-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SKHBTP+U2zh3RVMPFlaohcNH0yy6imMHG3dAyMjVyYzzFCKfkJ3SKoSS+yU9FGTi g1ixEb9JLl63NhUrEPdd1w== 0001047469-99-032388.txt : 19990817 0001047469-99-032388.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032388 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BASIN EXPLORATION INC CENTRAL INDEX KEY: 0000827795 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 841143307 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20125 FILM NUMBER: 99692149 BUSINESS ADDRESS: STREET 1: 370 SEVENTEENTH ST STE 1800 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3036858000 MAIL ADDRESS: STREET 2: 370 SEVENTEENTH STREET SUITE 1800 CITY: DENVER STATE: CO ZIP: 80202 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number 0-20125 BASIN EXPLORATION, INC. (Exact name of registrant as specified in its charter) DELAWARE 84-1143307 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 370 17TH STREET, SUITE 3400, DENVER, CO 80202 (Address of principal executive offices) (Zip Code) (303) 685-8000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of Common stock, as of the latest practicable date. Outstanding at Class August 6, 1999 ---------------------------- ----------------- Common stock, $.01 par value 18,399,000 shares BASIN EXPLORATION, INC. INDEX
PART I. FINANCIAL INFORMATION PAGE Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999...................... 3 Consolidated Statements of Operations for the three and six months ended June 30, 1998 and 1999........ 5 Consolidated Statements of Changes in Stockholders' Equity..................................... 6 Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1999.................. 7 Notes to Consolidated Financial Statements............... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risks....................................... 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................ 21 Item 2. Changes in Securities and Use of Proceeds................ 21 Item 3. Defaults Upon Senior Securities.......................... 21 Item 4. Submission of Matters to a Vote of Security Holders...... 22 Item 5. Other Information........................................ 22 Item 6. Exhibits and Reports on Form 8-K......................... 22 SIGNATURES.............................................................. 25
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BASIN EXPLORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND JUNE 30, 1999 ASSETS
(In thousands) December 31, June 30, 1998 1999 ------------ ------------ CURRENT ASSETS Cash and equivalents $ 331 $ 5,243 Accounts receivable 10,036 10,002 Prepaids and other 2,752 4,467 --------- --------- 13,119 19,712 --------- --------- PROPERTY AND EQUIPMENT, at cost: Oil and gas properties, under the full cost method of accounting Proved 265,826 296,460 Unproved 34,039 30,377 Less accumulated depreciation, depletion and amortization (113,462) (132,249) --------- --------- 186,403 194,588 Furniture and equipment, net 1,408 1,442 --------- --------- 187,811 196,030 --------- --------- OTHER ASSETS 233 499 --------- --------- $ 201,163 $ 216,241 --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 3 BASIN EXPLORATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND JUNE 30, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except share data) December 31, June 30, 1998 1999 ------------ ------------ CURRENT LIABILITIES: Accounts payable $ 12,465 $ 5,859 Accrued liabilities 13,620 10,812 Current portion of long-term debt 258 82 --------- --------- 26,343 16,753 --------- --------- LONG-TERM DEBT, net of current portion 80,000 34,000 OTHER LONG-TERM OBLIGATIONS 601 120 STOCKHOLDERS' EQUITY: Preferred stock, par value $.01 per share; 10,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, par value $.01 per share, 50,000,000 shares authorized, 14,151,000 and 18,567,000 shares issued, respectively 142 186 Additional paid-in capital 113,136 181,439 Accumulated deficit (16,488) (13,439) Common stock held in treasury, at cost, 186,000 and 202,000 shares, respectively (2,571) (2,818) --------- --------- Total stockholders' equity 94,219 165,368 --------- --------- $ 201,163 $ 216,241 --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. 4 BASIN EXPLORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended June 30, June 30, (In thousands, except per share data) 1998 1999 1998 1999 -------- -------- -------- -------- REVENUE: Oil sales $ 2,697 $ 3,248 $ 5,387 $ 5,494 Gas sales 9,219 17,033 16,764 27,829 Interest and other, net (8) 31 13 44 -------- -------- ------- -------- 11,908 20,312 22,164 33,367 -------- -------- ------- -------- COSTS AND EXPENSES: Lease operating expenses 2,450 3,023 4,593 5,478 Production taxes 204 191 438 267 Depreciation, depletion and amortization 6,741 10,633 12,727 19,179 General and administrative, net 873 1,287 1,783 2,460 Stock compensation, net 117 585 319 839 Interest expense 375 1,146 788 2,095 -------- -------- ------- -------- 10,760 16,865 20,648 30,318 -------- -------- ------- -------- INCOME BEFORE INCOME TAXES 1,148 3,447 1,516 3,049 Income tax provision 402 -- 531 -- -------- -------- ------- -------- NET INCOME $ 746 $ 3,447 $ 985 $ 3,049 -------- -------- ------- -------- -------- -------- ------- -------- BASIC: Earnings per share $ 0.05 $ 0.24 $ 0.07 $ 0.22 -------- -------- ------- -------- -------- -------- ------- -------- Weighted average shares outstanding 13,845 14,373 13,814 14,179 -------- -------- ------- -------- -------- -------- ------- -------- DILUTED: Earnings per share $ 0.05 $ 0.23 $ 0.07 $ 0.21 -------- -------- ------- -------- -------- -------- ------- -------- Weighted average shares outstanding 14,524 14,780 14,381 14,383 -------- -------- ------- -------- -------- -------- ------- --------
The accompanying notes are an integral part of these consolidated financial statements 5 BASIN EXPLORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH JUNE 30, 1999
RETAINED EARNINGS ADDITIONAL -------- TOTAL COMMON STOCK PAID-IN TREASURY STOCK (ACCUM. STOCKHOLDERS' (In thousands) SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT) EQUITY - -------------------------------------- -------- -------- ---------- -------- -------- -------- ------------- BALANCES, January 1, 1998 13,833 $ 138 $ 110,627 (120) $ (1,412) $ 12,012 $ 121,365 Issuance of common stock 130 2 627 -- -- -- 629 Exercise of warrants for common stock 79 1 1,107 (62) (1,108) -- -- Purchase of treasury stock -- -- -- (4) (51) -- (51) Issuance and vesting of restricted stock 109 1 775 -- -- -- 776 Net income (loss) -- -- -- -- -- (28,500) (28,500) -------- -------- --------- ------- -------- --------- --------- BALANCES, December 31, 1998 14,151 142 113,136 (186) (2,571) (16,488) 94,219 Issuance of common stock 4,357 44 67,309 -- -- -- 67,353 Common stock offering costs -- -- (465) -- -- -- (465) Purchase of treasury stock -- -- -- (13) (187) -- (187) Issuance and vesting of restricted stock 55 -- 1,399 -- -- -- 1,399 Exercise of warrants for common stock 4 -- 60 (3) (60) -- -- Net income -- -- -- -- -- 3,049 3,049 -------- -------- --------- ------- -------- --------- --------- BALANCES, June 30, 1999 18,567 $ 186 $ 181,439 (202) (2,818) $(13,439) $ 165,368 -------- -------- --------- ------- -------- --------- --------- -------- -------- --------- ------- -------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements 6 BASIN EXPLORATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, (In thousands) 1998 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 985 $ 3,049 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation, depletion and amortization 12,727 19,179 Deferred income tax provision 431 -- Stock compensation expense 319 839 Other 16 7 -------- -------- 14,478 23,074 Changes in operating assets and liabilities - Decrease (increase) in Receivables 299 (1,417) Prepaids and other (839) (1,579) (Decrease) increase in - Accounts payable and accrued liabilities (663) (2,659) Ad valorem taxes and other (179) (221) Income taxes payable (19) -- -------- -------- Net cash provided by operating activities 13,077 17,198 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital additions (57,877) (41,054) Proceeds from sale of property and equipment 22 8,682 -------- -------- Net cash used in investing activities (57,855) (32,372) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable and long-term debt 56,000 43,000 Principle payments on notes payable and long-term debt (10,575) (89,176) Proceeds from sale of stock, net 312 66,712 Purchase of treasury stock (20) (10) Debt issuance costs and other (6) (440) -------- -------- Net cash provided by financing activities 45,711 20,086 -------- -------- INCREASE IN CASH AND EQUIVALENTS 933 4,912 CASH AND EQUIVALENTS, beginning of period 531 331 -------- -------- CASH AND EQUIVALENTS, end of period $ 1,464 $ 5,243 -------- -------- -------- -------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest, net of amounts capitalized $ 546 $ 2,242 -------- -------- -------- -------- Cash paid for income taxes $ 119 $ -- -------- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial statements 7 BASIN EXPLORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) UNAUDITED FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly the financial position of Basin Exploration, Inc. and its wholly-owned subsidiaries (collectively, "Basin" or the "Company") as of June 30, 1999, and the results of operations and cash flows for the three and six month periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. Management believes the disclosures made are adequate to ensure that the information is not misleading and suggests that these financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (2) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The Statement establishes accounting and reporting standards requiring that every derivative instrument including certain derivative instruments embedded in other contracts be recorded on the balance sheet as either an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Basin is required to adopt the Statement as of January 1, 2001, but may implement the Statement as of the beginning of any fiscal quarter prior to that date. Statement 133 cannot be applied retroactively. Basin has not yet quantified the impacts of adopting Statement 133 or determined the timing or method of adoption. However, Statement 133 could increase the volatility of the Company's earnings and comprehensive income. (3) ACCOUNTING FOR OIL AND GAS PROPERTIES Basin follows the full cost method of accounting for oil and gas properties. Under this method, all costs associated with the acquisition, exploration and development of oil and gas properties are capitalized. If capitalized costs, net of amortization and related deferred taxes, exceed the full cost ceiling, the excess would be expensed in the period such excess occurs. Calculation of the full cost ceiling includes an estimate of the discounted value of future net cash flows attributable to proved reserves using various assumptions and parameters consistent with promulgations of the Securities and Exchange Commission, and such calculation is sensitive to changes in prevailing oil and gas sales prices. Oil and gas prices are volatile and reflect seasonal factors, as well as other supply and demand conditions. A decline in prices subsequent to June 30, 1999 could result in a requirement that Basin recognize an impairment expense in a future period. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to assist you in understanding our results of operations and our present financial condition and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto. Statements in this discussion may be forward-looking. Such forward-looking statements involve risks and uncertainties, including those discussed below, that could cause actual results to differ significantly from those expressed. See "Forward Looking Statements." Basin Exploration, Inc. ("Basin" or the "Company") is a domestic independent oil and gas company that conducts exploration, acquisition and production activities in the shallow waters of the Gulf of Mexico and selected areas onshore. Basin commenced operations in 1981 and primarily acquired, developed and exploited properties in the Denver-Julesberg ("D-J") Basin in eastern Colorado through 1991. In 1992, we began expanding into other areas within the Rocky Mountain region and initiated exploration activities. In 1996, we sold our D-J Basin properties, representing approximately two-thirds of our oil and gas properties at that time, for $123.5 million (the "D-J Sales") and initiated operations in the Gulf of Mexico. Since that time, the Company's principal investment activities have related to property acquisitions, exploratory drilling, and property development in the shallow waters of the outer continental shelf in the Gulf of Mexico. To a lesser extent, we have conducted similar activities in the Rocky Mountain region, primarily in the Green River and Powder River Basins in Wyoming, and, beginning in 1999, in the onshore Gulf Coast areas of Louisiana and Texas. During the first six months of 1999, we participated in drilling five exploratory wells and one development well in the Gulf of Mexico and one exploratory well in the Green River Basin. Of these, we have completed or plan to complete two exploratory wells and the development well drilled in the Gulf and the well drilled in the Green River Basin. RESULTS OF OPERATIONS The following operating and financial data, in conjunction with the discussion below, is provided to assist you in understanding our results of operations for the periods presented. 9
Three Months Ended Six Months Ended June 30 June 30 --------------------- ----------------------- 1998 1999 1998 1999 -------- ---------- ---------- ---------- PRODUCTION: Oil (MBBL) 189 223 372 388 Gas (MMCF) 3,936 7,932 7,336 13,736 Total gas equivalents (MMCFE) 5,070 9,270 9,568 16,064 REVENUE (IN THOUSANDS): Oil sales $ 2,697 $ 3,248 $ 5,387 $ 5,494 Gas sales $ 9,219 $ 17,033 $ 16,764 $ 27,829 Total oil and gas sales $ 11,916 $ 20,281 $ 22,151 $ 33,323 AVERAGE SALES PRICE: Oil (PER BBL) $ 14.26 $ 14.57 $ 14.47 $ 14.15 Gas (PER MCF) $ 2.34 $ 2.15 $ 2.29 $ 2.03 Total gas equivalents (PER MCFE) $ 2.35 $ 2.19 $ 2.31 $ 2.07 EXPENSES (PER MCFE): Lease operating expenses $ 0.48 $ 0.33 $ 0.48 $ 0.34 Production taxes $ 0.04 $ 0.02 $ 0.05 $ 0.02 Depreciation, depletion and amortization $ 1.33 $ 1.15 $ 1.33 $ 1.19 General and administrative, net $ 0.17 $ 0.14 $ 0.19 $ 0.15
REVENUE. Oil and gas sales for the three months ended June 30, 1999 totaled $20.3 million, representing an increase of $8.4 million, or 70%, compared to the second quarter of 1998. An 83% increase in net oil and gas production was partially offset by a 7% decline in unit prices, based on net equivalent unit measures. Oil and gas sales for the six months ended June 30, 1999 totaled $33.3 million, representing an increase of $11.2 million, or 50%, compared to the first half of 1998 . A 68% increase in net oil and gas production was partially offset by a 10% decline in unit prices, based on net equivalent unit measures. The increases in oil and gas production are attributable to contributions during the first half of 1999 from 16 Gulf of Mexico properties compared to ten in the prior-year period. Due to the additional Gulf of Mexico production, which is predominantly gas, and lower oil production from onshore properties, on which investments were deferred due to low oil prices, gas increased from 77% of net equivalent units produced in the first half of 1998 to 86% of the Company's total oil and gas production in the first half of 1999. Hedging transactions had the effect of decreasing oil and gas sales by $0.9 million, or $0.09 per Mcfe in the three months ended June 30, 1999, as compared to increasing oil and gas sales by $0.6 million, or $0.12 per Mcfe, in the three months ended June 30, 1998. Hedging transactions had the effect of increasing oil and gas sales by $0.5 million, or $0.03 per Mcfe in the six months ended June 30, 1999, and $1.0 million, or $0.10 per Mcfe, in the six months ended June 30, 1998. LEASE OPERATING EXPENSES. Due to an increased number of producing properties and higher production levels, lease operating expenses for the three and six months ended June 30, 1999 increased by $0.6 million, or 23%, and $0.9 million, or 19%, respectively, from the amounts reported for the comparable periods in the prior year. However, lease operating costs per Mcfe produced declined by approximately 30%, from $0.48 in the three and six months ended June 30, 1998, to $0.33 and $0.34 during the three and six months ended June 30, 1999, respectively. These decreases in per-unit costs were due to increased production in 1999 from Gulf of Mexico wells, which typically have significantly lower average unit operating costs than our Rocky Mountain properties. 10 PRODUCTION TAXES. Production taxes for the three and six months ended June 30, 1999 were $0.2 million and $0.3 million, representing decreases of $13,000, or 6%, and $0.2 million, or 39%, respectively, from amounts reported for the comparable periods in 1998. These declines were due to reduced revenue from onshore properties caused by lower oil and gas prices and a decline in production from such properties. Production taxes as a percentage of oil and gas sales for the three and six months ended June 30, 1999 were 0.9 % and 0.8%, compared to 1.7% and 2.0%, respectively in 1998, due to a greater portion of sales in 1999 attributable to properties in federal waters offshore, which are generally not subject to production taxes. DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and amortization expense for the three and six months ended June 30, 1999 was $10.6 million and $19.2 million, representing increases of $3.9 million, or 58%, and $6.5 million, or 51%, respectively, compared to 1998. The increases were attributable to the 83% and 68% increases in production volumes for the three and six month periods ended June 30, 1999, relative to the comparable periods in 1998. The depletion rate of $1.17 per Mcfe of production in the six months ended June 30, 1999 represented a 9% decrease from the $1.28 per Mcfe average depletion rate during the first half of 1998. The lower rate is principally due to the effects of a property impairment charge recorded in the fourth quarter of 1998. GENERAL AND ADMINISTRATIVE, NET. General and administrative expenses for the three and six months ended June 30, 1999 were $1.3 million and $2.5 million, reflecting increases of $0.4 million, or 47%, and $0.7 million, or 38%, respectively, as compared to 1998. The increases resulted primarily from incremental costs incurred to manage our expanded operations in the Gulf of Mexico. Percentage increases in general and administrative expenses were smaller than increases in production, resulting in declines in general and administrative expenses per Mcfe produced, from $0.17 and $0.19 during the three and six month periods ended June 30, 1998, to $0.14 and $0.15, respectively, in the three and six month periods ended June 30, 1999. STOCK COMPENSATION, NET. Stock compensation expense for the three and six months ended June 30, 1999 was $0.6 million and $0.8 million, reflecting an increase of $0.5 million for both the three and six month periods ended June 30, 1999, compared to the same periods of 1998. Grants of performance shares under Basin's equity incentive plan are required to be "marked-to-market." The increased expense reflects, in part, an increase in the price of the Company's common stock from $12.56 per share at December 31, 1998 to $20.06 per share at June 30, 1999. INTEREST EXPENSE. Interest expense for the three and six months ended June 30, 1999 totaled $1.1 million and $2.1 million, representing increases of $0.8 million, or 206%, and $1.3 million, or 166%, respectively, as compared to 1998. The increases were attributable to higher average borrowings and interest rates, partially offset by increased amounts capitalized to unproved property costs in the 1999 periods, in accordance with Statement of Financial Accounting Standard No. 34. During the three months ended June 30, 1999, Basin had average outstanding debt of $94.4 million, with an average effective interest rate of 6.8%, compared to average debt of $46.6 million and an average interest rate of 6.5% in the comparable 1998 period. During the six months ended June 30, 1999, Basin had average outstanding debt of $91.5 million, with an average effective interest rate of 6.8%, compared to average debt of $34.6 million and an average interest rate of 6.7% in the comparable 1998 period. Interest of $0.5 million and $1.1 million was capitalized during the three and six months ended June 30, 1999, respectively, as compared to $0.4 million for the three and six months ended June 30, 1998. 11 INCOME TAX BENEFIT (PROVISION). The income tax provisions for 1998 approximate the amounts that would be calculated by applying statutory income tax rates to income before income taxes. No income tax provision has been recorded in 1999 due to an equivalent decrease in the previously established deferred tax asset valuation allowance. LIQUIDITY AND CAPITAL RESOURCES Historically, Basin's principal sources of capital have been cash flow from operations, a revolving line of credit established with a group of banks (the "Credit Facility"), proceeds from asset sales, and proceeds from sales of common stock. Our principal uses of capital have been for acquisition, exploration and development of oil and gas properties. During June 1999, Basin realized net proceeds of approximately $66.6 million from the sale of 4.313 million shares of its common stock through an underwritten public offering. Initially, proceeds from this equity sale were used to repay a portion of debt outstanding under the Credit Facility. However, with the net proceeds from the stock offering and approximately $9 million realized from asset sales in the first half of 1999, we have increased our 1999 budget for exploration and development from $65 million to $95 million. We estimate that this budget expansion will enable us to increase our exploratory drilling activities during the year by approximately 50% compared to planned activities under our initial 1999 budget, and compared to our drilling activity during 1998. Although acquisitions of properties with proved and probable reserves are also pursued as an integral part of our overall business strategy, such transactions are not budgeted. We plan to continue to monitor and potentially adjust our budget to reflect changes in the general business environment, variances from assumptions, or specific business opportunities. Net cash provided by operations before changes in working capital totaled $23.1 million during the six months ended June 30, 1999, including $14.7 million related to the most recent fiscal quarter. Other sources of funds during the first half of 1999 included $66.7 million of proceeds from issuance of common stock and $8.7 million of asset sales. Funds were utilized for accrual-basis capital expenditures of $35.5 million, net repayment of $46.2 million of debt, and a $16.2 million increase in net working capital. The Company closed the first half of 1999 with working capital of approximately $3.0 million, long-term debt of $34.0 million, and stockholders' equity of $165.4 million. The borrowing base presently established under our Credit Facility is $90 million, of which $56 million was unutilized as of June 30, 1999. PRODUCTION. Our cash flow from operations is generally determined by our production level and oil and gas prices. Since 1996, we have made significant investments to initiate and then expand our operations in the Gulf of Mexico. These investments have resulted in an increase in our production from an average of 11.2 MMcfe per day in the second quarter of 1997, prior to commencement of Gulf of Mexico production, to an average of 101.9 MMcfe per day in the second quarter of 1999. As of August 1, 1999, we owned interests in 16 producing properties in the Gulf of Mexico and in five properties in the Gulf that were under development for first production. We do not anticipate initial production from any of the five properties presently under development during the quarter ending September 30, 1999 but project that four of these properties will commence production 12 during the fourth quarter of this year. Although we believe these projections are reasonable, there is no assurance that they will be met. See "Forward Looking Statements" for a description of certain risks that may impact our ability to achieve projected results. MARKETING AND HEDGING TRANSACTIONS. Basin's production is generally sold under month-to-month contracts at prevailing prices. From time to time, however, as conditions are deemed to warrant, we have entered into hedging transactions or fixed price sales contracts for a portion of our oil and gas production. The purposes of these transactions are to limit Basin's exposure to future oil and gas price declines and achieve a more predictable cash flow. However, such contracts may also limit the benefits we would realize if prices increase. Hedging transactions had the effect of decreasing oil and gas sales by $0.9 million, or $0.09 per Mcfe, in the three months ended June 30, 1999, as compared to increasing oil and gas sales by $0.6 million, or $0.12 per Mcfe, in the three months ended June 30, 1998. Hedging transactions had the effect of increasing oil and gas sales by $0.5 million, or $0.03 per Mcfe, in the six months ended June 30, 1999, and by $1.0 million, or $0.10 per Mcfe, in the six months ended June 30, 1998. Through August 5, 1999, Basin had entered into the following fixed price swap and collar arrangements covering the period beginning July 1, 1999 (one MMBtu approximates one Mcf of gas). The positions shown are net of hedging contracts entered into that contractually offset certain previously established swap arrangements at price levels that will reduce revenue in each of the third and fourth quarters of 1999 by approximately $0.3 million.
GAS SWAPS OIL COLLARS --------------------------------- ----------------------------------------- Average Daily Average NYMEX Average NYMEX NYMEX Time Period Volume (MMBtu) Price/MMBtu Daily Floor Ceiling Volume (Bbl) Price/Bbl Price/Bbl - ---------------- --------------- -------------- ------------ --------- --------- 7/1/99-9/30/99 30,000 2.10 1,000 14.00 16.00 10/1/99-12/31/99 18,300 2.09 1,000 14.00 16.00 1/1/00-12/31/00 3,300 2.15 1/1/01-12/31/03 10,000 2.15
In addition, we have periodically entered into spread trades or options transactions related to oil or gas futures markets. Under a spread trade, fixed prices under a hedging contract are determined in the future by reference to the price of an underlying contract. Such positions may enable us to lock in favorable fixed prices for future hedging positions, but can also result in unfavorable fixed price contracts if the reference price declines. As of August 6, 1999, Basin had an outstanding gas spread trade that provides for a fixed price for 10,000 MMBtu per day for the period of March 2000 through October 2000 to be established in the future, when so elected by Basin, at a price equal to the New York Mercantile Exchange February 2000 contract price less $0.41. As of August 5, 1999, we had also sold the following call options: 20,000 MMBtu of gas per day for the period from July 1999 through November 1999, at a strike price of $1.95 per MMBtu; 10,000 MMBtu of gas per day for the period from July 1999 through December 2001, at an average strike price of $2.50 per MMBtu; and 1,000 barrels of oil per day for the period from July 1999 through December 1999, at a strike price of $16.75 per barrel. REVOLVING LINE OF CREDIT. Effective January 1, 1999, we entered into the Credit Facility with our existing bank group that provided for borrowings of up to $110 million under two combined facilities. Facility A, currently established at $90 million, represents the borrowing base that is considered to be "conforming" based upon the banks' customary practices and standards in making conventional borrowing base determinations for oil and gas producers. Facility B, which was initially established at $20 million, was a shorter-term supplemental line of credit which terminated upon the consummation of the June 1999 offering of common stock. Interest rates 13 applied to borrowings under the Credit Facility are determined by reference to the prime rate or LIBOR, at our election. Facility A provides for a varying spread of 0% to 0.25% to be added to the prime rate, or 0.75% to 1.5% to be applied to LIBOR, based upon our facility usage ratio. Our Credit Facility provides for borrowings to be revolving loans until November 30, 2001, at which time the outstanding balance will be converted into a four-year amortizing term loan unless the Credit Facility is amended. The borrowing base under the Credit Facility is scheduled to be re-determined at six-month intervals until the revolving loan is converted into a term loan. The next re-determination is scheduled to occur as of October 1, 1999. Our Credit Facility contains various covenants, including limitations on our ability to incur other debt, dispose of assets, pay dividends, or repurchase stock. Pursuant to our Credit Facility, substantially all of our producing properties are subject to mortgages in favor of the banks and our remaining properties are subject to a negative pledge. The weighted average interest rate on borrowings outstanding under the Credit Facility at June 30, 1999 was 5.7%. Our annual interest costs will fluctuate based upon changes in short-term interest rates and borrowings outstanding. Assuming debt outstanding remained unchanged from the amount outstanding at June 30, 1999, the annual impact on interest expense of a ten percent change in the average interest rate would be approximately $0.2 million, before amounts capitalized. As the interest rate is variable and is reflective of current market conditions, the carrying value of Basin's debt approximates its fair value. Borrowing base re-determinations conducted by the bank group reflect a number of estimates and assumptions including, but not limited to, future production from Basin's proved properties, risk factors for estimates of proved reserves, future oil and gas prices, future operating and development costs, and future interest rates. Changes in such estimates and assumptions can significantly impact the size of the borrowing base established by the banks. Because these factors will be influenced by future events that cannot be forecast with certitude, we cannot predict what level of borrowing base will be established at any future determination date. CAPITAL EXPENDITURES. Since the beginning of 1996, our primary exploration activities have been focused in the shallow waters of the Gulf of Mexico, predominantly off the coast of Louisiana. During the second half of 1998, we began to direct a small portion of our exploration budget toward onshore opportunities. We also pursue acquisition and development opportunities in the vicinity of our Gulf of Mexico exploration operations, in the Rocky Mountain region where we have an existing base of proved reserves and producing wells, and in certain other major domestic producing basins where we believe significant upside potential exists. Our capital expenditures are generally discretionary and activity levels are determined by a number of factors, including oil and gas prices, availability of funds, quantity and character of identified investment projects, availability of service providers, and competition. Basin's initial budget for 1999 provided for capital investments of approximately $65 million, subject to an increase for proceeds from anticipated asset sales. With the net proceeds from the offering and approximately $9 million from asset sales to date in 1999, we have increased our 1999 budget to $95 million. We estimate that this budget expansion will enable us to increase our exploratory drilling activities during the year by approximately 50% compared to planned activities under our initial 1999 budget. Given the prevailing lower cost of oil field services today compared to 1998, and lower planned current year investment to acquire prospect leaseholds, we 14 believe our expanded 1999 budget will result in significantly greater drilling activity than our $107 million of capital expenditures in 1998. Our current 1999 budget primarily provides for: - - development of seven Gulf of Mexico properties with one or more discovery wells yet to commence sustained production as of the end of 1998; - - acquisitions of seismic data and exploratory prospect leaseholds; - - participation in approximately nine net (18 to 20 gross) exploratory wells in the Gulf of Mexico; - - participation in four to eight onshore exploration opportunities, primarily in the Greater Green River Basin in Wyoming and the onshore Gulf Coast area; - - development of projected 1999 exploratory discoveries; and - - continued exploitation of our other offshore and onshore properties. We also intend to pursue acquisitions of properties with proved and probable reserves as an integral part of our overall business strategy, with the expectation that these efforts will result in significant investment activity over time. At this time, no portion of our 1999 budget has been specifically allocated for acquisitions of proved properties. If such a transaction is executed, it may require a re-allocation of funds from other planned activities and/or external financing. During the first half of 1999, Basin's accrual-basis capital expenditures totaled approximately $35.5 million. Such investments were primarily for development of several Gulf of Mexico properties on which discovery wells were drilled during the prior year, participation in drilling five (2.5 net) Gulf of Mexico exploratory wells and one (0.6 net) onshore exploratory well, related completion costs on two (0.8 net) of the Gulf of Mexico exploratory wells and the onshore well, and acquisitions of additional Gulf of Mexico 3-D seismic data and leasehold interests. We expect to be able to fund our planned exploration and development activities during the second half of 1999 primarily utilizing cash flow, working capital, and additional borrowings under the Credit Facility. However, the amount and allocation of future capital expenditures will depend on a number of factors that are not entirely within Basin's control or ability to forecast, including drilling results, scheduling of activities by other operators, availability of service providers, success in acquiring prospect leaseholds, and success in consummating acquisitions of proved properties. Basin's planned capital expenditures are also based on estimates regarding availability of capital that depend on assumptions and estimates regarding production, oil and gas prices, and borrowing base re-determinations under our revolving line of credit. Due to these uncertainties, actual capital expenditures may vary significantly and funding sources may differ from current expectations. See "Forward Looking Statements." 15 YEAR 2000 READINESS DISCLOSURE AND STATEMENT Readers are cautioned that the forward-looking statements contained in the following Year 2000 discussion should be read in conjunction with Basin's disclosures under the heading "Forward-Looking Statements" in this Quarterly Report on Form 10-Q. Year 2000 issues result from the inability of many computer programs to accurately calculate, store or use a date subsequent to December 31, 1999. The date can be erroneously interpreted in a number of different ways; typically the year 2000 is interpreted as the year 1900. This could result in a system failure or miscalculations causing disruptions of or errors in operations. Systems potentially affected include not only information technology systems--computer systems controlling a company's accounting, land, operations, seismic processing, and other specialized functions--but also non-information technology systems controlled by embedded chips, which include many common and specialized machines and support systems. The effects of the Year 2000 problem can be exacerbated by the interdependence of computer and telecommunications systems in the United States and throughout the world. This interdependence can affect us and the parties with whom we do business. STATE OF READINESS. We have created an internal committee to assess our Year 2000 readiness and to lead our remediation efforts. The committee is composed of the general counsel, chief financial officer, controller, and manager of information systems. The committee's objective is to prevent loss or impairment of those functions material to Basin's operations and business continuity or to avoid potential liability to third parties. At the direction of the committee, department heads and managers have assessed and remediated our information technology and non-information technology systems, and have communicated with our business partners regarding the status of their assessment and remediation efforts, with the results summarized below. We have completed an assessment of our information technology systems to determine whether they are Year 2000 compliant. The licensors of both our core financial, land and operations software system and the underlying operating system have certified that such software is Year 2000 compliant. Our Gulf of Mexico seismic data interpretation software system has been upgraded to software that is Year 2000 compliant. Basin will be upgrading and testing our reservoir economics software to make it Year 2000 compliant and expect to be completed with this upgrade by October 1999. Additionally, we have assessed other less critical information technology systems and we believe them to be compliant. We also rely on non-information technology systems, such as office telephones, facsimile machines, HVAC systems and elevators in our leased offices, security systems, and automated measuring equipment on platforms and other production facilities, which may have embedded technology such as micro-controllers. Department heads and managers have identified those non-information technology systems that may be susceptible to failure or impairment by reason of Year 2000 problems and that are potentially critical to our operations and business continuity. Based on that review, Basin has sent written inquiries to the suppliers of those systems to determine the status of their Year 2000 compliance. Our communications systems vendors, and the property managers of the buildings in which our Houston and Denver offices are situated, have certified their systems to be Year 2000 compliant. We are still receiving and analyzing responses from vendors of non-information technology systems that may affect our production 16 operations. The operations department is following up those inquiries with telephone interviews to assess the status of such systems. Assessment and remediation of non-information technology systems should be completed by September 1999. We have sent written inquiries to our significant suppliers, customers (i.e., production purchasers and transporters), banks, government agencies, benefit plan providers, and others with whom we have significant business relationships to determine the extent to which we are vulnerable to those third parties' failure to correct their own Year 2000 issues. For Gulf of Mexico and onshore operations these include representative vendors and suppliers who could supply necessary goods and services to maintain our production operations and continue any ongoing or planned drilling activities. As of the date of this report, the following summarizes the responses we have received: (a) We sent inquiries for Gulf of Mexico operations to 117 vendors and 103 have responded with written confirmation that they are Year 2000 compliant. We will contact the remaining 14 vendors to assess their compliance. The Minerals Management Service of the United States Department of the Interior, which is the primary permitting and supervisory agency over our Gulf of Mexico operations, has reported that it is Year 2000 compliant. (b) For onshore operations we sent inquiries to 24 representative vendors and suppliers and 21 have responded with confirmation that they are Year 2000 compliant. We will contact the remaining three vendors to assess their compliance. We are continuing to inquire of various government agencies having jurisdiction over our operations to confirm their compliance. (c) We sent 30 inquiries to production purchasers and pipeline companies with whom we are currently doing business or expect to do business with respect to the gathering, treatment, processing, and marketing of our production, and we have received 12 responses confirming either current Year 2000 compliant or anticipated compliance by late 1999. We will contact the remaining 18 customers to assess their compliance. (d) With respect to our corporate and administrative operations, our bank group, service providers (such as payroll processing), insurance agents and underwriters, and benefit plan providers have confirmed their Year 2000 compliance or their expectation that they will be compliant by year end 1999. We will continue to monitor their compliance efforts. ESTIMATED COMPLIANCE COSTS. We have relied primarily on our internal staff to assess our current Year 2000 readiness and do not anticipate extensive use of external resources to complete our assessment or remediation. We have not separately quantified our costs of internal resources on this project but do not expect that we will incur material costs in remediating our information technology systems to be Year 2000 compliant. Costs incurred for the purchase of new software and hardware are capitalized and all other costs are expensed as incurred. We have not incurred, and do not anticipate that we will incur, costs for external resources in excess of $100,000 relating to the assessment and remediation of Year 2000 issues. That estimate does not include the cost of remediating problems caused by third-party vendors, customers, or other business partners, which Basin will not be able to fairly estimate until the extent, if any, of their Year 2000 non-compliance is known. 17 RISKS OF NON-COMPLIANCE AND CONTINGENCY PLANS. As indicated above, the only critical information technology system that we believe to be not yet Year 2000 compliant is our reservoir economics system, which should be compliant by October 1999. Accordingly, we do not expect Year 2000 issues to cause our information technology systems to have any material adverse impact on our business, operations or financial condition. We believe that the potential impact, if any, of our non-critical information technology systems not being Year 2000 compliant will at most require employees to manually complete otherwise automated tasks or calculations and should not impact our ability to continue exploration, drilling, production or sales activities. We are not able to predict at this time what the impact could be of non-information technology system failures but do not believe that there will be a material disruption of our operations. In light of the responses we have received to date from our business partners, we do not believe there is a likelihood of a material impact on our operations, business, or financial condition from the failure of a business partner to be Year 2000 compliant. The most reasonably likely "worst case" impacts could be impairment of our ability to deliver our production to, or receive payment from, third parties gathering and/or purchasing our production from individual affected facilities; impairment of the ability of third-party suppliers or service companies to provide needed materials or services to our planned or ongoing operations, thereby necessitating deferral or shut-in of exploration, development or production operations; inability to execute financial transactions with our banks or other third parties whose systems fail or misfunction; or inability to process permit applications or operations plans with government agencies that may delay our ability to conduct planned activities. We have no reason to believe that any of these contingencies will occur or that our principal vendors, customers, and business partners will not be Year 2000 compliant. Basin does not currently have a contingency plan under development or in place to address these potential problems. We do intend to develop contingency plans in response to testing our information technology and non-information technology systems and in response to the results of our third-party inquiries. These contingency plans may include installing back-up computer systems or equipment, temporarily replacing systems or equipment with manual processes, and switching to alternate suppliers, service companies and purchasers that have already certified their Year 2000 compliance. Basin expects these plans to be complete by October 1999. Basin's Year 2000 program is a continuing process that may result in changes to cost estimates and schedules as testing and business partner assessment progresses. Unexpected Year 2000 compliance problems of either Basin or our vendors, customers, service providers, or other entities with whom we do business could have a material adverse impact on our business, financial condition or operating results. 18 FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains statements that are not historical facts but are forward-looking statements that involve risks and uncertainties that could cause actual results to differ from projected results. Such statements address activities, events or developments that the Company expects, believes, projects, intends, estimates, plans or anticipates will, should, could or may occur, including such matters as: - - amount and nature of capital expenditures, - - drilling of wells, - - estimated reserves, - - timing and amount of future production of oil and gas, - - business strategies, - - operating costs and other expenses, - - cash flow and anticipated liquidity, - - prospect development and property acquisitions, - - marketing of oil and gas, and - - Year 2000 compliance activities. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, we cannot assure you that any of these expectations will prove correct or that we will take any actions that may have been planned. Factors that could cause actual results to differ materially are described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this report and also include, among others: - - general economic conditions, - - oil and gas price volatility, - - our ability to find, acquire, market, develop and produce new properties, - - the risks associated with acquisitions and exploration, - - operating hazards attendant to the oil and gas business, - - downhole drilling and completion risks that are generally not recoverable from third parties or insurance, - - uncertainties in the estimation of proved reserves and in the projection of future rates of production and timing of development expenditures, - - potential mechanical failure or underperformance of individually significant wells, - - the strength and financial resources of our competitors, - - Basin's ability to find and retain skilled personnel, - - climatic conditions, - - availability of capital, - - availability and cost of material and equipment, - - delays in anticipated start-up dates, - - environmental risks, - - actions or inactions of third-party operators of the basin's properties, - - regulatory developments, and - - third-party Year 2000 compliance actions. 19 All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by the factors outlined above. The Company disclaims any obligation to update or revise any forward-looking statement in light of actual results or future events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company's exposure to interest rate risk and commodity price risk is discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations under the headings "Liquidity and Capital Resources Marketing and hedging transactions" and "Liquidity and Capital Resources Revolving line of credit". The Company has no exposure to foreign currency exchange rate risks or to any other market risks. 20 BASIN EXPLORATION, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) NONE (b) NONE (c) During the period covered by this report, Basin had no sales of securities that were not registered under the Securities Act of 1933. Through the date of this report, Basin has issued 53,311 shares of common stock pursuant to cashless exercises of warrants issued by us on November 30, 1994 to former stockholders of Sterling Energy Corporation pursuant to the merger of Sterling with a subsidiary of Basin on November 22, 1994. Those warrants covered a total of 300,000 shares of Basin common stock at an exercise price of $14.00 per share. The warrants expire on December 31, 1999. Of the 300,000 shares covered by the warrants, 198,917 were covered by the cashless exercises, in which the market value of the warrants at the date of exercise (average market price for a 20-day period preceding exercise less the exercise price) was multiplied by the number of shares covered by the respective warrants to determine the number of shares to be issued to the warrant holders. Basin accordingly received no cash from these exercises. Warrants covering a total of 101,083 shares of Basin common stock remain outstanding. The warrants (and the shares issued pursuant to exercise of the warrants) were issued in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, relative to sales by an issuer not involving a public offering. (d) NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES None 21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Proxies for the Company's annual meeting of shareholders held on May 12, 1999, were solicited pursuant to Regulation 14A during the quarter ended June 30, 1999. There was no solicitation in opposition to the nominees listed in the proxy statement and all such nominees were elected. The following is a summary of the matters voted upon at such meeting and the number of votes cast for, against and absententions:
Number of Votes Cast For Against Abstain Election of Directors John F. Greene 12,572,267 - 983,969 Michael A. Nicolais 12,572,267 - 983,969 Neil L. Stenbuck 12,572,267 - 983,969 Ratify selection of Arthur Andersen LLP 13,511,694 37,942 6,600 as auditors Amend Equity Incentive Plan for 11,637,459 1,915,087 3,690 "performance-based compensation" Increase Equity Incentive Plan by 200,000 shares 8,399,347 5,155,539 1,350
ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------ ----------------------- 2.1 Agreement and Plan of Merger between Sterling Energy Corporation, Basin Energy, Inc. and Basin Exploration, Inc. dated October 13, 1994.(5) 2.2 Plan of Merger between Basin Sterling, Inc. and Basin Exploration, Inc. dated November 22, 1994.(5) 2.3 Plan of Merger between Basin Operating Company and Basin Exploration, Inc. dated December 14, 1994.(7) 3.1 Restated Certificate of Incorporation of Basin.(2) 3.2 Restated Bylaws of Basin.(2) 4.1 Common Stock Certificate of Basin.(2) 10.1 Equity Incentive Plan as amended May 12, 1999.(1) 10.2 Key Employee Participation Plan.(2) 10.3 Employment Agreement dated March 31, 1992 by and between Basin and Michael S. Smith.(3) 10.4 Gulf Coast Geoscientist Overriding Royalty Interest Plan dated November 30, 1995.(9) 10.5 Form of Rights Agreement dated as of February 24, 1996, between Basin Exploration, Inc. and Corporate Stock Transfer, Inc. as Rights Agent.(8) 10.6 Performance Shares Plan approved February 4, 1997.(10) 10.7 Change of Control Employment Agreement dated October 13, 1995 between Basin Exploration, Inc. and Howard L. Boigon.(9)
22 10.8 Amendment to Change of Control Employment Agreement dated June 2, 1999 between Basin Exploration, Inc. and Howard L. Boigon.(1) 10.9 Employment Agreement dated August 28, 1995 between Basin Exploration, Inc. and Samuel D. Winegrad.(9) 10.10 Change of Control Agreement dated August 28, 1997 between Basin Exploration, Inc. and Samuel D. Winegrad.(1) 10.11 Employment Agreement dated June 28, 1995 between Basin Exploration, Inc. and Neil L. Stenbuck.(9) 10.12 Employment Agreement dated November 10, 1995 between Basin Exploration, Inc. and David A. Pustka.(9) 10.13 Employment Agreement dated February 1, 1999, between Basin Exploration, Inc. and David A. Pustka.(16) 10.14 Employment Agreement dated February 23, 1996 between Basin Exploration, Inc. and Thomas J. Corley.(10) 10.15 Employment Agreement dated January 28, 1999, between Basin Exploration, Inc. and Patrick A. Jackson.(16) 10.16 Assignment and Assumption of Lease dated December 18, 1995 by and between Team, Inc., as original Tenant, Basin Exploration, Inc., as New Tenant, and FC Tower Property Partners, LP, as Landlord.(8) 10.17 Lease of Office Space dated September 25, 1992, between Brookfield Republic Inc. and Basin Operating Company, as amended.(4)+ 10.18 First Lease of Additional Office Space dated as of December 1, 1994, between Brookfield Republic, Inc. and Basin Operating Company.(6)+ 10.19 Order of the United States Bankruptcy Court for the Southern District of Texas Corpus Christi Division, dated November 18, 1997, with exhibits, including the Agreement of Purchase and Sale.(12) 10.20 Second Amendment of Amended and Restated Credit Agreement dated August 6, 1996 between the Company and Colorado National Bank, Union Bank of California, N.A. and NationsBank of Texas, N.A. dated November 1, 1997.(12) 10.21 Third Amendment of Amended and Restated Credit Agreement dated August 6, 1996 between the Company and U.S. Bank National Association, Union Bank of California, N.A. and NationsBank of Texas, N.A. dated April 30, 1998.(14) 10.22 Fourth Amendment of Amended and Restated Credit Agreement dated August 6, 1996 between the Company and U.S. Bank National Association, Union Bank of California, N.A. and NationsBank, N.A., dated August 20, 1998.(15) 10.23 Amended and Restated Credit Agreement dated January 1, 1999 among the Company and NationsBank, N.A., U.S. Bank National Association and Union Bank of California, N.A.(16) 10.24 First Amendment of Amended and Restated Credit Agreement dated July 1, 1999 among the Company, NationsBank, N.A., U.S. Bank National Association and Union Bank of California, N.A.(1) 27 Financial Data Schedule.(1)
1 Filed herewith. 2 Filed as an Exhibit to Basin's Registration Statement on Form S-1 as filed on March 17, 1992, Registration No. 33-46486, and incorporated herein by reference. 3 Filed as an Exhibit to Amendment No. 1 to Basin's Registration Statement on Form S-1 as filed on April 21, 1992, Registration No. 33-46486, and incorporated herein by reference. 4 Filed as an Exhibit to Basin's Registration Statement on Form S-1 as filed on October 25, 1993, Registration No. 33-70802, and incorporated herein by reference. 5 Filed as an Exhibit to Form 8-K filed on December 10, 1994, and incorporated herein by reference. 6 Filed as an Exhibit to Form 10-K/A-1 filed on June 26, 1995 and incorporated herein by reference. 7 Filed as an Exhibit to Form 10-K filed on March 28, 1995, and incorporated herein by reference. 8 Filed as an Exhibit to Form 8-K filed on February 26, 1996, and incorporated herein by reference. 9 Filed as an Exhibit to Form 10-K filed on March 28, 1996, and incorporated herein by reference. 10 Filed as an Exhibit to Form 10-K filed on March 31, 1997, and incorporated herein by reference. 12 Filed as an Exhibit to Form 8-K filed on December 11, 1997, and incorporated herein by reference. 13 Filed as an Exhibit to Form 10-K filed on March 31, 1998, and incorporated herein by reference. 23 14 Filed as an Exhibit to Form 10-Q filed on May 14, 1998, and incorporated herein by reference. 15 Filed as an Exhibit to Form 10-Q filed on November 13, 1998, and incorporated herein by reference. 16 Filed as an Exhibit to Form 10-K filed on March 30, 1999, and incorporated herein by reference. + Confidential treatment has been granted for portions of these Exhibits. (b) REPORTS ON FORM 8-K Basin filed the following reports on Form 8-K during the period covered by this report:
Date of Report Filed on Item # Topic - -------------- -------- ------ ----- May 28, 1999 May 28, 1999 7 Consents and opinions of experts June 17, 1999 June 18, 1999 7 Form of Underwriting Agreement and Company Indemnity Agreement June 22, 1999 June 23, 1999 5 Exercise of over-allotment option by underwriters
24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BASIN EXPLORATION, INC. ------------------------- (Registrant) Date: August 13, 1999 By: /s/ Neil L. Stenbuck ----------------------- Neil L. Stenbuck Chief Financial Officer Date: August 13, 1999 By: /s/ James A. Tuell ----------------------- James A. Tuell Controller and Chief Accounting Officer 25 EX-4.1 2 EXHIBIT 4.1 BASIN EXPLORATION, INC. EQUITY INCENTIVE PLAN (as amended May 12, 1999) SECTION 1 INTRODUCTION 1.1 ESTABLISHMENT. Basin Exploration, Inc., a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in subsection 2.1(a)) as the "Company" except where the context otherwise requires), hereby establishes the Basin Exploration, Inc. Equity Incentive Plan (the "Plan") for certain key employees, non-employee directors and consultants of the Company. 1.2 PURPOSES. The purposes of the Plan are to provide participants with added incentives to continue in the long-term service of the Company and to create in such persons a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value. With respect to key management employees, the Plan is intended to help ensure that the income of these employees is more closely aligned with the income of the Company's stockholders. The Plan is also designed to attract key employees and to retain and motivate participants by providing an opportunity for investment in the Company. SECTION 2 DEFINITIONS 2.1 DEFINITIONS. The following terms shall have the meanings set forth below: (a) "AFFILIATED CORPORATION" means any corporation or other entity (including but not limited to a partnership) which is affiliated with Basin Exploration, Inc. through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) of the Internal Revenue Code. (b) "AWARD" means a grant made under this Plan in the form of Stock, Options, Restricted Stock, Performance Shares, or Performance Units. (c) "BOARD" means the Board of Directors of the Company. (d) "EFFECTIVE DATE" means the effective date of the Plan, March 9, 1992. (e) "ELIGIBLE EMPLOYEES" means full-time key employees (including, without limitation, officers and directors who are also employees) of the Company or any Affiliated Corporation or any division thereof, upon whose judgment, initiative and efforts the Company is, or will be, important to the successful conduct of its business. (f) "EMPLOYEE COMMITTEE" means a committee that may be established by the Board and composed of one or more members of the Board of Directors who may, but need not be, Non-Employee Directors. The Employee Committee may be empowered by the Board to grant Awards to Eligible Employees who are not directors or "officers" of the Company as that term is defined in Rule 16a-1(f), promulgated under the Securities Exchange Act of 1934 (the "1934 Act"), and to establish the terms of such Awards at the time of grant, but shall have no other authority with respect to the Plan or outstanding Awards except as expressly set forth herein. (g) "FAIR MARKET VALUE" means the officially quoted closing price of the Stock on the NASDAQ National Market System on a particular date. If there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions. If no such prices are reported on the NASDAQ National Market System, then Fair Market Value shall mean the average of the high and low sale prices for the Stock (or if no sales prices are reported, the average of the high and low bid prices) as reported by the principal regional stock exchange, or if not so reported, as reported by NASDAQ or a quotation system of general circulation to brokers and dealers. If the Stock is not publicly traded, the Fair Market Value of the Stock on any date shall be determined in good faith by the Incentive Plan Committee after such consultation with outside legal, accounting and other experts as the Incentive Plan Committee may deem advisable, and the Committee shall maintain a written record of its method of determining such value. (h) "INCENTIVE PLAN COMMITTEE" means a committee consisting of at least two Non-Employee Directors who are empowered hereunder to take actions in the administration of the Plan. The Incentive Plan Committee shall be so constituted at all times as to permit the Plan to comply with Rule 16b-3 or any successor rule promulgated under the 1934 Act. Members of the Incentive Plan Committee shall be appointed from time to time by the Board, shall serve at the pleasure of the Board, and may resign at any time upon written notice to the Board. (i) "INCENTIVE STOCK OPTION" means any Option designated as such and granted in accordance with the requirements of Section 422 of the Internal Revenue Code. (j) "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as it may be amended from time to time. (k) "NON-EMPLOYEE DIRECTOR" means any member of the Board who meets the definition of Non-Employee Director under Rule 16b-3 of the 1934 Act. (l) "NON-STATUTORY OPTION" means any Option other than an Incentive Stock Option. (m) "OPTION" means a right to purchase Stock at a stated price for a specified period of time. (n) "OPTION PRICE" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b). 2 (o) "PARTICIPANT" means an Eligible Employee, Non-Employee Director or consultant to the Company designated by the Incentive Plan Committee from time to time during the term of the Plan to receive one or more Awards under the Plan. (p) "PERFORMANCE CYCLE" means the period of time as specified by the Incentive Plan Committee over which Performance Share or Performance Units are to be earned. (q) "PERFORMANCE SHARES" means an Award made pursuant to Section 9 which entitles a Participant to receive Shares, their cash equivalent or a combination thereof based on the achievement of performance targets during a Performance Cycle. (r) "PERFORMANCE UNITS" means an Award made pursuant to Section 9 which entitles a Participant to receive cash, Stock or a combination thereof based on the achievement of performance targets during a Performance Cycle. (s) "PLAN YEAR" means each 12-month period beginning April 1 and ending the following March 31, except that for the first year of the Plan it shall begin on the Effective Date and extend to March 31 of the following year. (t) "RESTRICTED STOCK" Means Stock granted under Section 8 that is subject to restrictions imposed pursuant to said Section. (u) "SHARE" means a share of Stock. (v) "STOCK" means the common stock, $.01 par value, of the Company. 2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3 PLAN ADMINISTRATION The Plan shall be administered by the Board which may from time to time delegate all or part of its authority under this Plan to the Incentive Plan Committee and delegate part of its authority under this Plan with respect to Employees who are not directors or "officers" of the Company (as that term is defined in Rule 16a-1(f), promulgated under the 1934 Act) to the Employee Committee. References herein to the Plan Administrator refer to the Board or, to the extent the Board delegates its authority to the Incentive Plan Committee, to the Incentive Plan Committee. In accordance with the provisions of the Plan, each of the Plan Administrator and the Employee Committee, as applicable, shall, in its sole discretion and except as specifically set forth at Section 7.1(b) and Section 9, select Participants to whom Awards will be granted, the form of each Award, the amount of each 3 Award and any other terms and conditions of each Award as the Plan Administrator or the Employee Committee, as applicable, may deem necessary or desirable and consistent with the terms of the Plan. The Plan Administrator or the Employee Committee, as applicable, shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Awards granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. The Plan Administrator may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Plan Administrator may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement entered into hereunder in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Plan Administrator or the Employee Committee shall be liable for any action or determination made in good faith, and all members of the Plan Administrator and the Employee Committee shall, in addition to their rights as directors, be fully protected by the Company with respect to any such action, determination or interpretation. The determination, interpretations and other actions of the Plan Administrator and the Employee Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 NUMBER OF SHARES. Initially, 2,275,344 Shares are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Plan Administrator may from time to time deem necessary. This authorization shall be increased automatically on each succeeding annual anniversary of May 12, 1999 (the "Adjustment Date") by an amount equal to that number of Shares equal to one-half of one percent of the Company's then issued and outstanding Shares. The Shares may be divided among the various Plan components as the Plan Administrator shall determine, except that (i) no more than 1,750,000 Shares shall be cumulatively available for the grant of Incentive Stock Options under the Plan, (ii) no more than 25,000 Shares or the equivalent thereof shall be cumulatively available for discretionary grants to Non-Employee Directors of Non-Statutory Options under Section 7.1(a), Restricted Stock under Section 8, and Performance Shares or Performance Units under Section 9, (iii) no more than 175,000 Shares shall be cumulatively available for non-discretionary grants to Non-Employee Directors of Non-Statutory Options under Section 7.1(b), (iv) no more than 150,000 options may be granted to an employee in a calendar year, (v) 200,000 shares are expressly reserved for the grant of performance shares, and (vi) the maximum amount of any award of performance shares that can be paid to any employee in any calendar year is 30,000 shares, or the equivalent in dollars, determined on the basis of the market price of the shares as of the effective date of the award. Any portion of the Shares added on each succeeding anniversary of the Adjustment Date which are unused during the Plan Year beginning on such anniversary date shall be carried forward and be available for grant and issuance in subsequent Plan Years, while up to 100% of the Shares to be added in the next succeeding Plan Year (calculated on the basis of the current Plan Year's allocation) may be borrowed 4 for use in the current Plan Year. Shares which may be issued upon the exercise of Options shall be applied to reduce the maximum number of Shares remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as treasury Stock, at least the number of Shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 UNUSED AND FORFEITED STOCK. Any Shares that are subject to an Award under this Plan which are not used because the terms and conditions of the Award are not met, including any Shares that are subject to an Option which expires or is terminated for any reason, any Shares which are used for full or partial payment of the purchase price of Shares with respect to which an Option is exercised and any Shares retained by the Company pursuant to Section 15.2 shall automatically become available for use under the Plan. Notwithstanding the foregoing, any Shares used for full or partial payment of the purchase price of the Shares with respect to which an Option is exercised and any Shares retained by the Company pursuant to Section 15.2 that were originally Incentive Stock Option Shares must still be considered as having been granted for purposes of determining whether the 1,750,000 Share limitation on Incentive Stock Option grants provided for in Section 4.1 has been reached. 4.3 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If the Company shall at any time increase or decrease the number of its outstanding Shares of Stock or change in any way the rights and privileges of such Shares by means of the payment of a stock dividend or any other distribution upon such Shares payable in Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Awards may be granted under the Plan; and (ii) the Shares of Stock then included in each outstanding Option, Performance Share or Performance Unit granted hereunder. 4.4 DIVIDEND PAYABLE IN STOCK OF ANOTHER CORPORATION, ETC. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities of another corporation or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Award for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof in the case of Options, and the vesting thereof in the case of other Awards. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Award is not exercised or otherwise vested, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion. 5 4.5 OTHER CHANGES IN STOCK. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Plan Administrator shall in its discretion determine that such change equitably requires an adjustment in the number or kind of Shares subject to outstanding Awards or which have been reserved for issuance pursuant to the Plan but are not then subject to an Award, then such adjustments shall be made by the Plan Administrator and shall be effective for all purposes of the Plan and on each outstanding Award that involves the particular type of stock for which a change was effected. 4.6 RIGHTS TO SUBSCRIBE. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the Shares then subject to an Award held by any Participant of the particular class of Stock involved, the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option, or otherwise vested in his entire Award. If, upon exercise of any such Option or the vesting of any other Award, the Participant subscribes for the additional Stock or other securities, the Participant shall pay to the Company the price that is payable by the Participant for such Stock or other securities. 4.7 GENERAL ADJUSTMENT RULES. If any adjustment or substitution provided for in this Section 4 shall result in the creation of a fractional Share under any Award, the Company shall, in lieu of selling or otherwise issuing such fractional Share, pay to the Participant a cash sum in an amount equal to the product of such fraction multiplied by the Fair Market Value of a Share on the date the fractional Share would otherwise have been issued. In the case of any such substitution or adjustment affecting an Option, the total Option Price for the shares of Stock then subject to an Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Plan Administrator to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed. 4.8 DETERMINATION BY PLAN ADMINISTRATOR, ETC. Adjustments under this Section 4 shall be made by the Plan Administrator, whose determinations with regard thereto shall be final and binding upon all parties thereto. SECTION 5 REORGANIZATION OR LIQUIDATION In the event that the Company is merged or consolidated with another corporation (other than a merger or consolidation in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding Shares), or if all or substantially all of the assets or more than 50% of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person (other than a sale or conveyance in which the Company 6 continues as a holding company of an entity or entities that conduct the business or businesses formerly conducted by the Company), or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 10 do not apply, the Plan Administrator, or the board of directors of any corporation assuming the obligations of the Company, shall have the power and discretion to prescribe the terms and conditions for the exercise of, or modification of, any outstanding Awards granted hereunder. By way of illustration, and not by way of limitation, the Plan Administrator may provide for the complete or partial acceleration of the dates of exercise of the Options, or may provide that such Options will be exchanged or converted into options to acquire securities of the surviving or acquiring corporation, or may provide for a payment or distribution in respect of outstanding Options (or the portion thereof that is currently exercisable) in cancellation thereof. The Plan Administrator may remove restrictions on Restricted Stock and may modify the performance requirements for any other Awards. The Plan Administrator may provide that Stock or other Awards granted hereunder must be exercised in connection with the closing of such transaction, and that if not so exercised such Awards will expire. Any such determinations by the Plan Administrator may be made generally with respect to all Participants, or may be made on a case-by-case basis with respect to particular Participants. The provisions of this Section 5 shall not apply to any transaction undertaken for the purpose of reincorporating the Company under the laws of another jurisdiction, if such transaction does not materially affect the beneficial ownership of the Company's capital stock. SECTION 6 PARTICIPATION Participants in the Plan shall be those Eligible Employees, Non-Employee Directors or consultants who, in the judgment of the Plan Administrator, are performing, or during the term of their incentive arrangement will perform, important services in the management, operation and development of the Company, and significantly contribute, or are expected to significantly contribute, to the achievement of long-term corporate economic objectives, or who are otherwise granted Awards pursuant to the automatic grant provisions of Section 7.1(b). Participants may be granted from time to time one or more Awards; provided, however, that except as to Options granted pursuant to Section 7.1(b), the grant of each such Award shall be separately approved by the Plan Administrator, receipt of one such Award shall not result in automatic receipt of any other Award, and written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto; and further provided that Incentive Stock Options shall not be granted to (i) consultants, (ii) Non-Employee Directors or (iii) Eligible Employees of any partnership which is included within the definition of an Affiliated Corporation but whose employees are not permitted to receive Incentive Stock Options under the Internal Revenue Code. Each Participant shall enter into an agreement with the Company, in such form as the Plan Administrator shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Awards shall be deemed to be granted as of the date specified in the grant resolution of the Plan Administrator, which date shall be the date of any related agreement with the Participant. In the 7 event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. SECTION 7 STOCK OPTIONS 7.1 (a) DISCRETIONARY GRANT OF OPTIONS. Coincident with the following designation for participation in the Plan, and notwithstanding the receipt of an Award or Awards pursuant to Section 7.1(b), a Participant may be granted one or more Options. Notwithstanding any other provision of the Plan, Non-Employee Directors granted an award under this Section 7.1(a) may only be awarded Non-Statutory Options. The Board must approve each such Award and the interested Non-Employee Director must abstain from voting on the Award. Eligible Employees may be awarded Non-Statutory Options, Incentive Stock Options, or both in the Plan Administrator's sole discretion. The Plan Administrator may grant both an Incentive Stock Option and a Non-Statutory Option to the same Participant at the same time or at different times. Incentive Stock Options and Non-Statutory Options, whether granted at the same or different times, shall be deemed to have been awarded in separate grants, shall be clearly identified, and in no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of Shares for which any other Option may be exercised. (b) NON-DISCRETIONARY GRANT OF OPTIONS. Upon the initial election or appointment of a Non-Employee Director to the Company's Board, the Non-Employee Director shall automatically be granted an Option to purchase 10,000 Shares (subject to adjustment pursuant to Section 10 hereof) effective as of the date such person is elected or appointed to the Board, which shall vest in equal installments on the first, second and third anniversaries of election or appointment to the Board. In addition, each Non-Employee Director shall automatically be granted an Option to purchase 3,000 Shares (subject to adjustment pursuant to Section 4.3 hereof) effective as of each anniversary date of such Non-Employee Directors' election to the Board, which Option shall vest one year from the date of grant. The purchase price per Share for the Shares subject to any Option granted under this Section 7.1(b) shall be 100% of the Fair Market Value of a Share of Stock on the date on which the Option is granted. Subject to the provisions of Section 7.2(d)(i), each Option granted under this Section 7.1(b) shall expire ten years after the date on which it was granted. 7.2 OPTION AGREEMENTS. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the "Option Holder"), and which shall contain the following terms and conditions, as well as such other terms and conditions not inconsistent therewith, as the Plan Administrator may consider appropriate in each case. (a) NUMBER OF SHARES. Each stock option agreement shall state that it covers a specified number of Shares, as determined by the Plan Administrator. Notwithstanding any other provision of the Plan, the aggregate Fair Market Value of the Shares with respect to which Incentive 8 Stock Options are exercisable for the first time by an Option Holder in any calendar year, under the Plan or otherwise, shall not exceed $100,000. For this purpose, the Fair Market Value of the Shares shall be determined as of the time an Option is granted. (b) PRICE. The price at which each Share covered by an Option may be purchased shall be determined in each case by the Plan Administrator and set forth in the stock option agreement, but in no event shall the Option Price for each Share covered by an Incentive Stock Option be less than the Fair Market Value of the Stock on the date the Option is granted; provided that the Option Price for each Share covered by a Non-Statutory Option may be granted at any price less than Fair Market Value, in the sole discretion of the Plan Administrator. In addition, the Option Price for each Share covered by an Incentive Stock Option granted to an Eligible Employee who then owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company must be at least 110% of the Fair Market Value of the Stock subject to the Incentive Stock Option on the date the Option is granted. (c) DURATION OF OPTIONS. Each stock option agreement shall state the period of time, determined by the Plan Administrator, within which the Option may be exercised by the Option Holder (the "Option Period"). The Option Period must expire, in all cases, not more than ten years from the date an Option is granted; provided, however, that the Option Period of an Incentive Stock Option granted to an Eligible Employee who then owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company must expire not more than five years from the date such an Option is granted. Each stock option agreement shall also state the periods of time, if any, as determined by the Plan Administrator, when incremental portions of each Option shall vest. Except as provided in Sections 5 and 10, no portion of any Option shall vest before six months after the date of grant of the Option. If any Option is not exercised during its Option Period, it shall be deemed to have been forfeited and of no further force or effect. (d) TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. Except as otherwise determined by the Plan Administrator, each stock option agreement shall provide as follows with respect to the exercise of the Option upon termination of the directorship, employment, consultancy or the death of the Option Holder: (i) TERMINATION OF DIRECTORSHIP OF NON-EMPLOYEE DIRECTORS. (A) If a Non-Employee Director's term as a director of the Company shall terminate for any reason other than death or disability, any Options held by the Option Holder, to the extent exercisable under the applicable stock option agreement(s), shall remain exercisable after termination of his director status for a period of three months, but in no event beyond the applicable Option Period. 9 (B) If a Non-Employee Director's term as a director of the Company terminates because the Participant dies or is disabled within the meaning of Section 22(e)(3) of the Code while, or within three months after, serving as a director, any Options then held by the Participant, to the extent then exercisable under the applicable stock option agreement(s), shall remain exercisable after the termination of his directorship for a period of twelve months, but in no event beyond the applicable Option Period. (ii) TERMINATION OF EMPLOYMENT OR CONSULTANCY. (A) If the employment or consultancy of the Option Holder is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), "cause" shall mean a gross violation, as determined by the Company, of the Company's established policies and procedures. The effect of this subsection 7.2(d)(ii) shall be limited to determining the consequences of a termination, and nothing in this subsection 7.2(d)(ii) shall restrict or otherwise interfere with the Company's discretion with respect to the termination of any employee or consultant. (B) If the Option Holder terminates his employment or consultancy with the Company in a manner determined by the Board, in its sole discretion, to constitute retirement (which determination shall be communicated to the Option Holder within 10 days of such termination), the Option may be exercised by the Option Holder, or in the case of death by the persons specified in subsection (C) of this subsection 7.2(d)(ii), within three months following his or her retirement if the Option is an Incentive Stock Option or within twelve months following his or her retirement if the Option is a Non-Statutory Stock Option (provided in each case that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the Shares as to which the Option had become exercisable on or before the date of the Option Holder's termination of employment or consultancy. (C) If the Option Holder dies, or if the Option Holder becomes disabled (within the meaning of Section 22(e) of the Internal Revenue Code), during the Option Period while still employed or consulting, or within the three-month period referred to in (D) below, or within the three or twelve-month period referred to in (B) above, the Option may be exercised by those entitled to do so under the Option Holder's will or by the laws of descent and distribution within twelve months following the Option Holder's death or disability (provided in each case that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the Shares as to which the Option had become exercisable on or before the date of the Option Holder's death or disability. (D) If the employment or consultancy of the Option Holder by the Company is terminated (which for this purpose means that the Option Holder is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, retirement as provided in (B) above, disability or the Option Holder's death, the Option may be exercised by the Option Holder within three months following the date of such 10 termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the Shares as to which the Option had become exercisable on or before the date of termination of employment or consultancy. (e) TRANSFERABILITY. Each stock option agreement shall provide that the Option granted therein is not transferable by the Option Holder except by will or pursuant to the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code, Title I of the Employee Retirement Income Security Act ("ERISA"), and that such Option is exercisable during the Option Holder's lifetime only by him or her, or in the event of disability or incapacity, by his or her guardian or legal representative. (f) EXERCISE, PAYMENTS, ETC. (i) Each stock option agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Corporate Secretary of the Company of written notice specifying the number of Shares with respect to which such Option is exercised (which must be in an amount evenly divisible by 100) and payment of the Option Price. Such notice shall be in a form satisfactory to the Plan Administrator and shall specify the particular Option (or portion thereof) which is being exercised and the number of Shares with respect to which the Option is being exercised. The exercise of the Option shall be deemed effective upon receipt of such notice by the Corporate Secretary and payment to the Company. The purchase of such Stock shall take place at the principal offices of the Company upon delivery of such notice, at which time the purchase price of the Stock shall be paid in full by any of the methods or any combination of the methods set forth in (ii) below. A properly executed certificate or certificates representing the Stock shall be issued by the Company and delivered to the Option Holder. If certificates representing Stock are used to pay all or part of the Option Price, separate certificates for the same number of shares of Stock shall be issued by the Company and delivered to the Option Holder representing each certificate used to pay the Option Price, and an additional certificate shall be issued by the Company and delivered to the Option Holder representing the additional shares, in excess of the Option Price, to which the Option Holder is entitled as a result of the exercise of the Option. (ii) The exercise price shall be paid by any of the following methods or any combination of the following methods: (A) in cash; (B) by cashier's check payable to the order of the Company; (C) by delivery to the Company of certificates representing the number of Shares then owned by the Option Holder, the Fair Market Value of which equals the purchase price of the Stock purchased pursuant to the Option, properly endorsed for transfer to the Company; provided however, that Shares used for this purpose must have been held by the Option Holder for such minimum period of time as may be established from time to time by the Plan 11 Administrator; for purposes of this Plan, the Fair Market Value of any Shares delivered in payment of the purchase price upon exercise of the Option shall be the Fair Market Value as of the exercise date; the exercise date shall be the day the delivery of the certificates for the Stock used as payment of the Option Price; or (D) by delivery to the Company of a properly executed notice of exercise together with irrevocable instructions to a broker to deliver to the Company promptly the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Option Holder necessary to pay the exercise price. (iii) In the discretion of the Plan Administrator, the Company may guaranty a third-party loan obtained by a Participant to pay part or all of the Option Price of the Shares provided that such loan or the Company's guaranty is secured by the Shares. (g) DATE OF GRANT. Except as provided in Section 7.1(b), an option shall be considered as having been granted on the date specified in the grant resolution of the Plan Administrator. (h) WITHHOLDING. (A) NON-STATUTORY OPTIONS. Each stock option agreement covering Non-Statutory Options shall provide that, upon exercise of the Option, the Option Holder shall make appropriate arrangements with the Company to provide for the amount of additional withholding required by applicable federal and state income tax laws, including payment of such taxes through delivery of Stock or by withholding Stock to be issued under the Option, as provided in Section 15. (B) INCENTIVE OPTIONS. In the event that a Participant makes a disposition (as defined in Section 424(c) of the Internal Revenue Code) of any Stock acquired pursuant to the exercise of an Incentive Stock Option prior to the expiration of two years from the date on which the Incentive Stock Option was granted or prior to the expiration of one year from the date on which the Option was exercised, the Participant shall send written notice to the Company at its principal office in Denver, Colorado (Attention: Corporate Secretary) of the date of such disposition, the number of shares disposed of, the amount of proceeds received from such disposition, and any other information relating to such disposition as the Company may reasonably request. The Participant shall, in the event of such a disposition, make appropriate arrangements with the Company to provide for the amount of additional withholding, if any, required by applicable federal and state income tax laws. (i) ADJUSTMENT OF OPTIONS. Subject to the limitations contained in Sections 7 and 14, the Plan Administrator may make any adjustment in the Option Price, the number of shares subject to, or the terms of, an outstanding Option and a subsequent granting of an Option by amendment or by substitution of an outstanding Option. Such amendment, substitution, or re-grant may result in terms and conditions (including Option Price, number of shares covered, vesting 12 schedule or exercise period) that differ from the terms and conditions of the original Option. The Plan Administrator may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such Participant. If such action is affected by amendment, the effective date of such amendment shall be the date of the original grant. 7.3 STOCKHOLDER PRIVILEGES. No Option Holder shall have any rights as a stockholder with respect to any Shares covered by an Option until the Option Holder becomes the holder of record of such Stock, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Option Holder becomes the holder of record of such Stock, except as provided in Section 4. SECTION 8 RESTRICTED STOCK AWARDS 8.1 AWARDS GRANTED BY PLAN ADMINISTRATOR. Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Restricted Stock Awards consisting of Shares. The number of Shares granted as a Restricted Stock Award shall be determined by the Plan Administrator. 8.2 RESTRICTIONS. A Participant's right to retain a Restricted Stock Award granted to him under Section 8.1 shall be subject to such restrictions, including but not limited to his continuous employment by the Company for a restriction period specified by the Plan Administrator, or the attainment of specified performance goals and objectives, as may be established by the Plan Administrator with respect to such award. The Plan Administrator may in its sole discretion require different periods of employment or different performance goals and objectives with respect to different Participants, to different Restricted Stock Awards or to separate, designated portions of the Shares constituting a Restricted Stock Award. 8.3 PRIVILEGES OF A STOCKHOLDER, TRANSFERABILITY. A Participant shall have all voting, dividend, liquidation and other rights with respect to Stock in accordance with its terms received by him as a Restricted Stock Award under this Section 8 upon his becoming the holder of record of such Stock; provided, however, that the Participant's right to sell, encumber or otherwise transfer such Stock shall be subject to the limitations of Section 11.2 hereof. 8.4 ENFORCEMENT OF RESTRICTIONS. The Plan Administrator may in its sole discretion require one or more of the following methods of enforcing the restrictions referred to in Section 8.2 and 8.3: (a) Placing a legend on the stock certificates referring to the restrictions; (b) Requiring the Participant to keep the stock certificates, duly endorsed, in the custody of the Company while the restrictions remain in effect; or 13 (c) Requiring that the stock certificates, duly endorsed, be held in the custody of a third party while the restrictions remain in effect. 8.5 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. In the event of the death or disability (within the meaning of Section 22(e) of the Internal Revenue Code) of a Participant, or the retirement of a Participant as provided in Section 7.2(d)(ii)(B), all employment period and other restrictions applicable to Restricted Stock Awards then held by him shall lapse, and such awards shall become fully nonforfeitable. Subject to Sections 5 and 10, in the event of a Participant's termination of services for any other reason, any Restricted Stock Awards as to which the employment period or other restrictions have not been satisfied shall be forfeited. SECTION 9 PERFORMANCE SHARES AND PERFORMANCE UNITS 9.1 AWARDS GRANTED BY PLAN ADMINISTRATOR. Coincident with or following designation for participation in the Plan, a Participant may be granted Performance Shares or Performance Units. 9.2 AMOUNT OF AWARD. The Plan Administrator shall establish a maximum amount of a Participant's Award, which amount shall be denominated in Shares in the case of Performance Shares or in dollars in the case of Performance Units, and which may not exceed 30,000 shares, or the equivalent amount in cash, determined on the basis of the market price as of the effective date of the award, to be paid to any employee in any calendar year. 9.3 COMMUNICATION OF AWARD. Written notice of the maximum amount of a Participant's Award and the Performance Cycle determined by the Plan Administrator shall be given to a Participant as soon as practicable after approval of the Award by the Plan Administrator. 9.4 AMOUNT OF AWARD PAYABLE. The Incentive Plan Committee shall establish maximum and minimum performance targets to be achieved during the applicable Performance Cycle, subject to the limitation set forth in 9.2. Performance targets established by the Incentive Plan Committee shall be limited exclusively to the following business criteria: earnings, growth in earnings, ratio of earnings to equity or assets, cash flow, growth in cash flow, ratio of cash flow to equity or assets, growth in proved reserves quantities or values, stockholder return vs. peer group returns, levels of costs per unit of production, finding and development costs per unit, and levels of debt per proved reserves quantities or values. In establishing the performance targets, components of performance targets may be given the same or different weighting in determining the amount of an Award earned, and may relate to absolute performance or relative performance measured against other groups, units, individuals or entities. Achievement of the maximum performance target shall entitle the Participant to payment (subject to Section 9.6) at the full or maximum amount specified with respect to the Award; provided, however, that notwithstanding any other provisions of this Plan, in the case of an Award of Performance Shares the Incentive Plan Committee in its discretion may establish an upper limit on the amount payable (whether in cash or Stock) as a result of the achievement of the maximum 14 performance target. The Incentive Plan Committee may also establish that a portion of a full or maximum amount of a Participant's Award will be paid (subject to Section 9.6) for performance which exceeds the minimum performance target but falls below the maximum performance target applicable to such Award. 9.5 PAYMENTS OF AWARDS. Following the conclusion of each Performance Cycle, the Plan Administrator shall determine the extent to which performance targets have been attained, and the satisfaction of any other terms and conditions with respect to an Award relating to such Performance Cycle. The Plan Administrator shall determine what, if any, payment is due with respect to an Award and whether such payment shall be made in cash, Stock or some combination thereof. Payment shall be made in a lump sum or installments, as determined by the Plan Administrator, commencing as promptly as practicable following the end of the applicable Performance Cycle, subject to such terms and conditions and in such form as may be prescribed by the Plan Administrator. 9.6 TERMINATION OF EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY. If a Participant ceases to be an Eligible Employee, Non-Employee Director, or consultant before the end of a Performance Cycle by reason of his death, permanent disability or retirement as provided in Section 7.2(d)(ii)(B), the Performance Cycle for such Participant for the purpose of determining the amount of the Award payable shall end at the end of the calendar quarter immediately preceding the date on which such Participant ceased to be an Eligible Employee, Non-Employee Director or consultant. The amount of an Award payable to a Participant to whom the preceding sentence is applicable shall be paid at the end of the Performance Cycle and shall be that fraction of the Award computed pursuant to the preceding sentence the numerator of which is the number of calendar quarters during the Performance Cycle during all of which said Participant was an Eligible Employee, Non-Employee Director or consultant and the denominator of which is the number of full calendar quarters in the Performance Cycle. Upon any other termination of services of a Participant during a Performance Cycle, participation in the Plan shall cease and all outstanding Awards of Performance Shares or Performance Units to such Participant shall be canceled. SECTION 10 CHANGE IN CONTROL 10.1 OPTIONS, RESTRICTED STOCK. In the event of a change in control of the Company as defined in Section 10.3, then the Plan Administrator may, in its sole discretion, without obtaining stockholder approval, to the extent permitted in Section 14, take any or all of the following actions: (a) accelerate the exercise dates of any outstanding Options or make all such Options fully vested and exercisable; (b) grant a cash bonus award to any Option Holder in an amount necessary to pay the Option Price of all or any portion of the Options then held by such Option Holder; (c) pay cash to any or all Option Holders in exchange for the cancellation of their outstanding Options in an amount equal to the different between the Option Price of such Options and the greater of the tender offer price for the underlying Stock or the Fair Market Value of the Stock on the date of the cancellation of the Options; (d) make any other adjustments or amendments to the outstanding Options and (e) eliminate 15 all restrictions with respect to Restricted Stock and deliver Shares free of restrictive legends to any Participant. 10.2 PERFORMANCE SHARES AND PERFORMANCE UNITS. Under the circumstances described in Section 10.1, the Plan Administrator may, in its sole discretion, and without obtaining stockholder approval, to the extent permitted in Section 14, provide for payment of outstanding Performance Shares and Performance Units at the maximum award level or any percentage thereof. 10.3 DEFINITION. For purposes of the Plan, a "change in control" shall be deemed to have occurred if (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the 1934 Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Mr. Michael Smith is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of more than 33-1/3 percent of the then outstanding voting stock of the Company; or (b) at any time during any period of three consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board (and any new director whose election by the Board or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority thereof; or (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. SECTION 11 RIGHTS OF EMPLOYEES; PARTICIPANTS 11.1 EMPLOYMENT; TENURE. Nothing contained in the Plan or in any Award granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment or consultancy by the Company or tenure as a Non-Employee Director of the Company, or interfere in any way with the right of the Company, subject to the terms of any separate agreement to the contrary, at any time to terminate such employment or consultancy or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Award. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of services shall be determined by the Plan Administrator at the time. Nothing in this Plan shall interfere in any way with the right of the stockholders of the Company to remove a Participant Non-Employee Director from the Board pursuant to the Delaware General Corporation Law and the Company's Certificate of Incorporation and Bylaws. 16 11.2 NONTRANSFERABILITY. No right or interest of any Participant in an Award granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant except pursuant to a qualified domestic relations order as defined by the Internal Revenue Code, Title I of ERISA, either voluntarily or involuntarily, or be subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event or a Participant's death, a Participant's rights and interests in Options shall, to the extent provided in Section 7, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If in the opinion of the Plan Administrator a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Plan Administrator with evidence satisfactory to the Plan Administrator of such status. SECTION 12 GENERAL RESTRICTIONS 12.1 INVESTMENT REPRESENTATIONS. The Company may require any person to whom an Option or other Award is granted, as a condition of exercising such Option or receiving Stock under the Award, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option or the Award for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. Legends evidencing such restrictions may be placed on the certificates evidencing the Stock. 12.2 COMPLIANCE WITH SECURITIES LAWS. Each Award shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the Shares subject to such Award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of Shares thereunder, such Award may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Plan Administrator. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification. 12.3 STOCK RESTRICTION AGREEMENT. The Plan Administrator may provide that shares of Stock issuable upon the exercise of an Option shall, under certain conditions, be subject to restrictions whereby the Company has a right of first refusal with respect to such shares or a right or obligation to repurchase all or a portion of such shares, which restrictions may survive a Participant's term of 17 service with the Company. The acceleration of time or times at which an Option becomes exercisable may be conditioned upon the Participant's agreement to such restrictions. SECTION 13 OTHER EMPLOYEE BENEFITS The amount of any compensation deemed to be received by a Participant as a result of the exercise of an Option or the grant or vesting of any other Award shall not constitute "earnings" with respect to which any other employee benefits of such participant are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. SECTION 14 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time-to-time may amend or modify, the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable. No amendment, modification or termination of the Plan shall in any manner adversely affect any Awards theretofore granted under the Plan, without the consent of the Participant holding such Awards. SECTION 15 WITHHOLDING 15.1 WITHHOLDING REQUIREMENT. The Company's obligations to deliver Shares upon the exercise of an Option, or upon the vesting of any other Award, shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 15.2 WITHHOLDING WITH STOCK. At the time the Plan Administrator grants an Award, it may, in its sole discretion, grant the Participant an election to pay all such amounts of tax withholding, or any part thereof, by electing to transfer to the Company, or to have the Company withhold from Shares otherwise issuable to the Participant, Shares having a value equal to the amount required to be withheld or such lesser amount as may be elected by the Participant. All elections shall be subject to the approval or disapproval of the Plan Administrator. The value of Shares to be withheld shall be based on the Fair Market Value of the Stock on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). Any such elections by Participants to have Shares withheld for this purpose will be subject to the following restrictions: 18 (a) All elections must be made prior to the Tax Date. (b) All elections shall be irrevocable. (c) If the Participant is an officer or director of the Company within the meaning of Section 16 of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable rules thereunder with respect to the use of Stock to satisfy such tax withholding obligation. SECTION 16 BROKERAGE ARRANGEMENTS The Plan Administrator, in its discretion, may enter into arrangements with one or more banks, brokers or other financial institutions to facilitate the disposition of shares acquired upon exercise of Stock Options, including, without limitation, arrangements for the simultaneous exercise of Stock Options and sale of the Shares acquired upon such exercise. SECTION 17 NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan by the Board nor the submission of the Plan to stockholders of the Company for approval shall be construed as creating any limitations on the power or authority of the Board to adopt such other or additional incentive or other compensation arrangements of whatever nature as the Board may deem necessary or desirable or preclude or limit the continuation of any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company or any Affiliated Corporation now has lawfully put into effect, including, without limitation, any retirement, pension, savings and stock purchase plan, insurance, death and disability benefits and executive short-term incentive plans. SECTION 18 REQUIREMENTS OF LAW 18.1 REQUIREMENTS OF LAW. The issuance of stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 18.2 FEDERAL SECURITIES LAW REQUIREMENTS. If a Participant is an officer or director of the Company within the meaning of Section 16 of the 1934 Act, Awards granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule promulgated under the 1934 Act, to qualify the Award for any exception from the provisions of Section 16(b) of the 1934 19 Act available under that Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the agreement with the Participant which describes the Award. 18.3 GOVERNING LAW. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the State of Delaware. SECTION 19 DURATION OF THE PLAN The Plan shall terminate at such time as may be determined by the Board of Directors, and no Award shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on March 9, 2002. Awards outstanding at the time of the Plan termination may continue to be exercised or earned in accordance with their terms. Amended: May 12, 1999 BASIN EXPLORATION, INC. By /s/ MICHAEL S. SMITH --------------------------- Michael S. Smith, President 20 EX-10.8 3 EXHIBIT 10.8 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT is entered into this 2nd day of June, 1999, between BASIN EXPLORATION, INC., a Delaware corporation (the "Corporation"), and HOWARD L. BOIGON (the "Officer"). The Corporation and the Officer have previously entered into a Change of Control Employment Agreement dated as of October 13, 1995 (the "Employment Agreement") and desire to amend the Employment Agreement to clarify certain provisions regarding compensation payable to the Officer in the event of a Change of Control as defined in the Employment Agreement. NOW, THEREFORE, in consideration of the premises and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. DEFINED TERMS. All terms used and not defined herein shall have the meaning given them in the Employment Agreement. 2. AMENDMENT OF SECTION 6(a). The last sentence of Section 6(a) of the Employment Agreement is amended to read as follows: Any restrictions on restricted stock grants and performance share grants shall also be eliminated. 3. AMENDMENT OF SECTION 9. Section 9 is amended to read as follows: LIMITATION ON AMOUNT OF PAYMENT. (a) LIMITATION. Notwithstanding anything else in this Agreement, solely in the event of a termination by the Company without Cause or a termination by the Officer for Good Reason, and except as provided in subsection (i) below, the aggregate of the payments of benefits to which the Officer will be entitled under Section 6(a) will be reduced to the extent necessary so that the Officer will not be liable for the federal excise tax levied on certain "excess parachute payments" under section 4999 of the Internal Revenue Code. (i) The limitation of Section 9(a) will not apply if the difference between (w) the present value of all payments to which the Officer is entitled under paragraph 6(a) determined without regard to Section 9(a) less (x) the present value of all federal, state and other income and excise taxes for which the Officer is liable as a result of such payments exceeds the difference between (y) the present value of all payments to which the Officer is entitled under Section 6(a) calculated as if the limitation of Section 9(a) applies less (z) the present value of all federal, state and other income and excise taxes for which the Officer is liable as a result of such reduced payments. Present values will be determined using the interest rate specified in section 280G of the Internal Revenue Code and will be the present values as of the date on which the Officer's employment terminates (unless it is necessary to use a different date in order to avoid adverse consequences under section 280G). (b) DETERMINATION BY OFFICER. Whether payments to the Officer are to be reduced pursuant to Section 9(a), and the extent to which they are to be so reduced, will be determined by the Officer. The Officer may, at the expense of the Company, hire an accounting firm, law firm or employment consulting firm selected by the Officer to assist him in such determination. If a reduction is made pursuant to Section 9(a), the Officer will have the right to determine which payments and benefits will be reduced. (c) ADDITIONAL BENEFIT. The Officer shall receive the benefit of any change made by the Company in the calculation or entitlement of severance compensation following a Change of Control for any other officer of the Company, such as an agreement by the Company to "gross up" the compensation paid to an officer by paying the excise tax imposed by Section 280G of the Internal Revenue Code . 4. EFFECT OF AMENDMENT. As amended hereby, the Employment Agreement remains in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment to Employment Agreement on the day and year first above entered. BASIN EXPLORATION, INC. By ---------------------------- President ------------------------------- HOWARD L. BOIGON EX-10.10 4 EXHIBIT 10.10 BASIN EXPLORATION, INC. CHANGE OF CONTROL EMPLOYMENT AGREEMENT AGREEMENT by and between BASIN EXPLORATION, INC. a Delaware corporation (the "Company") and SAM D. WINEGRAD (the "Officer"), dated as of August 28, 1997. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Officer, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Officer by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Officer's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Officer with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Officer will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Officer's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Officer that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. For purposes of this Agreement, the Committee (as described below) may clarify the date as of which a Change of Control shall be deemed to have occurred. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date (and prior to the Effective Date) the Company shall give notice to the Officer that the Change of Control Period shall not be so extended. 2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) Any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "1934 Act")), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Mr. Michael Smith, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of more than thirty-three and one-third percent (33-1/3%) of the then outstanding voting stock of the Company; or (b) Individuals who, as of the date hereof, constitute the Board (and any new director whose election by the Board or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors as of the date hereof or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority thereof; or (c) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 51% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; provided, however, that if the merger, plan of liquidation or sale of substantially all assets is not consummated following such stockholder approval and the transaction is abandoned, then the Change of Control shall be deemed not to have occurred. 3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Officer in its employ, and the Officer hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). 4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (a) During the Employment Period, (A) the Officer's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the 2 Officer's services shall be performed at the location where the Officer was employed 120 days immediately preceding the Effective Date or any office or location less than 30 miles from such location. (b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Officer is entitled, the Officer agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Officer hereunder, to use the Officer's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Officer to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Officer's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Officer prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Officer's responsibilities to the Company. (b) COMPENSATION. (a) BASE SALARY. During the Employment Period, the Officer shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to 12 times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Officer by the Company and its affiliated companies in respect of the 12-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Officer prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Officer under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall 3 include any company controlled by, controlling or under common control with the Company. (b) ANNUAL BONUS. In addition to Annual Base Salary, the Officer shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the average of the Officer's bonuses over the last three fiscal years, or such lesser number of years as the Officer may have been employed by the Company, prior to the Effective Date (annualized in the event that the Officer was not employed by the Company for an entire fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Officer shall elect to defer the receipt of such Annual Bonus. (c) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment Period, the Officer shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies but in no event shall such plans, practices, policies and programs provide the Officer with incentive opportunities (measured with respect to both regular and special incentive opportunities to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Officer under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Officer, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (d) WELFARE BENEFIT PLANS. During the Employment Period, the Officer and/or the Officer's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company 4 and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Officer with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Officer at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Officer, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (e) EXPENSES. During the Employment Period, the Officer shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Officer in accordance with the most favorable policies, practices, and procedures of the Company and its affiliated companies in effect for the Officer at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Officer, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (f) FRINGE BENEFITS. During the Employment Period, the Officer shall be entitled to fringe benefits, including, without limitation, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Officer at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Officer, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (g) VACATION. During the Employment Period, the Officer shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Officer at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Officer, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Officer's employment shall terminate automatically upon the Officer's death during the Employment Period. If the Company determines in good faith that the Disability of the Officer has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Officer written 5 notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Officer's employment. In such event, the Officer's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Officer (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Officer shall not have returned to full-time performance of the Officer's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Officer from the Officer's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Officer or the Officer's legal representative. (b) CAUSE. The Company may terminate the Officer's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (a) the Officer's gross violation of the terms of this Agreement, if such violation has not been substantially cured within thirty (30) days following written notice to the Officer from the Company of such violation setting forth with specificity the nature of the violation or, if cure cannot reasonably be effected within such 30-day period, if the Officer does not commence such cure within such 30-day period and thereafter pursue such cure continuously and with due diligence until cure has been effected; (b) the Officer's willful dishonesty towards, fraud upon, felony crime against, deliberate material injury or material bad faith action with respect to, or deliberate or attempted injury to the Company; or (c) the Officer's conviction for any felony crime (whether in connection with the Company's affairs or otherwise). (c) GOOD REASON; WINDOW PERIOD. The Officer's employment may be terminated (i) during the Employment Period by the Officer for Good Reason or (ii) during the Window Period by the Officer without any reason. For purposes of this Agreement, "Window Period" shall mean the 30-day period immediately following the Effective Date. For purposes of this Agreement, any termination by the Officer during the Window Period shall be deemed a termination by the Officer for Good Reason and, in addition, "Good Reason" shall mean: (a) the assignment to the Officer by the Company following the Effective Date of any duties inconsistent with, or a substantial alteration in the nature or status of, the Officer's responsibilities as in effect during the 120-day period prior to the Effective Date, including a change in the Officer's title or the level of supervisor to whom the Officer is required to report; 6 (b) a failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Officer; (c) a relocation of the Company's principal offices to a location outside a 30-mile radius of Denver, Colorado, or the Officer's relocation to any place other than the offices of the Company located in Denver, Colorado or within 30 miles of Denver, Colorado, except for reasonably required travel by the Officer on the Company's business to an extent substantially consistent with the Officer's business travel obligations immediately preceding the Effective Date; (d) any material breach by the Company of any provision of this Agreement, if such material breach has not been cured within thirty (30) days following written notice by the Officer to the Company of such breach setting forth with specificity the nature of the breach; (e) any failure by the Company to obtain the assumption and performance of this Agreement by any successor (by merger, consolidation or otherwise) or assign of the Company; or (f) the voluntary termination by Michael S. Smith of his employment as Chief Executive Officer of the Company or the termination of his employment as Chief Executive Officer in the event of a Change of Control; provided that such termination shall constitute Good Reason only for a period of 120 days from the date of termination of Mr. Smith's employment as Chief Executive Officer. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Officer shall be conclusive. (d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Officer for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Officer's employment under the provision so indicated and (iii) if the Date of Termination (as 7 defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Officer or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Officer or the Company, respectively, hereunder or preclude the Officer or the Company, respectively, from asserting such fact or circumstance in enforcing the Officer's or the Company's rights hereunder. (e) DATE OF TERMINATION. "Date of Termination" means (i) if the Officer's employment is terminated by the Company for Cause, or by the Officer for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Officer's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Officer of such termination, (iii) if the Officer's employment is terminated by reason of Disability, the Date of Termination shall be the Disability Effective Date, and (iv) if the Officer's employment is terminated by reason of his death, the Date of Termination shall be the last day of the month during which his death occurs. 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the Company shall terminate the Officer's employment other than for Cause or Disability or the Officer shall terminate employment for Good Reason, the parties acknowledge that the Officer will sustain actual damages, the amount of which is indefinite, uncertain and difficult of exact ascertainment because of the uncertainties of successfully relocating and seeking a comparable position. In order to avoid dispute as to the amount of such damages and the mutual expense and inconvenience such dispute would entail, the Company and the Officer have agreed hereby that the Company shall pay to the Officer compensation as provided below. It is hereby agreed that in the event of such termination by the Company, the Officer shall receive such amounts as herein provided, not as a penalty, but as the Officer's agreed compensation and sole damages for the termination of this Agreement, in lieu of the Officer's proof of his actual damages on that account. If, during the Employment Period, the Company shall terminate the Officer's employment other than for Cause or Disability or the Officer shall terminate employment for Good Reason, the Company shall pay to the Officer in a lump sum in cash within 5 days after the Date of Termination the aggregate of the following amounts: (a) the sum of (1) the Officer's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than 12 full months or during which the Officer was employed for less than 12 full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to 8 as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Officer (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and (b) the amount equal to the product of (1) three and (2) the sum of (x) the Officer's Annual Base Salary and (y) the Highest Annual Bonus. To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Officer any other amounts or benefits required to be paid or provided or which the Officer is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). In addition, any options to purchase shares of the Company's common stock shall immediately vest and become exercisable as of the Date of Termination and, notwithstanding anything to the contrary in the Officer's option agreements with the Company, the options shall be exercisable for a period of 12 months after the Date of Termination (but in no event beyond the expiration date applicable to such options). Any restrictions on restricted stock grants and performance share grants shall also be eliminated. (b) DEATH. If the Officer's employment is terminated by reason of the Officer's death during the Employment Period, this Agreement shall terminate without further obligations to the Officer's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Officer's estate or beneficiary, as applicable, in a lump sum in cash within 5 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Officer's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Officer's estate and/or the Officer's beneficiaries, as in effect on the date of the Officer's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) DISABILITY. If the Officer's employment is terminated by reason of the Officer's Disability during the Employment Period, this Agreement shall terminate without 9 further obligations to the Officer, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Officer in a lump sum in cash within 5 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Officer shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Officer and/or the Officer's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) CAUSE; OTHER THAN FOR GOOD REASON. If the Officer's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Officer other than the obligation to pay to the Officer (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Officer, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Officer voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Officer, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Officer in a lump sum in cash within 5 days of the Date of Termination. 7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections 6(a)(ii), 6(b) and 6(c), nothing in this Agreement shall prevent or limit the Officer's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Officer may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Officer may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Officer is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Officer or others. In no event shall the Officer be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Officer under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Officer obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Officer may reasonably incur as a result of any contest (regardless of the outcome thereof but not in the case of fees incurred with 10 respect to a claim brought in bad faith) by the Company, the Officer or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Officer about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. LIMITATION ON AMOUNT OF PAYMENT. (a) LIMITATION. Notwithstanding anything else in this Agreement, solely in the event of a termination by the Company without Cause or a termination by the Officer for Good Reason, and except as provided in subsection (i) below, the aggregate of the payments of benefits to which the Officer will be entitled under Section 6(a) will be reduced to the extent necessary so that the Officer will not be liable for the federal excise tax levied on certain "excess parachute payments" under section 4999 of the Internal Revenue Code. (i) The limitation of Section 9(a) will not apply if the difference between (w) the present value of all payments to which the Officer is entitled under paragraph 6(a) determined without regard to Section 9(a) less (x) the present value of all federal, state and other income and excise taxes for which the Officer is liable as a result of such payments exceeds the difference between (y) the present value of all payments to which the Officer is entitled under Section 6(a) calculated as if the limitation of Section 9(a) applies less (z) the present value of all federal, state and other income and excise taxes for which the Officer is liable as a result of such reduced payments. Present values will be determined using the interest rate specified in section 280G of the Internal Revenue Code and will be the present values as of the date on which the Officer's employment terminates (unless it is necessary to use a different date in order to avoid adverse consequences under section 280G). (b) DETERMINATION BY OFFICER. Whether payments to the Officer are to be reduced pursuant to Section 9(a), and the extent to which they are to be so reduced, will be determined by the Officer. The Officer may, at the expense of the Company, hire an accounting firm, law firm or employment consulting firm selected by the Officer to assist him in such determination. If a reduction is made pursuant to Section 9(a), the Officer will have the right to determine which payments and benefits will be reduced. (c) ADDITIONAL BENEFIT. The Officer shall receive the benefit of any change made by the Company in the calculation or entitlement of severance compensation following a Change of Control for any other officer of the Company, such as an agreement by the Company to "gross up" the compensation paid to an officer by paying the excise tax imposed by Section 280G of the Internal Revenue Code. 10. CONFIDENTIAL INFORMATION. The Officer shall not, during his employment by the Company or at any time thereafter, directly or indirectly use, divulge, furnish or make accessible to anyone other than the Company, its directors or officers (otherwise than in the 11 regular course of the business of the Company), any knowledge or information regarding any confidential or secret activities, prospects, technical data, analysis and interpretations, projects, plans, reports, investor or co-venturer names or lists, financial or marketing information or documentary material relating to the existing, planned or contemplated business or activities of the Company. The Officer, upon leaving the employ of the Company, shall not take with him or retain any books, records, data, reports, letters, memoranda, notes or other writings or documents whatsoever, or copies thereof, which reflect or deal with any secret, proprietary or confidential information or material relating to the business or activities of the Company. The obligations of the Officer under this Section 10 shall not apply to (i) information which at the time of disclosure is readily available to the public; (ii) information which is or becomes available to the general public other than through acts or omissions attributable to the Officer; or (iii) information obtained from a third party who is lawfully in possession of the same other than through breach of a confidentiality or nonuse obligation owed to the Company or others with respect to that information. 11. SUCCESSORS. (a) This Agreement is personal to the Officer and, without the prior written consent of the Company, shall not be assignable by the Officer otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Officer's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 12 (b) NOTICES. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Officer: Sam D. Winegrad 7086 E. Costilla Dr. Englewood, Colorado 80012 If to the Company: Basin Exploration, Inc. 370 Seventeenth Street, Suite 3400 Denver, Colorado 80002 Attention: General Counsel or President or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) WITHHOLDINGS. The Company may withhold from any amounts payable under this Agreement the minimum amounts of any such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) MODIFICATIONS. The Officer's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Officer or the Company may have hereunder, including, without limitation, the right of the Officer to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) ACKNOWLEDGMENT OF EMPLOYMENT AT WILL. The Officer and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Officer and the Company, the employment of the Officer by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Officer's employment and/or this Agreement may be terminated by either the Officer or the Company at any time prior to the Effective Date, in which case the Officer shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. 13 IN WITNESS WHEREOF, the Officer has hereunto set the Officer's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. ------------------------------ Sam D. Winegrad BASIN EXPLORATION, INC. By: --------------------------- Michael S. Smith, President 14 EX-10.24 5 EXHIBIT 10.24 FIRST AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated as of July 1, 1999, is by and among BASIN EXPLORATION, INC., a Delaware corporation ("Borrower"), U.S. BANK NATIONAL ASSOCIATION f/k/a COLORADO NATIONAL BANK ("USB"), UNION BANK OF CALIFORNIA, N.A. ("Union"), and NATIONSBANK, N.A. f/k/a NATIONSBANK OF TEXAS, N.A. ("NBT"), in its capacity as a Lender and as Agent for Lenders. USB, Union and NBT are herein collectively referred to as "Lenders." RECITALS A. Borrower and Lenders entered into an Amended and Restated Credit Agreement dated as of January 1, 1999 (the "Credit Agreement"), in order to set forth the terms upon which Lenders would make loans to Borrower and issue letters of credit at the request of Borrower and by which such loans and letters of credit would be governed. Capitalized terms used herein without definition shall have the same meanings as set forth in the Credit Agreement. B. The parties hereto wish to enter into this Amendment in order to amend certain terms and provisions of the Credit Agreement. AGREEMENT NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. CREDIT AGREEMENT. Effective as of the date of this Amendment, the Credit Agreement shall be, and hereby is, amended as follows: (a) The definition of "Borrowing Base (Supplemental)" in Section 1.1 on page 3 of the Credit Agreement shall be deleted, and the following shall be substituted therefor: BORROWING BASE (SUPPLEMENTAL) means that portion of the Borrowing Base attributable to Facility B, which shall be: (a) at any time prior to July 1, 1999, the supplemental loan value attributable to the Borrowing Base Properties, as determined by Lenders in their sole and absolute discretion, in accordance with the procedures for supplemental oil and gas borrowing base loans set forth in Section 3.2 below; and (b) at any time on or after July 1, 1999, zero. (b) The definition of "Commitment Expiration Date (Facility B)" in Section 1.1 on page 4 of the Credit Agreement shall be deleted, and the following shall be substituted therefor: "COMMITMENT EXPIRATION DATE (FACILITY B)" means the date after which no further Advances under Facility B are to be made hereunder, which shall be the close of business on June 30, 1999. (c) Section 3.2(a) on page 26 of the Credit Agreement shall be deleted, and the following shall be substituted therefor: (a) regular semi-annual determinations, as of approximately April 1 and October 1 of each year; 2. LOAN DOCUMENT. All references in any document to the Credit Agreement shall refer to the Credit Agreement, as amended and supplemented pursuant to this Amendment. 3. CONDITIONS PRECEDENT. The obligations of the parties under this Amendment are subject, at the option of Lenders, to the prior satisfaction of the condition that Borrower shall have executed and/or delivered, or caused to have been executed and/or delivered, to or for the benefit of Lenders, the following (all documents to be satisfactory in form and substance to Lenders): (a) This Amendment. (b) Such certificates of officers of Borrower as may be required by Lenders. (c) Any and all other Loan Documents required by Lenders, including without limitation any and all Security Documents required by Lenders. 4. REPRESENTATIONS AND WARRANTIES. Borrower hereby certifies to Lenders that as of the date of (and after giving effect to) this Amendment, except as heretofore disclosed to and waived by Lenders: (a) all of Borrower's representations and warranties contained in the Credit Agreement are true, accurate and complete in all material respects, and (b) no Default or Event of Default has occurred and is continuing under the Credit Agreement. 2 5. CONTINUATION OF THE CREDIT AGREEMENT. Except as specified in this Amendment, the provisions of the Credit Agreement shall remain in full force and effect, and if there is a conflict between the terms of this Amendment and those of the Credit Agreement, the terms of this Amendment shall control. Borrower hereby ratifies, confirms and adopts the Credit Agreement, as amended hereby. 6. EXPENSES. Borrower shall pay all reasonable expenses incurred in connection with the transactions contemplated by this Amendment, including without limitation all reasonable fees and reasonable expenses of Lenders' attorneys and all recording and filing fees, charges and expenses. 7. MISCELLANEOUS. This Amendment shall be governed by and construed under the laws of the State of Colorado and shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. Delivery of this Amendment and any and all documents to be delivered in connection herewith by any party may be effected, without limitation, by faxing a signed counterpart of this Amendment to NBT (any party that effects delivery in such manner hereby agreeing to transmit promptly to NBT an actual signed counterpart). EXECUTED as of the date first above written. BASIN EXPLORATION, INC. By: -------------------------------- Vice President/Chief Financial Officer NATIONSBANK, N.A. f/k/a NATIONSBANK OF TEXAS, N.A., in its capacity as Lender and as Agent for Lenders By: -------------------------------- Managing Director U.S. BANK NATIONAL ASSOCIATION f/k/a COLORADO NATIONAL BANK By: -------------------------------- Vice President 3 UNION BANK OF CALIFORNIA, N.A. By: -------------------------------- Vice President By: -------------------------------- Senior Vice President 4 EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 5,243 0 10,002 0 205 19,712 333,467 137,437 216,241 16,753 34,000 0 0 186 165,182 216,241 33,323 33,367 5,745 28,223 0 0 2,095 3,049 0 3,049 0 0 0 3,049 .22 .21
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