<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-8094
OCEAN ENERGY, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1764876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 FANNIN, SUITE 1600, HOUSTON, TEXAS 77002-6714
(Address of principal executive offices)
(Zip code)
(713) 265-6000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
As of August 12, 1999, 166,598,269 shares of Common Stock, par value $0.10 per
share, were outstanding.
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<PAGE> 2
OCEAN ENERGY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Statements of Operations for the Three Months and
Six Months Ended June 30, 1999 and 1998............................................ 1
Consolidated Balance Sheets - June 30, 1999
and December 31, 1998.............................................................. 2
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998....................................................... 3
Consolidated Statements of Comprehensive Income for the Three
Months and Six Months Ended June 30, 1999 and 1998 ................................ 4
Notes to Consolidated Financial Statements......................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................... 18
Item 3. Quantitative and Qualitative Disclosures about Market Risks............................ 32
PART II. OTHER INFORMATION.......................................................................... 32
SIGNATURES........................................................................................... 34
</TABLE>
On March 30, 1999, Ocean Energy, Inc., a Delaware corporation, merged with
and into Seagull Energy Corporation, a Texas corporation, and the resulting
company was renamed Ocean Energy, Inc. The merger was treated for accounting
purposes as an acquisition of Seagull by Ocean in a purchase business
transaction. As such, the financial results presented here are primarily those
of Ocean Energy, Inc. on a stand-alone basis for the first quarter of 1999 and
of the combined company for the second quarter of 1999, compared to Ocean's
results in the first and second quarters of 1998 on a stand-alone basis.
However, unless the context otherwise requires, the information set forth
outside of Part I relates to the surviving Texas corporation, formerly known as
Seagull Energy Corporation.
(i)
<PAGE> 3
ITEM. 1 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Oil and Gas Sales ..................................... $ 196,206 $ 132,909 $ 301,900 $ 273,965
Costs of Operations:
Operating expenses ................................. 65,446 42,760 110,606 85,412
Depreciation, depletion and amortization ........... 89,509 74,727 148,117 147,498
Provision for loss on sale of Canadian assets ...... -- -- 28,500 --
Write-down of oil and gas properties ............... -- 218,392 -- 218,392
General and administrative ......................... 8,507 4,722 13,083 9,018
--------- --------- --------- ---------
163,462 340,601 300,306 460,320
--------- --------- --------- ---------
Operating Profit (Loss) ............................... 32,744 (207,692) 1,594 (186,355)
Other (Income) Expense:
Interest expense ................................... 31,021 9,437 56,191 21,941
Merger expense ..................................... -- -- 40,652 39,000
Interest income and other .......................... 369 (322) (114) (808)
--------- --------- --------- ---------
Income (Loss) Before Income Taxes ..................... 1,354 (216,807) (95,135) (246,488)
Income Tax Benefit .................................... (235) (81,961) (15,673) (83,509)
--------- --------- --------- ---------
Income (Loss) from Continuing Operations .............. 1,589 (134,846) (79,462) (162,979)
Income from Discontinued Operations, Net of
Income Taxes ....................................... 547 -- 547 --
--------- --------- --------- ---------
Net Income (Loss) ..................................... 2,136 (134,846) (78,915) (162,979)
Preferred Stock Dividend .............................. 836 -- 1,637 --
--------- --------- --------- ---------
Net Income (Loss) Available to Common Shareholders .... $ 1,300 $(134,846) $ (80,552) $(162,979)
========= ========= ========= =========
Basic and Diluted Earnings (Loss):
Per Common Share:
Income (Loss) from Continuing Operations ......... $ 0.01 $ (1.34) $ (0.60) $ (1.62)
Income from Discontinued Operations .............. -- -- -- --
--------- --------- --------- ---------
Net Income (Loss) ................................ $ 0.01 $ (1.34) $ (0.60) $ (1.62)
========= ========= ========= =========
Weighted Average Number of Common Shares
Outstanding:
Basic ............................................ 166,441 100,569 134,991 100,351
========= ========= ========= =========
Diluted .......................................... 168,371 100,569 134,991 100,351
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE> 4
OCEAN ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1999 1998
----------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ....................................................... $ 46,366 $ 10,706
Accounts receivable, net ........................................................ 137,539 111,829
Inventories ..................................................................... 26,592 16,802
Prepaid expenses and other ...................................................... 22,172 14,444
----------- -----------
Total Current Assets .......................................................... 232,669 153,781
Property, Plant and Equipment, at cost, full cost method for oil and gas
properties:
Evaluated oil and gas properties ................................................ 3,606,956 2,759,686
Unevaluated oil and gas properties excluded from amortization ................... 590,419 488,689
Other ........................................................................... 60,911 44,960
----------- -----------
4,258,286 3,293,335
Accumulated Depreciation, Depletion and Amortization ............................... 1,805,579 1,711,696
----------- -----------
2,452,707 1,581,639
Deferred Income Taxes .............................................................. 198,680 217,824
Noncurrent Assets of Discontinued Operations, net .................................. 221,255 --
Other Assets ....................................................................... 75,034 53,716
----------- -----------
Total Assets ....................................................................... $ 3,180,345 $ 2,006,960
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts and notes payable ...................................................... $ 214,838 $ 184,828
Accrued interest payable ........................................................ 47,796 36,206
Accrued liabilities ............................................................. 60,159 15,312
Current maturities of long-term debt ............................................ 836 836
----------- -----------
Total Current Liabilities ..................................................... 323,629 237,182
Long-Term Debt ..................................................................... 1,798,845 1,371,890
Other Noncurrent Liabilities ....................................................... 149,680 20,945
Commitments and Contingencies ...................................................... -- --
Shareholders' Equity:
Preferred stock, $1.00 par value; authorized 10,000,000 shares;
issued 50,000 shares .......................................................... 1 1
Common stock, $.10 and $.01 par value, respectively; authorized 230,000,000 and
250,000,000 shares respectively; issued 166,534,703 and 101,753,646 shares,
respectively .................................................................. 16,653 1,018
Additional paid-in capital ...................................................... 1,480,757 892,339
Accumulated deficit ............................................................. (580,666) (500,114)
Other ........................................................................... (8,554) (16,301)
----------- -----------
Total Shareholders' Equity .................................................... 908,191 376,943
----------- -----------
Total Liabilities and Shareholders' Equity ......................................... $ 3,180,345 $ 2,006,960
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 5
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .............................................................. $ (78,915) $ (162,979)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Income from Discontinued Operations ................................. (547) --
Depreciation, depletion and amortization ............................ 148,117 147,498
Provision for loss on sale of Canadian assets ....................... 28,500 --
Write-down of oil and gas properties ................................ -- 218,392
Deferred income taxes ............................................... (25,727) (86,100)
Noncash Merger expenses ............................................. 21,047 --
Other ............................................................... 4,048 5,125
---------- ----------
96,523 121,936
Changes in operating assets and liabilities, net of acquisitions:
Decrease in accounts receivable ................................... 33,214 10,644
Decrease in inventories, prepaid expenses and other ............... 19,549 4,174
Decrease in accounts and notes payable ............................ (87,966) (38,822)
Increase in accrued expenses and other ............................ 41,199 12,798
---------- ----------
Net Cash Provided by Continuing Operations .......................... 102,519 110,730
Net Cash Provided by Discontinued Operations ........................ 6,203 --
---------- ----------
Net Cash Provided by Operating Activities ........................... 108,722 110,730
---------- ----------
INVESTING ACTIVITIES:
Capital expenditures .................................................. (144,082) (427,621)
Capital expenditures of Discontinued Operations ....................... (2,171) --
Acquisition costs, net of cash acquired ............................... (5,605) --
Proceeds from sales of property, plant and equipment .................. 109,460 739
---------- ----------
Net Cash Used In Investing Activities ............................... (42,398) (426,882)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from debt .................................................... 823,189 679,438
Principal payments on debt ............................................ (946,931) (364,480)
Proceeds from deferred revenue ........................................ 100,000 --
Proceeds from sales of common stock ................................... 311 5,443
Deferred debt issue costs ............................................. (6,406) (1,590)
Dividends paid ........................................................ (827) --
---------- ----------
Net Cash Provided By (Used In) Financing Activities ................. (30,664) 318,811
---------- ----------
Increase In Cash And Cash Equivalents ................................... 35,660 2,659
Cash And Cash Equivalents At Beginning Of Period ........................ 10,706 11,689
---------- ----------
Cash And Cash Equivalents At End Of Period .............................. $ 46,366 $ 14,348
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 6
OCEAN ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) ............................ $ 2,136 $ (134,846) $ (78,915) $ (162,979)
Other comprehensive income, net of tax:
Foreign currency translation adjustment ... 9,741 (1,108) 10,720 (584)
---------- ---------- ---------- ----------
Comprehensive income (loss) .................. $ 11,877 $ (135,954) $ (68,195) $ (163,563)
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 7
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
The consolidated financial statements of Ocean Energy, Inc. ("OEI" or "the
Company"), a Texas corporation, included herein have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Although certain information normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted, management believes that the disclosures are
adequate to make the information presented not misleading. The financial
statements reflect all normal recurring adjustments that, in the opinion of
management, are necessary for a fair presentation.
Effective March 30, 1999, pursuant to the Agreement and Plan of Merger (the
"Merger") dated November 24, 1998, as amended, Ocean Energy, Inc. ("Old Ocean")
was merged with and into Seagull Energy Corporation ("Seagull"). Seagull is an
international oil and gas company engaged primarily in exploration and
development activities in the United States, Egypt, Cote d'Ivoire, Indonesia and
the Russian Republic of Tatarstan. In conjunction with the Merger, Seagull
amended its Articles of Incorporation to change its name to Ocean Energy, Inc.
As a result of this Merger, each outstanding share of Old Ocean common stock was
exchanged for one share of Seagull common stock, and as of March 30, 1999, the
stockholders of Old Ocean owned approximately 61.5% of the outstanding common
stock of the Company, with the shareholders of Seagull owning the remaining
38.5%. Certain reclassifications have been made to the historical results of the
Company to conform the presentation used by the companies.
Effective March 27, 1998, pursuant to the Agreement and Plan of Merger
dated December 22, 1997, as amended, United Meridian Corporation ("UMC") was
merged into Old Ocean (the "UMC Merger"). As a result of the UMC Merger, each
outstanding share of UMC common stock was converted into 1.3 shares of Old Ocean
common stock with approximately 46 million shares issued to the shareholders of
UMC, representing approximately 46% of all of the issued and outstanding shares
of Old Ocean. Old Ocean's shareholders received 2.34 shares of Old Ocean shares
for each share outstanding immediately preceding the UMC Merger, representing
approximately 54% of all of the then issued and outstanding shares. The UMC
Merger was accounted for as a pooling of interests. Accordingly, the
consolidated financial statements for periods prior to the UMC Merger were
restated to conform accounting policies and combine the historical results of
Old Ocean and UMC. Merger costs of $39 million relating to the UMC Merger
consisted primarily of investment banking and other transaction fees, employee
severance and relocation costs as well as the write-off of deferred financing
costs.
The accompanying consolidated financial statements of the Company should be
read in conjunction with the consolidated financial statements and notes thereto
of Old Ocean and Seagull for the year ended December 31, 1998.
5
<PAGE> 8
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Property, Plant and Equipment - The Company capitalizes interest expense
and certain employee-related costs that are directly attributable to oil and gas
operations. For the three months ended June 30, 1999 and 1998, the Company
capitalized interest expense in the amount of $13 million and $10 million,
respectively, and certain employee-related costs in the amount of $10 million
and $6 million, respectively. For the six months ended June 30, 1999 and 1998,
the Company capitalized interest expense in the amount of $20 million and $15
million, respectively, and certain employee-related costs in the amount of $15
million and $11 million, respectively.
Earnings Per Share - Options to purchase a weighted average of 17,597,000
and 11,447,000 shares of common stock for the six months ended June 30, 1999 and
1998, respectively, and 13,592,000 for the three months ended June 30, 1998, at
prices ranging from $2.11 to $36.54 per share were outstanding but were not
included in the computation of diluted loss per share because such options would
have an antidilutive effect on the computation of diluted loss per share. These
options expire at various dates from 1999 to 2009. The preferred stock
conversion was also excluded from the computation because of its antidilutive
effect. For the three months ended June 30, 1999, the amount of diluted weighted
average shares has been increased by 1,930,000 shares to reflect the assumed
effect of the exercise of stock options.
Treasury Stock - The Company follows the average cost method of accounting
for treasury stock transactions.
Discontinued Operations - The Company operates in Alaska through a division
of the Company and a wholly-owned subsidiary (collectively referred to herein as
"ENSTAR"). ENSTAR is subject to regulation by the Regulatory Commission of
Alaska ("the RCA") which has jurisdiction over, among other things, rates,
accounting procedures and standards of service. In July, 1999 the Company
committed to a plan to dispose of ENSTAR, and on July 15, 1999 the Company
signed a purchase and sale agreement to sell ENSTAR. Closing is anticipated by
year-end subject to approval from the RCA and to other customary closing
conditions. Prior to the sale the results of operations and net assets of ENSTAR
have been reflected as discontinued operations. Proceeds from the sale will be
used to repay existing long-term debt.
Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes standards of accounting for and disclosures of
derivative instruments and hedging activities. This statement, as amended, is
effective for fiscal years beginning after June 15, 2000. The Company has not
yet determined the impact of this statement on the Company's financial condition
or results of operations.
NOTE 2. ACQUISITION AND DISPOSITION OF ASSETS
Merger - On March 30, 1999, the shareholders approved the Merger. The
Merger has been accounted for as a purchase under generally accepted accounting
principles. Because Old Ocean
6
<PAGE> 9
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
stockholders own a majority of the outstanding shares of common stock of the
merged company, the accounting treatment of the Merger reflects Old Ocean
acquiring Seagull in a "reverse purchase." Under this method of accounting, the
merged company's historical results for periods prior to the Merger are the same
as Old Ocean's historical results. At the date of the Merger, assets and
liabilities of Old Ocean were recorded based upon their historical costs, and
the assets and liabilities of Seagull were recorded at their estimated fair
market values.
The following is a calculation of purchase price:
<TABLE>
<S> <C>
CALCULATION OF PURCHASE PRICE (IN THOUSANDS, EXCEPT PER SHARE DATA):
Shares of common stock issued ..................................... 64,630
Average of OEI stock price three days before and after the
merger announcement ............................................. $ 9.09
----------
Fair value of stock issued ......................................... $ 587,484
Add: Capitalized Merger costs ...................................... 64,054
----------
Purchase Price ..................................................... $ 651,538
==========
</TABLE>
Capitalized merger costs consisted primarily of severance costs of Seagull
($22 million), value of Seagull stock options maintained by OEI ($17 million),
investment banking fees ($10 million), and other transaction fees and
professional expenses ($15 million). In addition, merger costs of $41 million
were expensed in the first quarter of 1999. These costs consisted primarily of
Old Ocean's severance costs ($21 million), the write-off of certain costs
relating to Old Ocean's information technology system ($14 million) and
compensation expense related to the vesting of Old Ocean's restricted stock ($6
million).
The allocation of purchase price to specific assets and liabilities is
based on certain estimates of fair values and costs which will be adjusted to
actual amounts as determined. Such adjustments are not expected to be material.
Disposition of Canada - On April 15, 1999, the Company completed a sale of
its Canadian oil and gas assets, realizing net proceeds of $63 million which
were used to repay existing long-term debt. A loss of $28.5 million on the sale
was provided for at March 31, 1999. The Canadian assets disposed of contributed
revenue of $7 million and $9 million for the six months ended June 30, 1999 and
1998, respectively, and had operating profit of $2 million (excluding the
provision for loss on the sale) and $1 million, respectively.
Disposition of ENSTAR - On July 15, 1999, the Company signed a purchase and
sale agreement to sell ENSTAR. The Company anticipates closing the sale of
ENSTAR by year-end, receiving net proceeds of approximately $285 million. ENSTAR
contributed revenue of $17 million for the six months ended June 30, 1999 and
operating profit of $2 million. ENSTAR's
7
<PAGE> 10
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
net income was $0.5 million, net of income tax expense of $0.6 million, for the
same period. The net assets to be disposed of comprise net current assets of $5
million, property, plant and equipment of $273 million, and other long-term
assets of $7 million, before liabilities to be assumed of $59 million.
Disposition of Arkoma and Gulf of Mexico Assets - As discussed in Note 8,
the Company has signed purchase and sale agreements to divest its working
interest in certain properties located in the Arkoma Basin in Arkansas and
Oklahoma and in three shelf Gulf of Mexico fields. On a pro forma basis, the
Arkoma and Gulf of Mexico assets to be disposed of contributed revenue of $25
million and $37 million for the six months ended June 30, 1999 and 1998,
respectively, and had operating profit of $6 million and $16 million,
respectively.
The following table presents the unaudited pro forma results (in thousands,
except per share data) of the Company as though the Merger, the sale of ENSTAR,
and the sales of the Canadian, Gulf of Mexico and Arkoma assets had occurred on
January 1, 1998:
UNAUDITED PRO FORMA INFORMATION
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues ....................................... $ 326,294 $ 398,442
Net loss available to common shareholders ...... $ (13,402) $ (149,492)
Basic and diluted loss per share ............... $ (0.08) $ (0.91)
</TABLE>
8
<PAGE> 11
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The above pro forma amounts have been determined as follows:
o the Seagull-OEI Merger is assumed to have occurred as of January 1,
1998;
o certain costs that Seagull had expensed under the successful efforts
method of accounting are capitalized under the full cost method of
accounting;
o depreciation, depletion and amortization expense of Seagull is
calculated in accordance with the full cost method of accounting applied
to the adjusted basis of the properties acquired using the purchase
method of accounting;
o a decrease in interest expense results from the revaluation of Seagull
debt under the purchase method of accounting, including the elimination
of amortization of historical debt issuance costs;
o the sale of the Canadian oil and gas assets is assumed to have occurred
as of January 1, 1998;
o the planned sales of ENSTAR and of the Gulf of Mexico and Arkoma assets
are assumed to have occurred on January 1, 1998;
o the proceeds from the asset sales were used to pay down debt at January
1, 1998; and,
o the related income tax effects of these adjustments are recorded based
on the applicable statutory tax rate.
NOTE 3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1999 1998
----------- -----------
(amounts in thousands)
<S> <C> <C>
Cash paid during the period for:
Interest ....................................... $ 57,584 $ 21,869
Income taxes ................................... $ 6,244 $ 1,249
</TABLE>
As discussed in Note 2, the Merger was completed through the issuance of
common stock. Therefore, the Merger increased property, plant and equipment by
$1.3 billion, debt by $563 million, other liabilities by $207 million, and
equity by $595 million through a non-cash transaction that was not reflected in
the statement of cash flows. However, $1.8 million of the $5.6 million of
acquisition costs reflected in "investing activities" in the statement of cash
flows represents the cash expenses paid in connection with the Merger, less the
cash of Seagull on the date of the Merger.
9
<PAGE> 12
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4. FINANCIAL INSTRUMENTS
The Company hedges certain of its production through master swap agreements
which provide for separate contracts tied to the NYMEX light sweet crude oil and
natural gas futures contracts. In addition, the Company occasionally engages in
combined contracts that have agreed-upon price floors and ceilings (collars).
Oil and gas revenues have been (decreased) increased by $(5) million and $11
million for the six months ended June 30, 1999 and 1998, respectively, as a
result of the derivative contracts.
At June 30, 1999, Collars were in place for portions of the Company's oil
production for the remainder of 1999 at floors of $12.00 and $15.00 and ceilings
of $15.00, $18.85 and $19.00 per barrel. Contracted volumes total 60,000
barrels of oil per day. The contracted ceilings would limit revenue
increases to be realized by the Company if NYMEX prices were to exceed these
levels. All collars in place related to gas production were settled in early
July at a cost of $.9 million.
While derivative financial instruments are intended to reduce the Company's
exposure to declines in the market price of natural gas and crude oil, these
derivative financial instruments will limit the Company's loss/gain from
decreases/increases in the market price of natural gas and crude oil below/above
the floors/ceilings. As a result, gains and losses on derivative financial
instruments are generally offset by similar changes in the realized price of
natural gas and crude oil. Gains and losses from these financial instruments are
recognized in revenues for the periods to which the derivative financial
instruments relate.
NOTE 5. DEBT
Long-term debt consisted of the following at June 30, 1999 and December
31, 1998 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Credit Facility (average interest rate of 6.4%), due 2004 .. $ 500,000 $ --
OEI credit facility (average interest rate of 7.0%) ........ -- 357,000
Public notes of Old Ocean .................................. 1,009,330 1,009,274
Public notes assumed in the Merger:
7 7/8% senior notes, due 2003 ........................... 98,351 --
7 1/2% senior notes, due 2027 ........................... 124,724 --
8 5/8% senior subordinated notes, due 2005 .............. 99,520 --
Other ...................................................... 26,460 6,452
------------ ------------
1,858,385 1,372,726
Less: current maturities ................................... (836) (836)
Debt of discontinued operations to be assumed .............. (58,704) --
------------ ------------
$ 1,798,845 $ 1,371,890
============ ============
</TABLE>
Concurrently with the closing of the Merger on March 30, 1999, the Company
entered into an $800 million credit facility (the "Credit Facility") which
replaced the existing credit facilities
10
<PAGE> 13
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
of both Old Ocean and Seagull. The Credit Facility consists of a $500 million
five-year revolving facility and a renewable $300 million 364-day facility. The
Credit Facility bears interest, at the Company's option, at LIBOR or prime rates
plus applicable margins ranging from zero to 1.7% or at a competitive bid.
Financing fees of approximately $6 million were incurred related to the Credit
Facility. As of June 30, 1999, borrowings outstanding against the Credit
Facility totaled $500 million and Letters of Credit totaled $39 million, leaving
$261 million of available credit.
The Credit Facility contains certain covenants and restrictive provisions
including limitations on the incurrence of additional debt and payment of
dividends and the maintenance of certain financial ratios. Under the most
restrictive of these provisions, approximately $38 million was available for
payment of cash dividends on common stock or to repurchase common stock as of
June 30, 1999.
As a result of the Merger, the liabilities of both Seagull and Old Ocean
became the liabilities of the Company. Accordingly, the financial statements of
the Company include an aggregate of approximately $563 million of outstanding
Seagull debt assumed at March 30, 1999. As discussed above, Seagull's existing
revolving credit facility was replaced by the Credit Facility. The remaining
Seagull debt was recorded at a discount as follows: the 7 1/2% Senior Notes at a
discount of $26 million, the 7 7/8% Senior Notes at a discount of $2 million,
and the 8 5/8% Senior Subordinated Notes at a discount of $1 million.
NOTE 6. OTHER NONCURRENT LIABILITIES
In 1999, the Company entered into a prepaid crude oil sales contract to
deliver approximately 5,600 barrels of crude oil per day beginning in February
2000 through May 2003. In exchange for the crude oil to be provided, the Company
received an advance payment of approximately $100 million in June 1999. The
Company has the option to satisfy contract delivery requirements with crude oil
purchased from third parties or from oil it produces. The obligation associated
with the future delivery of the crude oil has been recorded as deferred revenue,
included in other accrued and other noncurrent liabilities, and will be
amortized into revenue as scheduled deliveries of crude oil are made.
11
<PAGE> 14
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7. SUPPLEMENTAL GUARANTOR INFORMATION
Ocean Energy, Inc., a Louisiana corporation and wholly-owned subsidiary of
the Company ("Ocean Louisiana"), has unconditionally guaranteed the full and
prompt performance of the Company's obligations under certain of the notes and
related indentures, including the payment of principal, premium (if any) and
interest. None of the referenced indentures place significant restrictions on a
wholly-owned subsidiary's ability to make distributions to the parent. In order
to provide meaningful financial data relating to the guarantor (i.e., Ocean
Louisiana on an unconsolidated basis), the following condensed consolidating
financial information has been provided following the policies set forth below:
1) Investments in subsidiaries are accounted for by the Company on the cost
basis. Earnings of subsidiaries are therefore not reflected in the related
investment accounts.
2) Certain reclassifications were made to conform all of the financial
information to the financial presentation on a consolidated basis. The
principal eliminating entries eliminate investments in subsidiaries and
intercompany balances.
12
<PAGE> 15
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
Unconsolidated
-------------------------------------------
Guarantor Non-Guarantor Consolidated
OEI Subsidiary Subsidiaries OEI
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
1999
Revenues .............................................. $ -- $ 65,550 $ 130,656 $ 196,206
Costs of Operations:
Operating expenses ................................. -- 26,467 38,979 65,446
Depreciation, depletion and
amortization ..................................... 1,061 27,002 61,446 89,509
General and administrative ......................... 4,363 4,144 -- 8,507
---------- ---------- ------------ ------------
Operating Profit (Loss) ............................... (5,424) 7,937 30,231 32,744
Interest Expense ...................................... 30,487 649 (115) 31,021
Interest Income and Other ............................. (1,543) 5,249 (3,337) 369
---------- ---------- ------------ ------------
Income (Loss) Before Taxes ............................ (34,368) 2,039 33,683 1,354
Income Tax Provision (Benefit) ........................ 9,885 (30,185) 20,065 (235)
---------- ---------- ------------ ------------
Income (Loss) from Continuing
Operations ......................................... (44,253) 32,224 13,618 1,589
Income from Discontinued
Operations, net of income taxes .................... -- -- 547 547
---------- ---------- ------------ ------------
Net Income (Loss) ..................................... $ (44,253) $ 32,224 $ 14,165 $ 2,136
========== ========== ============ ============
1998
Revenues .............................................. $ -- $ 84,190 $ 48,719 $ 132,909
Costs of Operations:
Operating expenses ................................. -- 25,609 17,151 42,760
Depreciation, depletion and
amortization ..................................... -- 44,317 30,410 74,727
Write-down of oil and gas
properties ..................................... -- 218,392 -- 218,392
General and administrative ......................... 60 4,501 161 4,722
---------- ---------- ------------ ------------
Operating Profit (Loss) ............................... (60) (208,629) 997 (207,692)
Interest Expense ...................................... 4,028 8,924 (3,515) 9,437
Interest Income and Other ............................. -- 322 (644) (322)
---------- ---------- ------------ ------------
Income (Loss) Before Taxes ............................ (4,088) (217,875) 5,156 (216,807)
Income Tax Benefit .................................... (78) (77,520) (4,363) (81,961)
---------- ---------- ------------ ------------
Net Income (Loss) ..................................... $ (4,010) $ (140,355) $ 9,519 $ (134,846)
========== ========== ============ ============
</TABLE>
13
<PAGE> 16
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
Unconsolidated
-------------------------------------------
Guarantor Non-Guarantor Consolidated
OEI Subsidiary Subsidiaries OEI
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
1999
Revenues .............................................. $ -- $ 114,350 $ 187,550 $ 301,900
Costs of Operations:
Operating expenses ................................. -- 50,936 59,670 110,606
Depreciation, depletion and
amortization ..................................... 1,061 57,330 89,726 148,117
Provision for loss on sale of
Canadian assets .................................. -- -- 28,500 28,500
General and administrative ......................... 4,363 8,474 246 13,083
---------- ---------- ------------ ------------
Operating Profit (Loss) ............................... (5,424) (2,390) 9,408 1,594
Interest Expense ...................................... 44,971 13,126 (1,906) 56,191
Merger Expense ........................................ -- 40,652 -- 40,652
Interest Income and Other ............................. (1,544) 1,762 (332) (114)
---------- ---------- ------------ ------------
Income (Loss) Before Taxes ............................ (48,851) (57,930) 11,646 (95,135)
Income Tax Provision (Benefit) ........................ (17,831) (21,144) 23,302 (15,673)
---------- ---------- ------------ ------------
Loss from Continuing Operations ....................... (31,020) (36,786) (11,656) (79,462)
Income from Discontinued
Operations, net of income taxes .................... -- -- 547 547
---------- ---------- ------------ ------------
Net Loss .............................................. $ (31,020) $ (36,786) $ (11,109) $ (78,915)
========== ========== ============ ============
1998
Revenues .............................................. $ -- $ 167,685 $ 106,280 $ 273,965
Costs of Operations:
Operating expenses ................................. -- 53,064 32,348 85,412
Depreciation, depletion and
amortization ..................................... -- 81,134 66,364 147,498
Write-down of oil and gas
properties ..................................... -- 218,392 -- 218,392
General and administrative ......................... 60 8,542 416 9,018
---------- ---------- ------------ ------------
Operating Profit (Loss) ............................... (60) (193,447) 7,152 (186,355)
Interest Expense (Income) ............................. 8,057 19,473 (5,589) 21,941
Merger Expense ........................................ -- 39,000 -- 39,000
Interest Income and Other ............................. -- 438 (1,246) (808)
---------- ---------- ------------ ------------
Income (Loss) Before Taxes ............................ (8,117) (252,358) 13,987 (246,488)
Income Tax Benefit .................................... (21,900) (57,752) (3,857) (83,509)
---------- ---------- ------------ ------------
Net Income (Loss) ..................................... $ 13,783 $ (194,606) $ 17,844 $ (162,979)
========== ========== ============ ============
</TABLE>
14
<PAGE> 17
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
AT JUNE 30, 1999 AND DECEMBER 31, 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
Unconsolidated
--------------------------------------------
Guarantor Non-Guarantor Eliminating Consolidated
OEI Subsidiary Subsidiaries Entries OEI
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
JUNE 30, 1999
ASSETS
Current Assets ......................... $ 10,486 $ 53,401 $ 168,782 $ -- $ 232,669
Intercompany Investments ............... 3,011,680 (207,864) (352,001) (2,451,815) --
Property, Plant and Equipment,
Net ................................. 11,144 599,641 1,841,922 -- 2,452,707
Other Assets ........................... 59,779 208,537 226,653 -- 494,969
----------- ----------- ------------ ------------ ------------
Total Assets ........................... $ 3,093,089 $ 653,715 $ 1,885,356 $ (2,451,815) $ 3,180,345
=========== =========== ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities .................... $ 104,132 $ 109,554 $ 109,943 $ -- $ 323,629
Long-Term Debt ......................... 1,791,203 -- 7,642 -- 1,798,845
Other Liabilities ...................... 103,173 11,390 35,117 -- 149,680
Shareholders' Equity ................... 1,094,581 532,771 1,732,654 (2,451,815) 908,191
----------- ----------- ------------ ------------ ------------
Total Liabilities and
Shareholders' Equity ................ $ 3,093,089 $ 653,715 $ 1,885,356 $ (2,451,815) $ 3,180,345
=========== =========== ============ ============ ============
DECEMBER 31, 1998
ASSETS
Current Assets ......................... $ -- $ 49,680 $ 104,101 $ -- $ 153,781
Intercompany Investments ............... 1,645,933 174,608 (410,255) (1,410,286) --
Property, Plant and Equipment,
Net ................................. -- 674,598 907,041 -- 1,581,639
Other Assets ........................... 24,686 214,868 31,986 -- 271,540
----------- ----------- ------------ ------------ ------------
Total Assets ........................... $ 1,670,619 $ 1,113,754 $ 632,873 $ (1,410,286) $ 2,006,960
=========== =========== ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities .................... $ 31,271 $ 187,878 $ 18,033 $ -- $ 237,182
Long-Term Debt ......................... 1,009,274 357,000 5,616 -- 1,371,890
Other Liabilities ...................... -- 981 19,964 -- 20,945
Shareholders' Equity ................... 630,074 567,895 589,260 (1,410,286) 376,943
----------- ----------- ------------ ------------ ------------
Total Liabilities and
Shareholders' Equity ................ $ 1,670,619 $ 1,113,754 $ 632,873 $ (1,410,286) $ 2,006,960
=========== =========== ============ ============ ============
</TABLE>
15
<PAGE> 18
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
Unconsolidated
-------------------------------------------
Guarantor Non-Guarantor Consolidated
OEI Subsidiary Subsidiaries OEI
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
1999
Cash Flows from Operating
Activities:
Net Loss ........................................... $ (31,020) $ (36,786) $ (11,109) $ (78,915)
Adjustments to reconcile net
loss to net cash from
operating activities ............................. (15,446) 36,031 154,853 175,438
Changes in assets and liabilities .................. (273,931) 374,464 (94,537) 5,996
---------- ---------- ------------ ------------
Net Cash Provided by (Used in) Continuing
Operations ......................................... (320,397) 373,709 49,207 102,519
Net Cash Provided by Discontinued
Operations ......................................... -- -- 6,203 6,203
---------- ---------- ------------ ------------
Net Cash Provided By (Used in) Operating
Activities ......................................... (320,397) 373,709 55,410 108,722
Cash Flows Used in Investing
Activities ......................................... (2,057) (10,339) (30,002) (42,398)
Cash Flows Provided by (Used in) Financing
Activities ......................................... 330,680 (363,370) 2,026 (30,664)
---------- ---------- ------------ ------------
Net Increase in Cash and Cash
Equivalents ........................................ 8,226 -- 27,434 35,660
Cash and Cash Equivalents:
Beginning of Period ................................ -- -- 10,706 10,706
---------- ---------- ------------ ------------
End of Period ...................................... $ 8,226 $ -- $ 38,140 $ 46,366
========== ========== ============ ============
1998
Cash Flows from Operating
Activities:
Net Income (Loss) .................................. $ 13,783 $ (194,606) $ 17,844 $ (162,979)
Adjustments to reconcile net
income (loss) to net cash from
operating activities ............................. (21,091) 245,953 60,053 284,915
Changes in assets and liabilities .................. 1,865 (91,262) 78,191 (11,206)
---------- ---------- ------------ ------------
Net Cash Provided By (Used In)
Operating Activities ............................... (5,443) (39,915) 156,088 110,730
Cash Flows Used in Investing
Activities ......................................... -- (271,413) (155,469) (426,882)
Cash Flows Provided By Financing
Activities ......................................... 5,443 310,910 2,458 318,811
---------- ---------- ------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents ................................... -- (418) 3,077 2,659
Cash and Cash Equivalents:
Beginning of Period ................................ 2 2,653 9,034 11,689
---------- ---------- ------------ ------------
End of Period ...................................... $ 2 $ 2,235 $ 12,111 $ 14,348
========== ========== ============ ============
</TABLE>
16
<PAGE> 19
OCEAN ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8. SUBSEQUENT EVENTS
As discussed in Note 2, on July 15, 1999, the Company announced that it had
signed a purchase and sale agreement for the sale of ENSTAR.
On August 2, 1999, the Company announced that it had signed a purchase and
sale agreement to divest its working interest in certain properties located in
the Arkoma Basin in Arkansas and Oklahoma. Expected gross proceeds of $235.3
million will be used to reduce the Company's outstanding debt. The transaction
is expected to close by mid-September.
On July 26, 1999, the Company announced that it had signed a purchase and
sale agreement to divest its working interest in three shelf Gulf of Mexico
fields. Expected net proceeds from the Gulf of Mexico asset sale will be
approximately $66 million, and will be used to reduce the Company's outstanding
debt. The transaction is expected to close by mid-August 1999.
17
<PAGE> 20
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the
Company's financial position, results of operations and cash flows for each of
the periods indicated.
As discussed in Note 1, effective March 30, 1999, Ocean Energy, Inc. ("Old
Ocean") was merged with and into Seagull Energy Corporation ("Seagull"). In
conjunction with the Merger, Seagull amended its Articles of Incorporation to
change its name to Ocean Energy, Inc. In addition, effective March 27, 1998,
United Meridian Corporation ("UMC") was merged into Old Ocean ("UMC Merger").
The UMC Merger was accounted for as a pooling of interests. Accordingly, the
consolidated financial statements for periods prior to the UMC Merger were
restated to conform accounting policies and combine the historical results of
Old Ocean and UMC.
The Company's accompanying unaudited consolidated financial statements and
the notes thereto and the consolidated financial statements and notes thereto
included in the Annual Reports on Form 10-K for the year ended December 31, 1998
of Old Ocean and Seagull contain detailed information that should be referred to
in conjunction with the following discussion.
RESULTS OF OPERATIONS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OIL AND GAS OPERATIONS:
Revenues:
Natural gas ................................. $ 87,982 $ 58,283 $ 135,006 $ 115,934
Oil and NGLs ................................ 108,224 74,626 166,894 158,031
---------- ---------- ---------- ----------
196,206 132,909 301,900 273,965
Operating expenses ............................ 65,446 42,760 110,606 85,412
Depreciation, depletion and amortization ...... 87,129 73,654 144,300 145,380
Provision for loss on sale of Canadian
assets ..................................... -- -- 28,500 --
Write-down of oil and gas properties .......... -- 218,392 -- 218,392
---------- ---------- ---------- ----------
Operating profit (loss) ...................... 43,631 (201,897) 18,494 (175,219)
CORPORATE ........................................ (10,887) (5,795) (16,900) (11,136)
---------- ---------- ---------- ----------
Total operating profit (loss) ................. $ 32,744 $ (207,692) $ 1,594 $ (186,355)
========== ========== ========== ==========
</TABLE>
The Company's $240 million and $188 million improvement in operating
profit for the three and six months periods ending June 30, 1999 compared to the
same periods in 1998 is principally due to the absence of the $218 million
write-down of oil and gas properties that was recorded in the second quarter of
1998. Other factors affecting the Company's 1999 operations included the March
30, 1999 Merger, the sale of Canadian assets (for which a loss of $28.5 million
was recorded), and oil and gas prices which, on the average, have been lower for
the first six months of 1999 compared to the first six months of 1998.
Revenues - Oil revenues increased $9 million, or 6%, to $167 million for
the six months ended June 30, 1999, from $158 million for the six months ended
June 30, 1998. For the second
18
<PAGE> 21
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
quarter of 1999, oil revenues increased $33 million, or 44%, to $108 million for
1999 compared to $75 million for the second quarter of 1998. These increases are
the result of sales of production from properties acquired in the Merger,
partially offset by a decrease in the average realized price for oil during the
six months ended June 30, 1999. The average realized price for oil decreased 10%
to $12.79 for the first six months of 1999 compared to $14.19 for the same
period in 1998. However, the average realized price for oil increased to $15.03
for the second quarter of 1999 compared to $13.31 for the second quarter of
1998. Daily oil production increased to 72,078 Bbl in the first six months of
1999 as compared to 61,513 Bbl for the same period in 1998. For the second
quarter of 1999, daily oil production increased to 79,145 Bbl as compared to
61,624 Bbl for the second quarter of 1998. The production increase was also due
to the acquisition of producing properties in the Merger.
Natural gas revenues increased $19 million, or 16%, to $135 million for the
six months ended June 30, 1999, from $116 million for the six months ended June
30, 1998. Gas revenues increased $30 million, or 52%, to $88 million for the
second quarter of 1999 as compared to $58 million for the second quarter of
1998. These increases are primarily due to sales of production from properties
acquired in the Merger offset by slightly lower average gas prices realized
during the period. The average realized price for natural gas decreased 9% to
$1.81 per Mcf in the first six months of 1999 as compared to $1.99 in the first
six months of 1998 and decreased 4% to $1.90 for the second quarter of 1999
compared to $1.97 for the second quarter of 1998. Daily natural gas production
for the first six months of 1999 was 411.0 MMcf, an increase of 28% over 1998
volumes due also to the acquisition of producing properties in the Merger. Daily
production increased 57% over 1998 volumes for the second quarter of 1999 to
510.0 MMcf.
For the six months ended June 30, 1999 and 1998, oil and gas revenues have
been (decreased) increased by $(5) million and $11 million, respectively, as a
result of derivative contracts.
19
<PAGE> 22
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXPLORATION AND PRODUCTION OPERATING DATA
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------
Net Daily Production Unit Price
1999 1998 1999 1998
------ ------ --------- ---------
<S> <C> <C> <C> <C>
Gas Sales (1):
Domestic (2) ......... 465.0 278.6 $ 1.92 $ 2.06
Canada (3) ........... 6.4 27.2 $ 1.51 $ 1.28
Cote d'Ivoire (2) .... 32.1 19.5 $ 1.63 $ 1.65
Egypt (2) ............ 1.1 -- $ 2.76 $ --
Indonesia (2) ........ 5.4 -- $ 1.97 $ --
------ ------
Total .................. 510.0 325.3 $ 1.90 $ 1.97
====== ======
Oil and NGL Sales(1):
Domestic (2) ......... 38,722 41,973 $ 15.50 $ 14.19
Canada (3) ........... 187 1,213 $ 12.47 $ 11.23
Cote d'Ivoire (2) .... 4,975 2,015 $ 18.75 $ 13.83
Equatorial Guinea .... 19,516 16,423 $ 14.84 $ 11.14
Egypt (2) ............ 11,495 -- $ 15.48 $ --
Russia (2) ........... 4,146 -- $ 5.95 $ --
Indonesia (2) ........ 104 -- $ 12.72 $ --
------ ------
Total .................. 79,145 61,624 $ 15.03 $ 13.31
====== ======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------
Net Daily Production Unit Price
1999 1998 1999 1998
------ ------ --------- ---------
<S> <C> <C> <C> <C>
Gas Sales (1):
Domestic (2) ......... 358.9 275.6 $ 1.84 $ 2.08
Canada (3) ........... 21.1 26.1 $ 1.54 $ 1.30
Cote d'Ivoire (2) .... 27.8 20.0 $ 1.71 $ 1.68
Egypt (2) ............ .5 -- $ 2.76 $ --
Indonesia (2) ........ 2.7 -- $ 1.97 $ --
------ ------
Total .................. 411.0 321.7 $ 1.81 $ 1.99
====== ======
Oil and NGL Sales(1):
Domestic (2) ......... 39,263 42,186 $12.43 $14.76
Canada (3) ........... 708 1,201 $11.27 $12.04
Cote d'Ivoire (2) .... 4,734 2,168 $14.57 $14.81
Equatorial Guinea .... 19,458 15,958 $13.07 $12.77
Egypt (2) ............ 5,779 -- $15.48 $ --
Russia (2) ........... 2,084 -- $ 5.95 $ --
Indonesia (2) ........ 52 -- $12.72 $ --
------ ------
Total .................. 72,078 61,513 $12.79 $14.19
====== ======
</TABLE>
(1) Natural gas is stated in MMcf and $ per Mcf. Oil and NGLs are stated in Bbl
and $ per Bbl.
(2) The Company's Egyptian, Russian and Indonesian operations, and a portion of
its domestic and Cote d'Ivoirian operations were acquired as a result of
the Merger on March 30, 1999.
(3) The Company's Canadian operations were sold April 15, 1999.
20
<PAGE> 23
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Expenses - Total operating expenses increased $26 million, or
31%, to $111 million for the six months ended June 30, 1999 from $85 million for
the comparable 1998 period. Operating expenses for the second quarter of 1999
increased $22 million, or 51%, to $65 million for the second quarter of 1999
compared to $43 million for the second quarter of 1998. These increases
primarily result from the acquisition of additional producing properties in the
Merger, as well as from fluctuations in normal operating expenses, including
operating expenses associated with increased production from new facilities.
Operating expenses increased 6% to $4.35 per BOE for the six months ended June
30, 1999, compared to $4.10 per BOE in the comparable 1998 period. Operating
expenses for the second quarter of 1999 and 1998 were $4.38 per BOE and $4.06
per BOE, respectively.
Depreciation, Depletion and Amortization Expense - Depreciation, depletion
and amortization (DD&A) expense related to oil and gas operations remained
relatively constant at $144 million for the six months ended June 30, 1999
compared to $145 million for the same period in 1998. DD&A expense was $87
million for the second quarter of 1999 compared to $74 million for the second
quarter of 1998. For both the second quarter and six months of 1999 versus 1998,
additional DD&A expense related to properties acquired in the Merger was offset
by the effects of the non-cash impairments of oil and gas properties recognized
by the Company in 1998. DD&A for oil and gas operations per BOE decreased $1.31,
or 19%, to $5.67 per BOE for the six months ended June 30, 1999, from $6.98 per
BOE for the comparable 1998 period. This variance is primarily attributable to
the effect of the non-cash impairments of oil and gas properties recognized by
the Company in 1998.
Provision for Loss on Sale of Canadian Assets - On April 15, 1999, the
Company completed a sale of its Canadian oil and gas assets, realizing net
proceeds of $63 million which were used to repay existing long-term debt. A loss
of $28.5 million on the sale was provided for during the first quarter of 1999.
Write-down of Oil and Gas Properties - At June 30, 1998, the Company
recognized a non-cash impairment of oil and gas properties in the amount of
$218.4 million pursuant to the ceiling limitation required by the full cost
method of accounting for oil and gas properties. The write-down was primarily
the result of the precipitous decline in world crude oil prices experienced
during the second quarter of 1998.
General and Administrative Expenses - General and administrative expenses
increased $4 million for both the three and six months ended June 30, 1999
compared to the same periods in 1998. General and administrative expense was $9
million and $13 million for the three and six month periods ending June 30,
1999, versus $5 million and $9 million for the comparable periods in 1998.
Approximately $1 million of the increase is due to expense relating to
compensation plans that are tied directly to the market price of the Company's
common stock. As a result of the Merger, the combined Company expects to realize
a decline in proforma
21
<PAGE> 24
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
general and administrative expense as cost savings related to personnel
reduction, office consolidations and reduced combined expenses for professional
fees and other expense items are realized.
OTHER
Interest Expense - Interest increased $34 million to $56 million for the
six months ended June 30, 1999 from $22 million in the comparable 1998 period.
Interest expense for the second quarter of 1999 increased $22 million to $31
million from $9 million for 1998. This increase is primarily the result of an
increase in debt levels in 1999 resulting from the higher capital spending
program throughout 1998. Interest expense for the remainder of 1999 will
continue to be higher than 1998 levels due to the inclusion of the outstanding
debt of Seagull of approximately $563 million in the Company's financial
statements. However, proceeds from the sales of certain non-core oil and gas
assets, including Canada, were used to repay existing long-term debt during the
first six months of 1999. In addition, proceeds from the pending sales of ENSTAR
and of assets located in the Gulf of Mexico and onshore in Arkansas and Oklahoma
will be used to repay existing long-term debt. The timing of the closings of
these transactions will affect total interest expense for the remainder of 1999.
Merger Expense - Merger expenses of $41 million associated with the Merger
between Old Ocean and Seagull have been recorded in the first quarter of 1999.
Merger expenses of $39 million associated with the March 1998 merger between Old
Ocean and UMC were recorded in the first quarter of 1998.
Income Tax Benefit - An income tax benefit of $16 million was recognized
for the six months ended June 30, 1999, compared to a benefit of $84 million for
the six months ended June 30,1998. The deferred income tax provision or benefit
was derived primarily from changes in deferred income tax assets and liabilities
recorded on the balance sheet. The Company currently believes that it is more
likely than not that the net deferred tax asset will be realized.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL AND OPERATING DATA
The following table sets forth summary unaudited pro forma condensed
combined financial and operating data which are presented to give effect to the
Merger and to the sales of ENSTAR and of the Canadian, Gulf of Mexico and Arkoma
assets as if they had occurred as of January 1, 1998. The information does not
purport to be indicative of actual results, if the Merger had been in effect for
the periods indicated, or of future results. The information was prepared based
on the following assumptions:
22
<PAGE> 25
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
o The Seagull-OEI Merger is assumed to have occurred as of January 1,
1998;
o certain costs that Seagull had expensed under the successful efforts
method of accounting are capitalized under the full cost method of
accounting;
o depreciation, depletion and amortization expense of Seagull is
calculated in accordance with the full cost method of accounting
applied to the adjusted basis of the properties acquired using the
purchase method of accounting;
o a decrease in interest expense results from the revaluation of Seagull
debt under the purchase method of accounting, including the
elimination of amortization of historical debt issuance costs;
o the sale of the Canadian oil and gas assets is assumed to have
occurred as of January 1, 1998;
o the planned sales of ENSTAR and of the Gulf of Mexico and Arkoma
assets are assumed to have occurred on January 1, 1998;
o the proceeds from the asset sales were used to pay down debt at
January 1, 1998; and,
o the related income tax effects of these adjustments are recorded based
on the applicable statutory tax rate.
23
<PAGE> 26
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
UNAUDITED PRO FORMA INFORMATION
(Amounts in Thousands, Except Per Unit Data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME:
Oil and Gas Sales .......................................... $ 326,294 $ 398,442
Cost of Operations:
Operating expenses ...................................... 123,482 135,284
Depreciation, depletion and amortization ................ 162,310 197,423
Write-down of oil and gas properties .................... -- 218,392
General and administrative .............................. 17,374 15,458
---------- ----------
303,166 566,557
---------- ----------
Operating Profit (Loss) .................................... 23,128 (168,115)
Other (Income) Expense:
Interest expense ........................................ 45,317 14,999
Merger expense (1) ...................................... -- 39,000
Interest income and other ............................... (4,927) (3,077)
---------- ----------
Loss Before Income Taxes ................................... (17,262) (219,037)
Income Tax Benefit ......................................... (5,497) (69,545)
---------- ----------
Net Loss ................................................... (11,765) (149,492)
Preferred Stock Dividend ................................... 1,637 --
---------- ----------
Net Loss Available to Common Shareholders .................. $ (13,402) $ (149,492)
========== ==========
Loss Per Common Share:
Basic and Diluted ....................................... $ (0.08) $ (0.91)
========== ==========
Weighted Average Number of Common Shares Outstanding:
Basic and Diluted ....................................... 166,413 163,387
========== ==========
CAPITAL EXPENDITURES:
Oil and Gas Operations .................................. $ 163,197 $ 491,934
Corporate ............................................... 6,513 9,349
---------- ----------
Total (2) ............................................... $ 169,710 $ 501,283
========== ==========
</TABLE>
(1) Excludes approximately $41 million of merger expenses recorded in the
quarter ended March 31, 1999. During 1998, the Company recorded $39 million
in merger expenses related to the UMC Merger, which was accounted for as a
pooling transaction.
(2) Includes capitalized interest of $21 million and $18 million and
capitalized employee-related costs of $16 million and $16 million,
respectively.
24
<PAGE> 27
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
UNAUDITED PRO FORMA INFORMATION
(Amounts in Thousands, Except Per Unit Data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
OPERATIONS DATA:
Net daily natural gas production (MMcf):
Domestic .............................................. 422.6 486.0
Cote d'Ivoire ......................................... 32.6 29.9
Other international ................................... 7.4 10.6
---------- ----------
Total ........................................... 462.6 526.5
========== ==========
Average natural gas prices ($ per Mcf):
Domestic .............................................. $ 1.78 $ 2.01
Cote d'Ivoire ......................................... $ 1.68 $ 1.64
Other international ................................... $ 2.20 $ 2.37
Weighted average ...................................... $ 1.78 $ 2.00
Net daily oil and NGL production (Bbl):
Domestic .............................................. 38,782 44,374
Egypt ................................................. 10,816 10,794
Cote d'Ivoire ......................................... 5,223 3,272
Russia ................................................ 4,168 3,989
Equatorial Guinea ..................................... 19,458 15,956
Other international ................................... 79 209
---------- ----------
Total .............................................. 78,526 78,594
========== ==========
Average oil and NGL prices ($ per Bbl):
Domestic .............................................. $ 12.27 $ 14.57
Egypt ................................................. $ 13.35 $ 12.95
Cote d'Ivoire ......................................... $ 14.19 $ 13.91
Russia ................................................ $ 6.29 $ 9.56
Equatorial Guinea ..................................... $ 13.07 $ 12.77
Other international ................................... $ 13.22 $ 16.86
Weighted average .................................. $ 12.43 $ 13.71
Net daily production (MBOE): ............................ 155.6 166.3
========== ==========
Average costs ($ per BOE):
Operating expenses ...................................... $ 4.38 $ 4.49
General and administrative .............................. 0.62 0.51
Interest expense ........................................ 1.61 0.50
---------- ----------
Cash costs ........................................ 6.61 5.50
Depletion, depreciation and amortization ................ 5.76 6.56
---------- ----------
All-in costs ..................................... $ 12.37 $ 12.06
========== ==========
</TABLE>
25
<PAGE> 28
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Liquidity - Concurrently with the closing of the Merger on March 30, 1999,
the Company entered into an $800 million credit facility (the "Credit Facility")
which combined the existing credit facilities of both Old Ocean and Seagull. The
Credit Facility consists of a $500 million five-year revolving facility and a
renewable $300 million 364-day facility with a one-year term loan option. The
Credit Facility bears interest, at the Company's option, at LIBOR or prime rates
plus applicable margins ranging from zero to 1.7% or at a competitive bid.
Financing fees of approximately $6 million were incurred related to the Credit
Facility. As of June 30, 1999, borrowings outstanding against the facility
totaled $500 million and Letters of Credit totaled $39 million, leaving $261
million of available credit.
The Company's debt to total capitalization ratio has decreased to 66% at
June 30, 1999, from 78% at December 31, 1998. During the first six months of
1999, the Company has used proceeds from property sales to pay down amounts
outstanding under the Credit Facility. The Company also intends to use proceeds
from the sales of ENSTAR and of the Gulf of Mexico and Arkoma assets to make
additional repayments of existing long-term debt.
The ability of the Company to satisfy its obligations and fund planned
capital expenditures will be dependent upon its future performance. Such future
performance is subject to many conditions that are beyond the Company's control,
particularly oil and gas prices, and the Company's ability to obtain additional
debt and equity financing, if necessary. The Company currently expects that its
cash flow from operations and availability under the Credit Facility will be
adequate to execute its 1999 business plan. However, no assurance can be given
that the Company will not experience liquidity problems from time to time or on
a long-term basis. If the Company's cash flow from operations and availability
under the Credit Facility are not sufficient to satisfy its cash requirements,
there can be no assurance that additional debt or equity financing will be
available to meet its requirements.
Effects of Leverage - The Company has outstanding indebtedness of
approximately $1.8 billion as of June 30, 1999. The Company's level of
indebtedness has several important effects on its future operations, including
(i) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of interest on its indebtedness and will not be
available for other purposes, (ii) the covenants contained in the various
indentures require the Company to meet certain financial tests, and contain
other restrictions that limit the Company's ability to borrow additional funds
or to dispose of assets and may affect the Company's flexibility in planning
for, and reacting to, changes in its business, including possible acquisition
activities and (iii) the Company's ability to obtain additional financing in the
future for working capital, expenditures, acquisitions, general corporate or
other purposes may be impaired. None of the indentures place significant
restrictions on a wholly-owned subsidiary's ability to make distributions to the
parent company.
26
<PAGE> 29
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company believes it is currently in compliance with all covenants
contained in the respective indentures.
CAPITAL EXPENDITURES
(Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and Gas Operations:
Leasehold acquisitions .............................. $ 8,672 $ 26,658 $ 12,571 $ 35,465
Exploration costs ................................... 40,854 60,145 49,845 147,094
Development costs ................................... 40,194 131,758 76,213 239,429
---------- ---------- ---------- ----------
89,720 218,561 138,629 421,988
Corporate ............................................. 2,636 4,306 5,453 5,633
---------- ---------- ---------- ----------
Total Continuing Operations ........................... 92,356 222,867 144,082 427,621
Discontinued Operations ............................... 2,171 -- 2,171 --
---------- ---------- ---------- ----------
$ 94,527 $ 222,867 $ 146,253 $ 427,621
========== ========== ========== ==========
</TABLE>
The Company's capital expenditure budget for 1999 is expected to be
approximately $350-400 million (excluding proved property acquisitions). Actual
capital spending may vary from the capital expenditure budget. The Company will
evaluate its level of capital spending throughout the year based upon drilling
results, commodity prices, cash flows from operations and property acquisitions.
The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploration, development, production and
abandonment of its oil and natural gas reserves. The Company has historically
funded its expenditures from cash flows from operating activities, bank
borrowings, sales of equity and debt securities, sales of non-strategic oil and
natural gas properties, sales of partial interests in exploration concessions
and project finance borrowings. The Company intends to finance 1999 capital
expenditures primarily with funds provided by operations.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes standards of
accounting for and disclosures of derivative instruments and hedging activities.
This statement, as amended, is effective for fiscal years beginning after June
15, 2000. The Company has not yet determined the impact of this statement on the
Company's financial condition or results of operations.
ENVIRONMENTAL
Compliance with applicable environmental and safety regulations by the
Company has not required any significant capital expenditures or materially
affected its business or earnings. The
27
<PAGE> 30
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Company believes it is in substantial compliance with environmental and safety
regulations and foresees no material expenditures in the future; however, the
Company is unable to predict the impact that compliance with future regulations
may have on capital expenditures, earnings and competitive position.
YEAR 2000
Historically, most computer systems (including microprocessors embedded
into field equipment and other machinery) utilized software that recognized a
calendar year by its last two digits. Beginning in the year 2000, these systems
will require modification to distinguish twenty-first century dates from
twentieth century dates ("Year 2000 issues").
Accordingly, the Company has initiated a comprehensive plan to address the
Year 2000 issues associated with its operations and business (the "Year 2000
plan"). The Company's Board of Directors has been briefed about the Year 2000
problem generally and as it may affect the Company. The Board has created a
committee consisting of senior executives and a representative from the Board to
oversee the adoption and implementation of the Year 2000 plan covering all of
the Company's business units. The plan has been developed with an aim towards
taking reasonable steps to prevent the Company's mission-critical functions from
being impaired due to the Year 2000 problem.
The plan includes several phases - (i) assessment of all of the Company's
systems and technology; (ii) implementation and testing of modifications to or
replacements of existing systems and technology, both financial and operational;
(iii) communication with key business partners regarding Year 2000 issues; and
(iv) contingency planning.
In planning and developing the project, the Company has considered both its
information technology ("IT") and its non-IT systems. The term "computer
equipment and software" includes systems that are commonly thought of as IT
systems, including accounting, data processing, telephone systems, scanning
equipment, and other miscellaneous systems. Non-IT systems include alarm
systems, fax machines, monitors for field operations, and other miscellaneous
systems. Both IT and non-IT systems may contain embedded technology, which
complicates the Company's Year 2000 identification, assessment, remediation, and
testing efforts. In those cases where the Company has identified equipment and
software that is not Year 2000 ready, the Company is in the process of replacing
or upgrading such items so they will calculate dates correctly in the new
century. Furthermore, as new equipment and software are purchased in the
ordinary course of business, the Company ensures that such purchases are Year
2000 ready.
During 1997, the Company utilized both internal and external resources to
test, reprogram or replace many of its IT systems, primarily financial and
operational software, for necessary modifications identified in its assessment
of Year 2000 issues. As of the date of this filing, the Company estimates that
approximately 95% of its Year 2000 plan related to these IT systems has
28
<PAGE> 31
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
been implemented and anticipates that the remainder of the plan, including any
necessary remedial action, will be completed by September 30, 1999. During
September 1998, the Company began utilizing internal and external resources to
evaluate its vulnerability to Year 2000 issues related to its non-IT systems,
primarily field operational systems and equipment. With this evaluation now
complete, the Company has found no significant Year 2000 issues related to its
non-IT systems.
The Company has employed outside engineering firms to inventory and
evaluate embedded chips in control, metering and monitoring devices on the
Company's producing properties. Such devices are extensively used in offshore
operations. While some remedial work has been required, it was not extensive and
is essentially complete.
The Company has also initiated formal communications with all of its key
business partners to determine the extent to which the Company is vulnerable to
those third parties' potential failure to remediate their own Year 2000 issues.
Key business partners were identified in four categories of companies including:
(a) major vendors and contractors (including banks and other financial service
companies); (b) major customers; (c) utility companies; and (d) third party
operators of major oil and gas properties. Questionnaires were sent to the
Company's key business partners to confirm their Year 2000 activities and
follow-up letters, telephone calls, and meetings are being used, as appropriate,
to obtain additional information.
During the fourth quarter of 1998, the Company began developing contingency
plans for its financial and operational systems. The Company's contingency plans
are being designed to minimize the disruptions or other adverse effects
resulting from Year 2000 incompatibilities regarding these systems, and to
facilitate the early identification and remediation of Year 2000 problems that
first manifest themselves after January 1, 2000.
The failure to correct a material Year 2000 issue could result in an
interruption in, or a failure of, certain normal business activities, resulting
in a material, adverse affect on the Company's results of operations, liquidity
and financial position. The Company's remediation efforts are expected to reduce
significantly the Company's level of uncertainty about Year 2000 compliance and
the possibility of interruptions of normal operations. However, there can be no
guarantee that other companies' systems, on which the Company's systems rely,
will be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company. Disruptions to the oil and gas
transportation networks controlled by third-party carriers could result in
reduced production volumes delivered to market.
In addition, risks associated with foreign operations may increase with the
uncertainty of Year 2000 compliance by foreign governments and their supporting
infrastructures. The Company's Year 2000 task force members have been asked to
investigate the compliance
29
<PAGE> 32
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
activities of certain third parties and foreign governments to determine the
risks to the Company. This investigation is in progress.
In a recent Securities and Exchange Commission release regarding Year 2000
disclosures, the Securities and Exchange Commission stated that public companies
must disclose the most reasonably likely worst case Year 2000 scenario. Analysis
of the most reasonably likely worst case Year 2000 scenarios the Company may
face leads to contemplation of the following possibilities which, though
unlikely in some or many cases, must be included in any consideration of worst
cases: widespread failure of electrical, gas, and similar supplies by utilities
serving the Company domestically and internationally; widespread disruption of
the services of communications common carriers domestically and internationally;
similar disruption to means and modes of transportation for the Company and its
employees, contractors, suppliers, and customers; significant disruption to the
Company's ability to gain access to, and remain working in, office buildings and
other facilities; the failure of substantial numbers of the Company's
mission-critical information (computer) hardware and software systems, including
both internal business systems and systems (such as those with embedded chips)
controlling operational facilities such as onshore and offshore oil and gas
rigs, oil and gas pipelines and gas plants domestically and internationally, the
effects of which would have a cumulative material adverse impact on the Company.
Among other things, the Company could face substantial claims by customers or
loss of revenues due to service interruptions, inability to fulfill contractual
obligations, inability to account for certain revenues or obligations or to bill
customers accurately and on a timely basis, and increased expenses associated
with litigation, stabilization of operations following mission-critical
failures, and the execution of contingency plans. The Company could also
experience an inability by customers, traders, and others to pay, on a timely
basis or at all, obligations owed to the Company. Under these circumstances, the
adverse effect on the Company, and the diminution of the Company's revenues,
would be material, although not quantifiable at this time. Further in this
scenario, the cumulative effect of these failures could have a substantial
adverse effect on the economy, domestically and internationally. The adverse
effect on the Company, and the diminution of the Company's revenues, from a
domestic or global recession or depression is also likely to be material,
although not quantifiable at this time.
The total costs for the Year 2000 compliance review, evaluation, assessment
and remediation efforts are not expected to be in excess of $1.0 million. Of
this amount, approximately $560,000 had been incurred as of June 30, 1999.
DEFINED TERMS
Natural gas is stated herein in billion cubic feet ("Bcf"), million cubic
feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural gas
liquids ("NGL") are stated in barrels ("Bbl") or thousand barrels ("MBbl").
MMcfe and Mcfe represent the equivalent of one million and one thousand cubic
feet of natural gas, respectively. Oil, condensate and NGL are converted to gas
at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy
30
<PAGE> 33
OCEAN ENERGY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
content. MMBOE, MBOE and BOE represent one million barrels, one thousand barrels
and one barrel of oil equivalent, respectively, with six Mcf of gas converted to
one barrel of liquid.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
All statements other than statements of historical fact included in this
document, including, without limitation, statements regarding the financial
position, business strategy, production and reserve growth and other plans and
objectives for the future operations of the Company are forward-looking
statements.
Although the Company believes that such forward-looking statements are
based on reasonable assumptions, it can give no assurance that its expectations
will in fact occur. Important factors could cause actual results to differ
materially from those in the forward-looking statements. Forward-looking
statements are subject to risks and uncertainties and include information
concerning cost savings from the Merger, integration of the businesses of Old
Ocean and Seagull, the risks that the sales of the ENSTAR business unit, Arkoma
assets and Gulf of Mexico assets do not close, general economic conditions and
possible or assumed future results of operations of the Company, estimates of
oil and gas production and reserves, drilling plans, future cash flows,
anticipated capital expenditures, the Company's realization of its deferred tax
assets, the level of future expenditures for environmental costs, and
management's strategies, plans and objectives as set forth herein.
When used in this document, the words "believes," "expects," "anticipates,"
"intends" or similar expressions are intended to identify such forward-looking
statements. The following important factors, in addition to those discussed
elsewhere in this document could affect the future results of the energy
industry in general and could cause those results to differ materially from
those expressed in such forward-looking statements:
o Risks incident to the drilling and operation of oil and gas wells;
o Future production and development costs;
o The effect of existing and future laws and regulatory actions;
o The political and economic climate in the foreign jurisdictions in
which the Company conducts oil and gas operations;
o The effect of changes in commodity prices, hedging activities and
conditions in the capital markets;
o A significant delay in the expected closing of the Arkoma asset sale
or the ENSTAR sale (or a failure to consummate either sale); and
o Competition from others in the energy industry.
31
<PAGE> 34
OCEAN ENERGY, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company has entered into various derivative financial instruments for
its 1999 oil and gas production. As a result of the derivative contracts, the
Company recorded a net decrease in oil and gas revenues of $5 million during
the first six months of 1999. It is estimated based upon quoted prices at June
30, 1999, the potential effect of the derivative contracts during the second
half of 1999 is an $11 million net decrease in revenues. Assuming a 10%
decrease in oil and gas prices, this potential effect of the derivatives
contracts would be reduced by $10 million. Assuming a 10% increase in oil and
gas prices, this potential effect of the derivatives contracts would be
increased $21 million.
In 1999, the Company entered into a prepaid crude oil sales contract to
deliver approximately 5,600 barrels of crude oil per day beginning in February
2000 through May 2003. In exchange for the crude oil to be provided, the Company
received an advance payment of approximately $100 million in June 1999. The
Company has the option to satisfy contract delivery requirements with crude oil
purchased from third parties or from oil it produces. The obligation associated
with the future delivery of the crude oil has been recorded as deferred revenue
and will be amortized into revenue as scheduled deliveries of crude oil are
made. The obligation is included in other accrued and other noncurrent
liabilities and deferred revenue on the consolidated balance sheet.
The Company also evaluated the potential effect that reasonably possible
near term changes in interest rates may have on the Company's Credit Facility.
The Credit Facility represents approximately 28% of the Company's total debt as
of June 30, 1999 and is the only floating rate debt. Based upon an analysis,
utilizing the actual interest rates in effect and balances outstanding as of
June 30, 1999 and assuming a 10% increase in interest rates, the potential
increase in annual interest expense is approximately $3 million.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on May 25, 1999,
the shareholders voted as follows:
1. To elect five directors to serve until the 2002 Annual meeting of
Shareholders;
2. To amend the Company's Articles of Incorporation to reduce the number
of authorized shares of common stock from 450,000,000 shares to
230,000,000 shares and to reduce the
32
<PAGE> 35
OCEAN ENERGY, INC.
number of authorized shares of preferred stock from 50,000,000 shares
to 10,000,000 shares;
3. To approve the Ocean Energy, Inc. 1999 Long-Term Incentive Plan; and
4. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the fiscal year ended December 31, 1999.
Votes cast were as follows:
<TABLE>
<CAPTION>
Broker
For Against Non-Votes Abstained
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Election as a Director of the Company of:
Milton Carroll .......................... 137,939,827 -- -- 724,377
Thomas D. Clark, Jr. .................... 137,093,585 -- -- 1,570,619
Peter J. Fluor .......................... 137,937,907 -- -- 726,297
Robert L. Howard ........................ 137,942,879 -- -- 721,325
Charles F. Mitchell, M.D. ............... 137,046,128 -- -- 1,618,076
Amendment of Articles of Incorporation ..... 126,926,397 11,587,303 -- 150,504
Approval of 1999 Long-term Incentive Plan .. 92,081,743 46,340,732 -- 241,729
Ratification of Selection of KPMG LLP
as Independent Auditors For 1999 ........ 138,287,152 227,824 -- 149,228
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*3.1 Articles of Amendment to the Articles of Incorporation of the
Company.
4.1 Amendment No. 3 to Amended and Restated Rights Agreement,
dated as of May 19, 1999, by and between the Company and
BankBoston, N.A. (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 21, 1999).
*#10.1 1999 Long-Term Incentive Plan.
*10.2 Purchase and Sale Agreement dated June 15, 1999, between the
Company, as Seller, and SEMCO ENERGY, Inc., as Purchaser, for
ENSTAR.
*10.3 Purchase and Sale Agreement dated July 30, 1999, between the
Company as Seller, and Cross Timbers Oil Company, as
Purchaser, for the sale of the Arkoma properties.
*#10.4 Form of Employment Agreement between the Company and,
individually, Robert K. Reeves and Richard G. Zepernick.
*#10.5 Form of Employment Agreement between the Company and William
L. Transier
*#10.6 Second Amendment to Employment and Consulting Agreement by and
between the Company and Barry J. Galt.
*#10.7 Form of Employment Agreement between the Company and
William S. Flores, Jr.
*#10.8 Severance Agreement between the Company and Richard F. Barnes.
*27.1 Financial Data Schedule.
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
(b) On May 21, 1999, the Company filed a Current Report on Form 8-K dated May
19, 1999 with respect to the Amendment and Restatement of the Company's
Rights Agreement. The
33
<PAGE> 36
OCEAN ENERGY, INC.
items reported in such Current Report were Item 5 (Other Events) and Item 7
(Financial Statements and Exhibits).
On June 23, 1999, the Company, as administrator for the Ocean Energy, Inc.
401(k) Savings Plan ("Savings Plan"), filed a Current Report on Form 8-K
dated June 23, 1999 with respect to a change in auditors for the Savings
Plan. The items reported in such Current Report were Item 5 (Other Events)
and Item 7 (Financial Statements and Exhibits).
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.
OCEAN ENERGY, INC.
By: /s/ William L. Transier
-------------------------------
William L. Transier
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 16, 1999
By: /s/ Gordon L. McConnell
-------------------------------
Gordon L. McConnell
Vice President and Controller
(Principal Accounting Officer)
Date: August 16, 1999
34
<PAGE> 37
OCEAN ENERGY, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
*3.1 Articles of Amendment to the Articles of Incorporation of
the Company.
4.1 Amendment No. 3 to Amended and Restated Rights Agreement,
dated as of May 19, 1999, by and between the Company and
BankBoston, N.A. (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 21, 1999).
*#10.1 1999 Long-Term Incentive Plan.
*10.2 Purchase and Sale Agreement dated June 15, 1999, between the
Company, as Seller, and SEMCO ENERGY, Inc., as Purchaser, for
the sale of ENSTAR.
*10.3 Purchase and Sale Agreement dated July 30, 1999, between the
Company as Seller, and Cross Timbers Oil Company, as
Purchaser, for the sale of the Arkoma properties.
*#10.4 Form of Employment Agreement between the Company and,
individually, Robert K. Reeves and Richard G. Zepernick.
*#10.5 Form of Employment Agreement between the Company and William
L. Transier
*#10.6 Second Amendment to Employment and Consulting Agreement by and
between the Company and Barry J. Galt.
*#10.7 Form of Employment Agreement between the Company and
William S. Flores, Jr.
*#10.8 Severance Agreement between the Company and Richard F. Barnes.
*27.1 Financial Data Schedule.
</TABLE>
* Filed herewith
# Identifies management contracts and compensatory plans or arrangements.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
OCEAN ENERGY, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following articles of
amendment to its articles of incorporation:
FIRST: The name of the corporation is Ocean Energy, Inc.
SECOND: The first paragraph of Article FOUR shall be amended to read
in its entirety as follows:
The total number of shares of stock that the corporation shall
have authority to issue is 240,000,000 shares, divided into
10,000,000 shares of Preferred Stock of the par value of $1.00
per share, and 230,000,000 shares of Common Stock of the par
value of $.10 per share. Each share of Common Stock shall be
entitled to one vote.
THIRD: The above described amendment to Article FOUR was adopted by
the shareholders of the corporation on May 25, 1999.
FOURTH: At the close of business on April 26, 1999, the record date
for the determination of shareholders entitled to notice of
and to vote at the shareholders' meeting where such adoption
occurred, there were outstanding 165,898,205 shares of Common
Stock and 50,000 shares of the Company's Series C Convertible
Preferred Stock (the "Convertible Preferred Stock"). Each
shareholder was entitled to one vote for each share of Common
Stock, and 66.96 votes for each share of Convertible Preferred
Stock, for a total of 169,246,205 votes.
FIFTH: As described more fully in the table set forth below, an
aggregate of 126,926,397 votes were cast in favor of the
amendment and an aggregate of 11,587,303 votes were cast
against the amendment:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For Against
------------------------------- -----------------------------
Shares Votes Shares Votes
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
Common 123,578,397 123,578,397 11,587,303 11,587,303
Stock
- --------------------------------------------------------------------------------
Series C
Preferred 50,000 3,348,000 0 0
Stock
- --------------------------------------------------------------------------------
Total 123,628,397 126,926,397 11,587,303 11,587,303
- --------------------------------------------------------------------------------
</TABLE>
SIXTH: The amendment effects no change in the amount of stated
capital of the corporation.
<PAGE> 2
DATED: June 1, 1999.
OCEAN ENERGY, INC.
By:
-------------------------------------
James T. Hackett
President and Chief Executive Officer
-2-
<PAGE> 1
EXHIBIT 10.1
OCEAN ENERGY, INC.
1999 LONG-TERM INCENTIVE PLAN
SECTION 1. Purpose of the Plan.
The Ocean Energy, Inc. 1999 Long-Term Incentive Plan (the "Plan") is
intended to promote the interests of Ocean Energy, Inc., a Texas corporation
(the "Company"), by encouraging employees of the Company, its subsidiaries and
affiliated entities and Directors (as defined below) to acquire or increase
their equity interest in the Company and to provide a means whereby employees
may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company thereby
advancing the interests of the Company and its shareholders. The Plan is also
contemplated to enhance the ability of the Company, its subsidiaries and
affiliated entities to attract and retain the services of individuals who are
essential for the growth and profitability of the Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set
forth below:
"Affiliate" shall mean (i) any entity that, directly or
through one or more intermediaries, is controlled by the Company and
(ii) any entity in which the Company has a significant equity interest,
as determined by the Committee.
"Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Performance Award, Phantom Shares, Bonus Shares or
Cash Award.
"Award Agreement" shall mean any written agreement, contract,
or other instrument or document evidencing any Award, which may, but
need not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
<PAGE> 2
"Bonus Shares" shall mean an award of Shares granted pursuant
to Section 6(e) of the Plan.
"Cash Award" shall mean an award payable in cash granted
pursuant to Section 6(g) of the Plan.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations thereunder.
"Committee" shall mean the Compensation Committee of the
Board, which shall be comprised solely of two or more Directors who are
"outside directors" within the meaning of section 162(m) of the Code
and "Non-Employee Directors" within the meaning of Rule 16b-3.
"Director" shall mean a member of the Board who is not also an
Employee.
"Employee" shall mean any employee of the Company or an
Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean, with respect to Shares, the
closing price of a Share quoted on the New York Stock Exchange
Composite Tape, or if the Shares are not listed on the New York Stock
Exchange, on the principal United States securities exchange registered
under the Exchange Act on which such stock is listed, or if the Shares
are not listed on any such stock exchange, the last sale price, or if
none is reported, the highest closing bid quotation on the National
Association of Securities Dealers, Inc., Automated Quotations System or
any successor system then in use on the Date of Grant, or if none are
available on such day, on the next preceding day on which the Shares
were publicly traded. In the event the Shares are not publicly traded
at the time a determination of its fair market value is required to be
made hereunder, the determination of fair market value shall be made in
good faith by the Committee.
"Incentive Stock Option" or "ISO" shall mean an option granted
under Section 6(a) of the Plan that is intended to qualify as an
"incentive stock option" under Section 422 of the Code or any successor
provision thereto.
<PAGE> 3
"Non-Qualified Stock Option" or "NQO" shall mean an option
granted under Sections 6(a) or 6(h) of the Plan that is not intended to
be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
"Participant" shall mean any individual granted an Award under
the Plan.
"Performance Award" shall mean any right granted under Section
6(d) of the Plan.
"Person" shall mean individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Phantom Shares" shall mean an Award of the right to receive
Shares issued at the end of a Restricted Period which is granted
pursuant to Section 6(f) of the Plan.
"Restricted Period" shall mean the period established by the
Committee with respect to an Award during which the Award either
remains subject to forfeiture or is not exercisable by the Participant.
"Restricted Stock" shall mean any Share, prior to the lapse of
restrictions thereon, granted under Section 6(c) of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC
under the Exchange Act, or any successor rule or regulation thereto as
in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission, or
any successor thereto.
<PAGE> 4
"Shares" or "Common Shares" or "Common Stock" shall mean the
common stock of the Company, $0.10 par value, and such other securities
or property as may become the subject of Awards of the Plan.
"Spread" shall mean, in the case of a Stock Appreciation
Right, an amount equal to the excess, if any, of the Fair Market Value
of a Share on the date such right is exercised over the exercise price
of such Stock Appreciation Right.
"Stock Appreciation Right" or "Right" shall mean any right to
receive the spread of Shares granted under Section 6(b) of the Plan.
"Substitute Award" shall mean Awards granted in assumption of,
or in substitution for, outstanding awards previously granted by (i) a
company acquired by the Company or one or more of its Affiliates, or
(ii) a company with which the Company or one or more of its Affiliates
combines. To the extent reasonably practical, as determined by the
Committee in its sole discretion, Substitute Awards shall contain the
same terms and conditions as the award they replace.
SECTION 3. Administration.
The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee. Subject to the terms of the Plan and applicable
law, and in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to an eligible Participant; (iii) determine the number of Shares to be covered
by, or with respect to which payments, rights, or other matters are to be
calculated in connection with, Awards; (iv) determine the terms and conditions
of any Award, including such terms and conditions as shall be requisite in the
judgment of the Committee to cause designated Options to qualify as Incentive
Stock Options; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited, or suspended
and the method or methods by which Awards may be settled, exercised, canceled,
forfeited, or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property, and
other amounts payable with respect to an Award shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to, or Award made under, the Plan;
<PAGE> 5
(viii) establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (ix) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the
Plan. The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Award Agreement in the manner and to the
extent it shall deem expedient to carry it into effect. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive, and binding upon all Persons, including the
Company, any Affiliate, any Participant, any holder or beneficiary of any Award,
any shareholder, any Employee and any Director.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(c)
and below, the number of Shares with respect to which Awards may be granted
under the Plan shall be 3,000,000. If any Shares covered by an Award granted
under the Plan, or to which such an Award relates, are forfeited, or if an Award
otherwise terminates or is canceled without the delivery of Shares or of other
consideration, then the Shares covered by such Award, or to which such Award
relates, or the number of Shares otherwise counted against the aggregate number
of Shares with respect to which Awards may be granted, to the extent of any such
forfeiture, termination or cancellation, shall again be, or shall become, Shares
with respect to which Awards may be granted.
(b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares. Any of such Shares which remain unissued
and which are not subject to outstanding Awards at the termination of the Plan
shall cease to be subject to the Plan but, until termination of the Plan, the
Company shall at all times make available a sufficient number of shares to meet
the requirements of the Plan.
(c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee in its discretion to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust
<PAGE> 6
any or all of (i) the number and type of Shares (or other securities or
property) with respect to which Awards may be granted, (ii) the number and type
of Shares (or other securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award; provided, in each case, that with respect to Awards of Incentive Stock
Options and Awards intended to qualify as performance based compensation under
Section 162(m)(4)(C) of the Code, no such adjustment shall be authorized to the
extent that such authority would cause the Plan to violate Section 422(b)(1) of
the Code or would cause such Award to fail to so qualify under Section 162(m) of
the Code, as the case may be, or any successor provisions thereto; and provided,
further, that the number of Shares subject to any Award denominated in Shares
shall always be a whole number.
SECTION 5. Eligibility and Award Limits.
Other than Awards granted to Directors pursuant to Section 6(h) of the
Plan, any Employee shall be eligible to be designated a Participant. However, no
Employee may receive Share-denominated Awards during the term of the Plan that,
in the aggregate, are with respect to more than 33-1/3% of all Shares that may
be made subject to Awards under the Plan. The maximum amount of compensation
(including the Fair Market Value of any Shares) that may be paid to any
Participant with respect to any single Performance Award or Cash Award in any
calendar year shall be $1.5 million. With respect to any Restricted Stock Award,
Phantom Stock Award, or Cash Award granted in tandem with, and expressed as a
percentage of, a Share-denominated Award which is intended to qualify as
"performance-based compensation," the maximum payment to any Participant with
respect to such Award in any calendar year shall be an amount (in cash and/or in
Shares) equal to the Fair Market Value of the number of Shares subject to such
Award. The limitations set forth in the preceding sentences shall be applied in
a manner which will permit compensation generated under the Plan to constitute
"performance-based" compensation for purposes of section 162(m) of the Code,
including, without limitation, counting against such maximum number of Shares,
to the extent required under Section 162(m) of the Code and applicable
interpretive authority thereunder, any Shares subject to Options that are
canceled or repriced. Further, Restricted Stock, Performance Awards, Phantom
Shares and Bonus Shares paid in Shares may not, in the aggregate, exceed 20% of
all Shares that may be the subject of Awards under the Plan.
SECTION 6. Awards.
(a) Options. Subject to the provisions of the Plan, the Committee shall
have the authority to determine the Employees to whom Options shall be granted,
the number of Shares to be covered by each Option, the purchase price therefor
and the
<PAGE> 7
conditions and limitations applicable to the exercise of the Option, including
the following terms and conditions and such additional terms and conditions, as
the Committee shall determine, that are not inconsistent with the provisions of
the Plan.
(i) Exercise Price. The purchase price per Share purchasable
under an Option shall be determined by the Committee at the time each
Option is granted, but shall not be less than the Fair Market Value of
a Share on such date, unless such Option is a Substitute Award.
(ii) Time and Method of Exercise. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part, and the method or methods by which, and the form or
forms (which may include, without limitation, cash, already-owned
Shares, outstanding Awards, Shares that would otherwise be acquired
upon exercise of the Option, a "cashless-broker" exercise (through
procedures approved by the Company), other securities or other
property, or any combination thereof, having a Fair Market Value on the
exercise date equal to the relevant exercise price) in which payment of
the exercise price with respect thereto may be made or deemed to have
been made.
(iii) Special Limitations on Incentive Stock Options.
Incentive Stock Options may be granted only to employees of the Company
and its subsidiaries, within the meaning of Section 424(f) of the Code.
To the extent that the aggregate Fair Market Value (determined at the
time the respective Incentive Stock Option is granted) of Shares with
respect to which Incentive Stock Options granted after 1986 are
exercisable for the first time by an individual during any calendar
year under all incentive stock option plans of the Company and its
parent and subsidiary corporations exceeds $100,000, such Incentive
Stock Options shall be treated as Options which do not constitute
Incentive Stock Options. The Committee shall determine, in accordance
with applicable provisions of the Code, Treasury regulations and other
administrative pronouncements, which of a Participant's Incentive Stock
Options will not constitute Incentive Stock Options because of such
limitation and shall notify the Participant of such determination as
soon as practicable after such determination. No Incentive Stock Option
shall be granted to an individual if, at the time the Option is
granted, such individual owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or
of its parent or subsidiary corporation, within the meaning of Section
422(b)(6) of the Code, unless (1) at the time such Option is granted
the option price is at least 110% of the Fair Market Value of the
Shares subject to the Option and (2) such Option by its terms is not
exercisable after the expiration of five years from the date of grant.
<PAGE> 8
(iv) Expiration. Except as provided in Section 6(a)(iii), each
Option shall expire ten (10) years from the date of grant thereof, and,
unless provided otherwise in the Award Agreement, shall be subject to
earlier termination as follows: Options, to the extent exercisable as
of the date a Participant ceases to be an Employee, must be exercised
within three (3) months of such date unless such event results from
death, disability or retirement, in which case all outstanding Options
held by such Participant may be exercised in full by the optionee, the
optionee's legal representative, heir or devisee, as the case may be,
within two (2) years from the date of the Participant's death,
disability or retirement; provided, however, that no such event shall
extend the expiration date of an Option beyond the 10th anniversary of
its date of grant. Options that are not exercisable on termination of
employment shall be automatically canceled on termination of
employment. For purposes hereof, (x) "disability" means the Participant
is receiving benefits under a long-term disability plan of the Company
or, if the Company does not maintain such a plan, a determination by
the Committee, upon the basis of medical evidence satisfactory to it,
that the Participant is totally disabled, whether due to a physical or
mental condition, such that he is expected to be unable to continue his
employment for a continuous period of 12 or more months, and (y)
"retirement" means a termination of employment on or after the
Participant has reached age 65 or, with the consent of the Committee,
on or after reaching age 55.
(b) Stock Appreciation Rights. Subject to the provisions of the Plan,
the Committee shall have the authority to determine the Employees to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by each
Stock Appreciation Right Award, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. A Stock Appreciation Right may
be granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to another Award. A Stock Appreciation Right granted
in tandem with or in addition to another Award may be granted either at the same
time as such other Award or at a later time.
(i) Grant Price. The grant price of a Stock Appreciation Right
shall be determined by the Committee on the date of grant, but shall
not be less than the Fair Market Value of a Share on such date (or such
greater exercise price as may be required if such Stock Appreciation
Right is granted in connection with an Incentive Stock Option that must
have an exercise price equal to 110% of the Fair Market Value of a
Share on the date of grant pursuant to Section 6(a)(iii)), unless such
Stock Appreciation Right is a Substitute Award.
(ii) Other Terms and Conditions. Subject to the terms of the
Plan and any applicable Award Agreement, the Committee shall determine,
at or
<PAGE> 9
after the grant of a Stock Appreciation Right, the term, methods of
exercise, methods of settlement, and any other terms and conditions of
any Stock Appreciation Right. Any such determination by the Committee
may be changed by the Committee from time to time and may govern the
exercise of Stock Appreciation Rights granted or exercised prior to
such determination as well as Stock Appreciation Rights granted or
exercised thereafter. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it
shall deem appropriate.
(iii) Expiration. Each Stock Appreciation Right shall expire
ten (10) years from the date of grant thereof, or, if granted in tandem
with another Award, upon the expiration of such tandem Award, if
earlier, and, unless provided otherwise in the Award Agreement, shall
be subject to earlier termination as follows: Stock Appreciation
Rights, to the extent exercisable as of the date a Participant ceases
to be an Employee, must be exercised within three (3) months of such
date unless such event results from death, disability or retirement, in
which case all outstanding Stock Appreciation Rights held by such
Participant may be exercised in full by the Participant, the
Participant's legal representative, heir or devisee, as the case may
be, within two (2) years from the date of the Participant's death,
disability or retirement; provided, however, that no such event shall
extend the expiration date of a Stock Appreciation Right beyond the
10th anniversary of its date of grant. Stock Appreciation Rights that
are not exercisable on termination of employment shall be automatically
canceled on termination of employment. For purposes hereof,
"disability" and "retirement" shall have their respective meanings as
set forth in Section 6(a)(iv).
(c) Restricted Stock. Subject to the provisions of the Plan, the
Committee shall have the authority to determine the Employees to whom Restricted
Stock shall be granted, the number of Shares of Restricted Stock to be granted
to each such Participant, the duration of the Restricted Period during which,
and the conditions, including performance goals, if any, under which, the
Restricted Stock may be forfeited to the Company, and the other terms and
conditions of such Awards.
(i) Dividends. Dividends paid on Restricted Stock may be paid
directly to the Participant, may be subject to risk of forfeiture
and/or transfer restrictions during any period established by the
Committee or sequestered and held in a bookkeeping cash account (with
or without interest) or reinvested on an immediate or deferred basis in
additional shares of Common Stock, which credit or shares may be
subject to the same restrictions as the underlying Award or such other
restrictions, all as determined by the Committee in its discretion.
<PAGE> 10
(ii) Registration. Any Restricted Stock may be evidenced in
such manner as the Committee shall deem appropriate, including, without
limitation, book-entry registration or issuance of a stock certificate
or certificates. In the event any stock certificate is issued in
respect of Restricted Stock granted under the Plan, such certificate
shall be registered in the name of the Participant and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock.
(iii) Forfeiture and Restrictions Lapse. Except as otherwise
determined by the Committee or the terms of the Award that granted the
Restricted Stock, upon termination of a Participant's employment (as
determined under criteria established by the Committee) for any reason
during the applicable Restricted Period, all Restricted Stock shall be
forfeited by the Participant and re-acquired by the Company. The
Committee may, when it finds that a waiver would be in the best
interests of the Company and not cause such Award, if it is intended to
qualify as performance-based compensation under Section 162(m) of the
Code, to fail to so qualify under Section 162(m) of the Code, waive in
whole or in part any or all remaining restrictions with respect to such
Participant's Restricted Stock. Unrestricted Shares, evidenced in such
manner as the Committee shall deem appropriate, shall be issued to the
holder of Restricted Stock promptly after the applicable restrictions
have lapsed or otherwise been satisfied.
(iv) Transfer Restrictions. During the Restricted Period,
Restricted Stock will be subject to the limitations on transfer as
provided in Section 6(i)(iii).
(d) Performance Awards. The Committee shall have the authority to
determine the Employees who shall receive a Performance Award, which shall be
denominated as a cash amount at the time of grant and confer on the Participant
the right to receive payment of such Award, in whole or in part, upon the
achievement of such performance goals during such performance periods as the
Committee shall establish with respect to the Award.
(i) Terms and Conditions. Subject to the terms of the Plan and
any applicable Award Agreement, the Committee shall determine the
performance goals to be achieved during any performance period, the
length of any performance period, the amount of any Performance Award
and the amount of any payment or transfer to be made pursuant to any
Performance Award.
<PAGE> 11
(ii) Payment of Performance Awards. Performance Awards may be
paid (in cash and/or in Shares, in the sole discretion of the
Committee) in a lump sum or in installments following the close of the
performance period, in accordance with procedures established by the
Committee with respect to such Award.
(e) Bonus Shares. The Committee shall have the authority, in its
discretion, to grant Bonus Shares to eligible Employees. Each Bonus Share shall
constitute a transfer of an unrestricted Share to the Participant, without other
payment therefor, as additional compensation for the Participant's services to
the Company.
(f) Phantom Shares. The Committee shall have the authority to grant
Awards of Phantom Shares to eligible Employees upon such terms and conditions as
the Committee may determine.
(i) Terms and Conditions. Each Phantom Share Award shall
constitute an agreement by the Company to issue or transfer a specified
number of Shares or pay an amount of cash equal to the Fair Market
Value of a specified number of Shares, or a combination thereof to the
Participant in the future, subject to the fulfillment during the
Restricted Period of such conditions, including performance goals, if
any, as the Committee may specify at the date of grant. During the
Restricted Period, the Participant shall not have any right to transfer
any rights under the subject Award, shall not have any rights of
ownership in the Phantom Shares and shall not have any right to vote
such shares.
(ii) Dividends. Any Phantom Share award may provide that any
or all dividends or other distributions paid on Shares during the
Restricted Period be credited in a cash bookkeeping account (without
interest) or that equivalent additional Phantom Shares be awarded,
which account or shares may be subject to the same restrictions as the
underlying Award or such other restrictions as the Committee may
determine.
(g) Cash Awards. The Committee shall have the authority to determine
the Employees to whom Cash Awards shall be granted, the amount, and the terms or
conditions, if any, as additional compensation for the Employee's services to
the Company or its Affiliates. A Cash Award may be granted (simultaneously or
subsequently) separately or in tandem with another Award and may entitle a
Participant to receive a specified amount of cash from the Company upon such
other Award becoming taxable to the Participant, which cash amount may be based
on a formula relating to the anticipated taxable income associated with such
other Award and the payment of the Cash Award.
<PAGE> 12
(h) Granting of Options to Directors. Each individual who serves as a
Director on the date the Plan is approved by the shareholders of the Company
(the "Approval Date") or who is elected or appointed as a Director for the first
time after such date shall receive, as of the Approval Date of the Plan or the
date of his election or appointment, whichever is applicable, and without the
exercise of the discretion of any person or persons, a Non-Qualified Stock
Option (an "Initial Grant") exercisable for 10,000 Shares (subject to adjustment
in the same manner as provided in Section 7 hereof with respect to Shares
subject to Options then outstanding). As of the date of the annual meeting of
the shareholders of the Company ("Annual Meeting") in each year after 1999 that
the Plan is in effect, each Director who is in office immediately after such
meeting and who is not then entitled to receive an Initial Grant pursuant to the
preceding provisions of this Section 6(h) shall receive, without the exercise of
the discretion of any person or persons, a Non-Qualified Stock Option
exercisable for 6,000 Shares (an "Annual Grant") (subject to adjustment in the
same manner as provided in Section 7 hereof with respect to shares of Stock
subject to Options then outstanding).
(i) Other Terms and Conditions. The following provisions are
applicable to Options granted pursuant to this Section 6(h):
A. Subject to the following provisions, (1) an Initial Grant
shall become exercisable for 50% of the Shares covered thereby on the
date of grant, and for the remaining 50% thereof on the first Annual
Meeting following its date of grant and (2) an Annual Grant shall
become exercisable for one-third of the Shares covered thereby on the
first Annual Meeting following the date of grant, and thereafter, for
an additional one-third of the Shares covered thereby on each of the
second and third Annual Meetings following the date of grant.
B. The purchase price of a Share covered under an Option
granted under this Section 6(h) shall be the Fair Market Value of a
Share on the date of grant.
C. To the extent that the right to exercise an Option has
accrued and is in effect, the Option may be exercised in full at one
time or in part from time to time by giving written notice, signed by
the optionee exercising the Option, to the Company, stating the number
of Shares with respect to which the Option is being exercised,
accompanied by payment in full for such Shares, which payment may be in
cash, already-owned Shares, a "cashless-broker" exercise (through
procedures approved by the Company), or any combination thereof, having
a Fair Market Value on the exercise date equal to the relevant exercise
price in which payment of the exercise price
<PAGE> 13
with respect thereto may be made or deemed to have been made; provided
however, that (i) no Option shall be exercisable after ten (10) years
from the date on which it was granted, and (ii) there shall be no such
exercise at any one time for fewer than one hundred (100) Shares or for
all of the remaining Shares then purchasable by the optionee exercising
the Option, if fewer than one hundred (100) Shares.
D. Each Option shall expire ten (10) years from the date of
grant thereof, subject to earlier termination as follows: Options, to
the extent exercisable as of the date a Director optionee ceases to
serve as a director of the Company, must be exercised within three (3)
months of such date unless such event results from death, disability or
retirement, as determined by the Committee, in which case all
outstanding Options held by such Director may be exercised in full by
the optionee, the optionee's legal representative, heir or devisee, as
the case may be, within two (2) years from the date of death,
disability or retirement; provided, however, that no such event shall
extend the normal expiration date of such Options. Options not
exercisable on termination as provided above shall be automatically
canceled on termination.
E. Upon exercise of the Option, delivery of a certificate for
fully paid and nonassessable Shares shall be made at the corporate
office of the Company to the optionee exercising the Option either at
such time during ordinary business hours after fifteen (15) days but
not more than thirty (30) days from the date of receipt of the notice
by the Company as shall be designated in such notice, or at such time,
place and manner as may be agreed upon by the Company and the optionee
exercising the Option.
(ii) Number of Available Shares. In the event that the number
of Shares available for grants under the Plan is insufficient to make
all grants provided for in this Section 6(h) hereby made on the
applicable date, then all Directors who are entitled to a grant on such
date shall share ratably in the number of Shares then available for
grant under the Plan, and shall have no right to receive a grant with
respect to the deficiencies in the number of available Shares and the
grants under this Section 6(h) shall terminate.
(i) General.
(i) Awards May Be Granted Separately or Together. Awards to
Employees may, in the discretion of the Committee, be granted either
alone or in addition to, in tandem with, or in substitution for any
other Award granted under the Plan or any award granted under any other
plan of the Company or any Affiliate. Awards granted in addition to or
in tandem with other Awards
<PAGE> 14
or awards granted under any other plan of the Company or any Affiliate
may be granted either at the same time as or at a different time from
the grant of such other Awards or awards.
(ii) Forms of Payment by Company Under Awards. Subject to the
terms of the Plan and of any applicable Award Agreement, payments or
transfers to be made by the Company or an Affiliate upon the grant,
exercise or payment of an Award may be made in such form or forms as
the Committee shall determine, including, without limitation, cash,
Shares, other securities, other Awards or other property, or any
combination thereof, and may be made in a single payment or transfer,
in installments, or on a deferred basis, in each case in accordance
with rules and procedures established by the Committee. Such rules and
procedures may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or deferred
payments.
(iii) Limits on Transfer of Awards.
(A) Except as provided in (C) below, each Award, and each
right under any Award, shall be exercisable only by the Participant
during the Participant's lifetime, or, if permissible under applicable
law, by the Participant's guardian or legal representative or by a
transferee receiving such Award pursuant to a qualified domestic
relations order (a "QDRO") as determined by the Committee.
(B) Except as provided in (C) below, no Award and no right
under any such Award may be assigned, alienated, pledged, attached,
sold or otherwise transferred or encumbered by a Participant otherwise
than by will or by the laws of descent and distribution (or, in the
case of Restricted Stock, to the Company) or, if permissible under
applicable law, pursuant to a QDRO and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or any Affiliate.
(C) Notwithstanding anything in the Plan to the contrary,
except to the extent specifically provided otherwise by the Committee
in an Award Agreement, Non-Qualified Stock Options may be transferred
by the optionee to one or more permitted transferees; provided that (i)
there may be no consideration given for such transfer, (ii) the
optionee (or such optionee's estate or representative) shall remain
obligated to satisfy all employment tax and other withholding tax
obligations associated with the exercise of the transferred Options,
(iii) the optionee shall notify the Company in writing that
<PAGE> 15
such transfer has occurred, the identity and address of the permitted
transferee and the relationship of the permitted transferee to the
optionee, and (iv) such transfer shall be effected pursuant to transfer
documents approved from time to time by the Company. Any permitted
transferee may not further assign or transfer the transferred Option
otherwise than by will or the laws of descent and distribution.
Following any permitted transfer, any such Options shall continue to be
subject to the same terms and conditions as were applicable to the
Option immediately prior to the transfer, provided that the term
"optionee" as used in the Plan shall be deemed to refer also to each
permitted transferee where required by the context. A transferred
Option may only be exercised by a transferee to the same extent such
Option could, at such time, be exercised by the optionee "but for" such
transfer. The term "permitted transferees" shall mean one or more of
the following: (i) any member of the optionee's immediate family; (ii)
a trust established for the exclusive benefit of one or more members of
such immediate family; (iii) a partnership in which such immediately
family members are the only partners; or (iv) any other person approved
from time to time by the Committee. The term "immediate family" is
defined for such purpose as spouses, children, stepchildren and
grandchildren, including relationships arising from adoption.
(iv) Term of Awards. The term of each Award (other than
pursuant to Section 6(h)) shall be for such period as may be determined
by the Committee; provided, that in no event shall the term of any
Award exceed a period of ten (10) years from the date of its grant.
(v) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such
stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Shares or
other securities are then listed, and any applicable Federal or state
laws, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(vi) Consideration for Grants. Awards may be granted for no
cash consideration or for such consideration as the Committee
determines including, without limitation, such minimal cash
consideration as may be required by applicable law.
(vii) Delivery of Shares or other Securities and Payment by
Participant of Consideration. No Shares or other securities shall be
delivered pursuant to any Award until payment in full of any amount
required to be paid pursuant to the Plan or the applicable Award
Agreement is received by the
<PAGE> 16
Company, including without limitation, all applicable withholding
taxes. Such payment may be made by such method or methods and in such
form or forms as the Committee shall determine, including, without
limitation, cash, Shares, other securities, other Awards or other
property, withholding of Shares, cashless exercise with simultaneous
sale, or any combination thereof; provided that the combined value, as
determined by the Committee, of all cash and cash equivalents and the
Fair Market Value of any such Shares or other property so tendered to
the Company, as of the date of such tender, is at least equal to the
full amount required to be paid pursuant to the Plan or the applicable
Award Agreement to the Company.
(viii) Performance Goals. Where necessary, the Committee shall
establish performance goals applicable to those Awards the payment of
which is intended by the Committee to qualify as "performance-based
compensation" as described in Section 162(m)(4)(C) of the Code. Until
changed by the Committee, the performance goals shall be based upon the
attainment of such target levels of Share price, net income, cash
flows, reserve additions or revisions, acquisitions, total
capitalization, total or comparative shareholder return, assets,
exploration successes, production volumes, findings and development
costs, costs reductions and savings, reportable incidents in safety or
environmental matters, return on equity, profit margin or sales, and/or
earnings per share as may be specified by the Committee. The
performance goals may be made subject to adjustment for specified
unusual and nonrecurring events and may be absolute, relative to one or
more other companies, or relative to one or more indices. Which factor
or factors to be used with respect to any grant, and the weight to be
accorded thereto if more than one factor is used, shall be determined
by the Committee at the time of grant.
SECTION 7. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board may amend, alter,
suspend, discontinue, or terminate the Plan without the consent of any
shareholder, Participant, other holder or beneficiary of an Award, or
other Person; provided, however, notwithstanding any other provision of
the Plan or any Award Agreement, without the approval of the
shareholders of the Company no such amendment, alteration, suspension,
discontinuation, or termination shall be made that would (i) increase
the total number of Shares available for Awards under the Plan, except
as provided in Section 4(c) of the
<PAGE> 17
Plan; (ii) increase the class of eligible Participants; or (iii) amend
the eligibility requirements for Awards under the Plan.
(b) Amendments to Awards. The Committee may waive any
conditions or rights under, amend any terms of, or alter any Award
theretofore granted (other than Initial Grants or Annual Grants under
Section 6(h)), provided no change, other than pursuant to Section 7(c),
in any Award shall reduce the benefit to Participant without the
consent of such Participant. Notwithstanding the foregoing, with
respect to any Award intended to qualify as performance-based
compensation under Section 162(m) of the Code, no adjustment shall be
authorized to the extent such adjustment would cause the Award to fail
to so qualify.
(c) Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee is hereby authorized to
make adjustments in the terms and conditions of, and the criteria
included in, Awards in recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 4(c) of
the Plan) affecting the Company, any Affiliate, or the financial
statements of the Company or any Affiliate, or of changes in applicable
laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan. Notwithstanding the foregoing,
with respect to any Award intended to qualify as performance-based
compensation under Section 162(m) of the Code, no adjustment shall be
authorized to the extent such adjustment would cause the Award to fail
to so qualify.
SECTION 8. Change in Control.
Notwithstanding any other provision of this Plan to the contrary, in
the event of a Change in Control of the Company, all outstanding Awards granted
prior to the date of the Change in Control automatically shall become fully
vested on such Change in Control, all restrictions, if any, with respect to such
Awards shall lapse, and all performance goals, if any, with respect to such
Awards shall be deemed to have been met in full (at the maximum performance
level). For purposes of this Plan, a "Change in Control" shall be deemed to
occur:
(i) if any person (as such term is used in sections 13(d) and
14(d)(2) of the Exchange Act), other than the Company, any parent
corporation or subsidiary corporation of the Company or any employee
benefit plan of the Company or any such entity, is or becomes the
"beneficial owner" (as defined
<PAGE> 18
in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities,
(ii) upon the first purchase of the Company's common stock
pursuant to a tender or exchange offer (other than a tender or exchange
offer made by the Company),
(iii) on the date of consummation of a merger, consolidation,
recapitalization, reorganization, sale or disposition of all or a
substantial portion of the Company's assets, or the issuance of shares
of stock of the Company in connection with the acquisition of the stock
or assets of another entity, provided, however, that a Change in
Control shall not occur under this clause (iii) if consummation of the
transaction would result in at least two-thirds of the total voting
power represented by the voting securities of the Company (or, if not
the Company, the entity that succeeds to all or substantially all of
the Company's business) outstanding immediately after such transaction
being beneficially owned (within the meaning of Rule 13d-3 promulgated
pursuant to the Exchange Act) by at least two-thirds of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in
the transaction, or
(iv) if, during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless
the election or nomination for the election by the Company's
shareholders of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at
the beginning of the period.
SECTION 9. Parachute Tax Gross-Up.
To the extent that the grant, payment, or acceleration of vesting or
payment, whether in cash or stock, of any Award made to a Participant under the
Plan is subject to an excise tax under Section 4999(a) of the Code, or any
similar or successor provision (a "Parachute Tax"), the Company shall pay such
Participant an additional amount of cash (the "Gross-up Amount") such that the
"net" after-tax benefit received by the Participant, after paying all applicable
Parachute Taxes with respect to such Awards (including those on the Gross-up
Amount) and any federal or state taxes on the Gross-up Amount, shall be equal to
the net after-tax benefit that such Participant would have received if such
Parachute Tax had not been applicable.
<PAGE> 19
SECTION 10. General Provisions.
(a) No Rights to Awards. No Employee, Participant or other Person shall
have any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Employees, Participants, or holders or beneficiaries
of Awards. The terms and conditions of Awards need not be the same with respect
to each recipient.
(b) Withholding. The Company or any Affiliate is authorized to withhold
from any Award, from any payment due or transfer made under any Award or under
the Plan or from any compensation or other amount owing to a Participant the
amount (in cash, Shares, other securities, Shares that would otherwise be issued
pursuant to such Award, other Awards or other property) of any applicable taxes
payable in respect of an Award, its exercise, the lapse of restrictions thereon,
or any payment or transfer under an Award or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. Any Participant who is subject to
Rule 16b-3 may direct the Company to withhold Shares or may tender Shares to the
Company to satisfy his tax withholding obligations.
(c) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement. Nothing contained in the Plan shall confer on any Director any right
with respect to continuation of membership on the Board.
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Texas and applicable Federal law.
(e) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without , in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or
<PAGE> 20
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
(f) Other Laws. The Committee may refuse to issue or transfer any
Shares or other consideration under an Award if, acting in its sole discretion,
it determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary.
(g) No Trust or Fund Created. Neither the Plan nor the Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any general unsecured creditor of the
Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
(j) No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company or any Affiliate from taking any
action that is deemed by the Company or such Affiliate to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any Award made under the Plan. No Employee, Participant, or other
Person shall have any claim against the Company or any Affiliate as a result of
any such action.
(k) Facsimile Signature. Any Award Agreement or related document may be
executed by facsimile signature. If any officer who shall have signed or whose
<PAGE> 21
facsimile signature shall have been placed upon any such Award Agreement or
related document shall have ceased to be such officer before the related Award
is granted by the Company, such Award may nevertheless be issued by the Company
with the same effect as if such person were such officer at the date of grant.
SECTION 11. Effective Date of the Plan.
The Plan shall be effective as of the date of its approval by the
Board, provided the Plan is subsequently approved by the shareholders of the
Company within 12 months thereafter. Notwithstanding any provision in the Plan
or in any Award Agreement, no Option or Stock Appreciation Right shall be
exercisable and no Award shall vest or become satisfiable prior to such
shareholder approval.
SECTION 12. Term of the Plan.
No Award shall be granted under the Plan after the tenth anniversary of
the date the Plan was adopted by the Board or approved by the shareholders,
whichever is earlier. However, unless otherwise expressly provided in the Plan
or in an applicable Award Agreement, any Award theretofore granted may, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under any such Award shall, extend beyond such date.
Dated: April 26, 1999
<PAGE> 1
EXHIBIT 10.2
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), effective as of
July 15, 1999 is by and between OCEAN ENERGY, INC., a Texas corporation
("Seller"), and SEMCO ENERGY, INC., a Michigan corporation ("Purchaser").
Capitalized terms used herein shall have the meanings ascribed to them in
Article XI, unless otherwise provided.
W I T N E S S E T H:
WHEREAS, Seller owns the APC Shares and the Distribution Assets;
WHEREAS, Seller owns the APC Debt;
WHEREAS, Purchaser desires to purchase, and Seller desires to sell, the
APC Shares, the Distribution Assets and the APC Debt, subject in all respects to
the provisions of this Agreement; and
WHEREAS, the closing of the transactions contemplated by this Agreement
is subject to obtaining certain governmental approvals, including the approval
of the RCA, which the parties desire to obtain.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
Sale and Purchase
Section 1.1. Sale and Purchase of APC Shares. Subject to all of the
terms and conditions of this Agreement, at the Closing, Seller shall sell,
transfer and deliver to Purchaser the APC Shares; and Purchaser shall purchase
and accept delivery from Seller of the APC Shares at the Closing.
Section 1.2. Sale and Purchase of Distribution Assets. Subject to all
of the terms and conditions of this Agreement, at the Closing, Seller shall
sell, transfer and deliver to Purchaser the Distribution Assets; and Purchaser
shall purchase and accept delivery from Seller of the Distribution Assets at the
Closing.
Section 1.3. Sale and Purchase of APC Debt. Subject to all of the terms
and conditions of this Agreement, at the Closing, Seller shall sell, transfer
and deliver to Purchaser the APC Debt; and Purchaser shall purchase and accept
delivery from Seller of the APC Debt at the Closing.
<PAGE> 2
ARTICLE II
Purchase Price
Section 2.1. Stock Purchase Price. The purchase price for the APC
Shares shall be $70,000,000, as adjusted pursuant to Section 2.4 ("Stock
Purchase Price").
Section 2.2 Assets Purchase Price. The cash consideration to be paid
for the Distribution Assets shall be $161,500,000, as adjusted pursuant to
Section 2.4 ("Assets Purchase Price").
Section 2.3. APC Debt Purchase Price. The purchase price for the APC
Debt shall be equal to the principal amount thereof on the Closing Date, not to
exceed $58,700,000, together with accrued interest thereon (the "APC Debt
Purchase Price").
Section 2.4 Purchase Price Adjustment.
(a) Adjustment Mechanism. The Purchase Price is based on the
understanding that on the Closing Date, the working capital of the
Natural Gas Business shall be $2,000,000 (the "Target Working Capital
Amount"). For purposes of this Section 2.4, working capital shall be
determined in accordance with GAAP, applied on a basis consistent with
the manner in which the Base Financial Statements are prepared;
provided, however, that the current portion of any long-term debt shall
not be included in such calculation. If the working capital of the
Natural Gas Business is not at the Target Working Capital Amount, the
Purchase Price shall be adjusted as follows:
(i) On the date five days before the Closing Date,
Seller will provide Purchaser with an estimate of the working
capital of the Natural Gas Business as of the Closing Date,
and if such estimate is below or above the Target Working
Capital Amount, the Purchase Price payable on the Closing Date
shall be adjusted downward or upward, as the case may be, as
provided in Section 2.4(a)(iii), subject to the provisions
thereof.
(ii) If either party believes that an adjustment to
the Purchase Price is required in addition to the adjustment,
if any, provided in Section 2.4(a)(i), Purchaser will cause to
be prepared and delivered to Seller no later than 60 days
after the Closing Date an audited balance sheet of the Natural
Gas Business, as at the Closing Date, which balance sheet
shall present fairly, in conformity with GAAP, the assets and
liabilities of the Natural Gas Business as at the close of
business on the Closing Date and shall be prepared in a manner
consistent with the Base Financial Statements and shall set
forth the working capital. If such balance sheet shows that
the working capital of the Natural Gas Business is below or
above the Target Working Capital Amount, the Purchase Price
shall be adjusted downward or upward, as the case may be, as
provided in Section 2.4(a)(iii).
2
<PAGE> 3
(iii) In the event that the working capital of the
Natural Gas Business determined pursuant to either the
estimate or the audited balance sheet prepared pursuant to
Section 2.4(a)(i) or (ii) above is less than or greater than
the Target Working Capital Amount, the Purchase Price shall be
adjusted downward or upward, as the case may be, by an amount
equal to such difference; provided, however, that in no event
shall the net effect of such adjustment be to increase the
Purchase Price by more than $2,000,000. The party required to
make a payment to the other party pursuant to this paragraph
shall make any such payment pursuant to clause (ii) within 30
business days after receipt of the applicable audited balance
sheet by Seller. Any adjustment shall adjust prorata the Stock
Purchase Price and the Asset Purchase Price.
(b) Dispute Procedures. During the 30-day period following
Seller's receipt of the audited balance sheet for the Natural Gas
Business, Seller and its independent auditors will be permitted to
review the working papers of the auditors relating to the audited
balance sheet. The audited balance sheet shall become final and binding
upon the parties on the thirtieth day following receipt thereof by
Seller unless Seller gives Purchaser written notice of its disagreement
prior to such date. Any notice of disagreement shall specify in
reasonable detail the nature of any disagreement so asserted and shall
be accompanied by a certificate of Seller's independent auditors that
they concur with each of the positions taken by Seller in the notice of
disagreement. If a notice of disagreement is received by Purchaser in a
timely manner, then the audited balance sheet (as revised in accordance
with clauses (i) or (ii) below) shall become final and binding upon the
parties on the earlier of (i) the date the parties hereto resolve in
writing any differences they have with respect to any matter specified
in the notice of disagreement or (ii) the date any disputed matters are
finally resolved in writing by the arbitrator referred to below. During
the 30-day period following the delivery of a notice of disagreement,
Seller and Purchaser shall seek in good faith to resolve in writing any
differences that they may have with respect to any matter specified in
the notice of disagreement. At the end of such 30-day period, Seller
and Purchaser shall submit to an arbitrator for review and resolution
any and all matters arising under this Section 2.4(b) which remain in
dispute. The arbitrator shall be a nationally recognized independent
public accounting firm as shall be agreed upon by the parties hereto in
writing. The arbitrator shall render a decision resolving the matters
submitted to the arbitrator within 30 days following submission
thereto. The cost of any arbitration (including the fees of the
arbitrator) pursuant to this Section 2.4 shall be borne 50% by
Purchaser and 50% by Seller. The fees and disbursements of Seller's
independent auditors incurred in connection with their review of the
audited balance sheet shall be borne by Seller, and the fees and
disbursements of Purchaser's independent auditors incurred in
connection with their preparation and review of the audited balance
sheet shall be borne by Purchaser.
Section 2.5. Letter of Credit. Concurrently with the execution of this
Agreement, Purchaser has delivered to Seller an irrevocable standby letter of
credit from Bank of America, in
3
<PAGE> 4
an amount equal to $10,000,000, a copy of which is attached to this Agreement as
Exhibit B (the "Letter of Credit").
ARTICLE III
Representations and Warranties of Seller
Seller represents and warrants to Purchaser that, except as set forth
or disclosed in Seller's Disclosure Schedule:
Section 3.1. Corporate Status and Authority.
(a) Seller is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Texas. Seller has
all the requisite corporate power and corporate authority to execute
and deliver this Agreement and the other Operative Documents to which
it is a party and to perform its obligations hereunder and thereunder,
and the execution, delivery and performance of this Agreement and the
other Operative Documents to which Seller is a party have been duly
authorized by all necessary corporate action on the part of Seller.
Seller has all the requisite corporate power and corporate authority to
carry on the Distribution Business as it is now being conducted and to
own or lease and operate the Distribution Assets as and in the place
where the Distribution Business is now conducted or where the
Distribution Assets are now owned or leased and operated. Seller has
the corporate power to own the APC shares. Section 3.1(a) of Seller's
Disclosure Schedule lists all charter documents that, as of the date
hereof, constitute the Articles of Incorporation, as amended, of Seller
and APC, respectively. Prior to the date of this Agreement, Seller has
delivered to Purchaser true, correct and complete copies of the
Articles of Incorporation and Bylaws of Seller and APC.
(b) APC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Alaska. APC has all the
requisite corporate power and corporate authority to carry on its
business as it is now being conducted and to own or lease and operate
its properties as, and in the places where, such business is now
conducted and where such properties are now owned or leased and
operated. APC has the corporate power to own the APC Assets and to own,
lease and operate the Transmission Business as and in the place where
such business is now conducted and where such properties are now owned
or leased and operated. APC owns no equity security of any other entity
and, as a result, has no subsidiaries.
Section 3.2. Duly Executed. This Agreement has been duly executed and
delivered on behalf of Seller, and, when executed and delivered at the Closing
in accordance with this Agreement, each of the other Operative Documents to
which Seller is a party shall have been duly executed and delivered on behalf of
Seller. This Agreement does, and, when executed and delivered at the Closing in
accordance with this Agreement, each of the other Operative Documents to which
Seller is a party
4
<PAGE> 5
shall, constitute a legal, valid and binding obligation of Seller enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and general principles of equity.
Section 3.3. Qualification. Seller and APC are duly qualified and in
good standing, as foreign corporations authorized to do business in all
jurisdictions (including, without limitation, with respect to Seller, the State
of Alaska) where failure to so qualify would materially adversely affect the
Natural Gas Business.
Section 3.4 Governmental Consent. Except for those consents or
approvals set forth in Section 3.4 of Seller's Disclosure Schedule (the
"Seller's Required Governmental Consents"), no consent, waiver, approval or
authorization of, or designation, declaration or filing with, any governmental
authority is or has been required on the part of Seller or APC in connection
with the execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby.
Section 3.5. Capitalization of APC; Title to APC Shares and APC Debt.
The authorized capital stock of APC consists of (i) 2,850,000 shares of common
stock, par value $1.00 per share, of which 1,900,000 shares are duly authorized,
validly issued and outstanding, fully paid and nonassessable, and 150,000 shares
of Preferred Stock, of which no shares are outstanding. All such outstanding
common stock, as well as all of the APC Debt, is owned by Seller. By delivery of
payment for the APC Shares and the APC Debt and by delivery of the certificates
representing the APC Shares and the instruments representing the APC Debt, in
each case, as provided for in this Agreement, Purchaser shall acquire good title
to the APC Shares and the APC Debt, free and clear of all liens, mortgages,
charges, security interests, encumbrances and other restrictions or limitations
of any kind whatsoever. There are no outstanding subscriptions, options,
warrants, conversion rights, outstanding convertible securities, preemptive
rights, preferential rights, or other rights (contractual or otherwise) or
agreements of any kind for the purchase or acquisition from (or the purchase,
sale or issuance by) Seller of any APC Debt or any shares of capital stock of
APC, or other equity or ownership interest in APC, and no outstanding
authorization therefor has been given.
Section 3.6. Title to Distribution Assets and APC Assets; Liens. Seller
has good and indefeasible title to the Distribution Assets and APC has good and
indefeasible title to the APC Assets, except, in each case, those that in the
aggregate are not material to the Natural Gas Business and those disposed of
since the date of the Base Financial Statements in the ordinary course of
business or otherwise disposed of in accordance with this Agreement. None of the
Distribution Assets nor any of the APC Assets are subject to any mortgage,
pledge, lien, security interest, charge or encumbrance except (i) liens created
by or pursuant to the Existing Loan Documents, all of which shall be released at
or prior to the Closing to the extent not in favor of the holders of
indebtedness to be acquired by Purchaser in accordance with the provisions of
this Agreement, (ii) liens securing any indebtedness referred to in clause
(d)(iv) of Section 3.9 hereof and covering only the assets and properties
securing such indebtedness at the time of its renewal, extension, rearrangement
or refunding as contemplated by such clause (d)(iv), all of which shall be
released at or prior to the
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Closing to the extent not in favor of the holders of indebtedness to be acquired
by Purchaser in accordance with the provisions of this Agreement, (iii)
Permitted Encumbrances and (iv) other liens incidental to the conduct of the
Natural Gas Business or the ownership of the Distribution Assets or the APC
Assets that were not incurred in connection with the borrowing of money or the
obtaining of advances for credit and that do not in the aggregate materially
impair the value of the assets affected thereby or materially impair the use of
such assets in the operation of the Natural Gas Business. Seller enjoys peaceful
and undisturbed possession under all material real property leases included in
the Distribution Assets, and all such leases are valid and subsisting and in
full force and effect. APC enjoys peaceful and undisturbed possession under all
material leases of real property on which the facilities operated by it are
situated, and all such leases are valid and subsisting and in full force and
effect.
Section 3.7. No Breach, Etc. The execution, delivery and performance of
this Agreement and the Operative Document to which Seller is a party by Seller
and the consummation by Seller of the transactions contemplated hereby will not
result in (a) any conflict with or breach or violation of or default under the
Articles of Incorporation or by-laws of Seller or APC, or (b) subject to
obtaining those consents or approvals described in Sections 3.4 and Section 3.7
of Seller's Disclosure Schedule (the "Seller's Required Approvals", which term
shall not include any Seller's Required Governmental Consents), any material
conflict with or breach or violation of or default under or right to terminate,
cancel or accelerate under any Material Contract, or the creation of imposition
of any lien, charge, pledge or encumbrance on any of the Distribution Assets or
the APC Assets whatsoever, except for such conflicts, breaches, violations,
defaults, or rights of termination, cancellation or acceleration, liens ,
charges, pledges or encumbrances that individually or in the aggregate would not
result in a Material Adverse Effect on the Natural Gas Business. Seller has no
knowledge of any Material Permits that are currently required in connection with
its and APC's ownership and operation of the Natural Gas Business other than
those that either have been obtained or will be obtained in due course. The
Natural Gas Business is not being operated in violation of any of the provisions
of Seller's or APC's Material Permits or any applicable Legal Requirement except
for such violations, if any, which will not have, individually or in the
aggregate, a Material Adverse Effect on the Natural Gas Business.
Section 3.8. Financial Statements; Material Liabilities.
(a) Seller has heretofore delivered to Purchaser complete and
correct copies of (i) its annual report to shareholders for the fiscal
year ended December 31, 1998, (ii) its Annual Report on Form 10-K for
such fiscal year, as filed with the Securities and Exchange Commission,
(iii) audited combined financial statements of the Distribution
Division and APC for each of the three fiscal years ended December 31,
1998, accompanied by the report thereon of KPMG LLP, certified
accountants, and (iv) the unaudited combined financial statements of
the Distribution Division and APC as of March 31, 1999 ("Base Financial
Statements"). The audited and unaudited financial statements referred
to in clause (iii) above and the Base Financial Statements are referred
to herein as the "Natural Gas Business Financial Statements." All
Natural Gas Business Financial Statements were prepared in
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accordance with generally accepted accounting principles applied on a
consistent basis, except for changes concurred in by said accountants
and disclosed in said financial statements, throughout the periods
specified, and present fairly in all material respects the financial
condition and the results of operations for the Natural Gas Business as
of the dates thereof and for the periods then ended (subject, in the
case of unaudited financial statements, to normal year-end audit
adjustments).
(b) On the date hereof Seller is not aware of any matter that
has or is reasonably likely to have a Material Adverse Effect on the
Natural Gas Business or (so far as Seller can now reasonably foresee)
has a substantial likelihood in the future of having a Material Adverse
Effect on the Natural Gas Business (taken as a whole) other than (i)
general economic conditions, (ii) the matters referred to or set forth
in the annual report to shareholders of Seller referenced in Section
3.8(a), the annual report on Form 10-K of Seller referenced in Section
3.8(a), the Natural Gas Business Financial Statements or in any
Material Contracts furnished to Purchaser by Seller and (iii) matters
and conditions not relating specifically to the Distribution Division
or APC that are generally known to the public or to those in the oil
and gas industry, the natural gas or electric utility industry in the
State of Alaska or the natural gas transmission and distribution
industry.
Section 3.9. Changes, etc. Since the date of the Base Financial
Statements:
(a) no Material Adverse Effect has occurred in respect of the
Natural Gas Business;
(b) except for those actions taken in compliance with this
Agreement, the Natural Gas Business has been conducted in substantially
the same manner in which it had been previously conducted;
(c) (i) the Distribution Assets, the APC Assets and related
real property have been and are being operated in all material respects
in compliance with Environmental Law and Seller has disclosed to
Purchaser all past or present conditions of the real property, and all
matters and issues in any way pertinent or related to the acquisition,
operation or management of the Distribution Assets or the APC Assets
which could, individually or in the aggregate, lead to imposition of a
Material Liability on APC or the Distribution Division. Seller has
received no notice or claim or information requests from any federal,
state or local governmental or regulatory authority with jurisdiction
over Seller (with respect to the Distribution Division), APC or the
Distribution Assets or the APC Assets or from any third party alleging
non-compliance with Environmental Law.
(ii) there are no present or past conditions arising from
or relating to the Distribution Assets or the APC Assets involving or
resulting from a past or present spill, discharge, leak, emission,
injection, escape, dumping, migration, seepage, or release of any kind
whatsoever (other than on-site or off-site) of any substance or
exposure of any type of
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any workplace or to any medium, including, but not limited to, air,
land, surface waters or underground waters, or from any past or present
generation, transportation, treatment, storage or disposal of any
hazardous or toxic waste materials, raw materials, products or other
substances of any kind or from the storage, use or handling of any such
materials, products or substances that may lead to imposition of a
Material Liability on APC or the Distribution Division.
(d) no indebtedness for borrowed money has been incurred or
committed to be incurred by the Distribution Division or APC, except
such indebtedness that has been incurred (i) in the ordinary course of
business, (ii) pursuant to the Credit Agreement between APC and First
National Bank (the "First National Credit Agreement"), (iii) pursuant
to advances made by Seller to the Distribution Division or APC,
including pursuant to the Intercompany Line of Credit Agreement, or
(iv) in connection with any renewal, extension, rearrangement or
refunding of any indebtedness of the Distribution Division or APC
reflected on the Base Financial Statements or incurred after the date
thereof pursuant to the Credit Agreement referred to in subclause (ii)
above;
Section 3.10. Personal Property. To Seller's knowledge, all material
items of personal property and fixtures constituting a part of the Distribution
Assets and APC Assets that are used or useful in the normal operations of the
Distribution Business or the Transmission Business, as the case may be, have
been maintained in all material respects in a state of repair (normal wear and
tear excepted) that Seller believes to be adequate for the normal use of such
item in the ordinary conduct of the Distribution Division or the Transmission
Business, as the case may be, it being understood and agreed, however, that
Seller is making no representation herein with respect to any item of property
that the management of the Natural Gas Business has determined to be not
necessary or desirable for the continued efficient and profitable operation of
the Distribution Business or the Transmission Business, as the case may be.
Section 3.11. Regulatory Commission of Alaska.
(a) Section 3.11(a) of Seller's Disclosure Schedule lists all
currently effective certificates, permits and authorizations heretofore
issued by the RCA to APC or Seller in connection with the Natural Gas
Business.
(b) Section 3.11(b) of Seller's Disclosure Schedule reflects
all of the currently operative tariffs heretofore authorized and
approved by the RCA that are currently in effect and specifically
applicable to the Natural Gas Business and all of the currently pending
rate, certificate or other filings heretofore made by Seller or APC
before the RCA and the status of each such filing on the date hereof.
(c) All currently effective material filings heretofore made
by Seller or APC with the RCA were made in compliance with Legal
Requirements then applicable thereto and
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the information contained therein was true and correct in all material
respects as of the respective dates of such filings.
Section 3.12. Material Contracts. Section 3.12 of Seller's Disclosure
Schedule contains a complete and correct list of all Material Contracts as of
the date hereof. There are no defaults by Seller, APC or the Distribution
Division under any contracts listed in such section that, individually or in the
aggregate, will materially and adversely impair the Natural Gas Business. To
Seller's knowledge, there are no defaults by any other party to any contracts
listed in such section that, individually or in the aggregate, will materially
and adversely impair the Natural Gas Business. Except for the First National
Credit Agreement, the Existing Loan Documents, the Intercompany Line of Credit
Agreement and as otherwise disclosed in Seller's Disclosure Schedule, no
Material Contract listed therein contains any restriction on the incurrence by
the Seller or APC of additional long-term debt.
Section 3.13. Gas Purchase Contracts and Responsibilities.
(a) Section 3.13(a) of Seller's Disclosure Schedule accurately
lists all currently effective material gas purchase contracts
heretofore entered into by Seller or APC with respect to the Natural
Gas Business pursuant to which either Seller or APC is obligated as a
purchaser of natural gas.
(b) As to each such gas purchase contract, neither Seller nor
APC (i) has, since January 1, 1998, made any payments (and no such
payments have become due to sellers of gas thereunder for gas not
taken) pursuant to any "take or pay" or similar arrangements; (ii) is
obligated to pay any material amount (net of any applicable offsets and
adjustments) for gas taken or not taken prior to the date of the Base
Financial Statements other than as reflected in the Base Financial
Statements; or (iii) has received gas that is to be paid for in the
future other than in the normal cycle of billing in the ordinary course
of business or as otherwise reflected in the Base Financial Statements,
in each case except to the extent that such matters would not have a
Material Adverse Effect.
(c) Section 3.13(c) of Seller's Disclosure Schedule accurately
lists all hedges, swaps and other financial or physical commodity
positions of the Natural Gas Business on the date hereof and the net
open commodity position of the Natural Gas Business on such date.
Section 3.14. Litigation. Section 3.14 of Seller's Disclosure Schedule
lists all actions, suits, proceedings or governmental investigations pending or,
to the knowledge of Seller, threatened against Seller or APC which (i) could
reasonably be expected to have a Material Adverse Effect on the Natural Gas
Business or (ii) challenges or may challenge the validity of this Agreement or
any of the Operative Documents or seeks to enjoin or otherwise restrain the
transactions contemplated herein.
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Section 3.15. Rights-of-Way. Seller and APC own or possess all
rights-of-way necessary for the conduct of the Distribution Business and the
Transmission Business, respectively, as now being conducted without any known
conflict with the rights of others, in each case except to the extent that the
failure to own or possess such rights-of-way would not have a Material Adverse
Effect on the Natural Gas Business.
Section 3.16. Gas Transportation and Sales Contracts. Section 3.16 of
Seller's Disclosure Schedule lists all Material Contracts pursuant to which
either the Distribution Division or APC (a) is legally obligated to transport
natural gas owned by a third party or (b) is legally obligated to undertake any
such transportation. There are no agreements or other legally binding
arrangements that constitute Material Contracts pursuant to which either Seller,
with respect to the Distribution Business, or APC is a seller of natural gas to
any third party other than pursuant to tariffs or similar arrangements approved
or authorized by the RCA.
Section 3.17. Employment Agreements and Benefits, Etc.
(a) Employment Agreements. Section 3.17(a) of Seller's
Disclosure Schedule lists all currently effective employment,
management, consulting or similar agreements and all currently
effective labor contracts and collective bargaining agreements
heretofore entered into by APC or Seller with respect to the Natural
Gas Business and neither Seller nor APC has any commitment or
obligation to establish or enter into any such agreement not disclosed
in Section 3.17(a) of Seller's Disclosure Schedule other than those, if
any, that do not constitute a Material Employment Contract.
(b) Officers and Directors. Section 3.17(b) of Seller's
Disclosure Schedule contains a complete and accurate list of each
officer of the Distribution Division and each director and officer of
APC on the date hereof.
(c) Employee Relations. Neither Seller nor APC is a party to
any collective bargaining agreements covering any of the Employees.
There is not occurring on the date hereof any slowdowns, pickets, work
stoppages or other similar disruptive labor activities on the part of
Seller's or APC's employees with respect to the Natural Gas Business.
To Seller's knowledge, no grievance, unfair labor practice charge or
any arbitration proceeding arising out of or under any collective
bargaining agreement relating to the Natural Gas Business exists or is
pending on the date hereof that would materially hinder the Natural Gas
Business from performing its operations in a manner consistent with
past practice or result in a material increase in the Natural Gas
Business's aggregate compensation expense.
(d) ERISA Plans.
(i) Except for (a) the ENSTAR Natural Gas Company
Retirement Plan for Operating Unit Employees and Clerical Unit
Employees (the "Operating Plan") and the ENSTAR Natural Gas
Company Retirement Plan For Salaried Employees,
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but only as it covers non-union Natural Gas Business employees
(the "Salaried Plan") (collectively, the Operating Plan and
the Salaried Plan are herein referred to as the "Pension
Plans"), (b) the ENSTAR Natural Gas Company Thrift Investment
Plan (the "Thrift Plan"), (c) the ENSTAR Natural Gas Company
Profit by Service Plan for Classified Employees and the ENSTAR
Natural Gas Company Profit by Service Plan for Salaried
Employees (the "Profit Sharing Plans"), (d) the ENSTAR Natural
Gas Company Supplemental Executive Retirement Plan (the
"SERP"), and (e) the other employee benefit plans listed in
Section 3.17(d)(i) of Seller's Disclosure Schedule (the
employee benefit plans referred to in (a) through (e) hereof
are hereinafter collectively referred to as the "Plans"),
neither APC, Seller nor any affiliates thereof, currently
sponsors or maintains any employee benefit plan within the
meaning of Section 3(3) of ERISA or has at any time within the
six years prior to the Closing Date sponsored or maintained
any employee pension benefit plan within the meaning of
Section 3(2) of ERISA for the benefit of any employees of APC
or employees of Seller performing services in connection with
the Natural Gas Business ("Employees"). Specifically, neither
APC, Seller nor any entity under common control with Seller
within the meaning of Code ss. 414 currently contributes to or
has at any time within the six years prior to the Closing Date
contributed to any multiemployer plan within the meaning of
Section 3(37) of ERISA and Purchaser shall have no liability
for any such multiemployer plan.
(ii) APC and Seller have in all material respects
performed all material obligations required to be performed by
them or under or in connection with the Plans, and Seller has
no knowledge of any material default or violation (including
but not limited to fiduciary violations) by any other party to
the Plans.
(iii) Reports and disclosures relating to the Plans
required to be filed with or furnished to governmental
agencies, Plan participants or Plan beneficiaries prior to the
date hereof have been filed or furnished in accordance with
applicable law in a timely manner.
(iv) Each of the Thrift Plan, the Pension Plans and
the Profit Sharing Plans (a) satisfies in form the
requirements of Section 401 of the Code, except to the extent
amendments are not required by law to be made until a date
after the Closing Date, (b) has received a favorable
determination letter from the Internal Revenue Service
regarding such qualified status, and (c) has not, since
receipt of the most recent favorable determination letter been
amended or operated in a way that would, to the knowledge of
Seller, materially adversely affect such qualified status.
(v) There are no actions, suits or claims pending
(other than routine claims for benefits) or, to the knowledge
of Seller, threatened against any of the Plans or against the
assets of any of the Thrift Plan, Pension Plans or the Profit
Sharing Plans.
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(vi) All contributions required to the be made
prior to the date hereof to the Thrift Plan, the Profit
Sharing Plans and the Pension Plans pursuant to their terms
and the provisions of ERISA, the Code or any other applicable
Legal Requirement have been timely made.
(vii) As to each Pension Plan, (a) there has been
no event or condition which presents the material risk of Plan
termination, (b) no accumulated funding deficiency, whether or
not waived, within the meaning of Section 302 of ERISA or
Section 412 of the Code has been incurred, (c) no reportable
event within the meaning of Section 4043 of ERISA (for which
the disclosure requirements of Regulation section 4043.1 et
seq., promulgated by the Pension Benefit Guaranty Corporation
("PBGC"), have not been waived) has occurred, (d) no notice of
intent to terminate the Plan has been given under Section 4041
of ERISA, (e) no proceeding has been instituted under Section
4042 of ERISA to terminate the Plan, (f) no material liability
to the PBGC has been incurred, and (g) the fair market value
of the assets of such Plan equals or exceeds the present value
of accumulated benefits under such Plan based upon the
actuarial assumptions used for purposes of the most recent
actuarial valuation.
(viii) The Base Financial Statements reflect
contribution liability accruals made in accordance with past
practices reflecting the estimated 1999 contribution liability
of APC and the Distribution Division to the Pension Plans, the
Thrift Plan and the Profit Sharing Plans as of March 31, 1999.
(ix) No act, omission or transaction has occurred
that would result in imposition on the APC, Seller or any
affiliates thereof of (A) breach of fiduciary duty liability
damages under Section 409 of ERISA, (B) a civil penalty
assessed pursuant to subsections (c), (i) or (l) of Section
502 of ERISA, or (C) a tax imposed pursuant to Chapter 43 of
Subtitle D of the Code.
(x) There is no action pending with respect to any
of the Plans before the Internal Revenue Service, the
Department of Labor or the Pension Benefit Guaranty
Corporation, or, to the knowledge of Seller, before any state
or local governmental agency.
(xi) Each Plan subject to the requirements of
Section 601 of ERISA has been operated in material compliance
therewith. Seller has not contributed to a nonconforming group
health plan (as defined in Code Section 5000(c)) and no person
under common control with Seller within the meaning of Section
414 of the Code has incurred a tax liability under Code
Section 5000(a) that is or could reasonably be expected to be
a liability of Seller.
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(xii) Except for amounts with respect to which
Seller has sole responsibility to pay, no amounts payable
under any Plan or other agreement, contract, or arrangement
with respect to any Employees will fail to be deductible for
federal income tax purposes by virtue of Section 280G or
Section 162(m) of the Code.
(xiii) Complete and correct copies of the following
documents have been made available to Purchaser as of the date
of this Agreement: (i) all Plans and any related trust
agreements or insurance contracts, (ii) the most current
summary descriptions of each Plan subject to ERISA, (iii) the
three most recent Form 5500s and Schedules thereto for each
Plan subject to such reporting, (iv) the most recent
determination of the IRS with respect to the qualified status
of each Plan that is intended to qualify under Section 401(a)
of the Code, (v) the most recent accountings with respect to
Plan funded through a trust and (vi) the most recent actuarial
report of the qualified actuary of each Plan with respect to
which actuarial valuations are conducted.
(e) Other Employee Benefit Plans. Section 3.17(e) of Seller's
Disclosure Schedule lists, in addition to the Plans, all bonus,
profit-sharing, incentive compensation, stock option, pension,
retirement, deferred compensation and other plans, agreements, trusts,
funds and arrangements for the benefit of the Employees other than
those, if any, which do not constitute a Material Employment Contract.
Section 3.18. Insurance. Seller, in connection with the Distribution
Business, and APC have been continuously since January 1, 1995, insured in such
amounts and against such risks and losses as are customary for companies
conducting businesses similar to the Natural Gas Business during such time
period. Neither Seller, in connection with the Distribution Business, nor APC
has received any notice of cancellation or termination with respect to any
material insurance policy thereof.
Section 3.19. Patents, Trademarks, Etc. To Seller's knowledge, the
Natural Gas Business is conducted without conflict with or infringement of
asserted patent, trade names, trademark, copyright, trade secret, know-how or
other industrial property rights of others.
Section 3.20. APC Debt. The principal amount outstanding under the APC
Debt as of June 1, 1999, is $58,700,000. There is no default by the obligor
under the APC Debt with respect to payments of principal and interest required
to be made thereunder.
Section 3.21. Brokers. Except for Chase Securities, Inc., no broker or
finder has acted for or on behalf of Seller or any affiliate of Seller in
connection with this Agreement or the transactions contemplated by this
Agreement. No broker or finder is entitled to any brokerage or finder's fee, or
to any commission, based in any way on agreements, arrangements or
understandings made by or
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on behalf of Seller or any affiliate of Seller for which Purchaser, APC or the
Distribution Division has or will have any liabilities or obligations
(contingent or otherwise).
Section 3.22 Year 2000 Compliance. The Natural Gas Business has adopted
a Year 2000 compliance program (the "Y2K Program"), a copy of which is attached
as Section 3.22 of Seller's Disclosure Schedule, and has filed the Y2K Program
with the RCA. APC and the Distribution Division are in compliance with the Y2K
Program in all material respects and have substantially performed the tasks
required to be performed thereby on or prior to any date as of which this
representation is made or deemed to have been made, in each case except to the
extent that such failure would not, or could not reasonably be expected to have,
a Material Adverse Effect on the Natural Gas Business.
ARTICLE IV
Representations and Warranties of Purchaser
Purchaser represents and warrants to Seller that, except as set forth
or disclosed in Purchaser's Disclosure Schedule:
Section 4.1. Corporate Status and Authority. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Michigan. Purchaser has all the requisite corporate power and corporate
authority to execute and deliver this Agreement and the other Operative
Documents to which it is a party and to perform its obligations hereunder and
thereunder, and the execution, delivery and performance of this Agreement and
the other Operative Documents to which Purchaser is a party have been duly
authorized by Purchaser's Board of Directors, which constitutes all necessary
corporate action required on the part of the Purchaser for such authorization.
Purchaser has heretofore delivered to Seller true and complete copies of its
Certificate or Articles of Incorporation and bylaws, in each case as amended.
Section 4.2. Power; Duly Executed. Subject to those matters set forth
in this Agreement, Purchaser has full right, power and authority to enter into
this Agreement and the other Operative Documents to which Purchaser is a party,
and Purchaser has full, right, power and authority to purchase and receive the
APC Shares and the Distribution Assets pursuant hereto. This Agreement has been
duly executed and delivered on behalf of Purchaser, and, when executed and
delivered at the Closing in accordance with this Agreement, each of the other
Operative Documents to which Purchaser is a party shall have been duly executed
and delivered on behalf of Purchaser. This Agreement does, and, when executed
and delivered at the Closing in accordance with this Agreement, each of the
other Operative Documents to which Purchaser is a party shall, constitute a
legal, valid and binding obligation of Purchaser enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and general
principles of equity.
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Section 4.3. Qualification. Purchaser is duly qualified and in good
standing, as a foreign corporation authorized to do business in all
jurisdictions where the failure to so qualify would materially adversely affect
the business or properties of Purchaser. Prior to the Closing, Purchaser shall
become duly qualified and in good standing to do business in the State of
Alaska.
Section 4.4. Governmental Consent. Except for those consents or
approvals set forth in Section 4.4 of Purchaser's Disclosure Schedule (the
"Purchaser's Required Government Consents"), no consent, waiver, approval or
authorization of, or designation, declaration or filing with any governmental
authority is or has been required on the part of Purchaser in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
Section 4.5. Brokers. Except for Banc of America Securities LLC and
Charlevoix Energy Partners, no broker or finder has acted for or on behalf of
Purchaser or any affiliate of Purchaser in connection with this Agreement or the
transactions contemplated by this Agreement. No broker or finder is entitled to
any brokerage or finder's fee, or to any commission, based in any way on
agreements, arrangements or understandings made by or on behalf of Purchaser or
any affiliate of Purchaser for which Seller or any affiliate thereof has or will
have any liabilities or obligations (contingent or otherwise).
Section 4.6. Litigation. There are no actions, suits, proceedings or
governmental investigations pending or, to the knowledge of Purchaser,
threatened against Purchaser or any of the its subsidiaries which (a) will have
a Material Adverse Effect or can reasonably be expected to have a Material
Adverse Effect on the ability of Purchaser to consummate the transactions
contemplated in the Agreement, or (b) challenges or may challenge the validity
of this Agreement or any of the Operative Documents to be executed at Closing or
seeks to enjoin or otherwise restrain the transactions contemplated herein.
Section 4.7 No Breach, Etc. The execution, delivery and performance of
this Agreement and the Operative Documents to which Purchaser is a party by
Purchaser and the consummation by Purchaser of the transactions contemplated
hereby will not result in (a) any conflict with or breach or violation of or
default under the Certificate or Articles of Incorporation or by-laws of
Purchaser, or (b) subject to obtaining those consents or approvals described in
Sections 4.4 and 4.7 of the Purchaser's Disclosure Schedule (the "Purchaser's
Required Approvals", which term shall not include any Purchaser's Required
Governmental Consents), any material conflict with or breach or violation of or
default under or right to terminate, cancel or accelerate under any material
indenture, contract, agreement, license, lease or other instrument to which
Purchaser is a party or the creation of imposition of any lien, charge, pledge
or encumbrance on any of the material assets of the Purchaser. With respect to
the credit agreement related to the Purchaser's Required Approval described in
Section 4.7 of the Purchaser's Disclosure Schedule, such credit agreement is
subject to renewal no later than September 30, 1999, and upon such renewal the
credit agreement will be amended or otherwise modified so that no consent to the
transactions contemplated by this Agreement is required thereunder. Upon such
renewal the Purchaser's Disclosure Schedule shall
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be deemed to be modified so that the requirement to obtain such consent is no
longer disclosed thereon.
Section 4.8. Financial Arrangements of Purchaser. Purchaser presently
has and will at all times have adequate sources of funds to provide at the
Closing, and at the Closing will have, sufficient funds in order to timely pay
the Purchase Price and any adjustments thereto.
Section 4.9. Financial Statements. Purchaser has heretofore delivered
to Seller complete and correct copies of (a) its annual report to shareholders
of its most recently ended fiscal year, (b) its Annual Report on Form 10-K for
the same fiscal year, as filed with the Securities and Exchange Commission, (c)
its proxy statement relating its most recent Annual Meeting of Shareholders and
(d) its quarterly reports on Form 10-Q for any fiscal quarters ended after the
fiscal year described in clause (a). The consolidated financial statements of
the Purchaser contained therein were prepared in accordance with generally
accepted accounting principles applied on a consistent basis, except for changes
concurred in by the Purchaser's accountants and disclosed in said financial
statements, throughout the periods specified, and present fairly in all material
respects the financial condition and results of operations of the businesses of
Purchaser as of the dates thereof and for the periods then ended (subject, in
the case of unaudited financial statements, to normal year-end audit
adjustments) and the absence of footnote disclosure.
Section 4.10. Purchase for Investment. Purchaser is acquiring the APC
Shares for its own account, for investment only, without a view to distribution,
as that phrase has meaning under the Securities Act of 1933, as amended (the
"Act") and rules and regulations of the Securities and Exchange Commission.
Purchaser understands that the effect of the representation and warranty made
herein is that the APC Shares must be held by it indefinitely unless
subsequently registered under the Act or unless an exemption from registration
is available at the time of any proposed sale or other transfer thereof.
Purchaser agrees to indemnify and hold harmless Seller against all liabilities,
costs and expenses, including reasonable attorneys' fees, and other Losses
incurred by Seller as a result of any sale, transfer or other disposition by
Purchaser of all or any part of the APC Shares in violation of the Act or
applicable state securities laws.
ARTICLE V
Covenants and Certain Actions of the Parties
Section 5.1. Obligations of Seller.
Section 5.1.1. Conduct of Business, Etc.
From the date of this Agreement and until the Closing ("Interim
Period"), except as is otherwise approved by Purchaser in writing (which
approval shall not be unreasonably withheld or delayed), Seller shall:
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(a) except as permitted or contemplated by this Agreement,
carry on the Distribution Business in the ordinary course consistent
with past practice and, to the extent consistent with such business,
use all reasonable efforts to preserve intact the present business
organization and to preserve its relationship with customers, suppliers
and others having business dealings with the Distribution Division;
(b) except as permitted or contemplated by this Agreement,
cause APC to carry on the Transmission Business in the ordinary course
consistent with past practice and, to the extent consistent with such
business, use all reasonable efforts to preserve intact the present
business organization and to preserve its relationships with customers,
suppliers and others having business dealings with APC;
(c) maintain its corporate existence and, to the extent within
the control of Seller, maintain all qualifications of Seller that are
required for it to carry on the Distribution Business as set forth in
clause (a) above; and cause APC to maintain its corporate existence
and, to the extent within the control of Seller, cause APC to maintain
all qualifications of APC that are required for it to carry on the
Transmission Business as set forth in clause (b) above;
(d) not permit APC to amend its Articles of Incorporation or
bylaws;
(e) except as permitted or contemplated by this Agreement and
except for proposed transactions that are disclosed in Seller's
Disclosure Schedule, not enter into or amend or permit APC to enter
into or amend in any bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, group insurance,
death benefit or other fringe benefit plan, trust agreement, or
arrangement affecting any Employees, or any compensation, severance or
consulting agreement with any such officer or employee other than in
the ordinary course of business or otherwise consistent with past
practice or as required by law or any presently existing collective
bargaining agreement;
(f) not permit APC or the Distribution Division, other than in
the ordinary course of business, to create, incur, assume, guarantee or
otherwise become liable with respect to any indebtedness for money
borrowed except (i) pursuant to the First National Credit Agreement,
(ii) pursuant to advances made by Seller to the Distribution Division
or APC, including under the Intercompany Line of Credit Agreement,
(iii) in compliance with the provisions of this Agreement, or (iv) in
connection with any renewal, extension, rearrangement or refunding of
any indebtedness of the Distribution Division or APC reflected in the
Base Financial Statements or incurred after the date thereof pursuant
to the First National Credit Agreement;
(g) except for proposed transactions described in Section
5.1.1(g) of Seller's Disclosure Schedule, refrain from disposing of any
material Distribution Assets or material APC Assets other than in the
ordinary course of business;
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(h) except for any proposed transactions described in Section
5.1.1(h) of Seller's Disclosure Schedule, not permit APC to merge or
consolidate with any other corporation or acquire any stock,
securities, property or assets of any other Person; provided, however,
that the foregoing restriction shall not prohibit any acquisition of
property or assets to be used by the Natural Gas Business in the
ordinary course of business or for capital expenditures permitted by
Section 5.1.1(k);
(i) not permit APC to issue any shares of any class of its
capital stock, or enter into any contract, or grant any option, warrant
or right, calling for the issuance of any such shares, or create or
issue any securities convertible into any such shares or convertible
into securities in turn so convertible, or enter into any contract, or
grant any option, warrant or right, calling for the issuance of any
such convertible securities;
(j) advise and consult, and cause APC to advise and consult,
with Purchaser in advance of any material actions (including, without
limitation, rate filings) to be taken with respect to regulatory
matters or other contested matters;
(k) except as contemplated by the Natural Gas Business's
capital budget or as set forth in Section 5.1.1(k) of Seller's
Disclosure Schedule, not make or commit to make, or permit APC to make
or commit to make, any capital expenditures, capital additions or
capital improvements with respect to the Natural Gas Business in an
amount in excess of $1,000,000 with respect to all such capital
projects and except for repairs to the Natural Gas Business's property
required for safety and/or the continued operation of the Natural Gas
Business in accordance with past practice.
(l) use all reasonable efforts to obtain waivers of all
preferential rights to purchase all or any part of the Distribution
Assets and use all reasonable efforts to obtain, and cause APC to use
all reasonable efforts to obtain, any consent of third parties
necessary to complete the transactions contemplated by this Agreement;
(m) use all reasonable efforts to provide substantially in
accordance with past practices under that certain Agreement For
Services, dated January 1, 1993, as amended, between Seller, the
Distribution Division and APC, all material corporate general and
administrative services to APC and the Distribution Division of the
type previously provided by Seller and cooperate with Purchaser in the
transition of the performance of such services to Purchaser at the
Closing. Seller will, and will cause the Distribution Division and APC
to, terminate such Agreement For Services at Closing at no cost to the
Distribution Division or APC;
(n) not take undertake any hedging activity that is
inconsistent with net open commodity position, if any, described in
Section 3.13(c) of Seller's Disclosure Schedule; and
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(o) enter into or amend any Material Contract or any other
contract listed on Section 3.12 of Seller's Disclosure Schedule, in
each case except to the extent related to any capital expenditure
permitted by Section 5.1.1(k).
Section 5.1.2. Access and Information. APC and Seller have given and,
during the Interim Period, Seller shall give, or shall cause to be given, to
Purchaser and its employees, agents and representatives full access, at all
reasonable times and at Purchaser's expense, to the properties, books, files,
records and officers of APC and of Seller, as such relate to the Natural Gas
Business, and will furnish or shall cause to be furnished, at Purchaser's
expense, all information and documents relating to the Natural Gas Business as
Purchaser may reasonably request, and permit Purchaser to contact and meet with
the employees of APC and Seller, as such are involved in the Natural Gas
Business, and others having business relations with such, at such place or
places and at such times as reasonably designated by Purchaser, provided that no
such investigation shall unreasonably interfere with the Natural Gas Business,
or relationships with employees or customers of Seller or APC. During the
Interim Period, Seller shall permit Purchaser to make copies of information
relating to the Natural Gas Business contained in the books, files and records
of Seller and APC. Purchaser will cause all information regarding Seller, the
Distribution Division, APC or the Natural Gas Business obtained or acquired by
Purchaser or Purchaser's representatives, employees, consultants, independent
contractors, attorneys and financing sources and other advisors (the "Purchaser
Parties") pursuant to this Agreement to be used and maintained by the Purchaser
Parties in accordance with the terms of the confidentiality agreement dated June
3, 1999, by and between Seller and Purchaser (the "Confidentiality Agreement").
Notwithstanding the foregoing provisions of this Section 5.1.2, Seller shall not
be required to disclose information to the extent that the disclosure thereof is
prohibited under confidentiality agreements currently in effect on the date
hereof.
(b) Purchaser hereby agrees to defend, indemnify, release, protect,
save and hold harmless the Seller Indemnitees from and against any and all
Losses (including injury or death of any person or damage to property) arising
out of or relating to Purchaser's access to the properties, books, files and
records of APC or the Natural Gas Business in connection with this Section
5.1.2, including without limitation any Losses resulting, in whole or in part,
from the actions of Purchaser's officers, employees, agents, representatives or
affiliates.
Section 5.1.3. Hart-Scott-Rodino.
(a) Seller will prepare and submit to the Federal Trade
Commission and the Department of Justice, in a timely manner, all
necessary filings for Seller in connection with the transactions
contemplated by this Agreement under the Hart-Scott-Rodino Antitrust
Improvements Act or 1976 and the rules and regulations of the Federal
Trade Commission thereunder (collectively, the "Hart-Scott-Rodino
Act").
(b) In the event that a request for additional information is
made of Seller pursuant to the Hart-Scott-Rodino Act, Seller shall use
all reasonable efforts to comply with such request as soon as
practicable after receipt of such request.
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Section 5.1.4 Limit on Indebtedness For Borrowed Money. At or prior to
the Closing, Seller shall take such action as shall be necessary such that, at
the Closing, (i) the aggregate indebtedness of the Natural Gas Business for
borrowed money or evidenced by leases required to be capitalized for financial
reporting purposes in accordance with GAAP does not exceed $58,700,000
(including the APC Debt), and (ii) the outstanding principal balance of the APC
Debt does not exceed $58,700,000.
Section 5.2. Obligations of Purchaser.
Section 5.2.1. Hart-Scott-Rodino.
(a) Purchaser will prepare and submit to the Federal Trade
Commission and the Department of Justice, in a timely manner, all
necessary filings for Purchaser in connection with the transactions
contemplated by this Agreement under the Hart-Scott-Rodino Act.
(b) In the event that a request for additional information is
made of Purchaser pursuant to the Hart-Scott-Rodino Act, Purchaser
shall use all reasonable efforts to comply with such request as soon as
practicable after receipt of such request.
Section 5.2.2. Employee Matters. On or before the Closing Date,
Purchaser will offer employment to each Employee as of the Closing Date who
meets Purchaser's normal employment criteria for similar classifications of
employees. Except as hereinafter provided, and subject to the provisions of any
presently existing collective bargaining agreement, Purchaser shall have full
discretion in determining the terms, conditions and benefits relating to such
employment, provided however, that the salaries and other employment benefits,
taken as a whole, and the positions of responsibility offered by Purchaser shall
be consistent in all material respects with the salary ranges and other
employment benefits, taken as a whole, and the levels of responsibility of such
Employees in effect on the Closing Date.
Section 5.2.3. Access to Information. After Closing, Purchaser will,
and will cause its counsel and independent public accountants to, afford to
representatives of Seller, including its counsel and accountants, reasonable
access to all books, records, files and documents related to the Distribution
Division, APC or the Natural Gas Business in order to permit Seller to prepare
and file its tax returns and to prepare for and participate in any investigation
with respect thereto, to prepare for and participate in any other investigation
and defend any litigation relating to or involving the Seller, Distribution
Division, APC or the Natural Gas Business for which Seller may be responsible,
to discharge its obligations under this Agreement and the other Operative
Documents to which it is a party and for other reasonable purposes and will
afford Seller reasonable assistance in connection therewith. Purchaser will
cause such records to be maintained for not less than seven years from the date
of Closing and will not dispose of such records without first offering in
writing to deliver them to Seller; provided, however, that in the event that
Purchaser transfers all or a portion of the Natural Gas Business to any third
party during such period, Purchaser may transfer to such third party all or a
portion of the books, records, files and documents related thereto, provided
such third party transferee expressly assumes in writing the obligations of
Purchaser under this Section 5.2.3.
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Following the Closing Date, and to the extent reasonably necessary to permit
Seller or any of its Affiliates to defend (including, without limitation, any
related investigation, appeal or settlement) any lawsuit, mediation, enforcement
action, arbitration, administrative hearing or other adjudicative proceeding
relating to the Natural Gas Business, Purchaser agrees to afford Seller and its
Affiliates and their respective accountants and counsel, during normal business
hours, at no cost to Seller other than reasonable out-of-pocket expenses, (i)
reasonable access to all employees of Purchaser or any of its Affiliates and all
witnesses subject to the control or direction of Purchaser or any of its
Affiliates and (ii) reasonable access to all documents and records within the
custody or subject to the control of Purchaser or any of its Affiliates;
provided, however, that in the event of any litigation nothing herein shall
limit either party's rights of discovery under applicable law.
Section 5.3. Joint Obligations.
(a) Purchaser and Seller will, as soon as reasonably possible
following the execution of this Agreement, prepare and file with
appropriate governmental authorities such requests for approval as may
be necessary to obtain any Seller's Required Governmental Consents and
Seller's Required Approvals. Purchaser and Seller will diligently
pursue such authorizations and will cooperate with each other in
seeking such authorizations.
(b) Seller, APC and Purchaser mutually agree and covenant as
follows with respect to the disposition of the Plans:
(i) Effective as of Closing, Purchaser shall adopt,
or cause the appropriate affiliate of Purchaser to adopt,
those plans listed on Section 5.3(b)(i) of Seller's Disclosure
Schedule. Seller (or its insurer) will be liable for benefits
incurred by the Employees under such plans, as a result of
events occurring prior to Closing.
(ii) Effective as of Closing, Purchaser shall also
adopt, or cause the appropriate affiliate of Purchaser to
adopt, those plans listed on Section 5.3(b)(ii) of Seller's
Disclosure Schedule (together with the plans listed on Section
5.3(b)(i) of Seller's Disclosure Schedule, the "Scheduled
Plans") as a successor employer of the Employees who are
participants therein, without gap or interruption of coverage.
Further, effective as of the Closing Date, Purchaser shall
assume Seller's obligations under any presently existing
collective bargaining agreement affecting the Natural Gas
Business.
(iii) Subject to the provisions of any presently
existing collective bargaining agreement and subject to the
provisions of applicable law, Purchaser shall have the right
to amend or terminate any Scheduled Plan following the Closing
Date; provided, however, that the overall level of benefits
provided to the Employees of the Natural Gas Business shall be
comparable to the benefits provided to such Employees on the
date hereof for at least two years after the Closing Date.
With respect to any employee benefit plan that is not a
Scheduled Plan, Purchaser shall not
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assume any obligations thereunder and Seller shall continue to
be liable therefor; provided, however, that Seller may amend
or terminate any such plan at any time.
(iv) Effective as of Closing, Purchaser shall cause
APC or the appropriate affiliate of Purchaser to assume the
Severance Agreement between Seller and Richard F. Barnes
("Barnes"), a true and correct copy of which has been
furnished to Purchaser. Prior to Closing, Purchaser shall
enter into severance agreements with each of the other
officers of APC, which are identified on Section 5.3(b) of
Seller's Disclosure Schedule, providing benefits substantially
similar to the benefits provided to such persons under the
MSP. In the event Barnes' or any other such officer's
employment is subject to an Involuntary Termination (as such
term is defined in the applicable severance agreement) within
six months following Closing, Seller shall reimburse Purchaser
for the cost of any severance benefits provided to such
officer in accordance with the applicable severance agreement.
Purchaser shall provide severance benefits to each of the
other Employees as of Closing (but not including Employees
subject to any collective bargaining agreement) in accordance
with the terms of the Resource Group Plan set forth in Section
5.3(b)(iv) of Purchaser's Disclosure Schedule. Purchaser will
continue to provide severance benefits to such Employees
substantially similar to those set forth in such Resource
Group Plan for a period of at least three years after the
Closing Date.
(v) APC, Seller and Purchaser shall cooperate in
exchanging information (including pertinent employment
records, benefit information, financial statements and other
data) or in taking actions respecting the interests of the
Employees in each of the plans described in this Section so as
to secure an orderly and effective transition of benefit
arrangements for the Employees. APC, the Seller and Purchaser
agree to use all reasonable efforts to accomplish the purposes
of this Section 5.3(b), subject to such changes as may be
required by any governmental agency of proper jurisdiction or
other regulatory authority.
(c) During the Interim Period, neither Purchaser nor Seller
shall make, nor permit any of its affiliates or representatives to
make, any news release or other public disclosure pertaining to this
Agreement or the transactions contemplated hereby without the prior
written approval of the other as to both form and content, which
approval shall not be unreasonably withheld. Notwithstanding the
foregoing, either party may make such news release or other public
disclosure which, in the opinion of such party's outside counsel, is
required to be made by such party pursuant to applicable securities
laws or securities exchange rules.
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ARTICLE VI
Approvals, Reasonable Efforts
The parties recognize the importance of obtaining the Seller's Required
Governmental Consents, the Seller's Required Approvals, the Purchaser Required
Governmental Consents and the Purchaser's Required Approvals and, in this
regard, agree to give priority to seeking such approvals. The parties shall
apply for and diligently prosecute all applications for, and shall use all
reasonable efforts promptly to obtain, such approvals or forebearances from all
applicable federal, state and local authorities, and such other governmental
authorities as shall be necessary to permit the consummation of the transactions
contemplated this Agreement, and shall use all reasonable efforts to bring about
the satisfaction as soon as practicable of the transactions contemplated by this
Agreement. To this end, the parties agree to make available the personnel and
other resources of their respective organizations in order to accomplish actions
reasonably required by them to obtain all such approvals.
ARTICLE VII
Conditions Precedent
Section 7.1. Preamble. The respective obligations set forth herein of
Seller and Purchaser to consummate the transactions contemplated hereby shall be
subject to the fulfillment, on or before the Closing Date, in the case of
Seller, of the conditions set forth in Sections 7.2 and 7.3, and in the case of
Purchaser, of the conditions set forth in Sections 7.2 and 7.4. Any of the
following conditions may be waived in whole or in part by the party whose
obligation to perform at Closing is subject to such condition.
Section 7.2 Hart-Scott-Rodino Compliance. The applicable waiting period
under the Hart-Scott Rodino Act shall have expired or terminated.
Section 7.3. Conditions to Obligations of Seller.
Section 7.3.1. Representations and Warranties of Purchaser. The
representations and warranties of Purchaser contained in Article IV of this
Agreement shall be accurate in all respects (provided that, for purposes of this
Section 7.3.1 any representation or warranty contained in Article IV that is
qualified by a materiality standard or a Material Adverse Effect qualification
shall be read without regard to any such qualifications as if such
qualifications were not contained therein) as of the Closing Date, except for
such failures which, individually or in the aggregate, have not had and could
not reasonably be expected to have, a Material Adverse Effect on Seller.
Purchaser shall have duly performed and complied in all material respects with
all agreements contained herein required to be performed or complied with by it
at or before the Closing.
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Section 7.3.2. Officer's Certificate. Purchaser shall have delivered to
Seller a certificate, dated the Closing Date and signed by its Chairman,
President or a Vice President, as to the fulfillment of the conditions set forth
in Section 7.3.1 hereof.
Section 7.3.3 Seller's Required Governmental Consents. All of Seller's
Required Governmental Consents shall have been obtained by Final Order.
Section 7.3.4 Seller's Required Approvals. All of Seller's Required
Approvals, the absence of which would have a Material Adverse Effect on Seller
or its businesses other than the Natural Gas Business after the Closing, and all
of Purchaser's Required Approvals, the absence of which would have a Material
Adverse Effect on Purchaser, in each case other than those consents and
approvals that are customarily obtained after the closing of a transaction of
the nature of the transaction contemplated by this Agreement, have been obtained
and are in full force and effect.
Section 7.3.5. Actions at Closing. Purchaser shall have taken the
respective actions to be taken by it at the Closing pursuant to Section 8.1
hereof.
Section 7.3.6. Absence of Proceedings. No action, suit or proceeding
instituted by any governmental authority shall be pending and no statute, rule
or regulation and no injunction, order, decree or judgment of any court or
governmental authority of competent jurisdiction shall be in effect that could
reasonably be expected to prohibit, restrain, enjoin or restrict the
consummation of the transactions contemplated by this Agreement.
Section 7.4. Conditions to Obligations of Purchaser.
Section 7.4.1. Representations and Warranties of Seller. The
representations and warranties of Seller contained in Article III and Section
10.1 of this Agreement shall be accurate in all respects (provided that, for
purposes of this Section 7.4.1 any representation or warranty contained in
Article III or Section 10.1 that is qualified by a materiality standard or a
Material Adverse Effect qualification shall be read without regard to any such
qualifications as if such qualifications were not contained therein) as of the
Closing Date, except for such failures which, individually or in the aggregate,
have not had and could not reasonably be expected to have, a Material Adverse
Effect on the Natural Gas Business. Seller shall have duly performed and
complied in all material respects with all agreements contained herein required
to be performed or complied with by it at or before the Closing.
Section 7.4.2. Officer's Certificate. Seller shall have delivered to
Purchaser a certificate, dated the Closing Date and signed by its Chairman,
President or Vice President, as to the fulfillment of the conditions set forth
in Section 7.4.1 hereof.
Section 7.4.3 Governmental Consents. All of Seller's Required
Governmental Consents and Purchaser's Required Governmental Consents shall have
been obtained by Final Order.
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Section 7.4.4 Other Approvals. All of Seller's Required Approvals, the
absence of which would have a Material Adverse Effect on Purchaser and on the
Natural Gas Business after the Closing, and all of Purchaser's Required
Approvals, the absence of which would have a Material Adverse Effect on
Purchaser, in each case other than consents and approvals that are customarily
obtained after the closing of a transaction of this nature, have been obtained
and are in full force and effect.
Section 7.4.5. Actions at Closing. Seller shall have taken the actions
to be taken by Seller at the Closing pursuant to Section 8.1. hereof.
Section 7.4.6. Absence of Proceedings. No action, suit or proceeding
instituted by any governmental authority shall be pending and no statute, rule
or regulation and no injunction, order, decree or judgment of any court or
governmental authority of competent jurisdiction shall be in effect that could
reasonably be expected to prohibit, restrain, enjoin or restrict the
consummation of the transactions contemplated by this Agreement.
Section 7.4.7. Maintenance of Material Qualifications. Prior to
Closing, Seller shall have maintained all material qualifications of Seller that
are required for it to carry on the Distribution Business and shall have
maintained all material qualifications of APC that are required for it to carry
on the Transmission Business.
ARTICLE VIII
Closing
Section 8.1. Closing. The closing of the purchase and sale of the APC
and the Distribution Assets (the "Closing") will take place at the offices of
Vinson & Elkins L.L.P., 2300 First City Tower, 1001 Fannin, Houston, Texas on
the first business day following five calendar days after all of the conditions
specified in Section 7.3 and 7.4 have been satisfied, unless another time, date
and place is agreed to in writing by the parties. The date of the Closing is
referred to in this Agreement as the "Closing Date." At the Closing the
following events shall occur, each event being deemed to have occurred
simultaneously with the other events:
(a) Seller will deliver to Purchaser the APC Shares and the
APC Debt, by delivering the certificates representing the APC Shares
and the instruments representing the APC Debt, in each case endorsed or
accompanied by stock or bond powers, as applicable (in form reasonably
satisfactory to counsel for Purchaser), in favor of Purchaser; and
(b) Purchaser will pay the Purchase Price, as adjusted, by
wire transferring such amount, in lawful money of the United States of
America in immediately available funds, to such account as Seller shall
have designated by notice to Purchaser; and
(c) Seller and Purchaser shall execute and deliver a General
Assignment and Bill of Sale ("General Assignment") substantially in the
form of Exhibit A attached hereto,
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it being understood and agreed that the schedules attached to the
General Assignment as so executed and delivered shall be appropriately
modified and amended to reflect dispositions and acquisitions of
Distribution Assets after the date hereof;
(d) To the extent consistent with the other provisions of this
Agreement, Seller shall execute and deliver at Closing such other
conveyances, certificates of title and bills of sale reasonably
requested by Purchaser that are necessary in order to satisfy any
applicable Legal Requirement relating to the transfer of the
Distribution Assets to Purchaser or which are customarily given in
Alaska to accomplish transfers of assets of the type involved;
provided, however, that nothing in this clause (e) shall obligate
Seller to execute or deliver any document that affects, in a manner
adverse to Seller, Seller's liability to Purchaser as expressed herein
and in the General Assignment.
(e) Seller shall have delivered to Purchaser the original
Letter of Credit.
ARTICLE IX
Termination
Section 9.1. Termination. Subject to Section 9.2 hereof, this Agreement
and the transactions contemplated hereby may be terminated and abandoned:
(a) at any time prior to the Closing Date by mutual consent of
Purchaser and Seller; or
(b) by Purchaser or Seller at any time after December 31, 1999
(the "Termination Date") if the Closing shall not have occurred on or
prior to such date; provided, however, that either party may extend the
Termination Date for an additional three months from such originally
scheduled Termination Date if all the conditions to consummation of the
transactions contemplated hereby set forth in Article VII hereof have
either been satisfied or are then capable of being satisfied by such
date, other than the conditions set forth in Sections 7.3.3 and 7.4.3;
and provided further, that the right to terminate this Agreement under
this Section 9.1(b) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of,
or resulted in, the failure of the Closing to occur on or before the
Termination Date;
(c) by Purchaser or Seller at any time within 30 days
following the issuance of a ruling by the RCA to the effect that the
transactions contemplated by this Agreement to occur at Closing will
not be authorized to occur; or
(d) at any time on or before the Closing Date, by Purchaser if
Seller shall have failed to perform, satisfy and comply with, in any
material respect, on the date specified, any material term, condition
or provision herein required of Seller on or before the Closing Date;
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(e) at any time on or before the Closing Date, by Seller if
Purchaser shall have failed to perform, satisfy and comply with, in any
material respect, on the date specified any material term, condition or
provision herein required of Purchaser on or before the Closing Date;
or
(f) by Purchaser at any time on or before the Closing Date,
upon the immediate payment by Purchaser to Seller of a termination fee
of $10 million, upon receipt of which by Seller (i) such termination
shall become effective and (ii) Seller shall promptly return the
original Letter of Credit to Purchaser.
The power of termination and abandonment of the transactions
contemplated by this Agreement pursuant to this Section 9.1 will be effective
only after written notice thereof, signed on behalf of the party for which it is
given by a duly authorized officer, shall have been given to the other party
hereto.
Section 9.2 Limitation on Right to Terminate; Effect of Termination.
(a) A party shall not be allowed to exercise any right of
termination pursuant to Section 9.1 if the event giving rise to the
termination right shall be due to the willful failure of such party
seeking to terminate this Agreement to perform or observe in any
material respect any of the covenants, or agreements hereof to be
performed or observed by such party.
(b) If this Agreement is terminated as permitted under Section
9.1 hereof, such termination shall be without liability of or to any
party to this Agreement, or any shareholder, director, officer,
employee, agent, servant, consultant or representative of such party;
provided, however, that if such termination shall result from the
willful failure of any party to fulfill a condition to the performance
of any other party or to perform a covenant of this Agreement or from a
material and willful breach by any party to this Agreement, then such
party shall (subject to the limitation set forth in the last sentence
of this Section 9.2(b)) be fully liable for any and all damages
sustained or incurred by the other party. If either party to this
Agreement resorts to legal proceedings to enforce this Agreement, the
prevailing party in such proceedings shall be entitled to recover all
costs incurred by such party including reasonable attorney's fees, in
addition to any other relief to which such party may be entitled;
provided, however, and notwithstanding anything to the contrary in this
Agreement, in no event shall either party be entitled to receive any
punitive, indirect or consequential damages.
(c) Notwithstanding anything in Section 9.2(b) to the
contrary, if Seller terminates this Agreement pursuant to Section
9.1(e) or as the result of any default or breach by Purchaser of
Purchaser's obligations hereunder, then Seller shall be entitled to
receive an amount equal to $10,000,000 as liquidated damages, and as
Seller's sole remedy in connection therewith, free of any claims by
Purchaser or any other Person with respect thereto (the parties hereby
acknowledging that the extent of damages to Seller occasioned by such
breach or default by Purchaser would be impossible or extremely
difficult
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to ascertain and that the amount of such liquidated damages is a fair
and reasonable estimate of such damages under the circumstances).
(d) Upon the election by Seller to terminate this Agreement
pursuant to Section 9.1(e) hereof because of Purchaser being in default
or breach of its obligations under this Agreement (collectively, the
"Breach Event"), Seller shall give notice of the Breach Event and its
decision to terminate this Agreement to Purchaser. If Purchaser fails
to cure such Breach Event within one Business Day after such notice is
received by Purchaser, then Seller shall have the right to give notice
to Purchaser of the failure to cure the Breach Event and demand payment
from Purchaser of the $10 million liquidated damages. If Purchaser
fails to pay to Seller the $10 million liquidated damages, in cash or
by wire transfer to an account designated by Seller within one Business
Day after the notice demanding payment of the liquidated damages is
received by Purchaser, then Seller shall have the right to draw on the
Letter of Credit in the full amount of $10 million for the full payment
of the $10 million liquidated damages. If it is finally determined
(which determination is no longer subject to further review or appeal)
in accordance with the dispute resolution mechanisms permitted by this
Agreement that Seller was not entitled to receive liquidated damages,
then Seller shall, within 10 business days after such final
determination, remit such liquidated damages, together with interest at
the annual rate equal to the prime rate of Bank of America plus 2% from
the date of payment to Seller until the date of payment to Purchaser.
ARTICLE X
Taxes
Section 10.1 Seller Tax Representations and Warranties.
(a) Seller represents and warrants with respect to APC and the
Distribution Division that, except as set forth or disclosed in Section
10.1(a) of Seller's Disclosure Schedule (i) all Tax Returns required to
be filed have been filed or requests for extensions have been timely
filed, (ii) all such Tax Returns are true and correct in all material
respects, and (iii) all Taxes shown to be due on such Tax Returns have
been paid in full. Except as set forth in Section 10.1(a) of Seller's
Disclosure Schedule, no notice of deficiency or assessment has been
received from any taxing authority with respect to liabilities for
Taxes of APC or the Distribution Division which have not been fully
paid or finally settled, and any such deficiency shown in Section
10.1(a) of Seller's Disclosure Schedule is being contested in good
faith through appropriate proceedings. Except as set in Section 10.1(a)
of Seller's Disclosure Schedule, there are no outstanding agreements or
waivers extending the applicable statutory periods of limitation for
Taxes of APC or the Distribution Division for any period of time.
Except as set forth in Section 10.1(a) of Seller's Disclosure Schedule,
no audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes or Tax Returns of APC or the
Distribution Division, and neither the
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Seller nor APC has any knowledge of any threatened action, audit, or
administrative or court proceeding with respect to any Taxes or Tax
Returns of APC or the Distribution Division.
(b) Seller and APC are and will be members of an "affiliated
group" within the meaning of Section 1504 of the Code as of the Closing
Date.
(c) Except as set forth in Section 10.1(c) of Seller's
Disclosure Schedule, neither Seller nor APC is a party to any
allocation or sharing agreement regarding Taxes with any person.
(d) Seller is not a resident alien individual or foreign
corporation within the meaning of Section 897 of the Code and Purchaser
is not required to withhold Tax on the Purchase Price by reason of
Section 1445 of the Code or any other provision.
(e) Except as set forth in Section 10.1(e) of Seller's
Disclosure Schedule, there are no powers of attorney in effect relating
to Taxes of Seller or APC.
(f) Except as set forth in Section 10.1(f) of Seller's
Disclosure Schedule, there is no dispute or claim as to the Tax
liability of any other person as to which Seller or APC has an
indemnification obligation.
10.2 Tax Covenants and Indemnification
(a) Code Section 338(h)(10) Election; Purchase Price
Allocation. Upon consummation of the transactions contemplated by this
Agreement, Seller and Purchaser shall join in making a timely election
under Section 338(h)(10) of the Code (a "Section 338(h)(10) Election")
with respect to the purchase of the APC Shares and shall make similar
elections under state and local law to the fullest extent possible.
Purchaser will be responsible for preparing and filing all documents
and materials necessary in connection with making the Section
338(h)(10) Election and any similar elections under state and local
law. Not later than 120 days after the Closing Date, Purchaser shall
prepare and deliver to Seller a proposed allocation of the Purchase
Price for purposes of the Section 338(h)(10) Election. Purchaser and
Seller shall timely complete and file Form 8023 and any similar form
under applicable state law. If Purchaser and Seller cannot agree on
such allocation, Purchaser and Seller will select a nationally
recognized accounting firm or other recognized expert to appraise the
assets of APC. The cost of such appraisal will be divided between
Purchaser and Seller equally. Purchaser and Seller agree not to take
any position inconsistent with any such allocation for Tax reporting
purposes. Purchaser and Seller will file all Tax Returns in a manner
consistent with the Section 338(h)(10) Election and the valuation of
APC's assets determined as provided above.
(b) Transfer Taxes. Seller shall be liable for all sales, use,
documentary, recording, stamp, transfer or similar Taxes, assessments
or fees arising from the transaction contemplated by this Agreement;
provided, however, that if and to the extent that the
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aggregate amount thereof exceed $150,000, then Purchaser shall pay 50%
of the amount of such excess, up to a maximum payment with respect
thereto by Purchaser of $50,000.
(c) Information. Seller and Purchaser will make available to
each other, and to any taxing authority, all information, records, or
documents relating to the liability or potential liability for
Pre-Closing Taxes that may be reasonably requested by a party and will
preserve such information, records or documents until the expiration of
any applicable statute of limitations or extensions thereof, provided
Seller and Purchaser shall reserve the confidentiality of any such
information, records or documents.
(d) Seller Indemnification. Seller shall be responsible for
and shall indemnify and hold harmless Purchaser, its subsidiaries and
APC from and against any and all Tax claims resulting from, arising out
of or relating to: (i) any and all Taxes imposed on or incurred by
Purchaser or APC as a result of a breach of the representations and
warranties made in Section 10.1 of this Article; (ii) any and all
Pre-Closing Taxes imposed on, incurred by or attributed to APC or the
Distribution Division, including any federal, state or local Taxes
incurred as a result of making the Section 338(h)(10) Election, except
to the extent any such Taxes are taken into account in determining the
adjustment to the Purchase Price pursuant to Section 2.4, and (iii) any
liability resulting from, arising out of or relating to, in the nature
of, or caused by any liability of APC for Taxes of any person other
than APC under Treas. Reg. ss. 1.1502-6 (or any similar provision of
state, local or foreign law).
(e) Purchaser Indemnification. Purchaser shall be responsible
for and shall indemnify and hold harmless Seller from and against any
and all Tax claims resulting from, arising out of or relating to any
and all Post-Closing Taxes imposed on or incurred by APC or the
Distribution Division.
(f) Procedures for Indemnification. The procedures for
indemnification pursuant to this Article 10 shall be conducted in a
manner consistent with Section 12.2 hereof.
(g) Proration of Tax Items. The Parties agree that for
purposes of allocating tax items of APC and the Distribution Division
between Seller and Purchaser for the Tax year that includes the Closing
Date, such tax items for such Tax year shall be apportioned between
Seller and Purchaser based upon the actual operations of APC and the
Distribution Division during the portion of such period ending on the
Closing Date and the portion of such period beginning on the day
following the Closing Date, and each portion of such period shall be
deemed to be a taxable period (whether or not it is in fact a taxable
period); provided, that ad valorem Taxes shall be prorated on a daily
basis.
(h) Filing Responsibility. Purchaser and APC shall be
responsible for filing all Tax Returns and paying all Taxes due with
respect to periods ending after the Closing Date. To the extent the law
permits or requires a short period return for the period or portion
thereof ending on or before the Closing Date, Seller shall be
responsible for filing such
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returns and paying all Taxes due with respect to such period. Purchaser
will take such steps as are reasonably requested by Seller so that
Seller will have the authority necessary for Seller to be able to
execute and timely file the Tax Returns required to be filed by Seller.
(i) Tax Refunds and Tax Benefits. Any Tax refunds that are
received by Purchaser or APC, and any amounts credited against Tax to
which Purchaser or APC become entitled, that relate to Tax periods or
portions thereof ending on or before the Closing Date shall be for the
account of Seller, and Purchaser shall pay over to Seller any such
refund or the amount of any such credit within fifteen (15) days after
receipt or entitlement thereto. In addition, to the extent that a claim
for refund or a proceeding results in a payment or credit against any
Tax by a taxing authority to the Purchaser or APC of any amount accrued
as of the Closing Date, Purchaser shall pay such amount to Seller
within fifteen (15) days after receipt or entitlement thereto.
(j) Control of Tax Audits. Seller shall have the right, at its
own expense, to control any audit or examination by any taxing
authority ("Tax Audit"), initiate any claim for refund, contest,
resolve and defend against any assessment, notice of deficiency, or
other adjustment or proposed adjustment relating to any and all Taxes
for any taxable period ending on or before the Closing Date and
relating to APC or the Distribution Division. With respect to the items
described in the preceding sentence, Seller shall consult with
Purchaser with respect to the resolution of any such issue that would
adversely affect Purchaser, and with respect to Taxes other than income
Taxes will not settle any such issue, or file any amended return
relating to such issue, without the consent of Purchaser, which consent
shall not be unreasonably withheld. Seller will not enter into any
binding agreement with any Tax Authority with respect to Taxes (other
than income Taxes) for Tax periods ending or beginning after the
Closing Date. Purchaser shall have the right, at its own expense, to
control any other Tax Audit, initiate any other claim for refund, and
contest, resolve and defend against any other assessment, notice of
deficiency, or other adjustment or proposed adjustment relating to any
Taxes for any taxable period beginning before the Closing Date and
ending after the Closing Date, provided, that Purchaser shall consult
with Seller with respect to the resolution of any issue that would
adversely affect Seller, and, with respect to Taxes, other than income
Taxes, will not settle any such issue, or file any amended return
relating to any such issue, without the consent of Seller, which
consent shall not unreasonably be withheld. Where consent to a
settlement is withheld by the other party pursuant to this Section,
such other party may continue or initiate any further proceedings at
its own expense, provided that the liability of the first party, after
giving effect to this Agreement, shall not exceed the liability that
would have resulted from the settlement or amended return.
(k) Cooperation on Tax Matters.
(i) Purchaser, APC and Seller shall cooperate
fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant
to this Agreement and any audit, litigation or other
proceeding with respect
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to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the preservation of records
and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided
hereunder. The Seller agrees (A) to retain all books and
records in its possession with respect to Tax matters
pertinent to APC and the Distribution Assets relating to any
taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent
notified by Purchaser or Seller, any extensions thereof) of
the respective taxable periods, and to abide by all record
retention requirements or agreements entered into with any
taxing authority, and (B) to give the other party reasonable
written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so
requests, Seller shall allow Purchaser to take possession of
such books and records.
(ii) Purchaser and Seller further agree, upon
request, to provide the other party with all information that
either party may be required to report pursuant to Section
6043 of the Code and all Treasury Regulations promulgated
thereunder with respect to the transactions contemplated by
this Agreement.
(l) Survival of Obligations. The obligations of the parties
set forth in this Article X shall be unconditional and absolute and
shall remain in effect until the expiration of the applicable
statute(s) of limitations.
ARTICLE XI
Definitions
As used herein, the following terms have the following meanings:
AAA: As defined in Section 13.11(b)(ii).
Act: As defined in Section 4.10.
Agreement: This Purchase and Sale Agreement, dated as of July 15, 1999,
between Seller and Purchaser, as the same may be amended or modified in writing
by the parties from time to time.
APC: Alaska Pipeline Company, an Alaska corporation.
APC Assets: All assets, properties and rights of APC.
APC Debt: The (i) debt of APC owned by Seller and described in the
Seller's Disclosure Schedule and (ii) indebtedness under the Intercompany Line
of Credit.
APC Debt Purchase Price: As defined in Section 2.3.
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APC Shares: All the outstanding shares of capital stock of APC.
Assets Purchase Price: As defined in Section 2.2.
Barnes: As defined in 5.3(b)(iv).
Base Financial Statements: As defined in Section 3.8.
Business Day: Any day except Saturday, Sunday and any other day on
which banking institutions located in the City of New York, New York are
required or authorized to close.
Board of Directors: Either of the respective boards of directors of
Seller and Purchaser or any duly authorized committee of that board.
Claim Notice: A written notice of claim given by a party seeking
indemnification pursuant to the terms of this Agreement that specifies in
reasonable detail the specific nature of the Losses and the estimated amount of
such Losses.
Closing: As defined in Section 8.1.
Closing Date: As defined in Section 8.1.
Code: The Internal Revenue Code of 1986, as amended.
Contracts: In the case of Seller, all agreements, contracts, notes and
other legally binding commitments to which Seller is a party and which relate to
the Distribution Division and, in the case of APC, all agreements, contracts,
notes and other legally binding commitments to which APC is a party.
Distribution Assets: The "Assets," as defined in the General
Assignment.
Distribution Business: The business carried on and conducted by the
Distribution Division.
Distribution Division: Seller's Alaskan natural gas distribution
division generally known as "ENSTAR Natural Gas Company."
Environmental Laws: Any and all federal, state and local laws,
statutes, regulations, rules, orders, ordinances or permits of any governmental
authority pertaining to health, the environment, wildlife or natural resources
in effect in any and all jurisdictions in which the APC Assets and Distribution
Assets are located, including, without limitation, the Clean Air Act, as
amended, and the Federal Water Pollution Control Act, as amended, the Rivers and
Harbors Act of 1899, as amended, the Safe Drinking Water Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Resource Conservation and Recovery Act, as amended, The Hazardous and
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Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control
Act, as amended, the Occupational Safety and Health Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Natural Gas Pipeline
Safety Act of 1968, as amended and the Hazardous Liquid Pipeline Safety Act of
1979, as amended.
Employees: As defined in Section 3.17(d)(i).
ERISA: The Employee Retirement Income Security Act of 1974, as amended
from time to time.
Existing Loan Documents: The mortgages, indentures, security agreements
and other instruments listed in Seller's Disclosure Schedule, together with any
mortgages, indentures, security agreements or other instruments executed and
delivered by Seller or APC after the date hereof in connection with the renewal,
extension, rearrangement or refunding of the indebtedness evidenced or secured
by any of such listed mortgages, indentures, security agreements or other
instruments to the extent accomplished in compliance with this Agreement.
Final Order: An action by the relevant regulatory authority that has
not been reversed, stayed, enjoined, set aside, annulled or suspended, with
respect to which any waiting period prescribed by law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by law,
regulation or order have been satisfied.
First National Credit Agreement: As defined in Section 3.9(d).
General Assignment: As defined in Section 8.1(c).
Hart-Scott-Rodino Act: As defined in Section 5.1.3.
Indemnified Party: As defined in Section 12.2(e).
Indemnifying Party: As defined in Section 12.2(e).
Intercompany Line of Credit Agreement: The Revolving Credit Agreement
dated as of July 1, 1998, between the Distribution Division and Seller.
Interim Period: As defined in Section 5.1.1.
knowledge: When used in the phrases "to Seller's knowledge," "to the
knowledge of Seller" or similar phases with respect to Seller, means, and shall
be limited to, the actual knowledge of the executive officers of Seller or APC
or the senior employee of Seller or APC who are responsible for the area of
operation of the Natural Gas Business to which such person's knowledge relates.
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Legal Requirements: Any and all applicable (i) federal, state, local
and foreign laws (statutory and administrative), ordinances and regulations,
(ii) judgments, orders, writs, injunctions, decrees and (iii) contracts with any
federal, state or foreign court, arbitrator or administrative or governmental
authority, bureau or agency relating to compliance with matters described in (i)
or (ii) above.
Losses: As defined in Section 12.2(a).
Material Adverse Effect: With respect to any Person, an occurrence or
condition that has a material adverse effect on the condition (financial or
otherwise) of operations, business, property or prospects of such Person, taken
as a whole, or materially hinders or impedes the consummation of the
transactions contemplated by this Agreement; provided, however, that an
occurrence or condition shall not constitute a Material Adverse Effect to the
extent that the Distribution Division or APC realizes the benefit of insurance
maintained by or for the benefit of the Natural Gas Business or is recoverable
by the Natural Gas Business through operation of current tariffed rates;
provided further that any action or threatened action from the RCA, either in
connection with its consideration of the approval of the transactions
contemplated by this Agreement or otherwise, shall not form the basis, directly
or indirectly, for a Material Adverse Effect with respect to the Distribution
Division, APC or the Natural Gas Business.
Material Contract: Any Contract which (a) calls for payments to or from
Seller or APC, on the one hand, and any third party, on the other hand, of an
amount in excess of $1,250,000 for any 12-month period commencing on or after
the date hereof and (b) is not terminable solely at the option of Seller or APC,
as the case may be, without penalty on no more than 90 days notice.
Material Employment Contract: Any employment, management, consulting or
similar agreements or any labor contracts or collective bargaining agreement
that (a) calls for payments from Seller or APC of an amount in excess of $50,000
for any 12-month period commencing on or after the date hereof and (b) is not
terminable solely at the option of Seller or APC, as the case may be, without
penalty on no more than 90 days notice.
Material Liability: In the case of any Person, any material liability
of such Person; provided however, such term shall not include any material
liability the cost or expense associated with which insurance proceeds have been
recovered by such Person or is recoverable by such Person through operation of
current tariffed rates.
Material Permits: All Permits relating to the Natural Gas Business
other than those the absence of which would not have a Material Adverse Effect.
MSP: As defined in Section 5.3(b)(i).
Natural Gas Business: The Distribution Business and the Transmission
Business, taken together.
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Natural Gas Business Financial Statements: As defined in Section 3.8.
Notice Period: As defined in Section 12.2(e)
Operating Plan: As defined in Section 3.17(d)(i).
Operative Documents: This Agreement, the General Assignment, the Tax
Agreement and all other documents executed and delivered by Seller or Purchaser
at Closing.
Pension Plans: As defined in Section 3.17(d).
Permits: Any and all permits, authorizations, certificates, approvals,
registrations, legal status, variances, franchises, orders or other approvals
and licenses (i) under any Legal Requirement or (ii) granted by any federal,
state, local or foreign administrative authority, bureau or agency.
Permitted Encumbrances: As applied to Seller or APC:
(a) liens for taxes, assessments and governmental charges not
yet delinquent or, if delinquent, that are being contested in good
faith in the ordinary course of business and for which adequate
reserves have been established;
(b) carriers', warehousemen's, materialmen's, mechanics',
repairmen's, employees' or other similar liens or charges for
liquidated amounts arising in the ordinary course of business (i) if
securing amounts that have not yet become due and payable or payment is
being withheld as provided by law or (ii) if their validity is being
contested in good faith in the ordinary course of business by
appropriate action and for which adequate reserves have been
established;
(d) liens incurred or deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment
insurance and other social security, or to secure the performance of
leases, tenders, statutory obligations, surety and appeal bonds,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations incurred in connection with the borrowing of
money or the obtaining of advances or credit);
(e) any judgment lien relating to a judgment for not more than
$50,000, unless the judgment it secures shall not, within 30 days after
the entry thereof, have been discharged or execution thereof stayed
pending appeal, or shall not have been discharged within 30 days after
the expiration of any such stay;
(f) leases granted in the ordinary course of business or
leases to which any property acquired in connection with the Natural
Gas Business in the ordinary course of business is subject;
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(g) any encumbrances (other than to secure the payment of
money), easements, rights-of-way, permits, reservations, leases, rights
in respect of gravels, minerals, oil, gases or water or in respect of
grazing, logging, mining, canals, ditches, reservoirs or the like,
conditions, covenants, and restrictions, provided that such
encumbrances, easements, rights-of-way, permits, reservations, leases,
rights, conditions, covenants, and restrictions are such that they will
not either individually or in the aggregate, if exercised or availed
of, interfere materially with the use or operation of the property of
Seller or APC affected thereby for the purpose for which such property
is currently used;
(h) all Legal Requirements and rights reserved to or vested in
any municipality or public authority to control, regulate or use any
property of Seller or APC;
(i) other than any consents of any governmental authority, any
required third party consents to assignment and similar agreements and
obligations with respect to which prior to Closing (A) waivers or
consents have been obtained from the appropriate Person, (B) the
applicable period of time for asserting such rights has expired without
any exercise of such rights or (C) arrangements reasonably satisfactory
to Purchaser have been made by the parties to allow Purchaser to
receive substantially the same economic benefits as if all such waivers
and consents had been obtained;
(j) all rights to consent by, required notices to, filings
with, or other actions by any governmental authority in connection with
the transactions contemplated hereby;
(k) reservations and other matters relating to titles to
leases and leasehold interests in oil and gas properties and the lands
covered thereby, if such reservations and other matters do not, in the
aggregate, do not materially impair the use of such leases or leasehold
interests for the purposes for which they are held or the value of the
interest therein;
(l) any liens, mortgages or encumbrances given by the
Distribution Division and/or APC for the benefit of the other securing
indebtedness owing from one of the foregoing to the other; and
(m) any other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects or irregularities of any
kind whatsoever (but not including liens to securing indebtedness for
borrowed money) affecting the APC Assets or the Distribution Assets
that individually or in the aggregate do not, in the aggregate,
materially impair the use of such assets for the purposes for which
they are held or the value of the interest therein.
Person: An individual, corporation, limited liability company,
partnership, joint venture, bank, trust, unincorporated organization and/or a
government or any department or agency thereof. Such term shall also include the
Distribution Division.
PBGC: As defined in Section 3.17(d)(vii).
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Plans: As defined in Section 3.17(d)(i).
Post-Closing Taxes: Any taxable period beginning after the Closing
Date, and, for any taxable period beginning before the Closing Date and ending
after the Closing Date, Taxes relating to the portion of such taxable period
after but not including the Closing Date.
Pre-Closing Taxes: Any taxable period ending on or prior to the Closing
Date, and, for any taxable period beginning before the Closing Date and ending
after the Closing Date, Taxes relating to the portion of such taxable period up
to and including the Closing Date.
Profit Sharing Plans: As defined in Section 3.17(d)(i).
Purchase Price: The Stock Purchase Price, the Assets Purchase Price and
the APC Debt Purchase Price, taken together.
Purchaser: SEMCO ENERGY, Inc., a Michigan corporation.
Purchaser Indemnitees: Purchaser and its officers, directors,
employees, agents, representatives, affiliates, subsidiaries (including, from
and after the Closing, APC), successors and assigns.
Purchaser's Disclosure Schedule: The disclosure schedule of Purchaser
attached hereto; and the phrase disclosed in Purchaser's Disclosure Schedule
shall mean as set forth or referred to in Purchaser's Disclosure Schedule.
Purchaser's Required Approvals: As defined in Section 4.7.
Purchaser's Required Governmental Consents: As defined in Section 4.4.
RCA: The Regulatory Commission of Alaska, together with any predecessor
commission or agency (including, without limitation, the Alaska Public Utilities
Commission) or any successor commission or agency.
Salaried Plan: As defined in Section 3.17(d)(i).
Section 338(h)(10) Election: As defined in Section 10.2(a).
Seller: Ocean Energy, Inc., a Texas corporation.
Seller's Disclosure Schedule: The disclosure schedule of Seller
attached hereto; and the phrase "disclosed in Seller's Disclosure Schedule"
shall mean as set forth or referred to in Seller's Disclosure Schedule.
Seller's Required Approvals: As defined in Section 3.7.
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Seller's Required Governmental Consents: As defined in Section 3.4.
Seller Indemnitees: Seller and its officers, directors, employees,
agents, representatives, affiliates, subsidiaries, successors and assigns.
SERP: As defined in Section 3.17(d)(i).
Stock Purchase Price: As defined in Section 2.1.
Tax Agreement: As defined in Section 8.1(e).
Taxes means all taxes, charges, fees, levies, penalties or other
assessments imposed by any federal, state or local foreign taxing authority,
including but not limited to, income, excise, real or personal property, sales,
transfer, franchise, payroll, withholding, social security, gross receipts,
license, stamp, occupation, employment or other taxes, including any interest,
penalties or additions attributable thereto.
Tax Return: Any return, report, information return, declaration, claim
for refund or other document (including any schedule or related or supporting
information) required to be supplied to any taxing authority with respect to
Taxes including amendments thereto.
Termination Date: As defined in Section 9.1(b).
Thrift Plan: As defined in Section 3.16(d)(i).
Transmission Business: The business carried on and conducted by APC.
ARTICLE XII
Assumption and Indemnification
12.1 Assumption. Subject to Section 5.1.4 and Seller's indemnification
obligation set forth in Section 12.2(b), at the Closing, Purchaser shall assume
all liabilities, duties and obligations of every kind whatsoever of Seller
relative to the ownership or operation of the Natural Gas Business, including,
without limitation, the obligation to pay all trade and other accounts payable
relative to the Natural Gas Business.
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12.2 Indemnification .
(a) Subject to Section 12.2(c), and except for those matters
set forth in Article X which shall be governed by the terms of Article
X, Purchaser shall indemnify, defend and hold harmless the Seller
Indemnitees from and against any and all claims, liabilities, losses,
causes of actions, costs and expenses (including, without limitation,
involving theories of negligence or strict liability and including
court costs and attorneys' fees) ("Losses") asserted against, resulting
from, imposed upon or incurred by any of the Seller Indemnitees as a
result of, or arising out of, the breach of any of the representations,
warranties, covenants or agreements of Purchaser contained in this
Agreement, or as a result of, or arising out of, the ownership or
operation of the Natural Gas Business, the Distribution Assets or the
APC Assets, regardless in each case whether known or unknown, or
whether attributable to periods of time before or after the Closing
Date; provided, however, that Purchaser shall have no obligation to
indemnify any of the Seller Indemnitees with respect to any matter to
the extent Seller is indemnifying Purchaser for such matter pursuant to
Section 12.2(b).
(b) Subject to Section 12.2(d), and except for those matters
set forth in Article X which shall be governed by the terms of Article
X, Seller shall indemnify, defend and hold harmless the Purchaser
Indemnitees from and against all Losses asserted against, resulting
from, imposed upon or incurred by any of the Purchaser Indemnitees as a
result of, or arising out of (i) the breach of any of the
representations, warranties, covenants or agreements of Seller
contained in this Agreement, (ii) the litigation described under Item
Nos. 1 and 2 on Section 3.14 of Seller's Disclosure Schedule or (iii)
any oral or written representations or other actions by Seller, APC or
the Distribution Division prior to the Closing Date to any Employee not
subject to collective bargaining agreements, if and to the extent such
representations or actions are a significant cause of such Employee's
employment status being other than at-will; provided, however, that
with respect to the matters set forth in clause (iii) above, the amount
of Losses attributable to an Employee's not having at-will status shall
only be the amount by which Purchaser suffers Losses in excess of the
amount, if any, that Purchaser would otherwise be obligated to pay such
Employee upon termination under the terms of a severance agreement
referred to in Section 5.3(b)(iv) hereof or the Resource Group Plan
described in Section 5.3(b)(iv) hereof. Notwithstanding any provision
in this Agreement to the contrary, the indemnification for Losses
described in clauses (ii) and (iii) shall not be subject to the
threshold set forth in Section 12.2(d)(iv) hereof. Notwithstanding any
provision in this Agreement to the contrary, Seller's obligation to
indemnify Purchaser with respect to any litigation proceeding described
in clause (ii) above shall terminate upon a final, nonappealable
judgment is obtained with respect to such proceeding or such proceeding
is dismissed with prejudice, whichever is earlier. Notwithstanding any
provision in this Agreement to the contrary, Seller's obligation to
indemnify Purchaser with respect to the matters set forth in clause
(iii) above shall terminate on the third anniversary of the Closing
Date.
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(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, IN NO EVENT SHALL PURCHASER BE LIABLE TO SELLER INDEMNITEES
FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT, CONSEQUENTIAL, REMOTE
OR SPECULATIVE DAMAGES; provided, however, that if a Seller Indemnitee
is held liable to a third party for any of such damages and Purchaser
is obligated to indemnify such Seller Indemnitee for the matter that
gave rise to such damages, then Purchaser shall be liable for, and
obligated to reimburse such Seller Indemnitee for, such damages.
(d) Notwithstanding anything to the contrary in this
Agreement, but subject to the last two sentences of Section 12.2(b),
the liability of Seller under this Agreement and any documents
delivered in connection herewith or contemplated hereby shall be
limited as follows:
(i) IN NO EVENT SHALL SELLER BE LIABLE TO PURCHASER
INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT,
CONSEQUENTIAL, REMOTE OR SPECULATIVE DAMAGES; provided,
however, that if a Purchaser Indemnitee is held liable to a
third party for any of such damages and Seller is obligated to
indemnify such Purchaser Indemnitee for the matter that gave
rise to such damages, then Seller shall be liable for, and
obligated to reimburse such Purchaser Indemnitee for, such
damages.
(ii) In no event shall any amounts be recovered
from Seller under Section 12.2(b) or otherwise for any matter
for which a Claim Notice is not delivered to Seller; (A) in
the case of indemnity for breach of a representation or
warranty, prior to the close of business on the date of
termination of such representation or warranty pursuant to
Section 12.2(d)(iii), (B) in the case of any covenant or
agreement of Seller, other than those covenants or agreements
set forth in Section 5.2.2 or 5.3(b)(i), prior to the close of
business on the 18-month anniversary of the Closing Date, and
(C) in the case of the covenants or agreements of Seller set
forth in Sections 5.2.2 or Section 5.3(b)(i), prior to the end
of any applicable statute of limitations; provided, however,
that such indemnities shall survive with respect only to the
specific matter that is the subject of any Claim Notice
delivered in good faith in compliance with the requirements of
this Section 12.2(d)(ii) until the earlier to occur of (A) the
date on which a final nonappealable resolution of the matter
described in such Claim Notice has been reached or (B) the
date on which the matter described in such Claim Notice has
otherwise reached final resolution.
(iii) The representations and warranties of Seller
(i) set forth in Section 3.10 shall survive the Closing for a
period of 180 days, and such representations and warranties of
Seller shall terminate at 5:00 p.m., local time in Alaska, on
the 180th day after the Closing Date, and (ii) the
representations and warranties of Seller set forth in Section
3.17 shall survive the Closing for the full period of any
applicable statute of limitation. Except as set forth in the
preceding
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sentence, the representations, warranties, covenants and
agreements of Seller set forth in this Agreement shall survive
the Closing for a period of 18 months, and all
representations, warranties, covenants and agreements of
Seller under this Agreement shall terminate at 5:00 p.m.,
local time in Alaska, on the 18 month anniversary of the
Closing Date; provided, however, that any such representation,
warranty, covenant or agreement that is the subject of a
proper Claim Notice delivered in good faith shall survive with
respect only to the specific matter described in such Claim
Notice until the earlier to occur of (A) the date on which a
final nonappealable resolution of the matter described in such
Claim Notice has been reached or (B) the date on which the
matter described in such Claim Notice has otherwise reached
final resolution.
(iv) Notwithstanding anything to the contrary in
this Agreement, in no event shall Seller indemnify the
Purchaser Indemnitees, or be otherwise liable in any way
whatsoever to the Purchaser Indemnitees, for any Losses until
the Purchaser Indemnitees have suffered Losses in the
aggregate in excess of a deductible in an amount equal to
$3,000,000, after which point Seller will be obligated only to
indemnify the Purchaser Indemnitees from and against further
Losses in excess of such deductible.
(v) Notwithstanding anything to the contrary
herein, in no event shall Seller indemnify the Purchaser
Indemnitees, or be otherwise liable in any way whatsoever to
the Purchaser Indemnitees, for any Losses in excess of an
amount equal to the Purchase Price (before giving effect to
any adjustments provided for pursuant to this Agreement).
(vi) Seller may (but will not be required to), from
time to time prior to or at the Closing, by notice in
accordance with this Agreement, supplement or amend the
Seller's Disclosure Schedule, including without limitation one
or more supplements or amendments to correct any matter which
would constitute a breach of any representation, warranty or
covenant herein contained; provided, however, that subject to
the following sentence, no such supplement or amendment will
affect the rights or obligations of the parties to this
Agreement (including without limitation the right to assert a
breach of a representation or warranty as a failed closing
condition) until after the Closing Date. Notwithstanding any
other provision hereof, if the Closing occurs, any such
supplement or amendment of any Schedule will be effective to
cure and correct for indemnification purposes any breach of
any representation, warranty or covenant which would have
existed by reason of Seller not having made such supplement or
amendment.
(vii) Seller shall have no liability for any claim
(A) to the extent that such claim is covered by insurance
maintained by or for the benefit of Seller (including any such
insurance coverage applicable to the Natural Gas Business the
benefit of which the Distribution Division or APC will
realize) and Purchaser or APC actually receive the proceeds of
such insurance or (B) that, in the case of a claim against or
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<PAGE> 43
affecting the Distribution Division or APC, is recoverable by
the Distribution Division or APC (consistent with the prior
practices of the RCA) through the operation of current
tariffed rates.
(e) All claims for indemnification under Sections 12.2(a) or
12.2(b) shall be asserted and resolved pursuant to this Section
12.2(e). Any Person claiming indemnification hereunder is hereinafter
referred to as the "Indemnified Party" and any Person against whom such
claims are asserted hereunder is hereinafter referred to as the
"Indemnifying Party." In the event that any Losses are asserted against
or sought to be collected from an Indemnified Party by a third party,
said Indemnified Party shall with reasonable promptness provide to the
Indemnifying Party a Claim Notice. The Indemnifying Party shall not be
obligated to indemnify the Indemnified Party with respect to any such
Losses if the Indemnified Party fails to notify the Indemnifying Party
thereof in accordance with the provisions of this Agreement in
reasonably sufficient time so that the Indemnifying Party's ability to
defend against the Losses is not prejudiced. The Indemnifying Party
shall have 30 days from the personal delivery or receipt of the Claim
Notice (the "Notice Period") to notify the Indemnified Party (i)
whether or not it disputes the liability of the Indemnifying Party to
the Indemnified Party hereunder with respect to such Losses and/or (ii)
whether or not it desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party against such
Losses; provided, however, that any Indemnified Party is hereby
authorized prior to and during the Notice Period to file any motion,
answer or other pleading that it shall deem necessary or appropriate to
protect its interests or those of the Indemnifying Party (and of which
it shall have given notice and opportunity to comment to the
Indemnifying Party) and not prejudicial to the Indemnifying Party. In
the event that the Indemnifying Party notifies the Indemnified Party
within the Notice Period that it desires to defend the Indemnified
Party against such Losses, the Indemnifying Party shall have the right
to defend all appropriate proceedings, and with counsel of its own
choosing, which proceedings shall be promptly settled or prosecuted by
them to a final conclusion. If the Indemnified Party desires to
participate in, but not control, any such defense or settlement it may
do so at its sole cost and expense. If requested by the Indemnifying
Party, the Indemnified Party agrees to cooperate with the Indemnifying
Party and its counsel in contesting any Losses that the Indemnifying
Party elects to contest or, if appropriate and related to the claim in
question, in making any counterclaim against the Person asserting the
third party Losses, or any cross-complaint against any Person. No claim
may be settled or otherwise compromised without the prior written
consent of the Indemnifying Party.
(f) The rights, remedies and obligations of the Purchaser
Indemnitees and the Seller Indemnitees set forth in this Section 12.2
and Article X will be the exclusive rights, remedies and obligations of
such Persons after the Closing with respect to this Agreement, the
events giving rise to this Agreement and the transactions provided for
herein or contemplated hereby or thereby.
(g) WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE
INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN
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INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN
ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR
CLAIM GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF
THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY,
VIOLATION OF ANY LAW OR OTHER LEGAL FAULT OF OR BY SUCH INDEMNIFIED
PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS
LEGEND.
12.3 Independent Investigation. Purchaser represents and acknowledges
that it is knowledgeable of with respect to the transmission and distribution of
natural gas and of the usual and customary practices of natural gas local
distribution companies such as the Natural Gas Business and that it has had
access to the Natural Gas Business, the officers and employees of Seller, the
Distribution Division and APC, and the books, records and files of Seller, the
Distribution Division and APC, relating to the Natural Gas Business and in
making the decision to enter into this Agreement and consummate the transactions
contemplated hereby, Purchaser has relied solely on the basis of its own
independent due diligence investigation of the Natural Gas Business and upon the
representations and warranties made in Article III. Accordingly, Purchaser
acknowledges that Seller has not made, and Seller hereby expressly disclaims and
negates any representation or warranty (other than those express representations
and warranties made in Article III), express, implied, at common law, by statute
or otherwise, relating to the Natural Gas Business.
12.4 Disclaimer Regarding Natural Gas Business. Except as otherwise
expressly provided in Article III above, Purchaser ACKNOWLEDGES THAT SELLER HAS
NOT MADE, AND SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF ANY REAL PROPERTY,
EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL PROPERTY CONSTITUTING
PART OF THE NATURAL GAS BUSINESS (INCLUDING, WITHOUT LIMITATION, (A) ANY IMPLIED
OR EXPRESS WARRANTY OF MERCHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (d) ANY RIGHTS OF PURCHASER UNDER
APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE
PURCHASE PRICE, (e) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM VICES OR
DEFECTS, WHETHER KNOWN OR UNKNOWN, (f) ANY IMPLIED OR EXPRESS WARRANTY OF
FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, (g) ANY AND ALL IMPLIED
WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT, AND (h) ANY
IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE RELEASE OF
MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF THE ENVIRONMENT OR HEALTH) IT
BEING THE EXPRESS INTENTION OF PURCHASER AND SELLER THAT (EXCEPT TO THE EXTENT
EXPRESSLY PROVIDED IN ARTICLE 3) THE DISTRIBUTION ASSETS AND THE APC ASSETS
SHALL BE CONVEYED (DIRECTLY OR INDIRECTLY, AS APPLICABLE) TO PURCHASER "AS IS,"
"WHERE IS" AND IN THEIR PRESENT CONDITION AND STATE OF
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REPAIR AND PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS MADE OR CAUSED TO
BE MADE SUCH INSPECTIONS WITH RESPECT TO THE DISTRIBUTION ASSETS AND THE APC
ASSETS AS PURCHASER DEEMS APPROPRIATE AND PURCHASER WILL ACCEPT THE DISTRIBUTION
ASSETS AND THE APC ASSETS "AS IS," "WHERE IS" AND IN THEIR PRESENT CONDITION AND
STATE OF REPAIR.
ARTICLE XIII
Miscellaneous
Section 13.1. Modification; Waiver. This Agreement may be modified,
amended or supplemented in any manner and at any time only by a written
instrument executed by purchaser and Seller.
Section 13.2. Entire Agreement. This Agreement supersedes any and all
other agreements, oral or written, among the parties hereto in respect of the
subject matter of this Agreement.
Section 13.3. Expenses. Whether or not the transactions contemplated
herein shall be consummated, each party shall (except as otherwise specifically
provided herein) pay its own expenses incident to the preparation and
performance of this Agreement, including broker's fees and commissions; and each
party shall indemnify and hold harmless the other party with respect to
brokerage fees and commissions incurred by the indemnifying party in connection
with the transactions contemplated by this Agreement.
Section 13.4 Further Actions. Each party shall execute and deliver such
other certificates, agreements, conveyances, certificates of title, and other
documents and take such other actions as may reasonably be requested by the
other parties in order to consummate or implement the transactions contemplated
by this Agreement.
Section 13.5. Notices. Any and all notices or other communications
required or permitted under this Agreement shall be given in writing and
delivered in person or sent by United States certified or registered mail,
postage prepaid, return receipt requested, or by overnight express mail, or by
telex, facsimile or telecopy to the address of such party set forth below. Any
such notice shall be effective upon receipt or three days after placed in the
mail, whichever is earlier.
If to Purchaser:
SEMCO ENERGY, Inc.
405 Water Street, P.O. Box 5026
Port Huron, Michigan 48061-5026
Attention: Sebastian Coppola
Telecopy Number: (810) 989-4099
with copies to:
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Arnold R. Madigan
303 E. 17th Avenue, Suite 780
Denver, Colorado 80203-1260
Telecopy Number: (303) 894-0756
and
LeBouef, Lamb, Greene & MacRae, LLP
633 17th Street, Suite 2000
Denver, Colorado 80202
Attention: Thomas J. Moore
Telecopy Number: (303) 297-0422
If to Seller:
Ocean Energy, Inc.
1001 Fannin, Suite 1600
Houston, Texas 77002
Attention: Robert K. Reeves
Telecopy Number: (713) 265-8840
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002
Attention: J. Mark Metts
Telecopy Number: (713) 615-5605
Any party may, by notice so delivered, change its address for notice purposes
hereunder.
Section 13.6. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned, by
operation of law or otherwise, by any party hereto without the prior written
consent of the other party; provided, however, in the event of any such
assignment by a party by operation of law without the consent of the other party
as required above, such other party may consent to such assignment after it has
occurred and, in such event, this Agreement and all the provisions hereof shall
be binding upon the Person receiving such assignment by operation of law.
Section 13.7. No Third Party Beneficiaries. Nothing in this Agreement
shall provide any benefit to any third party or entitle any third party to any
claim, cause of action, remedy or right of any kind, it being the intent of the
parties that this Agreement shall not be construed as a third party
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<PAGE> 47
beneficiary contract; provided, however, that the indemnification provisions in
Section 12.2 shall inure to the benefit of the Purchaser Indemnitees and the
Seller Indemnitees as provided therein.
Section 13.8. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any adverse
manner to either Party. Upon such determination that any term or other
provisions is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to the
extent possible.
Section 13.9. Counterparts. This Agreement may be executed in multiple
counterparts, all of which shall constitute one and the same instrument.
Section 13.10. Construction. Any section headings in this Agreement are
for convenience of reference only, and shall be given no effect in the
construction or interpretation of this Agreement or any provisions thereof. No
provision of this Agreement will be interpreted in favor of, or against, any
party by reason of the extent to which any such party or its counsel
participated in the drafting thereof or by reason of the extent to which any
such provision is inconsistent with any prior draft hereof or thereof.
Section 13.11. Applicable Law; Alternative Dispute Resolution.
(a) This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Texas.
(b) Any dispute arising under this Agreement or otherwise in
connection with or relating to the transactions contemplated hereby
shall be resolved pursuant to this Section 13.11(b):
(i) Any party has the right to request the other to
meet to discuss a dispute. The party requesting the meeting
will give at least 10 business days notice in writing of the
subject it wishes to discuss, provide a written statement of
the dispute, and designate an officer of the party with
complete power to resolve the dispute to attend the meeting.
Within three business days after receipt to such request, the
party receiving the request will provide a responsive written
statement and will designate an officer of the party who will
attend the meeting with complete power to resolve the dispute.
(ii) If the meeting fails to resolve the dispute by a
signed agreement among the officers, the dispute shall be
submitted for binding arbitration
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administered by the AAA under its Commercial Arbitration Rules
before a single arbitrator, and judgment on the award rendered
by the arbitrator may be entered in any court having
jurisdiction thereof.
(iii) The parties agree to make discovery and
disclosure of all matters relevant to the dispute to the
extent and in the manner provided by the Federal Rules of
Civil Procedure. The arbitrator will rule on all requests for
discovery and disclosure and discovery shall be completed
within 90 days of the date of the first notice pursuant to
Section 13.11(b)(i). The arbitrator may consider any matter
relevant to the subject to the dispute and shall follow the
statutes and decisions of the substantive law of Texas
relevant to the subject. The arbitrator shall not have the
authority or power to alter, amend or modify any of the terms
and conditions of the agreement of the parties. The arbitrator
shall issue a final ruling within 180 days of the date of the
first notice pursuant to Section 13.11(b)(i).
(iv) The ruling of the arbitrator shall be in writing
and signed and shall be final and binding upon the parties.
The fees and expenses of counsel, witnesses and employees of
the parties and all other costs and expenses incurred
exclusively for the benefit of the party incurring the same
shall be borne by the party incurring such fees and expenses.
All other fees and expenses including, without limitation,
compensation for the judge, shall be divided equally between
the parties. All meetings and arbitrations held pursuant to
this Section 13.11 shall take place in the Borough of
Manhattan, New York, New York.
Section 13.12. Disclosure Schedules. With respect to the disclosure
schedules delivered pursuant to this Agreement, the disclosures made on any
section of a disclosure schedule with respect to any representation or warranty
shall be deemed to be made with respect to any other representation or warranty
requiring the same or similar disclosure only if the relevance of such
disclosure to other representations and warranties is evident from the face of
the applicable section of the such disclosure schedule. The inclusion of any
matter on any disclosure schedule will not be deemed an admission by any party
that such listed matter is material or that such listed matter has or would have
Material Adverse Effect or constitutes a Material Liability or Material
Contract, as the case may be.
Section 13.13. General Assignment. The parties acknowledge that
Schedule A to the General Assignment describing the real property included in
the Distribution Assets has not yet been prepared. Such schedule shall include
all of the real property located in the State of Alaska that is owned or used by
the Distribution Division in connection with the Distribution Business and such
schedule shall be prepared by Seller and shall be delivered to Purchaser prior
to the Closing. Upon such delivery, such schedule shall be deemed to be
incorporated into the General Assignment and this Agreement by this reference.
Until such schedule is prepared, the General Assignment shall be deemed to cover
all of the real property located in the State of Alaska that is owned or used by
the Distribution Division in connection with the Distribution Business.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
OCEAN ENERGY, INC.
By
--------------------------------------
James T. Hackett
President and Chief Executive Officer
SEMCO ENERGY, INC.
By
--------------------------------------
William L. Johnson
Chairman of the Board, President and
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.3
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") dated July 30,
1999 is by and between Seagull Energy E&P Inc., a Delaware corporation
("Seller") and Cross Timbers Oil Company, a Delaware corporation ("Buyer").
WITNESSETH:
WHEREAS, Seller owns all of the issued and outstanding shares of
Arkoma Holding Corporation, a Delaware corporation (the "Company"); and
WHEREAS, Seller currently owns certain oil and gas properties and
related assets in Arkansas and Oklahoma (the "Seagull Assets") that are
included in the Assets (as hereinafter defined) and Seller's affiliate, Ocean
Energy Resources, Inc. ("OERI"), currently owns certain oil and gas properties
and related assets in Arkansas (the "OERI Assets") that are included in the
Assets; and
WHEREAS, Seller intends to convey the Seagull Assets to Company and
OERI intends to convey the OERI Assets to Company, in each case, prior to the
Closing (as hereinafter defined); and
WHEREAS, Fidelity Oil Holdings, Inc. and JMI Energy, Inc.
(collectively, the "Joint Owners") each own certain undivided interests in the
Assets, which undivided interests Company intends to acquire prior to the
Closing (such acquisition by Company, together with its acquisition of the
Seagull Assets and the OERI Assets, are hereinafter referred to as the
"Pre-Closing Transactions"):
WHEREAS, Seller is willing to sell to Buyer and Buyer is willing to
buy from Seller all of the issued and outstanding shares of Company ("Shares")
on the terms and conditions herein set forth.
NOW THEREFORE, for and in consideration of the mutual benefits derived
and to be derived from this Agreement by each party hereto, as well as other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
<PAGE> 2
ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 Agreement to Purchase and Sell Shares and Assets. On and subject
to the terms and conditions of this Agreement, Buyer agrees to buy from Seller,
and Seller agrees to sell, transfer, assign and convey to Buyer, all of the
Shares.
1.2 Assets. Subject to Section 1.3, the term "Assets" shall mean (i)
prior to the consummation of the Pre-Closing Transactions, all of each of
Seller's and OERI's (collectively, the "Current Owners") right, title and
interest in and to, and (ii) following the consummation of the Pre-Closing
Transactions, all of Company's right, title and interest in and to:
(a) the wells described on Exhibit "A" attached hereto and
all other water, disposal, injector and other wells (the "Wells")
located on the Properties (as hereinafter defined) and the oil, gas
and mineral leases, and the leasehold estates created thereby, the
mineral servitudes, mineral interests, royalty and overriding royalty
interests and any other real property interests covering, related to
or associated with such Wells, including the leases, mineral interests
and other real property interests described on Exhibit "A-1" hereto
(collectively, the "Properties", or singularly, a "Property");
(b) all rights incident to the Wells or the Properties
including, without limitation, (i) all rights with respect to use and
occupation of the surface thereof and subsurface depths thereunder,
(ii) all rights with respect to any pooled, communitized or unitized
acreage by virtue of any Property being a part thereof, including all
production from such pool or unit allocated to such Property, and
(iii) all tenements, hereditaments and appurtenances pertaining to
such Wells and Properties;
(c) all easements, rights-of way, servitudes, permits,
licenses and other estates or similar rights or privileges related to
or used in connection with the Wells or the Properties (the
"Easements");
(d) all personal property, pipelines, equipment, machinery,
fixtures and improvements located on or used in connection with the
Wells, the Properties and the Easements and all rolling stock used
primarily in connection with the ownership or operation of the Wells,
Properties or Easements;
(e) the surface property described in Exhibit A-2 and all
improvements located thereon, together with all office equipment,
computers and other personal property located upon such surface
property and primarily used in connection with the ownership or
operation of the Wells or Properties;
(f) all contracts, agreements, leases and other arrangements
related to or used in connection with (but only to the extent that
such contracts, agreements, leases and other arrangements relate to)
the Wells, the Properties and the Easements including (without making
any representation or warranty as to whether there are any or whether
if there are, they are effective or terminated) all the Current
Owners' and Company's rights
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<PAGE> 3
under and by virtue of all covenants and warranties pertaining to the
Assets, express or implied, (such as, without limitation, title
warranties and manufacturers', suppliers' and contractors'
warranties), that have been heretofore been made by the Current
Owners' or Company's predecessors in title or by any third party
manufacturers, suppliers and contractors, such that the transaction
contemplated hereunder shall be made with full substitution and
subrogation of Buyer, its successors and assigns, in and to and under
and by virtue of the covenants and warranties described in this
subsection (e) and with full subrogation to all rights accruing under
the statutes of limitation and repose in relation to the Assets and
all causes of action, rights of action or warranties of the Current
Owners or Company against all former owners of the Assets, except
predecessors in title who are subsidiaries or affiliates of Seller
(but such former owners shall include OERI and Seller);
(g) all oil, gas distillate, condensate, casinghead gas and
other liquid or gaseous hydrocarbons and other minerals (collectively,
"Hydrocarbons") produced from or attributable to the Wells or the
Properties, and proceeds attributable thereto, to the extent
attributable to the period of time on and after the Effective Time;
(h) all suspense accounts held by the Current Owners or
Company relating to the Properties;
(i) all books, records, files, muniments of title, reports
and similar documents and materials that relate to the foregoing
interests that are not to be held confidential with other
non-affiliated third parties; and
(j) all geological, engineering, exploration, production,
geophysical and seismic data and information related to the Wells or
the Properties that the Current Owners or Company own or are able to
transfer or assign under any currently effective agreement relating to
any such data and information. Buyer is responsible for all fees
(including any such fees arising in connection with the Pre-Closing
Transactions or the sale of the Shares) related to transferring or
assigning such data unless Buyer notifies Seller prior to the Closing
that it declines to accept a transfer or assignment thereof.
1.3 Excluded Assets. Notwithstanding the foregoing, the Assets shall
not include, and there is excepted, reserved and excluded from the purchase and
sale contemplated hereby (collectively, the "Excluded Assets");
(a) all geological, engineering, exploration, production,
geophysical and seismic data and information that by currently
effective agreement any Current Owner is prohibited or unable to sell,
transfer or assign to Company or Buyer (including prohibitions due to
a sale of the Shares) (provided that Seller will use all reasonable
efforts to obtain necessary consents to transfer or assign such data
and information to Buyer);
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(b) any refund of taxes or other costs or expenses borne by
the Current Owners or Company or their predecessors in title
attributable to the period of time prior to the Effective Time; and
(c) any and all proceeds from the settlements or final
adjudication of contract or audit disputes that any Current Owner or
Company or their predecessors in title receive from co-owners or
operators of the Wells or the Properties or with purchasers,
gatherers, processors or transporters of Hydrocarbons from or
attributable to the Wells or the Properties including, without
limitation, settlement of royalty, take-or-pay, pricing or volume
adjustment disputes, insofar as said proceeds are attributable to
periods of time prior to the Effective Time.
1.4 Effective Time. The term "Effective Time" as used herein shall
mean 7:00 a.m. local time in Houston, Texas on July 1, 1999.
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price. Buyer agrees to pay to Seller at the Closing the
amount of $235,300,000 (the "Purchase Price"), as adjusted in accordance with
the provisions of Section 9.2, by means of a completed wire transfer of
immediately available funds to an account designated by Seller.
2.2 Allocated Values. The parties agree to allocate the Purchase Price
among the Wells and Properties for all purposes (including financial accounting
and tax purposes) in accordance with the allocation schedule attached hereto as
Schedule 2.2 (the "Allocated Values"). Seller and Buyer each agree that they
will not (and they shall cause their affiliates not to) take any position
inconsistent with such allocation in preparing all tax returns and tax reports
to governmental authorities ("Tax Returns") or otherwise.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
SELLER
Subject to Sections 11.4, 14.7 and 14.8, Seller represents and
warrants to Buyer that:
3.1 Ownership of Shares; Organization and Good Standing. Company and
the Current Owners are corporations duly organized, validly existing and in
good standing under the laws of the state of their incorporation with full
corporate power, right and authority to own and lease the properties and assets
they currently own and lease and to carry on their business as such businesses
are currently being conducted. The Current Owners are, and as of the Closing,
Company will be, duly licensed or qualified under the laws of, and each is in
good standing in, each jurisdiction where, because of the nature of its
activities or properties, such licensing or qualification is required, except
where the failure to be so licensed or qualified would not,
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individually or in the aggregate, have a Material Adverse Effect. Seller is the
owner of the Shares, free and clear of any lien, charge or encumbrance and has
full right and authority to transfer the Shares to Buyer. The authorized
capital stock of Company consists of 1,000 shares of common stock, par value
$0.01 per share, all of which are issued and outstanding and constitute the
Shares. There are no existing subscriptions, agreements, options, warrants,
rights, calls or commitments of any character providing for the issuance of any
additional shares of Company (or any other interest in the ownership or
earnings of Company), the sale of treasury shares, or for the purchase or
redemption of shares of Company's capital stock and there are no outstanding
securities or other instruments convertible into or exchangeable for shares of
such capital stock and no commitment to issue such security or instruments. For
purposes of this Agreement, an occurrence or condition shall have a "Material
Adverse Effect" if it has a material adverse effect on the use, ownership or
operation of the Assets, taken as a whole, or materially hinders or impedes the
consummation of the transactions contemplated by this Agreement.
3.2 Authorization of Agreement; No Violation; No Consents. This
Agreement has been duly executed and delivered by Seller. Seller has the full
corporate power and authority to enter into this Agreement, to make the
representations, warranties, covenants and agreements made herein and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Seller. Neither the execution and delivery of
this Agreement by Seller nor the consummation of the transactions contemplated
hereby (a) will conflict with or result in a breach, default or violation of
(i) the terms, provisions or conditions of the Certificate or Articles of
Incorporation or Bylaws of the Current Owners or Company or (ii) any judgment,
decree or order or any governmental permit, certificate, license, Law (as
hereinafter defined) or any judgment, decree or order to which the Current
Owners or Company is a party or is subject, or to which any of the Assets are
subject, except for (A) consents and approvals from Governmental Entities (as
hereinafter defined) that are customarily obtained after closing in connection
with a sale of assets such as the Shares or the transfer of properties such as
the Assets (as is contemplated in connection with the Pre-Closing Transactions)
(the "Customary Post-Closing Consents") or (b) will result in the creation of
any lien, charge or other encumbrance on any of the Assets or Shares.
3.3 Governmental Consents. No consent, action, approval or
authorization of, or registration, declaration or filing with, any domestic or
foreign court, government, governmental agency, authority, entity or
instrumentality ("Governmental Entity") is required to authorize, or is
otherwise required in connection with, the execution and delivery of this
Agreement by Seller, Seller's performance of the terms of this Agreement, the
consummation of the Pre-Closing Transactions, or the validity or enforceability
hereof against Seller, except for Customary Post-Closing Consents.
3.4 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar Laws affecting creditors' rights generally and general
principles of equity.
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3.5 Brokers. Other than Banc of America Securities LLC, no broker or
finder has acted for or on behalf of Seller or any affiliate of Seller in
connection with this Agreement or the transactions contemplated by this
Agreement. No broker or finder is entitled to any brokerage or finder's fee, or
to any commission, based in any way on agreements, arrangements or
understandings made by or on behalf of Seller or any affiliate of Seller for
which Buyer has or will have any liabilities or obligations (contingent or
otherwise).
3.6 Bankruptcy. There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or, to the knowledge of Seller,
threatened against the Current Owners, Company or any affiliate of Seller.
3.7 Suits. Other than the matters set forth on Schedule 3.7, there is
no suit, action, claim, investigation or inquiry by any person or entity or by
any Governmental Entity and no legal, administrative or arbitration proceeding
pending or, to the knowledge of Seller, threatened relating to the Shares or
Assets and to which the Current Owners or Company or any affiliate thereof is a
party.
3.8 Public Utility Holding Company Act. Neither the Current Owners or
Company nor any subsidiary of Seller is subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, and the rules and regulations
thereunder (the "1935 Act").
3.9 Investment Company Act. None of the Current Owners or Company is
an "investment company" or a company "controlled" by an "investment company",
in each case within the meaning of the Investment Company Act of 1940, as
amended.
3.10 No Adverse Changes. Except as permitted or disclosed in this
Agreement or any Exhibits or Schedules hereto, since the Effective Time, there
have been no events that would have, individually or in the aggregate, a
Material Adverse Effect on the Assets, other than events affecting the U.S.
economy or the oil and gas industry in general and, except as is contemplated
by the Pre-Closing Transactions, since the Effective Time, neither the Current
Owners or Company have made any sale, transfer or other disposition of the
Assets (other than sales of Hydrocarbons in the ordinary course of business)
and Seller has made no sale, transfer or other disposition of the Shares.
3.11 Compliance With Laws. To the knowledge of Seller, none of the
Current Owners is and, as of the Closing, Company is not, in default or
violation of any domestic or foreign statute, law, ordinance, rule, regulation
or common or civil law obligation ("Law") of any Governmental Entity applicable
to it and related to the Assets or Shares, or by which the Assets or Shares are
bound.
3.12 Governmental Licenses, Permits and Certificates. To the knowledge
of Seller, prior to the consummation of the Pre-Closing Transactions, the
Current Owners possess, and following consummation of the Pre-Closing
Transactions, Company possesses all governmental licenses, permits, exemptions,
approvals and certificates necessary for the ownership and operation of the
Assets, except for those licenses, permits, exemptions, approvals or
certificates
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that are customarily obtained after the transfer of properties similar to the
Assets (as is contemplated in connection with the Pre-Closing Transactions).
3.13 Wells. To the knowledge of Seller, (a) all of the wells in which,
prior to the consummation of the Pre-Closing Transactions, any of the Current
Owners and, following the consummation of the Pre-Closing Transactions, Company
has an interest by virtue of its ownership of the Properties have been drilled
and completed within the boundaries of such Property or within the limits
otherwise permitted by contract, pooling or unitization agreement, or by Law,
(b) all drilling and completion of such wells and all operations with respect
thereto have been conducted in compliance with all applicable Laws and (c) all
such wells have been produced in compliance with allowables allocated thereto
by the applicable Governmental Entity.
3.14 Gas Prepayment Arrangements; Take-or-Pay. Except for gas
imbalances between the Current Owners or Company and any third party working
interest owners or gatherers or transporters relative to the Properties which
are set forth on Schedule 3.14 (such imbalances, excluding the imbalance
relating to the Johnson "O" Well in the Ross Field, Pope County, Arkansas, are
referred to herein as the "Gas Imbalances"), to the knowledge of Seller, none
of Company or the Current Owners is not obligated by any gas prepayment
arrangement or by any "take-or-pay" requirement or by any other financial
penalty or payback obligation to deliver any gas at a future time without then
or thereafter receiving payment therefor.
3.15 Condition of Equipment. To the knowledge of Seller, all personal
property, equipment, machinery, fixtures and improvements currently in use and
material to the ownership and operation of the Assets is in use and is in
reasonable repair, ordinary wear and tear excepted.
3.16 Foreign Person. Seller is not a foreign person as contemplated by
Section 1445 of the Internal Revenue Code.
3.17 Title to Property. As of the date hereof, the Current Owners
have, and as of the Closing, Company will have, Defensible Title (as
hereinafter defined) to the Properties, free and clear of all liens, charges
and encumbrances, except liens for taxes not yet due and payable and such minor
imperfections of title, if any, as do not materially detract from the value of
or interfere with the present ownership, operation, or use of the Property
affected thereby or which, individually or in the aggregate, would not have a
Material Adverse Effect on any of the Properties.
3.18 Environmental Matters. As used herein, "Environmental Laws" means
applicable federal, state, and local laws, including statutes, regulations and
orders, ordinances, and common law, relating to protection of the public
health, welfare, and the environment, including without limitation, those laws
relating to storage, handling and use of chemicals and other hazardous
materials, those relating to the generation, processing, treatment, storage,
transport, disposal, or other management of waste materials of any kind, and
those relating to the protection of environmentally sensitive areas; "Violation
of Environmental Laws" means the violation of or the failure to meet the
specific objective requirements or standards that are clearly applicable to an
Asset under applicable Environmental Laws; "Release" means depositing,
spilling, leaking,
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pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leasing, dumping, or disposing; "Hazardous Material" means "hazardous
substance", "pollutant or contaminant", and "petroleum and natural gas
liquids", as those terms are defined or used in Section 101 of the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"); and "Conditions" means Release or the presence of
Hazardous Materials.
To the knowledge of Seller and unless otherwise disclosed on Schedule
3.18:
(a) With respect to its use, ownership and operation of the
Properties, prior to the consummation of the Pre-Closing Transactions,
the Current Owners are and, following the consummation of the
Pre-Closing Transactions, Company is, in compliance with all
applicable Environmental Laws.
(b) There has been no Release and there is no current threat
of Release of any Hazardous Materials on, onto, or from the Properties
that has resulted in or could result in (i) a material violation of
any Environmental Laws or the creation of any material liability or
obligations, including without limitation, notification, deed
recordation, or remediation, under any Environmental Laws, or (ii) a
material diminution in value of any Property. The Properties have not
contained and currently contain no underground or aboveground storage
tanks, no "PCBs" or "PCB items" (as those terms are defined in the
U.S. Code of Federal Regulations), and no asbestos.
(c) With regard to activities and conditions on the
Properties, none of the Current Owners or Company has given, or was
required to give, and none of the Current Owners or Company has
received, any notice that: (i) such entity has violated, or is about
to violate, any Environmental Laws with respect to the Properties;
(ii) there has been a Release, or there is a threat of Release, of
Hazardous Materials from the Properties; (iii) such entity may be or
is liable, in whole or in part, for the costs of cleaning up,
remediating, removing or responding to a Release of Hazardous
Materials with respect to the Properties ; (iv) the Properties are
subject to a lien in favor of any Governmental Entity for any
liability, cost or damages, under any Environmental Laws arising from
or costs incurred by such governmental entity in response to a Release
of Hazardous Materials. No conditions currently exist, or are
reasonably foreseeable, that would give rise to such a notice.
(d) Prior to the consummation of the Pre-Closing
Transactions, the Current Owners have, and following the consummation
of the Pre-Closing Transactions, Company has all permits, licenses,
certificates, approvals, registrations, and applications (hereinafter
"Environmental Permits"), necessary to comply with all Environmental
Laws applicable to the Properties, except, with respect to Company,
for those Environment Permits customarily obtained after the transfer
of properties similar to the Assets (as is contemplated in the
Pre-Closing Transactions). In connection with the Pre-Closing
Transactions, the Current Owners and Company shall cooperate in
obtaining the transfers of all Environmental Permits and agree to
satisfy all notice and approval requirements for such transfers.
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3.19 Status of Leases. With respect to the oil, gas and/or mineral
leases relating to the Properties, to the knowledge of Seller: (i) such leases
have been maintained according to their terms, in compliance with the
agreements to which such leases are subject; (ii) such leases are presently in
full force and effect; (iii) all royalties (other than royalties held in
suspense), delay rentals and other payments due under such leases have been
properly and timely paid and all conditions necessary to keep such leases in
force have been fully performed; and (iv) none of the Current Owners or Company
nor, to the knowledge of Seller, any other party to any such lease has received
notice of any claim or action seeking to terminate, cancel, rescind or procure
a judicial reformation of any such lease or any provisions thereof or seeking
the release of any such lease (or portion thereof) comprising any part of the
Properties or the drilling of any additional wells on such lease (or portion
thereof).
3.20 Operations and Expenditures. With respect to any joint, unit or
other operating agreements affecting the Properties, there are no outstanding
calls or payments under authorities for expenditures concerning any single
expenditure to be made by any of the Current Owners or Company in excess of
Fifty Thousand Dollars ($50,000) which are due or which such entity has
committed to make and which have not been made.
3.21 Plugged/Nonproducing Wells. To the knowledge of Seller, (i)
plugged wells located on the Properties have been properly plugged and there
are no abandoned unplugged well bores located on the Properties which good oil
field practice would require plugging and (ii) none of the wells on the
Properties are currently required to be plugged and abandoned under the Law of
any Governmental Entity.
3.22 Removal of Equipment. From the date hereof to the Closing, none
of the Current Owners or Company will remove, exchange, suffer loss or
destruction (casualty or otherwise) of any personal property, equipment,
machinery, fixtures or improvements, material to the use, ownership, or
operation of the Properties without replacement thereof with personal property,
pipelines, equipment, machinery, fixtures or improvements of equal or better
value and specifications.
3.23 Preferential Rights. To the knowledge of Seller, Schedule 10.2(b)
identifies all Wells that may be subject to any preferential rights of purchase
or comparable rights.
3.24 Disclosure. To the knowledge of Seller, no statement contained in
any document, certificate, or other writing furnished or to be furnished by
Seller or its affiliates to Buyer in this Agreement or any Exhibit or Schedule
hereto contains or shall contain any untrue statement of a material fact or
omits or shall omit to state any material fact necessary, in the light of the
circumstances under which it was made, in order to make the statements herein
or therein not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation with full corporate power, right and authority to own and
lease the properties and assets it currently owns and leases and to carry on
its business as such business is currently being conducted. Buyer is duly
licensed or qualified under the laws of, and is in good standing in, each
jurisdiction where, because of the nature of its activities or properties, such
licensing or qualification is required, except where the failure to be so
licensed or qualified would not, individually or in the aggregate, have a
Material Adverse Effect.
4.2 Authorization of Agreement; No Violation; No Consents. This
Agreement has been duly executed and delivered by Buyer. Buyer has the full
corporate power and authority to enter into this Agreement, to make the
representations, warranties, covenants and agreements made herein and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Buyer. Neither the execution and delivery of
this Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby (a) will conflict with or result in a breach, default or
violation of (i) the terms, provisions or conditions of the Certificate or
Articles of Incorporation or Bylaws of Buyer or (ii) any judgment, decree or
order or any governmental permit, certificate, license, law, statute, rule or
regulation or any judgment, decree or order to which Buyer is a party or is
subject, or to which the business, assets or operations of Buyer are subject,
except for (A) Customary Post-Closing Consents and (B) any conflict, breach,
default or violation that would not have, individually or in the aggregate, a
Material Adverse Effect or (b) will result in the creation of any lien, charge
or other encumbrance on any property or assets of Buyer. Buyer is now, and
after Closing shall continue to be, qualified with all applicable governmental
entities to own and operate the Assets.
4.3 Governmental Consents. No consent, action, approval or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to authorize, or is otherwise required in connection with,
the execution and delivery of this Agreement by Buyer or Buyer's performance of
the terms of this Agreement or the validity or enforceability hereof against
Buyer, except for Customary Post-Closing Consents.
4.4 Enforceability. This Agreement constitutes the legal, valid and
binding obligation of Buyer enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting creditors' rights generally and general
principles of equity.
4.5 Brokers. No broker or finder has acted for or on behalf of Buyer
or any affiliate of Buyer in connection with this Agreement or the transactions
contemplated by this Agreement. No broker or finder is entitled to any
brokerage or finder's fee, or to any commission, based in
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any way on agreements, arrangements or understandings made by or on behalf of
Buyer or any affiliate of Buyer for which Seller or any of its affiliates has
or will have any liabilities or obligations (contingent or otherwise).
4.6 Bankruptcy. There are no bankruptcy, reorganization or arrangement
proceedings pending, being contemplated by or, to the knowledge of Buyer,
threatened against Buyer or any affiliate of Buyer.
4.7 Suits. There is no suit, action, claim, investigation or inquiry
by any person or entity or by any Governmental Entity and no legal,
administrative or arbitration proceeding pending or, to the knowledge of Buyer,
threatened (a) to which Buyer or any affiliate thereof is a party and (b) that
would have a Material Adverse Effect.
4.8 Public Utility Holding Company Act. Neither Buyer nor any
subsidiary of Buyer is subject to regulation under the 1935 Act.
4.9 Investment Company Act. Buyer is not an "investment company" or a
company "controlled" by an "investment company", in each case within the
meaning of the Investment Company Act of 1940, as amended.
4.10 Investment. Buyer is an experienced and knowledgeable investor in
the oil and gas business. Prior to entering into this Agreement, Buyer was
advised by and has relied solely on its own legal, tax and other professional
counsel concerning this Agreement, the Assets, the Shares and the value
thereof. Buyer is acquiring the Shares and the Assets for its own account and
not for distribution or resale in any manner that would violate any state or
federal securities law, rule, regulation or order.
4.11 Financing. Buyer has currently available (including funds that
can be drawn under existing lines of credit) all funds necessary to pay the
Adjusted Purchase Price (as hereinafter defined) and any other amounts
contemplated by this Agreement. Buyer's ability to consummate the transactions
contemplated hereby is not contingent on its ability to obtain financing from
any lender or to complete any public or private placement of securities prior
to or upon the Closing.
4.12 Foreign Person. Buyer is not a foreign person as contemplated by
Section 1445 of the Internal Revenue Code.
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ARTICLE 5
COVENANTS OF SELLER
Seller covenants and agrees, except as otherwise contemplated by this
Agreement, that:
5.1 General. Seller will, and Seller shall cause its affiliates to,
use their reasonable efforts in good faith to take all actions and to do all
things necessary or advisable in order to consummate and make effective the
transactions contemplated by this Agreement, including the Pre-Closing
Transactions.
5.2 Operation of the Assets.
(a) Subject to the provisions of applicable operating and
other agreements and the Pre-Closing Transactions, from the Effective
Time to the Closing, Seller shall (and Seller shall cause its
affiliates, including Company to), operate and administer the Assets
in a good and workmanlike manner consistent with Seller and its
affiliates' past practices, and (subject to the consummation of the
Pre-Closing Transactions) shall carry on the business with respect to
the Assets in substantially the same manner as before execution of
this Agreement. Seller shall use its (and shall cause its affiliates
to use their) reasonable efforts to preserve in full force and effect
the Properties, Easements and the contracts included in the Assets.
(b) From and after the date hereof until the Closing, Seller
shall (and shall cause its affiliates to), except for emergency action
taken in the face of risk to life, property or the environment, (i)
submit to Buyer for prior written approval, all requests for operating
or capital expenditures that involve individual commitments of more
than Fifty Thousand Dollars and No/100 ($50,000) net to Company and
the Current Owners, and all material proposed contracts and agreements
relating to the Assets, (ii) consult with, inform and advise Buyer
regarding all material matters concerning the operation, management
and administration of the Assets and (iii) obtain Buyer's written
approval prior to voting for any material matter under any operating,
joint venture, partnership or similar agreement covering the
Properties including, without limitation, any vote relating to
reworking, recompleting or plugging an existing well.
(c) Buyer acknowledges that, prior to the consummation of the
Pre-Closing Transactions, the Current Owners own, and upon
consummation of the Pre-Closing Transactions Company will own, an
undivided interest in certain of the Properties, and Buyer agrees that
the acts or omissions of the other working interests owners, joint
venturers or partners who are not affiliated with any of Company or
the Current Owners shall not constitute a violation of the provisions
of this Article 5, nor shall any action required by a vote of working
interest owners, joint venturers or partners constitute such a
violation so long as such party has voted its interest in a manner
that complies with the provisions of this Article 5. To the extent
that none of Company or Current Owners is the operator or managing
venturer or partner of any of the Properties, the obligations of such
parties in this Article 5 shall be construed to require that such
party use reasonable efforts (without being obligated to incur any
expense or institute any cause of action) to
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cause the operator or managing venturer or partner of such Properties
to take such actions or render such performance within the constraints
of the applicable operating agreements and other applicable
agreements.
5.3 Access. Buyer and its representatives, employees, consultants,
independent contractors, attorneys and other advisors (the "Buyer Parties")
have been and shall be given, until such books and records of Seller and its
affiliates are physically transferred to Buyer, full access to the Properties
(after executing a mutually agreeable confidentiality agreement) and to the
books and records of Seller and its affiliates that are included in the Assets
for the purpose of conducting an investigation of the Assets; provided,
however, that such investigation shall be conducted during Seller's and its
affiliates' normal business hours and in a manner that does not interfere with
normal operations of such entities. Such books and records will be physically
transferred to Buyer at Buyer's cost on or before the Closing. Seller and its
affiliates will cause their employees, counsel, accountants and other
representatives to be available to the Buyer Parties at all reasonable times
for purposes of such investigations.
5.4 Pre-Closing Transactions. Prior to the Closing, Seller shall
transfer the Seagull Assets to Company pursuant to a form of assignment
substantially in the form attached hereto as Exhibit "B" (the "Assignment").
Prior to the Closing, Seller shall cause its affiliate, OERI, to transfer the
OERI Assets to Company pursuant to a form of the assignment substantially in
the form of the Assignment. Immediately, prior to the Closing, the Company
shall acquire from the Joint Owners their respective interests in the Assets
pursuant to a form of assignment mutually acceptable to Seller and Buyer.
5.5 Section 338(h)(10) Election. With respect to Seller's sale and
Buyer's purchase of the Shares of Company, Seller and Buyer jointly shall make
a timely election under Section 338(h)(10) of the Internal Revenue Code, and
under any provision of any state law for which the same or a comparable
election is permissible with respect to the foregoing transaction, so as to
have the gain from the deemed sale of the assets of Company and each other
member of the Company group recognized in Seller's consolidated federal income
tax return and any state income tax return for which the same or a comparable
election is permissible (collectively, the "Election"). Seller and its
affiliates agree to report the sale and purchase of the Shares in a manner that
is consistent with the Election and shall take no position contrary thereto
unless required to do so by law or pursuant to a determination by the Internal
Revenue Service or any applicable state or local taxing authority.
ARTICLE 6
COVENANTS OF BUYER
Buyer covenants and agrees, except as otherwise contemplated by this
Agreement, that:
6.1 Further Assurances. Buyer hereby gives Seller further assurance
that it will use its reasonable efforts in good faith to take all actions and
to do all things necessary or advisable in order to consummate and make
effective the transactions contemplated by this Agreement.
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6.2 Employee Matters. Buyer may offer employment, to be effective upon
the Closing, to those employees of Seller and/or its affiliates that are
primarily involved in the operations of the Assets and that are listed on
Schedule 6.2 hereto (the "Employees"). Prior to Closing, Buyer shall provide to
Seller, in writing, a list of those Employees to whom Buyer has made offers of
employment. Except as hereinafter provided, Buyer shall have full discretion in
determining the terms, conditions and benefits relating to such employment.
Buyer shall provide severance benefits to each Employee employed by Buyer or
its affiliates (i) who is a Covered Employee (as such term is defined in the
Management Stability Plan previously provided to Buyer by Seller, such plan
being hereinafter referred to as the "MSP") as of Closing and (ii) whose
employment is subject to an Involuntary Termination (as such term is defined in
the MSP) prior to April 1, 2001 equal to the severance benefits such Employee
would have received under the MSP (as in effect as of Closing); provided,
however, that in the event an Employee's employment is subject to an
Involuntary Termination within six months following Closing, Seller shall
reimburse Buyer for the cost of any severance benefits provided to such
Employee.
6.3 Election Filings. Buyer shall prepare the filings required in
connection with the Election and provide drafts of the same to Seller on or
before February 1, 2000, for Seller's review and approval
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated
by this Agreement are subject, at the option of Seller, to the following
conditions:
7.1 Delivery. Buyer has delivered to Seller at Closing:
(a) the Estimated Adjusted Purchase Price (as hereinafter
defined);
(b) an opinion of Buyer's general counsel in the form of
Exhibit "C" attached hereto; and
(c) any other agreements, documents, certificates, approvals,
consents or other instruments reasonably necessary to consummate the
transactions contemplated by this Agreement.
7.2 Representations. The representations and warranties of Buyer
contained herein shall be true and correct in all material respects on the date
of Closing as though made on and as of that date.
7.3 Performance. Buyer shall have performed in all material respects
the obligations, covenants and agreements hereunder to be performed by it at or
prior to the Closing.
7.4 Pending Matters. No suit, action or other proceeding by a third
party or a governmental authority shall be pending or threatened which seeks
substantial damages from
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Seller or the Company in connection with, or seeks to restrain, enjoin or
otherwise prohibit the consummation of all the transactions contemplated by
this Agreement. The Closing shall not violate any order or decree of any court
or governmental body having competent jurisdiction.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated
by this Agreement are subject, at the option of Buyer, to the following
conditions:
8.1 Delivery. Seller has delivered to Buyer at Closing:
(a) a copy of the certificate of incorporation of Company
certified as of a recent date by the Secretary of State of the State
of Delaware;
(b) a certificate of good standing of Company issued as of a
recent date by the Secretary of State of the State of Delaware;
(c) a certificate of the secretary or an assistant secretary
of Company, dated the Closing, in form and substance reasonably
satisfactory to Buyer, as to no amendments to the certificate of
incorporation or Bylaws of Company;
(d) a signed resignation by each of the directors and
officers of Company and terminations of all powers of attorney granted
by Company;
(e) the organizational documents of Company and the books of
minutes of meetings of the boards of directors, committees thereof,
shareholders, managers, management committees and other similar
records of Company certified as true and correct by the secretary or
assistant secretary of Company;
(f) certificates representing the Shares duly endorsed for
transfer to Buyer or with duly executed stock powers attached;
(g) copies of duly executed, acknowledged and recorded
Assignments from each of the Current Owners to Company covering such
entity's rights, titles and interests in the Assets and copies of duly
executed, acknowledged and recorded assignments from each of the Joint
Owners to Company covering such entity's rights, titles and interests
in the Assets;
(h) duly executed letters-in-lieu of transfer orders
directing all purchasers of production from or attributable to the
Properties after the Effective Time to make payment to Company at
Buyer's address of proceeds attributable to such production on and
after the Effective Time;
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(i) an opinion of Seller's general counsel in the form of
Exhibit "D" attached hereto; and
(j) any other agreements, documents, certificates, approvals,
consents or other instruments reasonably necessary to consummate the
transactions contemplated by this Agreement.
8.2 Representations. The representations and warranties of Seller
contained herein shall be true and correct in all material respects on the date
of Closing as though made on and as of that date.
8.3 Performance. Seller shall have performed in all material respects
the obligations, covenants and agreements hereunder to be performed by it at or
prior to the Closing.
8.4 Pending Matters. No suit, action or other proceeding by a third
party or a governmental authority shall be pending or threatened which seeks
substantial damages from Buyer in connection with, or seeks to restrain, enjoin
or otherwise prohibit the consummation of all the transactions contemplated by
this Agreement. The Closing shall not violate any order or decree of any court
or governmental body having competent jurisdiction.
ARTICLE 9
CLOSING; ADJUSTMENTS TO PURCHASE PRICE
9.1 Time and Place of Closing. The transactions contemplated by this
Agreement are to be closed on September 15, 1999 (or such later date as Seller
may designate as is hereafter provided) at 10:00 a.m. local time in Houston,
Texas ("Closing") at the offices of Seller, 1600 First City Tower, 1001 Fannin,
Houston, Texas 77002; provided that Seller may, by written notice to Buyer,
extend the date of the Closing to a date no later than September 30 for
purposes of curing Title Defects or Violations of Environmental Laws or
Conditions.
9.2 Adjustments to the Purchase Price. Seller shall prepare and
deliver to Buyer at least three business days prior to the date of the Closing,
Seller's estimate of the Adjusted Purchase Price (as hereinafter defined),
together with the statement setting forth Seller's estimate of the amount of
each adjustment and such backup or supporting information relating thereto as
may be necessary to permit Buyer to understand how Seller determined such
estimates. The parties shall negotiate in good faith and attempt to agree on
such estimated adjustments amounts prior to Closing. If any estimated
adjustment amounts are not agreed upon prior to the Closing, the estimate of
the Adjusted Purchase Price for purposes of Closing shall be calculated upon
Seller's and Buyer's agreed upon estimated adjustments amounts and Seller's
good faith estimation of any disputed amounts. At Closing, Buyer shall pay to
Seller the estimated Adjusted Purchase Price determined as set forth in this
Section 9.2 (such estimated Adjusted Purchase Price being hereinafter referred
to as the "Estimated Adjusted Purchase Price").
(a) The Purchase Price shall be increased by the following
amounts:
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(i) the amount as of the Effective Time of all
prepaid ad valorem, property or similar taxes and assessments
based upon or measured by ownership of the Assets, insofar as
such prepaid taxes relate to periods of time after the
Effective Time;
(ii) all costs and expenses (including but not
limited to rentals, royalties, production and severance
taxes, capital expenditures, lease operating expenses and
overhead) paid that are attributable to the Assets and
attributable to the period of time from and after the
Effective Time;
(iii) the amount of all accounts receivable
attributable to Hydrocarbons that at the Effective Time are
owned by Company or any of the Current Owners or Joint Owners
and are above the pipeline connection, in tanks, in storage
or in processing plants; such accounts shall be valued and
calculated at the price actually received, if received, by
Buyer for such Hydrocarbons, less applicable royalties,
burdens and taxes;
(iv) an amount equal to the interest on the Purchase
Price (as such Purchase Price may be adjusted for Title
Defects, Title Benefits, Violations of Environmental Laws or
Conditions or pursuant to Section 10.5, in each case, in
accordance with the terms of this Agreement) from September
1, 1999 to the date of the Closing at the rate of 6% per
annum; provided that if Closing does not occur on or before
September 15, 1999 because (A) Seller extends the date of the
Closing as provided in Section 9.1 or (B) Seller is unable to
close by such date on account of unresolved Title Defects or
Violations of Environmental Laws or Conditions (provided that
such matters are not unresolved on account of the breach of
this Agreement by Buyer), then no such interest will be
computed with respect to the days by which the Closing is
extended on account of such reasons;
(v) any other amount provided for in this Agreement
or agreed upon by Buyer and Seller (including amounts for
Title Benefits as provided herein).
(b) The Purchase Price shall be decreased by the following
amounts:
(i) an amount equal to all unpaid ad valorem,
property, production, severance and similar taxes and assessments
based upon or measured by the ownership of the Assets that are
attributable to periods of time prior to the Effective Time, which
amounts shall, to the extent not actually assessed, be computed based
on such taxes and assessments for the preceding tax year (such amount
to be prorated for the period of Company's, any of the Current Owners'
or Joint Owners' ownership before and Buyer's ownership after the
Effective Time);
(ii) an amount equal to all revenues (gross)
collected or reasonably estimated by Seller to be collected by Company
or any of the Current Owners or Joint Owners with respect to the
Assets and attributable to the period of time after the Effective
Time;
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(iii) the amount of all accounts payable including
suspense accounts attributable to the period of time prior to the
Effective Time, to the extent not theretofore paid by Company or any
of the Current Owners or Joint Owners;
(iv) the Allocated Value of any Property sold to the
holder of a Preferential Right (as hereinafter defined) pursuant to
Section 10.5;
(v) any other amount provided for in this Agreement
or agreed upon by Buyer and Seller (including amounts for Title
Defects and Violations of Environmental Laws or Conditions as provided
herein).
(c) For the net Gas Imbalance, or over or under production
relative to the Properties as of the Effective Time, the Purchase
Price shall be increased or decreased, as appropriate, by the product
of (i) the amount (measured in Thousand Cubic Feet ["Mcf"]) of net Gas
Imbalances or over or under production, and (ii) One Dollar and No/100
($1.00) per Mcf.
(d) The Purchase Price, as adjusted by adjustments described
in Section 9.2(a), (b) and (c) is hereinafter referred to as the
"Adjusted Purchase Price".
9.3 Post-Closing Statement and Procedures. Not later than ninety (90)
days after the date of the Closing, Seller shall prepare and deliver to Buyer a
final statement of the Adjusted Purchase Price and the adjustment amounts
relating thereto (the "Statement").
(a) To the extent reasonably required by Seller, Buyer shall
assist in the preparation of the Statement. Seller shall provide Buyer
such data and information as Buyer may reasonably request supporting
the amounts reflected on the Statement in order to permit Buyer to
perform or cause to be performed an audit. The Statement shall become
final and binding upon the parties on the 60th day following receipt
thereof by Buyer (the "Final Settlement Date") unless Buyer gives
written notice of its disagreement (a "Notice of Disagreement") to
Seller prior to such date. Time is of the essence with respect to the
Notice of Disagreement. Any Notice of Disagreement shall specify in
detail the dollar amount, nature and basis of any disagreement so
asserted. If a Notice of Disagreement is received by Seller in a
timely manner, then the Statement (as revised in accordance with
clause (i) or (ii) below) shall become final and binding on the
parties and the Final Settlement Date shall be the earlier of (i) the
date Seller and Buyer agree in writing with respect to all matters
specified in the Notice of Disagreement or (ii) the date on which the
Final Statement (as hereinafter defined) is issued by the Arbitrator
(as hereinafter defined).
(b) During the thirty (30) days following the date of receipt
by Seller of the Notice of Disagreement, Seller and Buyer shall
attempt to resolve in writing any differences that they may have with
respect to all matters specified in the Notice of Disagreement. If, at
the end of such 30 day period, Buyer and Seller have not reached
agreement on such matters, the matters that remain in dispute shall be
submitted to an
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arbitrator (the "Arbitrator") for review and resolution. The
Arbitrator shall be Price Waterhouse, or if such firm is unable or
unwilling to act, such other nationally recognized independent public
accounting firm as shall be agreed upon by Buyer and Seller in
writing. The Arbitrator shall render a decision resolving the matters
in dispute within sixty (60) days following their submission to the
Arbitrator. The cost of any arbitration (including the fees and
expenses of the Arbitrator) pursuant to this Section 9.3 shall be
borne equally by Buyer and Seller. The fees and disbursements of
Seller's independent auditors incurred in connection with the
procedures performed with respect to the Statement, as requested by
Seller, and the fees and disbursements of Buyer's independent auditors
incurred in connection with their preparation of the Notice of
Disagreement shall be borne by the party that incurs them. As used in
this Agreement the term "Final Statement" shall mean the revised
Statement described in Section 9.3(a), as prepared by Seller and as
may be subsequently adjusted to reflect any subsequent written
agreement between the parties with respect thereto, or if submitted to
the Arbitrator, the revised Statement issued by the Arbitrator.
(c) Within five business days after final determination of
the Adjusted Purchase Price in accordance with this Section 9.3, Buyer
shall pay to Seller or Seller shall pay to Buyer, as the case may be,
the amount by which such final Adjusted Purchase Price is greater than
or less than, respectively, the Estimated Adjusted Purchase Price. Any
post-Closing payment made pursuant to this Section 9.3(c) shall be
made by means of a wire transfer of immediately available funds and
shall bear interest at a rate equal to six percent (6%) from the date
of the Closing to and including the date of payment.
ARTICLE 10
TITLE AND OTHER MATTERS
10.1 Examination Period. From and after the date of execution hereof
until 12:00 p.m. local time in Houston, Texas, on September 3, 1999 (the
"Examination Period"), (a) Buyer may notify Seller in writing of any alleged
Title Defects affecting any of the Wells or Properties and discovered by Buyer
or agent of Buyer, setting forth in such notice a reasonably detailed
description of each Title Defect and the value attributed by Buyer to each
Title Defect, (b) Buyer shall notify Seller in writing of any Title Benefits
discovered by Buyer or agent of Buyer, setting forth in such notice a
reasonably detailed description of each Title Benefit and (c) Buyer may notify
Seller of any Violation of Environmental Laws or Conditions affecting a
Property. Any matters that may otherwise constitute Title Defects or Violation
of Environmental Laws or Conditions but that are not specifically raised in
writing by Buyer prior to the expiration of the Examination Period shall be
deemed to have been waived; provided that Buyer shall not be deemed to have
waived (i) any Title Defects arising on account of the breach of the covenants
set forth in Section 5.4 hereof or (ii) the Company's rights under any special
warranty of title set forth in the Assignments or assignments delivered, in
connection with the Pre-Closing Transactions, to Company by Seller, OERI and/or
the Joint Owners, with respect to the Title Defects not known to or discovered
by Buyer during the Examination Period (the "Special Warranty Rights"). Upon
receipt of such notice from Buyer, Seller shall have the right, but not
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the obligation, to attempt to cure such Title Defects or Violation of
Environmental Laws or Conditions prior to 12:00 p.m. local time in Houston,
Texas on September 15, 1999 ("Title Cure Date"). From time to time during the
Examination Period and prior to the written notice that Buyer is required to
deliver as set forth above in this Section 10.1, if Buyer discovers any Title
Defects or Violations of Environmental Laws or Conditions and Buyer desires to
assert such Title Defects or Violations of Environmental Laws or Conditions,
Buyer shall use its reasonable efforts to notify Seller of such Title Defects
or Violations of Environmental Laws or Conditions promptly after its discovery
thereof in order to provide Seller with as much time as is possible to cure
such Title Defects or Violations of Environmental Laws or Conditions if Seller
desires to do so.
10.2 Definitions of Title Defects, Defensible Title, Permitted
Encumbrances and Title Benefits.
(a) Any (i) default by Company, a Current Owner or a Joint
Owner under some material provision of an oil, gas or mineral lease,
or (ii) unobtained consent to assignment, lien, charge, obligation,
encumbrance, defect or irregularity of title or any other circumstance
or condition that causes or could reasonably be expected to cause,
prior to the consummation of the Pre-Closing Transactions, the title
of a Current Owner or a Joint Owner and after the consummation of the
Pre-Closing Transactions, the title of Company, in any of the
Properties to be less than Defensible Title (as hereinafter defined)
and for which in the case of either (i) or (ii) notice is given by
Buyer to Seller pursuant to Section 10.1, shall be a title defect (a
"Title Defect").
(b) For purposes of this Agreement, the term "Defensible
Title" to the Properties shall mean, subject to and except for the
Permitted Encumbrances (as hereinafter defined), (i) prior to the
consummation of the Pre-Closing Transactions, the title of the Current
Owners and Joint Owners and after the consummation of the Pre-Closing
Transactions, the title of Company, in the Properties is free and
clear of all liens, encumbrances and defects of any kind whatsoever,
and (ii) as to those Wells included in the Properties for which a
"Working Interest or WI" and a "Net Revenue Interest or NRI" are set
forth on Schedule 10.2(b), prior to the consummation of the
Pre-Closing Transactions, the Current Owners and Joint Owners (in the
aggregate) and after the consummation of the Pre-Closing Transactions,
Company, is entitled to receive the percentage of all Hydrocarbons
produced, saved and marketed from such Wells in an amount not less
than the Net Revenue Interest or NRI set forth on Schedule 10.2(b),
without reduction, suspension or termination throughout the duration
of the productive life of such Wells (except as such interests may be
affected in connection with Gas Imbalances, operations for which any
such entity is a non-consenting co-owner, as permitted by the
contracts included in the Assets and as set forth on Schedule
10.2(b)), and prior to the consummation of the Pre-Closing
Transactions, the Current Owners and Joint Owners (in the aggregate)
and after the consummation of the Pre-Closing Transactions, Company,
is obligated to bear the percentage of costs and expenses related to
the maintenance, development and operation of such Wells in an amount
not greater than the Working Interest or WI set forth on Schedule
10.2(b), without increase throughout the productive life of such
Wells, except increases that also result in a
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proportionate increase in the Net Revenue Interest or NRI set forth on
Schedule 10.2(b) and increases that result from contribution
requirements with respect to defaulting co-owners, as permitted by the
contracts included in the Assets and as set forth on Schedule 10.2(b).
(c) For purposes of this Agreement, the term "Permitted
Encumbrances" shall mean any of the following:
(i) any liens for taxes and assessments not yet
delinquent or, if delinquent, that are being contested in
good faith in the ordinary course of business (liability for
which will be retained by the Current Owners or Joint Owners,
as applicable);
(ii) any obligations or duties (other than the
payment of fees) to any municipality or public authority with
respect to any franchise, grant, certificate, license or
permit, and all applicable Law;
(iii) any easements, rights-of-way, servitudes,
permits and other rights in respect of surface operations,
pipelines or the like, and easements for pipelines, power
lines and other similar rights-of-way, and encroachments, on,
over or in respect of any property or lands of the Current
Owners, Joint Owners or Company, or over which the Current
Owners, Joint Owners or Company owns rights-of-way,
easements, permits or licenses, that do not unreasonably or
materially interfere with the operation of any property or
lands of the Current Owners, Joint Owners or Company for
exploration and production of Hydrocarbons or related
operations;
(iv) all royalties, overriding royalties, net
profits interests, production payments, carried interests,
reversionary interests, calls on production and other burdens
on or deductions from the proceeds of production that do not
operate to (A) reduce the Net Revenue Interest or NRI below
that set forth on Schedule 10.2(b) or (B) increase the
Working Interest or WI above that set forth on Schedule
10.2(b) without a proportionate increase in the Net Revenue
Interest or NRI set forth on such schedule;
(v) the terms and conditions of all contracts
included in the Assets and Easements including but not
limited to all leases, servitudes, production sales
contracts, division orders, contracts for sale, purchase,
exchange, refining or processing of Hydrocarbons, unitization
and pooling designations, declarations, orders and
agreements, operating agreements, agreements of development,
area of mutual interest agreements, farmout agreements, gas
balancing or deferred production agreements, processing
agreements, plant agreements, pipeline, gathering and
transportation agreements, injection, repressuring and
recycling agreements, carbon dioxide purchase or sale
agreements, salt water or other disposal agreements, seismic
or geophysical permits or agreements, and other agreements to
the extent that such contracts and agreements do not (A)
reduce the
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Net Revenue Interest or NRI below that set forth on Schedule
10.2(b) or (B) increase the Working Interest or WI above that
set forth on Schedule 10.2(b) without a proportionate
increase in the Net Revenue Interest or NRI set forth on such
schedule;
(vi) Customary Post-Closing Consents;
(vii) preferential purchase rights, rights of first
refusal and similar rights to acquire any of the Properties
(collectively, "Preferential Rights", or singularly, a
"Preferential Right") (which shall be subject to the
provisions of Section 10.5);
(viii) conventional rights of reassignment prior to
abandonment;
(ix) any other liens, charges, encumbrances,
contracts, agreements, instruments, obligations, defects or
irregularities of any kind whatsoever affecting the Assets
that individually or in the aggregate are not such as to
interfere materially with the ownership, operation, value or
use of any of the Assets, do not materially prevent the
Current Owners and Joint Owners (prior to the consummation of
the Pre-Closing Transactions) or Company (following the
consummation of the Pre-Closing Transactions) from receiving
the proceeds of production and that do not operate to (A)
reduce the Net Revenue Interest or NRI below that set forth
on Schedule 10.2(b) or (B) increase the Working Interest or
WI above that set forth on Schedule 10.2(b) without a
proportionate increase in the Net Revenue Interest or NRI set
forth on such schedule.
(d) For purposes of this Agreement, the term "Title Benefit"
shall mean (i) any matter that causes an increase in the Current
Owners', Joint Owners' or, Company's Net Revenue Interest or NRI (in
the aggregate) above that set forth on Schedule 10.2(b) or (ii) any
matter that decreases the Current Owners', Joint Owners' or Company's
Working Interest or WI (in the aggregate) below that set forth on
Schedule 10.2(b), without a proportionate decrease in the Net Revenue
Interest or NRI set forth on such schedule.
10.3 Remedies for Title Defects and Violations of Environmental Laws
or Conditions Found During the Examination Period.
(a) In the event that (i) any Title Defect on a Property is
not waived by Buyer or cured on or before the Title Cure Date or (ii)
there is a Violation of Environmental Laws or Condition affecting a
Property which has not been waived by Buyer or cured on or before the
Title Cure Date, then Seller and Buyer shall mutually agree upon one
or more of the following remedies, or any combination thereof;
(i) reduce the Purchase Price by an amount agreed
upon in writing by Buyer and Seller as being the value of
such Title Defect or the cost to cure such Violation of
Environmental Law or Condition, taking into consideration the
Allocated Value of the Property subject to such Title
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Defect or Violation of Environmental Law or Condition, the
portion of the Property subject to such Title Defect or
Violation of Environmental Law or Condition, and the legal
effect of such Title Defect or Violation of Environmental Law
or Condition on the Property affected thereby; provided,
however, that if any such Title Defect is the result of a
discovery by Buyer that a Net Revenue Interest in a Property
that is less than the Net Revenue Interest set forth on
Schedule 10.2(b), then Buyer and Seller agree that the
proportion of reduction to the Purchase Price shall be equal
to the product of the Allocated Value of such Property and
the percentage reduction in such Net Revenue Interest as a
result of such Title Defect; or
(ii) elect to have such Property retained by the
Current Owners or Joint Owners, as applicable, and not
conveyed to Company pursuant to the Pre-Closing Transactions
and the Purchase Price be reduced by the Allocated Value of
such Property so retained; or
(iii) indemnify Buyer against all liability, loss,
cost and expense resulting from such Title Defect or
Violation of Environmental Law or Condition pursuant to an
indemnity agreement mutually acceptable to the parties.
(b) Notwithstanding Section 10.3(a) or anything else to the
contrary, (i) in no event shall there be any reduction in the Purchase
Price or other remedies provided by Seller for Title Defects unless
and until the amount of all Title Defects properly asserted by Buyer
for all of the Properties (not including any Title Defects cured by
Seller) exceed an amount equal to $1,000,000.00; and (ii) in no event
shall there be any adjustments to the Purchase Price or other remedies
provided by Seller for Violations of Environmental Laws or Conditions
unless the aggregate amount of all Violations of Environmental Laws or
Conditions properly asserted by Buyer for all of the Properties (not
including any violations of Environmental Laws or Conditions cured by
Seller) exceed an amount equal to $1,000,000.00, in each case, above
which point Buyer shall be entitled to reductions of the Purchase
Price with respect to Title Defects or Violations of Environmental
Laws or Conditions in excess of such amounts with respect to the
Properties affected thereby; provided that any lien filed of record
will be adjusted to its full extent, irrespective of the amount of
such lien or the amount of all Title Defects or Violations of
Environmental Laws or Conditions.
(c) Notwithstanding anything herein to the contrary, no
Property or Well shall be included in the Assets, and the Current
Owners or Joint Owners shall retain any such Property or Well, where
the agreed upon reductions to the Purchase Price on account of Title
Defects and/or Violations of Environmental Laws or Conditions
affecting such Property or Well exceed the Allocated Value of such
Property or Well.
10.4 Remedies for Title Benefits.
(a) Seller shall be entitled to an addition to the Purchase
Price with respect to all Title Benefits, in an amount to be mutually
agreed upon by the parties; provided, however, that if a Title Benefit
is the result of a discovery that the Current Owners, Joint Owners or
Company owned, as of the Effective Time, a Net Revenue Interest in a
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Property that is greater than the Net Revenue Interest set forth on
Schedule 10.2(b), then Buyer and Seller agree that the proportion of
increase to the Purchase Price shall be equal to the product of the
Allocated Value of such Property and the percentage increase in such
Net Revenue Interest as a result of such Title Benefit.
(b) Notwithstanding Section 10.4(a) or anything else to the
contrary, in no event shall there be any additions to the Purchase
Price for Title Benefits unless and until the aggregate amount of such
Title Benefits for all of the Properties exceeds an amount equal to
$1,000,000.00, after which point Seller shall be entitled to additions
to the Purchase Price only with respect to Title Benefits in excess of
such amount.
10.5 Preferential Rights to Purchase. Seller shall use its (and shall
cause its affiliates and the Joint Owners to use their respective) reasonable
efforts to comply with all Preferential Right provisions relative to any
Property prior to the Title Cure Date. Seller shall promptly notify Buyer if
any Preferential Rights are exercised or waived or if the requisite period has
elapsed without said rights having been exercised or waived. If the holder of
any Preferential Right validly elects to purchase a Property that is subject to
a Preferential Right, the Property will be conveyed to such holder prior to the
Closing and a reduction of the Purchase Price shall be made equal to the
Allocated Value of such Property.
10.6 Arbitration Concerning Title Defects and/or Violations of
Environmental Laws or Conditions. Any controversy, claim or dispute arising out
of or relating to whether or not there is a Title Defect and/or a Violation of
Environmental Laws or Conditions or whether or not the operations performed or
caused to be performed by Seller to cure a Title Defect and/or a Violation of
Environmental Laws or Conditions shall be submitted for binding determination
through arbitration by a panel of three (3) arbitrators acting pursuant to
American Arbitration Association rules, policies and procedures. The fees and
expenses of counsel, witnesses and employees of the parties hereto and all
other costs and expenses incurred exclusively for the benefit of the party
incurring the same shall be borne by the party incurring such fees and
expenses. All other fees and expenses, including but without limitation,
compensation for the arbitrators, shall be divided equally between the parties
hereto. The parties, upon any dispute over the decision rendered according to
this Section 10.6, hereby submit to the jurisdiction of the state and federal
courts in the State of Texas and for venue in Houston, Harris County, Texas and
waive any right to which they may be entitled to submit a dispute under the
laws or courts of another jurisdiction.
10.7 Exceptions to Seller's Representations in Sections 3.17 and 3.18.
Any Title Defect and/or Violations of Environmental Laws or Conditions
discovered by Buyer during the Examination Period shall be deemed to be
exceptions to the representations of Seller set forth in Sections 3.17 and 3.18
and exceptions to the special warranties of title made by Seller, OERI and/or
Joint Owners in the Assignments or assignments (as applicable) delivered to the
Company in connection with the Pre-Closing Transactions.
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ARTICLE 11
ENVIRONMENTAL MATTERS
11.1 Audit. Buyer may, at its option, cause an environmental audit
(the "Audit") of all or any portion of the Properties to be conducted by a
reputable industry recognized environmental consulting or engineering firm
("auditors"). The Audit shall be conducted at the sole risk, cost and expense
of Buyer, and Buyer and such firm shall indemnify and defend the Seller
Indemnitees (as hereinafter defined) from and against any and all Losses
arising (as hereinafter defined) from the actions of the auditors, and not
information discovered by them, in conducting the Audit.
11.2 Notice of Violations of Environmental Laws or Conditions. Buyer
may notify Seller in writing on or before September 3, 1999, of any
environmental matters disclosed by the Audit that Buyer reasonably believes in
good faith may constitute a Violation of Environmental Laws or Conditions on a
Property, including with such notice a reasonably detailed description of the
specific matter(s) that is an alleged Violation of Environmental Laws or
Conditions and its estimated cost and expense to cure such alleged Violation of
Environmental Laws or Conditions.
11.3 Remedies for Violations of Environmental Laws or Conditions. If
Seller confirms to its reasonable satisfaction that any matter described in a
notice delivered pursuant to Section 11.2 constitutes a Violation of
Environmental Laws or Conditions, then the remedies for such matter shall be as
set forth in Section 10.3 hereof.
11.4 Limitations. Notwithstanding anything to the contrary, this
Article 11, Section 10.3 and the Special Warranty Rights are intended to be the
sole and exclusive remedy that Buyer (or any other Buyer Indemnitees (as
hereinafter defined)) shall have against Seller (or any other Seller
Indemnitees (as hereinafter defined)) with respect to any matter or
circumstance relating to Title Defects and/or Violations of Environmental Laws
or Conditions. EXCEPT TO THE LIMITED EXTENT NECESSARY TO ENFORCE THE TERMS OF
THIS ARTICLE 11 AND EXCEPT AS PROVIDED IN SECTION 10.3 OR WITH RESPECT TO THE
SPECIAL WARRANTY RIGHTS, BUYER (ON BEHALF OF ITSELF AND EACH OF THE OTHER BUYER
INDEMNITEES) HEREBY RELEASES AND DISCHARGES ANY AND ALL CLAIMS AT LAW OR IN
EQUITY, KNOWN OR UNKNOWN, WHETHER NOW EXISTING OR ARISING IN THE FUTURE,
CONTINGENT OR OTHERWISE, AGAINST ANY OF THE SELLER INDEMNITEES WITH RESPECT TO
ANY MATTER OR CIRCUMSTANCE RELATING TO TITLE OR ENVIRONMENTAL LAWS OR
CONDITIONS AND BUYER AT CLOSING WILL AGREE TO INDEMNIFY AND HOLD HARMLESS
SELLER, THE SELLER INDEMNITEES FROM ALL LOSSES THEREFROM.
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ARTICLE 12
TAXES
12.1 Allocation of Taxes.
(a) Buyer shall be liable for all sales, use, documentary,
recording, stamp, transfer or similar taxes, assessments or fees
arising from the transactions contemplated by this Agreement,
including such taxes, assessments or fees incurred in connection with
the Pre-Closing Transactions.
(b) All ad valorem, property and similar taxes on the Assets
shall be prorated pursuant to Sections 9.2(a)(i) and 9.2(b)(i), and
Buyer assumes the obligation to pay all such taxes to the appropriate
Governmental Entity on or before the applicable due date.
(c) Except as set forth in Sections 12.1(a) and (b), Seller
shall be responsible for all taxes imposed on or with respect to the
Assets that are attributable to any taxable period before the
Effective Time. Buyer shall be responsible for all taxes imposed on or
with respect to the Assets on or after the Effective Time.
(d) Subject to Buyer's obligations set forth in Section 6.3,
Seller shall be responsible for any tax liability resulting from its
failure to timely make the Section 338(h)(10) election in accordance
with Section 5.5.
(e) Seller shall be responsible for the preparation and
filing of any Tax Returns related to the Assets or Company that are
required to be filed for taxable periods ending before the Effective
Time. Buyer shall be responsible for the preparation and filing of all
other Tax Returns related to the Assets or Company.
12.2 Indemnity for Taxes.
(a) BUYER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER,
OERI, THE JOINT OWNERS AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, REPRESENTATIVES, AFFILIATES, SUBSIDIARIES,
SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE "SELLER INDEMNITEES") FROM
AND AGAINST ANY AND ALL LIABILITY FOR TAXES IMPOSED OR ASSESSED BY ANY
TAXING AUTHORITY THAT ARE THE RESPONSIBILITY OF BUYER PURSUANT TO THIS
ARTICLE 12.
(b) SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER,
ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES,
AFFILIATES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE
"BUYER INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITY FOR TAXES
IMPOSED OR ASSESSED BY ANY TAXING AUTHORITY THAT ARE THE
RESPONSIBILITY OF SELLER PURSUANT TO THIS ARTICLE 12.
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ARTICLE 13
TERMINATION
13.1 Termination At or Prior to Closing. This Agreement may be
terminated on or prior to the Closing as follows:
(a) by mutual written consent of the parties;
(b) by Seller on the Closing if the conditions set forth in
Article 7 have not been satisfied in all material respects;
(c) by Buyer on the Closing if the conditions set forth in
Article 8 have not been satisfied in all material respects;
(d) by Seller if the Closing shall not have occurred on or
before September 30, 1999; provided, however, that such party cannot
so terminate this Agreement if such party is at such time in material
breach of any provision of this Agreement;
(e) by Seller or Buyer if the Closing shall not have occurred
on or before November 30, 1999; provided, however, that no such party
can so terminate this Agreement if such party is at such time in
material breach of any provision of this Agreement;
(f) by Seller or Buyer if any Governmental Entity shall have
issued an order, judgment or decree or taken any other action
challenging, delaying, restraining, enjoining, prohibiting or
invalidating the consummation of any of the transactions contemplated
herein; or
(g) by Seller or Buyer if (i) the aggregate amount of all
Title Defects (net of any Title Benefits) asserted by Buyer pursuant
to Section 10.1 or the aggregate amount of all Purchase Price
reductions related to Title Defects pursuant to Section 10.3(a) plus
(ii) the estimated aggregate amount of the cost of curing all
Violations of Environmental Laws asserted by Buyer pursuant to
Sections 10.1 and/or 11.2 or the aggregate amount of all Purchase
Price reductions related to Violations of Environmental Laws pursuant
to Section 10.3(a), exceeds an amount equal to ten percent (10%) of
the Purchase Price.
13.2 Effect of Termination. In the event that Closing does not occur
as a result of any party exercising its right to terminate pursuant to Section
13.1, then this Agreement shall be null and void and no party shall have any
rights or obligations under this Agreement, except that nothing herein shall
relieve any party from any liability for any breach hereof.
13.3 Remedies for Termination. If Seller terminates this Agreement
pursuant to Section 13.1(b) then Seller at its election shall be entitled to
(a) specific performance of this Agreement and may petition a court for an
injunction ordering same or (b) damages equal to the difference between the
Purchase Price provided for herein and the purchase price ultimately
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received by Seller and the other Current Owners and the Joint Owners for the
sale of the Assets or the Shares. If Buyer terminates this Agreement pursuant
to Section 13.1(c) then Buyer at its election shall be entitled to (a) specific
performance of this Agreement and may petition a court for an injunction
ordering same or (b) damages equal to Buyer's cost incurred in due diligence
and in preparation for the transactions contemplated hereby.
ARTICLE 14
OTHER AGREEMENTS OF THE PARTIES
14.1 Assumption. At the Closing, subject to Seller's obligations set
forth in Sections 10.3(a), 12.2(b) and 14.2(b), Buyer shall assume all
liabilities, duties and obligations of every kind whatsoever of the Current
Owners, the Joint Owners and Company relative to the ownership or operation of
the Assets, including, without limitation, (a) all Gas Imbalances, (b) all
obligation to pay all trade and other accounts payable relative to the Assets
incurred subsequent to the Effective Time, and (c) all suspense accounts of the
Current Owners, the Joint Owners and Company relating to the Properties;
provided, however, that Buyer shall not assume and shall have no liability
whatsoever (contingent or otherwise) with respect to the Excluded Assets.
14.2 Indemnification.
(a) SUBJECT TO SECTIONS 10.3(a), 12.2(b) AND 14.2(c), BUYER
SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS THE SELLER INDEMNITEES FROM
AND AGAINST ANY AND ALL CLAIMS, LIABILITIES, LOSSES, CAUSES OF
ACTIONS, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, INVOLVING
THEORIES OF NEGLIGENCE OR STRICT LIABILITY OR INVOLVING DAMAGE TO
PROPERTY OR INJURY OR DEATH TO PERSONS AND INCLUDING COURT COSTS,
THIRD-PARTY COSTS AND EXPENSES IN PREPARATION FOR COURT OR ARBITRATION
AND ATTORNEYS' FEES) ("LOSSES") ASSERTED AGAINST, RESULTING FROM,
IMPOSED UPON OR INCURRED BY ANY OF THE SELLER INDEMNITEES AS A RESULT
OF, OR ARISING OUT OF, THE BREACH OF ANY OF THE REPRESENTATIONS,
WARRANTIES, COVENANTS OR AGREEMENTS OF BUYER CONTAINED IN THIS
AGREEMENT, OR AS A RESULT OF, OR ARISING OUT OF, THE OWNERSHIP OR
OPERATION OF THE ASSETS OR THE SHARES INCLUDING, BUT NOT LIMITED TO,
THE OBLIGATION TO PROPERLY PLUG AND ABANDON ALL WELLS NOW OR HEREAFTER
LOCATED ON ANY OF THE ASSETS, OR AS A RESULT OF, OR ARISING OUT OF,
ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS OR
CONDITIONS (EXCEPT TO THE EXTENT OF SELLER'S RESPONSIBILITY FOR
CERTAIN VIOLATIONS OF ENVIRONMENTAL LAWS OR CONDITIONS PURSUANT TO
SECTION 10.3(a)), REGARDLESS IN EACH CASE WHETHER KNOWN OR UNKNOWN,
WHETHER ATTRIBUTABLE TO PERIODS OF TIME BEFORE OR AFTER THE EFFECTIVE
TIME OR CLOSING, AND WHETHER ANY OF THE SELLER INDEMNITEES WERE WHOLLY
OR PARTIALLY NEGLIGENT OR
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OTHERWISE AT FAULT; PROVIDED, HOWEVER, THAT BUYER SHALL HAVE NO
OBLIGATION TO INDEMNIFY ANY OF THE SELLER INDEMNITEES WITH RESPECT TO
ANY MATTER TO THE EXTENT SELLER IS INDEMNIFYING BUYER FOR SUCH MATTER
PURSUANT TO SECTIONS 10.3(a), 12.2(b) AND 14.2(b).
(b) SUBJECT TO SECTIONS 14.2(d) AND 14.2(e), SELLER SHALL
INDEMNIFY, DEFEND AND HOLD HARMLESS THE BUYER INDEMNITEES FROM AND
AGAINST ANY AND ALL LOSSES CAUSED BY, ARISING FROM OR ATTRIBUTABLE TO
(I) ANY MATERIAL MISREPRESENTATION OF SELLER HEREUNDER, (II) ANY
BREACH OF WARRANTY OF THE SELLER IN OR UNDER THIS AGREEMENT, OR (III)
ANY BREACH OF ANY COVENANT MADE BY SELLER HEREUNDER. THE OBLIGATION OF
SELLER TO PROVIDE INDEMNIFICATION TO BUYER FOR ANY MISREPRESENTATION
OR BREACH OF WARRANTY OR COVENANT OF SELLER (EXCLUDING ANY BREACH OF
ANY OF SELLER'S COVENANTS UNDER SECTIONS 12.1(d) AND 14.2(g) HEREOF)
SHALL BE LIMITED TO (A) CLAIMS SUBMITTED IN WRITING BY BUYER TO SELLER
ON OR BEFORE DECEMBER 31, 2000 AND (B) CLAIM(S) EXCEEDING AN AMOUNT OF
ONE MILLION DOLLARS ($1,000,000) IN THE AGGREGATE BUT (X) WITH RESPECT
TO SELLER'S OBLIGATION TO PROVIDE INDEMNIFICATION TO BUYER FOR ANY
MISREPRESENTATION OR BREACH OF WARRANTY, SELLER SHALL NOT BE OBLIGATED
TO INDEMNIFY ANY BUYER INDEMNITEE FOR ANY AMOUNTS IN EXCESS OF FOUR
MILLION DOLLARS ($4,000,000.00) IN THE AGGREGATE, AND (Y) WITH RESPECT
TO SELLER'S OBLIGATION TO PROVIDE INDEMNIFICATION TO BUYER FOR ANY
BREACH OF ANY COVENANT (EXCLUDING ANY BREACH OF ANY OF SELLER'S
COVENANTS UNDER SECTIONS 12.1(d) AND 14.2(g) HEREOF), SELLER SHALL NOT
BE OBLIGATED TO INDEMNIFY ANY BUYER INDEMNITEE FOR ANY AMOUNTS IN
EXCESS OF FOUR MILLION DOLLARS ($4,000,000.00) IN THE AGGREGATE.
(c) Notwithstanding anything to the contrary in this
Agreement, in no event shall Buyer be liable to the Seller Indemnitees
for any exemplary, punitive, special, indirect, consequential, remote
or speculative damages; provided, however, that if the Seller
Indemnitees are held liable to a third party for any of such damages
and Buyer is obligated to indemnify the Seller Indemnitees hereunder
for the matter that gave rise to such damages, then Buyer shall be
liable for, and obligated to reimburse the Seller Indemnitees for,
such damages.
(d) Notwithstanding anything to the contrary in this
Agreement, in no event shall Seller be liable to the Buyer Indemnitees
for any exemplary, punitive, special, indirect, consequential, remote
or speculative damages; provided, however, that if the Buyer
Indemnitees are held liable to a third party for any of such damages
and Seller is obligated to indemnify the Buyer Indemnitees hereunder
for the matter that gave rise to such damages, then Seller shall be
liable for, and obligated to reimburse the Buyer Indemnitees for, such
damages.
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(e) All claims for indemnification under Sections 12.2,
14.2(a), 14.2(b) or 14.2(g) shall be asserted and resolved pursuant to
this Section 14.2(e). Any person claiming indemnification hereunder is
hereinafter referred to as the "Indemnified Party" and any person
against whom such claims are asserted hereunder is hereinafter
referred to as the "Indemnifying Party". In the event that any Losses
are asserted against or sought to be collected from an Indemnified
Party by a third party, said Indemnified Party shall with reasonable
promptness provide to the Indemnifying Party a Claim Notice. The
Indemnifying Party shall not be obligated to indemnify the Indemnified
Party with respect to any such Losses if the Indemnified Party fails
to notify the Indemnifying Party thereof in accordance with the
provisions of this Agreement in reasonably sufficient time so that the
Indemnifying Party's ability to defend against the Losses is not
prejudiced. The Indemnifying Party shall have thirty (30) days from
the personal delivery or receipt of the Claim Notice (the "Notice
Period") to notify the Indemnified Party (i) whether or not it
disputes the liability of the Indemnifying Party to the Indemnified
Party hereunder with respect to such Losses and/or (ii) whether or not
it desires, at the sole cost and expense of the Indemnifying Party, to
defend the Indemnified Party against such Losses; provided, however,
that any Indemnified Party is hereby authorized prior to and during
the Notice Period to file any motion, answer or other pleading that it
shall deem necessary or appropriate to protect its interests or those
of the Indemnifying Party (and of which it shall have given prior
notice and opportunity to comment to the Indemnifying Party) and not
prejudicial to the Indemnifying Party. In the event that the
Indemnifying Party notifies the Indemnified Party within the Notice
Period that it desires to defend the Indemnified Party against such
Losses, the Indemnifying Party shall have the right to defend all
appropriate proceedings with counsel of its own choosing, which
proceedings shall be promptly settled or prosecuted by them to a final
conclusion. If the Indemnified Party desires to participate in, but
not control, any such defense or settlement it may do so at its sole
cost and expense. If requested by the Indemnifying Party, the
Indemnified Party agrees to cooperate with the Indemnifying Party and
its counsel in contesting any Losses that the Indemnifying Party
elects to contest or, if appropriate and related to the claim in
question, in making any counterclaim against the person asserting the
third party Losses, or any cross-complaint against any person. No
claim may be settled or otherwise compromised without the prior
written consent of the Indemnifying Party.
(f) The representations, warranties and covenants made by
Seller pursuant to this Agreement (other than the representations and
warranties set forth in Sections 3.17 and 3.18 which shall expire upon
the occurrence of Closing) shall survive the Closing for the following
periods after the Closing Date: (i) the covenants set forth in Section
12.1(d) shall survive until one day after the expiration of the
applicable statute of limitations (including all extensions); (ii) the
covenants set forth in Section 14.2(g) shall survive without
limitation; and (iii) all other representations and warranties and
covenants of Seller shall survive until December 31, 2000.
Representations, warranties and covenants of Seller under this
Agreement shall be of no further force or effect after the applicable
expiration date specified above; provided, however, that there shall
be no such termination of any representation, warranty or covenant
with respect to a bona fide claim asserted with respect thereto prior
to such date in accordance with the terms of Section
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14.2(e). All representations, warranties and covenants of Buyer shall
survive the Closing without any limitation as to time.
(g) SUBJECT TO SECTIONS 14.2(d) AND 14.2(e), SELLER SHALL
INDEMNIFY, DEFEND AND HOLD HARMLESS THE BUYER'S INDEMNITEES FROM AND
AGAINST ANY AND ALL LOSSES CAUSED BY, ARISING FROM OR ATTRIBUTABLE TO
THE SUITS SET FORTH ON SCHEDULE 3.7 HEREOF.
(h) WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE
INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN
INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN
ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR
CLAIM GIVING RISE TO SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF
THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR
VIOLATION OF ANY LAW OF OR BY SUCH INDEMNIFIED PARTY. THE PARTIES
AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
14.3 Records: Access and Retention.
(a) On or before the Closing, Seller will deliver to Buyer at
Buyer's cost and expense all the books, records and files applicable
to the Assets in Seller's or its affiliates' possession.
(b) After the Closing, Buyer shall give Seller and its
authorized representatives such access, during normal business hours,
to the books, records and files being conveyed, assigned and
transferred to Buyer hereunder, as may be reasonably required by
Seller, provided that such access does not unreasonably interfere with
the ongoing operations of Buyer. Seller shall be entitled to keep or
obtain extracts and copies of such books, records and files.
(c) For a period of seven (7) years after the Closing, Buyer
shall use its reasonable efforts to preserve and retain all books,
records and files being conveyed, assigned and transferred to Buyer
hereunder; provided, however, that in the event that Buyer transfers
all or a portion of the Assets or the Shares to any third party during
such period, Buyer may transfer to such third party all or a portion
of the books, records and files related thereto, provided such third
party transferee expressly assumes in writing the obligations of Buyer
under this Section 14.3 and Buyer first offers to Seller the
opportunity, at Seller's expense, to copy the books, records and files
to be transferred.
14.4 Names. As soon as reasonably possible after Closing, but in no
event later than forty-five (45) days after Closing, Buyer shall remove the
names of OERI, Seller and/or Seagull Energy E&P Inc., and all variations
thereof, from all of the Assets and make the requisite filings with, and
provide the requisite notices to, the appropriate federal, state or local
agencies and all other parties to the oil and gas leases, Easements and
contracts included in the Assets to place the
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title or other indicia of ownership, including operation of the Assets, in a
name other than OERI, Seller or Seagull Energy E&P Inc., or any variations
thereof.
14.5 Expenses. Each party shall be solely responsible for all
expenses, including due diligence expenses, incurred by it in connection with
this transaction, and neither party shall be entitled to any reimbursement for
such expenses from the other party hereto, except as provided in Articles 13
and 14.
14.6 Independent Investigation. Buyer represents and acknowledges that
it is knowledgeable of the oil and gas business and of the usual and customary
practices of producers such as Seller and its affiliates and that it has had
access to the Assets, the officers and employees of Seller and its affiliates,
and the books, records and files of Seller relating to the Assets and that, in
making the decision to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer has relied solely on the basis of its
own independent due diligence investigation of the Assets and Shares and upon
the representations and warranties made in Article 3. Accordingly, Buyer
acknowledges that none of Seller, its affiliates or any Joint Owner has made,
and Seller (on behalf of itself, its affiliates and all Joint Owners) hereby
expressly disclaim and negate any representation or warranty (other than those
express representations and warranties made in Article 3), express, implied, at
common law, by statute or otherwise, relating to the Assets.
14.7 Disclaimer Regarding Assets. Except as otherwise expressly
provided in Article 3 above and except with respect to the Special Warranty
Rights, BUYER ACKNOWLEDGES THAT NONE OF SELLER, ITS AFFILIATES OR ANY JOINT
OWNER HAS MADE, AND SELLER (ON BEHALF OF ITSELF, ITS AFFILIATES AND THE JOINT
OWNERS) HEREBY EXPRESSLY DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF ANY REAL PROPERTY, EQUIPMENT,
INVENTORY, MACHINERY, FIXTURES AND PERSONAL PROPERTY CONSTITUTING PART OF THE
ASSETS (INCLUDING, WITHOUT LIMITATION, (a) ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS
OR SAMPLES OF MATERIALS, (d) ANY RIGHTS OF BUYER UNDER APPROPRIATE STATUTES TO
CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE PRICE, (e) ANY
IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM REDHIBITORY VICES OR DEFECTS OR
OTHER VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN, (f) ANY IMPLIED OR EXPRESS
WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, (g) ANY AND ALL
IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT,
AND (h) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE
RELEASE OF MATERIALS INTO THE ENVIRONMENT OR THE PRESENCE OF MATERIALS IN, ON
OR UNDER THE ASSETS OR PROTECTION OF THE ENVIRONMENT OR HEALTH), IT BEING THE
EXPRESS INTENTION OF BUYER AND SELLER THAT (EXCEPT TO THE EXTENT EXPRESSLY
PROVIDED IN ARTICLE 3 AND WITH RESPECT TO THE SPECIAL WARRANTY RIGHTS) THE REAL
PROPERTY, EQUIPMENT, INVENTORY, MACHINERY, FIXTURES
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AND PERSONAL PROPERTY ARE AS IS AND IN THEIR PRESENT CONDITION AND STATE OF
REPAIR AND BUYER REPRESENTS TO SELLER AND ALL SELLER INDEMNITEES THAT BUYER HAS
MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO THE REAL PROPERTY,
EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL PROPERTY AS BUYER DEEMS
APPROPRIATE AND BUYER WILL ACCEPT THE REAL PROPERTY, EQUIPMENT, INVENTORY,
MACHINERY, FIXTURES AND PERSONAL PROPERTY AS IS, IN THEIR PRESENT CONDITION AND
STATE OF REPAIR.
14.8 Disclaimer Regarding Information and Year 2000 Compliance. Seller
(on behalf of itself, its affiliates and the Joint Owners) hereby expressly
negates and disclaims, and Buyer hereby waives and acknowledges that none of
such parties or their representatives made, any representation or warranty,
express or implied, relating to (a) the accuracy, completeness or materiality
of any information, data or other materials (written or oral) now, heretofore,
or hereafter furnished to Buyer by or on behalf of such parties or (b)
production rates, recompletion opportunities, decline rates, geological or
geophysical data or interpretations, the quality, quantity, recoverability or
cost of recovery of any Hydrocarbon reserves, any product pricing assumptions,
or the ability to sell or market any Hydrocarbons after Closing, or (c) that
any of the Assets are Year 2000 or "Y2K" compliant.
14.9 Waiver of Trade Practices Acts.
(a) It is the intention of the parties that Buyer's rights
and remedies with respect to this transaction and with respect to all
acts or practices of the Seller Indemnitees, past, present or future,
in connection with this transaction shall be governed by legal
principles other than the Texas Deceptive Trade Practices-Consumer
Protection Act, Tex. Bus. & Com. Code Ann. ss. 17.41 et seq. (the
"DTPA"). As such, Buyer hereby waives the applicability of the DTPA to
this transaction and any and all duties, rights or remedies that might
be imposed by the DTPA, whether such duties, rights and remedies are
applied directly by the DTPA itself or indirectly in connection with
other statutes; provided, however, Buyer does not waive ss. 17.555 of
the DTPA. Buyer acknowledges, represents and warrants that it is
purchasing the goods and/or services covered by this Agreement for
commercial or business use; that it has assets of $5 million or more
according to its most recent financial statement prepared in
accordance with generally accepted accounting principles; that it has
knowledge and experience in financial and business matters that enable
it to evaluate the merits and risks of a transaction such as this; and
that it is not in a significantly disparate bargaining position with
Seller.
(b) To the maximum extent permitted by law, Buyer hereby
waives all provisions of consumer protection acts, deceptive trade
practice acts and other acts similar to the DTPA in all jurisdictions
in which any of the Assets are located (such acts, together with the
DTPA, are hereinafter collectively referred to as the "Trade Practices
Acts").
(c) Buyer expressly recognizes that the price for which
Seller has agreed to perform its obligations under this Agreement has
been predicated upon the inapplicability
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of the Trade Practices Acts and this waiver of the Trade Practices
Acts. Buyer further recognizes that Seller, in determining to proceed
with the entering into of this Agreement, has expressly relied on this
waiver and the inapplicability of the Trade Practices Acts.
ARTICLE 15
MISCELLANEOUS
15.1 Applicable Law; Alternative Dispute Resolution.
(a) This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Texas.
(b) Except as expressly provided in Sections 9.3 and 10.6,
any dispute arising under this Agreement shall be resolved pursuant to
this Section 15.1(b):
(i) Any party has the right to request the other to
meet to discuss a dispute. The party requesting the meeting
will give at least five (5) business days prior notice in
writing of the subject it wishes to discuss, provide a
written statement of the dispute, and designate an officer of
the company with complete power to resolve the dispute to
attend the meeting. Within three (3) business days after
receipt to such request, the party receiving the request will
provide a responsive written statement and will designate an
officer of the company who will attend the meeting with
complete power to resolve the dispute.
(ii) If the meeting fails to resolve the dispute by
a signed agreement among the officers, the dispute shall be
submitted for nonappealable, binding arbitration as described
in this Section 15.1.
(iii) The parties agree to make discovery and
disclosure of all matters relevant to the dispute to the
extent and in the manner provided by the Federal Rules of
Civil Procedure. The arbitration panel will rule on all
requests for discovery and disclosure and discovery shall be
completed within ninety (90) days of the date of the first
notice pursuant to Section 15.1(b)(i). The arbitrators may
consider any matter relevant to the subject to the dispute
and shall follow the statutes and decisions of the
substantive law of Texas relevant to the subject. The
arbitrators shall not have the authority or power to alter,
amend or modify any of the terms and conditions of the
agreement of the parties. The arbitrators shall issue a final
ruling within 180 days of the date of the first notice
pursuant to Section 15.1(b)(i).
(iv) The ruling of the arbitrators shall be in
writing and signed and shall be final and binding upon the
parties. The fees and expenses of counsel, witnesses and
employees of the parties and all other costs and expenses
incurred
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exclusively for the benefit of the party incurring the same
shall be borne by the party incurring such fees and expenses.
All other fees and expenses including, without limitation,
compensation for the arbitrators, shall be divided equally
between the parties. All meetings held pursuant to this
Section 15.1 shall take place in Houston, Texas.
15.2 No Third Party Beneficiaries. Nothing in this Agreement shall
provide any benefit to any third party or entitle any third party to any claim,
cause of action, remedy or right of any kind, it being the intent of the
parties that this Agreement shall not be construed as a third party beneficiary
contract; provided, however, that the indemnification provisions in Article 12
and in Section 14.2 shall inure to the benefit of the Buyer Indemnitees and the
Seller Indemnitees as provided therein.
15.3 Waiver. Except as expressly provided in this Agreement, neither
the failure nor any delay on the part of any party hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, or of any
other right, power or remedy; nor shall any single or partial exercise of any
right, power or remedy preclude any further or other exercise thereof, or the
exercise of any other right, power or remedy. Except as expressly provided
herein, no waiver of any of the provisions of this Agreement shall be valid
unless it is in writing and signed by the party against whom it is sought to be
enforced.
15.4 Entire Agreement; Amendment. This Agreement, the Schedules and
Exhibits hereto, each of which is deemed to be a part hereof, and any
agreements, instruments or documents executed and delivered by the parties
pursuant to this Agreement, constitute the entire agreement and understanding
between the parties hereto, and it is understood and agreed that all previous
undertakings, negotiations and agreements between the parties regarding the
subject matter hereof are merged herein; provided, however, that this Agreement
does not supersede the confidentiality agreement previously executed by and
between Seller and Buyer, which shall not terminate (except in accordance with
its terms) unless and until the Closing occurs, and following the Closing, only
to the extent it relates to the Assets or Shares. This Agreement may not be
modified orally, but only by an agreement in writing signed by Buyer and
Seller.
15.5 Notices. Any and all notices or other communications required or
permitted under this Agreement shall be given in writing and delivered in
person or sent by United States certified or registered mail, postage prepaid,
return receipt requested, or by overnight express mail, or by telex, facsimile
or telecopy to the address of such party set forth below. Any such notice shall
be effective upon receipt or three (3) days after placed in the mail, whichever
is earlier.
35
<PAGE> 36
If to Seller or any other Seller's Indemnitee:
Ocean Energy, Inc.
1001 Fannin Street, Suite 1600
Houston, Texas 77002-6794
Attention: Stephen A. Thorington
Telecopy Number: 713-265-8024
With a copy to:
Ocean Energy, Inc.
1001 Fannin Street, Suite 1600
Houston, Texas 77002-6794
Attention: Robert R. Reeves
Telecopy Number: 713-882-7224
If to Buyer or any other Buyer's Indemnitee:
Cross Timbers Oil Company
810 Houston Street, Suite 2000
Fort Worth, Texas 76102-6298
Attention: Vaughn O. Vennerberg, II
Telecopy Number: 817-882-2800
With a copy to:
Cross Timbers Oil Company
810 Houston Street, Suite 2000
Fort Worth, Texas 76102-6298
Attention: E.E. Storm III
Telecopy Number: 817-870-7278
Any party may, by notice so delivered, change its address for notice purposes
hereunder.
15.6 Assignment. No party shall assign (by operation of law or
otherwise) all or any part of this Agreement, nor shall any party assign or
delegate any of its rights or duties hereunder, without the prior written
consent of the other party and any assignment or delegation made without such
consent shall be void; provided, however, that prior to Closing Buyer may
assign this Agreement to an affiliate of Buyer. Following any such an
assignment, (i) Buyer shall remain jointly liable with such affiliate for
duties, liabilities and obligations of the buyer hereunder, (ii) Buyer shall be
deemed, as of the Closing, to have made the representations set forth in
Sections 4.1 though 4.9 hereof with respect to such affiliate and shall
indemnify the Seller Indemnitees for a breach of any such representations, and
(iii) Buyer shall be deemed, as
36
<PAGE> 37
of the Closing, to have remade the representations set forth in Article 4 at to
it. The term "affiliate" as used in this Section means any other person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, Buyer. The term "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as applied to any person, means the possession, directly or indirectly,
of 50% or more of the voting power (or in the case of a person which is not a
corporation, 50% or more of the ownership interest, beneficial or otherwise) of
such person or the power otherwise to direct or cause the direction of the
management and policies of that person, whether through voting, by contract or
otherwise. Subject to the foregoing, this Agreement shall be binding on and
inure to the benefit of the parties hereto and their permitted successors and
assigns.
15.7 Severability. If any provision of this Agreement is invalid,
illegal or unenforceable, the balance of this Agreement shall remain in full
force and effect and this Agreement shall be construed in all respects as if
such invalid, illegal or unenforceable provision were omitted. If any provision
is inapplicable to any person or circumstance, it shall, nevertheless, remain
applicable to all other persons and circumstances.
15.8 Publicity. Seller and Buyer shall consult with each other with
regard to all publicity and other releases concerning this Agreement and the
transactions contemplated hereby and, except as required by applicable law or
the applicable rules or regulations of any Governmental Entity or stock
exchange, no party shall issue any such publicity or other release without the
prior written consent of the other party.
15.9 Construction. Any section headings in this Agreement are for
convenience of reference only, and shall be given no effect in the construction
or interpretation of this Agreement or any provisions thereof. No provision of
this Agreement will be interpreted in favor of, or against, any party by reason
of the extent to which any such party or its counsel participated in the
drafting thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
15.10 No Merger. The delivery and/or recordation of the assignments to
be delivered pursuant to this Agreement shall not cause, under the doctrine of
merger or otherwise, the extinguishment of any representations, warranties or
agreements contained in this Agreement. In the event of any conflict between
the terms of this Agreement and the terms of such assignments, the terms of
this Agreement shall govern and control.
15.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and which together
shall constitute but one and the same instrument.
37
<PAGE> 38
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement on the date first written above.
SELLER
SEAGULL ENERGY E&P INC.
By:
-----------------------------------
Name: Stephen A. Thorington
Title: Senior Vice President-Finance,
Treasury and Corporate Development
BUYER
CROSS TIMBERS OIL COMPANY
By:
-----------------------------------
Name: Vaughn O. Vennerberg, II
Title: Senior Vice President-Land
38
<PAGE> 39
SCHEDULE 3.18
ENVIRONMENTAL MATTERS
None
<PAGE> 1
EXHIBIT 10.4
[w/auto allowance]
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective as of
__________________ (the "Effective Date"), by and between Ocean Energy, Inc., a
Texas corporation (the "Company"), and ___________________ ("Employee").
WHEREAS, the Company has heretofore assumed the Employment Agreement
entered into effective as of ___________________, by and between Ocean Energy,
Inc. a Delaware corporation, and Employee which has been previously amended in
certain minor respects and is currently in effect (the "Employment Agreement");
and
WHEREAS, the Company employs Employee and desires to continue such
employment relationship and Employee desires to continue such employment; and
WHEREAS, the Company and Employee desire to enter into an agreement
reflecting the current terms of such employment relationship that replaces the
Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, and agreements contained herein, and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Effect of Agreement. Effective as of the Effective Date, this
Agreement supersedes and replaces the Employment Agreement in its entirety and
the Employment Agreement shall be null and void and of no further force and
effect.
2. Employment. The Company hereby employs Employee, and Employee hereby
accepts employment by the Company, on the terms and conditions set forth in this
Agreement.
3. Term of Employment. Subject to the provisions for earlier
termination provided in this Agreement, the term of this Agreement (the "Term")
shall be five (5) years commencing on the Effective Date.
4. Employee's Duties. During the Term of this Agreement, Employee shall
serve as _____________________________________________ of the Company, with such
duties and responsibilities as may from time to time be assigned to him by the
board of directors of the Company (the "Board"), provided that such duties are
consistent with the customary duties of such position.
Employee agrees to devote his full attention and time during normal
business hours to the business and affairs of the Company and to use reasonable
best efforts to perform faithfully and efficiently his duties and
responsibilities. Employee shall not, either directly or indirectly, enter into
any business or employment with or for any person, firm, association or
corporation other
<PAGE> 2
than the Company during the Term of this Agreement; provided, however, that
Employee shall not be prohibited from making financial investments in any other
company or business or from serving on the board of directors of any other
company. Employee shall at all times observe and comply with all lawful
directions and instructions of the Board.
5. Base Compensation. For services rendered by Employee under this
Agreement, the Company shall pay to Employee a base salary ("Base Compensation")
of ________________ per annum payable in accordance with the Company's customary
pay periods and subject to customary withholdings. The amount of Base
Compensation shall be reviewed by the Board on an annual basis as of the close
of each fiscal year of the Company and may be increased as the Board may deem
appropriate. In the event the Board deems it appropriate to increase Employee's
annual base salary, said increased amount shall thereafter be the "Base
Compensation." Employee's Base Compensation, as increased from time to time, may
not thereafter be decreased unless agreed to by Employee. Nothing contained
herein shall prevent the Board from paying additional compensation to Employee
in the form of bonuses or otherwise during the Term of this Agreement.
6. Additional Benefits. In addition to the Base Compensation provided
for in Section 5 herein, Employee shall be entitled to the following:
(a) Expenses. The Company shall, in accordance with any rules
and policies that it may establish from time to time for executive
officers, reimburse Employee for business expenses reasonably incurred
in the performance of his duties. It is understood that Employee is
authorized to incur reasonable business expenses for promoting the
business of the Company, including reasonable expenditures for travel,
lodging, meals and client or business associate entertainment. Request
for reimbursement for such expenses must be accompanied by appropriate
documentation.
(b) Disability Insurance. The Company has heretofore purchased
and maintained a disability insurance policy on Employee. Employee owns
and benefits from such insurance, and the Company has no interest
whatsoever in such policy. The Company will continue to maintain such
policy through February, 2000, and Employee will assume the
responsibility for any maintenance of such policy after February, 2000.
(c) Automobile Allowance. Employee shall be entitled to
receive a monthly automobile allowance of up to $1,500.00 payable on
the first of each month during the Term, which will fully reimburse
Employee for the cost of leasing or purchasing, and the insurance
therefor, of an automobile for Employee's business use. Employee shall
purchase and maintain automobile insurance covering the automobile with
such limits as may be required by the Company from time to time. In
addition to the foregoing, the Company shall reimburse Employee for
gasoline, repairs and maintenance expenditures
2
<PAGE> 3
related to business use, provided the requests for reimbursement are
accompanied by appropriate documentation.
(d) Vacation. Employee shall be entitled to five (5) weeks of
vacation per year, without any loss of compensation or benefits.
Employee shall not be entitled to compensation for, or to carry
forward, any unused vacation time.
(e) General Benefits. Employee shall be entitled to
participate in the various employee benefit plans or programs provided
to the employees of the company in general, including but not limited
to, health, dental, disability and life insurance plans, subject to the
eligibility requirements with respect to each of such benefit plans or
programs, and such other benefits or perquisites as may be approved by
the Board during the Term of this Agreement. Nothing in this paragraph
shall be deemed to prohibit the Company from making any changes in any
of the plans, programs or benefits described in this Section 6,
provided the change similarly affects all executive officers of the
Company similarly situated.
(f) Options. Upon the occurrence of a "Corporate Change" as
defined in Section 8(e), Employee shall be considered as immediately
and totally vested in any and all stock options or other similar awards
previously made to Employee by the Company or its subsidiaries under a
"Long Term Incentive Plan" duly adopted by the Board (such options or
similar awards are hereinafter collectively referred to as "Options").
7. Confidential Information. Employee, during the Term, may have access
to and become familiar with confidential information, secrets and proprietary
information concerning the business and affairs of the Company. As to such
confidential information, Employee agrees as follows:
(a) During the employment of Employee with the Company and
thereafter Employee will not, either directly or indirectly, disclose
to any third party without the written permission of the Company, nor
use in any way (except as required in the course of his employment with
the Company) any confidential information, secret or proprietary
information of the Company. In the event of a breach or threatened
breach of the provisions of this Section 7(a), the Company shall be
entitled, in addition to any other remedies available to the Company,
to an injunction restraining Employee from disclosing such confidential
information.
(b) Upon termination of employment of Employee, for whatever
reason, Employee shall surrender to the Company any and all documents,
manuals, correspondence, reports, records and similar items then or
thereafter coming into the possession of Employee which contain any
confidential, secret or proprietary information of the Company.
3
<PAGE> 4
8. Termination. This Agreement may be terminated prior to the end of
its Term as set forth below:
(a) Resignation (other than for Good Reason). Employee may
resign, including by reason of retirement, his position at any time by
providing written notice of resignation to the Company in accordance
with Section 11 hereof. In the event of such resignation, except in the
case of resignation for Good Reason (as defined below), this Agreement
shall terminate and Employee shall not be entitled to further
compensation pursuant to this Agreement other than the payment of any
unpaid Base Compensation accrued hereunder as of the date of Employee's
resignation.
(b) Death. If Employee's employment is terminated due to his
death, this Agreement shall terminate and the Company shall have no
obligations to Employee or his legal representatives with respect to
this Agreement other than the payment of any unpaid Base Compensation
previously accrued hereunder.
(c) Discharge.
(i) The Company may terminate Employee's employment
for any reason at any time upon written notice thereof
delivered to Employee in accordance with Section 11 hereof. In
the event that Employee's employment is terminated during the
Term by the Company for any reason other than his Misconduct
or Disability (both as defined below), then (A) the Company
shall pay in lump sum in cash to Employee, within fifteen (15)
days following the date of termination, an amount equal to the
product of (i) Employee's Base Compensation as in effect
immediately prior to Employee's termination, multiplied by
(ii) three, (B) for three years following the date of
termination, the Company, at its cost, shall provide or
arrange to provide Employee (and, as applicable, Employee's
dependents) with accident and group health insurance benefits
substantially similar to those which Employee (and Employee's
dependents) were receiving immediately prior to Employee's
termination; however, the welfare benefits otherwise
receivable by Employee pursuant to this clause (B) shall be
reduced to the extent comparable welfare benefits are actually
received by Employee (and/or Employee's dependents) during
such period under any other employer's welfare plan(s) or
program(s), with Employee being obligated to promptly disclose
to the Company any such comparable welfare benefits, (C) in
addition to the aforementioned compensation and benefits, the
Company shall pay in lump sum in cash to Employee within
fifteen (15) days following the date of termination an amount
equal to the product of (i) Employee's average bonus paid by
the Company during the most recent two (2)
4
<PAGE> 5
years immediately prior to the date of termination, multiplied
by (ii) three and (D) Employee shall be considered as
immediately and totally vested in any and all Options
previously made to Employee by Company or its subsidiaries.
(ii) Notwithstanding the foregoing provisions of this
Section 8, in the event Employee is terminated because of
Misconduct, the Company shall have no obligations pursuant to
this Agreement after the Date of Termination other than the
payment of any unpaid Base Compensation accrued through the
Date of Termination. As used herein, "Misconduct" means (A)
the continued failure by Employee to substantially perform his
duties with the Company (other than any such failure resulting
from Employee's incapacity due to physical or mental illness
or any such actual or anticipated failure after the issuance
of a Notice of Termination by Employee for Good Reason), after
a written demand for substantial performance is delivered to
Employee by the Board, which demand specifically identifies
the manner in which the Board believes that Employee has not
substantially performed his duties, (B) the engaging by
Employee in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise (other than
such conduct resulting from Employee's incapacity due to
physical or mental illness or any such actual or anticipated
conduct after the issuance of a Notice of Termination by
Employee for Good Reason), or (C) Employee's conviction for
the commission of a felony. Anything contained in this
Agreement to the contrary notwithstanding, the Chief Executive
Officer of the Company shall have the sole power and authority
to terminate the employment of Employee on behalf of the
Company.
(d) Disability. If Employee shall have been absent from the
full-time performance of Employee's duties with the Company for ninety
(90) consecutive calendar days as a result of Employee's incapacity
due to physical or mental illness, Employee's employment may be
terminated by the Company for "Disability" and Employee shall not be
entitled to further compensation pursuant to this Agreement, except
that Employee shall be considered as immediately and totally vested in
any and all Options previously granted to Employee by Company or its
subsidiaries.
(e) Resignation for Good Reason. Employee shall be entitled to
terminate his employment for Good Reason as defined herein. If Employee
terminates his employment for Good Reason he shall be entitled to the
compensation and benefits provided in Paragraph 8(c)(i) hereof. "Good
Reason" shall mean the occurrence of any of the following circumstances
without Employee's express written consent unless such breach
5
<PAGE> 6
or circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination given in respect hereof:
(i) the material breach of any of the Company's
obligations under this Agreement without Employee's express
written consent,
(ii) the continued assignment to Employee of any
duties inconsistent with the office of
____________________________________;
(iii) the failure by the Company to pay to Employee
any portion of Employee's compensation on the date such
compensation is due;
(iv) the failure by the Company to continue to
provide Employee with benefits substantially similar to those
enjoyed by other executive officers who have entered into
similar employment agreements with Employer under any of the
Company's medical, health, accident, and/or disability plans
in which Employee was participating immediately prior to such
time;
(v) a change in the location of Employee's principal
place of employment by the Company by more than 50 miles from
the location where he was principally employed immediately
prior to the date of such change; or
(vi) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree
to perform this Agreement, as contemplated in Section 13
hereof.
In addition, the occurrence of any Corporate Change
(as defined below), shall constitute "Good Reason" hereunder,
but only if Employee terminates his employment within ninety
(90) days following the effective date of such Corporate
Change.
A "Corporate Change" shall occur if (A) the Company
(1) shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a
subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company) or (2) is to be dissolved and
liquidated, and as a result of or in connection with such
transaction, the persons who were directors of the Company
before such transaction shall cease to constitute a majority
of the Board, (B) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, acquires or gains ownership or
control (including, without limitation, power to vote) of 20%
or more of the outstanding shares of the Company's voting
stock (based upon voting power), and as a result of or in
connection with such transaction, the persons who were
directors of the Company before such transaction shall cease
to constitute a majority of the Board, or (C) the Company
sells all or substantially all of the
6
<PAGE> 7
assets of the Company to any other person or entity (other
than a wholly-owned subsidiary of the Company) in a
transaction that requires shareholder approval pursuant to the
Texas Business Corporation Act.
(f) Notice of Termination. Any purported termination of
Employee's employment by the Company under Sections 8(c)(ii) or 8(d),
or by Employee under Section 8(e), shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 11 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which, if by the Company and is for
Misconduct or Disability, shall set forth in reasonable detail the
reason for such termination of Employee's employment, or in the case of
resignation by Employee for Good Reason, said notice must specify in
reasonable detail the basis for such resignation. A Notice of
Termination given by Employee pursuant to Section 8(e) shall be
effective even if given after the receipt by Employee of notice that
the Board has set a meeting to consider terminating Employee for
Misconduct. Any purported termination for which a Notice of Termination
is required which is not effected pursuant to this Section 8(f) shall
not be effective.
(g) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination, provided that the Date of
Termination shall be at least 15 days following the date the Notice of
Termination is given. Notwithstanding the foregoing, in the event
Employee is terminated for Misconduct, the Company may refuse to allow
Employee access to the Company's offices (other than to allow Employee
to collect his personal belongings under the Company's supervision)
prior to the Date of Termination.
(h) Mitigation. Employee shall not be required to mitigate the
amount of any payment provided for in this Section 8 by seeking other
employment or otherwise, nor shall the amount of any payment provided
for in this Agreement be reduced by any compensation earned by Employee
as a result of employment by another employer, except that any
severance amounts payable to Employee pursuant to the Company's
severance plan or policy for employees in general shall reduce the
amount otherwise payable pursuant to Sections 8(c)(i) or 8(e).
(i) Excess Parachute Payments. Notwithstanding anything in
this Agreement to the contrary, to the extent that any payment or
benefit received or to be received by Employee hereunder in connection
with the termination of Employee's employment would, as determined by
tax counsel selected by the Company, constitute an "Excess Parachute
Payment" (as defined in Section 280G of the Internal Revenue Code), the
Company shall fully "gross-up" such payment so that Employee is in the
same "net"
7
<PAGE> 8
after-tax position he would have been if such payment and gross-up
payments had not constituted Excess Parachute Payments.
(j) Resignation from Board. In the event Employee is a member
of the board of directors of the Company or any of its subsidiaries,
and Employee's employment by the Company is terminated for any reason
(other than Employee's death), Employee shall immediately resign as a
member of such board of directors upon the written request of the
Chairman of the Board. Nothing herein shall be deemed to limit the
power of the shareholders of the Company to at any time remove any
director, including without limitation, Employee, in accordance with
applicable law.
9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Employee's continuing or future participation in any benefit, bonus,
incentive, or other plan or program provided by the Company or any of its
affiliated companies and for which Employee may qualify, nor shall anything
herein limit or otherwise adversely affect such rights as Employee may have
under any Options with the Company or any of its affiliated companies.
10. Assignability. The obligations of Employee hereunder are personal
and may not be assigned or delegated by him or transferred in any manner
whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. The Company shall have the right to assign this
Agreement and to delegate all rights, duties and obligations hereunder, either
in whole or in part, to any parent, affiliate, successor or subsidiary
organization or company of the Company, so long as the obligations of the
Company under this Agreement remain the obligations of the Company.
11. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Company at its principal office address, directed to the attention of the Board
with a copy to the Secretary of the Company, and to Employee at Employee's
residence address on the records of the Company or to such other address as
either party may have furnished to the other in writing in accordance herewith
except that notice of change of address shall be effective only upon receipt.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Successors; Binding Agreement.
(a) 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
expressly assume and agree to perform this Agreement
8
<PAGE> 9
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. Failure
of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall
entitle Employee to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used
herein, the term "Company" shall include any successor to its business
and/or assets as aforesaid which executes and delivers the Agreement
provided for in this Section 13 or which otherwise becomes bound by all
terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of Employee hereunder shall
inure to the benefit of and be enforceable by Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Employee should die while any
amounts would be payable to him hereunder if he had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee,
legatee, or other designee or, if there be no such designee, to
Employee's estate.
14. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by Employee and such officer as may be specifically
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or in compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. This Agreement is an integration of the parties
agreement; no agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party, except those which are set forth expressly in this Agreement. THE
VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Arbitration. Either party may elect that any dispute or controversy
arising under or in connection with this Agreement be settled by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect. If the parties cannot mutually agree on an
arbitrator, then the arbitration shall be conducted by a three arbitrator panel,
9
<PAGE> 10
with each party selecting one arbitrator and the two arbitrators so selected
selecting a third arbitrator. The findings of the arbitrator(s) shall be final
and binding, and judgment may be entered thereon in any court having
jurisdiction. The findings of the arbitrator(s) shall not be subject to appeal
to any court, except as otherwise provided by applicable law. The arbitrator(s)
may, in his or her (or their) own discretion, award legal fees and costs to the
prevailing party.
IN WITNESS WHEREOF, the parties have executed this Agreement on
_______________, effective for all purposes as provided above.
OCEAN ENERGY, INC.
By:
--------------------------------
Name:
Title:
EMPLOYEE:
-----------------------------------
10
<PAGE> 1
exhibit 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective as of
__________________ (the "Effective Date"), by and between Ocean Energy, Inc., a
Texas corporation (the "Company"), and William L. Transier ("Employee").
WHEREAS, the Company employs Employee and desires to continue such
employment relationship and Employee desires to continue such employment; and
WHEREAS, the Company and Employee entered into a Severance Agreement
effective as of March 17, 1997, which has been previously amended in certain
respects and is currently in effect (the "Severance Agreement"); and
WHEREAS, the Company and Employee desire to enter into an agreement
reflecting the terms of the employment relationship, including the termination
thereof, that replaces the Severance Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, and agreements contained herein, and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Effect of Agreement. Effective as of the Effective Date, this
Agreement supersedes and replaces the Severance Agreement in its entirety and
the Severance Agreement shall be null and void and of no further force and
effect.
2. Employment. The Company hereby employs Employee, and Employee hereby
accepts employment by the Company, on the terms and conditions set forth in this
Agreement.
3. Term of Employment. Subject to the provisions for earlier
termination provided in this Agreement, the term of this Agreement (the "Term")
shall be five (5) years commencing on the Effective Date.
4. Employee's Duties. During the Term of this Agreement, Employee shall
serve as Executive Vice President and Chief Financial Officer of the Company,
with such duties and responsibilities as may from time to time be assigned to
him by the board of directors of the Company (the "Board"), provided that such
duties are consistent with the customary duties of such position.
Employee agrees to devote his full attention and time during normal
business hours to the business and affairs of the Company and to use reasonable
best efforts to perform faithfully and efficiently his duties and
responsibilities. Employee shall not, either directly or indirectly, enter into
any business or employment with or for any person, firm, association or
corporation other than the Company during the Term of this Agreement; provided,
however, that Employee shall not be prohibited from making financial investments
in any other company or business or from
<PAGE> 2
serving on the board of directors of any other company. Employee shall at all
times observe and comply with all lawful directions and instructions of the
Board.
5. Base Compensation. For services rendered by Employee under this
Agreement, the Company shall pay to Employee a base salary ("Base Compensation")
of $350,000 per annum payable in accordance with the Company's customary pay
periods and subject to customary withholdings. The amount of Base Compensation
shall be reviewed by the Board on an annual basis as of the close of each fiscal
year of the Company and may be increased as the Board may deem appropriate. In
the event the Board deems it appropriate to increase Employee's annual base
salary, said increased amount shall thereafter be the "Base Compensation."
Employee's Base Compensation, as increased from time to time, may not thereafter
be decreased unless agreed to by Employee. Nothing contained herein shall
prevent the Board from paying additional compensation to Employee in the form of
bonuses or otherwise during the Term of this Agreement.
6. Additional Benefits. In addition to the Base Compensation provided
for in Section 5 herein, Employee shall be entitled to the following:
(a) Expenses. The Company shall, in accordance with any rules
and policies that it may establish from time to time for executive
officers, reimburse Employee for business expenses reasonably incurred
in the performance of his duties. It is understood that Employee is
authorized to incur reasonable business expenses for promoting the
business of the Company, including reasonable expenditures for travel,
lodging, meals and client or business associate entertainment. Request
for reimbursement for such expenses must be accompanied by appropriate
documentation.
(b) Vacation. Employee shall be entitled to five (5) weeks of
vacation per year, without any loss of compensation or benefits.
Employee shall not be entitled to compensation for, or to carry
forward, any unused vacation time.
(c) General Benefits. Employee shall be entitled to
participate in the various employee benefit plans or programs provided
to the employees of the company in general, including but not limited
to, health, dental, disability and life insurance plans, subject to the
eligibility requirements with respect to each of such benefit plans or
programs, and such other benefits or perquisites as may be approved by
the Board during the Term of this Agreement. Nothing in this paragraph
shall be deemed to prohibit the Company from making any changes in any
of the plans, programs or benefits described in this Section 6,
provided the change similarly affects all executive officers of the
Company similarly situated.
(d) Options. Upon the occurrence of a "Corporate Change" as
hereinafter defined, Employee shall be considered as immediately and
totally vested in any and all
2
<PAGE> 3
stock options or other similar awards previously made to Employee by
the Company or its subsidiaries under a "Long Term Incentive Plan" duly
adopted by the Board (such options or similar awards are hereinafter
collectively referred to as "Options"). For purposes of this Agreement,
a "Corporate Change" shall occur if (i) the Company (A) shall not be
the surviving entity in any merger, consolidation or other
reorganization (or survives only as a subsidiary of an entity other
than a previously wholly-owned subsidiary of the Company) or (B) is to
be dissolved and liquidated, and as a result of or in connection with
such transaction, the persons who were directors of the Company before
such transaction shall cease to constitute a majority of the Board,
(ii) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
acquires or gains ownership or control (including, without limitation,
power to vote) of 20% or more of the outstanding shares of the
Company's voting stock (based upon voting power), and as a result of or
in connection with such transaction, the persons who were directors of
the Company before such transaction shall cease to constitute a
majority of the Board, or (iii) the Company sells all or substantially
all of the assets of the Company to any other person or entity (other
than a wholly-owned subsidiary of the Company) in a transaction that
requires shareholder approval pursuant to the Texas Business
Corporation Act.
7. Confidential Information. Employee, during the Term, may have access
to and become familiar with confidential information, secrets and proprietary
information concerning the business and affairs of the Company. As to such
confidential information, Employee agrees as follows:
(a) During the employment of Employee with the Company and
thereafter Employee will not, either directly or indirectly, disclose
to any third party without the written permission of the Company, nor
use in any way (except as required in the course of his employment with
the Company) any confidential information, secret or proprietary
information of the Company. In the event of a breach or threatened
breach of the provisions of this Section 7(a), the Company shall be
entitled, in addition to any other remedies available to the Company,
to an injunction restraining Employee from disclosing such confidential
information.
(b) Upon termination of employment of Employee, for whatever
reason, Employee shall surrender to the Company any and all documents,
manuals, correspondence, reports, records and similar items then or
thereafter coming into the possession of Employee which contain any
confidential, secret or proprietary information of the Company.
3
<PAGE> 4
8. Termination. This Agreement may be terminated prior to the
end of its Term as set forth below:
(a) Resignation (other than for Good Reason). Employee may
resign, including by reason of retirement, his position at any time by
providing written notice of resignation to the Company in accordance
with Section 11 hereof. In the event of such resignation, except in the
case of resignation for Good Reason (as defined below), this Agreement
shall terminate and Employee shall not be entitled to further
compensation pursuant to this Agreement other than the payment of any
unpaid Base Compensation accrued hereunder as of the date of Employee's
resignation.
(b) Death. If Employee's employment is terminated due to his
death, this Agreement shall terminate and the Company shall have no
obligations to Employee or his legal representatives with respect to
this Agreement other than the payment of any unpaid Base Compensation
previously accrued hereunder.
(c) Discharge.
(i) The Company may terminate Employee's employment
for any reason at any time upon written notice thereof
delivered to Employee in accordance with Section 11 hereof. In
the event that Employee's employment is terminated during the
Term by the Company for any reason other than his Misconduct
or Disability (both as defined below), then (A) the Company
shall pay in lump sum in cash to Employee, within fifteen (15)
days following the date of termination, an amount equal to the
product of (i) Employee's Base Compensation as in effect
immediately prior to Employee's termination, multiplied by
(ii) three, (B) for three years following the date of
termination, the Company, at its cost, shall provide or
arrange to provide Employee (and, as applicable, Employee's
dependents) with accident and group health insurance benefits
substantially similar to those which Employee (and Employee's
dependents) were receiving immediately prior to Employee's
termination; however, the welfare benefits otherwise
receivable by Employee pursuant to this clause (B) shall be
reduced to the extent comparable welfare benefits are actually
received by Employee (and/or Employee's dependents) during
such period under any other employer's welfare plan(s) or
program(s), with Employee being obligated to promptly disclose
to the Company any such comparable welfare benefits, (C) in
addition to the aforementioned compensation and benefits, the
Company shall pay in lump sum in cash to Employee within
fifteen (15) days following the date of termination an amount
equal to the product of (i) Employee's average bonus paid by
the Company during the most recent two (2)
4
<PAGE> 5
years immediately prior to the date of termination, multiplied
by (ii) three and(D) Employee shall be considered as
immediately and totally vested in any and all Options
previously made to Employee by Company or its subsidiaries.
(ii) Notwithstanding the foregoing provisions of this
Section 8, in the event Employee is terminated because of
Misconduct, the Company shall have no obligations pursuant to
this Agreement after the Date of Termination other than the
payment of any unpaid Base Compensation accrued through the
Date of Termination. As used herein, "Misconduct" means (A)
the continued failure by Employee to substantially perform his
duties with the Company (other than any such failure resulting
from Employee's incapacity due to physical or mental illness
or any such actual or anticipated failure after the issuance
of a Notice of Termination by Employee for Good Reason), after
a written demand for substantial performance is delivered to
Employee by the Board, which demand specifically identifies
the manner in which the Board believes that Employee has not
substantially performed his duties, (B) the engaging by
Employee in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise (other than
such conduct resulting from Employee's incapacity due to
physical or mental illness or any such actual or anticipated
conduct after the issuance of a Notice of Termination by
Employee for Good Reason), or (C) Employee's conviction for
the commission of a felony. Anything contained in this
Agreement to the contrary notwithstanding, the Chief Executive
Officer of the Company shall have the sole power and authority
to terminate the employment of Employee on behalf of the
Company.
(d) Disability. If Employee shall have been absent from the
full-time performance of Employee's duties with the Company for ninety
(90) consecutive calendar days as a result of Employee's incapacity due
to physical or mental illness, Employee's employment may be terminated
by the Company for "Disability" and Employee shall not be entitled to
further compensation pursuant to this Agreement, except that Employee
shall be considered as immediately and totally vested in any and all
Options previously granted to Employee by Company or its subsidiaries.
(e) Resignation for Good Reason. Employee shall be entitled to
terminate his employment for Good Reason as defined herein. If Employee
terminates his employment for Good Reason he shall be entitled to the
compensation and benefits provided in Paragraph 8(c)(i) hereof. "Good
Reason" shall mean the occurrence of any of the following circumstances
without Employee's express written consent unless such breach
5
<PAGE> 6
or circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination given in respect hereof:
(i) the material breach of any of the Company's
obligations under this Agreement without Employee's express
written consent;
(ii) the continued assignment to Employee of any
duties inconsistent with the office of Executive Vice
President and Chief Financial Officer;
(iii) the failure by the Company to pay to Employee
any portion of Employee's compensation on the date such
compensation is due;
(iv) the failure by the Company to continue to
provide Employee with benefits substantially similar to those
enjoyed by other executive officers who have entered into
similar employment agreements with Employer under any of the
Company's medical, health, accident, and/or disability plans
in which Employee was participating immediately prior to such
time;
(v) a change in the location of Employee's principal
place of employment by the Company by more than 50 miles from
the location where he was principally employed immediately
prior to the date of such change; or
(vi) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree
to perform this Agreement, as contemplated in Section 13
hereof.
In addition, the occurrence of a Corporate Change
other than as described in Section 6(d)(i)(A), shall
constitute "Good Reason" hereunder, but only if Employee
terminates his employment within ninety (90) days following
the effective date of such Corporate Change.
(f) Notice of Termination. Any purported termination of
Employee's employment by the Company under Sections 8(c)(ii) or 8(d),
or by Employee under Section 8(e), shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 11 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which, if by the Company and is for
Misconduct or Disability, shall set forth in reasonable detail the
reason for such termination of Employee's employment, or in the case of
resignation by Employee for Good Reason, said notice must specify in
reasonable detail the basis for such resignation. A Notice of
Termination given by Employee pursuant to Section 8(e) shall be
effective even if given after the receipt by Employee of notice that
the Board has set a meeting to consider terminating Employee for
Misconduct. Any purported termination for which a Notice of Termination
is required which is not effected pursuant to this Section 8(f) shall
not be effective.
6
<PAGE> 7
(g) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination, provided that the Date of
Termination shall be at least 15 days following the date the Notice of
Termination is given. Notwithstanding the foregoing, in the event
Employee is terminated for Misconduct, the Company may refuse to allow
Employee access to the Company's offices (other than to allow Employee
to collect his personal belongings under the Company's supervision)
prior to the Date of Termination.
(h) Mitigation. Employee shall not be required to mitigate the
amount of any payment provided for in this Section 8 by seeking other
employment or otherwise, nor shall the amount of any payment provided
for in this Agreement be reduced by any compensation earned by Employee
as a result of employment by another employer, except that any
severance amounts payable to Employee pursuant to the Company's
severance plan or policy for employees in general shall reduce the
amount otherwise payable pursuant to Sections 8(c)(i) or 8(e).
(i) Excess Parachute Payments. Notwithstanding anything in
this Agreement to the contrary, to the extent that any payment or
benefit received or to be received by Employee hereunder in connection
with the termination of Employee's employment would, as determined by
tax counsel selected by the Company, constitute an "Excess Parachute
Payment" (as defined in Section 280G of the Internal Revenue Code), the
Company shall fully "gross-up" such payment so that Employee is in the
same "net" after-tax position he would have been if such payment and
gross-up payments had not constituted Excess Parachute Payments.
(j) Resignation from Board. In the event Employee is a member
of the board of directors of the Company or any of its subsidiaries,
and Employee's employment by the Company is terminated for any reason
(other than Employee's death), Employee shall immediately resign as a
member of such board of directors upon the written request of the
Chairman of the Board. Nothing herein shall be deemed to limit the
power of the shareholders of the Company to at any time remove any
director, including, without limitation, Employee, in accordance with
applicable law.
9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Employee's continuing or future participation in any benefit, bonus,
incentive, or other plan or program provided by the Company or any of its
affiliated companies and for which Employee may qualify, nor shall anything
herein limit or otherwise adversely affect such rights as Employee may have
under any Options with the Company or any of its affiliated companies.
10. Assignability. The obligations of Employee hereunder are personal
and may not be assigned or delegated by him or transferred in any manner
whatsoever, nor are such
7
<PAGE> 8
obligations subject to involuntary alienation, assignment or transfer. The
Company shall have the right to assign this Agreement and to delegate all
rights, duties and obligations hereunder, either in whole or in part, to any
parent, affiliate, successor or subsidiary organization or company of the
Company, so long as the obligations of the Company under this Agreement remain
the obligations of the Company.
11. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Company at its principal office address, directed to the attention of the Board
with a copy to the Secretary of the Company, and to Employee at Employee's
residence address on the records of the Company or to such other address as
either party may have furnished to the other in writing in accordance herewith
except that notice of change of address shall be effective only upon receipt.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Successors; Binding Agreement.
(a) 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
expressly assume 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. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Employee to
compensation from the Company in the same amount and on the same terms
as he would be entitled to hereunder if he terminated his employment
for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the Date of Termination. As used herein, the term
"Company" shall include any successor to its business and/or assets as
aforesaid which executes and delivers the Agreement provided for in
this Section 13 or which otherwise becomes bound by all terms and
provisions of this Agreement by operation of law.
(b) This Agreement and all rights of Employee hereunder shall
inure to the benefit of and be enforceable by Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Employee should die while any
amounts would be payable to him hereunder if he had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the
8
<PAGE> 9
terms of this Agreement to Employee's devisee, legatee, or other
designee or, if there be no such designee, to Employee's estate.
14. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by Employee and such officer as may be specifically
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or in compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. This Agreement is an integration of the parties
agreement; no agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party, except those which are set forth expressly in this Agreement. THE
VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Arbitration. Either party may elect that any dispute or controversy
arising under or in connection with this Agreement be settled by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect. If the parties cannot mutually agree on an
arbitrator, then the arbitration shall be conducted by a three arbitrator panel,
with each party selecting one arbitrator and the two arbitrators so selected
selecting a third arbitrator. The findings of the arbitrator(s) shall be final
and binding, and judgment may be entered thereon in any court having
jurisdiction. The findings of the arbitrator(s) shall not be subject to appeal
to any court, except as otherwise provided by applicable law. The arbitrator(s)
may, in his or her (or their) own discretion, award legal fees and costs to the
prevailing party.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement on
_____________, effective for all purposes as provided above.
OCEAN ENERGY, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
EMPLOYEE:
---------------------------------------
10
<PAGE> 1
EXHIBIT 10.6
SECOND AMENDMENT TO
EMPLOYMENT AND CONSULTING AGREEMENT
WHEREAS, OCEAN ENERGY, INC., a Texas corporation, formerly known as
Seagull Energy Corporation (the "Company"), and BARRY J. GALT ("Galt") have
heretofore entered into an Employment and Consulting Agreement (the
"Agreement"), which was effective as of August 24, 1998; and
WHEREAS, the Company and Galt previously amended the Agreement in
certain respects, contingent on, and effective upon, the merger of Ocean Energy,
Inc., a Delaware corporation, with and into the Company, which was consummated
on March 30, 1999 (the "Merger"); and
WHEREAS, in connection with the Merger, the Company amended its
Articles of Incorporation to change its name to "Ocean Energy, Inc.;" and
WHEREAS, the Company and Galt desire to further amend the Agreement;
NOW, THEREFORE, the Company and Galt agree that the Agreement shall be
amended as follows, effective as of May 31, 1999:
1. References in the Agreement to "Seagull Energy Corporation" or
"Seagull" shall be deemed to be references to "Ocean Energy, Inc." or "Ocean."
2. Paragraph 6(a)(vii) of the Agreement shall be deleted and the
following shall be substituted therefor:
"(vii) EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN. Prior to July
31, 1999, Ocean shall establish a trust (the "Trust") in connection
with the Ocean Executive Supplemental Retirement Plan (the "ESRP"). The
Trust is not intended to result in the ESRP being treated as funded for
purposes of the Code and Title I of the Employee Retirement Income
Security Act of 1974, as amended, and shall conform to the terms of the
model rabbi trust set forth in Revenue Procedure 92-64, 1992-2 C.B.
422. Prior to July 31, 1999, Ocean shall contribute to the Trust the
Actuarially Equivalent (as such term is defined in the ESRP) present
value of Galt's Accrued Benefit (as such term is defined in the ESRP)
under the ESRP. Further, Ocean shall cause the ESRP to be amended to
expand Section 7.01 to provide that no amendment to the ESRP shall
deprive any Member (as such term is defined in the ESRP) of any Accrued
Benefit under the ESRP to the extent that such Member has a Vested
Interest (as such term is defined in the ESRP) in such Accrued Benefit
at the time of such amendment."
3. As amended hereby, the Agreement is specifically ratified and
reaffirmed.
<PAGE> 2
4. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same Amendment.
EXECUTED effective as of May 31, 1999.
OCEAN ENERGY, INC.
BY:
-------------------------
NAME:
--------------------
TITLE:
-------------------
"COMPANY"
----------------------------
BARRY J. GALT
"GALT"
-2-
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective as of
__________________ (the "Effective Date"), by and between Ocean Energy, Inc., a
Texas corporation (the "Company"), and _____________________ ("Employee").
WHEREAS, the Company has heretofore assumed the Employment Agreement
entered into effective as of ___________________, by and between Ocean Energy,
Inc. a Delaware corporation, and Employee which has been previously amended in
certain minor respects and is currently in effect (the "Employment Agreement");
and
WHEREAS, the Company employs Employee and desires to continue such
employment relationship and Employee desires to continue such employment; and
WHEREAS, the Company and Employee desire to enter into an agreement
reflecting the current terms of such employment relationship that replaces the
Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, and agreements contained herein, and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Effect of Agreement. Effective as of the Effective Date, this
Agreement supersedes and replaces the Employment Agreement in its entirety and
the Employment Agreement shall be null and void and of no further force and
effect.
2. Employment. The Company hereby employs Employee, and Employee hereby
accepts employment by the Company, on the terms and conditions set forth in this
Agreement.
3. Term of Employment. Subject to the provisions for earlier
termination provided in this Agreement, the term of this Agreement (the "Term")
shall be five (5) years commencing on the Effective Date.
4. Employee's Duties. During the Term of this Agreement, Employee shall
serve as ____________________________________ of the Company, with such duties
and responsibilities as may from time to time be assigned to him by the board of
directors of the Company (the "Board"), provided that such duties are consistent
with the customary duties of such position.
Employee agrees to devote his full attention and time during normal
business hours to the business and affairs of the Company and to use reasonable
best efforts to perform faithfully and efficiently his duties and
responsibilities. Employee shall not, either directly or indirectly, enter into
any business or employment with or for any person, firm, association or
corporation other than the Company during the Term of this Agreement; provided,
however, that Employee shall not be prohibited from making financial investments
in any other company or business or from
<PAGE> 2
serving on the board of directors of any other company. Employee shall at all
times observe and comply with all lawful directions and instructions of the
Board.
5. Base Compensation. For services rendered by Employee under this
Agreement, the Company shall pay to Employee a base salary ("Base Compensation")
of ______________ per annum payable in accordance with the Company's customary
pay periods and subject to customary withholdings. The amount of Base
Compensation shall be reviewed by the Board on an annual basis as of the close
of each fiscal year of the Company and may be increased as the Board may deem
appropriate. In the event the Board deems it appropriate to increase Employee's
annual base salary, said increased amount shall thereafter be the "Base
Compensation." Employee's Base Compensation, as increased from time to time, may
not thereafter be decreased unless agreed to by Employee. Nothing contained
herein shall prevent the Board from paying additional compensation to Employee
in the form of bonuses or otherwise during the Term of this Agreement.
6. Additional Benefits. In addition to the Base Compensation provided
for in Section 5 herein, Employee shall be entitled to the following:
(a) Expenses. The Company shall, in accordance with any rules
and policies that it may establish from time to time for executive
officers, reimburse Employee for business expenses reasonably incurred
in the performance of his duties. It is understood that Employee is
authorized to incur reasonable business expenses for promoting the
business of the Company, including reasonable expenditures for travel,
lodging, meals and client or business associate entertainment. Request
for reimbursement for such expenses must be accompanied by appropriate
documentation.
(b) Disability Insurance. The Company has heretofore purchased
and maintained a disability insurance policy on Employee. Employee owns
and benefits from such insurance, and the Company has no interest
whatsoever in such policy. The Company will continue to maintain such
policy through February, 2000, and Employee will assume the
responsibility for any maintenance of such policy after February, 2000.
(c) Vacation. Employee shall be entitled to five (5) weeks of
vacation per year, without any loss of compensation or benefits.
Employee shall not be entitled to compensation for, or to carry
forward, any unused vacation time.
(d) General Benefits. Employee shall be entitled to
participate in the various employee benefit plans or programs provided
to the employees of the company in general, including but not limited
to, health, dental, disability and life insurance plans, subject to the
eligibility requirements with respect to each of such benefit plans or
programs, and such other benefits or perquisites as may be approved by
the Board during the Term of this Agreement. Nothing in this paragraph
shall be deemed to prohibit the
2
<PAGE> 3
Company from making any changes in any of the plans, programs or
benefits described in this Section 6, provided the change similarly
affects all officers of the Company similarly situated.
(e) Options. Upon the occurrence of a "Corporate Change" as
defined in Section 8(e), Employee shall be considered as immediately
and totally vested in any and all stock options or other similar awards
previously made to Employee by the Company or its subsidiaries under a
"Long Term Incentive Plan" duly adopted by the Board (such options or
similar awards are hereinafter collectively referred to as "Options").
7. Confidential Information. Employee, during the Term, may have access
to and become familiar with confidential information, secrets and proprietary
information concerning the business and affairs of the Company. As to such
confidential information, Employee agrees as follows:
(a) During the employment of Employee with the Company and
thereafter Employee will not, either directly or indirectly, disclose
to any third party without the written permission of the Company, nor
use in any way (except as required in the course of his employment with
the Company) any confidential information, secret or proprietary
information of the Company. In the event of a breach or threatened
breach of the provisions of this Section 7(a), the Company shall be
entitled, in addition to any other remedies available to the Company,
to an injunction restraining Employee from disclosing such confidential
information.
(b) Upon termination of employment of Employee, for whatever
reason, Employee shall surrender to the Company any and all documents,
manuals, correspondence, reports, records and similar items then or
thereafter coming into the possession of Employee which contain any
confidential, secret or proprietary information of the Company.
8. Termination. This Agreement may be terminated prior to the end of
its Term as set forth below:
(a) Resignation (other than for Good Reason). Employee may
resign, including by reason of retirement, his position at any time by
providing written notice of resignation to the Company in accordance
with Section 11 hereof. In the event of such resignation, except in the
case of resignation for Good Reason (as defined below), this Agreement
shall terminate and Employee shall not be entitled to further
compensation pursuant to this Agreement other than the payment of any
unpaid Base Compensation accrued hereunder as of the date of Employee's
resignation.
(b) Death. If Employee's employment is terminated due to his
death, this Agreement shall terminate and the Company shall have no
obligations to Employee or his
3
<PAGE> 4
legal representatives with respect to this Agreement other than the
payment of any unpaid Base Compensation previously accrued hereunder.
(c) Discharge.
(i) The Company may terminate Employee's employment
for any reason at any time upon written notice thereof
delivered to Employee in accordance with Section 11 hereof. In
the event that Employee's employment is terminated during the
Term by the Company for any reason other than his Misconduct
or Disability (both as defined below), then (A) the Company
shall pay in lump sum in cash to Employee, within fifteen (15)
days following the date of termination, an amount equal to the
product of (i) Employee's Base Compensation as in effect
immediately prior to Employee's termination, multiplied by
(ii) three, (B) for three years following the date of
termination, the Company, at its cost, shall provide or
arrange to provide Employee (and, as applicable, Employee's
dependents) with accident and group health insurance benefits
substantially similar to those which Employee (and Employee's
dependents) were receiving immediately prior to Employee's
termination; however, the welfare benefits otherwise
receivable by Employee pursuant to this clause (B) shall be
reduced to the extent comparable welfare benefits are actually
received by Employee (and/or Employee's dependents) during
such period under any other employer's welfare plan(s) or
program(s), with Employee being obligated to promptly disclose
to the Company any such comparable welfare benefits, (C) in
addition to the aforementioned compensation and benefits, the
Company shall pay in lump sum in cash to Employee within
fifteen (15) days following the date of termination an amount
equal to the product of (i) Employee's average bonus paid by
the Company during the most recent two (2) years immediately
prior to the date of termination, multiplied by (ii) three and
(D) Employee shall be considered as immediately and totally
vested in any and all Options previously made to Employee by
Company or its subsidiaries.
(ii) Notwithstanding the foregoing provisions of this
Section 8, in the event Employee is terminated because of
Misconduct, the Company shall have no obligations pursuant to
this Agreement after the Date of Termination other than the
payment of any unpaid Base Compensation accrued through the
Date of Termination. As used herein, "Misconduct" means (A)
the continued failure by Employee to substantially perform his
duties with the Company (other than any such failure resulting
from Employee's incapacity due to physical or mental illness
or any such actual or anticipated failure after the issuance
of a Notice of
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Termination by Employee for Good Reason), after a written
demand for substantial performance is delivered to Employee by
the Board, which demand specifically identifies the manner in
which the Board believes that Employee has not substantially
performed his duties, (B) the engaging by Employee in conduct
which is demonstrably and materially injurious to the Company,
monetarily or otherwise (other than such conduct resulting
from Employee's incapacity due to physical or mental illness
or any such actual or anticipated conduct after the issuance
of a Notice of Termination by Employee for Good Reason), or
(C) Employee's conviction for the commission of a felony.
Anything contained in this Agreement to the contrary
notwithstanding, the Chief Executive Officer of the Company
shall have the sole power and authority to terminate the
employment of Employee on behalf of the Company.
(d) Disability. If Employee shall have been absent from the
full-time performance of Employee's duties with the Company for ninety
(90) consecutive calendar days as a result of Employee's incapacity due
to physical or mental illness, Employee's employment may be terminated
by the Company for "Disability" and Employee shall not be entitled to
further compensation pursuant to this Agreement, except that Employee
shall be considered as immediately and totally vested in any and all
Options previously granted to Employee by Company or its subsidiaries.
(e) Resignation for Good Reason. Employee shall be entitled to
terminate his employment for Good Reason as defined herein. If Employee
terminates his employment for Good Reason he shall be entitled to the
compensation and benefits provided in Paragraph 8(c)(i) hereof. "Good
Reason" shall mean the occurrence of any of the following circumstances
without Employee's express written consent unless such breach or
circumstances are fully corrected prior to the Date of Termination
specified in the Notice of Termination given in respect hereof:
(i) the material breach of any of the Company's
obligations under this Agreement without Employee's express
written consent;
(ii) the continued assignment to Employee of any
duties inconsistent with the office of
__________________________;
(iii) the failure by the Company to pay to Employee
any portion of Employee's compensation on the date such
compensation is due;
(iv) the failure by the Company to continue to
provide Employee with benefits substantially similar to those
enjoyed by other officers who have entered into similar
employment agreements with Employer under any of the Company's
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medical, health, accident, and/or disability plans in which
Employee was participating immediately prior to such time;
(v) a change in the location of Employee's principal
place of employment by the Company by more than 50 miles from
the location where he was principally employed immediately
prior to the date of such change; or
(vi) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree
to perform this Agreement, as contemplated in Section 13
hereof.
In addition, the occurrence of any Corporate Change
(as defined below), shall constitute "Good Reason" hereunder,
but only if Employee terminates his employment within ninety
(90) days following the effective date of such Corporate
Change.
A "Corporate Change" shall occur if (A) the Company
(1) shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a
subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company) or (2) is to be dissolved and
liquidated, and as a result of or in connection with such
transaction, the persons who were directors of the Company
before such transaction shall cease to constitute a majority
of the Board, (B) any person or entity, including a "group" as
contemplated by Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, acquires or gains ownership or
control (including, without limitation, power to vote) of 20%
or more of the outstanding shares of the Company's voting
stock (based upon voting power), and as a result of or in
connection with such transaction, the persons who were
directors of the Company before such transaction shall cease
to constitute a majority of the Board, or (C) the Company
sells all or substantially all of the assets of the Company to
any other person or entity (other than a wholly-owned
subsidiary of the Company) in a transaction that requires
shareholder approval pursuant to the Texas Business
Corporation Act.
(f) Notice of Termination. Any purported termination of
Employee's employment by the Company under Sections 8(c)(ii) or 8(d),
or by Employee under Section 8(e), shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 11 hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which, if by the Company and is for
Misconduct or Disability, shall set forth in reasonable detail the
reason for such termination of Employee's employment, or in the case of
resignation by Employee for Good Reason, said notice must specify in
reasonable detail the basis for such resignation. A Notice of
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Termination given by Employee pursuant to Section 8(e) shall be
effective even if given after the receipt by Employee of notice that
the Board has set a meeting to consider terminating Employee for
Misconduct. Any purported termination for which a Notice of Termination
is required which is not effected pursuant to this Section 8(f) shall
not be effective.
(g) Date of Termination. "Date of Termination" shall mean the
date specified in the Notice of Termination, provided that the Date of
Termination shall be at least 15 days following the date the Notice of
Termination is given. Notwithstanding the foregoing, in the event
Employee is terminated for Misconduct, the Company may refuse to allow
Employee access to the Company's offices (other than to allow Employee
to collect his personal belongings under the Company's supervision)
prior to the Date of Termination.
(h) Mitigation. Employee shall not be required to mitigate the
amount of any payment provided for in this Section 8 by seeking other
employment or otherwise, nor shall the amount of any payment provided
for in this Agreement be reduced by any compensation earned by Employee
as a result of employment by another employer, except that any
severance amounts payable to Employee pursuant to the Company's
severance plan or policy for employees in general shall reduce the
amount otherwise payable pursuant to Sections 8(c)(i) or 8(e).
(i) Excess Parachute Payments. Notwithstanding anything in
this Agreement to the contrary, to the extent that any payment or
benefit received or to be received by Employee hereunder in connection
with the termination of Employee's employment would, as determined by
tax counsel selected by the Company, constitute an "Excess Parachute
Payment" (as defined in Section 280G of the Internal Revenue Code), the
Company shall fully "gross-up" such payment so that Employee is in the
same "net" after-tax position he would have been if such payment and
gross-up payments had not constituted Excess Parachute Payments.
(j) Resignation from Board. In the event Employee is a member
of the board of directors of the Company or any of its subsidiaries,
and Employee's employment by the Company is terminated for any reason
(other than Employee's death), Employee shall immediately resign as a
member of such board of directors upon the written request of the
Chairman of the Board. Nothing herein shall be deemed to limit the
power of the shareholders of the Company to at any time remove any
director, including, without limitation, Employee, in accordance with
applicable law.
9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Employee's continuing or future participation in any benefit, bonus,
incentive, or other plan or
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program provided by the Company or any of its affiliated companies and for which
Employee may qualify, nor shall anything herein limit or otherwise adversely
affect such rights as Employee may have under any Options with the Company or
any of its affiliated companies.
10. Assignability. The obligations of Employee hereunder are personal
and may not be assigned or delegated by him or transferred in any manner
whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer. The Company shall have the right to assign this
Agreement and to delegate all rights, duties and obligations hereunder, either
in whole or in part, to any parent, affiliate, successor or subsidiary
organization or company of the Company, so long as the obligations of the
Company under this Agreement remain the obligations of the Company.
11. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Company at its principal office address, directed to the attention of the Board
with a copy to the Secretary of the Company, and to Employee at Employee's
residence address on the records of the Company or to such other address as
either party may have furnished to the other in writing in accordance herewith
except that notice of change of address shall be effective only upon receipt.
12. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Successors; Binding Agreement.
(a) 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
expressly assume 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. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Employee to
compensation from the Company in the same amount and on the same terms
as he would be entitled to hereunder if he terminated his employment
for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the Date of Termination. As used herein, the term
"Company" shall include any successor to its business and/or assets as
aforesaid which executes and delivers the Agreement provided for in
this Section 13 or which otherwise becomes bound by all terms and
provisions of this Agreement by operation of law.
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<PAGE> 9
(b) This Agreement and all rights of Employee hereunder shall
inure to the benefit of and be enforceable by Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Employee should die while any
amounts would be payable to him hereunder if he had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee,
legatee, or other designee or, if there be no such designee, to
Employee's estate.
14. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by Employee and such officer as may be specifically
authorized by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or in compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. This Agreement is an integration of the parties
agreement; no agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party, except those which are set forth expressly in this Agreement. THE
VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Arbitration. Either party may elect that any dispute or controversy
arising under or in connection with this Agreement be settled by arbitration in
Houston, Texas in accordance with the rules of the American Arbitration
Association then in effect. If the parties cannot mutually agree on an
arbitrator, then the arbitration shall be conducted by a three arbitrator panel,
with each party selecting one arbitrator and the two arbitrators so selected
selecting a third arbitrator. The findings of the arbitrator(s) shall be final
and binding, and judgment may be entered thereon in any court having
jurisdiction. The findings of the arbitrator(s) shall not be subject to appeal
to any court, except as otherwise provided by applicable law. The arbitrator(s)
may, in his or her (or their) own discretion, award legal fees and costs to the
prevailing party.
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IN WITNESS WHEREOF, the parties have executed this Agreement on
_____________, effective for all purposes as provided above.
OCEAN ENERGY, INC.
By:
---------------------------
Name:
Title:
EMPLOYEE:
------------------------------
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<PAGE> 1
EXHIBIT 10.8
SEVERANCE AGREEMENT
AGREEMENT between OCEAN ENERGY, INC., a Texas corporation (the
"COMPANY") formerly known as Seagull Energy Corporation, and Richard F. Barnes
("EXECUTIVE"),
W I T N E S S E T H :
WHEREAS, the Company desires to retain certain key employee personnel
and, accordingly, the Board of Directors of the Company (the "BOARD") has
approved the Company entering into a severance agreement with Executive in order
to encourage his continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "AVERAGE BONUS" shall mean the average of the bonus
payments, if any, received by Executive for the two immediately preceding fiscal
years of the Company.
(b) "CHANGE IN DUTIES" shall mean the occurrence, within two
years after the date upon which a Change of Control occurs, of any one or more
of the following:
(i) A significant reduction in the duties of
Executive from those applicable to him immediately prior to the date on
which a Change of Control occurs;
(ii) A reduction in Executive's annual salary or
bonus opportunity under any applicable bonus or incentive compensation
plan from that provided to him immediately prior to the date on which a
Change of Control occurs;
(iii) Receipt of employee benefits (including but not
limited to medical, dental, life insurance, accidental death and
dismemberment, and long-term disability plans) and perquisites by
Executive that are materially inconsistent with the employee benefits
and perquisites provided by the Company to executives with comparable
duties; or
(iv) A change in the location of Executive's
principal place of employment by the Company by more than 50 miles from
the location where he was principally employed immediately prior to the
date on which a Change of Control occurs;
<PAGE> 2
provided, however, that with respect to the merger of Ocean Energy, Inc., a
Delaware corporation, with and into the Company, which was consummated on March
30, 1999 (the "OEI Merger"), this Paragraph 1(b) shall be applied with reference
to Executive's duties, annual salary or bonus opportunity, employee benefits,
and location of principal place of employment by the Company as of the effective
date of this Agreement rather than prior to the OEI Merger.
(c) "CHANGE OF CONTROL" means the occurrence of one of the
following events:
(i) The Company (A) shall not be the surviving entity
in any merger, consolidation or other reorganization (or survives only
as a subsidiary of an entity other than a previously wholly-owned
subsidiary of the Company) or (B) is to be dissolved and liquidated,
and as a result of or in connection with such transaction, the persons
who were directors of the Company before such transaction shall cease
to constitute a majority of the Board;
(ii) Any person or entity, including a "GROUP" as
contemplated by Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, acquires or gains ownership or control (including,
without limitation, power to vote) of 20% or more of the outstanding
shares of the Company's voting stock (based upon voting power), and as
a result of or in connection with such transaction, the persons who
were directors of the Company before such transaction shall cease to
constitute a majority of the Board;
(iii) The Company sells all or substantially all of
the assets of the Company to any other person or entity (other than a
wholly-owned subsidiary of the Company) in a transaction that requires
shareholder approval pursuant to the Texas Business Corporation Act; or
(iv) The Company sells all or substantially all of
the assets of the ENSTAR Natural Gas Company division of the Company to
any other person or entity (other than a wholly-owned subsidiary of the
Company);
provided, however, that the OEI Merger shall constitute a "Change of Control"
for purposes of this Agreement.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMPENSATION" shall mean the greater of:
(i) Executive's annual salary plus his Average Bonus
immediately prior to the date on which a Change of Control occurs, or
(ii) Executive's annual salary plus his Average Bonus
at the time of his Involuntary Termination.
(f) "INVOLUNTARY TERMINATION" shall mean any termination of
Executive's employment with the Company which:
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(i) does not result from a resignation by Executive
(other than a resignation pursuant to clause (ii) of this subparagraph
(f) or a resignation at the request of the Company); or
(ii) results from a resignation by Executive on or
before the date which is sixty days after the date upon which Executive
receives notice of a Change in Duties;
provided, however, the term "INVOLUNTARY TERMINATION" shall not include a
Termination for Cause, a termination of Executive's employment occurring as a
result of or in connection with the sale or other divestiture by the Company of
a division, subsidiary, or other business segment (including, without
limitation, a divestiture by sale of shares of stock or of assets) if Executive
is offered continued employment on terms that would not constitute a Change in
Duties by the acquiror of such business segment immediately upon such sale or
divestiture, or any termination as a result of death, disability under
circumstances entitling him to benefits under the Company's long-term disability
plan, or Retirement.
(g) "RETIREMENT" shall mean Executive's voluntary resignation
on or after the date he reaches age sixty-five (other than a resignation within
sixty days after the date Executive receives notice of a Change in Duties or a
resignation at the request of the Company).
(h) "SEVERANCE AMOUNT" shall mean an amount equal to 2.99
times Executive's Compensation.
(i) "TERMINATION FOR CAUSE" shall mean termination of
Executive's employment by the Company (or its subsidiaries) by reason of
Executive's gross negligence, gross neglect or willful misconduct in the
performance of his duties or Executive's final conviction of a felony or of a
misdemeanor involving moral turpitude, excluding misdemeanor convictions
relating to the operation of a motor vehicle.
(j) "WELFARE BENEFIT COVERAGES" shall mean the medical,
dental, life insurance and accidental death and dismemberment coverages provided
by the Company to its active employees.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto) during the
period of his employment to the best of his ability and in a prudent and
businesslike manner and that he will devote substantially the same time, efforts
and dedication to his duties as heretofore devoted.
3. SEVERANCE BENEFITS. If Executive's employment by the Company or any
subsidiary thereof or successor thereto shall be subject to an Involuntary
Termination which occurs within two years after the date upon which a Change of
Control occurs, then Executive shall be entitled to receive, as additional
compensation for services rendered to the Company (including its subsidiaries),
the following severance benefits:
(a) A lump sum cash payment in an amount equal to Executive's
Severance Amount.
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<PAGE> 4
(b) Executive shall be entitled to continue the Welfare
Benefit Coverages for himself and, where applicable, his eligible dependents
following his Involuntary Termination for up to thirty-six months (the
"Continuation Period"), as long as Executive continues either to pay the
premiums paid by active employees of the Company for such coverages or to pay
the actual (nonsubsidized) cost of such coverages for which the Company does not
subsidize for active employees. Such benefit rights shall apply only to those
Welfare Benefit Coverages which the Company has in effect from time to time for
active employees, and the applicable payments shall adjust as premiums for
active employees of the Company or actual costs, whichever is applicable,
change. Welfare Benefit Coverage(s) shall immediately end upon Executive's
obtainment of new employment and eligibility for similar Welfare Benefit
Coverage(s) (with Executive being obligated hereunder to promptly report such
eligibility to the Company). Nothing herein shall be deemed to adversely affect
in any way the additional rights, after consideration of the Continuation
Period, of Executive and his eligible dependents to health care continuation
coverage as required pursuant to Part 6 of Title I of the Employee Retirement
Income Security Act of 1974, as amended. If, for any reason, Company is unable
to continue any of the Welfare Benefit Coverages during a period in which
Executive would otherwise be entitled to continue such Welfare Benefit
Coverage(s), Company shall pay Executive an amount equal to the economic value
of such Welfare Benefit Coverage(s).
(c) Executive shall be entitled to receive out-placement
services in connection with obtaining new employment up to a maximum cost of
$6,000, or an equivalent cash payment, if Executive either has or is not seeking
new employment.
(d) The severance benefits payable under this Agreement shall
be paid to Executive on or before the tenth business day after the last day of
Executive's employment with the Company; provided, however, that such severance
benefits shall not be paid earlier than the day after expiration of the
revocation period for the release required by Paragraph 6(i). Any severance
benefits paid pursuant to this Paragraph will be deemed to be a severance
payment and not compensation for purposes of determining benefits under the
Company's qualified plans and shall be subject to any required tax withholding.
4. INTEREST ON LATE BENEFIT PAYMENTS. If any payment provided for in
Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to
Executive interest on the amount payable from the date that such payment should
have been made under such paragraph until such payment is made, which interest
shall be calculated at a rate equal to two percentage points over the prime or
base rate of interest announced by Chase Bank of Texas, N.A. (or any successor
thereto) at its principal office in Houston, Texas and shall change when and as
any such change in such prime or base rate shall be announced by such bank.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Notwithstanding anything
to the contrary in this Agreement, in the event that any payment or distribution
by the Company to or for the benefit of Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties with respect to such excise tax
(such excise tax, together with any such interest or penalties, are hereinafter
collectively referred to as the "Excise Tax"), the Company shall pay to
Executive an additional payment (a "Gross-up Payment") in an amount such that
after payment by Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax imposed on any
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<PAGE> 5
Gross-up Payment, Executive retains an amount of the Gross-up Payment equal to
the Excise Tax imposed upon the Payment. The Company and Executive shall make an
initial determination as to whether a Gross-up Payment is required and the
amount of any such Gross-up Payment. Executive shall notify the Company in
writing of any claim by the Internal Revenue Service which, if successful, would
require the Company to make a Gross-up Payment (or a Gross-up Payment in excess
of that, if any, initially determined by the Company and Executive) within ten
days of the receipt of such claim. The Company shall notify Executive in writing
at least ten days prior to the due date of any response required with respect to
such claim if it plans to contest the claim. If the Company decides to contest
such claim, Executive shall cooperate fully with the Company in such action;
provided, however, the Company shall bear and pay directly or indirectly all
costs and expenses (including additional interest and penalties) incurred in
connection with such action and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of the Company's action. If,
as a result of the Company's action with respect to a claim, Executive receives
a refund of any amount paid by the Company with respect to such claim, Executive
shall promptly pay such refund to the Company. If the Company fails to timely
notify Executive whether it will contest such claim or the Company determines
not to contest such claim, then the Company shall immediately pay to Executive
the portion of such claim, if any, which it has not previously paid to
Executive.
6. GENERAL.
(a) TERM. The effective date of this Agreement is ___________.
The initial term of this Agreement shall be the period beginning on said
effective date and ending on the three-year anniversary of said effective date.
Within sixty days following the expiration of the initial term of this Agreement
and within sixty days after each successive three-year period of time thereafter
that this Agreement is in effect, the Company shall have the right to review
this Agreement, and in its sole discretion either continue and extend this
Agreement, terminate this Agreement, and/or offer Executive a different
agreement. The Board (excluding any member of the Board who is covered by this
Agreement or by a similar agreement with the Company) will vote on whether to so
extend, terminate, and/or offer Executive a different agreement and will notify
Executive of such action before the end of said sixty-day time period mentioned
above. This Agreement shall remain in effect until so terminated and/or modified
by the Company. Failure of the Board to take any action within said sixty-day
time period shall be considered as an extension of this Agreement for an
additional three-year period of time. Notwithstanding anything to the contrary
contained in this "SUNSET PROVISION," it is agreed that if a Change of Control
occurs while this Agreement is in effect, then this Agreement shall not be
subject to termination or modification under this "SUNSET PROVISION," and shall
remain in force for a period of two years after such Change of Control, and if
within said two years the contingency factors occur which would entitle
Executive to the benefits as provided herein, this Agreement shall remain in
effect in accordance with its terms. If, within such two years after a Change of
Control, the contingency factors that would entitle Executive to said benefits
do not occur, thereupon this three-year "SUNSET PROVISION" shall again be
applicable with the sixty-day time period for Board action to thereafter
commence at the expiration of said two years after such Change of Control and on
each three-year anniversary date thereafter.
(b) INDEMNIFICATION. If Executive shall obtain any money
judgment or otherwise prevail with respect to any litigation brought by
Executive or the Company to enforce
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<PAGE> 6
or interpret any provision contained herein, the Company, to the fullest extent
permitted by applicable law, hereby indemnifies Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation and hereby agrees
(i) to pay in full all such fees and disbursements and (ii) to pay prejudgment
interest on any money judgment obtained by Executive from the earliest date that
payment to him should have been made under this Agreement until such judgment
shall have been paid in full, which interest shall be calculated at a rate equal
to two percentage points over the prime or base rate of interest announced by
Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in
Houston, Texas, and shall change when and as any such change in such prime or
base rate shall be announced by such bank.
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive the amounts and to make
the arrangements provided herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which the Company
(including its subsidiaries) may have against him or anyone else. All amounts
payable by the Company (including its subsidiaries hereunder) shall be paid
without notice or demand. Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and, except as provided in Paragraph 3(b) hereof,
the obtaining of any such other employment shall in no event effect any
reduction of the Company's obligations to make (or cause to be made) the
payments and arrangements required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and inure
to the benefit of the Company and any successor of the Company, by merger or
otherwise. This Agreement shall also be binding upon and inure to the benefit of
Executive and his estate. If Executive shall die prior to full payment of
amounts due pursuant to this Agreement, such amounts shall be payable pursuant
to the terms of this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement or the rights
hereunder, except by will or the laws of descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In the case of Executive,
such notices or communications shall be effectively delivered if hand delivered
to Executive at his principal place of employment or if sent by registered or
certified mail to Executive at the last address he has filed with the Company.
In the case of the Company, such notices or communications shall be effectively
delivered if sent by registered or certified mail to the Company at its
principal executive offices.
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(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas. Further, Executive
agrees that any legal proceeding to enforce the provisions of this Agreement
shall be brought in Houston, Harris County, Texas, and hereby waives his right
to any pleas regarding subject matter or personal jurisdiction and venue.
(i) RELEASE. As a condition to the receipt of any benefit
under Paragraph 3 hereof, Executive shall first execute a release, in the form
established by the Company, releasing the Company, its affiliates, predecessors,
successors, shareholders, partners, officers, directors, employees and agents
from any and all claims and from any and all causes of action of any kind or
character, including but not limited to all claims or causes of action arising
out of Executive's employment with the Company or the termination of such
employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives
the benefits provided hereunder, performance of the obligations of the Company
hereunder will constitute full settlement of all claims that Executive might
otherwise assert against the Company on account of his termination of
employment.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company (including its
subsidiaries), and no such obligation shall create a trust or be deemed to be
secured by any pledge or encumbrance on any property of the Company (including
its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be
deemed to constitute a contract of employment, nor shall any provision hereof
affect (i) the right of the Company (or its subsidiaries) to discharge Executive
at will or (ii) the terms and conditions of any signed written agreement
hereafter executed by Company and Executive. This Agreement constitutes the
entire agreement of the parties with regard to the subject matter hereof, and
contains all the covenants, promises, representations, warranties and agreements
between the parties with respect to any termination of Executive's employment
with the Company. Without limiting the scope of the preceding sentence, all
prior understandings and agreements among the parties hereto relating to the
subject matter hereof are hereby null and void and of no further force and
effect. Further, without limiting the scope of this paragraph, this Agreement
supersedes and replaces any Severance Agreement between Company (or its
predecessors) and Executive (a "Prior Agreement") in its entirety and any such
Prior Agreement shall be null and void and of no further force and effect. Any
modification of this Agreement will be effective only if it is in writing and
signed by the party to be charged.
(m) NUMBER AND GENDER. Wherever appropriate herein, words used
in the singular shall include the plural and the plural shall include the
singular. The masculine gender where appearing herein shall be deemed to include
the feminine gender.
(n) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together will constitute one and the same Agreement.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the _____ day of __________________, 1999.
"EXECUTIVE"
------------------------------------------
"COMPANY"
OCEAN ENERGY, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 46,366
<SECURITIES> 0
<RECEIVABLES> 137,539
<ALLOWANCES> 0
<INVENTORY> 26,592
<CURRENT-ASSETS> 232,669
<PP&E> 4,258,286
<DEPRECIATION> 1,805,579
<TOTAL-ASSETS> 3,180,345
<CURRENT-LIABILITIES> 323,629
<BONDS> 1,798,845
0
1
<COMMON> 16,653
<OTHER-SE> 891,537
<TOTAL-LIABILITY-AND-EQUITY> 3,180,345
<SALES> 301,900
<TOTAL-REVENUES> 301,900
<CGS> 0
<TOTAL-COSTS> 287,223
<OTHER-EXPENSES> 40,538
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,191
<INCOME-PRETAX> (95,135)
<INCOME-TAX> (15,673)
<INCOME-CONTINUING> (79,462)
<DISCONTINUED> 547
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (80,552)
<EPS-BASIC> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
