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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
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[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ______________
Commission File Number: 001-15899
PURE RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 74-2952918
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
500 W. Texas, Suite 200 79701
Midland, Texas (Zip Code)
(Address of principal executive offices)
(915) 498-8600
(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 ___ No X
---
As of June 1, 2000, 49,999,847 shares of common stock, par value $.01
per share of Pure Resources, Inc. were outstanding.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Forward Looking Information and Risk Factors............................................................ 1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Balance Sheets as of March 31, 2000 (Unaudited) and
December 31, 1999................................................................... 3
Unaudited Statements of Operations for the Three Months Ended
March 31, 2000 and 1999............................................................. 4
Unaudited Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999............................................................. 5
Notes to Financial Statements............................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 14
-------------------------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 21
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... 22
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Item 4. Submission of Matters to a Vote of Security Holders....................................... 22
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Item 5. Other Information......................................................................... 22
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Item 6. Exhibits and Reports on Form 8-K.......................................................... 22
--------------------------------
Signatures................................................................................ 23
</TABLE>
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PURE RESOURCES, INC.
(formerly "Union Oil Company of California's Permian Basin business unit")
FORWARD LOOKING INFORMATION AND RISK FACTORS
Pure Resources, Inc. ("Pure") or its representatives may make forward
looking statements, oral or written, including statements in this report's
Management's Discussion and Analysis of Financial Condition and Results of
Operations, press releases and filings with the Securities and Exchange
Commission, regarding estimated future net revenues from oil and natural gas
reserves and the present value thereof, planned capital expenditures (including
the amount and nature thereof), increases in oil and gas production, the number
of exploratory and development wells Pure anticipates drilling through 2000,
potential reserves and Pure's financial position, business strategy and other
plans and objectives for future operations. Although Pure believes that the
expectations reflected in these forward looking statements are reasonable, there
can be no assurance that the actual results or developments anticipated by Pure
will be realized or, even if substantially realized, that they will have the
expected effects on its business or operations. Among the factors that could
cause actual results to differ materially from Pure's expectations are general
economic conditions, inherent uncertainties in interpreting engineering data,
operating hazards, delays or cancellations of drilling operations for a variety
of reasons, competition, fluctuations in oil and gas prices, government
regulations, Year 2000 issues and other factors set forth in Pure's Registration
Statement filed on Form S-4 dated April 18, 2000. All subsequent oral and
written forward looking statements attributable to Pure or persons acting on its
behalf are expressly qualified in their entirety by these factors. Pure assumes
no obligation to update any of these statements.
1
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Item 1. Financial Statements
Pure Resources, Inc. ("Pure") was formed in December 1999 as a
wholly-owned subsidiary of Union Oil Company of California ("Union Oil"). Union
Oil is a wholly-owned subsidiary of Unocal Corporation. Pure was formed for the
purpose of receiving a contribution from Union Oil of Union Oil's Permian Basin
business unit. The operations of the Permian Basin business unit had
historically been conducted through Union Oil. On May 25, 2000, Union Oil
contributed the Permian Basin business unit to a subsidiary of Pure.
Simultaneously with such contribution, a subsidiary of Pure was merged with and
into Titan Exploration, Inc. and Titan became a wholly-owned subsidiary of Pure.
The amounts and results of operations of Pure included in these financial
statements include the historical amounts and results of operations of the
Permian Basin business unit operations of Union Oil. The effect of the merger
has not been reflected in these financial statements.
2
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Pure Resources, Inc.
(formerly "Union Oil Company of California's Permian Basin business unit")
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Accounts receivable:
Oil and gas $ 12,263 $ -
Other 2 -
Prepaid expenses and other current assets 118 -
------------- -------------
Total current assets 12,383 -
------------- -------------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts method of accounting:
Proved properties 854,791 827,340
Unproved properties 5,197 3,841
Accumulated depletion, depreciation and amortization (554,127) (539,371)
------------- -------------
305,861 291,810
------------- -------------
Receivable for under-delivered gas 3,702 2,880
Other assets, net 213 -
------------- -------------
$ 322,159 $ 294,690
============= =============
LIABILITIES AND OWNER'S NET INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities:
Trade $ 2,940 $ -
Other (Note 6) 13,103 -
------------- -------------
Total current liabilities 16,043 -
------------- -------------
Liabilities for over-delivered gas 7,106 6,742
Accrued abandonment, restoration and environmental liabilities (Note 3) 11,946 11,613
Deferred income taxes 75,076 73,711
Other liabilities 566 -
Owner's net investment 211,422 202,624
------------- -------------
Commitments and contingencies (Note 4) $ 322,159 $ 294,690
============= =============
</TABLE>
See accompanying notes to financial statements.
3
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Pure Resources, Inc.
(formerly "Union Oil Company of California's Permian Basin business unit")
Unaudited Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues:
Gas sales $ 16,299 $ 7,458
Oil sales 26,098 11,021
Other 122 219
---------- ----------
Total revenues 42,519 18,698
---------- ----------
Expenses:
Oil and gas production 6,919 7,510
Production and other taxes 3,056 1,881
General and administrative 845 1,535
Merger costs 1,100 -
Exploration and abandonment (Note 7) 1,385 1,292
Depletion, depreciation and amortization 8,240 8,778
---------- ----------
Total expenses 21,545 20,996
---------- ----------
Income (loss) before income taxes 20,974 (2,298)
Income tax benefit (expense) (7,301) 754
---------- ----------
Net income (loss) $ 13,673 $ (1,544)
========== ==========
</TABLE>
See accompanying notes to financial statements.
4
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Pure Resources, Inc.
(formerly "Union Oil Company of California's Permian Basin business unit")
Unaudited Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 13,673 $ (1,544)
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Depletion, depreciation and amortization 8,240 8,778
Exploration and abandonments 1,119 -
Gain on sale of assets - 21
Deferred income taxes 1,365 (180)
Other non-cash items 300 -
Changes in assets and liabilities:
Accounts receivable (12,265) -
Prepaid expenses and other current assets (118) -
Other assets (213) -
Receivables for under-delivered gas (822) 58
Accounts payable and accrued liabilities 16,043 -
Liabilities for over-delivered gas 364 (286)
Accrued abandonment, restoration and environmental liabilities 333 (41)
Other liabilities (472) -
---------- ----------
Total adjustments 13,874 8,350
---------- ----------
Net cash provided by operating activities 27,547 6,806
---------- ----------
Cash flows from investing activities:
Investing in oil and gas properties (22,733) (1,323)
Proceeds from sale of assets 61 104
---------- ----------
Net cash used in investing activities (22,672) (1,219)
---------- ----------
Cash flows from financing activities:
Settlements with owner, net (4,875) (5,587)
---------- ----------
Net cash used in financing activities (4,875) (5,587)
---------- ----------
Net increase (decrease) in cash and cash equivalents - -
Cash and cash equivalents, beginning of period - -
---------- ----------
Cash and cash equivalents, end of period $ - $ -
========== ==========
</TABLE>
See accompanying notes to financial statements.
5
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PURE RESOURCES, INC.
(formerly "Union Oil Company of California's Permian Basin business unit")
Notes to Financial Statements
March 31, 2000 and 1999
(Unaudited)
(1) Organization, Nature of Operations and Basis of Presentation
Organization
Pure Resources, Inc. ("Pure"), a Delaware corporation, was, at March
31, 2000, a wholly-owned subsidiary of Union Oil Company of California ("Union
Oil"). Pure was formed in December 1999 in connection with the Agreement and
Plan of Merger (the "Merger Agreement") dated December 13, 1999, as amended,
among Union Oil, Pure, TRH, Inc. and Titan Exploration, Inc. ("Titan").
On May 25, 2000, pursuant to the Merger Agreement, Union Oil
contributed its Permian Basin business unit to a subsidiary of Pure in exchange
for 32,708,067 shares of Pure common stock and the assumption by Pure of the
associated liabilities of the Permian Basin business unit. These transactions
are referred to as the Contribution. Simultaneously with the Contribution, a
subsidiary of Pure was merged with and into Titan. (See note 2 for additional
information related to the Merger Agreement and the merger.) The amounts and
results of operations of Pure included in these financial statements reflect the
historical amounts and results of operations of the Permian Basin business unit
operations of Union Oil. The effect of the merger has not been reflected in
these financial statements.
The combination of Pure and the Permian Basin business unit is treated
as a combination of entities under common control, since Union Oil owned 100% of
the Permian Basin business unit prior to the Contribution and also owned 100% of
the capital stock of Pure immediately subsequent to the Contribution (without
giving effect to the merger). Consequently, the accompanying financial
statements have given effect to the Contribution as if it were a pooling of
interests.
Business Opportunities Agreement
Pure and Union Oil are parties to a business opportunities agreement
in connection with the merger among Titan, Pure and Union Oil. Pure agreed that
it has no interest or expectancy in business opportunities developed by Union
Oil in accordance with standards set forth in the business opportunities
agreement. Pure also agreed that, without the consent of Union Oil, it will not
conduct any business other than the oil and gas exploration, development and
production business and will not pursue any new business opportunities that are
outside of Kansas, Oklahoma, New Mexico, designated areas of southern and
southeastern Colorado, western Arkansas and onshore Texas other than portions of
East Texas. Because of Pure's geographic concentration, any regional events that
increase costs, reduce availability of equipment or supplies, reduce demand or
limit production may impact Pure more than if its operations were more
geographically diversified.
Nature of Operations
As a result of the Contribution and the merger discussed in note 2,
Pure is an independent energy company. Pure, formerly the Permian Basin business
unit, has historically been engaged in the exploration, development and
production of oil and natural gas in the Permian Basin of the western portion of
the state of Texas and San Juan Basin areas of New Mexico and Colorado. As a
result of the merger with Titan, Pure now engages in activities in the
additional areas of the Permian Basin of southeastern New Mexico, Brenham Dome
area of south central Texas and the Central Gulf Coast region of Texas.
6
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Basis of Presentation
The accompanying financial statements are presented as a carve-out from the
financial statements of Union Oil and reflect the activity related to its
Permian Basin business unit during the periods presented. The functions listed
below were managed centrally and support several business units. The cost were
allocated based on each business unit's share of total revenues, prior to
December 31, 1999, and were considered reasonable by management. Effective
January 1, 2000, Union Oil established procedures by which to accumulate actual
costs associated with Permian Basin business unit. Subsequent to December 31,
1999, results of operations for Pure include only actual costs that are directly
attributable to Pure. Support costs decreased in the first quarter of 2000, as
compared to past quarters, as a result of a reduction of support being provided
from Union Oil's Sugar Land and Lafayette offices due to the pending merger of
the Permian Basin business unit with Titan.
General and Administrative Costs
General and administrative costs include charges related to activities
such as accounting, legal, human resources, marketing, planning and public
relations. General an administrative costs allocated from Union Oil to the
Permian Basin business unit were $1.5 million for the three months ended
March 31, 1999. General and administrative costs charged to the Permian
Basin business unit were $800,000 for the three months ended March 31,
2000.
Indirect Production Costs
Indirect production costs include charges for procurement and
logistics, reservoir engineering, production engineering, workover,
drilling, loss control, and health, environment and safety. Indirect
production costs allocated from Union Oil to the Permian Basin business
unit were $800,000 for the three months ended March 31, 1999. Indirect
production costs charged to the Permian Basin business unit were $600,000
for the three months ended March 31, 2000.
Indirect Exploration Costs
Indirect exploration costs include charges for the chief geologist's
department, the chief geophysicist's department, and the land department.
Exploration costs allocate from Union Oil were $500,000 for the three
months ended March 31, 1999. Indirect exploration costs charged to the
Permian Basin business unit were $100,000 for the three months ended March
31, 2000.
Cash Management Services
Historically, Union Oil provided cash management services to Pure
through a centralized treasury system with the associated transactions
recorded via the intercompany accounts. Pure historically had not
maintained cash balances, and no interest had been charged or received.
Pure's net cash settlement with Union Oil and amounts for allocated costs
from Union Oil were included in the owner's net investment on the balance
sheet. Subsequent to the merger, Union Oil has not provided any cash
management services to Pure.
Prior to January 1, 2000 as a result of cash management services
referred to in the paragraph above, Union Oil did not allocate specific
working capital components to Pure. Cash flow from operating activities,
prior to January 1, 2000, did not include the effect of changes in certain
working capital accounts. The amounts were included in settlements with
owners, net.
Subsequent to December 31, 1999, cash management for Pure continued to
be provided by Union Oil up to the date of merger; however, working
capital, as it related to operations subsequent to December 31, 1999 was
allocated to Pure as reflected in the balance sheet as of March 31, 2000.
7
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Other
In the opinion of management, the unaudited financial statements of Pure as
of March 31, 2000 and for the three month ended March 31, 2000 and 1999 include
all adjustments and accruals, consisting only of normal recurring accrual
adjustments, which are necessary for a fair presentation of the results for the
interim period. These interim results are not necessarily indicative of results
for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in Pure s Registration Statement on Form S-4, filed
on April 18, 2000.
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1999 amount to conform to
the 2000 presentations.
(2) The Merger and Contribution
On December 13, 1999, Pure, Union Oil, TRH, Inc. and Titan entered into the
Merger Agreement. The Merger Agreement provided that a subsidiary of Pure would
merge into Titan and Titan would become a wholly-owned subsidiary of Pure. On
May 24, 2000, the Titan stockholders approved the merger and on May 25, 2000
Union Oil and Titan closed the merger. Pure began trading on the New York Stock
Exchange under the symbol "PRS" on May 26, 2000.
Simultaneously with the merger, the Contribution occurred and Union Oil
received 32,708,067 shares of Pure common stock. Immediately following the
Contribution and the merger, Union Oil owned approximately 65.4% of outstanding
Pure common stock. Titan stockholders acquired the remaining 34.6% of Pure's
outstanding common stock in the merger and are entitled to exchange each share
of Titan common stock owned for .4302314 ("Exchange Ratio") of a share of Pure
common stock.
At the effective time of the merger, each outstanding option to purchase
Titan common under the Titan's stock option plans (each a "Titan Common Stock
Option") was assumed by Pure (each an "Assumed Option") and became an option to
purchase that number of shares of Pure common stock equal (subject to rounding)
to the number of shares of Titan common stock that was subject to such option
immediately prior to the merger, multiplied by the Exchange Ratio. The exercise
price of each Assumed Option is equal to the quotient determined by dividing the
exercise price per share of the Titan common stock at which the Titan Common
Stock Option was exercisable immediately prior to the effective time of the
merger by the Exchange Ratio, rounded to the nearest whole cent.
(3) Accrued Abandonment, Restoration and Environmental Liabilities
At March 31, 2000 and December 31, 1999, Pure had accrued $11,611,000 and
$11,271,000, respectively, for the estimated future costs to abandon and remove
wells and production facilities. The amounts were charged to depreciation,
depletion and amortization expense. The total amount chargeable to operations
for abandonment (to be predominantly accrued on a unit-of-production basis) is
estimated to be approximately $29.5 million at March 31, 2000 and December 31,
1999. This estimate is based on abandonment cost studies performed in
conjunction with third parties.
8
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Pure's reserve for environmental remediation obligations totaled $335,000
and $342,000 as of March 31, 2000 and December 31, 1999, respectively.
(4) Commitments and Contingencies
General
Pure is subject to contingent liabilities with respect to existing or
potential claims, lawsuits and other proceedings, including those involving
environmental, tax and other matters, certain of which are discussed more
specifically below. Pure accrues liabilities when it is probable that future
costs will be incurred and such costs can be reasonably estimated. Such accruals
are based on developments to date and Pure's estimates of the outcomes of these
matters and its experience in contesting, litigating and settling other matters.
As the scope of the liabilities becomes better defined, there will be changes in
the estimates of future costs, which management, currently, believes will not
have a material effect on Pure's results of operations and financial condition
or liquidity.
Environmental matters
Pure is subject to loss contingencies pursuant to federal, state and local
environmental laws and regulations. These include existing and possible future
obligations to investigate the effects of the release or disposal of certain
petroleum and chemical substances at various sites; to remediate or restore
these sites; to compensate others for damage to property and natural resources,
for remediation and restoration costs and for personal injuries; and to pay
civil penalties and, in some cases, criminal penalties and punitive damages.
These obligations relate to sites owned by Pure or others and are associated
with past and present operations.
Liabilities are accrued when it is probable that future costs will be
incurred and such costs can be reasonably estimated. However, in many cases,
investigations are not yet at a stage where Pure is able to determine whether it
is liable or, even if liability is determined to be probable, to quantify the
liability or estimate a range of possible exposure. In such cases, the amounts
of Pure's liabilities are indeterminate due to the potentially large number of
claimants for any given site or exposure, the unknown magnitude of possible
contamination, the imprecise and conflicting engineering evaluations and
estimates of proper clean-up methods and costs, the unknown timing and extent of
the corrective actions that may be required, the uncertainty attendant to the
possible award of punitive damages, the recent judicial recognition of new
causes of action, or other reasons.
As discussed in Note 3, Pure had accrued $335,000 and $342,000 at March 31,
2000 and December 31, 1999, respectively, for estimated future environmental
assessment and remediation costs at various sites where liabilities for such
cost are probable.
Pure Resources Employment and Severance Agreements
Under circumstances specified in the new employment and/or severance
agreements agreed to or to be entered into between Pure and its officers, each
covered officer will have the right to require Pure to purchase shares currently
held or subsequently obtained by the exercise of any option held by the officer
to Pure at a calculated net asset value per share (as defined in each officer's
employment/severance agreement). The circumstances under which certain officers
may exercise this right include the termination of the officer's employment for
any reason after three years following the merger, the termination of the
officer without cause, a change in control of either Pure or Unocal Corporation
("Unocal") and other events specified in the agreements. The net asset value per
share is calculated by reference to each common share's pro rata amount of the
present value of proved reserves discounted at 10%, as defined, times 110%, less
funded debt, as defined. The amount that will be reflected in the balance sheet,
post-merger, as common stock subject to repurchase will be the estimated net
asset value, as defined, for each applicable officer's shares, owned prior to
December 1, 1999, and unexercised option shares less the amount of proceeds that
would be received upon exercise of the related options. Deferred compensation
related to such shares and options is calculated as the difference between the
estimated net asset value of the relevant number of Pure shares and the market
value of Pure shares held by each covered officer in the case of shares held or
the exercise price of shares subject to option. This arrangement will be treated
as a variable plan under Accounting Principles Board Option No. 25 "Accounting
for Stock Based Compensation." Consequently, the total compensation for both
9
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shares held and shares subject to option will be measured at the end of each
quarter as the calculated amount of net asset value and the market price of Pure
shares change. The total amount determined will be amortized as compensation
expense over a three-year period with any changes after three years being
expensed in the period of determination. On a pro forma basis at March 31, 2000,
Pure would incur a non-cash expense of approximately $10 million per year to
amortize the deferred compensation recorded as a result of these arrangements.
Each new employment and/or severance agreement will also obligate Pure to
make a severance payment ranging from one to three times the officer's salary,
including an average bonus, upon the occurrence of specified events such as
termination without cause or upon change in control. The aggregate severance
amounts potentially payable under these agreements total $4.5 million based on
the expected initial salaries of the affected officers.
Titan Severance Agreements
The merger was a change of control under the Officer Severance Bonus and
Retention Agreements ("Severance Agreements") held by certain Titan officers.
Subsequent to closing of the merger, Titan paid the officers subject to the
Severance Agreements approximately $6.5 million for signing a general release to
the Severance Agreements and for executing confidentiality and non-compete
agreements.
Non-Dilution Agreement
Pure and Union Oil entered into a non-dilution agreement that provides
Union Oil with the right to maintain its percentage ownership of Pure. If Pure
issues capital stock, other than common stock issued under board-approved
incentive plans, for cash or credit, Union Oil will have the right to purchase
or subscribe for the number or amount of such capital stock equal to its
ownership percentage of Pure, up to 65.4%, at the same price at which the
capital stock is being issued. Pure must provide Union Oil with notice of an
issuance subject to this preemptive right at least 10 days prior to the issuance
and, if Union Oil elects to exercise the right, it must do so in such a way a
not to delay pricing and closing of the issuance. The preemptive right given by
Pure will terminate if unexercised within 10 day after receipt of the notice of
the issuance of the capital stock.
If Pure issues any capital stock in exchange for property other than cash
or credit, Union Oil will have the right to purchase from Pure the additional
number of shares of capital stock necessary to enable Union Oil to maintain its
ownership percentage in Pure, up to 65.4%. Pure must give Union Oil written
notice of the issuance not later than 20 days prior to such issuance, and Union
Oil will have 30 days from the date of the issuance to elect to exercise its
rights by giving written notice to Pure. The cash price per share to be paid by
Union Oil for the additional shares of capital stock will be the market trading
price per share of Pure's common stock at the time of the issuance or in the
case of other capital stock, as determined in good faith by the Pure board of
directors.
Other matters
Pure also has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary course of
business. Pure's results of operations for a given reporting period, on the
basis of management's best assessment of the ultimate amount and timing of these
events, such expenses, or judgments, are not expected to have a material adverse
effect on Pure's financial condition or liquidity.
10
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(5) Incentive Plans
Pure 1999 Incentive Plan
In connection with the merger agreement, Pure's board of directors adopted,
and Union Oil as sole stockholder of Pure approved, the Pure 1999 Incentive
Plan. The plan provides that Pure may grant awards of Pure common stock under
the Pure 1999 Incentive Plan. The awards under the Pure 1999 Incentive Plan
includes (a) stock options that do not qualify as incentive stock options under
Section 422 of the Internal Revenue Code, (b) stock appreciation rights, or
"SARs", (c) cash awards, (d) stock awards and (e) performance awards. These
awards, other than cash awards, may be settled in shares of restricted or
unrestricted common stock of Pure.
The number of shares of Pure common stock that may be subject to
outstanding awards under the Pure 1999 Incentive Plan at any one time is equal
to twelve percent of the total number of outstanding shares of Pure common stock
plus outstanding common stock equivalents, as defined in the 1999 Pure Incentive
Plan, minus the total number of shares of Pure common stock subject to
outstanding awards under any other stock-based plan for employees or directors
of Pure. The number of shares authorized under the Pure 1999 Incentive Plan and
the number of shares subject to an award under the Pure 1999 Incentive Plan will
be adjusted for stock splits, stock dividends, recapitalizations, mergers, and
other changes affecting the capital stock of Pure.
The board of directors of Pure or any committee designated by it will
administer the Pure 1999 Incentive Plan. Pure intends to have its Compensation
Committee administer the plan. The Compensation Committee will have broad
discretion to administer the Pure 1999 Incentive Plan, interpret its provisions
and adopt policies for implementing the Pure 1999 Incentive Plan.
The following table calculates the number of shares or options available to
grant under Pure's 1999 Incentive Plan as of May 26, 2000 (date following
closing of merger):
Common stock outstanding 50,000,000
Options awarded under the Pure 1999 Incentive Plan 3,500,000
Assumed options from Titan 458,015
----------
Common stock equivalents 53,958,015
==========
Maximum shares/options allowed under the Pure 1999
Incentive Plan 6,474,962
Less: Outstanding awards under the Pure 1999 Incentive
Plan (3,500,000)
Outstanding options under the Titan 1996 Incentive
Plan (345,943)
Outstanding options under the Titan 1999 Incentive
Plan (76,288)
Outstanding options under the OEDC Stock Awards Plan (35,784)
----------
Shares/options available for future grant 2,516,947
==========
11
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In connection with the merger agreement, the board of directors of Pure
granted stock options to purchase Pure common stock to the then current
executive officers of Titan, and to other persons who were to become executive
officers of Pure, under the Pure 1999 Incentive Plan. The options granted, on
December 13, 1999, are described in the following table:
Number of Exercise
Options Price Vesting Period Expiration Date
---------- ---------- ----------------------- ------------------
1,500,000 $ 9.30 Ratably over 3 years December 13, 2009
1,010,000 $ 9.30 Ratably over 4 years December 13, 2009
600,000 $ 17.08 Ratably over 3 years December 13, 2009
390,000 $ 17.08 Ratably over 4 years December 13, 2009
----------
3,500,000
==========
Assumed Titan Stock Options
Pure, as part of the merger, assumed each outstanding and unexercised
option to purchase a share of Titan stock issued under various Titan related
employee benefit plans. As result of the merger all the outstanding Titan
options fully vested. Each Titan option converted into an option to purchase
.4302314 shares of Pure common stock at an exercise price equal to the exercise
price of the Titan options divided by .4302314. At May 26, 2000, Pure assumed
Titan options, on a post-merger converted basis, to purchase 458,015 shares of
Pure common stock .
(6) Other Current Liabilities
The other current liabilities consist of the following (in thousands of
dollars):
March 31, December 31,
2000 1999
------------- ------------
(Unaudited)
Revenue payable $ 5,945 $ -
Accrued oil and gas production expenses 3,853 -
Production taxes payable 2,204 -
Other 1,101 -
----------- ---------
$ 13,103 $ -
=========== =========
12
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(7) Exploration and Abandonment
Exploration and abandonment expense consists of the following (in
thousands of dollars):
Three months ended
March 31,
----------------------
2000 1999
--------- ---------
Geological and geophysical staff $ 264 $ 764
Uneconomical exploratory projects 1,119 -
Seismic costs - 528
Other 2 -
--------- ---------
$ 1,385 $ 1,292
========= =========
13
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Union Oil Merger
On December 13, 1999, Titan and Union Oil entered into an agreement to
merge Titan and the Permian Basin business unit of Union Oil into a new company.
The resulting company is Pure Resources, Inc., a publicly-traded company. Titan
has historically included oil and gas exploration and production assets in the
Permian Basin of West Texas and southeastern New Mexico, Brenham Dome area of
south central Texas and the Central Gulf Coast region of Texas.
On May 24, 2000, the Titan stockholders approved the merger and on May 25,
2000 Union Oil and Titan closed the merger. Pure began trading on the New York
Stock Exchange under the symbol "PRS" on May 26, 2000.
Pure has approximately 50 million shares of common stock outstanding after
completion of the merger. Union Oil holds approximately 65.4% (32.7 million
shares) of Pure. The remaining 34.6% ownership is held by the previous
stockholders of Titan common stock who are entitled to exchange each share of
Titan common stock for .4302314 of a share of Pure common stock.
General
Pure is an independent energy company engaged in the exploitation,
development, exploration and acquisition of oil and gas properties. Pure's
strategy is to grow reserves, production and net income per share by:
. identifying acquisition opportunities that provide significant development and
exploratory drilling potential,
. exploiting and developing its reserve base,
. pursuing exploration opportunities for oil and gas reserves,
. capitalizing on advanced technology to identify, explore and exploit projects,
and
. emphasizing a low overhead and operating cost structure.
Pure uses the successful efforts method of accounting for its oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that result in proved reserves,
and to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not result in proved reserves and geological and
geophysical costs are expensed. Costs of significant nonproducing properties,
wells in the process of being drilled and significant development projects are
excluded from depletion until such time as the related project is developed and
proved reserves are established or impairment is determined.
Impact of Commodity Prices
During 1998 and through the first quarter of 1999, the posted price of West
Texas intermediate crude oil ("WTI" ) ranged from $15.75 to $8.00 per barrel.
The WTI price for crude oil during the second quarter of 1999 to the present
have shown significant improvement over those during 1998 and early 1999.
A return of low prices for crude oil, natural gas or other commodities sold
by Pure could have a material adverse effect on Pure's results of operations and
cash flows, on the quantities of crude oil and natural gas that can be
economically produced from its fields, and on the quantities and economic values
of its proved reserves and potential resources. Such adverse pricing scenarios
could result in write-downs of the carrying values of Pure's properties and
materially adversely affect Pure's financial condition, as well as its results
of operations and cash flows.
14
<PAGE>
Impact on Pure of Ancillary Agreements and Severance Arrangements
Stockholders Voting Agreement
Pure, Union Oil and Jack D. Hightower (Chairman of the Board, Chief
Executive Officer and President of Pure) have entered into a stockholders voting
agreement in which Union Oil and Mr. Hightower have agreed to vote their shares
of Pure capital stock to cause two persons designated by Mr. Hightower, up to
five persons designated by Union Oil, and one person agreed upon by Union Oil
and Mr. Hightower to be elected to Pure's board of directors. Under the
agreement, Hightower will vote to elect to the Pure board (a) five designees of
Union Oil, if Union Oil owns greater than 50% of Pure's common stock; (b) four
designees of Union Oil, if Union Oil owns greater than 35% but not more than 50%
of Pure's common stock; or (c) two designees of Union Oil, if Union Oil owns
greater than 10% but not more than 35%.
Union Oil will have the right to approve the nomination of the directors
designated by Mr. Hightower, other than Mr. Hightower himself, which approval
may not be unreasonably withheld. No more than two of the persons designated by
Union Oil under the agreement may be affiliates of Union Oil. In the event that
Union Oil is entitled to designate three or more persons under the agreement,
one of the Union Oil affiliates designated must be approved by Mr. Hightower,
and any non-Union Oil affiliate designated must be approved by Mr. Hightower.
In each case Mr. Hightower's approval may not be unreasonably withheld. Pursuant
to the Merger Agreement, the board initially consists of eight directors.
The stockholders voting agreement will terminate if Union Oil and its
affiliates beneficially own less than 10% of the outstanding common stock of
Pure or Mr. Hightower ceases to be the Chief Executive Officer of Pure.
Other Matters
Under the business opportunities agreement between Pure and Union Oil,
Pure has agreed to limit its business activities. The agreement's restrictions
may limit Pure's ability to diversify its operating base following the merger.
Because of Pure's geographic concentration, any regional events that increase
costs, reduce availability of equipment or supplies, reduce demand or limit
production may impact Pure more than if its operations were more geographically
diversified.
Titan officers were paid under existing severance and retention bonus
agreements of Titan approximately $6.5 million. Pure does not believe that these
payments will materially impact its liquidity.
Mr. Hightower's employment agreement and new Pure officer severance
agreements will entitle covered Pure officers to require Pure to purchase his or
her Pure common stock at a price that may be in excess of market value in the
event of a change of control of Pure or Unocal and in some circumstances
following termination of employment. On March 31, 2000, when the trading price
of Titan common stock was $5.00 per share, the pro forma "per share net asset
value" of Pure, calculated in accordance with the agreements, adjusted to a
Titan equivalent price, was estimated at approximately $6.88. On a pro forma
basis using a market price of $5.00 per share, Pure would incur a non-cash
expense of approximately $10 million per year for three years to amortize the
deferred compensation recorded as a result of these arrangements. The
amortization amounts will change quarterly based on relative changes in the net
asset value and market value of the Pure shares.
Basis of Presentation
The accompanying financial statements are presented as a carve-out from the
financial statements of Union Oil and reflect the activity related to its
Permian Basin business unit during the periods presented. The functions listed
below were managed centrally and support several business units. The costs were
allocated based on each business unit's share of total revenues, prior to
December 31, 1999, and were considered reasonable by management. Effective
January 1, 2000, Union Oil established procedures by which to accumulate actual
costs associated with Permian Basin business unit. Subsequent to December 31,
1999, results of operations for Pure include only actual costs that are directly
attributable to Pure. Support costs decreased in the first quarter of 2000, as
compared to past quarters, as a result of a reduction of support being provided
from Union Oil's Sugar Land and Lafayette offices due to the pending merger of
the Permian Basin business unit with Titan.
15
<PAGE>
General and Administrative Costs
General and administrative costs include charges related to activities
such as accounting, legal, human resources, marketing, planning and public
relations. General and administrative costs allocated from Union Oil to the
Permian Basin business unit were $1.5 million for the three months ended March
31, 1999. General and administrative costs charged to the Permian Basin business
unit were $800,000 for the three months ended March 31, 2000.
Indirect Production Costs
Indirect production costs include charges for procurement and logistics,
reservoir engineering, production engineering, workover, drilling, loss control,
and health, environment and safety. Indirect production costs allocated from
Union Oil to the Permian Basin business unit were $800,000 for the three months
ended March 31, 1999. Indirect production costs charged to the Permian Basin
business unit were $600,000 for the three months ended March 31, 2000.
Indirect Exploration Costs
Indirect exploration costs include charges for the chief geologist's
department, the chief geophysicist's department, and the land department.
Exploration costs allocated from Union Oil were $500,000 for the three months
ended March 31, 1999. Indirect exploration costs charged to the Permian Basin
business unit were $100,000 for the three months ended March 31, 2000.
Operating Data
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
2000 1999
-------- --------
<S> <C> <C>
Production:
Oil and condensate (MBbls)................................................. 926 931
Natural gas (MMcf)......................................................... 7,156 7,185
Total (MBOE)............................................................... 2,119 2,129
Average daily production:
Oil and condensate (Bbls).................................................. 10,176 10,344
Natural gas (Mcf).......................................................... 78,637 79,833
Total (BOE)................................................................ 23,282 23,650
Average sales price per unit:
Oil and condensate (per Bbl)............................................... $ 28.18 $ 11.84
Natural gas (per Mcf)...................................................... $ 2.28 $ 1.04
Total (per BOE)............................................................ $ 20.01 $ 8.68
Expenses per BOE:
Production costs, excluding production and other taxes..................... $ 3.27 $ 3.53
Production and other taxes................................................. $ 1.44 $ 0.88
General and administrative................................................. $ 0.40 $ 0.72
Depletion, depreciation and amortization................................... $ 3.89 $ 4.12
</TABLE>
16
<PAGE>
Results of Operations
Three Months Ended March 31, 2000 as compared to Three Months Ended March 31,
1999
Pure's revenues from the sale of oil and natural gas were $26.1 million
and $16.3 million for the three months ended March 31, 2000 and $11.0 million
and $7.5 million for the three months ended March 31, 1999, respectively.
Compared with 1999, Pure's average oil sales prices increased by $16.35 per Bbl,
or 138%, while average gas sales prices increased by $1.24 per Mcf, or 119%.
Partially offsetting these factors were insignificant decreases in both oil and
natural gas production.
Pure's oil and gas production expense excluding production and other
taxes were $6.9 million ($3.27 per BOE) and $7.5 million ($3.53 per BOE) for the
three months ended March 31, 2000 and 1999, respectively. Production expenses
were down $1.0 million due to decreased carbon dioxide injection for secondary
recoveries in the Permian Basin. Indirect production costs decreased by $300,000
due to decreased support from Union Oil's Sugar Land and Lafayette offices with
the pending merger of Titan and Union Oil's Permian Basin business unit in the
first quarter of 2000. Partially offsetting these factors were increases in
special well repair expenditures in the first quarter of 2000 due to increased
commodity prices.
Production and other taxes were $3.1 million ($1.44 per BOE) and $1.9
million ($.88 per BOE) for the three months ended March 31, 2000 and 1999,
respectively. Property taxes increased by $500,000 due to an increase in the
assessed value of the properties caused by increased commodity prices.
Production taxes also increased by $700,000 due to increased commodity prices.
General and administrative expenses were $800,000 ($.40 per BOE) and
$1.5 million ($.72 per BOE) for the three months ended March 31, 2000 and 1999,
respectively. General and administrative expenses decreased due to decreased
support from Union Oil's Sugar Land and Lafayette offices with the pending
merger of Titan and Union Oil s Permian Basin business unit in the first quarter
of 2000.
Depletion, depreciation, and amortization expense (DD&A) was $8.3
million ($3.89 per BOE) and $8.8 million ($4.12 per BOE) for the three months
ended March 31, 2000 and 1999, respectively. DD&A decreased due to decreased
production from fields with high depletion rates.
Pure's exploration and abandonment expense was $1.4 million and $1.3
million for the three months ended March 31, 2000 and 1999, respectively.
Exploration and abandonment expense decreased in 2000 by $500,000 due to
decreased seismic costs. Exploration expense also decreased by $500,000 due to
decreased exploratory support from the chief geologist's and chief geophysicist'
s offices in Sugar Land due to the pending merger of Titan and Union Oil's
Permian Basin business unit in the first quarter of 2000. One exploratory well
in the North Cowden field was deemed unsuccessful in the first quarter of 2000
at a cost of approximately $1.1 million.
Income tax expense (benefit) was $7.3 million and ($800,000) for the
three months ended March 31, 2000 and 1999, respectively. Income tax expense
increased due to increased earnings for the three months ended March 31, 2000
primarily caused by increased commodity prices.
Liquidity and Capital Resources
Pure's primary source of capital resources prior to the closing of the
merger was its cash flow from operations. Pure's other source of capital
resources prior to the closing of the merger, if needed, was infusion of funds
from Union Oil. All financing activities for Pure prior to the closing of the
merger were performed at the corporate level for Union Oil and its business
units, and Union Oil has historically provided cash management services through
a centralized treasury system. Pure has historically maintained no cash balances
and no interest has been charged or received on the cash balances transferred or
received from Union Oil. Pure's net cash settlements with Union Oil were
included in the owner's net investment on the balance sheets and were shown as
settlements with owner in the financing activities on the statements of cash
flows. The net settlements with Union Oil were $4.9 million and $5.6 million for
the three months ended March 31, 2000 and 1999, respectively. Subsequent to the
merger, Union Oil has not provided any additional cash management or financing
services to Pure.
17
<PAGE>
Pure's primary source of capital after the closing of the merger will
be its cash flow from operations. Its other source of capital, if needed, will
be Titan's existing credit facilities after the merger. Pure is in the process
of obtaining a new credit facility to replace the Titan credit facility.
Although no specific terms are known, Pure will seek to obtain a $400 to $500
million credit facility.
Net Cash Provided by Operating Activities
Cash flow from operating activities for Pure was $27.2 million and $6.8
million for the three months ended March 31, 2000 and 1999, respectively. The
increase in net cash provided by operating activities was primarily due to
increased commodity prices. The increase in net cash provided by operating
activities was also due to decreased oil and gas production expenses and
decreased general and administrative expenses. This was partially offset by
increased production and other taxes.
Capital Expenditures
Capital expenditures were $22.7 million and $1.3 million for the three
months ended March 31, 2000 and 1999, respectively. Capital expenditures
increased significantly in the first quarter of 2000 due mainly to an increase
in developmental expenditures. The increased expenditures included the purchase
of additional interests in the San Juan Basin, North Riley, Reinecke, and Gomez
fields for $5.5 million, $3.5 million, $2.3 million and $1.0 million,
respectively. Development drilling also increased by $7.3 million in the first
quarter of 2000 with several new development wells being drilled in the Permian
and San Juan basins. Development drilling was drastically reduced in the first
quarter of 1999 primarily due to decreased commodity prices.
Pure and Titan each estimated $50 million of capital expenditures for
2000 for a combined total of approximately $100 million. The primary sources of
funding will be Pure's cash flow from operations and funding from credit
facilities.
Costs Incurred
Pure requires capital primarily for the acquisition, exploration and
development of oil and gas properties as well as for general working capital
needs. The following table sets forth costs incurred by Pure in its acquisition,
exploration and development activities.
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------
2000 1999
------------ ----------
(in thousands of dollars)
<S> <C> <C>
Property acquisition:
Proved $ 12,339 $ -
Unproved 53 77
Exploration 1,489 1,394
Development 9,122 1,144
------------ ----------
Total costs incurred $ 23,003 $ 2,615
============ ==========
</TABLE>
Other Matters
Disclosure about Market Risk
Pure historically has held no derivative instruments related to interest
rate exposure risks as Union Oil has historically retained all the debt and
related interest charges.
18
<PAGE>
Pure is a producer of various hydrocarbon commodities such as crude oil
and condensate, natural gas and associated petroleum-based products and is
subject to the associated price risks. Unocal Energy Trading, another business
unit of Union Oil, has historically bought a majority of Pure's sales of crude
oil and natural gas at spot prices.
Historically, Union Oil (not Pure) has mitigated its exposure to
fluctuations in crude oil and natural gas prices through Unocal Energy Trading.
Unocal Energy Trading uses hydrocarbon derivative financial instruments, such as
futures contracts, swaps, and options with maturities of 24 months or less to
mitigate overall exposure to price changes. Historically, hedging and trading
gains and losses incurred by Union Oil were not allocated to Pure and were not
reflected in the Permian Basin business unit's presented results. Therefore,
historically, Pure's associated price risks were not mitigated.
Titan, currently, holds derivative commodity price instruments to hedge
against fluctuations in oil and gas prices. In addition, Titan maintains debt
facilities which will subject Titan and Pure to interest rate risk.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", which establishes standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. It establishes conditions
under which a derivative may be designated as a hedge, and establishes standards
for reporting changes in the fair value of a derivative. SFAS No. 133 is
required to be implemented for the first quarter of the fiscal year ended 2001.
Early adoption is permitted. Pure has not evaluated the effects of implementing
SFAS No. 133.
Pure Unaudited Pro Forma Data
The following reflects unaudited pro forma data related to the
Contribution and merger discussed in notes 1 and 2 of the Notes to Financial
Statements. The unaudited pro forma combined data assumes the Contribution and
merger had taken place on March 31, 2000 with respect to the unaudited pro forma
combined balance sheet and as of January 1, 2000 with respect to the unaudited
pro forma combined statement of operations and related operational data. The pro
forma amounts are not necessarily indicative of the results that may be reported
in the future (dollars in thousands, except per unit amounts):
Balance Sheet Data
March 31, 2000
--------------
Current assets $ 27,735
Net oil and gas properties 522,978
Deferred compensation 29,860
Other assets 9,317
--------------
Total assets $ 589,890
==============
Current liabilities $ 32,673
Long-term debt 103,648
Other liabilities 20,470
Deferred income taxes 46,262
Common stock subject to repurchase 61,865
Equity 324,972
--------------
Total liabilities and equity $ 589,890
==============
19
<PAGE>
Statement of Operations Data
<TABLE>
<CAPTION>
Three months ended
March 31, 2000
-----------------------------
<S> <C>
Total revenues $ 64,608
Oil and gas production costs (12,078)
Production and other taxes (4,809)
General and administrative expenses (3,389)
Amortization of deferred compensation (2,505)
Exploration and abandonment costs (4,116)
Depreciation, depletion and amortization (12,205)
Other expenses, net (1,866)
Income tax expense (8,275)
-----------------------------
Net income $ 15,365
=============================
Operational Data
Three months ended
March 31, 2000
------------------------------
Production:
Oil (MBbls)................................................... 1,473
Natural gas (MMcf)............................................ 12,331
Total (MBOE).................................................. 3,528
Average sales price per unit (excluding effects of hedging):
Oil (per Bbl)................................................. $ 27.64
Natural gas (per Mcf)......................................... $ 2.16
Total (per BOE)............................................... $ 19.09
</TABLE>
20
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Qualitative Disclosures
Pure in the future may hold interest rate and commodity price derivative
contracts to mitigate its exposure to fluctuating, principally rising, interest
rates and decreasing commodity prices. The use of interest rate and commodity
price derivative contracts may expose Pure to losses due to, but not limited to,
(a) margin calls, (b) credit worthiness of counter parties and (c) other
factors. Post-merger, Pure will acquire from Titan commodity price derivative
contracts. Also, as a result of the Titan merger, Pure will be exposed to
interest rate risk due to Titan s existing variable rate credit facilities.
Pure historically has held no derivative instruments related to interest
rate exposure risks as Union Oil has historically retained all the debt and
related interest charges.
Pure is a producer of various hydrocarbon commodities such as crude oil and
condensate, natural gas and associated petroleum-based products and is subject
to the associated price risks. Unocal Energy Trading, another business unit of
Union Oil, has historically bought a majority of Pure's sales of crude oil and
natural gas at spot prices.
Union Oil (not Pure) has historically mitigated its exposure to
fluctuations in crude oil and natural gas prices through Unocal Energy Trading.
Unocal Energy Trading uses hydrocarbon derivative financial instruments, such as
futures contracts, swaps, and options with maturities of 24 months or less to
mitigate overall exposure to price changes. Historically, hedging and trading
gains and losses incurred by Union Oil were not allocated to Pure and were not
reflected in the Permian Basin business unit s presented results. Therefore,
historically, Pure's associated price risks were not mitigated.
As of March 31, 2000, Pure's primary risk exposures associated with
financial instruments to which it is party include natural gas price volatility
and interest rate volatility. Pure's primary risk exposures associated with
financial instruments did not change significantly between December 31, 1999 and
March 31, 2000.
21
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
---------
2.1 Agreement and Plan of Merger, dated as of December 13,
1999, by and among Union Oil Company of California,
Pure Resources, Inc. (formerly named Titan Resources
Holdings, Inc.), TRH, Inc. and Titan Exploration, Inc.
and Amendment No. 1 to Merger Agreement dated as of
April 14, 2000 (filed as Exhibit 2.1 to Titan
Exploration, Inc.'s Current Report on Form 8-K filed on
December 23, 1999 and Exhibit 2.2 to the Registrant's
Form S-4 (No. 333-34970) and incorporated herein by
reference).
3.1 Certificate of Incorporation of Pure Resources, Inc.
(formerly named Titan Resources Holdings, Inc.) (filed
as Exhibit 3.1 to the Registrant's Form S-4
(No. 333-34970) and incorporated herein by reference).
3.2 Certificates of Amendment of Certificate of
Incorporation of Pure Resources, Inc. (formerly named
Titan Resources Holdings, Inc.) (filed as Exhibit 3.2
to the Registrant's Form S-4 (No. 333-34970) and
incorporated herein by reference).
10.1 Form of Option Agreement (fixed price)
10.2 Form of Option Agreement (premium).
27 Financial Data Schedule.
(b) Reports Submitted on Form 8-K:
-----------------------------
None.
22
<PAGE>
SIGNATURE
---------
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.
PURE RESOURCES, INC.
By: /s/ Jack Hightower
--------------------------------------
Jack Hightower
President and Chief Executive Officer
By: /s/ William K. White
--------------------------------------
William K. White
Vice President and Chief Financial Officer
Date: June 5, 2000
23
