options 12,203 12 135,393 -- -- -- --
Exercise of warrants and options 311,981 312 (312) -- -- -- --
Net income -- -- -- 11,339,743 -- -- --
---------- ------- ------------ ----------- --------- -------- -----------
Balance, December 31, 1997 18,654,545 18,655 183,191,380 42,773,142 (144,300) (160,358) (2,216,541)
Purchase of treasury stock -- -- -- -- -- (112,338) (1,600,785)
Transfer of treasury stock
to 401(k) Plan -- -- 7,419 -- -- 39,046 541,568
Exercise of options by issuance
of treasury stock, including
income tax benefit -- -- (115,164) -- -- 41,799 579,752
Issuance of restricted stock 22,897 23 321,909 -- (321,932) -- --
Exercise of stock options 15,886 15 162,420 -- -- -- --
Amortization of deferred
compensation -- -- -- -- 38,120 -- --
Net income -- -- -- 3,291,372 -- -- --
---------- ------- ------------ ----------- --------- -------- -----------
Balance, March 31, 1998 (Unaudited) 18,693,328 $18,693 $183,567,964 $46,064,514 $(428,112) (191,851) $(2,696,006)
========== ======= ============ =========== ========= ======== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
HS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31,
------------------------------
1998 1997
------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 3,291,372 $ 4,367,506
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization 18,529,382 12,465,482
Amortization of deferred charges, debt issue costs
and deferred compensation 569,778 436,242
Transfer of treasury stock to the 401(k) Plan 548,987 --
Deferred income tax provision 1,890,219 2,604,746
Decrease (increase) in accounts and notes receivable (5,378,005) 12,400,115
Increase in accounts payable and accrued expenses 7,870,831 7,771,751
Increase (decrease) in deferred revenue, net (782,503) --
Other (713,116) (23,706)
------------ ------------
Net cash provided by operating activities 25,826,945 40,022,136
------------ ------------
Cash Flows from Investing Activities
Exploration, development and leasehold costs (29,661,101) (18,074,230)
Purchase of proved and unproved properties (3,075,316) --
Gas gathering and transportation facilities additions (16,697) (51,233)
Other property additions (178,309) (393,466)
Proceeds from the sale of oil and gas properties -- 5,500,000
Increase in property related payables 5,048,938 7,325,466
------------ ------------
Net cash used in investing activities (27,882,485) (5,693,463)
------------ ------------
Cash Flows from Financing Activities
Proceeds from debt 6,000,000 --
Repayments of debt (5,000,000) (35,000,000)
Debt and equity issuance costs -- (219,023)
Exercise of options 464,588 135,823
Purchase of treasury stock (1,600,785) (218,357)
Exercise of stock options 162,435 87,405
Minority interest, net 293,909 98,945
------------ ------------
Net cash provided by (used in) financing activities 320,147 (35,115,207)
------------ ------------
Decrease In Cash and Cash Equivalents (1,735,393) (786,534)
Cash and cash equivalents, beginning of the period 6,907,708 8,764,756
------------ ------------
Cash and cash equivalents, end of the period $ 5,172,315 $ 7,978,222
============ ============
Supplemental Cash Flow Disclosure
Interest paid, net of capitalized interest $ 5,915,129 $ 2,580,732
Cash paid for income taxes, net of reimbursements $ 583,819 $ 285,315
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE> 8
HS RESOURCES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
HS Resources, Inc., a Delaware corporation (the "Company" or "HSR") was
organized in January 1987. The Company, directly or through subsidiaries,
acquires, develops and exploits oil and gas properties. The Company, through its
wholly owned subsidiary HS Energy Services, Inc. ("HSES"), markets its own gas
production, markets gas owned by third parties and actively trades both physical
and financial positions in the gas commodities market. The interim financial
data are unaudited; however, all adjustments (which are of a normal and
recurring nature) have been made which are, in the opinion of management,
necessary for a fair statement of the financial position of the Company at March
31, 1998, and its results of operations and cash flows for the interim periods
presented. Because of various factors, results of operations for these periods
are not necessarily indicative of results to be expected for the full year. For
a more complete understanding of the Company's operations and financial position
these statements should be read in conjunction with audited financial statements
and notes thereto included in the Company's December 31, 1997 Annual Report on
Form 10-K previously filed with the Securities and Exchange Commission.
Note 2. Summary of Significant Accounting Policies
FINANCIAL INSTRUMENTS The Company engages in price and location risk management
activities for both hedging and trading purposes. Activities for hedging
purposes are entered into by the Company to manage its exposure to price and
location risks in the marketing of its oil and gas production and, in the case
of its marketing activities, third party gas. Gains and losses on hedging
positions are deferred and recognized in the period the underlying physical
transactions occur in "oil and gas sales" (for company-owned production) and
"trading and transportation revenues" (for third party gas). Activities for
trading purposes are accounted for using the mark-to-market method. Under this
method, changes in the market value of outstanding financial instruments are
recognized as a gain or loss in the period of change on a net basis in "trading
and transportation revenues." The market prices used to value these transactions
reflect management's best estimate considering various factors including closing
exchange and over-the-counter quotations, time value and volatility factors
underlying the commitments. The values are adjusted to reflect the potential
impact of liquidating the Company's position in an orderly manner over a
reasonable period of time under present market conditions.
EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings Per Share." This new statement provides
computation, presentation and disclosure requirements for earnings per share
("EPS"). The new standard was adopted by the Company for the fiscal year ended
1997 and all prior periods have been retroactively adjusted. The following table
presents a reconciliation of basic and diluted earnings per share calculations
(in thousands, except per share amounts):
8
<PAGE> 9
<TABLE>
<CAPTION>
For Three Months Ended March 31,
---------------------------------------------------------------
(Unaudited)
1998 1997
------------------------------- -----------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income applicable to
common shares $3,291 18,472 $ 0.18 $4,368 17,017 $ 0.26
Effect of Dilutive Securities
Equivalent common shares
from stock options -- 237 -- -- 559 --
------ ------ ------ ------ ------ ------
Diluted EPS
Net income applicable to
common shares $3,291 18,709 $ 0.18 $4,368 17,576 $ 0.25
====== ====== ====== ====== ====== ======
</TABLE>
Note 3. Pro forma Statements
The following table sets forth condensed unaudited pro forma operating results
of the Company for the three months ended March 31, 1998 and 1997. The condensed
pro forma operating results assume that the Amoco Acquisition had occurred on
January 1, 1997, instead of December 15, 1997. The condensed pro forma results
are not necessarily indicative of the results of operations had the acquisition
been consummated on January 1, 1997, and may not necessarily be indicative of
future performance. The March 31, 1998 amounts reflect the actual activity for
the three months then ended. All amounts are in thousands, except per share
amounts.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(Unaudited)
1998 1997
------- ---------
<S> <C> <C>
Revenues $63,768 $79,854
Net income $ 3,291 $ 5,726
Diluted earnings per share $ 0.18 $ 0.30
Weighted average number of
common shares outstanding
assuming dilution 18,709 18,776
</TABLE>
9
<PAGE> 10
Note 4. Summary of Guarantees on 9 1/4% and 9 7/8% Senior Subordinated Notes
In November 1996, the Company issued $150 million of its 9 1/4% senior
subordinated notes due in 2006. The Notes are general, unsecured obligations of
the Company, subordinated in right of payment to all existing and any future
senior indebtedness of the Company. The Notes rank pari passu with existing and
any future senior subordinated indebtedness and senior to any future
subordinated indebtedness of the Company. The Notes were fully and
unconditionally guaranteed, jointly and severally, on an unsecured, senior
subordinated basis by two of the Company's subsidiaries, Orion Acquisition, Inc.
("Orion") and HSRTW, Inc. (the "Subsidiary Guarantors"). Because of the issuance
of the guarantees in connection with the Notes due 2006, the Company was
required to and has issued similar guarantees from the Subsidiary Guarantors to
the trustee under that indenture for the Company's 9 7/8% senior subordinated
notes due 2003. Effective May 1, 1998, Orion was merged into HSR with HSR
remaining as the surviving corporation. As a result of this merger the foregoing
guarantees of Orion terminated on May 1, 1998.
Sections 13 and 15 (d) of the Securities Exchange Act of 1934 require
presentation of the following supplemental condensed consolidating financial
statements of the Subsidiary Guarantors. Separate complete financial statements
of the respective Subsidiary Guarantors are not material to investors. There are
no significant contractual restrictions on distributions from each of the
Subsidiary Guarantors to the Company.
Investments in subsidiaries are accounted for by the parent under the equity
method for purposes of the supplemental condensed consolidated financial
statement presentation. Under this method, investments are recorded at cost and
adjusted for the parent company's ownership share of the subsidiaries'
cumulative results of operations. In addition, investments increase in the
amount of contributions to subsidiaries and decrease in the amount of
distributions from subsidiaries. The elimination entries eliminate the equity
method investment in subsidiaries and equity in earnings of subsidiaries,
intercompany payables and receivables and other transactions between
subsidiaries including contributions and distributions.
10
<PAGE> 11
CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 1998
<TABLE>
<CAPTION>
ASSETS
Non-
Subsidiary Guarantors Guarantor Elimination
HSR HSRTW Orion Subsidiaries Entries Consolidated
-------------- ------------ ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 969,167 $ 340,662 $ -- $ 3,862,486 $ -- $ 5,172,315
Intercompany receivables 62,092,284 64,809,260 46,953,022 38,971,463 (212,826,029) --
Other current assets 21,651,729 6,821,074 4,713,540 21,540,583 (929,380) 53,797,546
-------------- ------------ ------------ ----------- ------------- --------------
Total current assets 84,713,180 71,970,996 51,666,562 64,374,532 (213,755,409) 58,969,861
-------------- ------------ ------------ ----------- ------------- --------------
Oil and gas properties, net 670,160,279 179,329,042 119,384,432 4,064,718 (395,711) 972,542,760
Gas gathering and transportation
facilities, net -- -- -- 4,484,140 -- 4,484,140
Deferred charges and other, net 9,489,780 -- 296,956 6,657 -- 9,793,393
Office and transportation equipment
and other property, net 3,131,560 1,119,925 -- 239,264 -- 4,490,749
Investments in subsidiaries and
other investments 345,084,018 7,390,545 -- 885,284 (352,474,563) 885,284
-------------- ------------ ------------ ----------- ------------- --------------
Total assets $1,112,578,817 $259,810,508 $171,347,950 $74,054,595 $(566,625,683) $1,051,166,187
============== ============ ============ =========== ============= ==============
LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Current liabilities $ 58,553,125 $ 6,487,632 $ 83,043 $11,269,349 $ (827,748) $ 75,565,401
Current portion of long-term debt 30,000 -- -- -- -- 30,000
Intercompany payables 150,733,958 5,520,750 37,543,719 19,027,602 (212,826,029) --
Long-term bank debt and other debt,
net of current portion 413,734,696 -- -- -- -- 413,734,696
9 7/8% senior subordinated notes,
due 2003 74,668,500 -- -- -- -- 74,668,500
9 1/4% senior subordinated notes,
due 2006 149,329,838 -- -- -- -- 149,329,838
Other noncurrent liabilities 20,738,240 -- -- -- -- 20,738,240
Deferred income taxes 18,263,407 62,995,288 2,693,924 8,735,636 -- 92,688,255
Minority interest -- -- -- 23,596 (2,139,392) (2,115,796)
Stockholders' equity and
partners' capital 226,527,053 184,806,838 131,027,264 34,998,412 (350,832,514) 226,527,053
-------------- ------------ ------------ ----------- ------------- --------------
Total liabilities,
stockholders' equity
and partners' capital $1,112,578,817 $259,810,508 $171,347,950 $74,054,595 $(566,625,683) $1,051,166,187
============== ============ ============ =========== ============= ==============
</TABLE>
11
<PAGE> 12
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantors Guarantor Elimination
HSR HSRTW Orion Subsidiaries Entries Consolidated
----------- ----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Oil and gas sales $20,098,893 $10,335,419 $2,733,142 $11,457,365 $ 746,591 $45,371,410
Trading and transportation -- -- -- 38,744,433 (22,420,417) 16,324,016
Other revenues 1,904,400 46,900 -- 99,431 22,188 2,072,919
----------- ----------- ---------- ----------- ------------ -----------
Total revenues 22,003,293 10,382,319 2,733,142 50,301,229 (21,651,638) 63,768,345
----------- ----------- ---------- ----------- ------------ -----------
Expenses
Production taxes and lease operating 4,542,451 1,556,797 939,316 3,104,933 -- 10,143,497
Cost of trading and transportation -- -- -- 37,448,483 (21,651,638) 15,796,845
Depreciation, depletion and amortization 8,889,678 2,853,690 1,348,934 5,437,080 -- 18,529,382
General and administrative 737,823 590,078 91,500 328,437 -- 1,747,838
Interest expense 11,308,723 897,181 11,454 16,185 -- 12,233,543
----------- ----------- ---------- ----------- ------------ -----------
Total expenses 25,478,675 5,897,746 2,391,204 46,335,118 (21,651,638) 58,451,105
----------- ----------- ---------- ----------- ------------ -----------
Income (loss) before provision for
income taxes (3,475,382) 4,484,573 341,938 3,966,111 -- 5,317,240
Provision (benefit) for income taxes (1,324,121) 1,763,447 130,279 1,456,263 -- 2,025,868
----------- ----------- ---------- ----------- ------------ -----------
(2,151,261) 2,721,126 211,659 2,509,848 -- 3,291,372
Equity in earnings of subsidiaries 4,703,408 739,225 -- -- (5,442,633) --
----------- ----------- ---------- ----------- ------------ -----------
Net income $ 2,552,147 $ 3,460,351 $ 211,659 $ 2,509,848 $ (5,442,633) $ 3,291,372
=========== =========== ========== =========== ============ ===========
</TABLE>
12
<PAGE> 13
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantors Guarantor Elimination
HSR HSRTW Orion Subsidiaries Entries Consolidated
----------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows provided by
operating activities $ 13,956,221 $ 1,207,317 $ 1,519,572 $ 8,404,610 $ 739,225 $ 25,826,945
------------ ------------ ------------ ------------ ----------- ------------
Cash flows from investing activities
Exploration, development and
leasehold costs (17,259,452) (3,198,069) (1,519,572) (7,684,008) -- (29,661,101)
Purchase of proved and
unproved properties (3,075,316) -- -- -- -- (3,075,316)
Contributions to subsidiaries -- (1,682,647) -- -- 1,682,647 --
Other 3,791,278 1,094,918 -- (32,264) -- 4,853,932
------------ ------------ ------------ ------------ ----------- ------------
Net cash (used in) provided by
investing activities (16,543,490) (3,785,798) (1,519,572) (7,716,272) 1,682,647 (27,882,485)
------------ ------------ ------------ ------------ ----------- ------------
Cash flows from financing activities
Proceeds from debt 6,000,000 -- -- -- -- 6,000,000
Repayments of debt (5,000,000) -- -- -- -- (5,000,000)
Contributions from equity holders -- -- -- 1,682,647 (1,682,647) --
Other (973,762) 2,759,962 -- (1,726,828) (739,225) (679,853)
------------ ------------ ------------ ------------ ----------- ------------
Net cash provided by (used in)
financing activities 26,238 2,759,962 -- (44,181) (2,421,872) 320,147
------------ ------------ ------------ ------------ ----------- ------------
Net increase (decrease) in cash and
cash equivalents (2,561,031) 181,481 -- 644,157 -- (1,735,393)
Cash and cash equivalents, beginning of
the year 3,530,198 159,181 -- 3,218,329 -- 6,907,708
------------ ------------ ------------ ------------ ----------- ------------
Cash and cash equivalents,
end of the period $ 969,167 $ 340,662 $ -- $ 3,862,486 $ -- $ 5,172,315
============ ============ ============ ============ =========== ============
</TABLE>
13
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL For the last several years the Company pursued a strategy that included
(i) building a substantial inventory of development, exploitation and
exploration projects, (ii) consolidating in its core geographic areas,
particularly the Denver-Julesburg ("D-J") Basin, (iii) diversifying its asset
base into multiple geographic and geologic regions of the United States, (iv)
capturing more of the value stream by marketing its production and (v)
maximizing its financial flexibility. The Company's success in accomplishing
these goals has positioned it for a period of significant growth in reserves,
production, and cash flow. Having achieved its historic goals, the Company has
now adopted a four part strategy involving Consolidation, Exploitation,
Exploration and Technology, which is discussed in detail in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
Through the 1997 acquisition of all of Amoco Production Company's D-J Basin
properties (the "Amoco Acquisition") and the 1996 acquisition of all of the D-J
Basin properties owned by Basin Exploration, Inc. (the "Basin Acquisition"), the
Company has expanded its D-J Basin asset base and significantly increased its
inventory of development, exploitation and exploration opportunities. As a
result of the 1996 merger (the "Merger") with Tide West Oil Company ("Tide
West"), and by establishing an active Gulf Coast exploration program, the
Company also has developed a substantial base of producing assets outside of the
D-J Basin.
Through the execution of its strategy, the Company now operates in four core
areas. Additionally, the Company's strategically important and profitable
presence in the gas marketing, trading and transportation business through its
subsidiary, HS Energy Services, Inc. ("HSES"), provides opportunities for the
Company to enhance its operating margins on production from each of its
producing areas.
The Amoco Acquisition presents the Company with new opportunities, challenges
and potential directions. That acquisition, in combination with the Company's
recent success in finding new D-J Basin reserve potential through scientific,
technical and operational advances, materially increases the number of low-risk,
high-return projects that the Company owns in the D-J Basin. Therefore, based on
its existing inventory of opportunities, the Company expects that the D-J Basin
will once again become dominant in the Company's strategy for growth. However,
as the Company pursues its D-J Basin growth opportunities it will also continue
to pursue development in its other core areas.
The Amoco Acquisition required the Company to borrow funds, which has increased
its leverage ratios significantly. As a result, although the Company has
executed a number of commodity price and interest rate hedge agreements designed
to moderate this risk, the current level of debt will increase interest expense
and make the Company more vulnerable to changes in interest rates and commodity
prices. The increased activities in the D-J Basin, however, have already begun
to reduce the Company's per unit production costs, as discussed below. For
various reasons, as discussed below in "Liquidity and Capital Resources", the
Company believes the current level of debt is acceptable, although it is
considering a wide range of future financing alternatives.
14
<PAGE> 15
OIL AND GAS PRICES The United States oil and gas industry is subject to large
variations in profitability due in part to fluctuating commodity prices and
related changes in rates of reinvestment by industry participants. In recent
years several factors had a positive effect on production economics in the
Company's core geographic areas. These include (i) relatively high wellhead
capacity utilization, (ii) increasing overall gas demand, (iii) deregulation of
distribution and marketing channels, particularly for D-J Basin and Rocky
Mountain production, and expansion of pipeline capacity to transport gas to
markets outside the Colorado Front Range and (iv) successful application of
advanced oil and gas exploration, drilling and production technologies. However,
uncertainty concerning the price of oil and gas remains a dominant and
unpredictable factor in the Company's profitability.
GAS PRICE CONSIDERATIONS Approximately 81% of the Company's proved producing
reserves consist of gas, of which 63% are located in the D-J Basin. The absolute
level and volatility of gas prices, particularly in the D-J Basin, have a
material impact on the Company. Historically, the price of D-J Basin gas (on a
Btu-equivalent basis) has been linked closely to the Colorado Interstate Gas
Company ("CIG") pipeline Rocky Mountain Index. More recently, however, as a
result of increased pipeline capacity in the D-J Basin, a transportation cost
advantage for deliveries into the Public Service Company of Colorado ("PSCO")
front range market, and seasonal fluctuations, during the low demand summer
months (generally April through October) the price for D-J Basin gas tends to
reflect the CIG Rocky Mountain Index, whereas during the high demand winter
periods (generally November through March) the price more closely tracks
Mid-Continent indices.
In recent months two proposals have been filed to build pipelines between the
Colorado Front Range market area and Wyoming. A subsidiary of K N Energy has
applied for authority to build a 250 MMcfd capacity pipeline, which proposal is
currently before the Federal Energy Regulatory Commission. PSCO and CIG, through
a jointly owned affiliate, have proposed a 270 MMcfd capacity line. As proposed,
the PSCO line would be operated as part of PSCO's local distribution system,
moving the city gate to PSCO's Chalk Bluffs measurement station near the Wyoming
border. If approved as proposed, this would eliminate some portion of the
advantage the Company currently has over Wyoming producers for direct sales in
the Colorado Front Range market. The PSCO application is currently before the
Colorado Public Utilities Commission. Approval of either or both of these
pipelines would increase the amount of Wyoming gas that could be transported to
the Colorado Front Range market, while also expanding the amount of gas that
could be exported from the D-J Basin to Mid-Continent and West Coast markets
through Wyoming pipeline interconnections. The Company has intervened in the K N
Energy application proceedings, although it has not yet formally taken a
position for or against the K N pipeline. The Company has recently withdrawn its
protest of the PSCO pipeline, having been satisfied that transportation services
out of the D-J Basin will remain competitive. The Company cannot predict whether
these pipeline applications will be approved, amended or denied, nor what would
be the ultimate effect on the price of the Company's D-J Basin gas if either or
both are approved.
Gas prices in the Mid-Continent are closely tied to established indices which
are influenced by national supply and demand factors. Average gas prices
received by the Company in the
15
<PAGE> 16
Mid-Continent generally fluctuate with changes in Mid-Continent posted prices,
which for the years 1993 through 1997 averaged $0.24 per MMbtu less than the
Henry Hub price. The average gas price received in the Mid-Continent since the
Merger in June 1996 through March 31, 1998, was $2.23 per Mcf, or $0.28 below
the Henry Hub price, before considering the effects of hedging.
OIL PRICE CONSIDERATIONS Oil prices are established in a highly liquid
international market. Average oil prices received by the Company in the D-J
Basin and Mid-Continent generally fluctuate with changes in the NYMEX West Texas
Intermediate crude oil closing prices. Weaknesses in the world oil demand
coupled with increasing supplies from the Middle East led to weak oil prices
over the recent winter months, reaching a four-year low before recovering
somewhat in the first quarter of 1998. The Company is unable to predict the
future trends in oil prices.
RESULTS OF OPERATIONS During the first quarter of 1998, the Company increased
its drilling and development activities to exploit the larger number of
development opportunities in the D-J Basin as a result of the Amoco Acquisition.
The Company also continued its exploitation and exploration activities in the
Mid-Continent and the Gulf Coast regions. At March 31, 1998, the Company owned
interests in more than 5,400 producing wells (of which it operated more than
3,300) compared to more than 3,560 wells (of which it operated more than 2,580)
at March 31, 1997. The Company's results of operations have been significantly
affected by the Amoco Acquisition, by its drilling program and by fluctuations
in oil and gas prices. Future results will be significantly affected by the
Company's exploration, exploitation and development activities.
The United States oil and gas industry is currently experiencing regional
shortages of drilling and completion equipment and skilled workers. This
shortage has resulted in higher costs for the Company's drilling and related
field activities, primarily in its Gulf Coast and Mid-Continent district
operations. The Company anticipates this shortage will continue for the
foreseeable future.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
OIL AND GAS REVENUES For the comparative periods, oil production increased from
559 MBbl to 691 MBbl and gas production increased from 9,971 MMcf to 14,225
MMcf, or 24% and 43%, respectively. Average realized oil prices decreased by 21%
from $21.34 to $16.96 per Bbl and average realized gas prices decreased by 2%
from $2.42 to $2.37 per Mcf. The production increases were primarily the result
of additional production from the properties acquired in the Amoco Acquisition
and the success of the Company's ongoing exploitation and development
activities. The net effect of these changes resulted in an increase in oil and
gas revenues from $36 million to $45.4 million, or 26%. For the three months
ended March 31, 1998 the Company also recognized $1.9 million in other gas
revenues from the sale of tax credits compared to $1.1 million for the
comparative 1997 period.
Through its wholly owned subsidiary HSES, the Company markets its own gas
production as well as that of third parties. A portion of this gas is sold
directly to end users, while other
16
<PAGE> 17
amounts are used as the equity-gas foundation for a physical trading business in
which gas volumes may be traded several times at different receipt and delivery
points in order to capture the greatest margin possible. Trading and
transportation net margins were $0.5 million at March 31, 1998, compared to $0.8
million at March 31, 1997.
INTEREST INCOME AND OTHER INCOME Interest and other income decreased by $64,569,
or 24%, for the three months ended March 31, 1998. This decrease was due to a
decrease in income recorded on the Company's interest in a limited partnership
as well as a decrease in other miscellaneous income.
PRODUCTION EXPENSES Lease operating expense ("LOE") increased by $0.7 million,
or 11%, due to an increase in the number of producing wells. On a per Boe basis,
LOE decreased from $2.90 to $2.33 for the comparative periods, which is
primarily the result of increased efficiencies in combining the assets acquired
in the Amoco Acquisition with the Company's previously existing asset base.
Production taxes increased by $0.2 million, or 7%, due to increased production
which was offset by decreased prices.
DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation, depletion and
amortization ("DD&A"), a non-cash expense, increased $6.1 million, or 49%, due
to an increase in production and an increase in the depletion rate. For the
quarter ended March 31, 1998, the Company had a weighted average depletion rate
of $5.89 per Boe compared to $5.41 per Boe for the quarter ended March 31, 1997.
The Company annually adjusts its DD&A rate based on year end engineering and, if
material changes in its reserves warrant, on an interim basis.
GENERAL AND ADMINISTRATIVE EXPENSE General and administrative ("G&A") expense
reflects costs incurred, net of administrative costs directly attributable to
drilling and well operations (which costs are included in LOE or are
capitalized). G&A expenses increased by a modest $20,795, or 1%. On a per Boe
basis, G&A expenses decreased from $0.78 to $0.57 for the comparative periods
due to efficiencies gained from consolidating the Amoco properties and the
timing of hiring additional personnel to service these properties. The Company
anticipates an increase in G&A expenses during 1998; however, G&A per BOE rates
should remain constant or be slightly lower than in 1997.
INTEREST EXPENSE Interest expense increased $4.5 million, or 59%, due to the
overall increase in long-term debt attributable to amounts borrowed in December
1997 to fund the Amoco Acquisition.
PROVISION FOR INCOME TAXES The Company follows the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109. Pursuant to SFAS 109, the
Company has recorded a tax provision based on tax rates in effect during the
period. Accordingly, the Company accrued taxes at the rate of 38.1% in 1998 and
1997. Due to significant intangible drilling costs, which are deductible for
income tax purposes, substantially all of the Company's tax provision in both
periods is deferred.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Financing Sources
At March 31, 1998, the Company's overall debt level was significantly higher
than as of March 31, 1997 as a result of borrowings used to fund the Amoco
Acquisition. The Company believes that its current level of debt and leverage is
acceptable at present under current production and pricing levels, although the
Company may elect to reduce or refinance such debt levels at any time. The
Company's debt is supported by stable, long-lived reserves and by the Company's
hedging programs, with short-term product prices hedged at favorable prices.
Cash flow from producing activities is sufficient to enable the Company to
service its debt for the forseeable future, absent any major and prolonged
period of price declines. The Company has a large number of low-risk,
potentially high-return exploitation projects which should enhance production
and cash flow per share. In light of this view, and as part of an overall
financing strategy, the Company is considering a wide range of future financing
alternatives and is not committed to any particular course.
In undertaking any future financing transactions, the Company will seek to
achieve the optimal capital structure needed to support its long-term strategic
objectives. Any such financings will reflect market conditions at the time and
may include the issuance of medium or long-term debt, equity, or equity-linked
securities. In addition to or perhaps in lieu of the issuance of such
securities, to optimize its capital structure the Company may sell or monetize
certain properties, which would also minimize the equity dilution which would
otherwise result from the issuance of additional equity securities. Depending on
the nature and size of such property sales, the Company's production could
become more concentrated in one or more of its existing producing regions.
Because of its increased leverage, the Company currently plans to fund capital
expenditures attributable to exploration, exploitation and development
activities primarily out of its expected cash flow from operations. Accordingly,
the level and volatility of oil and gas prices may be expected to affect the
Company's capital expenditure activities.
On December 15, 1997, as a result of the Amoco Acquisition, the Company's
revolving senior bank credit facility with The Chase Manhattan Bank, as Agent
(the "Chase Facility"), was amended to increase the maximum credit amount and
the borrowing base to $450 million and to revise the interest rate payable
thereunder to the Base Rate plus 0% to 0.625% or LIBOR plus 0.75% to 1.625%.
Under the terms of the Chase Facility, no principal payments are required until
December 15, 2002, assuming the Company maintains a borrowing base sufficient to
support the outstanding loan balance. As of March 31, 1998, $413 million was
outstanding under the Chase Facility. The facility consists of a borrowing base
(currently $450 million) and a threshold amount (currently $400 million --
representing what a fully conforming loan borrowing base would be). The
borrowing base is based on the underlying value of the Company's oil and gas
properties. The borrowing base will remain $450 million until September 15,
1998, at which point it may be redetermined. Until that time, if the Company
issues equity or debt securities, or sells or otherwise disposes of properties,
net proceeds of such transactions must be applied to the repayment of debt under
the facility. The outstanding amounts under the facility must be reduced to or
below the threshold amount by September 15, 1998.
18
<PAGE> 19
In November 1996, in a private offering exempt from securities registration, the
Company issued $150 million of its 9 1/4% senior subordinated notes due in 2006
(the "Notes"). The offering of the Notes was undertaken in order to replace with
fixed rate term debt a portion of the Company's outstanding indebtedness under
the Chase Facility. On April 25, 1997, the Company exchanged $150 million of new
notes registered under the Securities Act of 1933 (the "New Notes") for the
Notes. The material terms of the New Notes are identical to those of the Notes.
The Company also maintains its arrangement with a Trust Company of the
West-related entity covering a $90 million non-recourse, volumetric overriding
royalty facility (the "TCW Facility") of which approximately $80 million is
available. Proceeds from the TCW Facility may be used by the Company at its
discretion for a variety of corporate purposes, including acquisitions of new
properties, exploration and development drilling and monetization of existing
properties.
The Company anticipates that its available borrowing capacity under the Chase
Facility, combined with its operating cash flow and the TCW Facility, will
provide it with financial resources and flexibility to fund current and ongoing
development activities, to service its debt and to meet other financial
obligations. The nature of the Company's current development strategies and
other activities provide the Company with considerable flexibility in terms of
the timing and magnitude of its capital expenditures. If the Company experiences
unforeseen changes in its working capital position or capital resources,
management may revise the capital expenditure program accordingly or
alternatively may supplement the capital position of the Company through, among
other things, the issuance of additional equity, equity-linked or debt
securities, the sale or monetization of properties or by entering into joint
venture arrangements.
Capital Commitments
The Company continuously evaluates its inventory of drilling opportunities to
develop a growth-oriented portfolio of risk-balanced development, exploitation
and exploration opportunities. On an ongoing basis, the Company adjusts the
amount and allocation of its capital program based on a number of factors,
including seismic results, prospect readiness, product prices, service company
availability and rates, acquisitions and capital position. For the three months
ended March 31, 1998, the Company incurred total exploration, development and
leasehold capital expenditures of $29.7 million. The Company estimates that
capital expenditures for 1998 will be approximately $90-$100 million, which will
be allocated in varying amounts primarily to activities in the Company's four
core geographic areas: the D-J Basin, the Northern Rocky Mountains, the Anadarko
and Arkoma Basins of the Mid-Continent and the onshore Gulf Coast region.
A major component of the Company's capital expenditure program relates to its
development activities in the D-J Basin. The Company incurred approximately
$19.8 million in capital expenditures in the three months ended March 31, 1998
for drilling, recompleting and refracing the Company's D-J Basin properties, and
anticipates allocating $60-$75 million in the D-J Basin for all of 1998.
19
<PAGE> 20
Another component of the Company's capital expenditure program is to develop
exploitation and exploration prospects in the Mid-Continent and the onshore
portion of the Gulf Coast. For the three months ended March 31, 1998 the Company
incurred total capital expenditures for seismic, leasehold, overhead costs and
drilling of $3.4 million in the Mid-Continent and $3.3 million in the Gulf
Coast, including approximately $1.3 million of expenditures under its SouthTech
joint venture and $2.0 million on its other Gulf Coast projects. The Company
anticipates allocating $10-$15 million to the Mid-Continent projects and $15-$20
million to the Gulf Coast projects for all of 1998.
Activities in the Company's Northern Rockies area are designed to utilize the
Company's extensive acreage position as a vehicle for generating capital
expenditures by third party operators on HSR's acreage. For the three months
ended March 31, 1998 approximately $4.0 million was spent or committed to by
others to test plays and concepts on HSR's acreage, with HSR retaining
significant positions for exploiting successful discoveries.
The Company has also entered into a number of other standard industry
arrangements that require the drilling of wells or other activities. The Company
believes that it will meet its obligations under these arrangements, which
individually and in the aggregate are not material.
Working Capital and Cash Flow
Net cash provided by operating activities for the three months ended March 31,
1998, was $25.8 million, down from $40 million for the same period in 1997. This
decrease is primarily due to changes in accounts receivable. March 31, 1998
receivable balances increased from December 31, 1997 due to production increases
which were partially offset by price declines. For the prior year comparable
periods, receivable balances decreased substantially due to a significant
decrease in oil and gas prices. Future cash flows will be influenced by, among
other factors, the number of producing wells on line, product prices and
production constraints.
Risk Management
The Company uses financial instruments to reduce its exposure to market
fluctuations in the price and transportation cost of oil and gas. The Company's
general strategy is to hedge price and location risk with swap, collar, floor
and ceiling arrangements. In order to minimize risk, to the maximum extent
possible, the Company hedges its production back to the wellhead. In addition to
hedging activities, the Company is engaged in using the financial markets to
capture trading margins. The Company has established policies with respect to
open positions which limit its exposure to market risk and requires daily
reporting to management of the potential financial exposure resulting from both
hedging and trading activities.
Hedging Activities
Activities for hedging purposes are entered into by the Company to manage its
exposure to price and location risks in the marketing of its oil and gas
production and, in the case of its marketing activities, third party gas. Gains
and losses on hedging positions are recognized in the period
20
<PAGE> 21
during which the underlying physical transactions occur and are booked in "oil
and gas sales" (for company-owned production) and "trading and transportation
revenues" (for third party gas).
The Company's general strategy is to hedge price and location risk with swap,
collar, floor and ceiling arrangements. As a part of its risk management
program, the Company generally enters into hedges for delivery into one of the
two pipelines located near its producing regions, Panhandle Eastern Pipeline
Company ("PEPL") or CIG, or at the New York Mercantile Exchange ("NYMEX") prices
settled at the Henry Hub. With respect to the NYMEX-hedged volumes that exceed
the Company's Gulf Coast volumes, the Company usually hedges basis to its
producing regions. Currently, the Company holds hedge swap positions as follows:
<TABLE>
<CAPTION>
Average Daily
Volume Settlement Price
Time Period (MMBtu) Location (per MMBtu)
---------------------- ------------- ---------- -----------
<S> <C> <C> <C>
April-October 1998 59,300 CIG $1.77
------------------ 20,000 PEPL $2.03
1,000 NYMEX $2.21
</TABLE>
The Company has hedged approximately 15% of its expected 1998 oil production at
$19.28 per Bbl. Additionally, with respect to the hedging of third party gas,
the Company has hedged 12.5 Bcf through November 1998 with offsetting physical
positions at settlement prices which are based upon NYMEX future prices or other
published indices.
21
<PAGE> 22
Trading Activities
The Company engages in the trading of various energy related financial
instruments which require payments to (or receipt of payments from)
counterparties based on the differential between a fixed and a variable price
for the commodity, swap or other contractual arrangement. Activities for trading
purposes are accounted for using the mark-to-market method. Under this method,
changes in the market value of outstanding financial instruments are recognized
in "trading and transportation revenues" as a net gain or loss in the period of
change. The market prices used to value these transactions reflect management's
best estimate considering various factors, including closing exchange and
over-the-counter quotations, time value and volatility factors underlying the
commitments. The values are adjusted to reflect the potential impact of
liquidating the Company's position in an orderly manner over a reasonable period
of time under present market conditions.
Company policy requires that, within defined trading limits, financial
instrument purchase and sales contracts be balanced in terms of contract volumes
and the timing of performance and delivery obligations. As of March 31, 1998,
all material open positions were balanced with an offsetting position. During
the first quarter of 1998, gains of $164,635 were recognized in connection with
these activities and are included in "trading and transportation revenues."
Credit Risk
While notional amounts are used to express the volume of various derivative
financial instruments, the amounts potentially subject to credit risk in the
event of nonperformance by the third parties are substantially smaller.
Counterparties to the swap, collar, floor and ceiling arrangements discussed
above are investment grade financial institutions. Accordingly, the Company does
not anticipate any material impact to its financial position or results of
operations as a result of nonperformance by the third parties to financial
instruments related to hedging activities or trading activities.
Interest Rate Swaps
During the second quarter of 1995, the Company entered into an interest rate
exchange agreement with a financial institution to hedge its interest rate on
$40 million of the Company's borrowings at 7.76% through May 2002. Under the
terms of the agreement, the difference between the Company's fixed rate of 7.76%
and the three month LIBOR rate plus 1.125% is received or paid by the Company.
The Company, through the Merger, assumed interest rate exchange agreements with
two financial institutions to hedge its interest rates on a total of $40 million
of the Company's borrowings at rates ranging from 6.16% to 7.32% through 1999.
Under the terms of these agreements, the difference between the Company's fixed
rate and the three month LIBOR rate is received or paid by the Company.
22
<PAGE> 23
Contingencies
In May 1995, the Company was named as a respondent by the United States
Environmental Protection Agency (the "EPA") in an administrative order brought
under the Resource Conservation and Recovery Act ("RCRA") by the EPA against the
owner/operator of an oilfield production water evaporation facility. Based on
its evaluation of the above matters, and after consideration of reserves
established, the Company believes the resolution of such matters will not have a
material adverse effect on the Company's financial condition or results of
operations. See Part II. Other Information, Item 1. Legal Proceedings -
Environmental Proceedings.
Year 2000
The Company utilizes internal software and purchased software to conduct its
business. In 1997, the Company completed a review of all of its software to
determine the extent of the work needed to ensure Year 2000 compliance. As a
result of the review it was determined that the Company's internally developed
software required only minor modifications which will be completed and tested by
December 1998. With respect to the purchased software utilized by the Company,
the majority of the Year 2000 compliance work has already been completed. While
there may be some expenses incurred during the next two years, the Company
believes that these costs will not be material to its results of operations.
23
<PAGE> 24
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This 10-Q Report includes statements that are not purely historical and are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding the Company's expectations, hopes, beliefs,
intentions or strategies regarding the future. All statements other than
statements of historical facts included in this 10-Q Report, including without
limitation, statements under "Legal Proceedings and Environmental Issues,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the "Notes to Consolidated Financial Statements" regarding
reserves and their values, planned capital expenditures, increases in oil and
gas production, trends or expectations concerning oil and gas prices or market
characteristics, the number of and risk and return associated with exploitation
projects, and expected increases in production and cash flow therefrom,
marketing and trading risks, and the Company's financial position, stability of
cash flow, debt service capabilities, capital availability, debt repayment
plans, divestiture plans, business strategy and other plans and objectives for
future operations, potential liabilities or the expected absence thereof, the
potential materiality of year 2000 compliance expenses, and the potential
outcome of environmental matters, litigation or other proceedings, are
forward-looking statements. All forward-looking statements included or
incorporated by reference in this 10-Q Report are based on information available
to the Company on the date hereof, and the Company assumes no obligation to
update such forward-looking statements. Although the Company believes that the
assumptions and expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct or that the Company will take any actions that may presently be
planned.
There are numerous uncertainties inherent in estimating quantities of proved oil
and gas reserves and projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Many factors may affect the Company's expectations and plans. Capital
expenditure and financing plans may change in connection with the success of
drilling activities, the general availability of capital, interest rates, and
cash flow available from operations. Cash flow available from operations may
change depending on costs of materials and services, regulatory burdens and
commodity prices. Oil and gas prices are volatile, and there are several
potentially significant adverse effects to the Company which can result if
product prices decline materially. First, lower product prices will adversely
affect the Company's cash flow and could cause the Company to (i) curtail its
capital program, (ii) borrow additional amounts under its revolving credit
agreement, or (iii) issue additional debt or equity securities. Second, lower
product prices could cause the borrowing base under the Company's bank credit
agreement to be reduced and certain covenant tests to be adversely affected.
Third, under rules promulgated by the Securities and Exchange Commission,
companies that follow the full cost accounting method are required to make
quarterly "ceiling test" calculations. Lower product prices adversely impact the
ceiling calculation. Should the Company realize sustained lower product prices,
it could be required to write down its oil and gas properties resulting in a
non-cash charge against earnings.
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<PAGE> 25
Certain additional important factors that could cause actual results to differ
materially from the Company's forward-looking statements are disclosed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this 10-Q Report and in the Company's 8-K Report
filed February 26, 1997. All subsequent written or oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the factors mentioned above or in such
other sections of this 10-Q Report.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS AND ENVIRONMENTAL ISSUES
Litigation. The Company is subject to minor lawsuits incidental to operations in
the oil and gas industry. The Company believes it has meritorious defenses to
all lawsuits in which it is a defendant and will vigorously defend against them.
The resolution of such lawsuits, regardless of the outcome, will not have a
material adverse effect on the Company's results of operations or financial
position.
Environmental Proceedings. The owner of an oil field waste disposal facility, a
major oil company and the Company were named as respondents by the United States
Environmental Protection Agency ("EPA") in an administrative order brought by
the EPA against Weld County Waste Disposal, Inc. ("WCWDI") under section 7003 of
the Resource Conservation and Recovery Act ("RCRA") on May 11, 1995. WCWDI
operated and continues to own an evaporation pit in Colorado for the disposal of
non-hazardous production wastes. The EPA order requires that work be performed
to abate a perceived endangerment to wildlife, the environment or public
welfare. The Company and other non-operator respondents are working together
with the EPA to develop plans and characterization studies, and have caused the
facility to be permanently closed.
The Company has utilized this facility in past years to dispose of its
production and flowback water. During the period of its use, the Company
believed that the facility was operating in compliance with all applicable legal
requirements and, along with other oil and gas operators, paid a fee to WCWDI
for using this disposal facility. There were a number of other significant
contributors to the facility during the period reviewed by the EPA (1988 through
1994) and additional contributors during the period from 1977, when it was
constructed, through 1988. The Company and the major oil company were named
because they were deemed the major contributors of waste volumes to the facility
for the period reviewed by the EPA. Certain other contributors are participating
in their share of the reclamation costs.
Based on the Company's current knowledge and its expectation of proportionate
reimbursement from other parties who utilized the facility, the Company does not
believe that its share of the reclamation costs will have a material impact on
its financial condition or results of operations. By agreement with other
contributing parties, the Company is currently paying approximately 50% of the
costs associated with the project, but after recovery from additional liable
parties, the
25
<PAGE> 26
Company's percentage share of overall costs may be reduced to as low as 40%. The
Company has spent approximately $930,000 on its behalf from inception through
the end of the first quarter of 1998 on the project. The Company's share of
total costs associated with the project, at the 50% level of participation, are
currently estimated to range from $1 to $2 million over three years. The full
amount of the Company's estimated liability is reflected in the March 31, 1998,
financial statements.
Recent data regarding site conditions indicate a potentially more significant
contamination problem in one portion of the site which is the apparent result of
disposal of non-oil field wastes by third parties a number of years prior to the
Company's involvement as an oil field waste disposal customer of this facility.
This recent data gives rise to both the possibility of a defense of
non-liability for the divisible harm caused by wastes of third parties and
greater uncertainty regarding the total costs of study and clean-up for which
the Company is potentially liable. For these reasons, the Company is not able at
this time to determine its probable share, if any, of future response costs for
these non-oil field wastes.
Item 2. Changes in Securities None.
Item 3. Defaults Upon Senior Securities None.
Item 4. Submission of Matters to a Vote of Security Holders None.
Item 5. Other Information None.
26
<PAGE> 27
Item 6. Exhibits and Reports on Form 8-K
a. List of Exhibits.
Exhibit
Number Description of Exhibits
- ------ -----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company.
(Incorporated herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, No. 33-52774, filed October 2,
1992.)
3.2 Third Amended and Restated Bylaws of the Company adopted December 16,
1996. (Incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-4, No 333-19433, filed January 8,
1997.)
4.1 Form of Indenture dated December 1, 1993, entered into between the
Company and the Trustee. (Incorporated by reference to Exhibit 4.7 to
Amendment No. 3 to the Company's Registration Statement on Form S-3,
No. 33-70354, filed November 23, 1993.)
4.2 Indenture dated November 27, 1996, among the Company, Orion
Acquisition, Inc., HSRTW, Inc., and Harris Trust and Savings Bank as
Trustee. (Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-4, No 333-19433, filed January 8,
1997.)
4.3 First Supplemental Indenture dated November 25, 1996 among the
Company, Orion Acquisition, Inc., HSRTW, Inc., and Harris Trust and
Savings Bank as Trustee. (Incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-4, No 333-19433, filed
January 8, 1997.)
10.1 Common Stock Purchase Warrant dated July 12, 1990 by the Company to
James E. Duffy. (Incorporated by reference to Exhibit 10.5 to the Form
8, Second Amendment to Form 10, filed April 8, 1991.)
10.2 HS Resources, Inc. Rule 701 Compensatory Benefit Plan. (Incorporated
by reference to Exhibit 10.5.2 to the Form 8, Second Amendment to Form
10, filed April 8, 1991.)
10.3 1992 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 10.10 to Amendment No. 1 to the Company's Registration
Statement on Form S-1, No. 33-52774, filed November 9, 1992.)
10.3.1 1993 Directors' Stock Option Plan. (Incorporated by reference to
Exhibit 10.8.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, filed March 31, 1994 (as amended
by Form 10-K/A-1 on April 8, 1994.))
10.4 Form of Indemnification Agreement for Directors of the Company.
(Incorporated by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, filed
March 25, 1996.)
10.5 Lease Agreement dated October 6, 1993, between the Company and JMB
Group Trust IV and Endowment and Foundation Realty, Ltd. -- JMB III
for the premises at One Maritime Plaza, San Francisco, California.
(Incorporated by reference to Exhibit 10.13 to the
27
<PAGE> 28
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, filed March 31, 1994 (as amended by Form 10-K/A-1
on April 8, 1994.))
10.6 Lease Agreement dated March 28, 1994, between the Company and 1999
Broadway Partnership for the premises at 1999 Broadway, Denver,
Colorado. (Incorporated by reference to Exhibit 10.15 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994,
filed August 12, 1994.)
10.7 Interest Exchange Agreement between The Chase Manhattan Bank, N.A. and
the Company dated May 9, 1995. (Incorporated by reference to Exhibit
10.19 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed August 14, 1995.)
10.8 Amended and Restated Agreement and Plan of Merger, dated as of April
29, 1996, among the Company, HSR Acquisition, Inc. and Tide West Oil
Co. (Incorporated by reference as Annex A to Amendment No. 2 to the
Company's Registration Statement on Form S-4, No. 333-01991, filed on
May 2, 1996.)
10.9 Agreement for Purchase and Sale of Assets, dated as of February 24,
1996, among the Company, Basin Exploration, Inc. ("Basin") and Orion
Acquisition, Inc. ("Orion"). (Incorporated by reference to Exhibit 2.3
to the Company's Form 8-K, filed March 12, 1996.)
10.10 Agreement for Purchase and Sale of Assets [Wattenberg], dated as of
February 24, 1996, among the Company, Orion and Basin. (Incorporated
by reference to Exhibit A to the Company's Schedule 13D relating to
Basin Exploration, Inc., filed on March 6, 1996.)
10.11 Purchase and Sale Agreement, dated December 1, 1995, between the
Company and Wattenberg Gas Investments, LLC. (Incorporated by
reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, filed March 25, 1996.)
10.12 Rights Agreement, dated as of February 28, 1996, between the Company
and Harris Trust Company of California as Rights Agent. (Incorporated
by reference to Exhibit 1 to the Company's Form 8-A, filed March 11,
1996.)
10.13 Purchase and Sale Agreement dated March 25, 1996, between Orion, the
Company and Wattenberg Resources Land, L.L.C. (Incorporated by
reference to Exhibit 10.28 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, filed May 15, 1996.)
10.14 Amended and Restated Credit Agreement dated as of June 14, 1996, among
the Company, Chase as agent, and the Banks signatory thereto.
(Incorporated by reference to Exhibit 10.21 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, filed August
14, 1996.)
10.15 First Amendment to Amended and Restated Credit Agreement dated as of
June 17, 1996, by and among the Company and Chase in its individual
capacity and as agent for the Lenders. (Incorporated by reference to
Exhibit 10.22 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed August 14, 1996.)
10.16 Second Amendment to Amended and Restated Credit Agreement dated as of
November 27, 1996 among the Company and Chase in its individual
capacity and as agent for the
28
<PAGE> 29
Lenders. (Incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-4, No 333-19433, filed January 8,
1997.)
10.17 Guaranty Agreement by HSR Acquisition, Inc. in favor of Chase, as
Agent, dated June 14, 1996. (Incorporated by reference to Exhibit
10.24 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed August 14, 1996.)
10.18 First Amendment to Guaranty Agreement dated as of June 17, 1996, by
and among HSRTW, Inc. (formerly HSR Acquisition, Inc.) and Chase, in
its individual capacity and as agent for the Lenders. (Incorporated by
reference to Exhibit 10.27 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, filed August 14, 1996.)
10.19 Purchase and Sale Agreement between the Company and Wattenberg Gas
Investments, LLC dated April 25, 1996. (Incorporated by reference to
Exhibit 10.32 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed August 14, 1996.)
10.20 Purchase and Sale Agreement between Wattenberg Resources Land L.L.C.
and Wattenberg Gas Investments, LLC dated May 21, 1996. (Incorporated
by reference to Exhibit 10.33 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed August 14, 1996.)
10.21 Purchase and Sale Agreement between Orion and Wattenberg Gas
Investments, LLC dated June 14, 1996. (Incorporated by reference to
Exhibit 10.34 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed August 14, 1996.)
10.22 Purchase and Sale Agreement between Wattenberg Resources Land L.L.C.
and Wattenberg Gas Investments, LLC dated June 14, 1996. (Incorporated
by reference to Exhibit 10.35 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed August 14, 1996.)
10.23 Purchase and Sale Agreement between Orion and Wattenberg Gas
Investments, LLC dated June 14, 1996. (Incorporated by reference to
Exhibit 10.36 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed August 14, 1996.)
10.24 Purchase and Sale Agreement between the Company and Wattenberg Gas
Investments, LLC dated June 28, 1996. (Incorporated by reference to
Exhibit 10.37 to the Company's
29
<PAGE> 30
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
filed August 14, 1996.)
10.25 Purchase and Sale Agreement between HSRTW, Inc. and WestTide
Investments, LLC dated August 9, 1996. (Incorporated by reference to
Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, filed November 7, 1996.)
10.26 Acquisition Agreement between the Company and TCW Portfolio No. 1555
DR V Sub-Custody Partnership, L.P. dated August 30, 1996.
(Incorporated by reference to Exhibit 10.38 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, filed
November 7, 1996.)
10.27 Purchase Agreement dated November 27, 1996, among the Company, Orion,
HSRTW, Inc., Salomon Brothers Inc., Chase Securities Inc., Lehman
Brothers Inc., and Prudential Securities Incorporated. (Incorporated
by reference to Exhibit 10.40 to the Company's Registration Statement
on Form S-4, No 333-19433, filed January 8, 1997.)
10.28 Registration Agreement dated November 27, 1996, among the Company,
Orion, HSRTW, Inc. and Salomon Brothers Inc. in its individual
capacity and as agent for Chase Securities Inc., Lehman Brothers Inc.,
and Prudential Securities Incorporated. (Incorporated by reference to
Exhibit 10.41 to the Company's Registration Statement on Form S-4, No
333-19433, filed January 8, 1997.)
10.29 Purchase and Sale Agreement dated June 30, 1997 among HSRTW, Inc. and
Horizon Gas Partners, L.P. as Seller and Gothic Energy Corporation as
Buyer. (Incorporated by reference to Exhibit 10.43 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
filed August 14, 1997.)
10.30 Amended Purchase and Sale Agreement dated as of July 16, 1997, among
HSRTW, Inc. and Horizon Gas Partners, L.P. as Seller and Gothic Energy
Corporation as Buyer. (Incorporated by reference to Exhibit 10.44 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, filed August 14, 1997.)
10.31 1997 Performance and Equity Incentive Plan. (Incorporated by reference
to Exhibit A to the Company's Definitive Proxy Statement for its
Annual Meeting of Stockholders held on May 22, 1997, filed April 24,
1997.)
10.32 Purchase and Sale Agreement between the Company and Amoco Production
Company dated November 25, 1997. (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K, filed December 23,
1997.)
10.33 Side Letter Agreement between the Company and Amoco Production Company
dated November 25, 1997. (Incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K, filed December 23, 1997.)
30
<PAGE> 31
10.34 Closing Side Agreement between the Company and Amoco Production
Company dated December 15, 1997. (Incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K, filed December 23,
1997.)
10.35 Third Amendment to Amended and Restated Credit Agreement dated as of
December 15, 1997, among the Company and The Chase Manhattan Bank as
agent for the Lenders signatory thereto. (Incorporated by reference to
Exhibit 10.4 to the Company's Current Report on Form 8-K, filed
December 23, 1997.)
10.36 Purchase and Sale Agreement dated December 15, 1997, by and between HS
Resources, Inc. as Seller and WestTide Investments, LLC as Buyer.
(Incorporated by reference to Exhibit 10.46 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, filed
March 31, 1998.)
10.37* Fifth Amendment and Supplement to Amended, Restated and Consolidated
Mortgage, Assignment of Production, Security Agreement and Financing
Statement between HS Resources (Mortgagor) and The Chase Manhattan
Bank, as agent for the Lenders, effective as of December 15, 1997
10.38* Agreement and Plan of Merger between Orion Acquisition, Inc. and HS
Resources, Inc. dated April 20, 1998, but effective May 1, 1998.
10.39* First Amendment to Agreement of Lease between 1999 Broadway
Partnership (Landlord) and HS Resources, Inc. (Tenant), dated March
21, 1997.
10.40* HS Resources, Inc. Form of Key Employee Severance Agreement
(March 27, 1998).
27* Financial Data Schedule
* Filed herewith
- -------------------------------------
b. Reports on Form 8-K. None
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, HS
Resources, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HS RESOURCES, INC.
Dated: May 14, 1998 By: /s/JAMES E. DUFFY
-----------------------------
James E. Duffy
Vice President and
Chief Financial Officer
By: /s/ ANNETTE MONTOYA
-----------------------------
Annette Montoya
Vice President and
Principal Accounting Officer
32
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- --------------
<S> <C>
10.37* Fifth Amendment and Supplement to Amended, Restated and Consolidated
Mortgage, Assignment of Production, Security Agreement and Financing
Statement between HS Resources (Mortgagor) and The Chase Manhattan
Bank, as agent for the Lenders, effective as of December 15, 1997
10.38* Agreement and Plan of Merger between Orion Acquisition, Inc. and HS
Resources, Inc. dated April 20, 1998, but effective May 1, 1998.
10.39* First Amendment to Agreement of Lease between 1999 Broadway
Partnership (Landlord) and HS Resources, Inc. (Tenant), dated March
21, 1997.
10.40* HS Resources, Inc. Form of Key Employee Severance Agreement
(March 27, 1998).
27* Financial Data Schedule
</TABLE>
33
<PAGE> 1
EXHIBIT 10.37
FIFTH AMENDMENT AND SUPPLEMENT TO
AMENDED, RESTATED AND CONSOLIDATED MORTGAGE, ASSIGNMENT
OF PRODUCTION. SECURITY AGREEMENT AND FINANCING STATEMENT
THIS FIFTH AMENDMENT AND SUPPLEMENT TO AMENDED, RESTATED AND CONSOLIDATED
MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT
(this "AMENDMENT") is entered into as of the effective time and date hereinafter
stated (the "EFFECTIVE DATE") by and between HS RESOURCES, INC., a Delaware
corporation with an address for notice hereunder of One Maritime Plaza, 15th
Floor, San Francisco, California 94111 ("MORTGAGOR") and THE CHASE MANHATTAN
BANK (formerly known as The Chase Manhattan Bank, N.A.), a state banking
association with of offices and banking quarters at 270 Park Avenue, New York,
New York 10017, as agent for the lenders which are or become parties to the
Credit Agreement referred to below (collectively called the "LENDERS") (in such
capacity as agent, together with its successors in such capacity, the
"MORTGAGEE").
R E C I T A L S
A. Mortgagor, the Agent and certain lenders entered into a Credit Agreement
dated as of July 15, 1994 (as amended, the "1994 CREDIT AGREEMENT") which
amended and restated that certain Credit Agreement dated as of March 11, 1993,
as amended.
B. The 1994 Credit Agreement was secured by, among other things, that
certain Amended, Restated and Consolidated Mortgage, Assignment of Production,
Security Agreement and Financing Statement dated March 11, 1993 from Mortgagor
to the Mortgagee, duly recorded on March 12, 1993 in Book 1373, Film 1766 of the
Real Estate Records of Weld County, Colorado with Reception No. 02324792, as
amended by First Amendment to Amended, Restated and Consolidated Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated May
19, 1993 and duly recorded on August 30, 1993 in Book 1399, Film 1243 of the
Real Estate Records of Weld County, Colorado with Reception No. 02348251, Second
Amendment to Amended, Restated and Consolidated Mortgage, Assignment of
Production, Security Agreement and Financing Statement dated December 10, 1993
and duly recorded on December 20, 1993 in Book 1417, Film 1622 of the Real
Estate Records of Weld County, Colorado with Reception No. 02364884 and Third
Amendment to Amended, Restated and Consolidated Mortgage, Assignment of
Production, Security Agreement and Financing Statement dated as of July 15, 1994
and duly recorded on August 4, 1994 in Book 1453 at Film 1745 of the Real Estate
Records of Weld County, Colorado with Reception No. 2401068 (collectively, the
"HSR MORTGAGE").
C. The 1994 Credit Agreement was also secured by that certain Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated as of
as of July 30, 1993 from Energy Minerals Corporation and recorded in various
counties in the State of Colorado as follows:
<PAGE> 2
<TABLE>
<CAPTION>
Date
County Filed/Recorded Recording Data
---------------------------------------------------------------------
<S> <C> <C>
Adams August 4, 1993 Book 4123, Film 621,
Reception No. 01163316
Arapahoe August 4, 1993 Book 7064, Film 262
Baca August 3, 1993 Book 554, Film 471.
Reception No. 379179
Elbert August 4, 1993 Book 475, Film 742.
Reception No. 311772
Logan August 3, 1993 Book 872, Film 259,
Reception No. 605307
Morgan August 4, 1993 Book 957, Film 582,
Reception No. 737381
Weld August 4, 1993 Book 1395,
Reception No. 2344624
Yuma August 3, 1993 Book 72O, Film 233.
Reception No. 469207:
</TABLE>
as amended by First Amendment to Mortgage, Assignment of Production, Security
Agreement and Financing Statement dated as of July 15, 1994 (collectively, the
"EMC MORTGAGE") and recorded in various counties in the State of Colorado as
follows:
<TABLE>
<CAPTION>
Date
County Filed/Recorded Recording Data
-------------------------------------------------------------------
<S> <C> <C>
Adams August 5, 1994 Book 4369, Page 567,
Reception No. C0006364
Arapahoe August 8, 1994 Book 7660, Page 545.
Reception No. 112791
Baca August 10, 1994 Book 558, Page 622,
Reception No. 381282
Elbert August 4, 1994 Book 500, Page 607
Logan August 4, 1994 Book 883, Page 462
Morgan August 4, 1994 Book 971, Page 170
Weld August 4, 1994 Book 1453, Page 1743,
Reception No. 2401066
Yuma August 4, 1994 Book 735, Page 99,
Reception No. 473320
</TABLE>
D. To evidence the merger of Energy Minerals Corporation into
Mortgagor. Mortgagor and Mortgagee amended, restated and consolidated the HSR
Mortgage and the EMC Mortgage by Amended, Restated and Consolidated Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated as of
September 1, 1995 (which instrument,
<PAGE> 3
together with all amendments, assignments and supplements thereto, is called the
"MORTGAGE") which was recorded in various counties in the State of Colorado as
follows:
<TABLE>
<CAPTION>
Date
County Filed/Recorded Recording Data
---------------------------------------------------------------------
<S> <C> <C>
Adams September 14, 1995 Book 4588, Page 745,
Reception No. C0107105
Arapahoe September 15, 1995 Book 8109, Page 405,
Reception No. 96553
Baca September 13, 1995 Book 563, Page 714,
Reception No. 383819
Elbert September 13, 1995 Book 526, Page 722
Logan September 13, 1995 Book 894, Page 370
Morgan September 15, 1995 Book 985, Page 428
Weld September 13, 1995 Book 1511, Page 203,
Reception No. 2455532
Yuma September 13, 1995 Book 752, Page 227,
Reception No. 478288;
</TABLE>
as amended by First Amendment and Supplement to Amended, Restated and
Consolidated Mortgage, Assignment of Production, Security Agreement and
Financing Statement dated as of December 14, 1995 between Mortgagor and
Mortgagee and duly recorded on December 20, 1995 in Weld County, Colorado in
Book 1523, Page 665, Reception No. 2468477 (the "FIRST AMENDMENT TO MORTGAGE").
E. Mortgagor, Mortgagee and certain lenders refinanced the debt under the
1994 Credit Agreement by entering into that certain Credit Agreement dated as of
June 7, 1996 (the "JUNE 7 CREDIT AGREEMENT").
F. Mortgagor, Mortgagee and certain lenders (the "LENDERS") amended and
restated the June 7 Credit Agreement by that certain Amended and Restated Credit
Agreement dated as of June 14, 1996 (the "JUNE 14 CREDIT AGREEMENT").
G. The Mortgage was assigned and amended by Assignment of Liens and
Amendment of Amended, Restated and Consolidated Mortgage, Assignment of
Production, Security Agreement and Financing Statement dated as of June 14, 1996
(the "SECOND AMENDMENT TO MORTGAGE"), which was duly recorded in the State of
Colorado as follows:
<PAGE> 4
<TABLE>
<CAPTION>
Date
County Filed/Recorded Recording Data
---------------------------------------------------------------
<S> <C> <C>
Adams 7/12/96 Book 4794, Page 174
Arapahoe 8/22/96 Reception No. A6109953
Baca 6/28/96 Book 567, Page 414
Elbert 6/27/96 Book 548, Page 116
Logan 6/28/96 Book 903, Page 330
Morgan 7/3/96 Book 996, Page 959
Weld 6/27/96 Book 1554, Page 151
Yuma 6/28/96 Book 764, Page 214
</TABLE>
H. The June 14 Credit Agreement was amended by First Amendment to Amended
and Restated Credit Agreement dated as of June 17,1996 and Second Amendment to
Amended and Restated Credit Agreement dated as of November 27, 1996 (the June 14
Credit Agreement as amended is herein called the "NEW CREDIT AGREEMENT").
I. The Mortgage has been further amended by Third Amendment of Amended,
Restated and Consolidated Mortgage, Assignment of Production, Security Agreement
and Financing Statement dated as of July 25, 1996 (the "THIRD AMENDMENT TO
MORTGAGE"), which was duly recorded in the State of Colorado as follows:
<TABLE>
<CAPTION>
Date
County: Filed/Recorded Recording Data
------------------------------------------------------------------
<S> <C> <C>
Adams 9/3/96 Book 4828, Page 624
Reception #C0208849
Arapahoe 8/30/96 Reception #A61113550
Baca 8/30/96 Book 568, Page 205
Elbert 9/9/96 Book 554, Page 231
Logan 8/30/96 Book 905, Page 617
Morgan 8/30/96 Book 999, Page 634
Weld 9/3/96 Book 1564, Page 729
Yuma 8/30/96 Book 766, Page 548,
Reception #482433
</TABLE>
and by Fourth Amendment of Amended, Restated and Consolidated Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated as of
January 1, 1997 (the "FOURTH AMENDMENT TO MORTGAGE"), which was duly recorded in
the State of Colorado as follows:
<PAGE> 5
<TABLE>
<CAPTION>
Date
County: Filed/Recorded Recording Data
---------------------------------------------------------------
<S> <C> <C>
Adams 1/30/97 Bk. 4928, Pg. 37
Arapahoe 1/23/97 A7008017
Baca 1/24/97 Bk. 569, Pg. 842
Elbert 1/23/97 Bk. 561, Pg. 768
Logan 1/24/97 Bk. 909, Pg. 869
Morgan 1/24/97 Bk. 1005, Pg. 488
Weld 1/23/97 Bk. 1588, Pg. 394
Yuma 1/24/97 Bk. 772, Pg. 342
</TABLE>
J. The Mortgage, the First Amendment to Mortgage, the Second Amendment to
Mortgage, the Third Amendment to Mortgage and the Fourth Amendment to Mortgage
are herein collectively called the "MORTGAGE".
Of even date herewith, Mortgagor, Mortgagee and the Lenders are amending
the New Credit Agreement by executing that certain Third Amendment to Amended
and Restated Credit Agreement, and in connection therewith, Mortgagor and
Mortgagee desire to amend the Mortgage.
NOW, THEREFORE, in view of the foregoing and for valuable consideration,
the receipt of which is hereby acknowledged, Mortgagor and Mortgagee do hereby
agree as follows:
1. All capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Mortgage.
2. All references in the Mortgage to "this Mortgage", as defined in the
opening paragraph of the Mortgage shall mean the Mortgage, as amended hereby and
as the same may from time to time be further amended or supplemented.
3. Section II(a) of the Mortgage is hereby amended in its entirety to read
as follows:
"(a) any and all indebtedness, obligations and liabilities incurred by
Mortgagor pursuant to the Amended and Restated Credit Agreement dated as of
June 14, 1996, as amended by First Amendment to Amended and Restated Credit
Agreement dated as of June 17, 1996, Second Amendment to Amended and
Restated Credit Agreement dated as of November 27, 1996 and Third Amendment
to Amended and Restated Credit Agreement dated as of December 15, 1997
(such Credit Agreement as amended and as the same may be further amended,
modified or restated from time to time, the "CREDIT AGREEMENT") among the
Company, Assignee and the lenders that are now or hereafter parties to the
Credit Agreement ("Lenders"), including without limitation, those certain
promissory notes which have been or may be executed by Mortgagor payable to
the order of the Lenders and being in the aggregate principal amount of
$450,000,000 with final maturity on or before December 15, 2002 and all
<PAGE> 6
other NOTES GIVEN in substitution therefor or in modification, renewal or
extension thereof, in whole or in part (such notes, as from time to time
supplemented, amended or modified and all other notes given in substitution
therefor or in modification, renewal or extension thereof, in whole or in
part, being hereafter called the "NOTES")."
4. Mortgagor hereby confirms that it has heretofore granted, bargained,
sold, assigned, mortgaged, warranted, transferred and conveyed, and granted a
security interest to Mortgagee in, the Mortgaged Property, and Mortgagor further
grants, bargains, sells, assigns, mortgages, warrants, transfers and conveys,
and grants a security interest to Mortgagee in the Mortgaged Property to
Mortgagee on behalf of the Lenders to secure the payment and performance of the
Indebtedness as such definition is amended herein.
5. Mortgagor hereby confirms that it has heretofore absolutely and
unconditionally assigned, transferred and conveyed and does hereby absolutely
and unconditionally assign, transfer and convey to Mortgagee, its successors and
assigns, in accordance with the Mortgage as amended hereby, all of the
Hydrocarbons and all products obtained or processed therefrom attributable to
the Hydrocarbon Property, and the revenues and proceeds now and hereafter
attributable to the Hydrocarbons and said products and all payments in lieu of
the Hydrocarbons such as "take or pay" payments or settlements.
6. The parties hereto hereby acknowledge and agree that except as
specifically amended, changed or modified hereby, the Mortgage shall remain in
full force and effect in accordance with its terms. None of the rights, titles
and interests existing and to exist under the Mortgage, as amended, are hereby
released, diminished or impaired, and Mortgagor hereby reaffirms all covenants,
representations and warranties made in the Mortgage.
7. This Amendment may be executed in two or more counterparts, and it shall
not be necessary that the signatures of all parties hereto be contained on any
one counterpart hereof.
[SIGNATURES BEGIN NEXT PAGE]
<PAGE> 7
EXECUTED as of the 15th day of December, 1997, but effective as of December
15, 1997 (the "Effective Date ').
MORTGAGOR:
HS RESOURCES, INC.
By: By:
------------------------------ ----------------------------
James M. Piccone George H. Solich
Secretary Vice President
Attest:
MORTGAGEE:
THE CHASE MANHATTAN BANK
(formerly known as The Chase Manhattan
Bank, N.A.), as Agent
By:
----------------------------
Mary Jo Woodford
Vice President
<PAGE> 8
STATE OF TEXAS )
)
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me on December 14th,
1997 by George H. Solich, Vice President of HS RESOURCES, INC., a Delaware
corporation, on behalf of such corporation.
---------------------------------
Notary Public in and for the
State of Texas
Seal:
PAULA R. IKNER
Notary Public, State of Texas
My Commission Expires 10-22-00
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me on December 18,
1997, by Mary Jo Woodford, Vice President of THE CHASE MANHATTAN BANK, state
banking corporation, on behalf of such corporation
---------------------------------
Notary Public in and for the
State of New York
Seal:
KAN LOUIE
NOTARY PUBLIC STATE OF NEW YORK
NO. 24-5004282
QUALIFIED IN KINGS COUNTY
CERTIFICATE FILED IN NEW YORK COUNTY
COMMISSION EXPIRES 11-16-98
<PAGE> 9
ANNEX I
LIST OF MAXIMUM CREDIT AMOUNTS
<TABLE>
<CAPTION>
Maximum
Name of Lender Percentage Share Credit Amount
- -------------- ---------------- -------------
<S> <C> <C>
The Chase Manhattan Bank 10.0000000% $ 45,000,000
Wells Fargo Bank, N.A. 8.8888888% $ 40,000,000
CIBC, Inc. 8.8888888% $ 40,000,000
Credit Lyonnais New York Branch 8.8888888% $ 40,000,000
Union Bank of California, N.A. 8.8888888% $ 40,000,000
Banque Paribas 8.8888888% $ 40,000,000
Royal Bank of Canada 7.7777777% $ 35,000,000
Den norske Bank ASA 7.7777777% $ 35,000,000
ABN AMRO Bank N.V. 6.6666666% $ 30,000,000
Societe Generale 6.6666666% $ 30,000,000
MeesPierson, N.V. 5.5555555% $ 25,000,000
First Union National Bank 4.4444444% $ 20,000,000
The Sanwa Bank, Limited 4.4444444% $ 20,000,000
Credit Agricole Indosuez 2.2222222% $ 10.000.000
---------------------------------------------------
Totals 100% $450,000,000
</TABLE>
<PAGE> 1
EXHIBIT 10.38
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated April 20, 1998, is between Orion
Acquisition, Inc., a Delaware corporation and the wholly-owned subsidiary of HS
Resources, Inc. ("Orion"), and HS Resources, Inc., a Delaware corporation and
the parent corporation of Orion ("HS Resources").
WHEREAS, the respective boards of directors of Orion and HS Resources have
determined that it is advisable and in the best interests of each such
corporation that Orion merge with and into HS Resources as authorized by the
statutes of the State of Delaware and upon the terms and subject to the
conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Orion and HS Resources hereby agree as follows:
1. MERGER. Upon the terms and subject to the conditions set forth in this
Agreement, Orion shall be merged with and into HS Resources (the "Merger"), and
HS Resources shall be the surviving corporation (sometimes hereafter referred to
as the "Surviving Corporation"). The name of the Surviving Corporation shall be
HS Resources, Inc., a Delaware corporation. The Merger shall be effective on May
1, 1998, or upon such later date which the Certificate of Ownership and Merger
is filed with the Secretary of State of the State of Delaware (the "Effective
Date").
2. GOVERNING DOCUMENTS. The Certificate of Incorporation of HS Resources,
as in effect immediately prior to the Effective Date, shall be the Certificate
of Incorporation of the Surviving Corporation without change or amendment until
thereafter amended in accordance with applicable law. The Bylaws of HS
Resources, as in effect immediately prior to the Effective Date, shall be the
Bylaws of the Surviving Corporation without change or amendment until thereafter
amended in accordance with applicable law.
3. SUCCESSION; OFFICERS AND DIRECTORS. On the Effective Date, the separate
corporate existence of Orion shall cease and HS Resources, as the Surviving
Corporation, shall possess all the rights, privileges, powers and franchises of
a public and private nature and be subject to all the restrictions, disabilities
and duties of Orion; and all rights, privileges, powers and franchises of Orion,
and all property, real, personal and mixed, and all debts due to Orion on
whatever account, as well as for share subscriptions and all other things in
action belonging to Orion, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectively the property of the Surviving
Corporation as they were of Orion, and the title to any real estate vested by
deed or otherwise in Orion, shall not revert or be in any way impaired by reason
of the Merger; but all rights of creditors and all liens upon any property of
Orion shall be preserved unimpaired, and all debts,
<PAGE> 2
liabilities and duties of Orion shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by the Surviving
Corporation. All corporate acts, plans, policies, agreements, arrangements,
approvals and authorizations of Orion, its stockholders, board of directors and
committees thereof, officers and agents which were valid and effective
immediately prior to the Effective Date, shall be taken for all purposes as the
acts, plans, policies, agreements, arrangements, approvals and authorizations of
HS Resources and shall be as effective and binding thereon as the same were with
respect to Orion.
On the Effective Date, except as provided elsewhere in this Agreement, the
directors and officers of HS Resources shall be and continue as the officers of
the Surviving Corporation to hold the positions in the Surviving Corporation to
which they have been elected as directors and officers of HS Resources and to
serve in accordance with the bylaws of the Surviving Corporation; and the
employees and agents of Orion shall become the employees and agents of the
Surviving Corporation and shall continue to be entitled to the same rights and
benefits which they enjoyed as employees and agents of Orion.
4. FURTHER ASSURANCES. From time to time, as and when required by HS
Resources, or by its successors and assigns, there shall be executed and
delivered on behalf of Orion such deeds and other instruments, and there shall
be taken or caused to be taken by it all such further and other action, as shall
be appropriate or necessary in order to vest, perfect or confirm, of record or
otherwise, in HS Resources the title to and possession of all property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Orion, and otherwise to carry out the purposes of this Agreement,
and the officers and directors of HS Resources are fully authorized in the name
and on behalf of Orion or otherwise, to take any and all such action and to
execute and deliver any and all such deeds and other instruments.
5. CANCELLATION OF ORION COMMON STOCK. On the Effective Date, all shares of
Orion Common Stock presently issued and outstanding in the name of HS Resources,
Inc., which constitute all of the issued and outstanding shares of capital stock
of Orion, shall be canceled and retired and no shares or other security shall be
issued in respect thereof.
6. AMENDMENT. Subject to applicable law, this Agreement may be amended,
modified or supplemented by written agreement of the parties at any time prior
to the Effective Date with respect to any of the terms contained in this
Agreement.
7. ABANDONMENT. At any time prior to the Effective Date, this Agreement may
be terminated and the Merger may be abandoned by the board of directors of
either Orion or HS Resources, or both, if circumstances arise which, in the
opinion of the board of directors of either Orion or HS Resources, make the
Merger inadvisable.
8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and the same
agreement.
-2-
<PAGE> 3
9. AGREEMENT FOR SERVICE OF PROCESS. The Surviving Corporation, from and
after the Effective Date, agrees that it may be sued and served with process in
the State of Delaware at The Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801, in any proceeding for the enforcement of any
obligation of Orion. The Surviving Corporation irrevocably appoints the
Secretary of State of the State of Delaware as its agent to accept service of
process in any such proceeding.
10. GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Delaware.
IN WITNESS WHEREOF, Orion and HS Resources have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
ATTEST: ORION ACQUISITION, INC., a Delaware
corporation
By By
------------------------------ ---------------------------------------
Name: James M. Piccone Name: P. Michael Highum
Title: Secretary Title: President
ATTEST: HS RESOURCES, INC., a Delaware corporation
By By
------------------------------ ---------------------------------------
Name: James M. Piccone Name: P. Michael Highum
Title: Secretary Title: President
-3-
<PAGE> 1
EXHIBIT 10.39
FIRST AMENDMENT TO AGREEMENT OF LEASE
This First Amendment to Agreement of Lease ("First Amendment") is dated
for reference purposes only March 21, 1997, and is by and between 1999 Broadway
Partnership ("Landlord") and H.S. Resources, Inc., a Delaware corporation
("Tenant").
Whereas, the parties entered into that certain Agreement of Lease dated
March 23, 1994 (the "Lease") concerning Premises described as Suite Nos. 3500
and 3600 in 1999 Broadway, Denver, Colorado; and
Whereas, the parties wish to amend the Lease in certain respects as set
forth herein.
Now, therefore, in consideration of the foregoing and for other good
and valuable consideration, the adequacy and sufficiency of which is
acknowledged by the parties, the parties agree as follows:
1. Except as modified by this First Amendment, all provisions of the
Lease remain in full force and effect. Capitalized terms used in this First
Amendment which are not otherwise defined herein shall have the meanings set
forth for them in the Lease. In the event of a conflict between any provision of
this First Amendment and any provision of the Lease, the provision of this First
Amendment shall control.
2. The Premises consist of 35,166 rentable square feet located on
floors 35 and 36 of the Building; (as used in this First Amendment, such space
shall be referred to as the "Original Premises"). Effective on the later to
occur of (i) June 1, 1997, or (ii) the Substantial Completion Date defined in
Schedule A attached hereto, additional space consisting of 17,583 rentable
square feet (the "Additional Premises") shall also be part of the space leased
by the Tenant under the Lease and governed by the provisions of the Lease as
amended by this First Amendment. Such later date shall be referred to as the
"Amendment Commencement Date." The Original Premises and the Additional Premises
may collectively be referred to as the "Expanded Premises." The Additional
Premises are shown on Exhibit 1 attached hereto. Notwithstanding the foregoing,
if the Substantial Completion Date does not occur before September 1, 1997 (the
"Outside Date") due in whole or in part to Landlord Delay, then Tenant shall
have the right to terminate this First Amendment by giving written notice of
such termination that is actually received by Landlord by October 1, 1997, and
if such notice is not received by Landlord by such date, the right to terminate
set forth in this sentence shall be void. Notwithstanding the foregoing
sentence, in the event that the failure of the Substantial Completion Date to
occur by the Outside Date is a result of a delay in delivery to the Building of
the carpeting selected by Tenant, through no fault or delay caused by Landlord,
then such delay shall not constitute Landlord Delay. In the event that Tenant
terminates this First Amendment as permitted by the provisions of this
paragraph, then all provisions of the Lease excluding the provisions of this
First Amendment shall remain in full force and effect as if this First Amendment
had never been executed, and the Tenant's termination of this First Amendment
shall be the Tenant's sole remedy and right with respect to the Substantial
Completion Date being delayed beyond September 1, 1997. Tenant hereby expressly
waives the right to seek or obtain any other legal or equitable remedies.
1
<PAGE> 2
3. Effective on the Amendment Commencement Date, the Expiration Date of
the Lease shall be extended from June 30, 1999 to June 14, 2003. However, in the
event that the Amendment Commencement Date occurs (or is deemed to occur under
Schedule A) after June 13, 1997, the Expiration Date shall be extended beyond
June 14, 2003 for the same number of days by which the Amendment Commencement
Date is after June 13, 1997. The extended Expiration Date determined pursuant to
the two preceding sentences shall be referred to as the "Extended Expiration
Date." After the determination of the Extended Expiration Date under this
paragraph, Tenant agrees to promptly execute, acknowledge and deliver to
Landlord an instrument, in form mutually satisfactory to Landlord and Tenant,
setting forth the Amendment Commencement Date and the Extended Expiration Date.
4. Except as may be adjusted pursuant to paragraphs 5 and 6 below, from
and after the Amendment Commencement Date each monthly installment of Base Rent
payable by Tenant to Landlord shall be in the following amounts during the
following periods of time:
<TABLE>
<CAPTION>
Period Of Time Monthly Base Rent Monthly Base Total Monthly
for Floors 35 and Rent for Floor 37 Base Rent 36
----------------- ----------------- ------------
<S> <C> <C> <C>
The one year period from and $17,583.00 $19,414.56 $36,997.56
after the Amendment
Commencement Date
The 1 year period commencing $17,583.00 $20,879.81 $38,462.81
the 1st anniversary of the
Amendment Commencement Date
The 1 year period commencing $43,957.50 $22,345.06 $66,302.56
the 2nd anniversary of the
Amendment Commencement Date
The 1 year period commencing $44,690.13 $23,810.31 $68,500.44
the 3rd anniversary of the
Amendment Commencement Date
The 1 year period commencing $45,422.75 $25,275.56 $70,698.31
the 4th anniversary of the
Amendment Commencement Date
The period commencing the 5th $46,888.00 $26,740.81 $73,628.81
anniversary of the Amendment
Commencement Date through
the Expiration Date
</TABLE>
5. If the Amendment Commencement Date does not occur on the first day
of a calendar month, the amount of monthly installment of Base Rent for the 37th
floor for the month in which the monthly installment rate changes shall be
calculated by applying the applicable monthly rate to the number of days in the
calendar month that such rate is in effect. The monthly
2
<PAGE> 3
installment of Base Rent for Floors 35 and 36 shall remain the current rate of
$17,583 per month until the Amendment Commencement Date.
6. In the event that the Aggregate Development Cost defined in Schedule
A attached hereto is less than the amount of the Allowance specified in Schedule
A, and provided an Event of Default by Tenant does not exist at the time Tenant
is to be credited with savings, the amount of savings (up to a maximum of
$87,915) shall be credited to the next succeeding Base Rent obligations of
Tenant following the determination of the amount of savings. In the event that
the Allowance exceeds the Aggregate Development Cost by more than $87,915, such
savings in excess of $87,915 shall remain the sole property of Landlord.
Schedule A and the exhibits thereto are a part of this First Amendment.
7. Tenant's Pro Rata Share with respect to the Original Premises shall
remain 5.53%, and the Base Year with respect to the Original Premises shall
remain the calendar year of 1994. With respect to the Additional Premises, from
and after the Amendment Commencement Date, Tenant's Pro Rata Share shall be
2.765%, and from and after the Amendment Commencement Date, the Base Year for
purposes of determining Tenant's Share of Operating Expenses with respect to the
Additional Premises shall be the calendar year of 1997.
8. Effective on the Amendment Commencement Date, the reference in
Article 38 of the Lease to 37 non-reserved parking spaces in the off-site
parking garage shall be changed to 55 non-reserved parking spaces in the
off-site parking garage, and the reference to four non-reserved parking spaces
in the on-site parking facility shall be changed to five non-reserved parking
spaces in the on-site parking facility.
9. Article 40 of the Lease, entitled "Option to Expand," and Article 42
of the Lease, entitled "First Right of Refusal," are hereby deleted.
10. Article 41 of the Lease, entitled "Option to Renew" shall remain in
effect but shall apply only to the five year period commencing on the date
succeeding the Extended Expiration Date and expiring five years after the
Extended Expiration Date. The following sentence shall be deleted from Article
43 of the Lease, entitled "Arbitration to determine Base Rent:" "If this
arbitration proceeding is pursuant to Article 40, the arbitrator shall also be
advised to assume the payment by Landlord of $19.25 per square foot of tenant
finish costs (below the grid) and $6.00 of leasing commissions per square foot."
11. Tenant represents and warrants that Tenant has dealt directly with
(and only with) Cushman Realty Corporation as broker in connection with this
First Amendment, and that insofar as Tenant knows no other broker negotiated
this First Amendment or is entitled to any commission in connection therewith,
and the execution and delivery of this First Amendment by Landlord shall be
conclusive evidence that Landlord has relied upon the foregoing representation
and warranty. Tenant agrees to indemnify Landlord and Cushman Realty Corporation
from claims or commissions from any other brokers arising out of the execution
of the First Amendment, except for those brokers who assert claims arising out
of alleged dealings with the Landlord, and the foregoing indemnity shall also
apply to attorney's fees which may be incurred by Landlord or Cushman Realty
corporation as a result of Tenant's breach of its representations
3
<PAGE> 4
and warranties contained in this paragraph. Landlord shall be responsible for
paying the commission to Cushman Realty Corporation in connection with the
transactions contemplated by this First Amendment, pursuant to a separate
agreement between Landlord and Cushman Realty Corporation.
In Witness Whereof, the parties have executed this First Amendment on
the dates specified below.
LANDLORD:
1999 BROADWAY PARTNERSHIP
By:
-------------------------------
Mark W. Smith, authorized
representative
Date: April 24, 1997
TENANT:
H.S. RESOURCES, INC., a Delaware
corporation
By:
-------------------------------
Signature
Dale E. Cantwell Vice President
Name and Title
Date: April 24, 1997
4
<PAGE> 5
SCHEDULE A
LANDLORD'S CONSTRUCTION
1. Space Plan.
Landlord and Tenant have agreed upon a Space Plan prepared by MCDS Inc.
dated February 26, 1997, general revision April 23, 1997.
2. Construction Drawings.
(a) Tenant shall promptly and diligently furnish such information
relative to the Additional Premises and devote such time with Landlord and an
architect designated by Landlord as Landlord may deem necessary to prepare the
Construction Drawings.
(b) Landlord shall submit Construction Drawings to Tenant within 5 days
after the information required to be provided by Tenant under paragraph 2(a) has
been provided.
(c) Tenant shall review and approve the Construction Drawings as
expeditiously as reasonably possible. If the Construction Drawings are
consistent with the Space Plan, and otherwise are reasonably complete and
appropriate, as specified by Landlord's architect, Tenant's approval shall occur
not later than 4 business days after the Landlord has submitted the Construction
Drawings to Tenant.
(d) Tenant's approval shall be evidenced by Tenant signing each page of
the Construction Drawings. Tenant Delays in the approval process shall not alter
Tenant's ensuing obligations. The work to be performed pursuant to the
Construction Drawings shall be "Landlord's Construction."
(e) Notwithstanding the foregoing provisions of this Section 2, in the
event that the Construction Drawings are not mutually approved by Landlord and
Tenant for any reason by May 2, 1997, the Outside Date defined in the First
Amendment shall be extended on a day by day basis for each day that mutual
approval of the Construction Drawings occurs after said date.
3. Pricing Summary.
(a) Landlord shall present the Pricing Summary in accordance with the
format on Exhibit 1 attached hereto within 2 days after Tenant's approval of the
Construction Drawings along with reasonable supporting detail, bids and costs.
(b) Tenant will approve in writing the Pricing Summary within 4
business days after Landlord's submittal under paragraph 3(a) or will notify
Landlord of any reasonable objection to such Pricing Summary within the same
period. If Tenant presents reasonable objection to the Pricing Summary, Tenant
and Landlord shall promptly meet and diligently work to resolve the issues. If
the approved Pricing Summary shows that the Aggregate Development Cost will
exceed the Allowance, Tenant shall have the option of making changes to the
Construction Drawings so as to reduce or eliminate the amount of the Shortfall.
However, if by doing so,
5
<PAGE> 6
Tenant does not approve the Pricing Summary within the time specified in this
paragraph, any such delay in the approval process will be deemed a Tenant Delay.
(c) Upon approval of the Pricing Summary, Tenant will simultaneously
make a 50% deposit of the Shortfall as defined in Exhibit 1. The balance and the
cost of changes are to be paid by Tenant on the Substantial Completion Date
defined below.
(d) The parties agree that the Pricing Summary will be revised by
Landlord and approved in writing by Tenant as an additional condition to
Landlord's approving or performing any work different than that specified in the
approved Space Plan and Construction Drawings. Simultaneously therewith, Tenant
shall pay any additional amount necessary so that Tenant shall have paid at that
time fifty percent (50%) of the newly calculated Shortfall (but this shall not
be construed to entitle Tenant to a refund if fifty percent (50%) of the newly
calculated Shortfall is less than that previously paid by Tenant).
(e) In the event that the Pricing Summary is not mutually agreed by
Landlord and Tenant by May 6, 1997, then the Outside Date defined in the First
Amendment shall be extended on a day by day basis for each day that mutual
approval of the Construction Drawings occurs after said date.
4. Landlord's Construction.
(a) Upon Tenant's approval of the Pricing Summary and Tenant's
simultaneous payment of 50% of the Shortfall, Landlord, subject to the other
terms and conditions of this Schedule A, shall proceed diligently to cause
Landlord's Construction to be substantially completed by June 13, 1997, which
date shall be extended on a day by day basis for each day that either the
Pricing Summary or Construction Drawings are not approved by the dates specified
in Sections 3(e) and 2(e) respectively. Landlord, its contractor and
subcontractors shall diligently perform Landlord's Construction in accordance
with the approved Construction Drawings and the approved Pricing Summary.
(b) Landlord's construction of the Landlord's Construction shall
proceed with diligence and continuity until completion, subject, however, to
Force Majeure delays as defined in Schedule B to the Lease and subject to Tenant
Delay.
(c) Tenant's written acknowledgment of substantial completion under
paragraph 17 below shall also constitute acknowledgment by Tenant that Landlord
has fulfilled all of its obligations to Tenant under this Schedule A, subject to
any Punch-List Items which are required to be completed. Landlord's obligations
under this Schedule A conclude with the performance of any Punch-List Items
described in paragraph 17 below.
5. Compliance. The Space Plan, Construction Drawings and Landlord's
Construction shall meet with Landlord's approval and comply with all applicable
codes, laws, rules and regulations governing the Building and the Additional
Premises including ADA compliance, but Tenant shall remain solely responsible
for ADA compliance related to Tenant's use of the Premises.
6
<PAGE> 7
6. Tenant Changes. Changes to the approved Space Plan, approved
Construction Drawings and Landlord's Construction may be made only with
Landlord's prior written approval which shall not be unreasonably withheld. If
the Aggregate Development Costs exceeds the Allowance due to such changes, or
the amount by which the Aggregate Development Cost exceeds the Allowance is
increased as a result of such changes, all costs incurred by virtue of such
changes including labor and materials, architectural/engineering, plan reviews,
estimating, coordinating, printing costs, and incidental expenses shall be paid
in full by Tenant on the Substantial Completion Date to the extent not
previously paid by Tenant under paragraph 3 above. Any such change approved in
writing by Landlord shall be deemed part of the approved Construction Drawings.
Any changes required by any governmental department affecting the construction
of the Additional Premises shall be performed by Landlord in completing the
Additional Premises and shall not be deemed to be a violation of the Space Plan,
the Construction Drawings or Landlord's Construction, and shall be deemed
automatically accepted and approved by Tenant.
7. Tenant Delay.
(a) If Landlord shall be delayed in substantially completing Landlord's
Construction as a result of any act, neglect, failure or omission of Tenant, its
servants, employees, invitees, licensees, agents, visitors, representatives,
customers or contractors, including without limitation any of the following,
such delays shall be deemed a "Tenant Delay," and Tenant shall be responsible
for and pay any and all cost and expenses incurred by Landlord caused by Tenant
Delay. As an illustration of the foregoing but not in limitation thereof, Tenant
Delay is that delay caused by (a) the failure by Tenant to take any action under
this Schedule A within the time period required by the terms of this Schedule;
or (b) modifications, revisions and changes to the approved Space Plan, approved
Construction Drawings and/or Landlord's Construction as requested by Tenant; or
(c) work performed by Tenant or entity engaged by Tenant which adversely affects
the timing of Landlord's Construction; or (d) Tenant's failure to meet with
Landlord and/or Landlord's architect or failure to provide information to
Landlord required under this Schedule A in a timely manner; or (e) the request
by Tenant for materials, finishes or installations (other than those included in
Exhibit 2 attached hereto) which are not readily available at the time Landlord
is ready to install the same; or (f) the failure by Tenant to pay in a timely
manner any payment required to be made under this Schedule; or (g) any other
unreasonable conduct of any kind or nature relating to the completion of the
Additional Premises and engaged in by Tenant. Landlord shall not be liable for
any damages caused by Tenant Delay.
(b) No act or omission which would otherwise constitute a Tenant Delay
shall be considered a Tenant Delay unless Tenant has received one (1) business
day's written notice that an act or omission that would constitute a Tenant
Delay has occurred or is about to occur and such act or omission continues after
such notice, in which case the number of days following receipt of such notice
shall be considered a Tenant Delay. Any such notice shall include an explanation
as to how the act or omission is causing or potentially causing the delay.
(c) If the Substantial Completion Date (as defined in paragraph 17
below) shall be delayed by reason of any Tenant Delay, the Substantial
Completion Date shall nevertheless be
7
<PAGE> 8
deemed to occur as of the date that the Additional Premises would have been
substantially completed but for any such Tenant Delay as agreed upon by the
parties. If the parties do not agree within two (2) business days after the
Landlord gives written notice to Tenant of Landlord's determination that the
Substantial Completion Date is deemed to occur on a specified date, then the
parties shall promptly commence an arbitration to determine whether the
Substantial Completion Date shall be deemed to occur, and such arbitration shall
be conducted pursuant to Article 43 of the Lease, as modified in Section 17
below. Provided Landlord promptly complies with any arbitration order, (i)
Tenant's sole remedy in such arbitration proceeding if Tenant prevails is to
enjoin Landlord to complete work which the arbitrator determines was not done as
required or not done in a workmanlike manner, and (ii) Tenant expressly waives
the right to seek or obtain any other legal or equitable remedies. When the
Substantial Completion Date is determined or deemed to occur, Tenant's
obligation to pay Rent for the Additional Premises shall commence as provided in
the First Amendment.
(d) Tenant shall pay to Landlord a sum equal to additional cost to
Landlord in completing Landlord's Construction resulting from any Tenant Delay.
Any such sums shall be in addition to all other sums payable under this Schedule
A and shall be paid to Landlord within ten (10) days after Landlord submits an
invoice to Tenant therefor with all reasonable supporting documentation and
calculations.
8. Landlord Delay. Landlord Delay shall mean: (i) any act or omission
constituting a default or negligence by Landlord, Landlord's contractor, the
General Contractor, subcontractors, any sub-subcontractors or their employees or
agents; (ii) the cost of repair of improperly constructed Landlord's
Construction damaged by Landlord, Landlord's contractor, the General Contractor,
any subcontractor, any sub-subcontractor or their employees or agents; (iii)
additional testing or inspections which result in the reasonable rejection of
Landlord's Construction; (iv) the cost of insurance deductibles and uninsured
casualty losses; and delays in Landlord's Construction other than Tenant Delays
or Force Majeure Delays. Additional construction costs caused by Landlord Delay
shall be Landlord's responsibility and therefore shall not be part of the
Allowance described in Section 10 below.
9. Intentionally Left Blank.
10. Allowance. Landlord shall provide Tenant an Allowance not to exceed
$439,575 to be applied to all costs ("Aggregate Development Cost") incurred by
Landlord in performing all of its obligations under this Schedule A. The
components of the Aggregate Development Cost are more specifically identified in
the Pricing Summary attached hereto as Exhibit 1. Notwithstanding the foregoing,
the Aggregate Development Cost excludes: (i) labor charges for overtime work or
other costs associated with Landlord's Construction as a result of work
performed otherwise than during normal business hours, except that ,5 overtime
charges and costs incurred with respect to the construction of the stairwell
shall be applied against the Aggregate Development Cost; and (ii) any costs
incurred in connection with floor leveling.
11. Shortfall. Should the Allowance be greater than the Aggregate
Development Cost, corresponding savings shall be either credited to Tenant or
become the sole property of the Landlord as provided in Section 6 of the First
Amendment to which this Schedule A is
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<PAGE> 9
attached. Should the Aggregate Development Cost be greater than the Allowance,
the total amount of such difference shall be the Shortfall as referred to in
Exhibit 1 attached to this Schedule A.
12. Directions. All directions to the architect and contractors shall be
given solely by Landlord.
13. Standard Tenant Finish. Standard Tenant Finish specifications for the
Building shall be defined by Exhibit 2 attached to this Schedule A. There shall
be no credits for unused or substituted items on Exhibit 2.
14. Job Site Rules. Work by Tenant and/or any entity engaged by Tenant
shall be performed solely upon the prior written approval of Landlord and in
strict accordance with the Tenant Finish Job Site Rules and Regulations (Exhibit
3 attached hereto).
15. Payments by Tenant. The payments to be made by Tenant as provided in
this Schedule A shall be collectible in the same manner as Additional Rent under
the Lease whether or not the Substantial Completion Date shall have occurred. In
the event of any default in the payment by Tenant of any amount due under this
Schedule A in a timely manner, Landlord shall (in addition to all other
remedies) have the same rights as in the event of a default by Tenant in the
payment of Rent under the Lease and Landlord shall have no obligation to
continue Landlord's Construction. In addition, Tenant shall not be permitted to
commence occupancy of the Additional Premises if Tenant is then in material
default hereunder, but all rental obligations with respect to such space shall
nevertheless not be abated but shall continue to be the obligation of Tenant.
16. Entry by Tenant.
(a) Tenant hereby designates Dale Cantwell as its authorized agent
("Tenant's Agent') for the purposes of receiving and making communications on
behalf of Tenant under this Schedule A.
(b) Landlord agrees that prior to Substantial Completion of Landlord's
Construction, Tenant's Agent shall have the right at any time during regular
business hours to inspect the Additional Premises during the course of
Landlord's Construction, and Tenant shall also be entitled reasonable access to
the Additional Premises in order to install Tenant's fixtures and equipment
(including telephone, communications and computer equipment, but excluding
furniture) for use in the Additional Premises ("Tenant's Fixturization Work").
If Tenant has not been provided with sufficient time and access to complete
Tenant's Fixturization Work prior to the Substantial Completion of Landlord's
Construction, the Amendment Commencement Date and the Extended Expiration Date
provided in the First Amendment shall be extended by the time period reasonably
required by Tenant to complete the Tenant Fixturization Work, but in no event
more than three (3) weeks) (the "Fixturization Period"). Without limiting the
foregoing, Landlord agrees to allow Tenant access to install Tenant's telephone,
communications and computer wiring in the Additional Premises prior to the
completion of ceilings, and Tenant agrees that Tenant will cause such
installation work to be commenced and
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<PAGE> 10
completed within a reasonable period of time. Landlord shall be deemed to have
provided Tenant with sufficient time and access to complete Tenant's
Fixturization Work so long as Landlord provides such access at least twenty (20)
days prior to the date specified in Section 4(a) of this Schedule A, as it may
be delayed pursuant to the provisions of that Section, without interruption
pursuant to Section 16(e). So long as Landlord provides such access pursuant to
the preceding sentence, the failure of Tenant to timely complete Tenant's
Fixturization Work for any reason, including but not limited to the
unavailability of any party which will be providing telephone, communications or
computer equipment for Tenant, or any other labor or materials relating to
Tenant's Fixturization Work, shall be deemed a Tenant Delay.
(c) Landlord shall make the freight elevator reasonably available to
Tenant in connection with Tenant's initial decorating, furnishing and moving
into the Additional Premises, and the cost of doing so to the extent that
Landlord utilizes its own staff shall be borne solely by Landlord. Tenant shall
not pay any costs for any after-hours staffing of the freight elevator or any
after hours Building Services or utilities, should such after-hours use be
necessary (including during Tenant's move-in over a weekend if applicable),
except that if to accommodate Tenant's schedule, Landlord hires any outside
contractor to staff the freight elevator or otherwise, Tenant shall reimburse
Landlord for such costs. The General Contractor and subcontractors will not be
charged for hoisting elevators in connection with any work related to Landlord's
Construction. Such costs shall be at Landlord's cost and shall not be included
in the services or general conditions of the General Contractor or any
subcontractor. It is understood, however, that if after-hours staffing for any
purpose is caused by Tenant Delays, the Tenant will be responsible for the
direct costs of such staffing with no additional mark-ups or fees. Landlord will
provide Landlord's normal general Building security throughout the duration of
the project.
(d) To the extent not covered by insurance carried by Tenant with
respect to property damage (and all such policies of insurance shall contain
"waiver of subrogation" clauses), and to the extent not covered by insurance
carried by Landlord or the General Contractor with respect to property damage
(and all such policies of insurance shall contain "waiver of subrogation"
clauses) and subject to the terms and conditions of the Lease, Landlord
indemnifies and agrees to protect, defend and to hold Tenant and its agents,
contractors, officers and employees, harmless from and against any and all
losses, costs, liabilities, damages, demands, claims, causes of action and
expenses (including reasonable attorneys' fees and court costs) by reason of
damage to the Additional Premises or the personal property or equipment of such
parties, which may arise during the course of Landlord's Construction from
construction of Landlord's Construction, and any other construction in or on the
Building except Tenant's Fixturization Work, whether caused by Landlord, the
General Contractor, any subcontractor employed by Landlord or the General
Contractor, or anyone directly or indirectly employed by any of them.
(e) Tenant agrees to indemnify and save harmless Landlord, its agents,
representatives, officers, directors, shareholders, partners and employees from
and against any and all claims, loss, liability, damage, fines, suits, demands,
cost and expense, including without limitation, reasonable attorney's fees and
disbursements, arising from or claimed to arise from (i) any act, neglect, or
failure to act of Tenant or anyone entering the Additional
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<PAGE> 11
Premises or Building with Tenant's permission, (ii) the performance of Tenant's
Fixturization Work, or (iii) any other reason whatsoever arising out of said
entry upon the Additional Premises or Building.
(f) Entry into the Additional Premises by Tenant or its agents to
perform the Tenant Fixturization Work shall be without interference with the
performance of Landlord's Construction. Any such entry for the aforesaid purpose
shall be deemed under all the terms, covenants and conditions of the Lease as
amended by the First Amendment. In the event Landlord, in its sole discretion,
determines that the performance by Tenant or any of its agents of any Tenant
Fixturization Work is impeding or impairing in any way the performance of
Landlord's Construction, then, upon notice to Tenant, Tenant shall cease or
cause the cessation of all such work until the receipt of written notification
from Landlord that Tenant may once again enter the Additional Premises in order
to perform Tenant Fixturization Work.
17. Substantial Completion. Landlord shall notify Tenant of the
anticipated date of substantial completion of Landlord's Construction
("Substantial Completion Date") in a notice given at least five (5) business
days prior to the Substantial Completion Date stated therein. Landlord and
Tenant shall thereupon set a mutually convenient time for Tenant, Landlord and
Landlord's General Contractor to inspect the Additional Premises and Landlord's
Construction, at which time the parties shall agree upon punch-list items as
defined below. "Substantial Completion" as used in this Schedule shall be deemed
to occur when (a) Landlord's Construction has been substantially completed
pursuant to the Construction Drawings, and certified to the parties by
Landlord's architect; subject to decoration and minor mechanical or other
punch-list items or adjustments that do not materially interfere with Tenant's
use of the Additional Premises ("Punch-List Items"), and (b) a final inspection
approval or other required written approval of governmental authority shall have
been issued permitting Tenant to occupy the Additional Premises. Upon completion
of the inspection, if the conditions of this paragraph have been met, Tenant
shall acknowledge in writing that substantial completion of Landlord's
Construction has occurred, and that the Additional Premises are accepted in
their "as is" condition, subject to any Punch-List Items to be completed.
Landlord shall diligently complete the Punch-List Items within a reasonable time
after Tenant commences occupancy of the Additional Premises, and upon completion
of the Punch List Items, "Final Completion" shall be deemed to have occurred. In
the event Tenant shall fail to confer with Landlord and complete the above
procedures in this paragraph with respect to the substantial completion of
Landlord's Construction within five (5) business days after Landlord's notice
setting forth the Substantial Completion Date, (x) Tenant shall have no right to
enter the Additional Premises for the purposes of conducting its business
therefrom until Tenant meets with Landlord in the Additional Premises to inspect
the Additional Premises and Landlord's Construction, (y) Landlord's Construction
shall be deemed completed and satisfactory in all respects and the Substantial
Completion Date, if it has not then yet occurred, shall be deemed to have
occurred on the date set forth in Landlord's notice as the Substantial
Completion Date. If Landlord and Tenant do not agree that substantial completion
of Landlord's Construction has occurred, or they do not agree as to the contents
of the Punch-List Items, if any, Tenant shall specify in writing within one
business day after the above described inspection, all of the manners in which
substantial completion is claimed not to have occurred or in which the parties
disagree as to Punch-List Items to be completed. Either party may thereafter
submit any such dispute or
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any dispute concerning Final Completion to arbitration in accordance with the
same procedures specified in Article 43 of the Lease entitled "Arbitration To
Determine Base Rent," and all of the provisions relating to an arbitration
proceeding as described in Article 43 (without regard to any provisions dealing
with the calculation of Base Rent, which is irrelevant to the arbitration
proceeding contemplated by this paragraph), including without limitation the
binding nature of such proceeding, shall be applicable. If the Landlord is the
substantially prevailing party in an arbitration proceeding pursuant to this
paragraph, the time period to resolve such dispute shall be a Tenant Delay. If
the Tenant is the substantially prevailing party then all delay shall be a
Landlord Delay. The prevailing party in such arbitration shall be awarded its
costs incurred therewith, including reasonable attorneys fees. Provided Landlord
promptly complies with any arbitration order, (i) Tenant's sole remedy in such
arbitration proceeding if Tenant prevails is to enjoin Landlord to complete work
which the arbitrator determines was not done as required or not done in a
workmanlike manner, and (ii) Tenant expressly waives the right to seek or obtain
any other legal or equitable remedies.
18. Items to be Supplied by Landlord. Landlord shall supply without charge
the items listed on Exhibit 4.
19. Exhibits. The following exhibits are attached to this Schedule A: 1)
Pricing Summary; 2) Standard Tenant Finish; 3) Job Site Rules; and 4) Items
Supplied by Landlord.
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<PAGE> 13
PRICING SUMMARY
EXHIBIT 1 TO SCHEDULE A
Date:____________________ Rev._____________________
TENANT: H.S. Resources, Inc., a Delaware corporation
ARCHITECT/ENGINEER:____________________________________________________________
CONTRACTOR:____________________________________________________________________
PLANS AND SPECIFICATIONS:______________________________________________________
Construction Cost ________________
Architectural/Engineering/De sign
Other Costs ________________
Pre-Stocked Materials Cost ________________
Subtotal ________________
Project management and expenses @
5% of Subtotal payable to Landlord ________________ ________________
Aggregate Development Cost
Allowance $ 439,575
Difference between Aggregate
Development Cost and Allowance
(Shortfall Payable by Tenant to
Landlord or Amount of Savings
to be allocated pursuant to Section
6 of the First Amendment) ________________
Deposit @ 50% ________________
Balance due on Substantial Completion Date ________________
Accepted and Approved by:
- ------------------------------ -----------------
Tenant's Authorized Agent Date
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<PAGE> 14
05/08/95
1999 BROADWAY
STANDARD TENANT FINISH SPECIFICATIONS
1.0 FLOOR:
1.1 Floors are lightweight concrete on metal deck with a steel trowel
finish and level within industry tolerances. The floors are designed to support
up to 50 p.s.f. live load with an additional allowance of 20 p.s.f. dead load
(for suspended ceilings below and partitions).
1.2 Carpeting shall be Designweave Tempest II or equivalent, 32 ounce
face weight, cut pile of selected standard colors, glued down.
2.0 WALLS/PARTITIONS AND TRIM:
2.1 Partitions between public corridors and tenant spaces will be
built to the underside of the structure above. Construction shall be straight
walls of 2-1/2" 25 ga. metal studs at 16" o.c., or 24" o.c. where permitted by
the Building Code, with 5/8" gypsum board on each side. Gypsum board will be
taped, sanded and ready to receive succeeding finishes.
2.2 Demising partitions between two different tenant spaces will be
built to the structure above. Construction shall be straight walls of 2-1/2" 25
ga. metal studs at 24" o.c. with 5/8" gypsum board on each side, and wall cavity
filled with 2" sound attenuating batt insulation.
2.3 Interior tenant partitions within a tenant space will be straight
wall, 8'-6" high, fastened to the ceiling grid, 2-1/2" 25 ga. metal studs at 24"
o.c. with 5/8" gypsum board on each side. Interior tenant partitions which
penetrate the ceiling are not part of the standard tenant finish package.
2.4 2-1/2" high straight rubber base will be provided on all
appropriate vertical surfaces adjacent to floor carpeting.
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EXHIBIT 2 TO
SCHEDULE A
<PAGE> 15
WALLS/PARTITIONS AND TRIM CONT'D.
2.5 All walls/partitions will be straight lengths. Where walls
terminate at the building perimeter they shall meet either a mullion or a
column. The method of closure between columns and the perimeter wall shall be
friction supported black neoprene from floor to ceiling.
3.0 CEILINGS:
3.1 All tenant ceilings will be on a non-fire rated 20" x 60" module
with exposed suspension grid and noncombustible mineral fiber acoustical tile
with deep relief, 3/4" routings dividing the surface into 20" squares; N.R.C.
range .55-.65 Tile is stocked on unfinished tenant floors for installation
during tenant finish. The suspension grid system was installed during base
building construction.
3.2 Ceiling height in tenant areas is normally 8'-6".
4.0 DOORS:
4.1 Tenant entry doors (for entries to suites on multi-tenant floors)
shall be 3'-0" x 8'-4" solid core flush wood, teak veneer to match base building
(no exceptions). Doors shall be set in painted hollow metal frames and be
equipped with hardware, i.e., locksets, closures, etc.
4.2 Interior doors shall be 3'-0" x 8'-4" solid core flush wood, teak
veneer, single leaf. Doors will be set in painted hollow metal frames and be
equipped with stop hinges and latchset.
5.0 HARDWARE:
5.1 Russwin lever type latchsets for interior tenant doors (4.2 above)
and Russwin lever type locksets for tenant entry doors (4.1 above). All doors to
receive butt hinges an door stops. Finish on all hardware to be US 26D brushed
dull chrome finish. All locksets must be keyed to the building master and
designated submasters).
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6.0 PAINTING:
6.1 All gypsum board finishes completed during base building
construction (except in Landlord's core area utility-type rooms), and all gypsum
board finished which are part of the standard tenant finish package will receive
one coat of primer and one coat of eggshell or semi-gloss latex paint in a
light-tone color (deeper tones may require additional coats which are of part of
the standard tenant finish package).
6.2 Hollow metal door frames will receive two coats of a color
compatible with the wall color of semi-gloss latex paint over factory or field
applied prime coat.
7.0 BUILDING PERIMETER WALLS AND WINDOW TREATMENT:
7.1 Building perimeter walls are gypsum board at head and sill ready to
receive succeeding finishes. Windows are reflective glass set in clear anodized
aluminum frame.
7.2 Narrow style horizontal blinds are installed at all perimeter
windows as part of base building construction.
8.0 HEATING, VENTILATION AND AIR CONDITIONING ("HVAC"):
8.1 Central plant facility (floors 3, 4, 29 and 30) and main trunk
ductwork (all tenant floors), for a variable volume heating, ventilation and air
conditioning system was installed as part of base building construction. It was
designed such that it is capable of providing service to tenant areas during
regular business hours or as otherwise defined in the Lease Agreement, such that
the following a first-class office building:
a. 72F during the heating season with outdoor dry bulb
temperature of 5F.
b. 76F at not more than 50% relative humidity during the
cooling season with outdoor temperature up to 93F dry bulb and 64F wet bulb,
with an occupancy rate of one (1) person per 125 square feet usable area, with a
maximum electrical load, including light and power, of three (3) watts per
rentable square foot.
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HEATING, VENTILATION AND AIR CONDITIONING CONT'D.
The above operational standards are contingent upon any energy
regulation amendments dictated by local, state or federal agencies.
8.2 Air distribution, which is part of the standard tenant finish
package, shall be overhead with ducted supply and plenum return above the
ceiling through recessed lighting fixtures (see 9.2) distributed evenly
throughout the tenant space. in accordance with Tenant's lighting layout, and
through the perimeter slot diffuser (the perimeter slot diffuser on each tenant
floor was installed as part of base building construction).
8.3 The HVAC system provide thirteen (13) perimeter temperature control
zones per typical floor, with the distribution and zoning arranged per building
standard design. Four (4) additional zones (interior) per typical floor may be
arranged to accommodate the tenants layout.
8.4 Special HVAC is not part of the standard tenant finish package. It
shall be considered any HVAC which exceeds that which is normal for general
offices in a first class high rise office building (special usage rooms are not
considered general offices). Landlord reserves the sole right to determine, on a
room-by-room basis, where Tenant's HVAC requirements are "special."
9.0 ELECTRICAL AND TELEPHONE SERVICES:
9.1 Power availability is at approximately 5 watts per usable square
foot. Landlord's engineer should be consulted for precise available power for
Tenant's space.
9.2 Lighting fixtures are Columbia 20" x 60" recessed fluorescent with
low brightness parabolic contour louvers and energy efficient type ballast.
Fixtures (currently stocked on each tenant floor) shall be set in exposed
suspension ceiling grid and circuited during tenant construction. Fixtures are
equipped with lamps (3100 Kelvin-warm). Fixtures in excess of 9 per 1000
rentable square feet are not included in the standard tenant finish package.
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<PAGE> 18
ELECTRICAL AND TELEPHONE SERVICES CONT'D.
9.3 Wall switches with standard cover plates to control lighting
fixtures (9.2 above) will be provided in an amount necessary to satisfy
applicable Building Codes.
9.4 Wall receptacles with standard cover plates for 110 volt single
phase connected load will be provided as reasonably required by Tenant's working
drawings. Receptacles will be 15 amp rated, 3-wire grounded units. Special
receptacles (i.e., dedicated, special amperage, floor mount, etc.) are not part
of the standard tenant finish package.
9.5 Wall telephone outlets will be provided as reasonably required by
Tenant's working drawings with 1/2" conduit "stubbed" above the ceiling.
Tenant's telephone system, including but not limited to all wiring, equipment,
main feed to core telephone room, and all wall cover plates, are not part of the
standard tenant finish package. Tenant's phone system shall be located within
tenant's usable space, and not in the building's core telephone room. All
cabling (telephone, computer, television, etc.) which will be located above the
ceiling must be "plenum rated" and independently supported.
9.6 Illuminated exit signs shall be installed at the ceiling as
required by the Building Code.
10.0 FIRE PROTECTION:
10.1 Each floor of the building has been sprinklered with flush-mounted
heads as part of base building construction on the basis of an open space plan.
White covers shall be installed during tenant finish. Adjustments and additions
to existing sprinkler head locations which are necessary to comply with the
Building Code will be performed during tenant finish.
10.2 Fire detection and fire-warning systems installed during base
building construction shall be modified and supplemented in accordance with
local fire and building codes.
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11.0 TENANT IDENTIFICATION:
11.1 A standard entry identification plaque (for tenants on
multi-tenant floors only) in accordance with Landlord's Tenant Identification
Signage Program as will be provided.
<PAGE> 20
03/01/93
TENANT FINISH
JOB SITE RULES AND REGULATIONS FOR 1999 BROADWAY
The following rules and regulations are used for this project for the
safety, benefit and convenience of all tenants, contractors and other persons in
the building. PLEASE READ THESE RULES THOROUGHLY PRIOR TO COMMENCEMENT OF ANY
WORK. It is the general contractor's responsibility to notify the
subcontractors, workmen and suppliers to observe all such rules and regulations,
and to enforce them accordingly.
1. Prior to construction commencement, the general contractor shall
deliver to Landlord a Certificate of Insurance of the following insurance
policies for the general contractor and each subcontractor, naming 1999 Broadway
Partnership and Winthrop Management (1999 Broadway, Suite 2405, Denver, Colorado
80202), their members, agents and employees as Additional Insureds:
(i) Workers' Compensation Insurance in the statutory amount of
$100,000,
(ii) General Liability Insurance with minimum coverage of
$1,000,000 combined single limit, or dual limits of:
(a) B.I. (Bodily Injury) $1,000,000 each
occurrence/$1,000,000 aggregate; and
(b) P.D. (Property Damage) $1,000,000 each
occurrence/$1,000,000 aggregate,
(iii) Automobile Liability Insurance with minimum coverage of
$1,000,000 combined single limit, or dual limits of:
(a) B.I. (Bodily Injury) $1,000,000 each person/
$1,000,000 each accident; and
(b) P.D. (Property Damage) $1,000,000 each accident; and,
(iv) Such other insurance as may be reasonably required by Landlord
under the circumstances.
The insurance company utilized must maintain a minimum rating of A+,
class XII in the Best Insurance Guide (as updated from time to time) or be
otherwise acceptable to the Landlord. Certificates must indicate the property
name and address to be:
EXHIBIT 3 TO
SCHEDULE A
<PAGE> 21
1999 Broadway (building)
1999 Broadway
Denver, Colorado 80202
Each certificate must state that the Insurance Company will provide
thirty (30) days' written notice to the Certificate Holder before the insurance
may be cancelled or materially altered.
2. The general contractor, at its sole expense, shall procure all
permits relative to the construction work, and shall, during construction,
comply with all applicable legal requirements. The construction work shall, once
completed, comply with all applicable laws, ordinances, regulations, codes or
orders of any state, municipal or other public authority affecting same, and
with all requirements of the local fire rating insurance organization, the
Denver Fire Department and other similar bodies.
3. Landlord may require that hoardings be constructed around work areas
and that all work be conducted and all tools and materials be kept behind such
hoardings and that all cutting, drilling or other work of the noisy or vibrant
nature be conducted outside occupied tenants' normal business hours.
4. No build-out materials are to be taken from Landlord's stock unless
contractors have obtained prior written approval to use such materials (in
specified quantities) from Landlord. Landlord's representative must be present
at the time contractors take possession of build-out materials from Landlord's
stock or replenish materials to Landlord's stock. A complete list of materials
is needed and 24 hours' notice required prior to pick-up.
5. The general contractor is responsible at all times for keeping the
premises and adjacent areas free from accumulations of waste material and/or
rubbish caused by their subcontractors, workmen or suppliers. The general
contractor is responsible for leaving the work area in a broom clean condition
at the end of each work day. The general contractor is also responsible for the
final cleanup which shall include but not be limited to light fixtures, windows
and trim, entries and public space affected by the work. Any repair or cleaning
cost incurred by Landlord relative to the general con tractor's work, including
but not limited to delinquency in attending to repairs or cleaning shall be
forwarded to the tenant/general contractor.
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6. Landlord may inspect construction areas at any time, and stop work
if contractor is not in compliance with these rules and/or not performing work
in accordance with plans and specifications approved by Landlord.
7. The freight elevator is available for contractor and general
building use from 7:00 a.m. to 3:30 p.m., Monday thru Thursday, Friday from 7:00
a.m. to 1:00 p.m. Stocking and/or movement up through the building of materials
and/or equipment for tenant finish work shall be facilitated by use of the
freight elevator only. Stocking shall take place only at scheduled times and
only by use of the parking level loading dock. After hours use of the dock and
elevator must be coordinated through the property management office. Contractors
will not be provided exclusive use of the freight elevator at any time, though
24 hours' notice will enhance scheduling opportunities.
All materials must be clearly identified prior to being hoisted. The
maximum allowable load shall be 5000 pounds. The freight elevator is 5'-8" wide
x 10'-0" long x 9'-0" high.
8. Since there is inadequate room on site for dumpsters, contractors
must arrange for removing trash from the building. Hauling trash on the freight
elevator, and use of the dock for trash removal must be accomplished after hours
and scheduled properly, with first priority given to tenants already in
occupancy.
9. All contractors, subcontractors, workmen and suppliers are required
to use the loading dock entrance and freight elevator to gain access to and from
floors under construction. No construction personnel are to use passenger
elevators, other than if designated as a temporary construction elevator, and
then only for floor-to-floor travel so as to avoid main lobby areas At no time
shall contractors, workmen or suppliers transport equipment or supplies via the
passenger elevators.
10. The loading dock hours in the parking level are from 8:00 a.m. to
4:00 p.m., Monday thru Friday. The delivery of merchandise, supplies, fixtures
and other materials or goods to and from the premises and all loading, unloading
and handling shall be done only at such times as stated above.
11. All "after-hours' work must be scheduled through the property
management office. If a contractor deems it necessary to perform work before
7:00 a.m. or after 3:30 p.m. on any given day, it shall be that contractor's
responsibility to submit a request accordingly to
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Landlord before 3:00 p.m. on the day before. After hours work may not take place
without Landlord's prior approval. Extra costs, if any, incurred by Landlord to
facilitate contractor's after hours work, shall be reimbursed by the contractor.
12. Construction crews shall provide their own parking. Any
unauthorized vehicle in the loading dock or curb cut areas shall be ticketed and
towed at its owner's expense.
13. In that this building has sensitive fire and life safety systems,
various precautions need be taken by contractors in order to avoid false alarms.
These precautions will likely include "bagging" smoke detectors and/or
periodically "pulling" fire alarm zones. Any work which may impact the fire and
life safety systems must be coordinated through the property management office.
Costs incurred by Landlord for false alarms will be passed on to tenant/general
contractor as appropriate. Methods employed to avoid false alarms must not
compromise life safety in the Building.
14. Emergency lighting, life safety and energy management systems shall
not be disconnected under any circumstances without prior written approval from
Landlord. Upon receiving approval, the work shall be scheduled through the
property management office 24 hours in advance. Work shall be done expeditiously
and emergency facilities shall be restored immediately upon completion.
Additionally, building personnel, who monitor all life safety systems, must be
notified at 292-4470 prior to any such work being started. The final tie-in
(link) to the base building fire alarm system shall be performed by the
appropriate base building subcontractor at the tenant finish general
contractor's expense.
15. No core drilling, concrete removal or structural steel alteration
shall be performed without prior written approval of Landlord and Land lord's
structural engineer. Coordination for timing of such work requires that the
contractor notify Landlord at least 48 hours in advance. Brays are required
prior to any and all core drilling. The contractor must take prudent precautions
to ensure that no one (including occupants, visitors, building personnel,
inspectors and workmen) will be exposed to potentially harmful rays.
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16. Temporary power is available at the electrical room on each floor.
Additional power requirements beyond those provided shall be the responsibility
of the contractor in need.
17. All temporary lights shall be provided and maintained by the
contractors. Contractors are responsible for turning off lights and breakers
each night. Any lights or breakers left on without specific permission shall be
turned off at Land lord's discretion.
18. Landlord shall be notified 24 hours in advance before contractor
cuts into any duct, sprinkler line, water meter, or before moving any air
handling equipment, thermostat, etc. Additionally, a 24 hour notice shall be
given prior to any varnishing or use of toxic materials so that ventilation
requirements may be reviewed. Landlord reserves the right to withhold approval
for contractor to use any materials which Landlord in its sole discretion deems
could be harmful to the building or its occupants.
19. Contractors, subcontractors, workmen end suppliers shall be
required to use restrooms designated by Landlord for use by construction
personnel. Damages shall be repaired at the damaging contractor's expense as
reasonably determined by Landlord. Use of building restrooms other than those
designated are restricted and are off limits to construction personnel. Restroom
facilities shall be maintained by the general contractor.
20. Janitorial closets shall become the general contractor's
responsibility upon start-up of work. Upon completion of work, Landlord shall
inspect the janitor closet and complete clean-up, routing, etc. Associated costs
shall be forwarded to the tenant/general contractor, as appropriate.
Janitor/electrical/telephone rooms may not be used for storage at any time.
21. Contractors doing tenant finish work on an occupied floor are
required to protect all finished floors and walls as necessary but with a
minimum 6 mil. clear visqueen until all major deliveries have been received and
all drywall work completed. Repairs for any associated damage shall be the
responsibility of the general contractor. Each contractor will be responsible
for properly protecting and safeguarding his work. The Landlord shall not in any
way be held liable for damage or loss to any contractor's work. Damage shall,
however, be paid for by the damaging contractor as determined solely by
Landlord.
5
<PAGE> 25
22. Contractors shall only be allowed access to the specific floors on
which they are working. All other areas are considered off limits.
23. Any access required into a finished area shall be coordinated by
the general contractor through Landlord. The contractor shall then assume
complete responsibility for the area and shall bear all costs for repair to any
damaged work.
24. Any damage to existing base building work on tenant floors shall be
the responsibility of the damaging contractor as determined by Landlord.
25. Landlord shall have sole determination with respect to the
appropriate incidental charges (i.e., damage or non-compliance charges)
allocated to tenants/ contractors.
26. Landlord cannot guarantee the general contractors' security on the
individual tenant finish floors. Security shall be the responsibility of the
individual general contractor. Landlord must be provided two (2) master keys for
each "lock-off" area under the control of a general contractor.
27. Provisions for contractors' job site telephones shall be each
individual contractor's responsibility.
28. Final fire alarm tie-in shall be performed by Dynamic Controls at
Contractor's expense. No exceptions will be considered (761-8124 Dan
Lichtenwalter).
29. All safety rules and regulations, state and federal, must be
observed at all times. All contractors shall cooperate in every detail with any
and all other safety requirements imposed by Landlord.
30. Information relative to any toxic or flammable materials shall be
provided to the Landlord before such materials are brought into the building.
Contractors must adhere to all federal, state and local codes pertaining to
hazardous materials. Contractor must supply appropriate documentation including
but not limited to Material Safety Data Sheets covering materials used on this
job. All hazardous and toxic materials must be stored in original containers
with D.O.T. approved labels in a location specified by building management.
Landlord reserves the right to restrict and/or deny toxic or flammable materials
in the building.
6
<PAGE> 26
31. Proper working attire shall be worn at this project at all times.
32. Each contractor shall be responsible for providing and maintaining
his own first aid kit.
33. All contractors personnel shall report to the dock master's office
to be provided with a security badge prior to commencing any work in the
building.
34. If the general contractor is engaged directly by a tenant, then the
tenant is ultimately responsible for the general contractor, their
subcontractors, workmen and suppliers. Any action detrimental to the building
and/or its tenants shall become the sole responsibility of that tenant. Landlord
also retains the right to deny building access to any individual(s) permanently
or temporarily if in Landlord's sole discretion such individual(s) commits any
action which could be considered detrimental to the building, its personnel
and/or its tenants.
35. Contractors, subcontractors and suppliers shall be responsible for
submitting lien releases at the time final payment is made. If such lien
releases are received by tenants, they should be forwarded to the Landlord.
36. Regulations supplemental to those above may be incorporated as part
of these site rules if deemed appropriate by Landlord.
7
<PAGE> 27
EXHIBIT 4
ITEMS TO BE SUPPLIED BY LANDLORD
<TABLE>
<CAPTION>
ITEM QUANTITY COMMENTS
- ---- -------- --------
<S> <C> <C>
Light Fixtures (20"x60") 158 Additional units @ $250 each
Whip Cables (for fixture-to-fixture 158
connections) Additional units @ $21 each
6" Diffusers As required
6" Flex Duct As required
6" Spin-in Adapters As required
Ceiling Tile As required
Ceiling Box Connectors As required
</TABLE>
NOTE: All items are building standard, and are available from Landlord only in
standard sizes, colors, lengths, functions, etc.
<PAGE> 1
EXHIBIT 10.40
HS RESOURCES, INC.
FORM OF
KEY EMPLOYEE SEVERANCE AGREEMENT
THIS KEY EMPLOYEE SEVERANCE AGREEMENT (the "Agreement") is entered
into as of _____________, 1998, by and between _____________________
("Employee") and HS Resources, Inc., a Delaware corporation (the "Company").
RECITALS
A. Employee is a key employee of Company.
B. As an inducement for the Employee to continue in the employ of
the Company, the Employee and the Company wish to provide for a severance
payment to the Employee in the event of termination of the Employee's
employment with the Company following a change in control of the Company. The
Employee and the Company expressly acknowledge that this consideration is
adequate to support the contractual obligations provided for hereunder.
THE PARTIES HERETO AGREE AS FOLLOWS:
1. TERM. This Agreement shall continue until terminated by mutual
agreement of the parties.
2. DEFINITIONS.
a. TERMINATION FOR CAUSE. For purposes of this Agreement,
"Cause" shall include, but not be limited to, the following:
i. Willful dishonesty towards the Company, fraud upon
the Company or deliberate injury or intended injury
to the Company;
ii. Conviction of a felony; or
iii. Continued abuse of alcohol or drugs on the job or
otherwise materially affecting job performance.
b. "GOOD REASON." "Good Reason" shall mean:
i. The assignment to Employee of any duties inconsistent
with, or a significant adverse change in, Employee's
position, duties, responsibilities or status with the
Company as they existed immediately prior to a Change
in Control (as defined below); or removal of Employee
from or failure to re-elect Employee to any of such
positions, except in connection with the
<PAGE> 2
termination of employment for Cause or Disability, in
each case as defined herein; or
ii. A reduction by the Company in the Employee's base
salary or target bonus in effect immediately prior to
the Change in Control; or
iii. The Company's requiring Employee to relocate to a
city other than the city of Employee's residence
immediately prior to the Change in Control; or
iv. The failure by the Company to continue in effect any
material benefit available to employees of the
Company generally, or to key employees of the Company
including, but not limited to any retirement, pension
or incentive plan, life, accident, disability or
health insurance plans, stock or cash bonus plans or
savings and profit sharing plans, in which the
Employee is participating at the time of a Change in
Control of the Company (or plans providing Employee
with substantially similar benefits); any action by
the Company which would adversely affect the
Employee's participation in or materially reduce the
Employee's benefits under any of such plans or
deprive the Employee of any material fringe benefit
enjoyed by the Employee at the time of the Change in
Control; or the failure by the Company to make
available to the Employee the number of paid vacation
days to which the Employee had been entitled in
accordance with the Company's normal vacation policy.
c. "CHANGE IN CONTROL." For purposes of this Agreement, "Change
in Control" of the Company shall be deemed to have taken place
if:
i. Any person or group (as defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) becomes the beneficial
owner (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company
representing 33_% or more of the combined voting
power of the Company's then outstanding securities,
excluding (A) any person who becomes such a
beneficial owner in connection with a transaction
described in clause (A) of paragraph (iii) below (B)
Nicholas J. Sutton and/or P. Michael Highum
2
<PAGE> 3
and their affiliates; or (C) a trustee or fiduciary
holding securities under an employee benefit plan of
the Company.
ii. the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on the date hereof,
constitute the Board and any new director (other than
a director whose initial assumption of office is in
connection with an actual or threatened election
contest, including but not limited to a consent
solicitation, relating to the election of directors
of the Company) whose appointment or election by the
Board or nomination for election by the Company's
stockholders was approved or recommended by a vote of
at least two-thirds (2/3) of the directors then still
in office who either were directors on the date
hereof or whose appointment, election or nomination
for election was previously so approved or
recommended; or
iii. there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (A) a
merger or consolidation which would result in the
voting securities of the Company outstanding
immediately prior to such merger or consolidation
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity or any parent
thereof) at least 60% of the combined voting power of
the securities of the Company or such surviving
entity or any parent thereof outstanding immediately
after such merger or consolidation, or (B) a merger
or consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no person (other than the
person or persons specified in clauses (A) through
(D) of subparagraph (i) above) is or becomes the
beneficial owner, directly or indirectly, of
securities of the Company representing 33_% or more
of the combined voting power of the Company's then
outstanding securities; or
iv. the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or
there is consummated an agreement for the sale or
disposition by the Company of all or substantially
all of the
3
<PAGE> 4
Company's assets, other than a sale or disposition by
the Company of all or substantially all of the
Company's assets to an entity, at least 60% of the
combined voting power of the voting securities of
which are owned by stockholders of the Company in
substantially the same proportions as their ownership
of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not
be deemed to have occurred by virtue of the consummation of
any transaction or series of integrated transactions
immediately following which the record holders of the common
stock of the Company immediately prior to such transaction or
series of transactions continue to have substantially the same
proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately
following such transaction or series of transactions.
d. "DISABILITY." "Disability" shall mean a physical or mental
condition (other than that caused by or related to alcohol or
drug abuse), verified by a physician designated by the
Company, which prevents the Employee from carrying out one or
more of the material aspects of Employee's assigned duties for
at least ninety (90) consecutive days.
3. PAYMENTS UPON CHANGE IN CONTROL.
a. TERMINATION FOLLOWING CHANGE IN CONTROL. In the event of
termination of the Employee's employment within two years
after the effective date of a Change in Control of the
Company, either by the Employee for Good Reason or by the
Company other than for Disability, retirement at age 65, or
Cause, the Company shall pay the Employee as follows:
i. The Employee's base salary through the date of
termination at the rate then in effect at the time
the notice of termination is given; and
ii. The prorated portion of the bonus the Employee would
have received for that year had his employment not
terminated; and
iii. A lump sum severance payment equal to the product of
[1.0] [2.0] [2.99] times the Employee's average
annual base salary in effect during the three (3)
year period immediately preceding the date of
termination ; and
4
<PAGE> 5
iv. A lump sum bonus payment equal to the product of
[1.0] [2.0] [2.99] times the Employee's highest
annual bonus amount (other than any bonus or payment
designated as a special commendation bonus or the
like) from the three years immediately preceding the
date of termination, if any, previously paid to the
Employee. In the event the date of termination
occurs in the course of a bonus period, the
fractional time period shall not be considered in
determining the additional payments to be made under
this paragraph.
v. Unless the parties shall otherwise agree, all amounts
payable under this paragraph 3. shall be paid within
ten (10) calendar days after termination. Any
amounts not timely paid shall bear interest at a rate
of eighteen percent (18%) per annum compounded daily.
vi. In addition, notwithstanding anything to the contrary
contained herein or in any agreement with respect
hereto, the Company shall, if requested by the
Employee, pay for one year of health insurance
premiums (and, if applicable, administrative fees)
under COBRA.
4. LIMITATION. In order to avoid adverse tax consequences to the Company
and the Employee from application of Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), if payment of
the amounts prescribed in paragraph 3., when aggregated with all other
payments required to be made to the Employee by the Company (under any
agreement or arrangement between the Company and Employee) as a
consequence of a Change in Control, would result in an "excess
parachute payment" as such term is defined in Section 280G of the
Code, then the amount which otherwise would be paid to Employee under
paragraph 3. hereof shall be limited to the maximum whole dollar
amount which can be paid to the Employee without resulting in any
"excess parachute payment." In the event of a disagreement between
the Company and Employee as to whether a particular payment or
payments under this or any other agreement between the parties would
result in "excess parachute payments," the Company shall pay the
Employee the undisputed amount in accordance with paragraph 3.a.vi.,
and the Employee may request that the Company promptly obtain a ruling
from the Internal Revenue Service and, if so requested, the Company
shall submit a properly prepared
5
<PAGE> 6
ruling request, approved as to form and content by the Employee,
within sixty days after the date of the Employee's request. The
Employee may independently request a ruling on the same matter, and,
in the event a ruling requested by either the Company or the Employee
concludes that the disputed payment or payments is not an "excess
parachute payment," appropriate additional payments shall be promptly
made under paragraph 3. hereof. In the event the Internal Revenue
Service, at such time, maintains a no ruling policy on such requests,
in the event the Internal Revenue Service refuses to rule on the
specific issue presented, or in the event the Company fails to obtain
a ruling within one year of the date the ruling is requested, the
Employee may submit to the Company an opinion of independent tax
counsel stating that a reasonable basis exists for the position that
an additional payment will not result in an "excess parachute
payment," and the Company will, within thirty (30) days following
receipt of such opinion, make the requested additional payment to the
Employee, provided that the terms of such payment shall include an
agreement by the Employee that, in the event such payment is finally
determined to constitute an "excess parachute payment," the Employee
will refund the portion of the payment which constitutes an "excess
parachute payment" together with the amount of interest thereon
necessary to reduce the present value of such payment (measured from
the date of payment) to zero.
5. ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their
respective successors, assigns, executors, administrators and heirs.
6. MISCELLANEOUS.
a. COMPLETE AGREEMENT. This supersedes all other agreements
between the parties to the extent and only to the extent of
provisions in any other agreement that are less favorable to
the Employee than the provisions contained in this Agreement.
b. MODIFICATION, AMENDMENT, WAIVER. No modification, amendment
or waiver of any provisions of this Agreement shall be
effective unless approved in writing by both parties. The
failure at any time to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party
thereafter to enforce each and every provision hereof in
accordance with its terms.
6
<PAGE> 7
c. GOVERNING LAW; JURISDICTION. This Agreement shall be
construed in accordance with the laws of the state where
Employee resides at the time of termination. For the purposes
of any legal action, the Employee hereby submits to the
jurisdiction of and proper venue in (i) the state court of
general jurisdiction located in the county where the Company
maintains its primary office in the state in which the
Employee resides at the time of termination; or (ii) the
United States District Court in the District where the Company
maintains its primary office in the state in which the
Employee resides at the time of termination. The Employee
agrees that service upon the Employee in any such action may
be made by first class mail, certified or registered, to the
Employee's address as last appearing on the records of the
Company.
d. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only
to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining
provisions of this Agreement.
e. ATTORNEYS' FEES. In the event of litigation to interpret or
enforce this Agreement, the prevailing party shall be entitled
to reimbursement of its reasonable attorneys' fees and costs
of suit in addition to such other relief as may be granted.
f. NOTICES. All notices and other communications under this
Agreement (including notice of a change of address for
purposes of this Agreement) shall be in writing and shall be
given in person or by telegraph, telefax or first class mail,
certified or registered with return receipt requested, and
shall be deemed to have been duly given when delivered
personally or three days after mailing or one day after
transmission of a telegram or telefax (receipt confirmed), as
the case may be, to the respective persons named below:
If to the Company:
HS Resources, Inc.
One Maritime Plaza, 15th Floor
San Francisco, CA 94111
Attention: Chief Executive Officer
7
<PAGE> 8
with a copy to:
HS Resources, Inc.
1999 Broadway, Suite 3600
Denver, CO 80202
Attention: General Counsel
If to the Employee:
-------------------------
-------------------------
-------------------------
g. ACKNOWLEDGMENT. The Employee acknowledges that he is
voluntarily executing this Agreement after having had full
opportunity to consult with legal counsel and without being
pressured or influenced by any statement or representation of
any person acting on behalf of the Company including the
officers, agents and attorneys for the Company.
7. NO TERMINATION BY MERGER, TRANSFER OF ASSETS OR DISSOLUTION. This
Agreement shall not be terminated by any voluntary or involuntary
dissolution of the Company or the transfer of all or substantially all
the assets of the Company or the merger of the Company with or into
another entity.
8. GENERAL RELEASES.
a. Upon payment of the severance amount, and in further
consideration for it, the Employee shall voluntarily and
knowingly release and discharge the Company and its
successors, subrogees, assigns, insurers, principals, agents,
partners, heirs, employees, shareholders, officers, directors,
subsidiaries, affiliates and associates from any past, present
or future claims, actions, causes of action, wages,
reimbursements, liabilities, demands, rights, damages, costs,
attorneys' fees, expenses and controversies of every kind and
description which arise from or are based on acts, omissions,
events or circumstances which occurred before the Change in
Control.
b. The release shall include, by way of example and not
limitation, a complete and final release and discharge of all
claims and rights which arise from and are based
8
<PAGE> 9
on acts, omissions, events or circumstances which occurred
before the Change in Control, including those which arise out
of, relate to, or are based on (i) Employee's employment with
the Company, (ii) the negotiations leading up to the execution
of this Agreement, (iii) Title VII of the Civil Rights Act of
1964, all federal Civil Rights Acts, the Age Discrimination in
Employment Act, the Older Workers Benefit Protection Act, the
American with Disabilities Act, the Employee's Income
Retirement Security Act of 1974, and all other state and
federal statutes, (iv) any statements, acts or omissions by
any agent or representative of the Employee whether in his or
her representative or individual capacity or (v) wages claimed
pursuant to C.R.S. Section 8-4-104; Okla. Stat. Tit. 40
Sections 165.3 and 165.9; Cal. Labor Code Sections 201-203;
and Tex. Labor Code Ann. Section 61.014.
c. The release shall include claims of every nature and kind,
known or unknown, suspected or unsuspected. The Employee
acknowledges that he may later discover facts different from,
or in addition to, those which he now knows to be, learns or
believes to be true with respect to his employment, and he
agrees that this Agreement provides for all of the releases
contained herein which shall be and remain effective in all
respects, notwithstanding such different or additional facts
or the discovery thereof.
IN WITNESS WHEREOF, the parties have executed this Severance Agreement
as of the day and year first above written.
COMPANY:
HS RESOURCES, INC., a Delaware corporation
By:
-----------------------------------------
Nicholas J. Sutton
Chief Executive Officer and Chairman
EMPLOYEE:
---------------------------------------------
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,172,315
<SECURITIES> 0
<RECEIVABLES> 51,088,537
<ALLOWANCES> 0
<INVENTORY> 1,785,489
<CURRENT-ASSETS> 58,969,861
<PP&E> 1,187,527,123
<DEPRECIATION> 206,009,474
<TOTAL-ASSETS> 1,051,166,187
<CURRENT-LIABILITIES> 75,595,401
<BONDS> 637,733,034
0
0
<COMMON> 18,693
<OTHER-SE> 226,508,360
<TOTAL-LIABILITY-AND-EQUITY> 1,051,166,187
<SALES> 61,695,426
<TOTAL-REVENUES> 63,768,345
<CGS> 15,796,845
<TOTAL-COSTS> 30,420,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,233,543
<INCOME-PRETAX> 5,317,240
<INCOME-TAX> 2,025,868
<INCOME-CONTINUING> 3,291,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,291,372
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
