================================================================================
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 Identification No.)
incorporation or organization)
1001 Fannin, Suite 1600
Houston, Texas 77002-6714
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 265-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $.10 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. []
As of March 22, 2000, the aggregate market value of the outstanding shares
of Common Stock of the Company held by non-affiliates (based on the closing
price of these shares on the New York Stock Exchange) was approximately
$1,973,247,000.
As of March 22, 2000, 166,648,211 shares of Common Stock, par value $0.10
per share, were outstanding.
Documents Incorporated by Reference
Document Part of Form 10-K
(1) Annual Report to Shareholders for PARTS I and II
year ended December 31, 1999
(2) Proxy Statement for Annual meeting PART III
of Shareholders to be held on May 10, 2000
================================================================================
<PAGE>
Ocean Energy, Inc.
Index
Page
Part I
Item 1. Business....................................................... 1
Oil and Gas Operations....................................... 2
U.S. Regulation.............................................. 9
Competition.................................................. 10
International Operations..................................... 10
Environmental Matters........................................ 11
Risk Factors................................................. 12
Employees.................................................... 15
Executive Officers of the Company............................ 16
Item 2. Properties................................................... 18
Item 3. Legal Proceedings............................................ 22
Item 4. Submission of Matters to a Vote of Security Holders.......... 22
Part II
Item 5. Market for Registrant's Common Stock and
Related Shareholder Matters................................ 22
Item 6. Selected Financial Data...................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................... 23
Item 7a. Quantitative and Qualitative Disclosures About Market Risk... 23
Item 8. Financial Statements and Supplementary Data.................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................... 24
Part III
Item 10. Directors and Executive Officers of the Registrant........... 24
Item 11. Executive Compensation....................................... 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................. 24
Item 13. Certain Relationships and Related Transactions............... 24
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K........................................ 25
Signatures............................................................. 32
(i)
<PAGE>
Ocean Energy, Inc.
Part I
Item 1. Business
Ocean Energy, Inc. (the "Company" or "Ocean") is an independent energy
company engaged in the exploration, development, production, and acquisition of
crude oil and natural gas. North American operations are focused primarily in
the shelf and deepwater areas of the Gulf of Mexico, the Permian Basin,
Midcontinent, Arklatex, South Texas and Rocky Mountain areas. Internationally,
the Company explores for and produces oil and gas in West Africa (Angola, Cote
d'Ivoire and Equatorial Guinea), Egypt, Pakistan and Yemen. Ocean also has
exploration and exploitation programs underway in Russia and Indonesia.
On March 30, 1999, the Company merged with and into Seagull Energy
Corporation (the "Seagull Merger"). 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 and
operating results and property descriptions presented here, unless expressly
noted otherwise, are those of Ocean Energy, Inc. on a stand-alone basis for the
first quarter of 1999 and of the combined company for the remainder of 1999,
compared to Ocean's results for 1998 and 1997 on a stand-alone basis ("Old
Ocean").
The Seagull Merger united the best of the two companies' technical,
commercial and financial staffs. The new Ocean emerged with a commitment to
produce low-cost energy, thereby enhancing shareholder success and value. At the
time of the Seagull Merger, management pledged to reduce the Company's high debt
levels, reduce general and administrative expenses by $45 million per year,
achieve a minimum 100% replacement of production and significantly improve
finding and development costs. By the end of the year, Ocean had surpassed those
targets by:
- - selling more than $700 million of assets, thereby decreasing the Company's
debt to total capital ratio from 78% at the end of 1998 to 58% at the end
of 1999;
- - achieving 504% reserve replacement from all sources and 130% reserve
replacement, excluding acquisitions;
- - improving finding and development costs to $5.13 per BOE from all sources
and $4.98 per BOE excluding acquisitions;
- - eliminating over $50 million in general and administrative
expenses; and
- - reducing 1999 all-in costs to $12.57 per BOE from $13.27
per BOE for 1998.
As Ocean moves forward, the Company is committed to maintaining its focus
on efficiency in its operations and strengthening its capital structure.
Progress in this area will be achieved by maintaining low finding and
development costs, and holding down lease operating and general and
administrative expenses.
1
<PAGE>
Ocean Energy, Inc.
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 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.
Oil and Gas Operations
The Company's operating activities are focused primarily in three operating
areas: (i) certain onshore areas of North America, (ii) the continental shelf
and deepwater areas (water depth of over 1,500 feet) of the Gulf of Mexico, and
(iii) the international area comprising the West African countries of Angola,
Cote d'Ivoire and Equatorial Guinea, the Asian Basin countries of Pakistan and
Indonesia, the Middle East country of Republic of Yemen, the Northern African
country of Egypt, and Russia.
The Company's capital investment program during 2000 is expected to total
approximately $500 million. The spending is expected to be funded from the
Company's cash flow from operations based on anticipated commodity prices, and
is subject to change if market conditions shift or new opportunities are
identified. Of the budget, approximately 31 percent will be spent on exploratory
drilling, 25 percent on development drilling, 20 percent on construction to
bring on production, 4 percent for leasehold and geological and geophysical
costs and 2 percent on corporate costs. In addition, capitalized interest and
general and administrative expenses are expected to be approximately $80
million.
2
<PAGE>
Ocean Energy, Inc.
Ocean's principal oil and gas producing areas include the following:
<TABLE>
<CAPTION>
Proved Reserves at December 31, 1999
--------------------------------------------------------------------
Gas (Bcf) Oil (MMBbl) MMBOE
------------------- -------------------- ------------------
<S> <C> <C> <C>
Domestic:
North America Onshore........ 833.2 28.6 167.5
Gulf of Mexico............... 322.8 61.2 115.0
International:
Equatorial Guinea............ - 48.2 48.2
Cote d'Ivoire................ 177.0 7.1 36.6
Egypt........................ 1.4 20.5 20.7
Other International.......... 52.8 18.2 27.0
------------------- ------------------ --------------------
Total........................... 1,387.2 183.8 415.0
=================== ================== ====================
</TABLE>
For additional information relating to the Company's oil and gas reserves,
see Note 15 to Consolidated Financial Statements included in the Company's 1999
Annual Report to Shareholders and as Exhibit 13 attached hereto. As required,
Ocean also files estimates of oil and gas reserve data with various governmental
regulatory authorities and agencies. These estimates were not materially
different from the reserve estimates reported in the Consolidated Financial
Statements.
Domestic
The Company's domestic activities reside in two main areas: the Gulf of
Mexico and certain onshore areas of North America. The domestic area accounts
for 68% of the Company's reserves and 69% of total production for the year ended
December 31, 1999.
Gulf of Mexico - The Company's Gulf of Mexico properties are located in
offshore waters along the coasts of Texas and Louisiana. For 1999, the Gulf of
Mexico area had average daily production of approximately 52 MBOE per day. This
area currently accounts for 31% of company-wide production and will be the focus
of nearly half of the Company's planned capital expenditures in 2000.
The major growth area in this area is within Ocean's deepwater prospects
(in water depth of over 1,500 feet). The Company had four deepwater discoveries
in 1999, one each at Nansen, Boomvang, Magnolia and Orion II. Development
scenarios are being evaluated for these areas and Ocean expects to spend $90
million to $100 million of its planned 2000 capital expenditures on deepwater
projects.
North America Onshore - Ocean's portfolio of onshore properties in North
America is focused primarily in the Anadarko Basin of the Texas Panhandle and
western Oklahoma, the Arklatex area of east Texas and northwest Louisiana, the
Permian Basin, South Texas, and the Bear Paw Field in north central Montana.
These properties are located mostly in mature fields where the Company can take
advantage of low-cost exploitation to maintain and replace reserves without
utilizing significant amounts of capital resources that can propel other growth
platforms.
3
<PAGE>
Ocean Energy, Inc.
For 1999, the North America Onshore area had average daily production of
approximately 48 MBOE per day.
International
Internationally, the Company produces in five countries - Equatorial
Guinea, Cote d'Ivoire, Egypt, Russia and Indonesia. In addition, the Company has
interests in various other countries around the world, including Angola,
Pakistan and Yemen. The following is a description of each of the Company's
major international operating areas.
Equatorial Guinea - In Equatorial Guinea, the Company has four PSCs through
which the Company holds contract interests ranging from 24% to 94%. For 1999,
the Company had production of over 20,000 Mbbl per day from the Zafiro Field in
Block B. Additional development activity is underway in 2000 with the
installation of a new platform and additional drilling that should further
increase production capabilities from the field. Exploratory efforts in 2000 are
concentrated upon both Block B and Block C. Ocean plans to participate in the
Oreja Marina well on Block C that will test the Isongo formation which the
Company believes has significant reserve potential. Other potential exploratory
activities include the drilling of the Calcedonia prospect on Block B that will
test one of the sands from which the Zafiro Field produces.
Cote d'Ivoire - In Cote d'Ivoire, the Company operates five PSCs and a
liquified petroleum gas extraction plant. During 1999, the Company produced
approximately 10,000 BOE per day in Cote d'Ivoire.
Egypt - The Company's Egyptian operations consist of working interests in
six concessions that were acquired in the Seagull Merger. Four of these
concessions are producing concessions - Qarun, East Zeit, East Beni Suef and
West Abu Gharadig. For 1999, Ocean had production in Egypt of over 8,000 BOE per
day. Ocean also holds interests in two exploratory blocks in the Gulf of Suez
and plans to test one of these prospects, in the Southeast Gulf of Suez, in
2000.
Other International - The Company's other international operations include
additional exploratory opportunities and producing properties.
In the Republic of Angola, Ocean holds interests in approximately 1.2
million gross acres in Block 19, in the Lower Congo Basin where several large
fields have been discovered, and another approximately 1.2 million gross acres
in Block 24 in the neighboring Kwanza Basin - a new deepwater play. In 2000, the
Company expects to drill an exploratory well on Block 24 and continue seismic
evaluation of Block 19 with drilling scheduled for late 2000 or early 2001.
The Company drilled its first exploratory well offshore Pakistan during
1999 to gain further information about the 6.2 million offshore acres in which
it holds interests. As evaluations continue on the information gained from this
well, the Company is drilling another exploratory well on a nearby offshore
concession.
4
<PAGE>
Ocean Energy, Inc.
During 2000, the Company expects to drill two onshore wells in Yemen's
Block 43 in which the Company has a 59.5% working interest.
In the Seagull Merger, the Company acquired a net 45% interest in a joint
venture in Tatarstan, a republic in the Russian Federation located west of the
Ural Mountains and east of the Volga River. During 1999, the joint venture's
activities included vapor recovery projects and the development and operation of
the Onbysk and Demkino fields. During 1999, the Company produced over 3,000 BOE
per day in Russia.
Also in the Seagull Merger, Ocean acquired a 1.7% interest in a joint
venture for the exploration, development and production of oil and gas in
approximately 1.1 million acres in East Kalimantan, Indonesia. The majority of
the joint venture's revenue results from the sale of liquified natural gas.
In January 2000, the Company announced a decision to discontinue any
further operations in Bangladesh.
The Company's acreage in the international area is generally held pursuant
to Production Sharing Contracts ("PSCs") with host governments. Generally, under
a PSC, the working interest partners pay all of the capital and operating costs
and production is split between the government and the working interest
partners. Working interest partners recover costs from a percentage of produced
and sold petroleum. The remaining oil and gas produced and sold, and any portion
of cost recovery not used to recover costs, is divided between the government
and the working interest partners. Included in the government's share of
remaining petroleum are all government royalties and, in certain situations, the
applicable income taxes for the working interest partners.
Production
The following table summarizes the Company's production, average sales
prices and operating costs for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997
----------------- --------------- ----------------
<S> <C> <C> <C>
Domestic (1) :
Net production:
Gas (MMcf)...................................... 137,195 99,346 81,154
Oil and NGL (Mbbl).............................. 13,532 14,660 12,159
Average sales price: (2)
Gas (per Mcf)................................... $ 2.11 $ 1.96 $ 2.41
Oil and NGL (per Bbl)........................... $ 16.94 $ 12.46 $ 18.88
Average operating costs (per BOE) (3)............. $ 4.43 $ 5.03 $ 4.72
Equatorial Guinea:
Oil production (Mbbl)............................. 7,323 6,537 4,453
Average oil sales price (per Bbl) (2)............. $ 17.91 $ 11.35 $ 17.71
Average operating costs (per BOE) (3)............. $ 3.02 $ 1.99 $ 1.24
</TABLE>
5
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cote d'Ivoire (1):
Net production:
Gas (MMcf)...................................... 11,050 7,824 4,939
Oil and NGL (Mbbl).............................. 1,765 1,081 1,027
Average sales price: (2)
Gas (per Mcf)................................... $ 1.68 $ 1.64 $ 1.81
Oil and NGL (per Bbl)........................... $ 18.24 $ 12.56 $ 18.35
Average operating costs (per BOE) (3)............. $ 3.16 $ 3.29 $ 3.03
Egypt (1):
Net production:
Gas (MMcf)...................................... 264 - -
Oil and NGL (Mbbl).............................. 2,999 - -
Average sales price: (2)
Gas (per Mcf)................................... $ 3.66 $ - $ -
Oil and NGL (per Bbl) (2)....................... $ 19.32 $ - $ -
Average operating costs (per BOE) (3)............. $ 3.51 $ - $ -
Other International (1):
Net production:
Gas (MMcf)...................................... 5,666 10,135 7,630
Oil and NGL (Mbbl)............................. 1,366 450 439
Average sales price: (2)
Gas (per Mcf)................................... $ 1.81 $ 1.37 $ 1.40
Oil and NGL (per Bbl)........................... $ 12.31 $ 11.78 $ 17.97
Average operating costs (per BOE ) (3)............ $ 3.30 $ 3.30 $ 4.03
Total (1):
Net production:
Gas (MMcf)...................................... 154,175 117,305 93,723
Oil and NGL (Mbbl)............................. 26,985 22,728 18,078
Average sales price: (2)
Gas (per Mcf)................................... $ 2.08 $ 1.89 $ 2.30
Oil and NGL (per Bbl)........................... $ 17.32 $ 12.13 $ 18.54
Average sales price including hedging: (2)
Gas (per Mcf)................................... $ 2.10 $ 1.89 $ 2.28
Oil and NGL (per Bbl)........................... $ 15.27 $ 13.21 $ 18.54
Average operating costs (per BOE) (3) ............ $ 4.12 $ 4.38 $ 4.14
</TABLE>
(1) The Company's Egyptian operations and a portion of its domestic, Cote
d'Ivorian and other international operations were acquired as a result of
the Seagull Merger on March 30, 1999. In addition, Other International for
1998 and 1997 consists solely of the Company's Canadian operations which
were sold in April 1999.
(2) Average sales prices are before deduction of production, severance, and
other taxes and after deduction of certain transportation costs.
(3) Operating costs represent costs incurred to operate and maintain wells and
related equipment and facilities. These costs include, among other things,
repairs and maintenance, workover expenses, labor, materials, supplies,
property taxes, insurance, severance taxes, and general operating expenses.
Oil and Gas Drilling Activities
Ocean's oil and gas exploratory and developmental drilling activities are
as follows for the periods indicated. A well is considered productive for
purposes of the following table if it justifies the installation of permanent
equipment for the production of oil or gas. The term "gross wells" means the
total number of wells in which Ocean owns an interest, while the term "net
wells" means the sum of the fractional working interests Ocean owns in gross
wells. The information should not be considered indicative of future
performance, nor should it be assumed
6
<PAGE>
Ocean Energy, Inc.
that there is necessarily any correlation between the number of productive wells
drilled, quantities of reserves found or economic value.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1999 1998 1997
---------------------- ------------------------- ----------------------
Gross Net Gross Net Gross Net
--------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Domestic (1):
Exploratory Drilling:
Productive Wells................. 21 9.7 41 24.6 31 20.9
Dry Holes........................ 12 5.6 19 10.4 22 11.8
Development Drilling:
Productive Wells................. 151 93.6 207 98.3 221 89.9
Dry Holes........................ 38 31.4 17 13.6 19 11.0
Equatorial Guinea:
Exploratory Drilling:
Productive Wells................. - - 3 2.3 3 1.3
Dry Holes........................ 3 0.7 5 3.5 4 1.5
Development Drilling:
Productive Wells................. 3 0.7 5 1.2 9 2.3
Dry Holes........................ - - - - - -
Cote d'Ivoire (1):
Exploratory Drilling:
Productive Wells................. - - 2 1.6 2 0.7
Dry Holes........................ 1 0.4 3 2.3 4 1.5
Development Drilling:
Productive Wells................. - - - - 4 1.4
Dry Holes........................ - - - - 1 0.5
Egypt (1):
Exploratory Drilling:
Productive Wells................. - - - - - -
Dry Holes........................ 1 0.3 - - - -
Development Drilling:
Productive Wells................. 5 1.5 - - - -
Dry Holes........................ - - - - - -
Other International (1):
Exploratory Drilling:
Productive Wells................ 1 0.5 12 8.2 11 5.8
Dry Holes....................... 1 1.0 10 6.8 9 5.5
Development Drilling:
Productive Wells................ 16 7.6 52 12.9 55 8.7
Dry Holes....................... - - 2 0.2 3 1.4
Total:
Exploratory Drilling:
Productive Wells................. 22 10.2 58 36.7 47 28.7
Dry Holes........................ 18 8.0 37 23.0 39 20.3
Development Drilling:
Productive Wells................. 175 103.4 264 112.4 289 102.3
Dry Holes........................ 38 31.4 19 13.8 23 12.9
</TABLE>
(1) The Company's Egyptian operations and a portion of its domestic, Cote
d'Ivorian and other international operations were acquired as a result of
the Seagull Merger on March 30, 1999. In addition, Other International for
1998 and 1997 consists solely of the Company's Canadian operations which
were sold in April 1999.
7
<PAGE>
Ocean Energy, Inc.
The Company had 31 gross (13.5 net) exploratory wells and 46 gross (24.4
net) development wells in progress at December 31, 1999. Wells classified as "in
progress" at year-end represent wells where drilling activity is ongoing, wells
awaiting installation of permanent equipment and wells awaiting the drilling of
additional delineation wells.
The following table sets forth information regarding the number of
productive wells in which the Company held a working interest at December 31,
1999. Productive wells are either producing wells or wells capable of commercial
production although currently shut-in. One or more completions in the same
borehole are counted as one well.
<TABLE>
<CAPTION>
Gross Wells Net Wells
---------------------------------------------- ----------------------------------------------
Multiple Multiple
Gas Oil Total Completions Gas Oil Total Completions
---------- --------- --------- ------------ -------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
North America
Onshore..... 2,801 2,115 4,916 95 1,477.6 298.8 1,776.4 43.6
Gulf of Mexico 154 583 737 74 79.5 502.6 582.1 60.1
Equatorial Guinea - 22 22 - - 5.5 5.5 -
Cote d'Ivoire.... 4 14 18 2 1.9 6.7 8.6 1.0
Egypt............ - 68 68 10 - 27.2 27.2 2.8
Other International - 210 210 - - 105.0 105.0 -
---------- --------- --------- ------------ -------- --------- ---------- ------------
2,959 3,012 5,971 181 1,559.0 945.8 2,504.8 107.5
========== ========= ========= ============ ======== ========= ========== ============
</TABLE>
Developed and Undeveloped Oil and Gas Acreage
As of December 31, 1999, the Company owned working interests in the
following developed and undeveloped oil and gas acreage (amounts in thousands):
<TABLE>
<CAPTION>
Developed Undeveloped
--------------------------------- ----------------------------------
Gross Net Gross Net
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Domestic:
North America Onshore......... 1,000 576 1,813 597
Gulf of Mexico................ 542 260 1,141 632
International:
Equatorial Guinea............. 36 9 1,619 797
Cote d'Ivoire................. 13 7 1,727 1,010
Egypt......................... 438 117 8,359 3,443
Other International........... 39 19 12,888 9,158
------------- ------------- -------------- --------------
Total 2,068 988 27,547 15,637
============= ============= ============== ==============
</TABLE>
Additionally, as of December 31, 1999, the Company owned mineral and/or
royalty interests in 185,000 gross (2,000 net) developed acres located primarily
in Australia and Indonesia and 9,786,000 gross (3,252,000 net) undeveloped
acres, located primarily in Equatorial Guinea.
For additional information relating to oil and gas producing activities,
see Note 15 of Notes to the Consolidated Financial Statements included in the
Company's 1999 Annual Report to Shareholders and as part of Exhibit 13 attached
hereto.
8
<PAGE>
Ocean Energy, Inc.
U.S. Regulation
The availability of a ready market for oil and natural gas production
depends upon numerous regulatory factors beyond the Company's control. These
factors include regulation of oil and natural gas production, federal and state
regulations governing environmental quality and pollution control and state
limits on allowable rates of production by a well or proration unit. State and
federal regulations generally are intended to prevent waste of oil and natural
gas, protect rights to produce oil and natural gas between owners in a common
reservoir, control the amount of oil and natural gas produced by assigning
allowable rates of production and control contamination of the environment.
Regulation of Oil and Natural Gas Exploration and Production. Exploration
and production operations of the Company are subject to various types of
regulation at the federal, state and local levels. Such regulation includes
requiring permits for the drilling of wells, maintaining bonding requirements in
order to drill or operate wells, and regulating the location of wells, the
method of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilling and the plugging and abandonment of
wells. The Company's operations are also subject to various conservation laws
and regulations. These include the regulation of the size of drilling and
spacing units or proration units and the density of wells which may be drilled
and unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of tracts to facilitate
exploration while other states rely on voluntary pooling of lands and leases. In
addition, state conservation laws establish maximum rates of production
requirements regarding the ratability of production.
Federal Regulation of Sales and Transportation of Natural Gas.
Historically, the transportation and sale for resale of natural gas in U.S.
interstate commerce has been regulated pursuant to several laws enacted by
Congress and the regulations promulgated under these laws by the Federal Energy
Regulatory Commission ("FERC"). In the past, the U.S. government has regulated
the prices at which gas could be sold. Congress removed all price and non-price
controls affecting wellhead sales of natural gas effective January 1, 1993.
Congress could, however, reenact price controls in the future. Our sales of
natural gas are affected by the availability, terms and cost of transportation.
The price and terms for access to pipeline transportation are subject to
extensive federal and state regulation. From 1985 to the present, several major
regulatory changes have been implemented by Congress and the FERC that affect
the economics of natural gas production, transportation and sales. In addition,
the FERC is continually proposing and implementing new rules and regulations
affecting those segments of the natural gas industry, most notably interstate
natural gas transmission companies, that remain subject to the FERC's
jurisdiction. These initiatives may also affect the intrastate transportation of
gas under certain circumstances. The stated purpose of many of these regulatory
changes is to promote competition among the various sectors of the natural gas
industry and these initiatives generally reflect more light-handed regulation.
The ultimate impact of the complex rules and regulations issued by the FERC
since 1985 cannot be predicted. In addition, many aspects of these regulatory
developments are still pending judicial and FERC final decisions. We cannot
predict what further action the FERC will take on these matters. Some of the
FERC's more
9
<PAGE>
Ocean Energy, Inc.
recent proposals may, however, adversely affect the availability and reliability
of interruptible transportation service on interstate pipelines. We do not
believe that we will be affected by any action taken materially differently than
other natural gas producers, gatherers and marketers with which we compete.
Offshore Leasing. U.S. offshore operations the Company conducts are on
federal oil and gas leases. Ocean must comply with regulatory restrictions from
numerous agencies, including the U.S. Minerals Management Service ("MMS"), U.S.
Bureau of Land Management, U.S. Coast Guard and U.S. Environmental Protection
Agency. For offshore operations, the Company must obtain regulatory approval for
exploration, development and production plans prior to the commencement of such
operations. These agencies have stringent engineering and construction
specifications, safety-related regulations concerning the design and operating
procedures for offshore production platforms and pipelines, regulations to
prohibit the flaring of liquid hydrocarbons and oil without prior authorization,
regulations governing the plugging and abandonment of wells located offshore and
the removal of all production facilities and other rules and regulations
governing many phases of offshore operations. To cover the various obligations
of lessees, governmental agencies generally require substantial bonds or other
acceptable assurances that such obligations will be met.
The restructuring of oil and gas markets has resulted in a shifting of
markets downstream from the wells. Deregulation has altered the marketplace such
that lessors, including the MMS, are challenging the methods of valuation of
production for royalty purposes. In addition, the MMS is conducting an inquiry
into certain contract settlement agreements from which producers on MMS leases
have received settlement proceeds that are royalty bearing and the extent to
which producers have paid the appropriate royalties on those proceeds.
Competition
The Company's competitors in oil and gas exploration, development and
production include major oil companies, as well as numerous independent oil and
gas companies, individuals and drilling partnerships. Some of these competitors
have financial and personnel resources substantially in excess of those
available to the Company and, therefore, the Company may be placed at a
competitive disadvantage. The Company's success in discovering reserves will
depend on its ability to select suitable prospects for future exploration in
today's competitive environment. For further discussion of the Company's
customers and markets see Note 2 of Notes to the Consolidated Financial
Statements included in the Company's 1999 Annual Report to Shareholders and as
part of Exhibit 13 attached hereto.
International Operations
The Company's interests in countries outside the United States are subject
to the various risks inherent in foreign operations. Operations in foreign
countries, particularly in the oil and gas business, are subject to political,
economic and other uncertainties, including: the risk of war, revolution, border
disputes, expropriation, renegotiation or modification of existing contracts,
10
<PAGE>
Ocean Energy, Inc.
import, export and transportation regulations and tariffs; taxation policies,
including royalty and tax increases and retroactive tax claims; and exchange
controls and currency fluctuations. In addition, in the event of a dispute
arising from foreign operations, the Company may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in subjecting foreign
persons to the jurisdiction of the courts of the United States. The Company's
international operations may also be adversely affected by laws and policies of
the United States affecting foreign trade, taxation and investment. The Company
seeks to manage these risks by, among other things, concentrating its
international exploration efforts in areas where the Company believes that the
existing government is favorably disposed towards United States exploration and
production companies.
If a country claims superior rights to oil and gas leases or concessions
granted to the Company by another country, the Company's interests could be lost
or decreased in value. Certain areas of Africa and other areas of the world have
a history of political and economic instability. This instability could result
in new governments or the adoption of new policies that might assume a
substantially more hostile attitude toward foreign investment. In an extreme
case, such a change could result in termination of contract rights and
expropriation of foreign-owned assets. This could adversely affect the Company's
interests.
Environmental Matters
Ocean's operations are subject to federal, foreign, state and local laws
and regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. These laws and regulations may require the
acquisition of a permit before drilling or production commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, restrict the rate of oil and gas production
and impose substantial liabilities for pollution resulting from the Company's
operations. State laws often require some form of remedial action to prevent
pollution from former operations, such as pit closure and plugging abandoned
wells. In addition, these laws and regulations may impose substantial
liabilities and penalties for the Company's failure to comply with them or for
any contamination resulting from the Company's operations.
The Company has established policies and procedures for continuing
compliance with environmental laws and regulations; however the Company does not
believe costs relating to these laws and regulations have had a material adverse
effect on the Company's operations or financial condition in the past. As these
laws and regulations are becoming more stringent and complex, there is no
assurance that changes in or additions to laws or regulations regarding the
protection of the environment will not have such an impact in the future. The
requirements imposed by these laws and regulations are frequently changed and
subject to new interpretations. It is likely that the costs of compliance with
environmental laws and regulations could increase
11
<PAGE>
Ocean Energy, Inc.
the cost of operating drilling equipment or significantly limit drilling and
operation or production activities.
Risk Factors
In addition to the other information in this document, investors in our
common stock should consider carefully the following risks.
Dependence On Oil and Gas Prices. Ocean's success will depend on the market
prices of oil and gas. These market prices tend to fluctuate significantly in
response to market factors beyond our control. Oil prices in particular have
reached multi-year highs in some markets in recent months, but we cannot assure
you that these price levels will continue. Reductions in oil and gas prices not
only reduce revenues and profits, but could also reduce the quantities of
reserves that are commercially recoverable and could result in charges to
earnings for impairment of the value of these assets.
Significant Capital Requirements. Ocean must make a substantial amount of
capital expenditures for the acquisition, exploration and development of oil and
gas reserves. Historically, we have paid for these expenditures with cash from
operating activities, proceeds from debt and equity financings and asset sales.
Ocean's revenues or cash flows could be reduced because of lower oil and gas
prices or for some other reason. If Ocean's revenues or cash flows decrease, we
may not have the funds available to replace our reserves or to maintain
production at current levels. If this occurs, it would reduce production over
time. Other sources of financing may not be available if Ocean's cash flows from
operations are not sufficient to fund its capital expenditure requirements.
Where Ocean is not the majority owner or operator of an oil and gas project, it
may have no control over the timing or amount of capital expenditures associated
with the particular project. If Ocean cannot fund its capital expenditures, its
interests in some projects may be reduced or forfeited.
Our Oil and Gas Reserve Information Is Estimated. The proved oil and gas
reserve information included in this document represents only estimates. These
estimates are based primarily on reports prepared by internal reserve engineers.
The estimates were calculated using oil and gas prices as of December 31, 1999,
which could change. Petroleum engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
manner. Estimates of economically recoverable oil and gas reserves and of future
net cash flows necessarily depend upon a number of variable factors and
assumptions, including the following:
- - historical production from the area compared with production from other
producing areas;
- - the assumed effects of regulations by governmental agencies;
- - assumptions concerning future oil and gas prices; and
- - assumptions concerning future operating costs, severance and excise taxes,
development costs and workover and remedial costs.
12
<PAGE>
Ocean Energy, Inc.
Because all reserve estimates are to some degree subjective, each of the
following items may differ materially from those assumed in estimating reserves:
- - the quantities of oil and gas that are ultimately recovered;
- - the production and operating costs incurred;
- - the amount and timing of future development expenditures; and
- - future oil and gas sales prices.
Furthermore, different reserve engineers may make different estimates of
reserves and cash flows based on the same available data. Ocean's actual
production, revenues and expenditures with respect to reserves will likely be
different from estimates and the differences may be material. The discounted
future net cash flows included in this document should not be considered as the
current market value of the estimated oil and gas reserves attributable to
Ocean's properties. As required by the SEC, the estimated discounted future net
cash flows from proved reserves are generally based on prices and costs as of
the date of the estimate, while actual future prices and costs may be materially
higher or lower. Actual future net cash flows also will be affected by factors
such as:
- - the amount and timing of actual production;
- - supply and demand for oil and gas;
- - increases or decreases in consumption; and
- - changes in governmental regulations or taxation.
In addition, the 10% discount factor, which is required by the SEC to be
used to calculate discounted future net cash flows for reporting purposes, is
not necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the Company or the oil and
gas industry in general.
Ocean Operates in Foreign Countries and Will Be Subject to Political,
Economic and Other Uncertainties. Ocean conducts significant operations in
foreign countries, including Angola, Equatorial Guinea and Cote d'Ivoire in
Western Africa and in Yemen, Egypt, Pakistan, Indonesia and the Russian Republic
of Tatarstan. Ocean may also operate in other countries in the future.
Operations in foreign countries, particularly in the oil and gas business, are
subject to political, economic and other uncertainties, including:
- - the risk of war, revolution, border disputes, expropriation, renegotiation
or modification of existing contracts, import, export and transportation
regulations and tariffs;
- - taxation policies, including royalty and tax increases and retroactive tax
claims;
- - exchange controls, currency fluctuations and other uncertainties arising
out of foreign government sovereignty over Ocean's international
operations;
13
<PAGE>
Ocean Energy, Inc.
- - laws and policies of the United States affecting foreign trade, taxation
and investment; and
- - the possibility of having to be subject to the exclusive jurisdiction of
foreign courts in connection with legal disputes and the possible inability
to subject foreign persons to the jurisdiction of courts in the United
States.
Nigeria and other African countries have occasionally asserted rights to
land, including oil and gas properties, through border disputes. If a country
claims superior rights to oil and gas leases or concessions granted to Ocean by
another country, Ocean's interests could be lost or decreased in value. Regions
of Africa and other regions of the world have a history of political and
economic instability. This instability could result in new governments or the
adoption of new policies that might assume a substantially more hostile attitude
toward foreign investment. In an extreme case, such a change could result in
termination of contract rights and expropriation of foreign-owned assets. This
could adversely affect Ocean's interests.
Oil and Gas Operations Involve Substantial Costs and Are Subject to Various
Economic Risks. The oil and gas operations of Ocean are subject to the economic
risks typically associated with exploration, development and production
activities, including the necessity of significant expenditures to locate and
acquire producing properties and to drill exploratory wells. In conducting
exploration and development activities, the presence of unanticipated pressure
or irregularities in formations, miscalculations or accidents may cause Ocean's
exploration, development and production activities to be unsuccessful. This
could result in a total loss of Ocean's investment. In addition, the cost and
timing of drilling, completing and operating wells is often uncertain.
Drilling Oil and Gas Wells Could Involve Blowouts, Hurricanes,
Environmental Hazards and Other Operating Risks. The nature of the oil and gas
business involves certain operating hazards such as well blowouts, cratering,
explosions, uncontrollable flows of oil, gas or well fluids, fires, formations
with abnormal pressures, pollution, releases of toxic gas and other
environmental hazards and risks. Any of these operating hazards could result in
substantial losses to Ocean. In addition, Ocean may be liable for environmental
damages caused by previous owners of property purchased by Ocean or its
predecessors. As a result, substantial liabilities to third parties or
governmental entities may be incurred. The payment of these amounts could reduce
or eliminate the funds available for exploration, development or acquisitions.
These reductions in funds could result in a loss of Ocean's properties.
Additionally, some of Ocean's oil and gas operations are located in areas that
are subject to tropical weather disturbances. Some of these disturbances can be
severe enough to cause substantial damage to facilities and possibly interrupt
production. In accordance with customary industry practices, Ocean maintains
insurance against some, but not all, of such risks and losses. The occurrence of
an event that is not fully covered by insurance could have a material adverse
effect on the financial position and results of operations of Ocean.
Competition Within the Oil and Gas Industry is Intense. The exploration and
production business is highly competitive. Many of Ocean's competitors have
substantially larger financial
14
<PAGE>
Ocean Energy, Inc.
resources, staffs and facilities than Ocean. These competitors include other
independent oil and gas producers such as Anadarko Petroleum Corporation, Apache
Corporation, Burlington Resources Inc., EEX Corporation, EOG Resources, Inc.,
Equitable Resources, Inc., Noble Affiliates, Inc., Nuevo Energy Company, Oryx
Energy Company, Pioneer Natural Resources Company, Pogo Producing Company, Santa
Fe Snyder Corporation, Union Pacific Resources Group Inc. and Vastar Resources,
Inc. as well as major oil and gas companies such as Exxon Mobil Corporation,
Shell Oil Company and BP Amoco Corporation.
Government Agencies Can Increase Costs and Can Terminate or Suspend
Operations. Ocean's business is subject to foreign, federal, state and local
laws and regulations relating to the exploration for, and the development,
production and transportation of, oil and gas, as well as environmental and
safety matters. Many of these laws and regulations have become stricter in
recent years. These laws and regulations often impose greater liability on a
larger number of potentially responsible parties. Under some circumstances, the
U.S. Minerals Management Service may require the operations of Ocean on federal
leases to be suspended or terminated. These circumstances include Ocean's
failure to pay royalties, Ocean's failure to comply with safety and
environmental regulations and the MMS' reaction to political pressure to limit
offshore drilling in environmentally sensitive areas. This could have a material
adverse effect on Ocean's financial condition and operations. The requirements
imposed by these laws and regulations are frequently changed and subject to new
interpretations. It is likely that the costs of compliance could increase the
cost of operating offshore drilling equipment or significantly limit drilling
activity.
Employees
As of February 29, 2000, the Company had 1,150 employees. In addition to
the services of its full time employees, the Company employs, as needed, the
services of consulting geologists, engineers, regulatory consultants, contract
pumpers and certain other temporary employees. Except for local national
employees in Cote d'Ivoire, none of the Company's employees are represented by a
labor union. The Company considers its relations with its employees to be
satisfactory.
15
<PAGE>
Ocean Energy, Inc.
Executive Officers of the Company
The executive officers of the Company, each of whom has been elected to
serve until his successor is elected and qualified, are as follows:
<TABLE>
<CAPTION>
Name Age Present Position and Prior Business Experience
<S> <C> <C>
James T. Hackett.............. 46 President and Chief Executive Officer since March 1999 and Chairman of
the Board since January 2000; President and Chief Executive Officer of
Seagull from September 1998 and Chairman of the Board of Seagull from
January 1999 to March 1999; Group President of Duke Energy's unregulated
operations and Executive Vice President of Panenergy from January 1996
to September 1998. Prior to joining Duke Energy, he was Senior Vice
President of NGC Corporation (formerly Natural Gas Clearinghouse) and
President of NGC's gathering, processing and liquids marketing division.
He became Executive Vice President, partner and a member of the
management committee of Natural Gas Clearinghouse in 1993.
James C. Flores............... 40 Vice Chairman since January 2000; Chairman of the Board from March 1999
to January 2000; President and Chief Executive Officer of Old Ocean from
July 1995 to March 1999; Chairman of the Board of Old Ocean from
inception in 1992 to March 1998.
William L. Transier........... 45 Executive Vice President and Chief Financial Officer since March 1999;
Executive Vice President and Chief Financial Officer of Seagull from
September 1998 to March 1999; Senior Vice President and Chief Financial
Officer of Seagull from May 1996 to September 1998; For the previous 20
years, he held a variety of positions at KPMG LLP including partner from
July 1986 until April 1996.
Robert K . Reeves............. 42 Executive Vice President, General Counsel and Secretary since March
1999; Executive Vice President, General Counsel and Secretary of Old
Ocean from June 1997 to March 1999; Senior Vice President, General
Counsel and Secretary of Old Ocean from May 1994 to June 1997.
John D. Schiller, Jr.......... 40 Executive Vice President, Operations since March 2000; Senior Vice
President, North America Onshore and International Operations from March
1999 to March 2000; Senior Vice President, Operations of Seagull from
September 1998 to March 1999; Production Manager - Gulf Coast Division
of Burlington Resources from October 1997 to August 1998; Engineering
Manager - Offshore Division of Burlington Resources from April 1994 to
September 1997.
William S. Flores, Jr......... 43 Senior Vice President, Drilling since March 1999; Vice President, Drilling
of Old Ocean from March 1998 to March 1999; Vice President, Operations of
Old Ocean from August 1993 to March 1998.
</TABLE>
16
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
<S> <C> <C>
Scott A. Griffiths............ 46 Senior Vice President of International Exploration since March 1999;
Senior Vice President Domestic Exploration of Seagull from September
1998 to March 1999; Vice President Domestic Exploration of Seagull from
May 1997 to September 1998; Vice President of Domestic Exploration of
Seagull from October 1996 to May 1997; Vice President of Exploration of
Global Natural Resources from 1992 to October 1996.
Stephen A. Thorington......... 44 Senior Vice President, Finance, Treasury and Corporate Development since
March 1999; Vice President, Finance and Treasurer of Seagull from May
1996 to March 1999; Managing Director of Chase Securities Inc. from
April 1994 to May 1996.
Bruce Busmire ................ 42 Vice President, Investor Relations since February 2000; Controller of
Altura Energy Ltd. From March 1997 to January 2000; For the previous 16
years, Mr. Busmire held a variety of positions in finance, accounting
and investor relations at Amoco Corporation.
Mario M. Coll, III............ 38 Vice President, Operational Planning and Chief Information Officer since
October 1999; Vice President, Operational Planning from March 1999 to
October 1999; Vice President, Planning - Corporate and International of
Old Ocean from April 1998 to March 1999; Business Planning Coordinator
of Old Ocean from September 1996 to April 1998; From March 1987 to
September 1996, Mr. Coll held a variety of positions in engineering and
business development at Mobil Exploration and Producing U.S., Inc and
Mobil New Business Development.
Peggy T. d'Hemecourt.......... 48 Vice President, Human Resources since March 1999; Director, Human
Resources of Old Ocean from March 1998 to February 1999; Vice President,
Human Resources of UMC Petroleum Corporation from April 1997 to February
1998; Director, Human Resources of United Meridian Corporation ("UMC")
from January 1996 to March 1997; From 1974 to 1994, Ms. d'Hemecourt held
a variety of positions in Human Resources at Baroid Corporation.
Gordon L. McConnell........... 53 Vice President and Controller of the Company since March 1999; Vice
President and Controller of Seagull from November 1996 to March 1999;
Vice President - Accounting of Global Natural Resources from January
1996 to November 1996; Controller of Global Natural Resources from July
1993 to January 1996.
John J. Patton................ 59 Vice President and Associate General Counsel, since September 1999; Vice
President and Assistant General Counsel - International of Old Ocean from
March 1998 to March 1999; Senior Vice President and General Counsel of UMC
from April 1995 to March 1998.
Andrew J. Sheu................ 37 Vice President, Tax since March 1999; Assistant Vice President, Tax of
Seagull from January 1998 to March 1999; Director, Tax of Torch Energy
Advisors, Inc. from December 1995 to January 1998. Tax Senior Manager at
KPMG LLP from July 1991 to November 1995.
</TABLE>
17
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
<S> <C> <C>
Winston M. Talbert............ 37 Assistant Treasurer, Corporate Finance since October 1999; Assistant
Treasurer of PennzEnergy Company from November 1998 to October 1999;
Manager, International Finance of Pennzoil Company from December 1996 to
November 1998; Manager, Corporate Development & Finance of Brown & Root
from February 1996 to December 1996; Business Development Manager of
Destec Europe March 1994 to February 1996.
Frank D. Willoughby........... 34 Vice President, Financial Planning since March 1999; Prior to the
Seagull Merger, Mr. Willoughby held various financial positions with Old
Ocean, including Treasurer and Controller.
Carl E. Volke................. 56 Vice President, Administration since March 1999; Vice President,
Administration of Seagull from November 1996 to March 1999; Director,
Administration of Seagull from November 1986 to November 1996.
</TABLE>
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
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. "Net" acres, production or wells refers to the total
acres, production or wells in which the Company has a working interest,
multiplied by the percentage working interest owned by the Company.
Item 2. Properties
The following information presents production and wells drilled information
for the registrant - formerly Seagull Energy Corporation - in compliance with
the requirements of Item 2. As such this information represents historical
Seagull on a stand-alone basis for the first quarter of 1999 and of the combined
company for the remainder of 1999, compared to Seagull's results for 1998 and
1997 on a stand-alone basis. The remainder of the information required by Item 2
is incorporated herein by reference to Item 1 of this Annual Report on
Form 10-K.
18
<PAGE>
Ocean Energy, Inc.
Production - Historical Information for Seagull Energy Corporation for 1998 and
1997
The following table summarizes the registrant's production, average sales
prices and operating costs for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1999 1998 1997
---------------- --------------- -----------------
<S> <C> <C> <C>
Domestic:(1)
Net production:
Gas (MMcf)..................................... 137,896 104,023 110,595
Oil and NGL (Mbbl)............................. 10,318 1,834 1,763
Average sales price: (2)
Gas (per Mcf).................................. $ 2.12 $ 1.94 $ 2.30
Oil and NGL (per Bbl).......................... $ 19.29 $ 11.41 $ 17.60
Average operating costs (per BOE) (3)............ $ 4.32 $ 3.04 $ 2.79
Equatorial Guinea:(1)
Oil production (Mbbl)............................ 5,577 - -
Average oil sales price (per Bbl) (2)............ $ 19.99 $ - $ -
Average operating costs (per BOE) (3)............ $ 2.79 $ - $ -
Cote d'Ivoire:(1)
Net production:
Gas (MMcf)..................................... 9,814 3,106 2,245
Oil and NGL (Mbbl)............................. 1,449 360 603
Average sales price: (2)
Gas (per Mcf).................................. $ 1.64 $ 1.59 $ 1.93
Oil and NGL (per Bbl).......................... $ 20.10 $ 10.51 $ 19.34
Average operating costs (per BOE) (3)............ $ 3.39 $ 3.11 $ 3.95
Egypt:
Net production:
Gas (MMcf)..................................... 300 301 -
Oil and NGL (Mbbl)............................. 3,911 4,002 3,383
Average sales price: (2)
Gas (per Mcf).................................. $ 3.63 $ 1.42 -
Oil and NGL (per Bbl) ......................... $ 17.36 $ 11.79 $ 18.26
Average operating costs (per BOE) (3)............ $ 3.70 $ 4.18 $ 3.46
Other International:(1)
Net production:
Gas (MMcf)..................................... 3,143 2,867 17,475
Oil and NGL (Mbbl)............................ 1,637 1,568 1,811
Average sales price: (2)
Gas (per Mcf).................................. $ 2.18 $ 2.31 $ 1.90
Oil and NGL (per Bbl).......................... $ 11.10 $ 7.93 $ 14.71
Average operating costs (per BOE ) (3)........... $ 5.02 $ 6.76 $ 4.90
</TABLE>
19
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1999 1998 1997
---------------- --------------- -----------------
<S> <C> <C> <C>
Total:
Net production:
Gas (MMcf)..................................... 151,153 110,297 130,315
Oil and NGL (Mbbl)............................ 22,892 7,764 7,560
Average sales price: (2)
Gas (per Mcf).................................. $ 2.09 $ 1.94 $ 2.24
Oil and NGL (per Bbl).......................... $ 18.60 $ 10.86 $ 17.34
Average sales price including hedging: (2)
Gas (per Mcf).................................. $ 2.11 $ 1.93 $ 2.17
Oil and NGL (per Bbl).......................... $ 16.19 $ 10.86 $ 17.34
Average operating costs (per BOE ) (3) $ 4.07 $ 3.51 $ 3.25
</TABLE>
(1) The Company's Equatorial Guinea operations and a portion of its domestic,
Cote d'Ivorian and other international operations were acquired as a result
of the Seagull Merger on March 30, 1999.
(2) Average sales prices are before deduction of production, severance, and
other taxes and after deduction of certain transportation costs.
(3) Operating costs represent costs incurred to operate and maintain wells and
related equipment and facilities. These costs include, among other things,
repairs and maintenance, workover expenses, labor, materials, supplies,
property taxes, insurance, severance taxes, and general operating expenses.
20
<PAGE>
Ocean Energy, Inc.
Oil and Gas Drilling Activities - Historical Information for Seagull Energy
Corporation for 1998 and 1997
The registrant's oil and gas exploratory and developmental drilling
activities are as follows for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1999 1998 1997
---------------------- ------------------------- ----------------------
Gross Net Gross Net Gross Net
--------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Domestic (1):
Exploratory Drilling:
Productive Wells................. 10 5.6 7 1.5 18 9.5
Dry Holes........................ 8 3.6 12 5.0 12 4.2
Development Drilling:
Productive Wells................. 137 88.5 138 60.9 142 73.9
Dry Holes........................ 38 31.4 11 7.0 12 6.3
Equatorial Guinea:(1)
Exploratory Drilling:
Productive Wells................. - - - - - -
Dry Holes........................ 3 0.7 - - - -
Development Drilling: - - - -
Productive Wells................. 1 0.2 - - - -
Dry Holes........................ - -
Cote d'Ivoire (1):
Exploratory Drilling:
Productive Wells................. - - 1 0.1 1 0.1
Dry Holes........................ 1 0.4 1 0.2 2 0.3
Development Drilling:
Productive Wells................. - - - - 3 0.4
Dry Holes........................ - - - - - -
Egypt:
Exploratory Drilling:
Productive Wells................. - - 4 1.3 4 2.8
Dry Holes........................ 1 0.3 13 5.1 11 3.0
Development Drilling:
Productive Wells................. 5 1.5 7 2.8 14 3.5
Dry Holes........................ - - 3 1.3 - -
Other International (1):
Exploratory Drilling:
Productive Wells................ - - - - 4 2.2
Dry Holes....................... - - - - 2 1.2
Development Drilling:
Productive Wells................ 4 2.0 10 5.0 78 39.4
Dry Holes....................... - - 1 0.5 1 0.3
Total:
Exploratory Drilling:
Productive Wells................. 10 5.6 12 2.9 27 14.6
Dry Holes........................ 13 5.0 26 10.3 27 8.7
Development Drilling:
Productive Wells................. 147 92.2 155 68.7 237 117.2
Dry Holes........................ 38 31.4 15 8.8 13 6.6
</TABLE>
(1) The Company's Equatorial Guinea operations and a portion of its domestic,
Cote d'Ivorian and other international operations were acquired as a result
of the Seagull Merger on March 30, 1999.
21
<PAGE>
Ocean Energy, Inc.
Item 3. Legal Proceedings
The Company is a named defendant in lawsuits and is a party in governmental
proceedings from time to time arising in the ordinary course of business. While
the outcome of such lawsuits or other proceedings against the Company cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial positions or results of operations of
the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None during the fourth quarter of 1999.
Part II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
A. The Company's Common Stock (the "Common Stock") is traded on the New
York Stock Exchange under the ticker symbol "OEI." The high and low
sales prices on the New York Stock Exchange Composite Tape for each
quarterly period during the last two fiscal years for the registrant,
formerly Seagull Energy Corporation, were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- ---------------------------------------
High Low High Low
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
First Quarter............. $ 7.63 $4.31 $20.94 $15.44
Second Quarter............ 10.94 6.38 19.44 13.94
Third Quarter............. 11.81 9.13 17.69 7.63
Fourth Quarter............ 10.69 6.31 12.44 5.69
</TABLE>
B. As of March 22, 2000, there were approximately 4,123 holders of record
of Common Stock.
C. The Company did not declare any cash dividends on its Common Stock in
1999, 1998 or 1997. The decision to pay Common Stock dividends in the
future will depend upon the Company's earnings and financial condition
and such other factors as the Company's Board of Directors deems
relevant. The Company's revolving credit agreement and outstanding
indentures restrict the Company's declaration or payment of dividends
on and repurchases of Common Stock. Under the most restrictive of
these tests, as of December 31, 1999, approximately $150 million was
available for payment of dividends or repurchase of Common Stock. For
a description of such restrictions, reference is made to Note 7 of the
Consolidated Financial Statements included in the Company's 1999
Annual Report to Shareholders and as part of Exhibit 13 attached
hereto. In addition, the terms of the Company's Series C Convertible
Preferred Stock and certain debt securities limit the Company's
ability to pay cash dividends.
22
<PAGE>
Ocean Energy, Inc.
Item 6. Selected Financial Data
Selected Financial Data (1)
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $ 735,518 $ 522,150 $ 549,194 $ 394,980 $ 241,321
Net income (loss) from continuing
operations(2)................... (21,552) (406,879) 62,220 55,000 5,552
Earnings (loss) from continuing
operations per share(2):
Basic.......................... (0.16) (4.04) 0.67 0.65 0.06
Diluted........................ (0.16) (4.04) 0.64 0.62 0.06
Net cash provided by operating
activities before changes in
operating assets and liabilities 336,148 219,075 332,115 227,183 104,628
Net cash provided by operating
activities...................... 333,751 229,924 364,202 207,249 103,354
Total assets...................... 2,783,143 2,006,960 1,642,995 1,121,241 724,460
Long-term debt.................... 1,333,410 1,371,890 672,298 440,974 416,491
Shareholders' equity.............. 947,695 376,943 725,337 493,072 171,326
Capital expenditures.............. 369,026 961,979 845,376 445,783 240,025
Acquisitions, net of cash acquired 991,409 - - - -
Standardized measure of
discounted future net cash
flows.......................... 2,415,418 903,823 1,220,407 1,326,514 667,941
</TABLE>
(1) Includes the effect of the Seagull Merger since March 30, 1999.
(2) Includes after-tax impairments of $43 million and $335 million in 1999 and
1998, respectively, and after-tax merger expenses of $31 million and $33
million in 1999 and 1998, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Incorporated herein by reference to Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's 1999
Annual Report to Shareholders and as part of Exhibit 13 attached hereto.
Item 7.a. Quantitative and Qualitative Disclosures About Market Risk
Incorporated herein by reference to the Market Risk Disclosures included in
the Company's 1999 Annual Report to Shareholders and as part of Exhibit 13
attached hereto.
Item 8. Financial Statements and Supplementary Data
Incorporated herein by reference to the Consolidated Financial Statements
included in the Company's 1999 Annual Report to Shareholders and as part of
Exhibit 13 attached hereto.
23
<PAGE>
Ocean Energy, Inc.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
KPMG LLP, the independent auditors of the registrant, formerly Seagull
Energy Corporation, were appointed as independent auditors of the Company for
the fiscal year ending December 31, 1999. Such appointment of KPMG LLP was
ratified by the Company's shareholders at the annual meeting of shareholders
held on May 25, 1999.
Part III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to "Election of Directors" included in the
Proxy Statement for the Company's Annual Meeting of Shareholders to be held on
May 10, 2000 (the "Proxy Statement"). See also "Executive Officers of the
Company" included in Part I of this Annual Report on Form 10-K, which is
incorporated by reference herein.
Item 11. Executive Compensation
Incorporated herein by reference to "Executive Compensation--Summary
Compensation Table," "--Compensation Arrangements," "--Aggregated Option/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values,"
"--Option/SAR Grants in Last Fiscal Year," and "--Executive Supplemental
Retirement Plan" and "Election of Directors--Compensation of Directors" included
in the Proxy Statement. Notwithstanding any provision in this Annual Report on
Form 10-K to the contrary, under no circumstances are the "Report of the
Organization and Compensation Committee on Executive Compenstion" or the
information under the heading "Shareholder Return Performance Presentation"
incorporated herein for any purpose.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to "Principal Shareholders" and "Election
of Directors--Security Ownership of Directors and Management" included in the
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to "Election of Directors--Certain
Transactions" included in the Proxy Statement.
24
<PAGE>
Ocean Energy, Inc.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements:
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Independent Auditors' Reports thereon are included in the
Company's 1999 Annual Report to Shareholders and as part of Exhibit 13 attached
hereto, and are incorporated herein by reference.
2. Schedules:
All schedules have been omitted because the required information is
insignificant or not applicable.
3. Exhibits:
<TABLE>
<CAPTION>
<S> <C>
3.1 Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1
to the Company's Form 10-Q for the period ended June 30, 1999).
4.1 Amended and Restated Rights Agreement dated March 17, 1989, as amended effective June 13, 1992,
and amended and restated as of December 12, 1997, between the Company and BankBoston, N.A. (as
successor to NCNB Texas National Bank), including Form of Statement of Resolution Establishing
the Series B Junior Participating Preferred Stock, the Form of Right Certificate and Form of
Summary of Rights to Purchase Preferred Shares (the Agreement is incorporated by reference to
Exhibit 2 to Current Report on Form 8-K dated December 15, 1997; Amendment No. 1 dated November
24, 1998 is incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on
December 1, 1998). Amendment No. 2, dated as of March 10, 1999, is 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 March 12, 1999; Amendment No. 3, dated as of May 19, 1999, is 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).
4.2 Revolving Credit Agreement, dated as of March 30, 1999, among the Company, Chase Bank of Texas,
National Association ("Chase Texas") (Individually and as Administrative Agent), The Chase
Manhattan Bank ("Chase Manhattan") (as Auction Administrative Agent), Bank of America National
Trust and Savings Association ("Bank of America") (Individually and as Syndication Agent), Bank
One Texas, N. A. ("Bank One") (Individually and as Documentation Agent), Societe Generale,
Southwest Agency ("Societe Generale") (Individually and as Managing Agent), the Bank of Montreal
(Individually and as Managing Agent), and the other Banks signatory thereto (incorporated by
reference to Exhibit 4.1 to the Company's Form 10-Q for the period ended March 31, 1999).
*4.3 364-Day Credit Agreement, dated as of November 9, 1999, among the Company, Credit Suisse First
Boston (Individually and as Administrative Agent and as Auction Administrative Agent), Bank of
America, N. A. (Individually and as Syndication Agent), Chase Bank of Texas, National
Association (Individually and as Documentation Agent), and the other Banks signatory thereto,
filed herewith).
4.4 Senior Indenture dated as of July 15, 1993, relating to the 7 7/8% Notes due 2003, by and between
</TABLE>
25
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
<S> <C>
the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). First Supplemental
Indenture, dated as of March 30, 1999, is incorporated by reference to Exhibit 4.11 to the
Company's Form 10-Q for the period ended March 31, 1999).
4.5 Senior Subordinated Indenture dated as of July 15, 1993, relating to the 8 5/8% Notes due 2005 by
and between the Company and The Bank of New York, as Trustee (the Indenture is incorporated by
reference to Exhibit 4.2 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
the First Supplemental Indenture, dated as of March 30, 1999, is incorporated by reference to
Exhibit 4.12 to the Company's Form 10-Q for the period ended March 31, 1999).
4.6 Senior Indenture among the Company and The Bank of New York, as Trustee, and Specimen of 7 1/2%
Senior Notes (incorporated by reference to Exhibit 4.4 to Annual Report on Form 10-K for the
year ended December 31, 1997; the First Supplemental Indenture, dated as of March 30, 1999, is
incorporated by reference to Exhibit 4.10 to the Company's Form 10-Q for the period ended March
31, 1999).
4.7 Terms Agreement and the resolutions of adoption by the Chairman of the Board of Directors
related to Exhibit 4.6 (incorporated by reference to Exhibit 2.3 to Current Report on Form 8-K
filed with the Securities and Exchange Commission on October 17, 1997).
4.8 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and
U.S. Bank Trust National Association, relating to the 8 3/8% Series A Senior Subordinated Notes
due 2008 and the 8 3/8% Series B Senior Subordinated Notes due 2008 (the Indenture is
incorporated by reference to Exhibit 10.22 to the Form 10-Q for the period ended June 30, 1998
of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March
30, 1999, is incorporated by reference to Exhibit 4.3 to the Company's Form 10-Q for the period
ended March 31, 1999).
4.9 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and
Norwest Bank Minnesota, National Association (Norwest Bank) as Trustee, relating to the 7 5/8%
Senior Notes due 2005 (the Indenture is incorporated by reference to Exhibit 10.23 to the Form
10-Q for the period ended June 30, 1998 of Ocean Energy, Inc. (Registration No. 0-25058); the
First Supplemental Indenture, dated March 30, 1999, is incorporated by reference to Exhibit 4.4
to the Company's Form 10-Q for the period ended March 31, 1999).
4.10 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and
Norwest Bank as Trustee, relating to the 8 1/4% Senior Notes due 2018 (the Indenture is
incorporated by reference to Exhibit 10.24 to the Form 10-Q for the period ended June 30, 1998
of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March
30, 1999, is incorporated by reference to Exhibit 4.5 to the Company's Form 10-Q for the period
ended March 31, 1999).
4.11 Indenture, dated as of July 2, 1997, among Ocean Energy, Inc., the Subsidiary Guarantors Named
Therein and State Street Bank and Trust Company, as Trustee, relating to the 8 7/8% Senior
Subordinated Notes due 2007 (the Indenture is incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (No. 333-32715) of Ocean Energy, Inc.; the First Supplemental
Indenture, dated as of March 27, 1998, is incorporated by reference to Exhibit 10.11 to the Form
8-K of Ocean Energy, Inc. (Registration No. 0-25058) filed with the SEC on March 31, 1998; the
Second Supplemental Indenture, dated as of March 30, 1999 is incorporated by reference to
Exhibit 4.6 to the Company's Form 10-Q for the period ended March 31, 1999).
10.1 Agreement and Plan of Merger, dated as of November 24, 1998 among Seagull and Ocean Energy, Inc.
("OEI"), including amendments (Agreement and Plan of Merger is incorporated by
</TABLE>
26
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
<S> <C>
reference to Exhibit 2.1 to Current Report on Form 8-K filed on December 1, 1998; Amendment No. 1
is incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on
Form S-4 (Reg. No. 333-68679)).
#10.2 1999 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form
10-Q for the period ended June 30, 1999).
#10.3 Seagull Energy Corporation 1981 Stock Option Plan (Restated), including forms of agreements, as
amended (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
#10.4 Seagull Energy Corporation 1983 Stock Option Plan (Restated), including forms of agreements, as
amended (plan is incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998).
#10.5 Seagull Energy Corporation 1986 Stock Option Plan (Restated), including forms of agreements, as
amended (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
#10.6 Seagull Energy Corporation 1990 Stock Option Plan, including forms of agreements, as amended
(incorporated by reference to Exhibit 10.22 to Annual Report on Form 10-K for the year ended
December 31, 1995; Form of Amendment to Stock Option Agreement(s) is incorporated by reference
to Exhibit 10.7 to Annual Report on Form 10-K for the year ended December 31, 1996).
#10.7 Global Natural Resources Inc. 1989 Key Employees Stock Option Plan (the Plan is incorporated by
reference to Exhibit 4.1 to Registration Statement No. 33-31537 of Global Natural Resources
Inc.; the Form of Stock Option Agreement is incorporated by reference to Exhibit 4.2 to
Registration Statement No. 33-31537 of Global Natural Resources Inc.; Form of Amendment to Stock
Option Agreement(s) is incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K
for the year ended December 31, 1996).
#10.8 Global Natural Resources Inc. 1992 Stock Option Plan (the Plan is incorporated by reference to
Exhibit 10.47 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 of Global
Natural Resources Inc. (Registration No. 1-8674); the Form of Stock Option Agreement is
incorporated by reference to Exhibit 10.48 to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992 of Global Natural Resources Inc. (Registration No. 1-8674); Form of
Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.9 to Annual
Report on Form 10-K for the year ended December 31, 1996).
#10.9 Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan, including forms of
agreements, as amended (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
#10.10 Seagull Energy Corporation 1993 Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).
#10.11 1995 Omnibus Stock Plan (the Plan is incorporated by reference to Exhibit 10.3 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K for the
year ended December 31, 1996).
#10.12 1998 Omnibus Stock Plan (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
</TABLE>
27
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
<S> <C>
#10.13 UMC 1987 Nonqualified Stock Option Plan, as amended, (the Plan is incorporated herein by
reference to Exhibit 10.3 to UMC's Form S-1 (No. 33-63532) filed with the SEC on May 28, 1993;
the Third Amendment, dated November 16, 1993, is incorporated herein by reference to Exhibit
10.4 to UMC's Form 10-K for the year ended December 31, 1993; the Fourth Amendment, dated April
6, 1994, is incorporated by reference to Exhibit 10.6 to UMC's Form 10-K for the year ended
December 31, 1994; the Fifth Amendment, dated November 19, 1997, is incorporated by reference to
Exhibit 4.7 to UMC's Form S-3 (No. 333-42467); the Sixth Amendment, dated March 27, 1998, and
the Seventh Amendment, dated February 1, 1999, are incorporated by reference to Exhibit 10.3 to
Form 10-Q for the period ended March 31, 1999).
#10.14 UMC 1994 Employee Nonqualified Stock Option Plan, as amended (the Plan is incorporated by
reference to Exhibit 4.14 to UMC's Form S-8 (No. 33-79160) filed with the SEC on May 19, 1994;
the First Amendment, dated November 16, 1994, is incorporated by reference to Exhibit 4.11.1 to
UMC's Form S-8 (No. 33-86480) filed with the SEC on November 18, 1994; the Second Amendment,
dated May 22, 1996, is incorporated by reference to Exhibit 4.3.2 to UMC's Form S-8 (No.
333-05401) filed with the SEC on June 6, 1996; the Third Amendment, dated November 13, 1996, is
incorporated by reference to Exhibit 4.3.3 to UMC's Form S-8 (No. 333-28017) filed with the SEC
on May 29, 1997; the Fourth Amendment, dated May 29, 1997, is incorporated herein by reference
to Exhibit 4.3.4 to UMC's Form S-8 (No. 333-28017) filed with the SEC on May 29, 1997; the Fifth
Amendment, dated November 19, 1997, is incorporated by reference to Exhibit 4.8 to UMC's Form
S-3 (No. 333-42467) filed with the SEC on December 17, 1997; the Sixth Amendment, dated March
27, 1998 is incorporated by reference to Exhibit 10.4 to Form 10-Q for the period ended March
31, 1999).
#10.15 Amendment to UMC 1994 Non-Qualified Stock Option Agreement for Former Employees of General
Atlantic Resources, Inc. dated as of April 16, 1996 among UMC and Donald D. Wolf (incorporated
by reference to Exhibit 10.22 to UMC's Form 10-Q for the period ended September 30, 1996).
#10.16 UMC 1994 Outside Directors' Nonqualified Stock Option Plan, as amended (the Plan is incorporated
herein by reference to Exhibit 4.15 to UMC's Form S-8 (No. 33-79160) filed with the SEC on May
19, 1994; the First Amendment, dated May 22, 1996, is incorporated by reference to Exhibit 4.4.1
to UMC's Form S-8 (No. 333-05401) filed with the SEC on June 6, 1996; the Second Amendment,
dated November 13, 1996, is incorporated herein by reference to Exhibit 4.4 to UMC's Form S-8
(No. 333-28017) filed with the SEC on May 29, 1997; the Third Amendment, dated November 19,
1997, is incorporated by reference to Exhibit 4.9 to UMC's Form S-3 (No. 333-42467); Fourth
Amendment, dated March 27, 1998 is incorporated by reference to Exhibit 10.6 to Form 10-Q for
the period ended March 31, 1999).
#10.17 UMC Petroleum Corporation Supplemental Benefit Plan effective January 1, 1994, approved by the
Board of Directors on March 29, 1994 (the Plan is incorporated by reference to Exhibit 10.10 to
UMC's Form 10-K filed for the year ended December 31, 1994; the Second Amendment dated March 30,
1999 is incorporated by reference to Exhibit 10.7 to Form 10-Q for the period ended March 31,
1999).
#10.18 1994 Long-Term Incentive Plan (the Plan, as amended, is incorporated by reference to Exhibit
10.3 to Amendment No. 2 to the Registration Statement on Form S-1 (No. 33-84308) of Ocean
Energy, Inc. (Registration No. 0-25058); the Second Amendment, dated March 27, 1998 is
incorporated by reference to Exhibit 4.2 to Form 10-Q for the period ended March 31, 1999).
#10.19 1996 Long-Term Incentive Plan, as amended (the Plan, as amended, is incorporated by reference to
Exhibit 99.1 to the Form S-8 (No. 333-45117) of Ocean Energy, Inc. (Registration No. 0-25058)
filed with the SEC on January 29, 1998; the Second Amendment, dated March 27, 1998, is
incorporated by reference to Exhibit 4.2 to Form 10-Q for the period ended March 31, 1999).
</TABLE>
28
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
<S> <C>
*#10.20 Long-Term Incentive Plan for Non-Executive Employees, as amended (the Plan, as amended, is
incorporated by reference to Exhibit 99.1 to the Form S-8 (No. 333-45119) of Ocean Energy, Inc.
(Registration No. 0-25058); Amendment No. 2, incorporated by reference to Exhibit 99.2 to the
Form S-8 (No. 333-49185) of Ocean Energy, Inc.; Amendment No. 3, dated as of May 20, 1998, is
incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the year ended
December 31, 1998, of Ocean Energy, Inc. (Registration No. 0-25058); Amendment No. 4 is filed
herewith).
#10.21 1998 Long-Term Incentive Plan (incorporated by reference to Appendix E to Ocean Energy, Inc.'s
Joint Proxy Statement Prospectus on Form S-4 (333-43933) filed with the SEC on January 9, 1998).
#10.22 Seagull Energy Corporation Management Stability Plan (the Plan is incorporated by reference to
Exhibit 10.35 to Annual Report on Form 10-K for the year ended December 31, 1994; the First
Amendment is incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K for the
year ended December 31, 1996; the Second and Third Amendments are incorporated by reference to
Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; the
Fourth Amendment is incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K
for the year ended December 31, 1998; the Fifth Amendment is incorporated by reference to
Exhibit 10.14 to Form 10-Q for the period ended March 31, 1999).
*#10.23 Outside Directors Deferred Fee Plan, as amended and restated effective March 30, 1999.
#10.24 Executive Supplemental Retirement Plan, as amended (the Plan, as amended, is incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30,
1996; the Third Amendment is incorporated by reference to Exhibit 10.11 to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
#10.25 Supplemental Benefit Plan, as amended, including the First Amendment thereto (the Plan, as
amended, is incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-K for the
year ended December 31, 1995; the Third Amendment is incorporated by reference to Exhibit 10.12
to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; the Fourth Amendment
is incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the year
ended December 31, 1998).
#10.26 Ocean Energy, Inc. 1999 Change of Control Severance Plan dated February 8, 1999; the First
Amendment dated March 29, 1999 (incorporated by reference to Exhibit 10.17 to Form 10-Q for the
period ended March 31, 1999).
#10.27 Form of Indemnification Agreements among the Company and certain executive officers and
directors (incorporated by reference to Exhibit 10.19 to Form 10-Q for the period ended March
31, 1999).
#10.28 Employment Agreement by and between the Company and James T. Hackett, as amended (the Agreement
is incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998; Amendment to Employment Agreement dated November 24, 1998 is
incorporated by reference to Exhibit 10.15 to Form 10-Q for the period ended March 31, 1999;
Second Amendment to Employment Agreement, effective as of December 15, 1999, is incorporated by
reference to Exhibit 99.2 to Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 7, 2000).
#10.29 Employment and Consulting Agreement by and between the Company and Barry J. Galt, as amended
(the Agreement is incorporated by reference to Exhibit 10.1 to Quarterly Report on Form
</TABLE>
29
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
<S> <C>
10-Q for the quarter ended September 30, 1998; Amendment to Employment and Consulting Agreement
dated November 24, 1998 is incorporated by reference to Exhibit 10.16 to Form 10-Q for the
period ended March 31, 1999; Second Amendment to Employment and Consulting Agreement is
incorporated by reference to Exhibit 10.6 to Form 10-Q for the period ended June 30, 1999).
#10.30 Employment Agreement, dated as of March 27, 1998, among Ocean Energy, Inc. and John B. Brock, as
amended (the Agreement is incorporated by reference to Exhibit 10.1 to the Form 8-K of Ocean
Energy, Inc. (Registration No. 0-25058) filed with the SEC on March 31, 1998; Amendment No.1,
dated as of November 24, 1998, is incorporated by reference to Exhibit 10.33 to the Annual
Report on Form 10-K for the year ended December 31, 1998, of Ocean Energy, Inc. (Registration
No. 0-25058)).
#10.31 Form of Employment Agreement between the Company and Robert K. Reeves (incorporated by reference
to Exhibit 10.41 to Form 10-Q for the period ended June 30, 1999).
#10.32 Form of Employment Agreement between the Company and William L. Transier (incorporated by
reference to Exhibit 10.5 to Form 10-Q for the period ended June 30, 1999).
#10.33 Letter Agreement between the Company and James C. Flores, dated December 22, 1999 (incorporated
by reference to Exhibit 99.3 to Current Report on Form 8-K filed on January 7, 2000).
#10.34 Employment Agreement between the Company and James C. Flores, effective as of January 1, 2000
(incorporated by reference to Exhibit 99.4 to Current Report on Form 8-K filed on January 7,
2000).
#10.35 Severance Agreement between Ocean Energy, Inc., (the "Company") a Texas corporation formerly
known as Seagull Energy Corporation, and John D. Schiller Jr. ("Executive") dated September 27,
1999 (incorporated by reference to Exhibit 10.1 to Form 10-Q for the period ended September 30,
1999).
#10.36 Executive Supplemental Retirement Plan Membership Agreement by and between the Company and James
T. Hackett (incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
#10.37 Executive Supplemental Retirement Plan Membership Agreement between the Company and Barry J.
Galt dated as of February 3, 1986, as amended (incorporated by reference to Exhibit 10.2 to
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).
#10.38 Severance Agreement between the Company and James T. Hackett, as amended (incorporated by
reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended September 30,
1998). Amendment to Severance Agreement, effective as of December 15, 1999, incorporated by
reference to Exhibit 99.1 to Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 7, 2000.
#10.39 Severance Agreement, including Amendment and Second Amendment to Severance Agreement, between
the Company and Barry J. Galt (incorporated by reference to Exhibit 10.2 to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
#10.40 Promissory Note between John D. Schiller, Jr. and Seagull (incorporated by reference to Exhibit
10.31 to Annual Report on Form 10-K for the year ended December 31, 1998).
10.41 Promissory Note between William L. Transier and Seagull (incorporated by reference to Exhibit
</TABLE>
30
<PAGE>
Ocean Energy, Inc.
<TABLE>
<CAPTION>
<S> <C>
10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
10.42 Promissory Note between Barry J. Galt and Seagull (incorporated by reference to Exhibit 10.33 to
Annual Report on Form 10-K for the year ended December 31, 1998).
10.43 Purchase and Sale Agreement dated June 15, 1999, between the Company, as Seller, and SEMCO
ENERGY, Inc., as Purchaser, for the sale of ENSTAR (incorporated by reference to Exhibit 10.2 to
Form 10-Q for the period ended June 30, 1999).
10.44 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 (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the period ended June 30, 1999).
*10.45 Natural Gas Purchase and Sale Agreement dated October 1, 1999 between the Company as Seller and
Duke Energy Trading and Marketing, L.L.C., as Buyer, filed herewith.
*13.0 1999 Annual Report of the Company (selected portions), filed herewith.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Arthur Andersen LLP.
*27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
On February 23, 2000, the Company filed a Current Report on Form 8-K dated
February 23, 2000 concerning disclosure of year 2000 estimates.
On January 7, 2000, the Company filed a Current Report on Form 8-K dated
December 15, 1999 concerning Mr. Hackett's assumption of the responsibilities of
Chairman of the Board of Directors of the Company.
31
<PAGE>
Ocean Energy, Inc.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 27, 2000 By: /s/ James T. Hackett
James T. Hackett, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
By: /s/ James T. Hackett By: /s/ Peter J. Fluor
------------------------------------------------- -----------------------------------------------
James T. Hackett, Chairman of the Board, Peter J. Fluor, Director
President, Chief Executive Officer and Director Date: March 27, 2000
(Principal Executive Officer)
Date: March _27, 2000 By: /s/ Barry J. Galt
-----------------------------------------------
Barry J. Galt, Director
By: /s/ William L. Transier Date: March 27, 2000
-------------------------------------------------
William L. Transier, Executive Vice President
and Chief Financial Officer /s/ Robert L. Howard
(Principal Financial Officer) -----------------------------------------------
By: Robert L. Howard, Director
Date: March 27, 2000
By: /s/ Gordon L. McConnell /s/ Elvis L. Mason
------------------------------------------------- -----------------------------------------------
Gordon L. McConnell, Vice President and By: Elvis L. Mason, Director
Controller (Principal Accounting Officer) Date: March 27, 2000
Date: March 27, 2000
/s/ Charles F. Mitchell, M.D.
-----------------------------------------------
By: /s/ James C. Flores By: Charles F. Mitchell, M.D., Director
------------------------------------------------- Date: March 27, 2000
James C. Flores, Vice Chairman
Date: March _27, 2000
/s/ David K. Newbigging
-----------------------------------------------
By: /s/ J. Evans Attwell By: David K. Newbigging, Director
------------------------------------------------- Date: March 27, 2000
J. Evans Attwell, Director
Date: March 27, 2000
/s/ Dee S. Osborne
-----------------------------------------------
By: /s/ John B. Brock By: Dee S. Osborne, Director
------------------------------------------------- Date: March 27, 2000
John B. Brock, Director
Date: March 27, 2000
/s/ R. A. Walker
-----------------------------------------------
By: /s/ Milton Carroll By: R. A. Walker, Director
------------------------------------------------- Date: March 27, 2000
Milton Carroll, Director
Date: March 27, 2000
By: /s/ Thomas D. Clark, Jr.
-------------------------------------------------
Thomas D. Clark, Jr., Director
Date: March 27, 2000
</TABLE>
32
<PAGE>
Ocean Energy, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
3.1 Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1
to the Company's Form 10-Q for the period ended June 30, 1999).
4.1 Amended and Restated Rights Agreement dated March 17, 1989, as amended effective June 13, 1992,
and amended and restated as of December 12, 1997, between the Company and BankBoston, N.A. (as
successor to NCNB Texas National Bank), including Form of Statement of Resolution Establishing
the Series B Junior Participating Preferred Stock, the Form of Right Certificate and Form of
Summary of Rights to Purchase Preferred Shares (the Agreement is incorporated by reference to
Exhibit 2 to Current Report on Form 8-K dated December 15, 1997; Amendment No. 1 dated November
24, 1998 is incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on
December 1, 1998). Amendment No. 2, dated as of March 10, 1999, is 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 March 12, 1999; Amendment No. 3, dated as of May 19, 1999, is 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).
4.2 Revolving Credit Agreement, dated as of March 30, 1999, among the Company, Chase Bank of Texas,
National Association ("Chase Texas") (Individually and as Administrative Agent), The Chase
Manhattan Bank ("Chase Manhattan") (as Auction Administrative Agent), Bank of America National
Trust and Savings Association ("Bank of America") (Individually and as Syndication Agent), Bank
One Texas, N. A. ("Bank One") (Individually and as Documentation Agent), Societe Generale,
Southwest Agency ("Societe Generale") (Individually and as Managing Agent), the Bank of Montreal
(Individually and as Managing Agent), and the other Banks signatory thereto (incorporated by
reference to Exhibit 4.1 to the Company's Form 10-Q for the period ended March 31, 1999).
*4.3 364-Day Credit Agreement, dated as of November 9, 1999, among the Company, Credit Suisse First
Boston (Individually and as Administrative Agent and as Auction Administrative Agent), Bank of
America, N. A. (Individually and as Syndication Agent), Chase Bank of Texas, National
Association (Individually and as Documentation Agent), and the other Banks signatory thereto,
filed herewith).
4.4 Senior Indenture dated as of July 15, 1993, relating to the 7 7/8% Notes due 2003, by and between
the Company and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). First Supplemental
Indenture, dated as of March 30, 1999, is incorporated by reference to Exhibit 4.11 to the
Company's Form 10-Q for the period ended March 31, 1999).
4.5 Senior Subordinated Indenture dated as of July 15, 1993, relating to the 8 5/8% Notes due 2005 by
and between the Company and The Bank of New York, as Trustee (the Indenture is incorporated by
reference to Exhibit 4.2 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998;
the First Supplemental Indenture, dated as of March 30, 1999, is incorporated by reference to
Exhibit 4.12 to the Company's Form 10-Q for the period ended March 31, 1999).
4.6 Senior Indenture among the Company and The Bank of New York, as Trustee, and Specimen of 7 1/2%
Senior Notes (incorporated by reference to Exhibit 4.4 to Annual Report on Form 10-K for the
year ended December 31, 1997; the First Supplemental Indenture, dated as of March 30, 1999, is
incorporated by reference to Exhibit 4.10 to the Company's Form 10-Q for the period ended March
31, 1999).
4.7 Terms Agreement and the resolutions of adoption by the Chairman of the Board of Directors
related to Exhibit 4.6 (incorporated by reference to Exhibit 2.3 to Current Report on Form 8-K
filed with the Securities and Exchange Commission on October 17, 1997).
4.8 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and
U.S. Bank Trust National Association, relating to the 8 3/8% Series A Senior Subordinated Notes
due 2008 and the 8 3/8% Series B Senior Subordinated Notes due 2008 (the Indenture is
incorporated by reference to Exhibit 10.22 to the Form 10-Q for the period ended June 30, 1998
of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March
30, 1999, is incorporated by reference to Exhibit 4.3 to the Company's Form 10-Q for the period
ended March 31, 1999).
4.9 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and
Norwest Bank Minnesota, National Association (Norwest Bank) as Trustee, relating to the 7 5/8%
Senior Notes due 2005 (the Indenture is incorporated by reference to Exhibit 10.23 to the Form
10-Q for the period ended June 30, 1998 of Ocean Energy, Inc. (Registration No. 0-25058); the
First Supplemental Indenture, dated March 30, 1999, is incorporated by reference to Exhibit 4.4
to the Company's Form 10-Q for the period ended March 31, 1999).
4.10 Indenture, dated as of July 8, 1998, among Ocean Energy, Inc., its Subsidiary Guarantors, and
Norwest Bank as Trustee, relating to the 8 1/4% Senior Notes due 2018 (the Indenture is
incorporated by reference to Exhibit 10.24 to the Form 10-Q for the period ended June 30, 1998
of Ocean Energy, Inc. (Registration No. 0-25058); the First Supplemental Indenture, dated March
30, 1999, is incorporated by reference to Exhibit 4.5 to the Company's Form 10-Q for the period
ended March 31, 1999).
4.11 Indenture, dated as of July 2, 1997, among Ocean Energy, Inc., the Subsidiary Guarantors Named
Therein and State Street Bank and Trust Company, as Trustee, relating to the 8 7/8% Senior
Subordinated Notes due 2007 (the Indenture is incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (No. 333-32715) of Ocean Energy, Inc.; the First Supplemental
Indenture, dated as of March 27, 1998, is incorporated by reference to Exhibit 10.11 to the Form
8-K of Ocean Energy, Inc. (Registration No. 0-25058) filed with the SEC on March 31, 1998; the
Second Supplemental Indenture, dated as of March 30, 1999 is incorporated by reference to
Exhibit 4.6 to the Company's Form 10-Q for the period ended March 31, 1999).
</TABLE>
33
<PAGE>
Ocean Energy, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
10.1 Agreement and Plan of Merger, dated as of November 24, 1998 among Seagull and Ocean Energy, Inc.
("OEI"), including amendments (Agreement and Plan of Merger is incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K filed on December 1, 1998; Amendment No. 1 is
incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form S-4
(Reg. No. 333-68679)).
#10.2 1999 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form
10-Q for the period ended June 30, 1999).
#10.3 Seagull Energy Corporation 1981 Stock Option Plan (Restated), including forms of agreements, as
amended (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
#10.4 Seagull Energy Corporation 1983 Stock Option Plan (Restated), including forms of agreements, as
amended (plan is incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998).
#10.5 Seagull Energy Corporation 1986 Stock Option Plan (Restated), including forms of agreements, as
amended (incorporated by reference to Exhibit 10.5 to Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
#10.6 Seagull Energy Corporation 1990 Stock Option Plan, including forms of agreements, as amended
(incorporated by reference to Exhibit 10.22 to Annual Report on Form 10-K for the year ended
December 31, 1995; Form of Amendment to Stock Option Agreement(s) is incorporated by reference
to Exhibit 10.7 to Annual Report on Form 10-K for the year ended December 31, 1996).
#10.7 Global Natural Resources Inc. 1989 Key Employees Stock Option Plan (the Plan is incorporated by
reference to Exhibit 4.1 to Registration Statement No. 33-31537 of Global Natural Resources
Inc.; the Form of Stock Option Agreement is incorporated by reference to Exhibit 4.2 to
Registration Statement No. 33-31537 of Global Natural Resources Inc.; Form of Amendment to Stock
Option Agreement(s) is incorporated by reference to Exhibit 10.8 to Annual Report on Form 10-K
for the year ended December 31, 1996).
#10.8 Global Natural Resources Inc. 1992 Stock Option Plan (the Plan is incorporated by reference to
Exhibit 10.47 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1992 of Global
Natural Resources Inc. (Registration No. 1-8674); the Form of Stock Option Agreement is
incorporated by reference to Exhibit 10.48 to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992 of Global Natural Resources Inc. (Registration No. 1-8674); Form of
Amendment to Stock Option Agreement(s) is incorporated by reference to Exhibit 10.9 to Annual
Report on Form 10-K for the year ended December 31, 1996).
#10.9 Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan, including forms of
agreements, as amended (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
#10.10 Seagull Energy Corporation 1993 Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.3 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).
#10.11 1995 Omnibus Stock Plan (the Plan is incorporated by reference to Exhibit 10.3 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is incorporated by reference to Exhibit 10.12 to Annual Report on Form 10-K for the
year ended December 31, 1996).
</TABLE>
34
<PAGE>
Ocean Energy, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
#10.12 1998 Omnibus Stock Plan (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
#10.13 UMC 1987 Nonqualified Stock Option Plan, as amended, (the Plan is incorporated herein by
reference to Exhibit 10.3 to UMC's Form S-1 (No. 33-63532) filed with the SEC on May 28, 1993;
the Third Amendment, dated November 16, 1993, is incorporated herein by reference to Exhibit
10.4 to UMC's Form 10-K for the year ended December 31, 1993; the Fourth Amendment, dated April
6, 1994, is incorporated by reference to Exhibit 10.6 to UMC's Form 10-K for the year ended
December 31, 1994; the Fifth Amendment, dated November 19, 1997, is incorporated by reference to
Exhibit 4.7 to UMC's Form S-3 (No. 333-42467); the Sixth Amendment, dated March 27, 1998, and
the Seventh Amendment, dated February 1, 1999, are incorporated by reference to Exhibit 10.3 to
Form 10-Q for the period ended March 31, 1999).
#10.14 UMC 1994 Employee Nonqualified Stock Option Plan, as amended (the Plan is incorporated by
reference to Exhibit 4.14 to UMC's Form S-8 (No. 33-79160) filed with the SEC on May 19, 1994;
the First Amendment, dated November 16, 1994, is incorporated by reference to Exhibit 4.11.1 to
UMC's Form S-8 (No. 33-86480) filed with the SEC on November 18, 1994; the Second Amendment,
dated May 22, 1996, is incorporated by reference to Exhibit 4.3.2 to UMC's Form S-8 (No.
333-05401) filed with the SEC on June 6, 1996; the Third Amendment, dated November 13, 1996, is
incorporated by reference to Exhibit 4.3.3 to UMC's Form S-8 (No. 333-28017) filed with the SEC
on May 29, 1997; the Fourth Amendment, dated May 29, 1997, is incorporated herein by reference
to Exhibit 4.3.4 to UMC's Form S-8 (No. 333-28017) filed with the SEC on May 29, 1997; the Fifth
Amendment, dated November 19, 1997, is incorporated by reference to Exhibit 4.8 to UMC's Form
S-3 (No. 333-42467) filed with the SEC on December 17, 1997; the Sixth Amendment, dated March
27, 1998 is incorporated by reference to Exhibit 10.4 to Form 10-Q for the period ended March
31, 1999).
#10.15 Amendment to UMC 1994 Non-Qualified Stock Option Agreement for Former Employees of General
Atlantic Resources, Inc. dated as of April 16, 1996 among UMC and Donald D. Wolf (incorporated
by reference to Exhibit 10.22 to UMC's Form 10-Q for the period ended September 30, 1996).
#10.16 UMC 1994 Outside Directors' Nonqualified Stock Option Plan, as amended (the Plan is incorporated
herein by reference to Exhibit 4.15 to UMC's Form S-8 (No. 33-79160) filed with the SEC on May
19, 1994; the First Amendment, dated May 22, 1996, is incorporated by reference to Exhibit 4.4.1
to UMC's Form S-8 (No. 333-05401) filed with the SEC on June 6, 1996; the Second Amendment,
dated November 13, 1996, is incorporated herein by reference to Exhibit 4.4 to UMC's Form S-8
(No. 333-28017) filed with the SEC on May 29, 1997; the Third Amendment, dated November 19,
1997, is incorporated by reference to Exhibit 4.9 to UMC's Form S-3 (No. 333-42467); Fourth
Amendment, dated March 27, 1998 is incorporated by reference to Exhibit 10.6 to Form 10-Q for
the period ended March 31, 1999).
#10.17 UMC Petroleum Corporation Supplemental Benefit Plan effective January 1, 1994, approved by the
Board of Directors on March 29, 1994 (the Plan is incorporated by reference to Exhibit 10.10 to
UMC's Form 10-K filed for the year ended December 31, 1994; the Second Amendment dated March 30,
1999 is incorporated by reference to Exhibit 10.7 to Form 10-Q for the period ended March 31,
1999).
#10.18 1994 Long-Term Incentive Plan (the Plan, as amended, is incorporated by reference to Exhibit
10.3 to Amendment No. 2 to the Registration Statement on Form S-1 (No. 33-84308) of Ocean
Energy, Inc. (Registration No. 0-25058); the Second Amendment, dated March 27, 1998 is
incorporated by reference to Exhibit 4.2 to Form 10-Q for the period ended March 31, 1999).
</TABLE>
35
<PAGE>
Ocean Energy, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
#10.19 1996 Long-Term Incentive Plan, as amended (the Plan, as amended, is incorporated by reference to
Exhibit 99.1 to the Form S-8 (No. 333-45117) of Ocean Energy, Inc. (Registration No. 0-25058)
filed with the SEC on January 29, 1998; the Second Amendment, dated March 27, 1998, is
incorporated by reference to Exhibit 4.2 to Form 10-Q for the period ended March 31, 1999).
*#10.20 Long-Term Incentive Plan for Non-Executive Employees, as amended (the Plan, as amended, is
incorporated by reference to Exhibit 99.1 to the Form S-8 (No. 333-45119) of Ocean Energy, Inc.
(Registration No. 0-25058); Amendment No. 2, incorporated by reference to Exhibit 99.2 to the
Form S-8 (No. 333-49185) of Ocean Energy, Inc.; Amendment No. 3, dated as of May 20, 1998, is
incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the year ended
December 31, 1998, of Ocean Energy, Inc. (Registration No. 0-25058); Amendment No. 4 is filed
herewith).
#10.21 1998 Long-Term Incentive Plan (incorporated by reference to Appendix E to Ocean Energy, Inc.'s
Joint Proxy Statement Prospectus on Form S-4 (333-43933) filed with the SEC on January 9, 1998).
#10.22 Seagull Energy Corporation Management Stability Plan (the Plan is incorporated by reference to
Exhibit 10.35 to Annual Report on Form 10-K for the year ended December 31, 1994; the First
Amendment is incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K for the
year ended December 31, 1996; the Second and Third Amendments are incorporated by reference to
Exhibit 10.4 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; the
Fourth Amendment is incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K
for the year ended December 31, 1998; the Fifth Amendment is incorporated by reference to
Exhibit 10.14 to Form 10-Q for the period ended March 31, 1999).
*#10.23 Outside Directors Deferred Fee Plan, as amended and restated effective March 30, 1999.
#10.24 Executive Supplemental Retirement Plan, as amended (the Plan, as amended, is incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for the quarter ended September 30,
1996; the Third Amendment is incorporated by reference to Exhibit 10.11 to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
#10.25 Supplemental Benefit Plan, as amended, including the First Amendment thereto (the Plan, as
amended, is incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-K for the
year ended December 31, 1995; the Third Amendment is incorporated by reference to Exhibit 10.12
to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998; the Fourth Amendment
is incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for the year
ended December 31, 1998).
#10.26 Ocean Energy, Inc. 1999 Change of Control Severance Plan dated February 8, 1999; the First
Amendment dated March 29, 1999 (incorporated by reference to Exhibit 10.17 to Form 10-Q for the
period ended March 31, 1999).
#10.27 Form of Indemnification Agreements among the Company and certain executive officers and
directors (incorporated by reference to Exhibit 10.19 to Form 10-Q for the period ended March
31, 1999).
#10.28 Employment Agreement by and between the Company and James T. Hackett, as amended (the Agreement
is incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998; Amendment to Employment Agreement dated November 24, 1998 is
incorporated by reference to Exhibit 10.15 to Form 10-Q for the period ended March 31, 1999;
Second Amendment to Employment Agreement, effective as of December 15, 1999, is incorporated by
reference to Exhibit 99.2 to Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 7, 2000).
</TABLE>
36
<PAGE>
Ocean Energy, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
#10.29 Employment and Consulting Agreement by and between the Company and Barry J. Galt, as amended
(the Agreement is incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998; Amendment to Employment and Consulting Agreement dated
November 24, 1998 is incorporated by reference to Exhibit 10.16 to Form 10-Q for the period
ended March 31, 1999; Second Amendment to Employment and Consulting Agreement is incorporated by
reference to Exhibit 10.6 to Form 10-Q for the period ended June 30, 1999).
#10.30 Employment Agreement, dated as of March 27, 1998, among Ocean Energy, Inc. and John B. Brock, as
amended (the Agreement is incorporated by reference to Exhibit 10.1 to the Form 8-K of Ocean
Energy, Inc. (Registration No. 0-25058) filed with the SEC on March 31, 1998; Amendment No.1,
dated as of November 24, 1998, is incorporated by reference to Exhibit 10.33 to the Annual
Report on Form 10-K for the year ended December 31, 1998, of Ocean Energy, Inc. (Registration
No. 0-25058)).
#10.31 Form of Employment Agreement between the Company and Robert K. Reeves (incorporated by reference
to Exhibit 10.41 to Form 10-Q for the period ended June 30, 1999).
#10.32 Form of Employment Agreement between the Company and William L. Transier (incorporated by
reference to Exhibit 10.5 to Form 10-Q for the period ended June 30, 1999).
#10.33 Letter Agreement between the Company and James C. Flores, dated December 22, 1999 (incorporated
by reference to Exhibit 99.3 to Current Report on Form 8-K filed on January 7, 2000).
#10.34 Employment Agreement between the Company and James C. Flores, effective as of January 1, 2000
(incorporated by reference to Exhibit 99.4 to Current Report on Form 8-K filed on January 7,
2000).
#10.35 Severance Agreement between Ocean Energy, Inc., (the "Company") a Texas corporation formerly
known as Seagull Energy Corporation, and John D. Schiller Jr. ("Executive") dated September 27,
1999 (incorporated by reference to Exhibit 10.1 to Form 10-Q for the period ended September 30,
1999).
#10.36 Executive Supplemental Retirement Plan Membership Agreement by and between the Company and James
T. Hackett (incorporated by reference to Exhibit 10.7 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
#10.37 Executive Supplemental Retirement Plan Membership Agreement between the Company and Barry J.
Galt dated as of February 3, 1986, as amended (incorporated by reference to Exhibit 10.2 to
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996).
#10.38 Severance Agreement between the Company and James T. Hackett, as amended (incorporated by
reference to Exhibit 10.8 to Quarterly Report on Form 10-Q for the quarter ended September 30,
1998). Amendment to Severance Agreement, effective as of December 15, 1999, incorporated by
reference to Exhibit 99.1 to Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 7, 2000.
</TABLE>
37
<PAGE>
Ocean Energy, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
#10.39 Severance Agreement, including Amendment and Second Amendment to Severance Agreement, between
the Company and Barry J. Galt (incorporated by reference to Exhibit 10.2 to Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998).
#10.40 Promissory Note between John D. Schiller, Jr. and Seagull (incorporated by reference to Exhibit
10.31 to Annual Report on Form 10-K for the year ended December 31, 1998).
10.41 Promissory Note between William L. Transier and Seagull (incorporated by reference to Exhibit
10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
10.42 Promissory Note between Barry J. Galt and Seagull (incorporated by reference to Exhibit 10.33 to
Annual Report on Form 10-K for the year ended December 31, 1998).
10.43 Purchase and Sale Agreement dated June 15, 1999, between the Company, as Seller, and SEMCO
ENERGY, Inc., as Purchaser, for the sale of ENSTAR (incorporated by reference to Exhibit 10.2 to
Form 10-Q for the period ended June 30, 1999).
10.44 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 (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the period ended June 30, 1999).
*10.45 Natural Gas Purchase and Sale Agreement dated October 1, 1999 between the Company as Seller and
Duke Energy Trading and Marketing, L.L.C., as Buyer, filed herewith.
*13.0 1999 Annual Report of the Company (selected portions), filed herewith.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Arthur Andersen LLP.
*27.1 Financial Data Schedule.
</TABLE>
38
<PAGE>
364-DAY CREDIT AGREEMENT
$200,000,000 CREDIT
AND COMPETITIVE BID FACILITY
AMONG
OCEAN ENERGY, INC.,
CREDIT SUISSE FIRST BOSTON,
Individually and as Administrative Agent,
CREDIT SUISSE FIRST BOSTON,
as Auction Administrative Agent,
BANK OF AMERICA, N.A.,
Individually, and as Syndication Agent,
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
Individually, and as Documentation Agent,
AND
THE OTHER BANKS SIGNATORY HERETO
November 9, 1999
-----------------
CREDIT SUISSE FIRST BOSTON,
as Lead Arranger and Sole Book Manager
<PAGE>
TABLE OF CONTENTS
Section 1. Definitions and Accounting Matters.......................1
1.1 Certain Defined Terms....................................1
1.2 Accounting Terms and Determinations.....................18
1.3 Types of Loans..........................................18
1.4 Miscellaneous...........................................18
Section 2. Commitments; Competitive Bid Facility...................18
2.1 Committed Loans.........................................18
(a) Revolving Loans..................................18
(b) Term Loans.......................................19
2.2 Extension of Revolving Commitment Termination Date and
Revolving Commitments............................19
2.3 Reductions and Changes of Commitments...................21
2.4 Fees....................................................22
2.5 Affiliates; Lending Offices.............................22
2.6 Several Obligations.....................................22
2.7 Repayment of Loans; Evidence of Debt....................23
2.8 Use of Proceeds.........................................23
2.9 Competitive Bid Procedure...............................23
Section 3. Borrowings, Prepayments and Selection of
Interest Rates...................................25
3.1 Borrowings..............................................25
3.2 Prepayments.............................................26
3.3 Selection of Interest Rates.............................26
Section 4. Payments of Principal and Interest......................26
4.1 Repayment of Loans......................................26
4.2 Interest................................................27
Section 5. Payments; Pro Rata Treatment; Computations, Etc.........27
5.1 Payments................................................27
5.2 Pro Rata Treatment......................................28
5.3 Computations............................................28
5.4 Minimum and Maximum Amounts.............................28
5.5 Certain Actions, Notices, Etc...........................29
5.6 Non-Receipt of Funds by Administrative Agent............30
5.7 Sharing of Payments, Etc................................30
Section 6. Yield Protection and Illegality.........................31
6.1 Additional Costs........................................31
6.2 Limitation on Types of Loans............................32
6.3 Illegality..............................................33
6.4 Substitute Alternate Base Rate Loans....................33
6.5 Compensation............................................34
6.6 [Intentionally omitted].................................34
6.7 Capital Adequacy........................................34
6.8 Limitation on Additional Charges; Substitute Banks;
Non-Discrimination...............................35
Section 7. Conditions Precedent....................................35
7.1 Initial Loans...........................................35
7.2 Initial and Subsequent Loan.............................37
Section 8. Representations and Warranties..........................38
8.1 Corporate Existence.....................................38
8.2 Corporate Power and Authorization.......................38
8.3 Binding Obligations.....................................38
8.4 No Legal Bar or Resultant Lien..........................39
8.5 No Consent..............................................39
8.6 Financial Condition.....................................39
8.7 Investments and Guaranties..............................39
8.8 Liabilities and Litigation..............................40
8.9 Taxes and Governmental Charges..........................40
8.10 Title to Properties.....................................40
8.11 Defaults................................................40
8.12 Location of Businesses and Offices......................40
8.13 Compliance with Law.....................................41
8.14 Margin Stock............................................41
8.15 Subsidiaries............................................41
8.16 ERISA...................................................41
8.17 Investment Company Act..................................42
8.18 Public Utility Holding Company Act......................42
8.19 Environmental Matters...................................42
8.20 Claims and Liabilities..................................43
8.21 Solvency................................................43
8.22 Year 2000...............................................43
Section 9. Affirmative Covenants...................................43
9.1 Financial Statements and Reports........................43
9.2 Officers' Certificates..................................45
9.3 Taxes and Other Liens...................................45
9.4 Maintenance.............................................46
9.5 Further Assurances......................................46
9.6 Performance of Obligations..............................46
9.7 Reimbursement of Expenses...............................46
9.8 Insurance...............................................47
9.9 Accounts and Records....................................48
9.10 Notice of Certain Events................................48
9.11 ERISA Information and Compliance........................49
Section 10. Negative Covenants......................................50
10.1 Debts, Guaranties and Other Obligations.................50
10.2 Liens...................................................53
10.3 Dividend Payment Restrictions...........................56
10.4 Mergers and Sales of Assets.............................56
10.5 Proceeds of Loans.......................................57
10.6 ERISA Compliance........................................57
10.7 Total Leverage Ratio....................................57
10.8 Senior Leverage Ratio...................................57
10.9 Minimum Net Worth.......................................57
10.10 Nature of Business......................................57
10.11 Covenants in Other Agreements...........................58
Section 11. Defaults................................................58
11.1 Events of Default.......................................58
11.2 [Intentionally omitted].................................60
11.3 [Intentionally omitted].................................60
11.4 Right of Setoff.........................................60
Section 12. Agents..................................................61
12.1 Appointment, Powers and Immunities......................61
12.2 Reliance by Agents......................................62
12.3 Defaults................................................62
12.4 Rights as a Bank........................................62
12.5 Indemnification.........................................63
12.6 Non-Reliance on Agents and Other Banks..................63
12.7 Failure to Act..........................................64
12.8 Resignation or Removal of Administrative Agent..........64
Section 13. Miscellaneous...........................................64
13.1 Waiver..................................................64
13.2 Notices.................................................65
13.3 Indemnification.........................................65
13.4 Amendments, Etc.........................................66
13.5 Successors and Assigns..................................66
13.6 Limitation of Interest..................................70
13.7 Survival................................................71
13.8 Captions................................................71
13.9 Counterparts............................................71
13.10 GOVERNING LAW; FORUM SELECTION; CONSENT TO JURISDICTION.71
13.11 WAIVER OF JURY TRIAL; PUNITIVE DAMAGES..................72
13.12 Severability............................................72
13.13 [Intentionally omitted].................................72
13.14 Confidential Information................................73
13.15 Tax Forms...............................................73
13.16 Entire Agreement........................................74
<PAGE>
EXHIBITS:
Exhibit A Unrestricted Subsidiaries
Exhibit B Form of Request for Extension of Credit
Exhibit C Subsidiaries (with Addresses)
Exhibit D Form of Compliance Certificate
Exhibit E Assignment and Acceptance
Exhibit F Form of Competitive Bid Request
Exhibit G Form of Notice to Banks of Competitive Bid Request
Exhibit H Form of Competitive Bid
Exhibit I Form of Competitive Bid Administrative Questionnaire
Exhibit J Form of Certificate of Extension
Exhibit K Form of Guaranty Agreement
Exhibit L Disclosure Statement
Exhibit M Commitments
<PAGE>
364-DAY CREDIT AGREEMENT
This 364-DAY CREDIT AGREEMENT, dated as of November 9, 1999 (the Effective
Date"), is by and among OCEAN ENERGY, INC. ("the Company"), a corporation duly
organized and validly existing under the laws of the State of Texas, each of the
banks which is or which may from time to time become a signatory hereto
(individually, a "Bank" and, collectively, the "Banks"), CREDIT SUISSE FIRST
BOSTON ("CSFB"), as Administrative Agent for the Banks (in such capacity,
together with its successors in such capacity, "Administrative Agent"), CREDIT
SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks (in such
capacity, the "Auction Administrative Agent"), BANK OF AMERICA, N.A. ("Bank of
America"), as Syndication Agent for the Banks (in such capacity, the
"Syndication Agent"), and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("Chase"),
as Documentation Agent for the Banks (in such capacity, the "Documentation
Agent").
The parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.1 Certain Defined Terms. As used herein, the following terms shall have the
following meanings (all terms defined in this Section 1.1 or in other provisions
of this Agreement in the singular to have the same meanings when used in the
plural and vice versa):
"Accepting Banks" shall have the meaning set forth in Section 2.2(c).
"Additional Costs" shall have the meaning ascribed to such term in Section 6.1
hereof.
"Affiliate" shall mean, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person and, if such Person is an individual, any member of the immediate family
(including parents, siblings, spouse, children, stepchildren, grandchildren,
nephews and nieces) of such individual and any trust whose principal beneficiary
is such individual or one or more members of such immediate family and any
Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with correlative meanings, "controlled by" and
"under common control with") shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"Agents" shall mean the Administrative Agent, the Auction Administrative Agent,
the Documentation Agent and the Syndication Agent, together with any successors
in any such capacities.
<PAGE>
"Agreement" shall mean this 364-Day Credit Agreement, as such agreement from
time to time may be amended, amended and restated, supplemented or otherwise
modified.
"Alternate Base Rate" shall mean, for any day, a rate per annum equal to the
higher of (a)the Prime Rate in effect on such day or (b) 1/2 of 1% plus the
Federal Funds Rate in effect for such day (rounded upwards, if necessary, to the
nearest 1/16th of 1%). For purposes hereof, "Federal Funds Rate" shall mean, for
any period, a fluctuating interest rate per annum equal for each day during such
period to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by
Administrative Agent from three Federal funds brokers of recognized standing
selected by it. For purposes of this Agreement, any change in the Alternate Base
Rate due to a change in the Federal Funds Rate shall be effective on the
effective date of such change in the Federal Funds Rate. If for any reason
Administrative Agent shall have determined (which determination shall be
conclusive and binding, absent manifest error) that it is unable to ascertain
the Federal Funds Rate for any reason, including, without limitation, the
inability or failure of Administrative Agent to obtain sufficient bids or
publications in accordance with the terms hereof, the Alternate Base Rate shall
be the Prime Rate until the circumstances giving rise to such inability no
longer exist. For the purposes hereof, "Prime Rate" shall mean the prime rate as
announced from time to time by Administrative Agent, and thereafter entered in
the minutes of Administrative Agent's Loan and Discount Committee. Without
notice to the Company or any other Person, the Prime Rate shall change
automatically from time to time as and in the amount by which said prime rate
shall fluctuate. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer.
Administrative Agent may make commercial loans or other loans at rates of
interest at, above or below the Prime Rate. For purposes of this Agreement any
change in the Alternate Base Rate due to a change in the Prime Rate shall be
effective on the date such change in the Prime Rate is announced.
"Alternate Base Rate Loans" shall mean Loans which bear interest at a rate based
upon the Alternate Base Rate.
"Applicable Lending Office" shall mean, for each Bank and for each Type of Loan,
such office of such Bank (or of an Affiliate of such Bank) as such Bank may from
time to time specify to Administrative Agent and the Company as the office by
which its Loans of such Type are to be made and/or issued and maintained.
"Applicable Margin" shall mean, on any day, with respect to any Alternate Base
Rate Loan or Eurodollar Loan, the applicable per annum percentage set forth at
the appropriate intersection in the table shown below, based on the Rating as of
the close of business on the preceding Business Day:
<PAGE>
<TABLE>
<CAPTION>
=============================== ================================ ============================
<S> <C> <C> <C>
Alternate Base Rate Eurodollar Loan
Rating Loan Applicable Margin Applicable Margin
------------------------------- -------------------------------- ----------------------------
------------------------------- -------------------------------- ----------------------------
BBB-/Baa3 and higher 0.000% 1.075%
------------------------------- -------------------------------- ----------------------------
------------------------------- -------------------------------- ----------------------------
BB+/Ba1 0.250% 1.250%
------------------------------- -------------------------------- ----------------------------
------------------------------- -------------------------------- ----------------------------
BB/Ba2 0.500% 1.500%
------------------------------- -------------------------------- ----------------------------
------------------------------- -------------------------------- ----------------------------
BB-/Ba3 and lower 0.750% 1.750%
=============================== ================================ ============================
</TABLE>
"Assignment and Acceptance" shall have the meaning set forth in Section 13.5(b).
"Bankruptcy Code" shall mean the United States Bankruptcy Code, as amended, and
any successor statute.
"Business Day" shall mean any day other than a day on which commercial banks are
authorized or required to close in Houston, Texas or New York, New York, and
where such term is used in the definition of "Quarterly Date" in this Section
1.1 or if such day relates to a borrowing of, a payment or prepayment of
principal of or interest on, or an Interest Period for, a Eurodollar Loan or a
notice by the Company with respect to any such borrowing, payment, prepayment or
Interest Period, a day which is also a day on which dealings in Dollar deposits
are carried out in the relevant interbank market.
"Capital Lease Obligations" shall mean, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP and, for purposes of this Agreement, the amount
of such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.
"Certificate of Extension" shall mean a certificate of Company, executed by a
Responsible Officer and delivered to the Administrative Agent, in substantially
the form of Exhibit J, which requests an extension of the then scheduled
Revolving Commitment Termination Date pursuant to Section 2.2.
<PAGE>
"Change of Control" shall mean a change resulting when any Unrelated Person or
any Unrelated Persons acting together which would constitute a Group together
with any Affiliates or Related Persons thereof (in each case also constituting
Unrelated Persons) shall at any time either (i) Beneficially Own more than 35%
of the aggregate voting power of all classes of Voting Stock of the Company or
(ii) during any period of two consecutive years ending on or after the Effective
Date, as determined as of the last day of each calendar quarter after the
Effective Date, the individuals (the "Incumbent Directors") who at the beginning
of such period constituted the Board of Directors of the Company (other than
additions thereto or removals therefrom from time to time thereafter approved by
a vote of the Board of Directors in accordance with the Company's by-laws) shall
cease for any reason to constitute 51% or more of the Board of Directors of the
Company. As used herein (a) "Beneficially Own" means "beneficially own" as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any
successor provision thereto; provided, however, that, for purposes of this
definition, a Person shall not be deemed to Beneficially Own securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates until such tendered securities are accepted for
purchase or exchange; (b) "Group" means a "group" for purposes of Section 13(d)
of the Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means
at any time any Person other than the Company or any Subsidiary and other than
any trust for any employee benefit plan of the Company or any Subsidiary of the
Company; (d) "Related Person" of any Person shall mean any other Person owning
(1) 5% or more of the outstanding common stock of such Person or (2) 5% or more
of the Voting Stock of such Person; and (e) "Voting Stock" of any Person shall
mean capital stock of such Person which ordinarily has voting power for the
election of directors (or persons performing similar functions) of such Person,
whether at all times or only so long as no senior class of securities has such
voting power by reason of any contingency.
"Chapter 1D" shall mean Chapter 1D of Article 5069 of the Texas Credit Title,
Title 79, Vernon's Texas Civil Statutes, as amended (formerly Article 5069-1.04,
Vernon's Texas Civil Statutes, as amended).
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
"Commitment Percentage" shall mean, as to any Bank, the percentage equivalent of
a fraction the numerator of which is the amount of such Bank's Commitment and
the denominator of which is the aggregate amount of the Commitments of all
Banks.
"Commitment" shall mean, as to any Bank, such Bank's Revolving Commitment or
Term Commitment then in effect, as the case may be.
"Committed Loans" shall mean the Revolving Loans and the Term Loans provided for
in Section 2.1 hereof.
"Competitive Bid" shall mean an offer by a Bank to make a Competitive Loan
pursuant to Section 2.9 hereof.
"Competitive Bid Administrative Questionnaire" shall mean a questionnaire
substantially in the form of Exhibit I hereto.
<PAGE>
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a Bank
pursuant to Section 2.9 hereof, the fixed rate of interest, in each case,
offered by the Bank making such Competitive Bid.
"Competitive Bid Request" shall have the meaning ascribed to such term in
Section 2.9 hereof.
"Competitive Loans" shall mean loans provided for in Section 2.9 hereof.
"Consolidated Net Worth" means, with respect to the Company and its
Subsidiaries, the sum of preferred stock (if any), par value of common stock,
capital in excess of par value of common stock and retained earnings, less
treasury stock (if any), goodwill, cost in excess of fair value of net assets
acquired and all other assets that are properly classified as intangible assets,
but plus any expenses associated with the Merger occurring prior to December 31,
1999 and not in excess of $30,000,000 in the aggregate, and the amount of
noncash write downs occurring on or after January 1, 1999 of long-lived assets
in compliance with GAAP or SEC guidelines, and excluding any extraordinary or
non-recurring net gains or losses together with any related provision for taxes
on such gain or loss, realized in connection with any extraordinary or
nonrecurring gains or losses, and plus or minus, as appropriate, foreign
currency translation adjustments, all as determined on a consolidated basis.
"Declining Banks" shall have the meaning set forth in Section 2.2(c).
"Default" shall mean an Event of Default or an event which with notice or lapse
of time or both would, unless cured or waived, become an Event of Default.
"Disclosure Statement" shall mean the Disclosure Statement delivered to
Administrative Agent by the Company and attached as Exhibit L hereto.
"Dividend Payment" shall mean, with respect to any Person, dividends (in cash,
property or obligations) on, or other payments or distributions on account of,
or the redemption of, or the setting apart of money for a sinking or other
analogous fund for the purchase, redemption, retirement or other acquisition of,
any shares of any class of capital stock of such Person, or the exchange or
conversion of any shares of any class of capital stock of such Person for or
into any obligations of or shares of any other class of capital stock of such
Person or any other property, but excluding dividends to the extent payable in,
or exchanges or conversions for or into, shares of common stock of the Company
or options or warrants to purchase common stock of the Company.
"Dollars" and "$' shall mean lawful money of the United States of America.
<PAGE>
"EBITDAX" shall mean net earnings (excluding material gains and losses on sales
and retirement of assets, non-cash write downs, charges resulting from
accounting convention changes and deductions for exploration expenses) before
deduction for federal and state taxes, interest expense (including capitalized
interest), operating lease rentals or depreciation, depletion and amortization
expense, all determined in accordance with GAAP; provided, however, for the
purpose of any calculation, that (i) for the fiscal quarter ending March 31,
1998, EBITDAX shall be deemed to equal $159,765,000, (ii) for the fiscal quarter
ending June 30, 1998, EBITDAX shall be deemed to equal $142,023,000, (iii) for
the fiscal quarter ending September 30, 1998, EBITDAX shall be deemed to equal
$107,171,000, (iv) for the fiscal quarter ending December 31, 1998, EBITDAX
shall be deemed to equal $122,134,000, and (v) for the fiscal quarter ending
March 31, 1999, EBITDAX shall be deemed to equal $117,296,000.
"Environmental Claim" means any third party (including Governmental Authorities
and employees) action, lawsuit, claim or proceeding (including claims or
proceedings at common law or under the Occupational Safety and Health Act or
similar laws relating to safety of employees) which seeks to impose liability
for (i) noise; (ii) pollution or contamination of the air, surface water, ground
water or land or the clean-up of such pollution or contamination; (iii) solid,
gaseous or liquid waste generation, handling, treatment, storage, disposal or
transportation; (iv) exposure to Hazardous Substances; (v) the safety or health
of employees or (vi) the manufacture, processing, distribution in commerce or
use of Hazardous Substances. An "Environmental Claim" includes, but is not
limited to, a common law action, as well as a proceeding to issue, modify or
terminate an Environmental Permit, or to adopt or amend a regulation to the
extent that such a proceeding attempts to redress violations of an applicable
permit, license, or regulation as alleged by any Governmental Authority.
"Environmental Liabilities" includes all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs and expenses necessary to cause the issuance, reissuance or
renewal of any Environmental Permit including reasonable attorneys' fees and
court costs.
"Environmental Permit" means any permit, license, approval or other
authorization under any applicable Legal Requirement relating to pollution or
protection of health or the environment, including laws, regulations or other
requirements relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations and interpretations by the
Internal Revenue Service or the Department of Labor thereunder.
<PAGE>
"ERISA Affiliate" shall mean any trade or business (whether or not incorporated)
which is a member of a group of which any Obligor is a member and which is under
common control within the meaning of the regulations under Section 414 of the
Code.
"Eurodollar Base Rate" shall mean, with respect to any Interest Period for any
Eurodollar Loan, the lesser of (A) the rate per annum determined by the
Administrative Agent at approximately 11:00 a.m., London, England time, on the
date that is two (2) Business Days prior to the beginning of the relevant
Interest Period by reference to the British Bankers Association Interest
Settlement Rates for deposits in U.S. dollars (as set forth by the Bloomberg
Information Service or any successor thereto or any other service selected by
the Administrative Agent that has been nominated by the British Bankers
Association as an authorized information vendor for the purpose of displaying
such rates) for a period equal to such Interest Period or (B) the Highest Lawful
Rate; provided that, to the extent that an interest rate is not ascertainable
pursuant to the foregoing provisions of this definition, LIBOR shall be the
lesser of (A) the interest rate per annum determined by the Administrative Agent
to be the average of the rates per annum at which deposits in U.S. dollars are
offered for such relevant Interest Period to major banks in the London interbank
market in London, England by the Administrative Agent at approximately
11:00 a.m., London, England time, on the date that is two (2) Business Days
prior to the beginning of such Interest Period or (B) the Highest Lawful Rate.
Each determination of the Eurodollar Base Rate shall be conclusive and binding,
absent manifest error, and may be computed using any reasonable averaging and
attribution method.
"Eurodollar Loans" shall mean Loans the interest on which is determined on the
basis of rates referred to in the definition of "Eurodollar Base Rate" in this
Section 1.1.
"Eurodollar Rate" shall mean, for any Interest Period for any Eurodollar Loan, a
rate per annum determined by Administrative Agent to be equal to the Eurodollar
Base Rate for such Loan for such Interest Period.
"Event of Default" shall have the meaning assigned to such term in Section 11.1
hereof.
"Facility Amount" shall mean the aggregate amount of the Commitments (which
amount shall initially be $200,000,000), as such amount may be reduced from time
to time pursuant to the terms of this Agreement.
<PAGE>
"Facility Fee Percentage" shall mean, on any date, the applicable per annum
percentage set forth at the appropriate intersection in the table shown below,
based on the Rating as of the close of business on the preceding Business Day:
<TABLE>
=================================== =================================
<S> <C> <C>
Rating Facility Fee Percentage
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
BBB-/Baa3 and higher 0.175%
----------------------------------- ---------------------------------
----------------------------------- ---------------------------------
BB+/Ba1 and lower 0.250%
=================================== =================================
</TABLE>
"Financial Statements" shall mean the financial statement or statements,
together with the notes and schedules thereto, described or referred to in
Sections 8.6 and 9.1.
"GAAP" shall mean as to a particular Person, such accounting practice as, in the
opinion of KPMG Peat Marwick or other independent accountants of recognized
national standing retained by such Person and acceptable to the Majority Banks,
conforms at the time to generally accepted accounting principles, consistently
applied. Generally accepted accounting principles means those principles and
practices (a) which are recognized as such by the Financial Accounting Standards
Board, (b) which are applied for all periods after the date hereof in a manner
consistent with the manner in which such principles and practices were applied
to the most recent audited financial statements of the relevant Person furnished
to the Banks, except only for such changes in principles and practices with
which the applicable independent public accountants concur and which are
disclosed to the Banks in writing, and (c) which are consistently applied for
all periods after the date hereof so as to reflect properly the financial
condition and results of operations of such Person.
"Governmental Authority" shall mean any sovereign governmental authority, the
United States of America, any State of the United States and any political
subdivision of any of the foregoing, and any central bank, agency,
instrumentality, department, commission, board, bureau, authority, court or
other tribunal or quasi-governmental authority in each case whether executive,
legislative, judicial, regulatory or administrative, having jurisdiction over
the Company, any of its Subsidiaries, any of their respective property,
Administrative Agent or any Bank.
"Granting Bank" shall have the meaning specified in Section 13.5(i).
<PAGE>
"Guarantee" by any Person means any obligation, contingent or otherwise, of any
such Person directly or indirectly guaranteeing any Indebtedness of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness (whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise, other
than agreements to purchase assets, goods, securities or services at an arm's
length price in the ordinary course of business) or (ii) entered into for the
purpose of assuring in any other manner the holder of such Indebtedness of the
payment thereof or to protect such holder against loss in respect thereof (in
whole or in part), provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" shall mean Ocean Energy, Inc., a Louisiana corporation.
"Guaranty Agreement" shall mean the guaranty agreement substantially in the form
of Exhibit K, with appropriate insertions and deletions, executed or to be
executed by the Guarantor, as such agreement from time to time may be amended,
amended and restated, supplemented or otherwise modified.
"Havre" shall mean Havre Pipeline Company, LLC, a Texas limited liability
company.
"Hazardous Substance" shall mean petroleum products, and any hazardous or toxic
waste or substance defined or regulated as such from time to time by any law,
rule, regulation or order described in the definition of "Requirements of
Environmental Law".
"Highest Lawful Rate" shall mean, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or Texas law
permits the higher interest rate, stated as a rate per annum. On each day, if
any, that Chapter 1D establishes the Highest Lawful Rate, the Highest Lawful
Rate shall be the "applicable interest rate ceiling" (as defined in Chapter 1D)
for that day.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate and all other liquid or gaseous hydrocarbons and related
minerals, in each case whether in a natural or a processed state.
<PAGE>
"Indebtedness" shall mean, as to any Person, without duplication: (i)
indebtedness of such Person for borrowed money (whether by loan or the issuance
and sale of debt securities) or for the deferred purchase or acquisition price
of property or services, including, without limitation, obligations payable out
of Hydrocarbon production; (ii) obligations, whether fixed or contingent, of
such Person in respect of letters of credit, acceptances or similar instruments
issued or accepted by banks and other financial institutions for the account of
such Person or any other Person; (iii) Capital Lease Obligations of such Person;
(iv) Redemption Obligations of such Person and other obligations of such Person
to redeem or otherwise retire shares of capital stock of such Person or any
other Person, in each case to the extent that the redemption obligations will
arise prior to the stated maturity of the Obligations; (v) indebtedness of
others of the type described in clause (i), (ii), (iii) or (iv) above secured by
a Lien on the property of such Person, whether or not the respective obligation
so secured has been assumed by such Person, to the extent of the fair market
value of such property; and (vii) indebtedness of others of the type described
in clause (i), (ii), (iii) or (iv) above Guaranteed by such Person, to the
extent of such Guarantee.
"Interest Period" shall mean:
(a) With respect to any Eurodollar Loan, the period commencing on (i) the date
such Loan is made or converted into or continued as a Eurodollar Loan or (ii) in
the case of a roll-over to a successive Interest Period, the last day of the
immediately preceding Interest Period and ending on the numerically
corresponding day in the first, second, third or sixth calendar month
thereafter, as the Company may select as provided in Section 5.5 hereof, except
that each such Interest Period which commences on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month shall
end on the last Business Day of the appropriate subsequent calendar month.
(b) With respect to any other Competitive Loan, the period commencing on the
date such Loan is made and ending on the date specified in the Competitive Bid
in which the offer to make the Competitive Loan was extended; provided, however,
that each such period shall have a duration of not less than seven calendar days
or more than 180 calendar days.
Notwithstanding the foregoing: (i) each Interest Period which would otherwise
end on a day which is not a Business Day shall end on the next succeeding
Business Day (or, in the case of an Interest Period for Eurodollar Loans, if
such next succeeding Business Day falls in the next succeeding calendar month,
on the next preceding Business Day); (ii) with respect to each Bank, no Interest
Period applicable to any Eurodollar Loan or any Competitive Loan shall extend
beyond the then scheduled Stated Maturity Date applicable to each such Bank, and
(iii) no Interest Period for any Eurodollar Loans shall have a duration of less
than one month and, if the Interest Period therefor would otherwise be a shorter
period, such Loans shall not be available hereunder.
"Investments" shall mean with respect to any Person any advance, loan or other
extension of credit or capital contribution (other than prepaid expenses in the
ordinary course of business) to (by means of transfers of property or assets or
otherwise) purchase or own any stocks, bonds, notes, debentures or other
securities of, or incur contingent liability with respect to (except for the
endorsement of checks in the ordinary course of business and except for the
Indebtedness and Liens permitted under this Agreement), any other Person.
"Legal Requirement" shall mean any law, statute, ordinance, decree, requirement,
order, judgment, rule, regulation (or interpretation of any of the foregoing)
of, and the terms of any license or permit issued by, any Governmental
Authority, now or hereafter in effect.
<PAGE>
"Lien" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, collateral assignment, security interest or encumbrance of any kind in
respect of such asset. For the purposes of this Agreement, a Person shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"Loan Documents" shall mean this Agreement, the Guaranty Agreement, all
instruments, certificates and agreements now or hereafter executed or delivered
to Administrative Agent or any Bank pursuant to any of the foregoing, and all
amendments, modifications, renewals, extensions, increases and rearrangements
of, and substitutions for, any of the foregoing.
"Loans" shall mean Committed Loans and Competitive Loans.
"Majority Banks" shall mean (a) prior to the termination of the Commitments,
Banks having greater than 50% of the aggregate amount of the Commitments and (b)
after the termination of the Commitments, Banks having greater than 50% of the
aggregate principal amount of the Loans.
"Margin Regulations" shall mean, as applicable, Regulations U and X of the Board
of Governors of the Federal Reserve System, as from time to time in effect.
"Material Adverse Effect" shall mean a material adverse effect on the business,
condition (financial or otherwise), operations or properties (including proven
oil and gas reserves) of the Company and its Subsidiaries, taken as a whole, or
on the ability of the Company to perform its material obligations under any Loan
Document to which it is a party.
"Merger" shall mean that certain merger among Seagull and Old Ocean Energy
pursuant to that certain Agreement and Plan of Merger, dated November 24, 1998,
as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of
December 9, 1998, among such parties.
"Net Cash Proceeds" shall mean the cash or cash equivalent proceeds received by
the Company or any Subsidiary as a result of any Public Debt Transaction of
Company or any Subsidiary, in each case after deducting all of the following, as
applicable, (I) all brokerage commissions, legal fees, accounting fees and other
fees, costs and expenses paid, reimbursed or accrued by the Company or any of
its Subsidiaries and allocable to such transaction, and (ii) any reserves
maintained by the Company or any of its Subsidiaries for any indemnity or other
obligations in connection with such transaction.
<PAGE>
"95 Indenture" shall mean that certain Indenture among the Company (as successor
by merger to Old Ocean Energy), as issuer, Guarantor (as successor by merger to
UMC), as initial subsidiary guarantor, and U.S. Bank Trust National Association
(formerly known as First Bank of New York, National Association), as trustee,
dated as of October 30, 1995, providing for the issuance of the Company's
$150,000,000 10-3/8% Senior Subordinated Notes due 2005, as amended by (i) the
First Supplemental Indenture thereto dated as of November 4, 1997, (ii) the
Second Supplemental Indenture thereto dated as of March 27, 1998 and (iii) the
Third Supplemental Indenture thereto dated as of March 30, 1999, and all notes
or securities issued under any of the foregoing, any subsidiary guarantees
issued pursuant to the terms of any of the foregoing, and all amendments and
supplements to the foregoing permitted hereunder.
"96 Indenture" shall mean that certain indenture dated as of September 26, 1996"
among the Company (as successor by merger to Old Ocean Energy), as issuer, the
subsidiary guarantor named therein, and State Street Bank and Trust Company, as
trustee, providing for the issuance of the Company's $160,000,000 9-3/4% Senior
Subordinated Notes due 2006, as amended by (i) the First Supplemental Indenture
thereto dated as of March 27, 1998 and (ii) the Second Supplemental Indenture
thereto dated as of March 30, 1999, and all notes or securities issued under any
of the foregoing, any subsidiary guarantees issued pursuant to the terms of any
of the foregoing, and all amendments and supplements to the foregoing permitted
hereunder.
"97 Indenture" shall mean that certain Indenture dated as of July 2, 1997 among
the Company (as successor by merger to Old Ocean Energy), as issuer, the
subsidiary guarantor named therein, and State Street Bank and Trust Company, as
trustee, providing for the issuance of the Company's $200,000,000 8-7/8% Senior
Subordinated Notes due 2007, as amended by (i) the First Supplemental Indenture
thereto dated as of March 27, 1998 and (ii) the Second Supplemental Indenture
thereto dated as of March 30, 1999, and all notes or securities issued under any
of the foregoing, any subsidiary guarantees issued pursuant to the terms of any
of the foregoing, and all amendments and supplements to the foregoing permitted
hereunder.
"98 Senior Subordinated Indenture" shall mean that certain Indenture dated as of
July 8, 1998 among the Company (as successor by merger to Old Ocean Energy), as
issuer, the subsidiary guarantor named therein, U.S. Bank Trust National
Association, as trustee, providing for the issuance of the Company's
$250,000,000 8-3/8% Senior Subordinated Notes due 2008, as amended by the First
Supplemental Indenture thereto dated as of March 30, 1999, and all notes or
securities issued under any of the foregoing, any subsidiary guarantees issued
pursuant to the terms of any of the foregoing, and all amendments and
supplements to the foregoing permitted hereunder.
"Obligations" shall mean, as at any date of determination thereof, the sum of
the following: (i) the aggregate principal amount of Loans outstanding hereunder
plus (ii) all other liabilities, obligations and indebtedness of the Company,
any Subsidiary of the Company or any other Obligor under any Loan Document.
"Obligor" shall mean the Company and the Guarantor.
"Offer to Purchase" shall have the meaning set forth in Section 7.1(j).
"Offer Agreement" shall have the meaning set forth in Section 7.1(j).
"Old Ocean Energy" shall mean Ocean Energy, Inc., a Delaware corporation.
<PAGE>
"Organizational Documents" shall mean, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture; with respect to a limited
liability company, the certificate of formation and operating agreement (or
comparable documents) of such limited liability company; and with respect to a
trust, the instrument establishing such trust; in each case including any and
all modifications thereof.
"Original Revolving Commitment Termination Date" means November 7, 2000.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean an individual, a corporation, a company, a bank, a voluntary
association, a partnership, a trust, an unincorporated organization, any
Governmental Authority or any other entity.
"Plan" shall mean an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code and is either (a) maintained by the Company or any ERISA Affiliate for
employees of the Company or any ERISA Affiliate or (b) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Company or any ERISA Affiliate
is then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
"Post-Default Rate" shall mean, in respect of any principal of any Loan or any
other amount payable by the Company under this Agreement or any other Loan
Document which is not paid when due (whether at stated maturity, by
acceleration, or otherwise), a rate per annum during the period commencing on
the due date until such amount is paid in full equal to the lesser of (a) the
sum of (x) with respect to Eurodollar Loans, 2% per annum plus the applicable
Eurodollar Rate then in effect plus the Applicable Margin for Eurodollar Loans
until the expiration of the applicable Interest Period, (y) with respect to
Competitive Loans, 2% per annum plus the applicable fixed rate offered by the
applicable Bank and accepted by the Company in accordance with Section 2.9
hereof, and (z) with respect to Alternate Base Rate Loans and with respect to
Eurodollar Loans after the expiration of the applicable Interest Period (and
also with respect to indebtedness other than Loans), 2% plus the Alternate Base
Rate as in effect from time to time plus the Applicable Margin for Alternate
Base Rate Loans or (b) the Highest Lawful Rate.
"Principal Office" shall mean the principal office of Administrative Agent,
presently located at 11 Madison Avenue, 20th Floor, New York, New York
10010-3629, Attention: Julia Kingsbury, Phone: (212) 325-9937, Fax: (212)
325-8304.
<PAGE>
"Public Debt Transaction" shall have the meaning set forth in Section
2.3(a)(ii).
"Quarterly Dates" shall mean the last day of each March, June, September and
December, provided that, if any such date is not a Business Day, then the
relevant Quarterly Date shall be the next succeeding Business Day.
"Rating" shall mean the senior unsecured debt rating for the Company publicly
announced by Standard & Poor's Ratings Group or Moody's Investors Service, Inc.,
or their respective successors. In the event the ratings are not equivalent, the
higher rating shall be treated as the "rating" hereunder; provided, that if such
ratings differ by more than one (1) level, the Rating shall be the average,
rounded upwards, of the two ratings. In the event that there is no Rating
published by either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or their respective successors, then the Rating shall be deemed to
be BB-/Ba3.
"Redemption Obligations" shall mean with respect to any Person all mandatory
redemption obligations of such Person with respect to preferred stock or other
equity securities issued by such Person or put rights in favor of the holder of
such preferred stock or other equity securities, to the extent that such
redemption obligations or put rights will arise prior to the stated maturity of
the Obligations. Notwithstanding the foregoing, customary redemption obligations
and put rights associated with a Change of Control or sale of assets shall not
constitute Redemption Obligations.
Reference Banks" shall mean CSFB and such other Banks (up to a maximum of two
(2) additional Banks) as the Company, with the approval of Administrative Agent
(which approval shall not be unreasonably withheld), may from time to time
designate.
"Register" shall have the meaning set forth in Section 13.5(d).
"Regulation D" shall mean Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time and
any successor or other regulation relating to reserve requirements.
"Regulatory Change" shall mean, with respect to any Bank, any change on or after
the date of this Agreement in Legal Requirements (including Regulation D) or the
adoption or making on or after such date of any interpretation, directive or
request applying to a class of banks including such Bank under any Legal
Requirements (whether or not having the force of law) by any Governmental
Authority.
"Relevant Party" shall mean the Company and each other party to any of the Loan
Documents other than (a) the Banks and (b) the Agents.
"Replacement Banks" shall have the meaning set forth in Section 2.2(c)(ii).
<PAGE>
"Request for Extension of Credit" shall mean a request for extension of credit
duly executed by any Responsible Officer of the Company, appropriately completed
and substantially in the form of Exhibit B attached hereto.
"Requirements of Environmental Law" means all requirements imposed by any law
(including for example and without limitation The Resource Conservation and
Recovery Act and The Comprehensive Environmental Response, Compensation, and
Liability Act), rule, regulation, or order of any federal, state or local
executive, legislative, judicial, regulatory or administrative agency, board or
authority in effect at the applicable time which relate to (i) noise; (ii)
pollution, protection or clean-up of the air, surface water, ground water or
land; (iii) solid, gaseous or liquid waste generation, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) regulation of the manufacture, processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.
"Reserve Requirement" shall mean, for any Eurodollar Loan for any Interest
Period therefor, the stated maximum rate for all reserves (including any
marginal, supplemental or emergency reserves) required to be maintained during
such Interest Period under Regulation D by any member bank of the Federal
Reserve System or any Bank against "Eurocurrency liabilities" (as such term is
used in Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect and include any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against (i)
any category of liabilities which includes deposits by reference to which the
Eurodollar Rate is to be determined as provided in the definition of "Eurodollar
Base Rate" in this Section 1.1 or (ii) any category of extensions of credit or
other assets which include Eurodollar Loans. Any determination by Administrative
Agent of the Reserve Requirement shall be conclusive and binding, absent
manifest error, and may be made using any reasonable averaging and attribution
method.
"Responsible Officer" shall mean the chairman of the board, the president, any
executive vice president, the vice president of finance and administration, the
chief executive officer or the chief operating officer or any equivalent officer
(regardless of title) and in the case of the Company, any other vice president,
and in respect of financial or accounting matters, shall also include the chief
financial officer, the treasurer and the controller or any equivalent officer
(regardless of title).
<PAGE>
"Restricted Subsidiary" shall mean each Subsidiary of the Company that, at the
particular time in question, (i) owns directly or indirectly any material assets
or any interest in any other Restricted Subsidiary and (ii) has been designated
as a Restricted Subsidiary by the Company or has not been designated as an
Unrestricted Subsidiary by the Company either (a) on Exhibit A attached hereto
or (b) in accordance with the terms and provisions of this Agreement. The
Unrestricted Subsidiaries on the Effective Date are listed on Exhibit A attached
hereto and each other Subsidiary of Company as of the Effective Date shall be a
Restricted Subsidiary. A Restricted Subsidiary shall remain such (even if it no
longer owns directly or indirectly any interest in any of the material assets or
any interest in any other Restricted Subsidiary) until designated as an
Unrestricted Subsidiary in accordance with the terms and provisions of this
Agreement.
"Revolving Commitment" shall mean, as to any Bank, the obligation, if any, of
such Bank to make Revolving Loans in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount, if any, set forth opposite
such Bank's name on Exhibit M under the caption "Commitment" (as the same may be
reduced from time to time pursuant to Sections 2.2(c), 2.3 and 6.8(c)).
"Revolving Commitment Termination Date" shall mean the earliest of:
(a) the Original Revolving Commitment Termination Date, or such other later date
as may result from any extension requested by Company and consented to by the
Banks pursuant to Section 2.2;
(b) the date on which all of the Commitments are terminated in full or reduced
to zero pursuant to Section 2.3; and
(c) the date on which the Commitments otherwise are terminated in full and
reduced to zero pursuant to the terms of Section 11.1.
Upon the occurrence of any event described in clause (b) or (c), the Revolving
Commitments shall terminate automatically and without any further action.
"Revolving Credit Agreement" shall mean that certain Revolving Credit Agreement,
dated as of March 30, 1999, by and among the Company, each of the banks which is
or which may from time to time become a signatory thereto, Bank of America
National Trust and Savings Association, as Documentation Agent, Bank One, Texas,
N.A., as Syndication Agent, Societe Generale, Southwest Agency and Bank of
Montreal, as Managing Agents for the Banks, The Chase Manhattan Bank, as Auction
Administrative Agent for the Banks, and Chase Bank of Texas, National
Association, as Administrative Agent, as such agreement from time to time may be
amended, amended and restated, supplemented or otherwise modified.
"Revolving Loans" shall mean the loans provided for in Section 2.1(a) hereof.
"Seagull" shall mean Seagull Energy Corporation, a Texas corporation.
"Senior Debt" shall mean Total Debt, other than Subordinated Indebtedness.
"Senior Leverage Ratio" shall mean the ratio of (a) Senior Debt to (b) EBITDAX
of the Company and its Restricted Subsidiaries on a consolidated basis for the
last four rolling fiscal quarters.
<PAGE>
"SPC" shall have the meaning specified in Section 13.5(i).
'Stated Maturity Date" shall mean the date occurring 364 days after the Term
Commitment Termination Date.
"Subordinated Indebtedness" shall mean all unsecured Indebtedness of the Company
which is subordinated in right of payment to the payment in full of all
Obligations.
"Subsidiary" shall mean, with respect to any Person (the "parent"), (a) any
corporation of which at least a majority of the outstanding shares of stock
having by the terms thereof ordinary voting power to elect a majority of the
board of directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by the parent or one or more of the
Subsidiaries of the parent or by the parent and one or more of the Subsidiaries
of the parent, and (b) any partnership, limited partnership, joint venture or
other form of entity, the majority of the legal or beneficial ownership of which
is at the time directly or indirectly owned or controlled by the parent or one
or more of the Subsidiaries of the parent or by the parent and one or more of
the Subsidiaries of the parent.
"Tangible Net Worth" shall mean with respect to any Person the sum of the
redemption price of preferred stock, par value of common stock, capital in
excess of par value of common stock (additional paid-in capital) and retained
earnings, less treasury stock, goodwill, deferred development costs, franchises,
licenses, patents, trademarks and copyrights and all other assets which are
properly classified as intangible assets in accordance with GAAP and any
Redemption Obligations.
"Term Commitment" shall mean, as to any Bank, such Bank's obligation to make
Term Loans pursuant to Section 2.1(b) of this Agreement in an aggregate
principal amount equal to the lesser of (i) the aggregate Revolving Loans
outstanding to all Banks as of the Revolving Commitment Termination Date or (ii)
the Revolving Commitments in effect as of the Revolving Commitment Termination
Date.
"Term Commitment Termination Date" shall mean the earlier of
(a) the Business Day after the Revolving Commitment Termination Date; and
(b) the date on which the Commitments otherwise are terminated in full and
reduced to zero pursuant to the terms of Section 11.1.
Upon the occurrence of any event described in clause (b), the Term Commitments
shall terminate automatically and without any further action.
<PAGE>
"Term Loans" shall mean the loans provided for in Section 2.1(b) hereof.
"Total Debt" shall mean all Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis, but excluding (i) Indebtedness of the
Company or any Restricted Subsidiary of the types described in Section 10.1,
part (i), clauses (c) through (g), (j), (k) and (l), (ii) fifty percent (50%) of
the amount of (A) obligations in respect of letters of credit or similar
instruments not supporting indebtedness for borrowed money and (B) obligations
in connection with bank guarantees, bonds, surety or similar obligations
required or requested by Governmental Authorities in connection with the usual
and customary operation of and the obtaining of oil and gas properties, and
(iii) Indebtedness of the Company or any Restricted Subsidiary of the types
described in Section 10.1, part (i), clause (h), up to an aggregate amount of
$10,000,000.
"Total Leverage Ratio" shall mean the ratio of (a) Total Debt to (b) EBITDAX of
the Company and its Restricted Subsidiaries on a consolidated basis for the last
four rolling fiscal quarters.
"Type" shall have the meaning assigned to such term in Section 1.3 hereof.
"Unfunded Liabilities" shall mean, with respect to any Plan, at any time, the
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent actuarial valuation report for such
Plan, but only to the extent that such excess represents a potential liability
of any ERISA Affiliate to the PBGC or a Plan under Title IV of ERISA.
"United States" or "U.S." shall mean the United States of America, its fifty
states and the District of Columbia.
"Unrestricted Subsidiary" shall mean each Subsidiary of the Company which is
(i) designated as an Unrestricted Subsidiary on Exhibit A attached hereto or
(ii) designated as an Unrestricted Subsidiary by the Company at any time after
the Effective Date and either (A) such Subsidiary has a Tangible Net Worth of
less than $25,000,000 or (B) with the consent of the Administrative Agent and
the Majority Banks. An Unrestricted Subsidiary shall remain such until
designated as a Restricted Subsidiary in accordance with the terms and
provisions of this Agreement.
<PAGE>
1.2 Accounting Terms and Determinations. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters required to be
delivered hereunder shall be prepared, in accordance with GAAP. To enable the
ready determination of compliance with the provisions hereof, the Company will
not change from December 31 in each year the date on which its fiscal year ends,
nor from March 31, June 30 and September 30 the dates on which the first three
fiscal quarters in each fiscal year end.
1.3 Types of Loans. Loans hereunder are distinguished by "Type". The "Type" of a
Loan refers to the determination whether such Loan is a Eurodollar Loan, a
Competitive Loan or an Alternate Base Rate Loan.
1.4 Miscellaneous. The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. Any reference to
Sections shall refer to Sections of this Agreement.
Section 2. Commitments; Competitive Bid Facility.
2.1 Committed Loans. From time to time on or after the date hereof on the terms
and subject to the conditions of this Agreement, each Bank shall make Committed
Loans described in this Section 2.1.
(a) Revolving Loans. From time to time on or after the date hereof and prior to
the Revolving Commitment Termination Date, each Bank shall make Revolving Loans
under this Section to the Company in an aggregate principal amount at any one
time outstanding up to but not exceeding such Bank's Commitment Percentage of
the amount by which the Facility Amount exceeds the aggregate unpaid principal
balance of all Competitive Loans from time to time outstanding. Subject to the
conditions herein, any such Revolving Loan repaid prior to the Revolving
Commitment Termination Date may be reborrowed pursuant to the terms of this
Agreement.
(b) Term Loans. On the Revolving Commitment Termination Date (unless such date
shall occur as a result of clause (c) of the definition thereof), each Bank will
make one Term Loan to the Company equal to such Bank's Commitment Percentage of
the Term Commitment. No amounts paid or prepaid with respect to the Term Loan
may be reborrowed. Eurodollar Loans and Competitive Loans for which the Interest
Period shall not have terminated as of the Revolving Commitment Termination Date
shall be continued as Eurodollar Loans or Competitive Loans, as the case may be,
for the applicable Interest Period and Alternate Base Rate Loans shall be
continued as Alternate Base Rate Loans after the Revolving Commitment
Termination Date, unless the Company shall have elected otherwise by delivery of
a Request for Extension of Credit. Any principal repayments received on the
Revolving Commitment Termination Date for Revolving Loans not converted into
Term Loans shall be applied first to Alternate Base Rate Loans and, after
Alternate Base Rate Loans have been paid in full, to either Eurodollar Loans and
Competitive Loans, unless the Company shall have otherwise instructed the
Administrative Agent in writing. Upon a Bank making such Term Loan, its Term
Commitment shall terminate and it shall have no further Commitment to make
Loans.
<PAGE>
2.2 Extension of Revolving Commitment Termination Date and Revolving
Commitments.
(a) Subject to the other provisions of this Agreement, the Revolving Commitments
shall be effective for an initial period from the date hereof to the Original
Revolving Commitment Termination Date; provided that the Revolving Commitment
Termination Date, and concomitantly the Revolving Commitments, may be extended
for successive 364 day periods expiring on the date which is 364 days from the
then scheduled Revolving Commitment Termination Date. If Company shall request
in a Certificate of Extension delivered to the Administrative Agent not more
than 60 days and not less than 45 days prior to the Revolving Commitment
Termination Date that the Revolving Commitment Termination Date be extended for
364 days from the then scheduled Revolving Credit Termination Date, then the
Administrative Agent shall promptly notify each Bank of such request and each
Bank shall notify the Administrative Agent, no later than 30 days prior to the
Revolving Credit Termination Date, whether such Bank, in the exercise of its
sole discretion, will extend the Revolving Commitment Termination Date for such
364 day period. Any Bank which shall not timely notify the Administrative Agent
whether it will extend the Revolving Commitment Termination Date shall be deemed
to not have agreed to extend the Revolving Commitment Termination Date. No Bank
shall have any obligation whatsoever to agree to extend the Revolving Commitment
Termination Date. Any agreement to extend the Revolving Commitment Termination
Date by any Bank shall be irrevocable, except as provided in clause (c) of this
Section.
(b) If all Banks notify the Administrative Agent pursuant to clause (a) of this
Section of their agreement to extend the Revolving Commitment Termination Date,
then the Administrative Agent shall so notify each Bank and Company, and such
extension shall be effective without other or further action by any party hereto
for such additional 364 day period.
(c) If Banks constituting at least the Majority Banks approve the extension of
the then scheduled Revolving Commitment Termination Date (such Banks agreeing to
extend the Revolving Commitment Termination Date herein called the "Accepting
Banks") and if one or more Banks shall notify, or be deemed to notify, the
Administrative Agent pursuant to clause (a) of this Section that they will not
extend the then scheduled Revolving Commitment Termination Date (such Banks
herein called the "Declining Banks"), then (A) the Administrative Agent shall
promptly so notify Company and the Accepting Banks, (B) the Accepting Banks
shall, upon Company's election to extend the then scheduled Revolving Commitment
Termination Date in accordance with clause (i) or (ii) below, extend the then
scheduled Revolving Commitment Termination Date and (C) Company shall, pursuant
to a notice delivered to the Administrative Agent, the Accepting Banks and the
Declining Banks, no later than the tenth (10th) day following the date by which
each Bank is required, pursuant to clause (a) of this Section, to approve or
disapprove the requested extension of the Revolving Commitment Termination Date,
either:
<PAGE>
(i) elect to extend the Revolving Commitment Termination Date with respect to
the Accepting Banks and direct the Declining Banks to terminate their Revolving
Commitments, which termination shall become effective on the date which would
have been the Revolving Commitment Termination Date except for the operation of
this Section. On such date, (x) Company shall deliver a notice of the
effectiveness of the termination of the Revolving Commitments of such Declining
Banks to the Declining Banks with a copy to the Administrative Agent and (y)
Company shall request a Term Loan from such Declining Banks (other than
Declining Banks that are replaced by Replacement Banks pursuant to paragraph
(ii) below) pursuant to the terms of Section 2.1(b) (and each such Declining
Bank shall make such Term Loan), and (z) upon the payment in full in immediately
available funds of all Obligations of Company owing to such Declining Banks in
connection with such Term Loans on the Stated Maturity Date in effect at the
time each such Declining Bank made its election to be a Declining Bank (i.e.,
364 days after the date of such Term Loan), including any amounts required
pursuant to Section 6, the Declining Banks shall each cease to be Banks
hereunder for all purposes, other than for purposes of Sections 6 and 13, and
shall cease to have any obligations or any Commitment hereunder, other than to
the Agents pursuant to Section 12, and the Administrative Agent shall promptly
notify the Accepting Banks and Company of the new Revolving Commitment
Termination Date applicable to such Accepting Banks; or
<PAGE>
(ii) elect to extend the Revolving Commitment Termination Date with respect to
the Accepting Banks and, prior to or no later than the then scheduled Revolving
Commitment Termination Date, (A) to replace one or more of the Declining Banks
with another lender or lenders reasonably acceptable to the Administrative Agent
(such lenders herein called the "Replacement Banks") and (B) Company shall pay
in full in immediately available funds all Obligations of Company owing to any
Declining Bank that is not being replaced pursuant to this paragraph (other than
Obligations being purchased by the Replacement Banks); provided that (x) the
Replacement Bank or Replacement Banks shall purchase, and the Declining Bank or
Declining Banks shall sell, the Declining Bank's or Declining Banks' rights and
obligations hereunder without recourse or expense to, or warranty by, such
Declining Bank or Declining Banks being replaced for a purchase price equal to
the aggregate outstanding principal amount of the Obligations payable to such
Declining Bank or Declining Banks plus any accrued but unpaid interest on such
Obligations and accrued but unpaid fees or other amounts owing in respect of
such Declining Bank's or Declining Banks' Loans and Commitments hereunder, and
(y) upon the payment of such amounts referred to in clause (x) and the execution
of an Assignment and Acceptance agreement by the Replacement Bank or Replacement
Banks and the Declining Bank or Declining Banks (which each such Declining Bank
agrees to execute promptly), the Replacement Bank or Replacement Banks shall
each constitute a Bank hereunder and the Declining Bank or Declining Banks being
so replaced shall no longer constitute a Bank (other than for purposes of
Sections 6 and 13), and shall no longer have any obligations hereunder, other
than to the Agents pursuant to Section 12; or
(iii) elect to revoke and cancel the extension request in such Certificate of
Extension by giving notice of such revocation and cancellation to the
Administrative Agent (which shall promptly notify the Banks thereof) no later
than the tenth (10th) day following the date by which each Bank is required,
pursuant to clause (a) of this Section, to approve or disapprove the requested
extension of the Revolving Commitment Termination Date, and concomitantly the
total Revolving Commitments.
If Company fails to timely provide the election notice referred to in this
clause (c), Company shall be deemed to have revoked and canceled the extension
request in the Certificate of Extension and to have elected not to extend the
Revolving Commitment Termination Date.
<PAGE>
2.3 Reductions and Changes of Commitments.
(a) Mandatory.
(i) On the Stated Maturity Date, all Commitments shall be terminated in their
entirety unless terminated at an earlier date pursuant to Section 11.1.
(ii) Upon the consummation of any offering of debt securities pursuant to a
registered offering or an exempt offering under Rule 144A ("Public Debt
Transaction") of the Company or any of its Subsidiaries, (i) the Revolving
Commitment or the Term Commitment, as applicable, automatically and permanently
shall be reduced by, and (ii) the Commitment of each Bank automatically and
permanently shall be reduced on a pro-rata basis by, an amount equal to Net Cash
Proceeds in the aggregate for such Public Debt Transaction, and the Company
shall make mandatory prepayments on the Loans on or within ten (10) days after
receipt of such Net Cash Proceeds to the extent necessary so that after giving
effect to such mandatory prepayments the sum of all Loans (including any Loan to
be made but not yet made pursuant to a Request for Extension of Credit)
outstanding at any time would not exceed the total Commitments.
(b) Optional. The Company shall have the right to terminate or reduce the unused
portion of the Commitments at any time or from time to time, provided that: (i)
the Company shall give notice of each such termination or reduction to
Administrative Agent as provided in Section 5.5 hereof and (ii) each such
partial reduction shall be permanent and in an aggregate amount equal to an
integral multiple of $1,000,000 which equals or exceeds $5,000,000.
(c) No Reinstatement. Any reduction in or termination of the Commitments may not
be reinstated without the approval of Administrative Agent and any Bank whose
Commitment (or the applicable part thereof) is to be so reinstated.
<PAGE>
2.4 Fees.
(a) The Company shall pay to Administrative Agent for the account of each Bank a
facility fee accruing from the Effective Date, computed for each day at a rate
per annum equal to the Facility Fee Percentage times such Bank's pro rata share
(based on its respective Commitment) of the Facility Amount on such day. Such
facility fees shall be payable on the Quarterly Dates and on the earlier of the
date the Commitments are terminated in their entirety or the Stated Maturity
Date.
(b) The Company agrees to pay to Administrative Agent for the account of each
Bank the fees provided for in the separate letter agreement executed by and
between Administrative Agent and the Company.
2.5 Affiliates; Lending Offices.
(a) Any Bank may, if it so elects, fulfill any obligation to make a Eurodollar
Loan or Competitive Loan by causing a branch, foreign or otherwise, or Affiliate
of such Bank to make such Loan and may transfer and carry such Loan at, to or
for the account of any branch office or Affiliate of such Bank; provided that,
in such event for the purposes of this Agreement such Loan shall be deemed to
have been made by such Bank and the obligation of the Company to repay such Loan
shall nevertheless be to such Bank and shall be deemed to be held by such Bank
and, to the extent of such Loan, to have been made for the account of such
branch or Affiliate.
(b) Notwithstanding any provision of this Agreement to the contrary, each Bank
shall be entitled to fund and maintain its funding of all or any part of its
Loans hereunder in any manner it sees fit, it being understood, however, that
for the purposes of this Agreement all determinations hereunder shall be made as
if such Bank had actually funded and maintained each Eurodollar Loan during each
Interest Period through the purchase of deposits having a maturity corresponding
to such Interest Period and bearing an interest rate equal to the Eurodollar
Rate for such Interest Period.
2.6 Several Obligations. The failure of any Bank to make any Loan to be made by
it on the date specified therefor shall not relieve any other Bank of its
obligation to make its Loan on such date, but neither Administrative Agent nor
any Bank shall be responsible for the failure of any other Bank to make a Loan
to be made by such other Bank.
2.7 Repayment of Loans; Evidence of Debt.
(a) Each Bank shall maintain in accordance with its usual practice an account or
accounts evidencing the indebtedness of Company to such Bank resulting from each
Loan made by such Bank, including the amounts of principal and interest payable
and paid to such Bank from time to time hereunder.
<PAGE>
(b) Administrative Agent shall maintain accounts in which it shall record
(i) the amount of each Loan made hereunder and, if applicable, the Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from Company to each Bank hereunder and
(iii) the amount of any sum received by Administrative Agent hereunder for the
account of the Banks and each Bank's share thereof.
(c) The entries made in the accounts maintained pursuant to paragraph (a) or (b)
of this Section shall be prima facie evidence of the existence and amounts of
the obligations recorded therein; provided that the failure of any Bank or
Administrative Agent to maintain such accounts or any error therein shall not in
any manner affect the obligation of any Obligor to repay the Loans or other
Obligations in accordance with the terms of this Agreement or the other Loan
Documents.
(d) Any Bank may request that Loans made by it be evidenced by a promissory
note. In such event, Company shall prepare, execute and deliver to such Bank
promissory notes payable to the order of such Bank (or, if requested by such
Bank, to such Bank and its registered assigns and in a form approved by
Administrative Agent). Thereafter, the Loans evidenced by such promissory notes
and interest thereon may (including after assignment pursuant to Section 13.5)
be represented by one or more promissory notes in such form payable to the order
of the payee named therein.
2.8 Use of Proceeds. The proceeds of the Loans shall be used for general
corporate purposes.
2.9 Competitive Bid Procedure.
<PAGE>
(a) In order to request Competitive Bids, the Company shall hand deliver, telex
or telecopy to Auction Administrative Agent a duly completed request
substantially in the form of Exhibit F, with the blanks appropriately completed
(a "Competitive Bid Request"), to be received by Auction Administrative Agent
not later than noon, New York, New York time, five (5) Business Days before the
date specified for a proposed Competitive Loan. No Alternate Base Rate Loan
shall be requested in, or, except pursuant to Section 6, made pursuant to, a
Competitive Bid Request. A Competitive Bid Request that does not conform
substantially to the format of Exhibit F may be rejected at Auction
Administrative Agent's sole discretion, and Auction Administrative Agent shall
promptly notify the Company of such rejection by telecopier. Each Competitive
Bid Request shall in each case refer to this Agreement and specify (x) the date
of such Competitive Loans (which shall be a Business Day) and the aggregate
principal amount thereof (which shall not be less than $25,000,000 or greater
than the unused portion of the Facility Amount on such date and shall be an
integral multiple of $5,000,000) and (y) the Interest Period with respect
thereto (which may not end after the termination of the then scheduled Stated
Maturity Date). Promptly after its receipt of a Competitive Bid Request that is
not rejected as aforesaid, Auction Administrative Agent shall invite by
telecopier (in substantially the form set forth in Exhibit G hereto) the Banks
to bid, on the terms and conditions of this Agreement, to make Competitive Loans
pursuant to such Competitive Bid Request. Notwithstanding the foregoing, Auction
Administrative Agent shall have no obligation to invite any Bank to make a
Competitive Bid pursuant to this Section until such Bank has delivered a
properly completed Competitive Bid Administrative Questionnaire to Auction
Administrative Agent.
(b) Each Bank may, in its sole discretion, make one or more Competitive Bids to
the Company responsive to each Competitive Bid Request. Each Competitive Bid by
a Bank must be received by Auction Administrative Agent via telecopier, in the
form of Exhibit H hereto, not later than noon, New York, New York time, four (4)
Business Days before the date specified for a proposed Competitive Loan.
Competitive Bids that do not conform substantially to the format of Exhibit H
may be rejected by Auction Administrative Agent after conferring with, and upon
the instruction of, the Company, and Auction Administrative Agent shall notify
the Bank of such rejection as soon as practicable. Each Competitive Bid shall
refer to this Agreement and (x) specify the principal amount (which shall be in
a minimum principal amount of $5,000,000 and in an integral multiple of
$1,000,000 and which may equal the entire aggregate principal amount of the
Competitive Loan requested by the Company) of the Competitive Loan that the Bank
is willing to make to the Company, (y) specify the Competitive Bid Rate at which
the Bank is prepared to make the Competitive Loan and (z) confirm the Interest
Period with respect thereto specified by the Company in its Competitive Bid
Request. A Competitive Bid submitted by a Bank pursuant to this paragraph (b)
shall be irrevocable.
(c Auction Administrative Agent shall, by 3:00 p.m., New York, New York time,
four (4) Business Days before the date specified for a proposed Competitive
Loan, notify the Company by telecopier of all the Competitive Bids made, the
Competitive Bid Rate and the maximum principal amount of each Competitive Loan
in respect of which a Competitive Bid was made and the identity of the Bank that
made each bid. Auction Administrative Agent shall send a copy of all Competitive
Bids to the Company for its records as soon as practicable after completion of
the bidding process set forth in this Section 2.9.
<PAGE>
(d The Company may in its sole and absolute discretion, subject only to the
provisions of this Section 2.9(d), accept or reject any Competitive Bid referred
to in Section 2.9(c); provided, however, that the aggregate amount of the
Competitive Bids so accepted by the Company may not exceed the principal amount
of the Competitive Loan requested by the Company. The Company shall notify
Auction Administrative Agent by telecopier whether and to what extent it has
decided to accept or reject any or all of the bids referred to in Section
2.9(c), not later than noon, New York, New York time, three (3) Business Days
before the date specified for a proposed Competitive Loan; provided, however,
that (w) the failure by the Company to give such notice shall be deemed to be a
rejection of all the bids referred to in Section 2.9(c) and (x) no bid shall be
accepted for a Competitive Loan unless such Competitive Loan is in a minimum
principal amount of $5,000,000 and an integral multiple of $1,000,000.
Notwithstanding the foregoing, if the Company accepts more than one bid made in
response to a Competitive Bid Request and the available principal amount of
Competitive Loans to be allocated among the Banks is not sufficient to enable
Competitive Loans to be allocated to each Bank in a minimum principal amount of
$5,000,000 and in integral multiples of $1,000,000, then the Company shall
select the Banks to be allocated such Competitive Loans and shall round
allocations up or down to the next higher or lower multiple of $1,000,000 as it
shall deem appropriate. In addition, the Company shall be permitted under the
foregoing procedures to accept a bid or bids in a principal amount of less than
$5,000,000 (i) in order to enable the Company to accept bids equal to (but not
in excess of) the principal amount of the Competitive Loan requested by the
Company or (ii) in order to enable the Company to accept all remaining bids, or
all remaining bids at a particular Competitive Bid Rate. A notice given by
Company pursuant to this paragraph (d) shall be irrevocable.
(e Auction Administrative Agent shall promptly notify each bidding Bank whether
or not its Competitive Bid has been accepted (and if so, in what amount and at
what Competitive Bid Rate) by telex or telecopier sent by Auction Administrative
Agent, and each successful bidder will thereupon become bound, subject to the
other applicable conditions hereof, to make the Competitive Loan in respect of
which its bid has been accepted. After completing the notifications referred to
in the immediately preceding sentence, Auction Administrative Agent shall (i)
notify Administrative Agent of each Competitive Bid that has been accepted, the
amount thereof and the Competitive Bid Rate therefor and (ii) notify each Bank
of the aggregate principal amount of all Competitive Bids accepted.
(f No Competitive Loan shall be made within five (5) Business Days of the date
of any other Competitive Loan, unless the Company and Auction Administrative
Agent shall mutually agree otherwise.
(g If Administrative Agent shall at any time have a Commitment hereunder and
shall elect to submit a Competitive Bid in its capacity as a Bank, it shall
submit such bid directly to the Company one quarter of an hour earlier than the
latest time at which the other Banks are required to submit their bids to
Auction Administrative Agent pursuant to paragraph (b) above.
(h All notices required by this Section 2.9 shall be made in accordance with
Section 13.2 and the Competitive Bid Administrative Questionnaire most recently
placed on file by each Bank with Auction Administrative Agent.
Section 3. Borrowings, Prepayments and Selection of Interest Rates.
<PAGE>
3.1 Borrowings. The Company shall give Administrative Agent notice of each
borrowing to be made hereunder as provided in Sections 2.9 and 5.5 hereof. Not
later than 3:00 p.m. New York, New York time on the date specified for each such
borrowing hereunder, each Bank shall make available the amount of the Loan, if
any, to be made by it on such date to Administrative Agent, at its Principal
Office, in immediately available funds, for the account of the Company. The
amount so received by Administrative Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Company by depositing the
same, in immediately available funds, in an account designated in writing by the
Company.
3.2 Prepayments.
(a Optional Prepayments. Subject to the provisions of Sections 4, 5 and 6, the
Company shall have the right to prepay, on any Business Day, in whole or in
part, without the payment of any penalty or fee, Loans at any time or from time
to time, provided that, the Company shall give Administrative Agent notice of
each such prepayment as provided in Section 5.5 hereof. Neither Eurodollar Loans
nor Competitive Loans may be otherwise prepaid unless prepayment is accompanied
by payment of all compensation required by Section 6.
(b Mandatory Prepayments. Subject to Section 2.3(a)(ii), the Company shall from
time to time on demand by Administrative Agent prepay the Loans in such amounts
as shall be necessary so that at all times the aggregate outstanding principal
amount of all Loans shall not be in excess of the aggregate amount of the
Commitments, as reduced from time to time pursuant to Section 2.3 hereof.
3.3 Selection of Interest Rates. Subject to the terms and provisions of this
Agreement, the Company shall have the right either to convert any Loan (in whole
or in part) into a Loan of another Type (provided that no such conversion of
Eurodollar Loans or Competitive Loans shall be permitted other than on the last
day of an Interest Period applicable thereto) or to continue such Loan (in whole
or in part) as a Loan of the same Type. In the event the Company fails to so
give such notice prior to the end of the applicable Interest Period with respect
to any Eurodollar Loan or Competitive Loan, such Loan shall become an Alternate
Base Rate Loan on the last day of such Interest Period. Notwithstanding any
other provision of this Agreement, if a Default shall have occurred and be
continuing on the last day of an Interest Period applicable to a Eurodollar Loan
or Competitive Loan, such Loan shall automatically be converted to an Alternate
Base Rate Loan.
Section 4. Payments of Principal and Interest.
4.1 Repayment of Loans. The Company hereby unconditionally promises to pay to
Administrative Agent for the account of each Bank (a) each Loan in full at the
end of the Interest Period applicable to such Loan unless such Loan is continued
or converted in accordance with the terms hereof, and (b) the then unpaid
principal amount of all outstanding Loans on the then scheduled Stated Maturity
Date.
4.2 Interest.
<PAGE>
(a Subject to Section 13.6 hereof, the Company will pay to Administrative Agent
for the account of each Bank interest on the unpaid principal amount of each
Loan made by such Bank for the period commencing on the date of such Loan to but
excluding the date such Loan shall be paid in full, at the lesser of (I) the
following rates per annum:
(i0 if such Loan is an Alternate Base Rate Loan, the Alternate Base Rate plus
the Applicable Margin,
(ii0 if such Loan is a Eurodollar Loan, the applicable Eurodollar Rate plus the
Applicable Margin, and
(iii0 if such Loan is a Competitive Loan, the applicable fixed rate offered by
the applicable Bank and accepted by the Company in accordance with Section 2.9
hereof,
or (II) the Highest Lawful Rate.
(b Notwithstanding any of the foregoing but subject to Section 13.6 hereof, the
Company will pay to Administrative Agent for the account of each Bank interest
at the applicable Post-Default Rate on any principal of any Loan made by such
Bank and on any other amount payable by the Company hereunder to or for the
account of such Bank (but, if such amount is interest, only to the extent
legally allowed), which shall not be paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period commencing on the due
date thereof until the same is paid in full.
(c Accrued interest on each Alternate Base Rate Loan shall be payable on each
Quarterly Date. Accrued interest on each Eurodollar Loan or Competitive Bid Loan
shall be payable on the last day of each Interest Period for such Loan (and, if
such Interest Period exceeds three months' duration, on the last day of each
three month period, commencing on the first three month anniversary of such
Interest Period). Notwithstanding the foregoing, (i) accrued interest payable at
the Post-Default Rate shall be due and payable from time to time on demand of
Administrative Agent or the Majority Banks (through Administrative Agent) and
(ii) accrued interest on any amount prepaid or converted pursuant to Section 6
hereof shall be paid on the amount so prepaid or converted.
<PAGE>
Section 5. Payments; Pro Rata Treatment; Computations, Etc.
5.1 Payments.
(a Except to the extent otherwise provided herein, all payments of principal,
interest and other amounts to be made by the Company or any other Obligor
hereunder shall be made in Dollars, in immediately available funds, to
Administrative Agent at the Principal Office (or in the case of a successor
Administrative Agent, at the principal office of such successor Administrative
Agent in the United States), not later than noon, New York, New York time on the
date on which such payment shall become due (each such payment made after such
time on such due date to be deemed to have been made on the next succeeding
Business Day).
<PAGE>
(b The Company or such other Obligor shall, at the time of making each payment
hereunder, specify to Administrative Agent the Loans or other amounts payable by
the Company or such Obligor hereunder or thereunder to which such payment is to
be applied. Each payment received by Administrative Agent hereunder or any other
Loan Document for the account of a Bank shall be paid promptly to such Bank, in
immediately available funds for the account of such Bank's Applicable Lending
Office.
(c If the due date of any payment hereunder or any other Loan Document falls on
a day which is not a Business Day, the due date for such payment (subject to the
definition of Interest Period) shall be extended to the next succeeding Business
Day and interest shall be payable for any principal so extended for the period
of such extension.
5.2 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each
borrowing from the Banks under Section 2.1 hereof shall be made ratably from the
Banks on the basis of their respective Commitments and each payment of
commitment or facility fees shall be made for the account of the Banks, and each
termination or reduction of the Commitments of the Banks under Section 2.3
hereof shall be applied, pro rata, according to the Banks' respective
Commitments; and (b) each payment by the Company of principal of or interest on
Loans of a particular Type shall be made to Administrative Agent for the account
of the Banks pro rata in accordance with the respective unpaid principal amounts
of such Loans held by the Banks.
5.3 Computations. Interest on Competitive Loans and interest based on the
Eurodollar Base Rate or the Federal Funds Rate will be computed on the basis of
a year of 360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which such interest is
payable, unless the effect of so computing shall be to cause the rate of
interest to exceed the Highest Lawful Rate, in which case interest shall be
calculated on the basis of the actual number of days elapsed in a year composed
of 365 or 366 days, as the case may be. All other interest and fees shall be
computed on the basis of a year of 365 (or 366) days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable.
<PAGE>
5.4 Minimum and Maximum Amounts. Except for prepayments made pursuant to Section
3.2(b) hereof, and subject to the provisions of Section 2.9 hereof with respect
to Competitive Loans, each borrowing and repayment of principal of Loans, each
termination or reduction of Commitments, each optional prepayment and each
conversion of Type shall be in an aggregate principal amount at least equal to
(a) in the case of Eurodollar Loans and Competitive Loans, $5,000,000, and
(b) in the case of Alternate Base Rate Loans, $1,000,000 (borrowings or
prepayments of Loans of different Types or, in the case of Eurodollar Loans and
Competitive Loans, having different Interest Periods at the same time hereunder
to be deemed separate borrowings and prepayments for purposes of the foregoing,
one for each Type or Interest Period). Upon any mandatory prepayment that would
reduce Eurodollar Loans or Competitive Loans, respectively, having the same
Interest Period to less than $5,000,000 such Loans shall automatically be
converted into Alternate Base Rate Loans on the last day of the applicable
Interest Period. Notwithstanding anything to the contrary contained in this
Agreement, there shall not be, at any one time, more than eight (8) Interest
Periods in effect with respect to Eurodollar Loans or Competitive Loans, in the
aggregate.
5.5 Certain Actions, Notices, Etc. Notices to Administrative Agent of any
termination or reduction of Commitments, of borrowings and prepayments,
conversions and continuations of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by Administrative
Agent not later than noon, New York, New York time on the number of Business
Days prior to the date of the relevant termination, reduction, borrowing and/or
prepayment, conversion or continuance specified below:
<TABLE>
================================================ =======================================
<S> <C> <C>
Notice Number of Business Days Prior
------------------------------------------------ ---------------------------------------
Termination or Reduction of Commitments 2
------------------------------------------------ ---------------------------------------
Borrowing or prepayment of or conversion into same day
Alternate Base Rate Loans
------------------------------------------------ ---------------------------------------
Borrowing or prepayment of or conversion into 3
or continuance of Eurodollar Loans
================================================ =======================================
</TABLE>
<PAGE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing or
prepayment shall specify the amount and Type of the Loans to be borrowed or
prepaid (subject to Sections 3.2(a) and 5.4 hereof), the date of borrowing or
prepayment (which shall be a Business Day) and, in the case of Eurodollar Loans,
the duration of the Interest Period therefor (subject to the definition of
"Interest Period"). Each such notice of conversion of a Loan into a Loan of
another Type shall identify such Loan (or portion thereof) being converted and
specify the Type of Loan into which such Loan is being converted (subject to
Section 5.4 hereof) and the date for conversion (which shall be a Business Day)
and, unless such Loan is being converted into an Alternate Base Rate Loan, the
duration (subject to the definition of "Interest Period") of the Interest Period
therefor which is to commence as of the last day of the then current Interest
Period therefor (or the date of conversion, if such Loan is being converted from
an Alternate Base Rate Loan). Each such notice of continuation of a Loan (or
portion thereof) as the same Type of Loan shall identify such Loan (or portion
thereof) being continued (subject to Section 5.4 hereof) and the duration
(subject to the definition of "Interest Period") of the Interest Period therefor
which is to commence as of the last day of the then current Interest Period
therefor. Administrative Agent shall promptly notify the affected Banks of the
contents of each such notice. Notice of any prepayment having been given, the
principal amount specified in such notice, together with interest thereon to the
date of prepayment, shall be due and payable on such prepayment date. Section
2.9 hereof shall control the time periods applicable to Competitive Loans.
5.6 Non-Receipt of Funds by Administrative Agent. Unless Administrative Agent
shall have been notified by a Bank or the Company (the "Payor") prior to the
date on which such Bank is to make payment to Administrative Agent of the
proceeds of a Loan to be made by it hereunder or the Company is to make a
payment to Administrative Agent for the account of one or more of the Banks, as
the case may be (such payment being herein called the "Required Payment"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to Administrative Agent, Administrative Agent may assume
that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient on such date and, if the Payor has not in fact made the
Required Payment to Administrative Agent on or before such date, the recipient
of such payment shall, on demand, pay to Administrative Agent the amount made
available to it together with interest thereon in respect of the period
commencing on the date such amount was so made available by Administrative Agent
until the date Administrative Agent recovers such amount at a rate per annum
equal to the Federal Funds Rate for such period.
5.7 Sharing of Payments, Etc. If a Bank shall obtain payment of any principal of
or interest on any Loan made by it under this Agreement, or on any other
obligation then due to such Bank hereunder, through the exercise of any right of
set-off, banker's lien, counterclaim or similar right, or otherwise, it shall
promptly purchase from the other Banks participations in the Loans made, or
other obligations held, by the other Banks in such amounts, and make such other
adjustments from time to time as shall be equitable to the end that all the
Banks shall share the benefit of such payment (net of any expenses which may be
incurred by such Bank in obtaining or preserving such benefit) pro rata in
accordance with the unpaid principal and interest on the Obligations then due to
each of them (provided, however, that the foregoing shall not apply to payments
of Competitive Loans made prior to the termination of the Commitments following
the occurrence of an Event of Default). To such end all the Banks shall make
appropriate adjustments among themselves (by the resale of participations sold
or otherwise) if such payment is rescinded or must otherwise be restored. The
Company agrees, to the fullest extent it may effectively do so under applicable
law, that any Bank so purchasing a participation in the Loans made, or other
obligations held, by other Banks may exercise all rights of set-off, bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans and other obligations in the
amount of such participation. Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to any other
Indebtedness or obligation of any Obligor.
<PAGE>
Section 6. Yield Protection and Illegality.
6.1 Additional Costs.
(a Subject to Section 13.6, the Company shall pay to Administrative Agent, on
demand for the account of each Bank from time to time such amounts as such Bank
may determine to be necessary to compensate it for any costs incurred by such
Bank which such Bank determines are attributable to its making or maintaining of
any Eurodollar Loan or any Competitive Loan hereunder or its obligation to make
any such Loan hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation (such increases in
costs and reductions in amounts receivable being herein called "Additional
Costs"), in each case resulting from any Regulatory Change which:
(i0 subjects such Bank (or makes it apparent that such Bank is subject) to any
tax (including without limitation any United States interest equalization tax),
levy, impost, duty, charge or fee (collectively, "Taxes"), or any deduction or
withholding for any Taxes on or from the payment due under any Eurodollar Loan
or any Competitive Loan or other amounts due hereunder, other than income and
franchise taxes of each jurisdiction (or any subdivision thereof) in which such
Bank has an office or its Applicable Lending Office; or
(ii0 changes the basis of taxation of any amounts payable to such Bank under
this Agreement in respect of any of such Loans (other than changes which affect
taxes measured by or imposed on the overall net income or franchise taxes of
such Bank or of its Applicable Lending Office for any of such Loans by each
jurisdiction (or any subdivision thereof) in which such Bank has an office or
such Applicable Lending Office); or
(iii0 imposes or modifies or increases or deems applicable any reserve, special
deposit or similar requirements (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System)
relating to any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Bank or loans made by such Bank, or against any other
funds, obligations or other property owned or held by such Bank (including any
of such Loans or any deposits referred to in the definition of "Eurodollar Base
Rate" in Section 1.1 hereof); provided that such Bank actually incurs such
additional costs.
<PAGE>
Each Bank (if so requested by the Company through Administrative Agent) will
designate a different available Applicable Lending Office for the Eurodollar
Loans or the Competitive Loans of such Bank or take such other action as the
Company may request if such designation or action will avoid the need for, or
reduce the amount of, such compensation and will not, in the sole opinion of
such Bank exercised in good faith, be disadvantageous to such Bank (provided
that such Bank shall have no obligation so to designate an Applicable Lending
Office for Eurodollar Loans located in the United States of America). Each Bank
will furnish the Company with a statement setting forth the basis and amount of
each request by such Bank for compensation under this Section 6.1(a); subject to
Section 6.8, such certificate shall be conclusive, absent manifest error, and
may be prepared using any reasonable averaging and attribution methods.
(b Without limiting the effect of the foregoing provisions of this Section 6.1,
in the event that, by reason of any Regulatory Change, any Bank either (i)
incurs Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of such Bank
which includes deposits by reference to which the interest rate on Eurodollar
Loans is determined as provided in this Agreement or a category of extensions of
credit or other assets of such Bank which includes Eurodollar Loans or
Competitive Loans or (ii) becomes subject to restrictions on the amount of such
a category of liabilities or assets which it may hold, then, if such Bank so
elects by notice to the Company (with a copy to Administrative Agent), the
obligation of such Bank to make Eurodollar Loans or Competitive Loans, as the
case may be, hereunder shall be suspended until the date such Regulatory Change
ceases to be in effect (in which case the provisions of Section 6.4 hereof shall
be applicable).
(c Good faith determinations and allocations by any Bank for purposes of this
Section .1 of the effect of any Regulatory Change on its costs of maintaining
its obligations to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans, and of the additional amounts required to
compensate such Bank in respect of any Additional Costs, shall be conclusive,
absent manifest error.
(d) The Company's obligation to pay Additional Costs and compensation with
regard to each Eurodollar Loan and each Competitive Loan shall survive
termination of this Agreement.
6.2 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if, with respect to any Eurodollar Loans:
(a Administrative Agent determines in good faith (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits referred
to in the definition of "Eurodollar Base Rate" in Section 1.1 hereof are not
being provided by the Reference Banks in the relevant amounts or for the
relevant maturities for purposes of determining the rate of interest for such
Loans for Interest Periods therefor as provided in this Agreement; or
(b the Majority Banks determine in good faith (which determination shall be
conclusive) and notify Administrative Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Base Rate" in Section 1.1 hereof
upon the basis of which the rates of interest for such Loans are to be
determined do not accurately reflect the cost to such Banks of making or
maintaining such Loans for Interest Periods therefor; or
<PAGE>
(c Administrative Agent determines in good faith (which determination shall be
conclusive) that by reason of circumstances affecting the interbank Dollar
market generally, deposits in United States dollars in the relevant interbank
Dollar market are not being offered for the applicable Interest Period and in an
amount equal to the amount of the Eurodollar Loan requested by the Company;
then Administrative Agent shall promptly notify the Company and each Bank
thereof, and, so long as such condition remains in effect, the Banks shall be
under no obligation to make Eurodollar Loans (but shall maintain until the end
of the Interest Period then in effect the Eurodollar Loans then outstanding).
6.3 Illegality. Notwithstanding any other provision of this Agreement to the
contrary, if (x) by reason of the adoption of any applicable Legal Requirement
or any change in any applicable Legal Requirement or in the interpretation or
administration thereof by any Governmental Authority or compliance by any Bank
with any request or directive (whether or not having the force of law) of any
central bank or other Governmental Authority or (y) circumstances affecting the
relevant interbank Dollar market or the position of a Bank therein shall at any
time make it unlawful or impracticable in the sole discretion of a Bank
exercised in good faith for such Bank or its Applicable Lending Office to (a)
honor its obligation to make Eurodollar Loans or Competitive Loans hereunder, or
(b) maintain Eurodollar Loans or Competitive Loans hereunder, then such Bank
shall promptly notify the Company thereof through Administrative Agent and such
Bank's obligation to make or maintain Eurodollar Loans or Competitive Loans, as
the case may be, hereunder shall be suspended until such time as such Bank may
again make and maintain Eurodollar Loans or Competitive Loans, as the case may
be (in which case the provisions of Sections 6.4 and 6.8 hereof shall be
applicable). Before giving such notice pursuant to this Section 6.3, such Bank
will designate a different available Applicable Lending Office for the
Eurodollar Loans or the Competitive Loans, as the case may be, of such Bank or
take such other action as the Company may request if such designation or action
will avoid the need to suspend such Bank's obligation to make Eurodollar Loans
or Competitive Loans, as the case may be, hereunder and will not, in the sole
opinion of such Bank exercised in good faith, be disadvantageous to such Bank
(provided, that such Bank shall have no obligation so to designate an Applicable
Lending Office for Eurodollar Loans located in the United States of America).
<PAGE>
6.4 Substitute Alternate Base Rate Loans. If the obligation of any Bank to make
or maintain Eurodollar Loans or Competitive Loans, as the case may be, shall be
suspended pursuant to Section 6.1, 6.2 or 6.3 hereof, all Loans which would
otherwise be made by such Bank as Eurodollar Loans or Competitive Loans, as the
case may be, shall be made instead as Alternate Base Rate Loans (and, if an
event referred to in Section 6.1(b) or 6.3 hereof has occurred and such Bank so
requests by notice to the Company with a copy to Administrative Agent, each
Eurodollar Loan or each Competitive Loan, as the case may be, of such Bank then
outstanding shall be automatically converted into an Alternate Base Rate Loan on
the date specified by such Bank in such notice) and, to the extent that
Eurodollar Loans or Competitive Loans, as the case may be, are so made as (or
converted into) Alternate Base Rate Loans, all payments of principal which would
otherwise be applied to such Eurodollar Loans or such Competitive Loans, as the
case may be, shall be applied instead to such Alternate Base Rate Loans.
6.5 Compensation. Subject to Section 13.6 hereof, the Company shall pay to
Administrative Agent for the account of each Bank, within four (4) Business Days
after demand therefor by such Bank through Administrative Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense actually incurred by it (exclusive
of any lost profits or opportunity costs) as a result of:
(a any payment, prepayment or conversion of a Eurodollar Loan or a Competitive
Loan made by such Bank on a date other than the last day of an Interest Period
for such Loan; or
(b any failure by the Company to borrow a Eurodollar Loan or a Competitive Loan
to be made by such Bank on the date for such borrowing specified in the relevant
notice of borrowing under Section 5.5 or Section 2.9 hereof;
such compensation to include, without limitation, any loss or expense actually
incurred (exclusive of any lost profits or opportunity costs) by reason of the
liquidation or reemployment of deposits or other funds acquired by the
applicable Bank to fund or maintain its share of any Loan. Subject to
Section 6.8, each determination of the amount of such compensation by a Bank
shall be conclusive and binding, absent manifest error, and may be computed
using any reasonable averaging and attribution method.
6.6 [Intentionally omitted].
<PAGE>
6.7 Capital Adequacy. If any Bank shall have determined that a Regulatory Change
resulting in the adoption after the date hereof or effectiveness after the date
hereof (whether or not previously announced) of any applicable law, rule,
regulation or treaty regarding capital adequacy, or any change therein after the
date hereof, or any change in the interpretation or administration thereof after
the date hereof by any Governmental Authority charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive after the date hereof regarding capital
adequacy (whether or not having the force of law) of any such Governmental
Authority has or would have the effect of reducing the rate of return on such
Bank's capital as a consequence of such Bank's obligations hereunder and under
the Loans made by it to a level below that which such Bank could have achieved
but for such adoption, change or compliance (taking into consideration such
Bank's policies with respect to capital adequacy) by an amount deemed by such
Bank to be material, then from time to time, upon satisfaction of the conditions
precedent set forth in this Section 6.7, upon demand by such Bank (with a copy
to Administrative Agent), the Company (subject to Section 13.6 hereof) shall pay
to such Bank such additional amount or amounts as will compensate such Bank for
such reduction. A certificate as to such amounts, submitted to the Company and
Administrative Agent by such Bank, setting forth the basis for such Bank's
determination of such amounts, shall constitute a demand therefor and shall be
conclusive and binding for all purposes, absent manifest error. The Company
shall pay the amount shown as due on any such certificate within four (4)
Business Days after delivery of such certificate. Subject to Section 6.8, in
preparing such certificate, a Bank may employ such assumptions and allocations
of costs and expenses as it shall in good faith deem reasonable and may use any
reasonable averaging and attribution method.
6.8 Limitation on Additional Charges; Substitute Banks; Non-Discrimination.
Anything in this Section 6 notwithstanding:
(a) the Company shall not be required to pay to any Bank reimbursement with
regard to any costs or expenses, unless such Bank notifies the Company of such
costs or expenses within 90 days after the date paid or incurred;
(b) none of the Banks shall be permitted to pass through to the Company charges
and costs under this Section 6 on a discriminatory basis (i.e., which are not
also passed through by such Bank to other customers of such Bank similarly
situated where such customer is subject to documents providing for such pass
through); and
(c) if any Bank elects to pass through to the Company any material charge or
cost under this Section 6 or elects to terminate the availability of Eurodollar
Loans for any material period of time, the Company may, within 60 days after the
date of such event and so long as no Default shall have occurred and be
continuing, elect to terminate such Bank as a party to this Agreement; provided
that, concurrently with such termination the Company shall (i) if Administrative
Agent and each of the other Banks shall consent, pay that Bank all principal,
interest and fees and other amounts owed to such Bank through such date of
termination or (ii) have arranged for another financial institution approved by
Administrative Agent (such approval not to be unreasonably withheld) as of such
date, to become a substitute Bank for all purposes under this Agreement in the
manner provided in Section 13.5; provided further that, prior to substitution
for any Bank, the Company shall have given written notice to Administrative
Agent of such intention and the Banks shall have the option, but no obligation,
for a period of 60 days after receipt of such notice, to increase their
Commitments in order to replace the affected Bank in lieu of such substitution.
Section 7. Conditions Precedent.
7.1 Initial Loans. The obligation of each Bank to make its initial Loans on or
after the date hereof is subject to the following conditions precedent, each of
which shall have been fulfilled or waived to the satisfaction of the
Administrative Agent:
<PAGE>
(a Corporate Action and Status. Administrative Agent shall have received from
the appropriate Governmental Authorities certified copies of the Organizational
Documents (other than bylaws) of the Company and the Guarantor, and evidence
satisfactory to Administrative Agent of all corporate action taken by the
Company and the Guarantor authorizing the execution, delivery and performance of
the Loan Documents and all other documents related to this Agreement to which it
is a party (including, without limitation, a certificate of the secretary of
each such party setting forth the resolutions of its Board of Directors
authorizing the transactions contemplated thereby and attaching a copy of its
bylaws), together with such certificates as may be appropriate to demonstrate
the qualification and good standing of and payment of taxes by the Company and
the Guarantor in Texas and Louisiana, as applicable.
(b Incumbency. The Company, the Guarantor and each other Relevant Party shall
have delivered to Administrative Agent a certificate in respect of the name and
signature of each of the officers (i) who is authorized to sign on its behalf
the applicable Loan Documents related to any Loan and (ii) who will, until
replaced by another officer or officers duly authorized for that purpose, act as
its representative for the purposes of signing documents and giving notices and
other communications in connection with any Loan. Administrative Agent and each
Bank may conclusively rely on such certificates until they receive notice in
writing from the Company, the Guarantor or the appropriate Relevant Party to the
contrary.
(c [Intentionally omitted].
(d Loan Documents. The Company and each other Relevant Party shall have duly
executed and delivered the other Loan Documents to which it is a party (in such
number of copies as Administrative Agent shall have requested) and each such
Loan Document shall be in form satisfactory to the Administrative Agent. Each
such Loan Document shall be in substantially the form furnished to the Banks
prior to their execution of this Agreement, together with such changes therein
as the Administrative Agent may approve.
(e Fees and Expenses. The Company shall have paid to Administrative Agent for
the account of each Bank all accrued and unpaid fees in the amounts previously
agreed upon in writing among the Company and Administrative Agent; and shall
have in addition paid to each Agent all amounts payable under the letter
agreements referred to in Section 2.4(b) hereof and under Section 9.7 hereof on
or before the date of this Agreement.
(f Opinions of Counsel. Administrative Agent shall have received an opinion of
Vinson & Elkins L.L.P., counsel to the Company and the Guarantor, in form and
substance reasonably satisfactory to the Agents.
(g Execution by Banks and Agents. Administrative Agent shall have received
counterparts of this Agreement executed and delivered by or on behalf of each of
the Banks and the Agents or Administrative Agent shall have received evidence
satisfactory to it of the execution and delivery by each of the Banks and Agents
of a counterpart hereof.
<PAGE>
(h Consents. Administrative Agent shall have received evidence satisfactory to
it that, except as disclosed in the Disclosure Statement, all material consents
of each Governmental Authority and of each other Person, if any, reasonably
required in connection with (a) the Loans, and (b) the execution, delivery and
performance of this Agreement and the other Loan Documents have been
satisfactorily obtained.
(i Margin Regulations. After giving effect to such Loan, the Company and Banks
shall be in compliance with the Margin Regulations.
(j Consummation of Offer to Purchase. The offer to purchase (the "Offer to
Purchase") shall have been consummated (including the payment for all such notes
tendered thereunder) as contemplated by and pursuant to that certain Offer to
Purchase and Consent Solicitation Statement of Company which offers to purchase
for cash all of the Company's outstanding 10.375% Senior Subordinated Notes due
2005 (CUSIP No. 674812AD4, originally issued by United Meridian Corporation) and
9.75% Senior Subordinated Notes due 2006 (CUSIP No. 34039CAB3, originally issued
by Flores & Rucks, Inc.) (the "Offer Agreement"), and Administrative Agent shall
have received (i) satisfactory evidence of the consummation (at least with
respect to the 10.375% Senior Subordinated Notes due 2005) of such Offer to
Purchase and (ii) a certificate from a Responsible Officer of the Company
certifying that such Offer to Purchase has been consummated (at least with
respect to the 10.375% Senior Subordinated Notes due 2005).
(k Financial Reports; Filings. Administrative Agent shall have received copies
of all financial statements, reports, notices and proxy statements either (A)
requested by the Administrative Agent or any Bank or (B) sent by the Company to
its stockholders.
(l Other Documents. Administrative Agent shall have received such other
documents consistent with the terms of this Agreement and relating to the
transactions contemplated hereby as Administrative Agent may reasonably request.
All provisions and payments required by this Section 7.1 are subject to the
provisions of Section 13.6.
7.2 Initial and Subsequent Loans. The obligation of each Bank to make any Loan
(including, without limitation, its initial Loan) to be made by it hereunder
(excluding conversions of Loans to Alternate Base Rate Loans or Term Loans made
pursuant to Section 2.1(b), in each case as to which no conditions precedent
exist) is subject to the additional conditions precedent that (i)Administrative
Agent shall have received a Request for Extension of Credit and such other
certifications as Administrative Agent may reasonably require, (ii) in the case
of Competitive Loans, the Company shall have complied with the provisions of
Section 2.9 hereof and (iii) as of the date of such Loan, and after giving
effect thereto:
(a no Default shall have occurred and be continuing;
<PAGE>
(b except for facts timely disclosed to Administrative Agent from time to time
in writing, which facts (i) are not materially more adverse to the Company and
its Subsidiaries or any other Obligor, (ii) do not materially decrease the
ability of the Banks to collect the Obligations as and when due and payable and
(iii) do not materially increase the liability of any Agent or any of the Banks,
in each case compared to those facts existing on the date hereof and the
material details of which have been set forth in the Financial Statements
delivered to Administrative Agent prior to the date hereof or in the Disclosure
Statement, and except for the representations set forth in the Loan Documents
which, by their terms, are expressly (or by means of similar phrasing) made as
of the Effective Date or as of the date hereof, as the case may be, only, the
representations and warranties made in each Loan Document shall be true and
correct in all material respects on and as of the date of the making of such
Loan, with the same force and effect as if made on and as of such date;
(c) the making of such Loan shall not violate any Legal Requirement applicable
to any Bank; and
(d) no event or condition shall have occurred since December 31, 1998 which
reasonably could be expected to result in a Material Adverse Effect.
Each Request for Extension of Credit by the Company hereunder shall include a
representation and warranty by the Company to the effect set forth in
Subsections 7.2(a) and (b) (both as of the date of such notice and, unless the
Company otherwise notifies Administrative Agent prior to the date of such
borrowing, as of the date of such borrowing).
Section 8. Representations and Warranties. To induce the Banks to enter into
this Agreement and to make the Loans, the Company represents and warrants (such
representations and warranties to survive any investigation and the making of
the Loans) to the Banks and the Agents as follows:
8.1 Corporate Existence. The Company, the Guarantor and each Subsidiary of the
Company are duly organized, legally existing and in good standing under the laws
of the respective jurisdictions in which they are formed, and are duly qualified
in all jurisdictions wherein the property owned or the business transacted by
them makes such qualification necessary and the failure to so qualify could
reasonably be expected to result in a Material Adverse Effect.
<PAGE>
8.2 Corporate Power and Authorization. Each of the Company, the Guarantor and
each Subsidiary of the Company is duly authorized and empowered to execute,
deliver, and perform this Agreement and the other Loan Documents to which it is
a party; and all corporate action on the Company's part and on the part of the
Guarantor and each Subsidiary of the Company for the due execution, delivery,
and performance of this Agreement and the other Loan Documents to which each of
the Company, the Guarantor and each such Subsidiary is a party has been duly and
effectively taken.
8.3 Binding Obligations. This Agreement and the other Loan Documents constitute
legal, valid and binding obligations of the Company and its Subsidiaries and the
Guarantor, to the extent each is a party thereto, enforceable against the
Company and its Subsidiaries and the Guarantor, to the extent each is a party
thereto, in accordance with their respective terms, except as may be limited by
any bankruptcy, insolvency, moratorium or other similar laws or judicial
decisions affecting creditors' rights generally and general principles of equity
whether considered at law or in equity.
8.4 No Legal Bar or Resultant Lien. The Company's and each of its Subsidiaries'
and the Guarantor's creation, issuance, execution, delivery and performance of
this Agreement and the other Loan Documents, to the extent they are parties
thereto, do not and will not violate any provisions of the Organizational
Documents of the Company, the Guarantor or any Subsidiary of the Company or any
Legal Requirement to which the Company, the Guarantor or any Subsidiary of the
Company is subject or by which its property may be presently bound or
encumbered, or result in the creation or imposition of any Lien upon any
properties of the Company, the Guarantor or any Subsidiary of the Company, other
than those permitted by this Agreement.
8.5 No Consent. The Company's and each of its Subsidiaries' and the Guarantor's
execution, delivery, and performance of this Agreement and the other Loan
Documents to which they are parties do not and will not require the consent or
approval of any Person other than such consents and/or approvals obtained by the
Company contemporaneously with or prior to the execution of this Agreement,
including, without limitation, any Governmental Authorities, other than those
consents the failure to obtain which could not be reasonably expected to have a
Material Adverse Effect.
8.6 Financial Condition.
(a The audited consolidated annual financial statements of Seagull and its
Subsidiaries for the year ended December 31, 1998, which have been delivered to
the Banks, have been prepared in accordance with GAAP, and present fairly, in
all material respects, the financial condition and results of the operations of
Seagull and its Subsidiaries for the period or periods stated. The audited
consolidated annual financial statements of Old Ocean Energy and its
Subsidiaries for the year ended December 31, 1998, which have been delivered to
the Banks, have been prepared in accordance with GAAP, and present fairly, in
all material respects, the financial condition and results of the operations of
Old Ocean Energy and its Subsidiaries for the period or periods stated. No
Material Adverse Effect has occurred since December 31, 1998, except as
disclosed to the Banks in the Disclosure Statement.
<PAGE>
(b The unaudited pro forma consolidated annual financial statements of the
Company and its Subsidiaries for the year ended December 31, 1998, which have
been delivered to the Banks, have been prepared in accordance with GAAP. No
material adverse change, either in any case or in the aggregate, has occurred
since December 31, 1998 in the assets, liabilities, financial condition,
business, operations, affairs or circumstances of the Company and its
Subsidiaries taken as a whole, except as disclosed to the Banks in the
Disclosure Statement.
8.7 Investments and Guaranties. As of the Effective Date, no Subsidiary of the
Company had made Investments in or advances to, and neither the Company nor any
Subsidiary of any of them had made Guarantees of, the obligations of any Person,
except as (a) disclosed to the Banks in the Disclosure Statement or (b) not
prohibited by applicable provisions of Section 10.
8.8 Liabilities and Litigation. Neither the Company nor any Subsidiary of the
Company has any material (individually or in the aggregate) liabilities, direct
or contingent, except as (a) disclosed or referred to in the Financial
Statements, (b) disclosed to the Banks in the Disclosure Statement, (c)
disclosed in a notice to Administrative Agent pursuant to Section 9.10 with
respect to such as could reasonably be expected to have a Material Adverse
Effect or (d) not prohibited by applicable provisions of Section 10. Except as
(a) described in the Financial Statements, (b) otherwise disclosed to the Banks
in the Disclosure Statement, (c) disclosed in a notice to Administrative Agent
pursuant to Section 9.10 with respect to such as could reasonably be expected to
have a Material Adverse Effect or (d) not prohibited by applicable provisions of
Section 10, no litigation, legal, administrative or arbitral proceeding,
investigation, or other action of any nature exists or (to the knowledge of the
Company) is threatened against or affecting the Company or any Subsidiary of the
Company which could reasonably be expected to result in any judgment which could
reasonably be expected to have a Material Adverse Effect, or which in any manner
challenges or may challenge or draw into question the validity of this Agreement
or any other Loan Document, or enjoins or threatens to enjoin or otherwise
restrain any of the transactions contemplated by any of them.
8.9 Taxes and Governmental Charges. The Company and its Subsidiaries have filed,
or obtained extensions with respect to the filing of, all material tax returns
and reports required to be filed and have paid all material taxes, assessments,
fees and other governmental charges levied upon any of them or upon any of their
respective properties or income which are due and payable, including interest
and penalties, or have provided adequate reserves for the payment thereof.
8.10 Title to Properties. The Company and its Subsidiaries and the Guarantor
have good and defensible title to their respective properties (including,
without limitation, all fee and leasehold interests), free and clear of all
Liens except (a) those referred to in the Financial Statements, (b) as disclosed
to the Banks in the Disclosure Statement or (c) as permitted by Section 10.2.
<PAGE>
8.11 Defaults. Neither the Company nor any Subsidiary of the Company is in
default, which default could reasonably be expected to have a Material Adverse
Effect, under any indenture, mortgage, deed of trust, agreement or other
instrument to which the Company or any Subsidiary of the Company is a party or
by which the Company or any Subsidiary of the Company or the property of the
Company or any Subsidiary of the Company is bound, except as (a) disclosed to
the Banks in the Disclosure Statement, (b) disclosed in a notice to
Administrative Agent pursuant to Section 9.10 with respect to such as could
reasonably be expected to have a Material Adverse Effect or (c) specifically
permitted by applicable provisions of Section 10. No Default under this
Agreement or any other Loan Document has occurred and is continuing.
8.12 Location of Businesses and Offices. Except to the extent that
Administrative Agent has been furnished written notice to the contrary or of
additional locations, pursuant to Section 9.10, the Company s principal place of
business and chief executive offices are located at the address stated on the
signature page hereof and the principal places of business and chief executive
offices of the Guarantor and each other Subsidiary are described on Exhibit C
hereto.
8.13 Compliance with Law. Neither the Company nor any Subsidiary of the Company
(except as (a) disclosed to the Banks in the Disclosure Statement, (b) disclosed
in a notice to Administrative Agent pursuant to Section 9.10 with respect to
such as could reasonably be expected to have a Material Adverse Effect or (c)
not prohibited by applicable provisions of Section 10):
(a) is in violation of any Legal Requirement; or
(b) has failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of any of their respective properties
or the conduct of their respective business;
which violation or failure could reasonably be expected to have a Material
Adverse Effect.
<PAGE>
8.14 Margin Stock. None of the proceeds of the Loans will be used for the
purpose of, and neither the Company, the Guarantor nor any Subsidiary of the
Company is engaged in the business of extending credit for the purpose of (a)
purchasing or carrying any "margin stock" as defined in Regulation U of the
Board of Governors of the Federal Reserve System (12 C.F.R. Part 221) or (b)
reducing or retiring any indebtedness which was originally incurred to purchase
or carry margin stock, if such purpose under either (a) or (b) above would
constitute this transaction a "purpose credit" within the meaning of said
Regulation U, or for any other purpose which would constitute this transaction a
"purpose credit". Neither the Company, the Guarantor nor any Subsidiary of the
Company is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stocks. Neither the Company, the Guarantor nor any Subsidiary of the Company nor
any Person acting on behalf of the Company, the Guarantor or any Subsidiary of
the Company has taken or will take any action which might cause any of the Loan
Documents, including this Agreement, to violate Regulation U or any other
regulation of the Board of Governors of the Federal Reserve System, or to
violate any similar provision of the Securities Exchange Act of 1934 or any rule
or regulation under any such provision thereof.
8.15 Subsidiaries. The Company has no Subsidiaries as of the date of this
Agreement except those shown in Exhibit C hereto.
8.16 ERISA. With respect to each Plan, the Company and each ERISA Affiliate have
fulfilled their obligations, including obligations under the minimum funding
standards of ERISA and the Code, and are in compliance in all material respects
with the provisions of ERISA and the Code. The Company has no knowledge of any
event which could result in a liability of the Company or any ERISA Affiliate to
the PBGC or a Plan (other than to make contributions in the ordinary course).
Since the effective date of Title IV of ERISA, there have not been any nor are
there now existing any events or conditions that would cause the Lien provided
under Section 4068 of ERISA to attach to any property of the Company or any
ERISA Affiliate. There are no Unfunded Liabilities with respect to any Plan. No
"prohibited transaction" has occurred with respect to any Plan.
8.17 Investment Company Act. Neither the Company nor any of its Subsidiaries is
an investment company within the meaning of the Investment Company Act of 1940,
as amended, or, directly or indirectly, controlled by or acting on behalf of any
Person which is an investment company, within the meaning of said Act.
8.18 Public Utility Holding Company Act. Neither the Company nor any of its
Subsidiaries (i) is subject to regulation under the Public Utility Holding
Company Act of 1935, as amended (the "PUHC Act"), except as to Section 9(a)(2)
thereof (15 U.S.C.A. Section 79(i)(a)(2))or(ii)is in violation of any of the
provisions, rules, regulations or orders of or under the PUHC Act. Further, none
of the transactions contemplated under this Agreement, including without
limitation, the making of the Loans, shall cause or constitute a violation of
any of the provisions, rules, regulations or orders of or under the PUHC Act and
the PUHC Act does not in any manner impair the legality, validity or
enforceability of this Agreement.
<PAGE>
8.19 Environmental Matters. Except as disclosed in the Disclosure Statement, (i)
the Company and its Subsidiaries have obtained and maintained in effect all
Environmental Permits (or has initiated the necessary steps to transfer the
Environmental Permits into its name), the failure to obtain which could
reasonably be expected to have a Material Adverse Effect, (ii) the Company and
its Subsidiaries and their properties, assets, business and operations have been
and are in compliance with all applicable Requirements of Environmental Law and
Environmental Permits failure to comply with which could reasonably be expected
to have a Material Adverse Effect, (iii) the Company and its Subsidiaries and
their properties, assets, business and operations are not subject to any (A)
Environmental Claims or (B) Environmental Liabilities, in either case direct or
contingent, and whether known or unknown, arising from or based upon any act,
omission, event, condition or circumstance occurring or existing on or prior to
the date hereof which could reasonably be expected to have a Material Adverse
Effect, and (iv) no Responsible Officer of the Company or any of its
Subsidiaries has received any notice of any violation or alleged violation of
any Requirements of Environmental Law or Environmental Permit or any
Environmental Claim in connection with its assets, properties, business or
operations which could reasonably be expected to have a Material Adverse Effect.
The liability (including without limitation any Environmental Liability and any
other damage to persons or property), if any, of the Company and its
Subsidiaries and with respect to their properties, assets, business and
operations which is reasonably expected to arise in connection with Requirements
of Environmental Laws currently in effect and other environmental matters
presently known by a Responsible Officer of the Company will not have a Material
Adverse Effect. No Responsible Officer of the Company knows of any event or
condition with respect to Environmental Matters with respect to any of its
properties or the properties of any of its Subsidiaries which could reasonably
be expected to have a Material Adverse Effect. For purposes of this Section
8.19, "Environmental Matters" shall mean matters relating to pollution or
protection of the environment, including, without limitation, emissions,
discharges, releases or threatened releases of Hazardous Substances into the
environment (including, without limitation, ambient air, surface water or ground
water, or land surface or subsurface), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances.
8.20 Claims and Liabilities. Except as disclosed to the Banks in writing,
neither the Company or any of its Subsidiaries nor the Guarantor has accrued any
liabilities under gas purchase contracts for gas not taken, but for which it is
liable to pay if not made up and which, if not paid, would have a Material
Adverse Effect. Except as disclosed to the Banks in writing, no claims exist
against the Company or its Subsidiaries or the Guarantor for gas imbalances
which claims if adversely determined would have a Material Adverse Effect. No
purchaser of product supplied by the Company or any of its Subsidiaries or the
Guarantor has any claim against the Company or any of its Subsidiaries for
product paid for, but for which delivery was not taken as and when paid for,
which claim if adversely determined would have a Material Adverse Effect.
8.21 Solvency. Neither the Company, the Guarantor nor the Company and its
Subsidiaries, on a consolidated basis, is "insolvent", as such term is used and
defined in (i) the Bankruptcy Code and (ii) the Texas Uniform Fraudulent
Transfer Act, Tex. Bus. & Com. Code Ann. Section 24.001 et seq.
<PAGE>
8.22 Year 2000. Any reprogramming required to permit the proper functioning, in
and following the year 2000, of (i) the computer systems of the Company and its
Subsidiaries and (ii) equipment containing embedded microchips (including
systems and equipment supplied by others or with which the systems interface of
the Company and its Subsidiaries) and the testing of all such systems and
equipment, as so reprogrammed, has been completed in all material respects. The
cost to the Company and its Subsidiaries of such reprogramming and testing and
of the reasonably foreseeable consequences of year 2000 to the Company and its
Subsidiaries (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in a Default or a
Material Adverse Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management information
systems of the Company and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement to be,
sufficient to permit the Company to conduct its business without Material
Adverse Effect.
Section 9. Affirmative Covenants. A deviation from the provisions of this
Section 9 will not constitute a Default under this Agreement if such deviation
is consented to in writing by the Majority Banks. Without the prior written
consent of the Majority Banks, the Company agrees with the Banks and the Agents
that, so long as any of the Commitments is in effect and until payment in full
of all Obligations:
9.1 Financial Statements and Reports. The Company will promptly furnish to any
Bank from time to time upon request such information regarding the business and
affairs and financial condition of the Company and its Subsidiaries and the
Guarantor as such Bank may reasonably request, and will furnish to the Agents
and each of the Banks:
(a) Annual Reports - promptly after becoming available and in any event within
100 days after the close of each fiscal year of the Company:
(i) the audited consolidated balance sheet of the Company and its Subsidiaries
as of the end of such year;
(ii) the audited consolidated statement of earnings of the Company and its
Subsidiaries for such year;
(iii) the audited consolidated statement of cash flows of the Company and its
Subsidiaries for such year;
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, and, in the case of the audited Financial Statements,
audited and accompanied by the related opinion of KPMG Peat Marwick or other
independent certified public accountants of recognized national standing
acceptable to the Majority Banks, which opinion shall state that such audited
balance sheets and statements have been prepared in accordance with GAAP
consistently followed throughout the period indicated and fairly present, in all
material respects, the consolidated financial condition and results of
operations of the applicable Persons as at the end of, and for, such fiscal
year; and
(b) Quarterly Reports - as soon as available and in any event within 50 days
after the end of each of the first three quarterly periods in each fiscal year
of the Company:
(i) the unaudited consolidated balance sheet of the Company and its Subsidiaries
as of the end of such quarter;
<PAGE>
(ii) the unaudited consolidated statement of earnings of the Company and its
Subsidiaries for such quarter and for the period from the beginning of the
fiscal year to the close of such quarter;
(iii) the unaudited consolidated statement of cash flows of the Company and its
Subsidiaries for such quarter and for the period from the beginning of the
fiscal year to the close of such quarter;
all of items (i) through (iii) above prepared on substantially the same
accounting basis as the annual reports described in Subsection 9.1(a), subject
to normal changes resulting from year-end adjustments; and
(c) [Intentionally omitted]; and
(d) SEC and Other Reports - promptly upon their becoming publicly available, one
copy of each financial statement, report, notice or definitive proxy statement
sent by the Company or any Subsidiary to shareholders generally, and of each
regular or periodic report and any registration statement, prospectus or written
communication (other than transmittal letters) in respect thereof filed by the
Company or any of its Subsidiaries with, or received by the Company or any of
its Subsidiaries in connection therewith from, any securities exchange or the
Securities and Exchange Commission or any successor agency.
All of the balance sheets and other financial statements referred to in this
Section 9.1 will be in such detail as any Bank may reasonably request and will
conform to GAAP applied on a basis consistent with those of the Financial
Statements as of December 31, 1998. In addition, if GAAP shall change with
respect to any matter relative to determination of compliance with this
Agreement, the Company will also provide financial information necessary for the
Banks to determine compliance with this Agreement.
9.2 Officers' Certificates.
(a) Concurrently with the furnishing of the annual financial statements pursuant
to Subsection 9.1(a), commencing with the annual financial statements required
to be delivered in 2000, the Company will furnish or cause to be furnished to
Administrative Agent certificates of compliance, as follows:
(i) a certificate signed by the principal financial officer of the Company in
the form of Exhibit D; and
(ii) a certificate from the independent public accountants stating that their
audit has not disclosed the existence of any condition which constitutes a
Default, or if their audit has disclosed the existence of any such condition,
specifying the nature and period of existence.
<PAGE>
(b) Concurrently with the furnishing of the quarterly financial statements
pursuant to Subsection 9.1(b), the Company will furnish to Administrative Agent
a principal financial officer's certificate in the form of Exhibit D.
9.3 Taxes and Other Liens. The Company will and will cause each Subsidiary of
the Company to pay and discharge promptly all taxes, assessments and
governmental charges or levies imposed upon the Company or such Subsidiary, or
upon the income or any property of the Company or such Subsidiary, as well as
all claims of any kind (including claims for labor, materials, supplies, rent
and payment of proceeds attributable to Hydrocarbon production) which, if
unpaid, might result in or become a Lien upon any or all of the property of the
Company or such Subsidiary; provided, however, that neither the Company nor such
Subsidiary will be required to pay any such tax, assessment, charge, levy or
claims if the amount, applicability or validity thereof will currently be
contested in good faith by appropriate proceedings diligently conducted and if
the Company or such Subsidiary will have set up reserves therefor adequate under
GAAP.
9.4 Maintenance. Except as referred to in Sections 8.1 and 8.13 and except as
permitted under Section 10.4 the Company will and will cause each Subsidiary of
the Company to: (i) maintain its corporate existence; (ii) maintain its rights
and franchises, except for any mergers or consolidations otherwise permitted by
this Agreement and except to the extent failure to so maintain the same would
not have a Material Adverse Effect; (iii) observe and comply (to the extent that
any failure would have a Material Adverse Effect) with all valid Legal
Requirements (including without limitation Requirements of Environmental Law);
and (iv) maintain (except to the extent failure to so maintain the same would
not have a Material Adverse Effect) its properties (and any properties leased by
or consigned to it or held under title retention or conditional sales contracts)
consistent with the standards of a reasonably prudent operator at all times and
make all repairs, replacements, additions, betterments and improvements to its
properties consistent with the standards of a reasonably prudent operator.
9.5 Further Assurances. The Company will, and will cause each Subsidiary of the
Company to, cure promptly any defects in the execution and delivery of the Loan
Documents, including this Agreement. The Company at its expense will promptly
execute and deliver to Administrative Agent upon request all such other and
further documents, agreements and instruments (or cause any of its Subsidiaries
to take such action) in compliance with or accomplishment of the covenants and
agreements of the Company or any of its Subsidiaries in the Loan Documents,
including this Agreement, or to correct any omissions in the Loan Documents, or
to make any recordings, to file any notices, or obtain any consents, all as may
be necessary or appropriate in connection therewith.
<PAGE>
9.6 Performance of Obligations. The Company will pay the Loans according to the
reading, tenor and effect of this Agreement; and the Company will do and perform
every act and discharge all of the obligations provided to be performed and
discharged by the Company under this Agreement and the other Loan Documents at
the time or times and in the manner specified, and cause each of its
Subsidiaries to take such action with respect to their obligations to be
performed and discharged under the Loan Documents to which they respectively are
parties.
9.7 Reimbursement of Expenses. Whether or not any Loan is ever made, the Company
agrees to pay or reimburse Administrative Agent for paying the reasonable fees
and expenses of Mayer, Brown & Platt, special counsel to the Agents, together
with the reasonable fees and expenses of local counsel engaged by the Agents, in
connection with the negotiation of the terms and structure of the Obligations,
the preparation, execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans hereunder, as well as any modification,
supplement or waiver of any of the terms of this Agreement and the other Loan
Documents. The Company will promptly upon request and in any event within 30
days from the date of receipt by the Company of a copy of a bill for such
amounts, reimburse any Bank or any Agent for all amounts reasonably expended,
advanced or incurred by such Bank or such Agent to satisfy any obligation of the
Company under this Agreement or any other Loan Document, to protect the
properties or business of the Company or any Subsidiary of the Company, to
collect the Obligations, or to enforce the rights of such Bank or such Agent
under this Agreement or any other Loan Document, which amounts will include
without limitation all court costs, attorneys' fees (but not including allocated
costs of in-house counsel), any engineering fees and expenses, fees of auditors,
accountants and appraisers, investigation expenses, all transfer, stamp,
documentary or similar taxes, assessments or charges levied by any Governmental
Authority in respect of any of the Loan Documents or any other document referred
to therein, all costs, expenses, taxes, assessments and other charges incurred
in connection with any filing, registration, recording or perfection of any Lien
contemplated by any of the Loan Documents or any document referred to therein,
fees and expenses incurred in connection with such Bank's participation as a
member of a creditors' committee in a case commenced under the Bankruptcy Code
or other similar law of the United States or any state thereof, fees and
expenses incurred in connection with lifting the automatic stay prescribed in
Section 362 Title 11 of the United States Code, and fees and expenses incurred
in connection with any action pursuant to Section 1129 Title 11 of the United
States Code and all other customary out-of-pocket expenses incurred by such Bank
or such Agent in connection with such matters, together with interest after the
expiration of the 30-day period stated above in this Section if no Event of
Default has occurred and is continuing, or from the date of the request to the
Company if an Event of Default has occurred and is continuing, at either (i) the
Post-Default Rate on each such amount until the date of reimbursement to such
Bank or such Agent, or (ii) if no Event of Default will have occurred and be
continuing, the Alternate Base Rate plus the highest Applicable Margin for
Alternate Base Rate Loans (not to exceed the Highest Lawful Rate) on each such
amount until the date of the Company's receipt of written demand or request by
such Bank or such Agent for the reimbursement of same, and thereafter at the
applicable Post-Default Rate until the date of reimbursement to such Bank or
such Agent. The obligations of the Company under this Section are compensatory
in nature, shall be deemed liquidated as to amount upon receipt by the Company
of a copy of any invoice therefor, and will survive the non-assumption of this
Agreement in a case commenced under the Bankruptcy Code or other similar law of
the United States or any state thereof, and will remain binding on the Company
and any trustee, receiver, or liquidator of the Company appointed in any such
case.
9.8 Insurance. The Company and its Subsidiaries will maintain, with financially
sound and reputable insurers, insurance with respect to their respective
properties and business against such liabilities, casualties, risks and
contingencies and in such types and amounts as is customary in the case of
corporations engaged in the same or similar businesses and similarly situated.
Upon the request of Administrative Agent acting at the instruction of the
Majority Banks, the Company will furnish or cause to be furnished to
Administrative Agent from time to time a summary of the insurance coverage of
the Company and its Subsidiaries in form and substance satisfactory to the
Majority Banks in their reasonable judgment, and if requested will furnish
Administrative Agent copies of the applicable policies. In the case of any fire,
accident or other casualty causing loss or damage to any properties of the
Company or any of its Subsidiaries, the proceeds of such policies will be used
(i) to repair or replace the damaged property, (ii) to prepay the Obligations,
or (iii) so long as no Default has occurred and is continuing, for general
corporate purposes, at the election of the Company.
9.9 Accounts and Records. The Company will keep and will cause each Subsidiary
of the Company to keep books of record and account which fairly reflect all
dealings or transactions in relation to their respective businesses and
activities, in accordance with GAAP, which books of record and account will be
maintained, to the extent necessary to enable compliance with all provisions of
this Agreement, separately for each such Subsidiary, the Company and any
division of the Company.
9.10 Notice of Certain Events. The Company will promptly notify Administrative
Agent (and Administrative Agent will then notify all of the Banks and other
Agents) if a Responsible Officer of the Company learns of the occurrence of, or
if the Company causes or intends to cause, as the case may be:
(i) any event which constitutes a Default, together with a detailed statement by
a Responsible Officer of the Company of the steps being taken to cure the effect
of such Default; or
(ii) the receipt of any notice from, or the taking of any other action by, the
holder of any promissory note, debenture or other evidence of indebtedness of
the Company or any Subsidiary of the Company or of any security (as defined in
the Securities Act of 1933, as amended) of the Company or any Subsidiary of the
Company with respect to a claimed default, together with a detailed statement by
a Responsible Officer of the Company specifying the notice given or other action
taken by such holder and the nature of the claimed default and what action the
Company or such Subsidiary is taking or proposes to take with respect thereto;
or
<PAGE>
(iii) any legal, judicial or regulatory proceedings affecting the Company or any
Subsidiary of the Company or any of the properties of the Company or any
Subsidiary of the Company in which the amount involved is materially adverse to
the Company and its Subsidiaries taken as a whole, and is not covered by
insurance or which, if adversely determined, would have a Material Adverse
Effect; or
(iv) any dispute between the Company or any Subsidiary of the Company and any
Governmental Authority or any other Person which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect; or
(v) the occurrence of a default or event of default by the Company or any
Subsidiary of the Company under any other agreement to which it is a party,
which default or event of default could reasonably be expected to have a
Material Adverse Effect; or
(vi) any change in the accuracy of the representations and warranties of the
Company or any Subsidiary contained in this Agreement or any other Loan
Document; or
(vii) any material violation or alleged material violation of any Requirements
of Environmental Law or Environmental Permit or any Environmental Claim or any
Environmental Liability; or
(viii) any tariff and rate cases and other material reports filed by the Company
or any of its Subsidiaries with any Governmental Authority and any notice to the
Company or any of its Subsidiaries from any Governmental Authority concerning
noncompliance with any applicable Legal Requirement; or
(ix) within 10 days after the date on which a Responsible Officer of the Company
has actual knowledge thereof, the receipt of any notice by the Company or any of
its Subsidiaries of any claim of nonpayment of, or any attempt to collect or
enforce, accounts payable of the Company or any of its Subsidiaries exceeding,
in the case of any one account payable at one time outstanding, $5,000,000 and
in the case of all accounts payable in the aggregate at any one time
outstanding, $10,000,000; or
(x) any requirement for the payment of all or any portion of any Indebtedness of
the Company or any of its Subsidiaries prior to the stated maturity thereof
(whether by acceleration or otherwise) or as the result of any failure to
maintain or the reaching of any threshold amount provided in any promissory
note, bond, debenture, or other evidence of Indebtedness or under any credit
agreement, loan agreement, indenture or similar agreement executed in connection
with any of the foregoing; or
(xi) any notice from the Securities and Exchange Commission with respect to any
Application (as defined in Section 8.18 hereof).
<PAGE>
9.11 ERISA Information and Compliance. The Company will promptly furnish to
Administrative Agent (i) immediately upon receipt, a copy of any notice of
complete or partial withdrawal liability under Title IV of ERISA and any notice
from the PBGC under Title IV of ERISA of an intent to terminate or appoint a
trustee to administer any Plan, (ii) if requested by Administrative Agent,
acting on the instruction of the Majority Banks, promptly after the filing
thereof with the United States Secretary of Labor or the PBGC or the Internal
Revenue Service, copies of each annual and other report with respect to each
Plan or any trust created thereunder, (iii) immediately upon becoming aware of
the occurrence of any "reportable event", as such term is defined in Section
4043 of ERISA, for which the disclosure requirements of Regulation
Section 2615.3 promulgated by the PBGC have not been waived, or of any
"prohibited transaction", as such term is defined in Section 4975 of the Code,
in connection with any Plan or any trust created thereunder, a written notice
signed by the President or the principal financial officer of the Company or the
applicable ERISA Affiliate specifying the nature thereof, what action the
Company or the applicable ERISA Affiliate is taking or proposes to take with
respect thereto, and, when known, any action taken by the PBGC, the Internal
Revenue Service or the Department of Labor with respect thereto, (iv) promptly
after the filing or receiving thereof by the Company or any ERISA Affiliate of
any notice of the institution of any proceedings or other actions which may
result in the termination of any Plan, and (v) each request for waiver of the
funding standards or extension of the amortization periods required by Sections
303 and 304 of ERISA or Section 412 of the Code promptly after the request is
submitted by the Company or any ERISA Affiliate to the Secretary of the
Treasury, the Department of Labor or the Internal Revenue Service, as the case
may be. To the extent required under applicable statutory funding requirements,
the Company will fund, or will cause each ERISA Affiliate to fund, all current
service pension liabilities as they are incurred under the provisions of all
Plans from time to time in effect, and comply with all applicable provisions of
ERISA, except to the extent that any such failure to comply could not reasonably
be expected to have a Material Adverse Effect. The Company covenants that it
shall and shall cause each ERISA Affiliate to (1) make contributions to each
Plan in a timely manner and in an amount sufficient to comply with the
contribution obligations under such Plan and the minimum funding standards
requirements of ERISA; (2) prepare and file in a timely manner all notices and
reports required under the terms of ERISA including but not limited to annual
reports; and (3) pay in a timely manner all required PBGC premiums, in each
case, to the extent failure to do so would have a Material Adverse Effect.
Section 10. Negative Covenants. A deviation from the provisions of this
Section 10 will not constitute a Default under this Agreement if such deviation
is consented to in writing by the Majority Banks. The Company agrees with the
Banks and the Agents that, so long as any of the Commitments is in effect and
until payment in full of all Obligations:
10.1 Debts, Guaranties and Other Obligations.
<PAGE>
(i) Of Restricted Subsidiaries. The Company will not permit any of its
Restricted Subsidiaries to incur, create, assume or in any manner become or be
liable in respect of any Indebtedness (including obligations for the payment of
rentals); and the Company will not permit any of its Restricted Subsidiaries to
Guarantee or otherwise in any way become or be responsible for obligations of
any other Person, whether by agreement to purchase the Indebtedness of any other
Person or agreement for the furnishing of funds to any other Person through the
purchase or lease of goods, supplies or services (or by way of stock purchase,
capital contribution, advance or loan) for the purpose of paying or discharging
the Indebtedness of any other Person, or otherwise, except that the foregoing
restrictions will not apply to:
(a) Indebtedness pursuant to the Loan Documents;
(b) Indebtedness of any Restricted Subsidiary existing on the date of this
Agreement which is described in the Disclosure Statement, and (A) with respect
to any such Indebtedness which constitutes Senior Debt, any extensions, renewals
or replacements of such Indebtedness upon terms no more onerous to such
Restricted Subsidiary than the terms of this Agreement or the terms of the
instruments evidencing such Senior Debt as of the effective date of this
Agreement, and (B) with respect to any such Indebtedness which constitutes
Subordinated Indebtedness, any extensions, renewals or replacements of such
Indebtedness which (I) remains Subordinated Indebtedness and (II) does not
require principal repayment of such Subordinated Indebtedness prior to the then
scheduled Stated Maturity Date;
(c) endorsements of negotiable or similar instruments for collection or deposit
in the ordinary course of business;
(d) trade payables, lease acquisition and lease maintenance obligations,
extensions of credit from suppliers or contractors, liabilities incurred in
exploration, development and operation of any Restricted Subsidiary's oil and
gas properties or similar obligations from time to time incurred in the ordinary
course of business, other than for borrowed money, which are paid within 90 days
after the invoice date (inclusive of applicable grace periods) or (i) are being
contested in good faith, if such reserve as required by GAAP has been made
therefor or (ii) trade accounts payable of any Restricted Subsidiaries (with
respect to which no legal proceeding to enforce collection has been commenced
or, to the knowledge of any Responsible Officer of the Company, threatened) not
exceeding, in the aggregate at any time outstanding, $50,000,000;
(e) taxes, assessments or other government charges which are not yet due or are
being contested in good faith by appropriate action promptly initiated and
diligently conducted, if such reserve as will be required by GAAP will have been
made therefor;
(f) intercompany Indebtedness owed to the Company by any Restricted Subsidiary
and intercompany Indebtedness owed to any Restricted Subsidiary by any other
Restricted Subsidiary;
<PAGE>
(g) any Guarantee existing on the date of this Agreement of payment or
performance by any Person under any agreement so long as the obligation
guaranteed does not constitute Indebtedness for borrowed money;
(h) obligations of any Restricted Subsidiary under oil or gas purchase contracts
for oil or gas not taken, as to which such Restricted Subsidiary is liable to
pay if not made up;
(i) obligations of any Restricted Subsidiary under any contract for sale for
future delivery of oil or gas (whether or not the subject oil or gas is to be
delivered) or other similar agreement;
(j) obligations of any Restricted Subsidiary under any hedging contract, forward
contract, swap agreement, futures contract or other similar agreement;
(k) obligations of any Restricted Subsidiary under any interest rate or currency
swap agreement, or any contract implementing any interest rate or currency cap,
collar or floor, or any similar interest rate or currency hedging contract;
(l) obligations in connection with gas imbalances arising in the ordinary course
of business;
(m) Guarantees of obligations of Havre by Guarantor in an amount not exceeding
$20,000,000 in the aggregate in connection with Indebtedness of Havre;
(n) liabilities under capital leases and lease agreements which do not cover oil
and gas properties to the extent (i) the incurrence and existence of such
liabilities will still enable each Restricted Subsidiary to comply with all
requirements of this Agreement and (ii) not exceeding, in the aggregate at any
time outstanding, $35,000,000;
(o) until such time as the Guaranty Agreement is no longer in effect, any
Guarantee by Guarantor of the payment or performance of the Company with respect
to Indebtedness of Company permitted by Section 10.1(iii);
(p) obligations in connection with bank guarantees, bonds, surety or similar
obligations required or requested by Governmental Authorities in connection with
the usual and customary operation of and the obtaining of oil and gas
properties; and
(q) in addition to Indebtedness permitted by clauses (a) through (p) above,
Indebtedness of any Restricted Subsidiary in an aggregate principal amount not
exceeding $10,000,000 at any time outstanding.
<PAGE>
(ii) Of Unrestricted Subsidiaries. The Company will not permit any of its
Unrestricted Subsidiaries to (a) incur, create, assume or in any manner become
or be liable in respect of any Indebtedness (including obligations for the
payment of rentals), or (b) Guarantee or otherwise in any way become or be
responsible for obligations of any other Person, whether by agreement to
purchase the Indebtedness of any other Person or agreement for the furnishing of
funds to any other Person through the purchase or lease of goods, supplies or
services (or by way of stock purchase, capital contribution, advance or loan)
for the purpose of paying or discharging the Indebtedness of any other Person,
or otherwise, except that the foregoing restrictions will not apply to any
Indebtedness not exceeding $200,000,000 in the aggregate for all Unrestricted
Subsidiaries.
(iii) Of the Company. The Company may incur Indebtedness for borrowed money only
if such Indebtedness is at prevailing market rates of interest and contains
covenants, conditions and events of default not materially more onerous to the
Company than the covenants, conditions and event of default set forth in one or
more of the various indentures and other debt instruments of the Company in
existence on the Effective Date.
10.2 Liens. The Company will not and will not permit any of its Restricted
Subsidiaries to create, incur, assume or permit to exist any Lien on any of its
or their properties (now owned or hereafter acquired), except:
(a) Liens securing (i) the Loans or other obligations under the Loan Documents,
and (ii) the obligations under any debt facility permitted pursuant to
Section 10.1(iii) of this Agreement which by its terms requires that such debt
facility be secured on a ratable basis with other Senior Debt upon the
incurrence of Liens generally, provided that such Liens (A) are for the equal
and ratable benefit of the Agents and the Banks under each of this Agreement and
such debt facilities and (B) cover the same collateral,
(b) Liens for taxes, assessments or other governmental charges or levies not yet
due or which are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as will be required by GAAP
will have been made therefor;
(c) Liens of landlords, vendors, contractors, subcontractors, carriers,
warehousemen, mechanics, laborers or materialmen or other like Liens arising by
law or contract in the ordinary course of business for sums not yet due or being
contested in good faith by appropriate action promptly initiated and diligently
conducted, if such reserve as will be required by GAAP will have been made
therefor;
<PAGE>
(d) Liens existing on property owned by the Company or any of its Restricted
Subsidiaries on the date of this Agreement which have been disclosed to the
Banks in the Disclosure Statement, together with any renewals, extensions,
amendments, refinancings, rearrangements, modifications, restatements or
supplements, but not increases, thereof from time to time;
(e) pledges or deposits made in the ordinary course of business in connection
with worker's compensation, unemployment insurance, social security and other
like laws;
(f) inchoate liens arising under ERISA to secure the contingent liability of the
Company permitted by Section 9.11;
(g) Liens in the ordinary course of business, not to exceed in the aggregate
$25,000,000 as to the Company and its Restricted Subsidiaries at any time in
effect, regarding (i) the performance of bids, tenders, contracts (other than
for the repayment of borrowed money or the deferred purchase price of property
or services) or leases, (ii) statutory obligations, (iii) surety appeal bonds or
(iv) Liens to secure progress or partial payments made to the Company or any of
its Restricted Subsidiaries and other Liens of like nature;
(h) covenants, restrictions, easements, servitudes, permits, conditions,
exceptions, reservations, minor rights, minor encumbrances, minor irregularities
in title or conventional rights of reassignment prior to abandonment which do
not materially interfere with the occupation, use and enjoyment by the Company
or any Restricted Subsidiary of its respective assets in the normal course of
business as presently conducted, or materially impair the value thereof for the
purpose of such business;
(i) Liens of operators under joint operating agreements or similar contractual
arrangements with respect to the relevant entity's proportionate share of the
expense of exploration, development and operation of oil, gas and mineral
leasehold or fee interests owned jointly with others, to the extent that same
relate to sums not yet due or which are being contested in good faith by
appropriate action promptly initiated and diligently conducted, if such reserve
as will be required by GAAP will have been made therefor;
(j) Liens created pursuant to the creation of trusts or other arrangements
funded solely with cash, cash equivalents or other marketable investments or
securities of the type customarily subject to such arrangements in customary
financial practice with respect to long-term or medium-term indebtedness for
borrowed money, the sole purpose of which is to make provision for the
retirement or defeasance, without prepayment, of Indebtedness permitted under
Section 10.1;
(k) [Intentionally omitted];
<PAGE>
(l) Liens securing purchase money Indebtedness or Capital Lease Obligations
incurred in compliance with Section 10.1 of this Agreement;
(m) Liens on the capital stock or other equity interest of any Unrestricted
Subsidiary securing obligations of such Unrestricted Subsidiary;
(n) any Lien existing on any real or personal property of any Person at the time
it becomes a Restricted Subsidiary, or existing prior to the time of acquisition
upon any real or personal property acquired by the Company or any of its
Restricted Subsidiaries;
(o) legal or equitable encumbrances deemed to exist by reason of the existence
of any litigation or other legal proceeding or arising out of a judgment or
award with respect to which an appeal is being prosecuted in good faith by
appropriate action promptly initiated and diligently conducted, if such reserve
as will be required by GAAP will have been made therefor;
(p) any Liens securing Indebtedness neither assumed nor guaranteed by the
Company or any of its Restricted Subsidiaries nor on which it customarily pays
interest, existing upon real estate or rights in or relating to real estate
acquired by the Company or any of its Restricted Subsidiaries for substation,
metering station, pump station, storage, gathering line, transmission line,
transportation line, distribution line or right-of-way purposes, and any Liens
reserved in leases for rent and full compliance with the terms of the leases in
the case of leasehold estates, to the extent that any such Lien referred to in
this clause arises in the normal course of business as presently conducted and
does not materially impair the use of the property covered by such Lien for the
purposes for which such property is held by the Company or its applicable
Restricted Subsidiary;
(q) rights reserved to or vested in any municipality or governmental, statutory
or public authority by the terms of any right, power, franchise, grant, license
or permit, or by any provision of law, to terminate such right, power,
franchise, grant, license or permit or to purchase, condemn, expropriate or
recapture or to designate a purchaser of any of the property of the Company or
any of its Restricted Subsidiaries;
(r) rights reserved to or vested in any municipality or governmental, statutory
or public authority to control or regulate any property of the Company or any of
its Restricted Subsidiaries, or to use such property in a manner which does not
materially impair the use of such property for the purposes for which it is held
by the Company or its applicable Restricted Subsidiary;
<PAGE>
(s) any obligations or duties affecting the property of the Company or any of
its Restricted Subsidiaries to any municipality, governmental, statutory or
public authority with respect to any franchise, grant, license or permit;
(t) rights of a common owner of any interest in real estate, rights-of-way or
easements held by the Company or any of its Restricted Subsidiaries and such
common owner as tenants in common or through other common ownership;
(u) as to assets located in Canada, reservations, limitations, provisos and
conditions in any original grant from the Crown or freehold lessor of any of the
properties of the Company or its Subsidiaries;
(v) other Liens securing Indebtedness not exceeding, in the aggregate,
$10,000,000 at any one time outstanding;
(w) Liens covering cash collateral accounts relating to obligations pursuant to
Letters of Credit issued in connection with the Revolving Credit Agreement;
(x) Liens securing Indebtedness of the Company or any Restricted Subsidiary of
the types described in Section 10.1(i)(p) covering the oil and gas properties to
which such Indebtedness relates, provided that the aggregate amount of all such
Indebtedness so secured under this Section 10.2(x) shall not exceed $50,000,000
in the aggregate at any one time outstanding; and
(y) Liens (i) granted to or existing in favor of third parties on margin
accounts of the Company or any of its Restricted Subsidiaries relating to
exchange traded contracts for the delivery of natural gas pursuant to which the
Company or any such Restricted Subsidiary intends to take actual delivery of
such natural gas within forty (40) days from the then current date in the
ordinary course of business and not for speculative purposes, and (ii) on margin
accounts of the Company or any of its Restricted Subsidiaries relating to
exchange traded contracts for the delivery of natural gas, provided, however,
the aggregate balance of the margin accounts subject to the Liens permitted by
this clause (ii) shall not exceed from time to time $10,000,000.
10.3 Dividend Payment Restrictions. The Company will not declare or make any
Dividend Payment if any Default or Event of Default has occurred and is
continuing or would result therefrom.
<PAGE>
10.4 Mergers and Sales of Assets. The Company will not (a) merge or consolidate
with, or sell, assign, lease or otherwise dispose of, whether in one transaction
or in a series of transactions, more than (i) ten percent (10%) in the aggregate
of the Company's and its Restricted Subsidiaries' consolidated total assets
(whether now owned or hereafter acquired) to any Person or Persons during any
twelve month period occurring after the date hereof or (ii) twenty-five percent
(25%) in the aggregate of the Company's and its Restricted Subsidiaries'
consolidated total assets as of the date hereof to any Person or Persons prior
to the Stated Maturity Date, or permit any Restricted Subsidiary to do so (other
than to the Company or another Restricted Subsidiary or the issuance by any
Restricted Subsidiary of any stock to the Company or another Restricted
Subsidiary), or (b) sell, assign, lease or otherwise dispose of, whether in one
transaction or in a series of transactions, any other properties if receiving
therefor consideration other than cash or other consideration readily
convertible to cash or which is less than the fair market value of the relevant
properties, or permit any Restricted Subsidiary to do so; provided that the
Company or any Restricted Subsidiary may merge or consolidate with any other
Person and any Restricted Subsidiary may transfer properties to any other
Restricted Subsidiary or to the Company so long as, in each case, (i)
immediately thereafter and giving effect thereto, no event will occur and be
continuing which constitutes a Default, (ii) in the case of any such merger or
consolidation to which the Company is a party, the Company is the surviving
Person, (iii) in the case of any such merger or consolidation to which any
Restricted Subsidiary is a party (but not the Company), after giving effect to
all transactions closing concurrently relating to such merger or consolidation,
the surviving Person is a Restricted Subsidiary and (iv) the surviving Person
ratifies each applicable Loan Document and provided further that any Restricted
Subsidiary may merge or consolidate with any other Restricted Subsidiary so long
as, in each case (i) immediately thereafter and giving effect thereto, no event
will occur and be continuing which constitutes a Default and (ii) the surviving
Person ratifies each applicable Loan Document.
10.5 Proceeds of Loans. The Company will not permit the proceeds of the Loans to
be used for any purpose other than those permitted by this Agreement.
10.6 ERISA Compliance. The Company will not at any time permit any Plan
maintained by it or any Restricted Subsidiary to:
(a) engage in any "prohibited transaction" as such term is defined in Section
4975 of the Code;
(b) incur any "accumulated funding deficiency" as such term is defined in
Section 302 of ERISA; or
(c) terminate or be terminated in a manner which could result in the imposition
of a Lien on the property of the Company or any Restricted Subsidiary pursuant
to Section 4068 of ERISA,
in each case, to the extent that permitting the Plan to do so would have a
Material Adverse Effect.
<PAGE>
10.7 Total Leverage Ratio. The Company will not permit its Total Leverage Ratio
to be (i) at any time through March 31, 2001, more than 4.25 to 1.00, (ii) at
any time from April 1, 2001 through March 31, 2002, more than 4.00 to 1.00,
(iii) at any time on or after April 1, 2002, more than 3.75 to 1.00.
10.8 Senior Leverage Ratio. The Company will not permit its Senior Leverage
Ratio to be at any time more than 3.00 to 1.00.
10.9 Minimum Net Worth. The Company will not permit its Consolidated Net Worth
as of the end of any fiscal quarter to be less than (i)$770,000,000 plus
(ii) an amount equal to 50% of the sum of the Company's and its Restricted
Subsidiaries' consolidated net income for each calendar quarter, beginning with
the calendar quarter ending March 31, 1999, during which such consolidated net
income is greater than $0 plus (iii) an amount equal to 50% of the net cash
proceeds received by the Company and its Restricted Subsidiaries from the
issuance of any common stock, preferred stock or other equity for each calendar
quarter, beginning with the calendar quarter ending March 31, 1999.
10.10 Nature of Business. The Company will not engage in, and will not permit
any Restricted Subsidiary to engage in, businesses other than oil and gas
exploration and production, gas processing, transmission, distribution,
marketing and storage and gas and liquids pipeline operations and activities
related or ancillary thereto; provided, that if the Company acquires one or more
Restricted Subsidiaries in transactions otherwise permitted by the terms hereof,
any such Restricted Subsidiary may be engaged in businesses other than those
listed in this Section so long as the assets of such Restricted Subsidiaries
which are used in the conduct of such other businesses do not constitute more
than five percent (5%) of the consolidated total assets of the Company
(inclusive of the assets of the Restricted Subsidiary so acquired).
10.11 Covenants in Other Agreements. The Company will not and will not permit
any of its Restricted Subsidiaries to become a party to or to agree that it or
any of its property is bound by any agreement, indenture, mortgage, deed of
trust or any other instrument directly or indirectly (i) restricting any loans,
advances or any other Investments to or in the Company by any of its Restricted
Subsidiaries, (ii) restricting the ability of any Restricted Subsidiary to make
tax payments or management fee payments to the Company, or (iii) restricting the
ability or capacity of any Restricted Subsidiary to make Dividend Payments to
the Company, except for (a) instruments in existence on the date hereof and (b)
instruments entered into after the date hereof containing restrictions not
materially more restrictive than the restrictions permitted under clause (a)
above.
Section 11. Defaults.
11.1 Events of Default. If one or more of the following events (herein called
"Events of Default") shall occur and be continuing:
<PAGE>
(a) Payments - (i) the Company or any other Relevant Party fails to make any
payment or prepayment of any installment of principal on the Loans payable under
this Agreement or the other Loan Documents when due or (ii) the Company or any
other Relevant Party fails to make any payment or prepayment of interest with
respect to the Loans or any other fee, amount or Obligation under this Agreement
or the other Loan Documents and such failure to pay continues unremedied for a
period of five (5) Business Days; or
(b) Representations and Warranties - any representation or warranty made by the
Company or any other Relevant Party in this Agreement or in any other Loan
Document or in any instrument executed in connection herewith or therewith
proves to have been incorrect in any material respect as of the date thereof; or
any representation, statement (including Financial Statements), certificate or
data furnished or made by the Company or any other Relevant Party (or any
officer of the Company or any other Relevant Party) under or in connection with
this Agreement or any other Loan Document, including without limitation in the
Disclosure Statement, proves to have been untrue in any material respect, as of
the date as of which the facts therein set forth were stated or certified; or
(c) Affirmative Covenants - (i) default shall be made in the due observance or
performance of any of the covenants or agreements contained in Sections 9.10 (or
in Section 9.6 to the extent such default is considered an Event of Default
under the other Subsections of this Section 11.1) or (ii) default is made in the
due observance or performance of any of the other covenants or agreements
contained in Section 9 of this Agreement or any other affirmative covenant of
the Company or any other Relevant Party contained in this Agreement or any other
Loan Document and such default continues unremedied for a period of 30 days
after (x) notice thereof is given by Administrative Agent to the Company or (y)
such default otherwise becomes known to the Company, whichever is earlier; or
(d) Negative Covenants - default is made in the due observance or performance by
the Company of any of the covenants or agreements contained in Section 10 of
this Agreement or of any other negative covenant of the Company or any other
Relevant Party contained in this Agreement or any other Loan Document; or
(e) Other Obligations - default is made in the due observance or performance by
the Company or any of its Restricted Subsidiaries (as principal or guarantor or
other surety) of any of the covenants or agreements contained in any bond,
debenture, note or other evidence of Indebtedness in excess of $25,000,000
(singly or aggregating several such bonds, debentures, notes or other evidence
of Indebtedness) which default gives the holder the right to accelerate the
maturity of such Indebtedness, other than the Loan Documents, or under any
credit agreement, loan agreement, indenture, promissory note or similar
agreement or instrument executed in connection with any of the foregoing, to
which it (respectively) is a party and such default is unwaived or continues
unremedied beyond the expiration of any applicable grace period which may be
expressly allowed under such instrument or agreement; or
<PAGE>
(f) Involuntary Bankruptcy or Receivership Proceedings - a receiver,
conservator, liquidator or trustee of the Company, the Guarantor, any Restricted
Subsidiary or of any of their property is appointed by the order or decree of
any court or agency or supervisory authority having jurisdiction, and such
decree or order remains in effect for more than 60 days; or the Company, the
Guarantor or any Restricted Subsidiary is adjudicated bankrupt or insolvent; or
any of its property is sequestered by court order and such order remains in
effect for more than 60 days; or a petition is filed against the Company, the
Guarantor or any Restricted Subsidiary under any state or federal bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution,
liquidation or receivership law of any jurisdiction, whether now or hereafter in
effect, and is not dismissed within 60 days after such filing; or
(g) Voluntary Petitions or Consents - the Company, the Guarantor or any
Restricted Subsidiary commences a voluntary case or other proceeding seeking
liquidation, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or other relief with respect to itself or its debt or
other liabilities under any bankruptcy, insolvency or other similar law nor or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or consents to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or fails generally to, or cannot, pay its debts generally
as they become due or takes any corporate action to authorize or effect any of
the foregoing; or
(h) Assignments for Benefit of Creditors or Admissions of Insolvency - the
Company, the Guarantor or any Restricted Subsidiary makes an assignment for the
benefit of its creditors, or admits in writing its inability to pay its debts
generally as they become due, or consents to the appointment of a receiver,
trustee, or liquidator of the Company, the Guarantor, any Restricted Subsidiary
or of all or any part of their property; or
(i) Undischarged Judgments - judgments (individually or in the aggregate) for
the payment of money in excess of $10,000,000 in excess of insurance coverage
are rendered by any court or other governmental body against the Company or any
of its Restricted Subsidiaries or the Guarantor and the Company or such
Restricted Subsidiary or the Guarantor does not discharge the same or provide
for its discharge in accordance with its terms, or procure a stay of execution
thereof within 60 days from the date of entry thereof, and within said period of
60 days from the date of entry thereof or such longer period during which
execution of such judgment will have been stayed, the Company, such Restricted
Subsidiary or the Guarantor fails to appeal therefrom and cause the execution
thereof to be stayed during such appeal while providing such reserves therefor
as may be required under GAAP; or
(j) Subsidiary Defaults - the Guarantor or any Restricted Subsidiary of the
Company takes, suffers, or permits to exist any of the events or conditions
referred to in Subsections 11.1(f), (g) or (h); or
<PAGE>
(k) Change in Control - there should occur any Change of Control.
THEREUPON: Administrative Agent may (and, if directed by the Majority Banks,
shall) (a) declare the Commitments terminated (whereupon the Commitments shall
be terminated) and/or (b) declare the principal amount then outstanding of and
the accrued interest on the Loans and all fees and all other Obligations to be
forthwith due and payable, whereupon such amounts shall be and become
immediately due and payable, without notice (including without limitation notice
of acceleration and notice of intent to accelerate), presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company; provided that in the case of the occurrence of an Event
of Default with respect to the Company referred to in clause (f) or (g) of this
Section 11.1 or in clause (j) of this Section 11.1 to the extent it refers to
clauses (f) or (g), the Commitments shall be automatically terminated and the
principal amount then outstanding of and the accrued interest on the Loans and
all fees and all other Obligations payable hereunder shall be and become
automatically and immediately due and payable, without notice (including but not
limited to notice of intent to accelerate and notice of acceleration) and
without presentment, demand, protest or other formalities of any kind, all of
which are hereby expressly waived by the Company and/or (d) exercise any and all
other rights available to it under the Loan Documents, at law or in equity.
11.2 [Intentionally omitted].
11.3 [Intentionally omitted].
<PAGE>
11.4 Right of Setoff. Upon (i) the occurrence and during the continuance of any
Event of Default referred to in clauses (f), (g) or (h) of Section 11.1, or in
clause (j) of Section 11.1 to the extent it refers to clauses (f), (g) or (h),
or upon (ii) the occurrence and continuance of any other Event of Default and
upon the making of the notice specified in Section 11.1 to authorize
Administrative Agent to declare the Loans due and payable pursuant to the
provisions of this Agreement, or if (iii) the Company or any of its Subsidiaries
becomes insolvent, however evidenced, the Banks are hereby authorized at any
time and from time to time, without notice to the Company or any of its
Subsidiaries (any such notice being expressly waived by the Company and its
Subsidiaries), to setoff and apply any and all deposits (general or special,
time or demand, provisional or final, whether or not such setoff results in any
loss of interest or other penalty, and including without limitation all
certificates of deposit) at any time held, and any other funds or property at
any time held, and other Indebtedness at any time owing by any Bank to or for
the credit or the account of the Company against any and all of the Obligations
irrespective of whether or not such Bank will have made any demand under this
Agreement and although such obligations may be unmatured. Should the right of
any Bank to realize funds in any manner set forth hereinabove be challenged and
any application of such funds be reversed, whether by court order or otherwise,
the Banks shall make restitution or refund to the Company pro rata in accordance
with their Commitments. The Banks agree promptly to notify the Company and
Administrative Agent after any such setoff and application, provided that the
failure to give such notice will not affect the validity of such setoff and
application. The rights of the Agents and the Banks under this Section are in
addition to other rights and remedies (including without limitation other rights
of setoff) which the Agents or the Banks may have.
Section 12. Agents.
12.1 Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints
and authorizes each Agent to act as its agent hereunder and under the other Loan
Documents with such powers as are specifically delegated to such Agent by the
terms hereof and thereof, together with such other powers as are reasonably
incidental thereto. Each Agent (which term as used in this Section 12 shall
include reference to its Affiliates and its own and their Affiliates' officers,
directors, employees and agents) shall not (a) have any duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents, or shall by reason of this Agreement or any other Loan
Document be a trustee or fiduciary for any Bank; (b) be responsible to any Bank
for any recitals, statements, representations or warranties contained in this
Agreement or any other Loan Document, or in any certificate or other document
referred to or provided for in, or received by any of them under, this Agreement
or any other Loan Document, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or any other document referred to or provided for herein or therein or
any property covered thereby or for any failure by any Relevant Party or any
other Person to perform any of its obligations hereunder or thereunder; (c) be
required to initiate or conduct any litigation or collection proceedings
hereunder or any other Loan Document except to the extent such Agent is so
requested by the Majority Banks, or (d) be responsible for any action taken or
omitted to be taken by it hereunder or any other Loan Document or any other
document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, INCLUDING, WITHOUT LIMITATION, PURSUANT TO
THEIR OWN NEGLIGENCE, except for its own gross negligence or willful misconduct.
Each Agent may employ agents and attorneys-in-fact and shall not be responsible
for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. In any foreclosure proceeding concerning
any collateral for the Loans, each holder of a Loan if bidding for its own
account or for its own account and the accounts of other Banks is prohibited
from including in the amount of its bid an amount to be applied as a credit
against Obligations owing to such Bank or the Obligations owing to the other
Banks; instead, such holder must bid in cash only; provided that this provision
is for the sole benefit of the Agents and the Banks and shall not inure to the
benefit of the Company or any of its Subsidiaries. However, in any such
foreclosure proceeding, Administrative Agent may (but shall not be obligated to)
submit a bid for all Banks (including itself) in the form of a credit against
the Obligations of all of the Banks, and Administrative Agent or its designee
may (but shall not be obligated to) accept title to such collateral for and on
behalf of all Banks.
<PAGE>
12.2 Reliance by Agents. Each Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel (which may be counsel for the
Company), independent accountants and other experts selected by such Agent. As
to any matters not expressly provided for by this Agreement or any other Loan
Document, each Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder and thereunder in accordance with instructions
of the Majority Banks (or, where unanimous consent is required by the terms
hereof or of the other Loan Documents, all of the Banks), and any action taken
or failure to act pursuant thereto shall be binding on all of the Banks.
Pursuant to instructions of the Majority Banks (except as otherwise provided in
Section 13.4 hereof), Administrative Agent shall have the authority to execute
releases of security documents on behalf of the Banks without the joinder of any
Bank. The Company and any third-party may conclusively rely upon any such
release delivered by Administrative Agent without investigation as to whether
such release has been approved by the Majority Banks.
12.3 Defaults. Administrative Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or interest
on Loans) unless it has received notice from a Bank or the Company specifying
such Default and stating that such notice is a "Notice of Default". In the event
that Administrative Agent receives such a notice of the occurrence of a Default,
Administrative Agent shall give prompt notice thereof to the Banks (and shall
give each Bank prompt notice of each such non-payment). Administrative Agent
shall (subject to Section 12.7 hereof) take such action with respect to such
Default as shall be directed by the Majority Banks and within its rights under
the Loan Documents and at law or in equity, provided that, unless and until
Administrative Agent shall have received such directions, Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, permitted hereby with respect to such Default as it shall deem
advisable in the best interests of the Banks and within its rights under the
Loan Documents, at law or in equity.
12.4 Rights as a Bank. With respect to its Commitments and the Loans made, CSFB,
Chase and Bank of America, respectively, each in its capacity as a Bank
hereunder, shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as an Agent and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include CSFB,
Chase and Bank of America, respectively, each in its individual capacity.
Administrative Agent may (without having to account therefor to any Bank) accept
deposits from, lend money to and generally engage in any kind of banking, trust,
letter of credit, agency or other business with the Company (and any of its
Affiliates) as if it were not acting as Administrative Agent, and Administrative
Agent may accept fees and other consideration from the Company and its
Affiliates (in addition to the fees heretofore agreed to between the Company and
Administrative Agent) for services in connection with this Agreement or
otherwise without having to account for the same to the Banks.
<PAGE>
12.5 Indemnification. The Banks agree to indemnify each Agent (to the extent not
reimbursed under Section 9.7 or Section 13.3 hereof, but without limiting the
obligations of the Company under said Sections 9.7 and 13.3), ratably in
accordance with their respective Commitments, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever (INCLUDING, BUT NOT
LIMITED TO, THE CONSEQUENCES OF THE NEGLIGENCE OF SUCH AGENT) which may be
imposed on, incurred by or asserted against such Agent in any way relating to or
arising out of this Agreement or any other Loan Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses which the Company is obligated to pay under Sections 9.7 and 13.3
hereof but excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of their
respective agency duties hereunder) or the enforcement of any of the terms
hereof or thereof or of any such other documents, provided that no Bank shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified. The obligations
of the Banks under this Section 12.5 shall survive the termination of this
Agreement and the repayment of the Obligations.
12.6 Non-Reliance on Agents and Other Banks. Each Bank agrees that it has
received current financial information with respect to the Company and its
Subsidiaries and that it has, independently and without reliance on any Agent or
any other Bank and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Company and its Subsidiaries
and decision to enter into this Agreement and that it will, independently and
without reliance upon any Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement
or any of the other Loan Documents. Each Agent shall not be required to keep
itself informed as to the performance or observance by any Relevant Party of
this Agreement or any of the other Loan Documents or any other document referred
to or provided for herein or therein or to inspect the properties or books of
the Company or any Relevant Party. Except for notices, reports and other
documents and information expressly required to be furnished to the Banks by
Administrative Agent hereunder, under the other Loan Documents, the Agents shall
not have any duty or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or business of the
Company or any other Relevant Party (or any of their Affiliates) which may come
into the possession of such Agent.
12.7 Failure to Act. Except for action expressly required of Administrative
Agent hereunder and under the other Loan Documents, Administrative Agent shall
in all cases be fully justified in failing or refusing to act hereunder and
thereunder unless it shall receive further assurances to its satisfaction by the
Banks of their indemnification obligations under Section 12.5 hereof against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
<PAGE>
12.8 Resignation or Removal of Administrative Agent. Subject to the appointment
and acceptance of a successor Administrative Agent as provided below,
Administrative Agent may resign at any time by giving notice thereof to the
Banks and the Company, and Administrative Agent may be removed at any time with
or without cause by the Majority Banks. Upon any such resignation or removal,
the Majority Banks shall have the right to appoint a successor Administrative
Agent (subject to the consent of the Company, which consent shall not be
unreasonably withheld), provided deposits with a successor Administrative Agent
shall be insured by the Federal Deposit Insurance Corporation or its successor.
If no successor Administrative Agent shall have been so appointed by the
Majority Banks and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation or the Majority
Banks' removal of the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Banks, appoint a successor
Administrative Agent (subject to the consent of the Company, which consent shall
not be unreasonably withheld). Any successor Administrative Agent shall be a
bank which has an office in the United States and a combined capital and surplus
of at least $1,000,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. A successor Administrative Agent shall promptly
specify by notice to the Company and the Banks its Principal Office referred to
in Sections 3.1 and 5.1. After any retiring Administrative Agent's resignation
or removal hereunder as Administrative Agent, the provisions of this Section 12
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as an Administrative Agent.
Section 13. Miscellaneous.
13.1 Waiver. No waiver of any Default shall be a waiver of any other Default. No
failure on the part of any Agent or any Bank to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power or
privilege under any Loan Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law or in equity.
13.2 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telegraph, telecopy
(confirmed by mail), cable, mail or other writing and telexed, telecopied,
telegraphed, cabled, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof;
or, as to any party, at such other address as shall be designated by such party
in a notice to the Company and Administrative Agent given in accordance with
this Section 13.2. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly received when transmitted by
telex or telecopier during regular business hours, delivered to the telegraph or
cable office or personally delivered or, in the case of a mailed notice, three
(3) days after deposit in the United States mails, postage prepaid, certified
mail with return receipt requested (or upon actual receipt, if earlier), in each
case given or addressed as aforesaid.
<PAGE>
13.3 Indemnification. The Company shall indemnify the Agents, the Banks, and
each Affiliate thereof and their respective directors, officers, employees and
agents from, and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become subject
(REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE SIMPLE (BUT NOT GROSS)
NEGLIGENCE OF THE PERSON INDEMNIFIED), insofar as such losses, liabilities,
claims or damages arise out of or result from any (i) actual or proposed use by
the Company of the proceeds of any extension of credit by any Bank hereunder,
(ii) breach by the Company of this Agreement or any other Loan Document,
(iii) violation by the Company or any of its Subsidiaries of any Legal
Requirement, including but not limited to those relating to Hazardous
Substances, (iv) Liens or security interests previously or hereafter granted on
any real or personal property, to the extent resulting from any Hazardous
Substance located in, on or under any such property, (v) ownership by the Banks
or the Agents of any real or personal property following foreclosure, to the
extent such losses, liabilities, claims or damages arise out of or result from
any Hazardous Substance located in, on or under such property, including,
without limitation, losses, liabilities, claims or damages which are imposed
upon Persons under laws relating to or regulating Hazardous Substances solely by
virtue of ownership, (vi) Bank's or Agent's being deemed an operator of any such
real or personal property by a court or other regulatory or administrative
agency or tribunal in circumstances in which neither any of the Agents nor any
of the Banks is generally operating or generally exercising control over such
property, to the extent such losses, liabilities, claims or damages arise out of
or result from any Hazardous Substance located in, on or under such property,
(vii) investigation, litigation or other proceeding (including any threatened
investigation or proceeding) relating to any of the foregoing, and the Company
shall reimburse each Agent, each Bank, and each Affiliate thereof and their
respective directors, officers, employees and agents, upon demand, for any
expenses (including legal fees) incurred in connection with any such
investigation or proceeding or (viii) taxes (excluding income taxes and
franchise taxes) payable or ruled payable by any Governmental Authority in
respect of any Loan Document, together with interest and penalties, if any;
provided, however, that the Company shall not have any obligations pursuant to
this Section 13.3 with respect to any losses, liabilities, claims, damages or
expenses (a) arising from or relating solely to events, conditions or
circumstances which, as to clauses (iv), (v) or (vi) above, first came into
existence or which first occurred after the date on which the Company or any of
its Subsidiaries conveyed to an unrelated third party all of the Company's or
the applicable Subsidiary's rights, titles and interests to the applicable real
or personal property (whether by deed, deed-in-lieu, foreclosure or otherwise)
other than a conveyance made in violation of any Loan Document, (b) incurred by
the Person seeking indemnification by reason of the gross negligence or willful
misconduct of such Person, or (c) asserted by one or more indemnified parties or
stockholders thereof against one or more indemnified parties. If the Company
ever disputes a good faith claim for indemnification under this Section 13.3 on
the basis of the proviso set forth in the preceding sentence, the full amount of
indemnification provided for shall nonetheless be paid, subject to later
adjustment or reimbursement at such time (if any) as a court of competent
jurisdiction enters a final judgment as to the applicability of any such
exceptions or an agreement is reached with respect thereto.
<PAGE>
13.4 Amendments, Etc. No amendment or waiver of any provision of this Agreement
or any other Loan Document, nor any consent to any departure by the Company or
any Obligor therefrom, shall in any event be effective unless the same shall be
agreed or consented to by the Majority Banks and the Company, and each such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, that no amendment, waiver or consent
shall, unless in writing and signed by each Bank affected thereby, do any of the
following: (a) increase the Commitment of such Bank (it being understood that
the waiver of any reduction in the Commitments or any mandatory repayment other
than (x) the repayment of all Loans on the Stated Maturity Date and (y) the
mandatory reductions of the Commitments provided for in Section 2.3(a) and (z)
the mandatory prepayments required by the terms of Section 3.2(b), shall not be
deemed to be an increase in any Commitment) or subject the Banks to any
additional obligation; (b) reduce the principal of, or interest on, any Loan or
fee hereunder; (c) postpone any scheduled date fixed for any payment or
mandatory prepayment of principal of, or interest on, any Loan, fee or other sum
to be paid hereunder; (d) change the percentage of any of the Commitments or of
the aggregate unpaid principal amount of any of the Loans, or the number of
Banks, which shall be required for the Banks or any of them to take any action
under this Agreement; (e) change any provision contained in Sections 9.7 or 13.3
hereof or this Section 13.4 or Section 6.7 hereof, or (f) release all or
substantially all of any security for the obligations of the Company under this
Agreement or all or substantially all of the personal liability of any obligor
created under any of the Loan Documents. Anything in this Section 13.4 to the
contrary, no amendment, waiver or consent shall be made with respect to Section
12 without the consent of Administrative Agent.
13.5 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the
Company, the Agents and the Banks and their respective successors and assigns.
The Company may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of all of the Banks. Each Bank may
sell participations to any Person in all or part of any Loan, or all or part of
its Commitments, in which event, without limiting the foregoing, the provisions
of Section 6 shall inure to the benefit of each purchaser of a participation and
the pro rata treatment of payments, as described in Section 5.2, shall be
determined as if such Bank had not sold such participation. In the event any
Bank shall sell any participation, such Bank shall retain the sole right and
responsibility to enforce the obligations of the Company relating to the Loans,
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement or any other Loan Document other
than amendments, modifications or waivers with respect to (i) any fees payable
hereunder to the Banks and (ii) the amount of principal or the rate of interest
payable on, or the dates fixed for the scheduled repayment of principal of, the
Loans.
<PAGE>
(b) Each Bank may assign to one or more Banks or any other Person all or a
portion of its interests, rights and obligations under this Agreement, provided,
however, that (i) other than in the case of an assignment to another Bank that
is, at the time of such assignment, a party hereto or an Affiliate of such Bank,
the Company must give its prior written consent, which consent will not be
unreasonably withheld, (ii) the aggregate amount of the Commitment and/or Loans
of the assigning Bank subject to each such assignment (determined as of the date
the Assignment and Acceptance (as defined below) with respect to such assignment
is delivered to Administrative Agent) shall in no event be less than $10,000,000
(or $5,000,000 in the case of an assignment to an Affiliate of a Bank or between
Banks) unless either (A) if Bank's Commitment is less than $10,000,000 or
$5,000,000, as applicable, such amount is equal to all of such Bank's Commitment
under this Agreement or (B) each of the Company and the Administrative Agent
otherwise consents, (iii) notwithstanding any other term or provision of this
Agreement, unless the Company shall have otherwise consented in writing (such
consent not to be unreasonably withheld), each such assignment shall be pro rata
with respect to the Loans and the Commitment of the assignor, and (iv) the
parties to each such assignment shall execute and deliver to Administrative
Agent, for its acceptance and recording in the Register (as defined below), an
Assignment and Acceptance in the form of Exhibit E hereto (each an "Assignment
and Acceptance") with blanks appropriately completed, together with any note or
notes subject to such assignment and a processing and recordation fee of $2,500
paid by the assignee (for which the Company shall have no liability). Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five Business Days after the execution thereof, (A) the assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Bank hereunder
and (B) the Bank thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement.
<PAGE>
(c) By executing and delivering an Assignment and Acceptance, the Bank assignor
thereunder and the assignee thereunder confirm to and agree with each other and
the other parties hereto as follows: (i) other than the representation and
warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, such Bank assignor makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such Bank assignor makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Company and its Subsidiaries or the performance or observance by the Company and
its Subsidiaries of any of its obligations under this Agreement or any of the
other Loan Documents or any other instrument or document furnished pursuant
hereto; (iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the financial statements referred to in
Sections 8.6 and 9.1 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon any Agent, such Bank assignor or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents; (v) such assignee appoints and
authorizes each Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to such Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vi) such assignee agrees that it will perform in
accordance with their terms all obligations that by the terms of this Agreement
and the other Loan Documents are required to be performed by it as a Bank.
(d) Administrative Agent shall maintain at its office a copy of each Assignment
and Acceptance delivered to it and a register for the recordation of the names
and addresses of the Banks and the Commitments of, and principal amount of the
Loans owing to, each Bank from time to time (the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and the Company,
the Agents and the Banks may treat each Person the name of which is recorded in
the Register as a Bank hereunder for all purposes of this Agreement and the
other Loan Documents. The Register shall be available for inspection by the
Company or any Bank at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an assigning
Bank and the assignee thereunder together with any note or notes subject to such
assignment, the written consent to such assignment executed by the Company and
the fee payable in respect thereto, Administrative Agent shall, if such
Assignment and Acceptance has been completed with blanks appropriately filled,
(i) accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Company. If
applicable, within five (5) Business Days after receipt of notice, the Company,
at its own expense, shall execute and deliver to Administrative Agent in
exchange for the surrendered notes new notes to the order of such assignee in an
amount equal to the Commitments and/or Loans assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Bank has retained Commitments
and/or Loans hereunder, new notes to the order of the assigning Bank in an
amount equal to the Commitment and/or Loans retained by it hereunder. Such new
notes shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered notes, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the form of
the respective note. Thereafter, such surrendered notes, if any, shall be marked
renewed and substituted and the originals delivered to the Company (with copies,
certified by the Company as true, correct and complete, to be retained by
Administrative Agent).
<PAGE>
(f) Any Bank may, in connection with any assignment or participation or proposed
assignment or participation pursuant to this Section 13.5, disclose to the
assignee or participant or proposed assignee or participant, any information
relating to the Company furnished to such Bank by or on behalf of the Company;
provided, however, that, prior to any such disclosure, the Company shall have
consented thereto, which consent shall not be unreasonably withheld, and each
such assignee or participant, or proposed assignee or participant, shall execute
an agreement whereby such assignee or participant shall agree to preserve the
confidentiality of any Confidential Information (defined in Section 3.14) on
terms substantially the same as those provided in Section 13.14.
(g) The Company will have the right to consent to any material intercreditor
arrangements in connection with an assignment by any Bank of any interest, right
or obligation under this Agreement which is not pro rata with respect to the
Loans and the Commitment of the assignor and the Company may deny its consent to
any such arrangements which, in the reasonable judgement of the Company, would
adversely affect the Company in a material respect.
(h) The provisions of this Section shall not apply to the assignment and pledge
of a Bank's rights hereunder or under any note to any Federal Reserve Bank for
collateral purposes pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal Reserve
Bank; provided that such assignment and pledge shall not relieve such Bank of
any of its obligations hereunder.
(i) Notwithstanding anything to the contrary contained herein, any Bank (a
"Granting Bank") may grant to a special purpose funding vehicle (a "SPC"),
identified as such in writing from time to time by the Granting Bank to the
Administrative Agent and the Company, the option to provide to the Company all
or any part of any Loan that such Granting Bank would otherwise be obligated to
make to the Company pursuant to this Agreement; provided that (i) nothing herein
shall constitute a commitment by any SPC to make any Loan, and (ii) if an SPC
elects not to exercise such option or otherwise fails to provide all or any part
of such Loan, the Granting Bank shall be obligated to make such Loan pursuant to
the terms hereof. The making of a Loan by an SPC hereunder shall utilize the
Commitment of the Granting Bank to the same extent, and as if, such Loan were
made by such Granting Bank. Each party hereto hereby agrees that no SPC shall be
liable for any indemnity or similar payment obligation under this Agreement (all
liability for which shall remain with the Granting Bank). In furtherance of the
foregoing, each party hereto hereby agrees (which agreement shall survive the
termination of this Agreement) that, prior to the date that is one year and one
day after the payment in full of all outstanding commercial paper or other
senior indebtedness of any SPC, it will not institute against, or join any other
person in instituting against such SPC any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any State thereof. In addition, notwithstanding anything to the
contrary contained in this Section, any SPC may (i) with notice to, but without
the prior written consent of, the Company and the Administrative Agent and
without paying any processing fee therefor, assign all or a portion of its
interests in any Loan to the Granting Bank or to any financial institutions
(consented to by the Company and Administrative Agent), providing liquidity
and/or credit support to or for the account of such SPC to support the funding
or maintenance of Loan and (ii) provided that the recipient conforms with the
requirements of Section 13.14, disclose on a confidential basis any Confidential
Information relating to its Loans to any rating agency, commercial paper dealer
or provider of any surety, guarantee or credit or liquidity enhancement to such
SPC. This section may not be amended without the written consent of the SPC.
<PAGE>
13.6 Limitation of Interest. The Company, the Agents and the Banks intend to
strictly comply with all applicable laws, including applicable usury laws.
Accordingly, the provisions of this Section 13.6 shall govern and control over
every other provision of this Agreement or any other Loan Document which
conflicts or is inconsistent with this Section, even if such provision declares
that it controls. As used in this Section, the term "interest" includes the
aggregate of all charges, fees, benefits or other compensation which constitute
interest under applicable law, provided that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Obligations. In
no event shall the Company or any other Person be obligated to pay, or any Bank
have any right or privilege to contract for, charge, reserve, receive or retain,
(a) any interest in excess of the maximum amount of nonusurious interest
permitted under the laws of the State of Texas or the applicable laws (if any)
of the United States or of any other applicable state, or (b) total interest in
excess of the amount which such Bank could lawfully have contracted for,
reserved, received, retained or charged had the interest been calculated for the
full term of the Obligations at the Highest Lawful Rate. On each day, if any,
that the interest rate (the "Stated Rate") called for under this Agreement or
any other Loan Document exceeds the Highest Lawful Rate, the rate at which
interest shall accrue shall automatically be fixed by operation of this sentence
at the Highest Lawful Rate for that day, and shall remain fixed at the Highest
Lawful Rate for each day thereafter until the total amount of interest accrued
equals the total amount of interest which would have accrued if there were no
such ceiling rate as is imposed by this sentence. Thereafter, interest shall
accrue at the Stated Rate unless and until the Stated Rate again exceeds the
Highest Lawful Rate when the provisions of the immediately preceding sentence
shall again automatically operate to limit the interest accrual rate. The daily
interest rates to be used in calculating interest at the Highest Lawful Rate
shall be determined by dividing the applicable Highest Lawful Rate per annum by
the number of days in the calendar year for which such calculation is being
made. None of the terms and provisions contained in this Agreement or in any
other Loan Document which directly or indirectly relate to interest shall ever
be construed without reference to this Section 13.6, or be construed to create a
contract to pay for the use, forbearance or detention of money at an interest
rate in excess of the Highest Lawful Rate. If the term of any Obligation is
shortened by reason of acceleration of maturity as a result of any Default or by
any other cause, or by reason of any required or permitted prepayment, and if
for that (or any other) reason any Bank at any time, including but not limited
to, the stated maturity, is owed or receives (and/or has received) interest in
excess of interest calculated at the Highest Lawful Rate, then and in any such
event all of any such excess interest shall be canceled automatically as of the
date of such acceleration, prepayment or other event which produces the excess,
and, if such excess interest has been paid to such Bank, it shall be credited
pro tanto against the then-outstanding principal balance of the Company's
obligations to such Bank, effective as of the date or dates when the event
occurs which causes it to be excess interest, until such excess is exhausted or
all of such principal has been fully paid and satisfied, whichever occurs first,
and any remaining balance of such excess shall be promptly refunded to its
payor. Chapter 346 of the Texas Finance Code (which regulates certain revolving
credit accounts (formerly Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15)) shall
not apply to this Agreement or to any Loan, nor shall this Agreement or any Loan
be governed by or be subject to the provisions of such Chapter 346 in any manner
whatsoever.
13.7 Survival. The obligations of the Company under Sections 6, 9.7 and 13.3
hereof and the obligations of the Banks under Sections 13.6 and 13.14 hereof
shall survive the repayment of the Loans and the termination of the Commitments.
13.8 Captions. Captions and section headings appearing herein are included
solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
13.9 Counterparts. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same agreement and any
of the parties hereto may execute this Agreement by signing any such
counterpart.
<PAGE>
13.10 GOVERNING LAW; FORUM SELECTION; CONSENT TO JURISDICTION. THIS AGREEMENT
AND (EXCEPT AS THEREIN PROVIDED) THE OTHER LOAN DOCUMENTS ARE PERFORMABLE IN
HARRIS COUNTY, TEXAS, WHICH SHALL BE A PROPER PLACE OF VENUE FOR SUIT ON OR IN
RESPECT THEREOF. THE COMPANY IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING IN
RESPECT OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE BROUGHT IN THE
DISTRICT COURTS OF HARRIS COUNTY, TEXAS OR THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION (COLLECTIVELY, THE "SPECIFIED
COURTS"). THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS. THE COMPANY
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT BROUGHT IN ANY
SPECIFIED COURT, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIMS THAT ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. THE COMPANY FURTHER (1) AGREES TO DESIGNATE AND MAINTAIN AN
AGENT FOR SERVICE OF PROCESS IN THE CITY OF HOUSTON, TEXAS, IN CONNECTION WITH
ANY SUCH SUIT, ACTION OR PROCEEDING AND TO DELIVER TO ADMINISTRATIVE AGENT
EVIDENCE THEREOF AND (2) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF
ANY OF THE SPECIFIED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE
PREPAID, TO THE COMPANY AT ITS ADDRESS AS PROVIDED IN THIS AGREEMENT OR AS
OTHERWISE PROVIDED BY TEXAS LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
AGENT OR ANY BANK TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE
COMPANY IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY
APPLICABLE LAW. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THIS AGREEMENT AND
(EXCEPT AS THEREIN PROVIDED) THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF
LAWS RULES) OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO
TIME IN EFFECT.
13.11 WAIVER OF JURY TRIAL; PUNITIVE DAMAGES. THE COMPANY, EACH AGENT AND EACH
BANK HEREBY (I) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY
OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN
DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR ASSOCIATED
THEREWITH, BEFORE OR AFTER MATURITY; (II) IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
SUCH LITIGATION ANY EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES; (III)
CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR
ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS; AND (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED
IN THIS SECTION.
13.12 Severability. Whenever possible, each provision of the Loan Documents
shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid, illegal
or unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions of such Loan Document shall not
be affected or impaired thereby.
13.13 [Intentionally omitted].
<PAGE>
13.14 Confidential Information. Each Agent and each Bank separately agrees that:
(a) As used herein, the term "Confidential Information" means written
information about the Company or any of its Subsidiaries or the transactions
contemplated herein furnished by the Company to the Agents and/or the Banks
which is specifically designated as confidential by the Company; Confidential
Information, however, shall not include information which (i) was publicly known
or available, or otherwise available on a non-confidential basis to any Bank, at
the time of disclosure from a source other than the Company, (ii) subsequently
becomes publicly known through no act or omission by such Bank, (iii) otherwise
becomes available on a non-confidential basis to any Bank other than through
disclosure by the Company or (iv) has been in the possession of any Bank for a
period of more than two years from the date on which such information originally
was furnished to such Bank by the Company, unless the Company shall have
requested the Agents and the Banks in writing, at least 30 days prior to the end
of such two-year period, to maintain the confidentiality of such information for
another two (2) year period (or for successive two (2) year periods); provided
that the Company shall not unreasonably withhold its consent to a request made
after the initial two (2) year period to eliminate information from
"Confidential Information".
(b) Each Agent and each Bank agrees that it will take normal and reasonable
precautions to maintain the confidentiality of any Confidential Information
furnished to such Person; provided, however, that such Person may disclose
Confidential Information (i) upon the Company's consent; (ii) to its auditors;
(iii) when required by any Legal Requirement; (iv) as may be required or
appropriate in any report, statement or testimony submitted to any Governmental
Authority having or claiming to have jurisdiction over it; (v) to such Person's
and its Subsidiaries' or Affiliates' officers, directors, employees, agents,
representatives and professional consultants in connection with this Agreement
or administration of the Loans; (vi) as may be required or appropriate, should
such Bank elect to assign or grant participations in any of the Obligations in
connection with (1) the enforcement of the Obligations by any such Person under
any of the Loan Documents or related agreements, or (2) any potential transfer
pursuant to this Agreement of any Obligation owned by any Bank (provided any
potential transferee has been approved by the Company if required by this
Agreement, which approval shall not be unreasonably withheld, and has agreed in
writing to be bound by substantially the same provisions regarding Confidential
Information contained in this Section); (vii) as may be required or appropriate
in response to any summons or subpoena or in connection with any litigation or
administrative proceeding; (viii) to any other Bank; (ix) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under the other Loan Documents; or (x) to correct any false or misleading
information which may become public concerning such Person's relationship to the
Company.
<PAGE>
13.15 Tax Forms. With respect to each Bank which is organized under the laws of
a jurisdiction outside the United States, on the day of the initial borrowing
hereunder and from time to time thereafter if requested by the Company or
Administrative Agent, such Bank shall provide Administrative Agent and the
Company with the forms prescribed by the Internal Revenue Service of the United
States certifying as to such Bank's status for purposes of determining exemption
from United States withholding taxes with respect to all payments to be made to
such Bank hereunder or other Loan Documents or indicating that all payments to
be made to such Bank hereunder are subject to such tax at a rate reduced by an
applicable tax treaty. Unless the Company and Administrative Agent shall have
received such forms or such documents indicating that payments hereunder are not
subject to United States withholding tax or are subject to such tax at a rate
reduced by an applicable tax treaty, the Company or Administrative Agent shall
withhold taxes from such payments at the applicable statutory rate in the case
of payments to or for any Bank organized under the laws of a jurisdiction
outside the United States.
13.16 Entire Agreement. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
<PAGE>
[SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]
S - 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
OCEAN ENERGY, INC., a Texas corporation
By:
Name: Stephen A. Thorington
Title: Senior Vice President, Finance, Treasury
and Corporate Development
Address for Notices:
1001 Fannin, Suite 1700
Houston, Texas 77002
Attention: Stephen A. Thorington
Phone:(713) 265-6190
Fax: (713) 265-8024
<PAGE>
CREDIT SUISSE FIRST BOSTON, as a Bank and as
Administrative Agent and Auction Administrative
Agent
By:
Name:
Title:
By:
Name:
Title:
Address for Notices:
11 Madison Avenue, 20th Floor
New York, New York 10010-3629
Attention: Douglas E. Maher
Phone:(212) 325-3641
Fax: (212) 325-8615
with further notice to:
600 Travis Street, 30th Floor
Houston, Texas 77002
Attention: R. Scott Brown
Phone:(713)220-6774
Fax: (713)237-0325
<PAGE>
BANK OF AMERICA, N.A., as a Bank and as Syndication
Agent
By:
Name:
Title:
Address for Notices:
700 Louisiana, 8th Floor
Houston, Texas 77002
Attention:Mr. Paul Squires
Phone:(713) 247-6952
Fax: (713) 247-6568
<PAGE>
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as a
Bank and as Documentation Agent
By:
Name:
Title:
Address for Notices:
1 Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Ms. Debbie Rockower
Phone:(212) 552-7446
Fax: (212) 552-5700
with a copy to:
Chase Bank of Texas, National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Energy Division
<PAGE>
Exhibit A - 1
Exhibit A
Unrestricted Subsidiaries
1. Seagull UK Ltd.
2. SGO Isle of Man Ltd.
3. Seagull Energy International, Inc.
4. Seagull Egypt Company
5. Seagull Ireland Ltd.
6. GNR International (Argentina), Inc.
7. Seagull (Malaysia) Ltd.
8. Texneft Inc.
9. GNR International (Turkey), Inc.
10. Havre Pipeline Company, LLC
11. Lion GPL, S.A.
12. Ocean Yemen Corporation
13. Thousand Oaks Dev. Corp. J.V.
14. UMC Angola Corporation
15. Ocean Bangladesh Corporation
16. Ocean Pakistan Corporation
<PAGE>
Exhibit B - 3
Exhibit B
Form of Request for Extension of Credit
[OCEAN ENERGY, INC. LETTERHEAD]
REQUEST FOR EXTENSION OF CREDIT
________________, _____
Credit Suisse First Boston, as Administrative Agent
11 Madison Avenue, 20th Floor
New York, New York 10010-3629
Attention: Ms. Julia Kingsbury
Gentlemen:
The undersigned hereby certifies that he is the of OCEAN ENERGY, INC., a Texas
corporation (the "Company"), and that as such he is authorized to execute this
Request for Extension of Credit (the "Request") on behalf of the Company
pursuant to the 364-Day Credit Agreement (as it may be amended, supplemented or
restated from time to time, the "Agreement") dated as of November 9, 1999, by
and among the Company, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for
the Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction
Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent
for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation
Agent for the Banks, and the Banks therein named. The Loan being requested
hereby is to be in the amount set forth in (b) below and is requested to be made
on ________________, _______, which is a Business Day. The Loan is to be (check
one) [___] a Eurodollar Loan [___] an Alternate Base Rate Loan. If the Loan is
to be a Eurodollar Loan, the Interest Period is to be (check one) [__] 1, [__]
2, [__] 3 or [__] 6 months. On behalf of the Company, the undersigned further
certifies, represents and warrants that to his knowledge, after due inquiry
(each capitalized term used herein having the same meaning given to it in the
Agreement unless otherwise specified herein):
(a) As of the date hereof:
(1) The Facility Amount [COMPLETE WITH THE AGGREGATE COMMITMENTS) is:
$__________
(2) Aggregate outstanding amount of Loans is: $__________
<PAGE>
(3) Amount currently available under the Agreement (the amount in (a)(1) above
minus the amount in (a)(2) above) is: $__________
(b) If and only if the amount shown in Line (a)(3) above is positive, the
Company hereby requests under this Request a Loan in the amount of $__________
(which is no more than the positive amount set forth in Line (a)(3) above).
(c) Except for the facts heretofore disclosed to the Administrative Agent in
writing, which facts (I) are not materially more adverse to the Company and its
Subsidiaries or any other Obligor, (II) do not materially decrease the ability
of the Banks to collect the Obligations as and when due and payable and (III) do
not materially increase the liability of any Agent or any of the Banks, in each
case compared to those facts existing on the date hereof and the material
details of which have been set forth in the Financial Statements delivered to
the Administrative Agent prior to the date hereof or in the Disclosure
Statement, and except for the representations set forth in the Loan Documents
which, by their terms, are expressly (or by means of similar phrasing) made as
of the date of the Agreement, only, the representations and warranties made in
each Loan Document are true and correct in all material respects on and as of
the time of delivery hereof, with the same force and effect as if made on and as
of the time of delivery hereof.
(d) The interest rate and Interest Period selected above comply with all
applicable provisions of the Agreement.
(e) No Default has occurred and is continuing.
(f) No event or condition shall have occurred since December 31, 1998, which is
reasonably expected to result in a Material Adverse Effect.
[Items (c), (d) and (f) above may be omitted at the discretion of the Company if
appropriate in the case of the conversion of Competitive Loan or a Eurodollar
Loan to an Alternate Base Rate Loan. In the event of the occurrence and
continuation of a Default, Item (e) may be replaced with a statement regarding
the existence of such Default.]
<PAGE>
Thank you for your attention to this matter.
Very truly yours,
OCEAN ENERGY, INC., a Texas corporation
By:
Name:
Title:
<PAGE>
Exhibit C - 3
Exhibit C
Subsidiaries (with Addresses)
1. Seagull Energy E&P Inc.
2. Seagull UK Ltd.
3. SGO Isle of Man Ltd.
4. Seagull Energy International, Inc.
5. Seagull Egypt Company
6. Seagull Ireland Ltd.
7. Seagull International Holdings Ltd.
8. Seagull East Zeit Petroleum Ltd.
9. Global Natural Resources Inc.
10. Global Natural Resources Corporation of Nevada
11. Seagull (Cote D'Ivoire) Ltd.
12. Seagull (Cote D'Ivoire) CI-12 Ltd.
13. Seagull (Cote D'Ivoire) CI-104 Ltd
14. Seagull (Egypt) Ltd.
15. Seagull (Egypt) Darag, Ltd.
16. Seagull (Egypt) East Beni Suef, Ltd.
17. GNR International (Argentina), Inc.
18. Seagull (Malaysia) Ltd.
19. Texneft Inc.
20. GNR Eastern
21. GNR International (Turkey), Inc.
22. Thousand Oaks Development Corporation
23. Seagull Pipeline & Marketing Company
24. Seagull Marketing Services, Inc.
25. Seagull Power Services Inc.
26. Seagull Products Pipeline Corporation
27. Seagull Field Services Company
28. Seagull Pipeline Company
29. Seagull WAG Petroleum Ltd.
30. Ocean Energy, Inc. (a Louisiana corporation)
31. UMC Pipeline Corporation
32. Ocean International Ltd.
33. Ocean Energy Cote d'lvoire Corporation
34. Ocean (C1-01) Corporation
35. Ocean (C1-02) Corporation
36. Ocean (C1-12) Corporation
37. Ocean (C1-105) Corporation
38. UMC Angola Corporation
39. Ocean Bangladesh Corporation
<PAGE>
40. Ocean Pakistan Corporation
41. Ocean Ghana Corporation
42. Ocean Energy Qatar Corporation (a Cayman Islands corporation)
43. Ocean Exploration, Inc. (100% of the capital stock is owned by
OEI-Louisiana).
44. Ocean Energy Resources, Inc.,1670 Broadway, Suite 2800,
Denver, Colorado 80202.
45. Ocean Equatorial Guinea Corporation
46. Big Sky Gas Marketing Corporation
47. UMC Colorado LLC (a Colorado limited liability company),
410 17th Street, Suite 1400, Denver, Colorado 80202
48. Ocean Yemen Corporation, Ugland House, George Town, Grand Cayman,
BWI c/o Adrian Pope, Maples & Calder.
49. Havre Pipeline Company, LLC, 410 17th Street,
Suite 1400, Denver, Colorado 80202
50. Lion GPL, SA, BP 827, Abidjan 04, Republic of Cote d'Ivoire
51. Buckeye Geostratic
52. Equitable 79 II
53. Kingfisher Partners, Ltd.
54. Kingfisher Partners, Ltd. 1979 - I
55. MWJ 78-2. Ltd. Drilling Program
56. Mewbourne Oil, Ltd., 1978 - A
57. Petroleum Discovery Partners, Ltd. - I
58. Petroleum Discovery Partners, Ltd. - IV
59. Rankin Oil & Gas Lease
60. Ricks Drilling Program 1975
61. Ricks Drilling Program 1976 -1
62. Ricks Drilling Program 1976 - 2
63. Ricks Drilling Program 1977 - 1
64. Ricks Drilling Program 1977 - 2
65. Ricks 1978 Private Drilling Program 1978 - 1
66. Ricks Drilling Program 1978 - 2
67. Ricks Drilling Program 1979 - 1
68. Ricks 1979 Private Drilling - 2
69. Seneca Exploration Ltd.
70. Smith Petroleum 1978 - A Ltd.
71. Struthers 1978 - A Oil & Gas Program
72. Struthers 1978 - B Oil & Gas Program
73. Joseph I. O'Neill, Jr. - Anadarko Gas Program: 1974 A
74. Joseph I. O'Neill, Jr. - Anadarko Gas Program: 1974 B
75. 1969 Oil & Gas Program (Adams Resources)
76. 1970 Oil & Gas Program
77. 1971 Oil & Gas Program
78. Wil-Mc 1975 Fund Ltd.
79. Foxco Energy Limited Partnership 1986
80. JMI 1983
<PAGE>
81. Taurus 1991
82. Taurus 1993
83. Taurus 1994
84. Taurus 1996
85. Dominion 1987
86. Dominion (CDN)
87. Fidelity 86/87 (Lincoln Road, McCullen Bluff)
88. Fidelity 1989
89. Fidelity 1989 (CDN)
90. Fidelity 1991
91. Fidelity 1991 (CDN)
92. Fidelity 1993
93. Fidelity 1993 (CDN)
94. Fidelity 1994
95. Fidelity 1994 (CDN)
96. Fidelity 1996
In each case (unless otherwise noted), the address for notice is:
c/o Ocean Energy, Inc.
1001 Fannin, Suite 1700
Houston, Texas 77002
<PAGE>
Exhibit D - 4
Exhibit D
Form of
Compliance Certificate
The undersigned, the ___________________ of OCEAN ENERGY, INC., a Texas
corporation (the "Company"), hereby certifies that he is authorized to execute
this certificate on behalf of the Company, pursuant to the 364-Day Credit
Agreement (the "Credit Agreement"), dated as of November 9, 1999, by and among
the Company, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the Banks
("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative
Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent for the Banks,
and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation Agent for the
Banks, and the Banks therein named, as amended; and that a review of the Company
and its Subsidiaries has been made under his supervision with a view to
determining whether the Company and its Subsidiaries have fulfilled all of their
respective obligations under the Credit Agreement and the other Loan Documents;
and on behalf of the Company further certifies, represents and warrants that to
his knowledge, after due inquiry (each capitalized term used herein having the
same meaning given to it in the Credit Agreement unless otherwise specified):
As of , ______:
(a) The Company and its Subsidiaries have fulfilled their respective obligations
under the Credit Agreement and the other Loan Documents as each applies after
giving effect to any amendments, consents and/or waivers that may be in effect
from time to time.
(b) Except for the facts heretofore disclosed to the Administrative Agent under
the Credit Agreement in writing, which facts (I) are not materially more adverse
to the Company and its Subsidiaries or any other Obligor, (II) do not materially
decrease the ability of the Banks to collect the Obligations as and when due and
payable and (III) do not materially increase the liability of the Agents or any
of the Banks, in each case compared to those facts existing on the date hereof
and the material details of which have been set forth in the Financial
Statements delivered to the Administrative Agent under the Credit Agreement
prior to the date hereof or in the Disclosure Statements provided for in the
Credit Agreement, and except for the representations set forth in the Loan
Documents which, by their terms, are expressly (or by means of similar phrasing)
made as of the date of the Credit Agreement, only, the representations and
warranties made in each Loan Document are true and correct in all material
respects on and as of the time of delivery hereof, with the same force and
effect as if made on and as of the time of delivery hereof.
<PAGE>
(c) The Financial Statements delivered to the Administrative Agent under the
Credit Agreement concurrently with this Compliance Certificate have been
prepared in accordance with GAAP consistently followed throughout the period
indicated and fairly present, in all material respects, the consolidated
financial condition and results of operations of the applicable Persons as at
the end of, and for, the period indicated (subject, in the case of quarterly
Financial Statements, to normal changes resulting from year-end adjustments).
(d) No Default has occurred and is continuing. In this regard the compliance
with the provisions of Sections 10.7, 10.8 and 10.9 of the Credit Agreement is
as follows:
(i) Section 10.7 of the Credit Agreement - Total Leverage Ratio
Total Debt (1) $_________
EBITDAX (2) $_________
Total Leverage Ratio (1)/(2) _________
Note: Must be no greater than amount specified in Section 10.7.
(ii) Section 10.8 of the Credit Agreement - Senior Leverage Ratio
Total Debt $__________
Less: Subordinated Indebtedness $__________
Senior Debt (1) $__________
EBITDAX (2) $__________
Senior Leverage Ratio (1)/(2) __________
Note: Must be no greater than 3.00 to 1.00.
(iii) Section 10.9 of the Credit Agreement - Minimum Consolidated Net Worth
Preferred stock (if any), par value of common stock, capital in excess of par
value of common stock and retained earnings of Company and its Subsidiaries
(1) $__________
Less treasury stock (if any), goodwill, cost in excess of fair value of net
assets acquired and all other assets that are properly classified
<PAGE>
as intangible assets of Company and its Subsidiaries (2) $__________
Plus any expenses associated with the Merger occurring prior to December 31,
1999 and not in excess of $30,000,000 in the aggregate, and the amount of
noncash write downs of long-lived assets in compliance with GAAP or SEC
guidelines (3) $__________
Plus or minus, as appropriate, any extraordinary or non-recurring net gains or
losses together with any related provision for taxes on such gain or loss,
realized in connection with any extraordinary or nonrecurring gains or losses
(4) $__________
Plus or minus, as appropriate, foreign currency translation adjustments
applicable to Company and its Subsidiaries (5) $__________
Consolidated Net Worth [(1) - (2) + (3) +/- (4) +/- (5)] $__________
Consolidated Net Worth Requirement Initial Amount (i) $770,000,000
Plus 50% of the sum of Company's and its Restricted Subsidiaries consolidated
net income for each fiscal quarter beginning with the calendar quarter ending
March 31, 1999 (ii) $__________
Plus 50% of the net cash proceeds received by the Company and its Restricted
Subsidiaries from the issuance of any common stock, preferred stock or other
equity for each fiscal quarter beginning with the calendar quarter ending March
31, 1999. (iii) $__________
Total CNW Requirement [(i) + (ii) + (iii)] $__________
Note: Consolidated Net Worth must be equal to or greater than
the Total CNW Requirement
(f) There has occurred no Material Adverse Effect since the date of the most
recent Financial Statements delivered to the Banks.
(g) The following Letters of Credit are issued and currently outstanding:
Issuer:
Beneficiary:
L/C No.:
Amount:
Date of Issue:
<PAGE>
Expiration:
DATED as of ____________________, ____.
OCEAN ENERGY, INC.
By:
Name:
Title:
Exhibit E - 6
Exhibit E
Form of
Assignment and Acceptance
Dated: _______________, _____
Reference is made to the 364-Day Credit Agreement dated as of November 9, 1999
(as restated, amended, modified, supplemented and in effect from time to time,
the "Credit Agreement"), among OCEAN ENERGY, INC., a Texas corporation (the
"Company"), CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the Banks
("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction Administrative
Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent for the Banks,
and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation Agent for the
Banks, and the Banks therein named. Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Credit
Agreement. This Assignment and Acceptance, between the Assignor (as defined and
set forth on Schedule I hereto and made a part hereof) and the Assignee (as
defined and set forth on Schedule I hereto and made a part hereof) is dated as
of the Effective Date (as set forth on Schedule I hereto and made a part
hereof).
1. The Assignor hereby irrevocably sells and assigns to the Assignee without
recourse to the Assignor, and the Assignee hereby irrevocably purchases and
assumes from the Assignor without recourse to the Assignor, as of the Effective
Date, an undivided interest (the "Assigned Interest") in and to all the
Assignor's rights and obligations under the Credit Agreement respecting those,
and only those, credit facilities contained in the Credit Agreement as are set
forth on Schedule 1 (collectively, the "Assigned Facilities," individually, an
"Assigned Facilities"), in a principal amount for each Assigned Facility as set
forth on Schedule I.
<PAGE>
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement, any other Loan Document or any other instrument
or document furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Company or its Subsidiaries or the performance or observance by the
Company or its Subsidiaries of any of its respective obligations under the
Credit Agreement, any other Loan Document or any other instrument or document
furnished pursuant thereto; and (iii) if applicable, attaches the note(s) held
by it evidencing the Assigned Facility or Facilities, as the case may be, and
requests that the Administrative Agent exchange such note(s) for a new note or
notes payable to the Assignor (if the Assignor has retained any interest in the
Assigned Facility or Facilities) and a new note or notes payable to the Assignee
in the respective amounts which reflect the assignment being made hereby (and
after giving effect to any other assignments which have become effective on the
Effective Date).
3. The Assignee (i) represents and warrants that it is legally authorized to
enter into this Assignment and Acceptance and that it is a permitted assignee
under Section 13.5 of the Credit Agreement; (ii)confirms that it has received a
copy of the Credit Agreement, together with copies of the financial statements
referred to in Section 8.6, or if later, the most recent financial statements
delivered pursuant to Section 9.1 thereof, and such other documents and
information as it has deemed appropriate to make its own credit analysis; (iii)
agrees that it will, independently and without reliance upon the Administrative
Agent, the Assignor or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement and
the Loan Documents; (iv) appoints and authorizes the each Agent to take such
action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to such Agent by the terms thereof, together with
such powers as are reasonably incidental thereto; (v) agrees that it will be
bound by the provisions of the Credit Agreement and will perform in accordance
with its terms all the obligations which by the terms of the Credit Agreement
are required to be performed by it as a Bank; (vi) if the Assignee is organized
under the laws of a jurisdiction outside the United States, attaches the forms
prescribed by the Internal Revenue Service of the United States certifying as to
the Assignee's exemption from United States withholding taxes with respect to
all payments to be made to the Assignee under the Credit Agreement or such other
documents as are necessary to indicate that all such payments are subject to
such tax at a rate reduced by an applicable tax treaty, and (vii) has supplied
the information requested on the administrative questionnaire attached hereto as
Exhibit A.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Administrative Agent for acceptance by it and the Company and
recording by the Administrative Agent pursuant to Section 13.5(e) of the Credit
Agreement, effective as of the Effective Date (which Effective Date shall,
unless otherwise agreed to by the Administrative Agent, be at least five
Business Days after the execution of this Assignment and Acceptance).
5. Upon such acceptance and recording, from and after the Effective Date, the
Administrative Agent shall make all payments in respect of the Assigned Interest
(including payments of principal, interest, fees and other amounts) to the
Assignee, whether such amounts have accrued prior to the Effective Date or
accrue subsequent to the Effective Date. The Assignor and Assignee shall make
all appropriate adjustments in payments for periods prior to the Effective Date
by the Administrative Agent or with respect to the making of this assignment
directly between themselves.
<PAGE>
6. From and after the Effective Date, (i) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Assignment and Acceptance,
have the rights and obligations of a Bank thereunder, and (ii) the Assignor
shall, to the extent provided in this Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Credit Agreement.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective duly authorized officers on
Schedule I hereto.
<PAGE>
Schedule I to Assignment and Acceptance
Legal Name of Assignor:
Legal Name of Assignee:
Effective Date of Assignment: , ______
||
Percentage Assigned of Each
Facility (to at least 8
decimals) (Shown as a
percentage of aggregate
Assigned Principal original principal amount
Facilities Amount Assigned of all Banks
- ------------------- ------------------------- ----------------------------
- ------------------- ------------------------- ----------------------------
Committed Loans: $_______________ __________%
- ------------------- -------------------------- ---------------------------
- ------------------- -------------------------- ---------------------------
Competitive Loans:$_______________
- ------------------- -------------------------- ---------------------------
||
Accepted:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent as Assignor
By: By:
Name: Name:
Title: Title:
<PAGE>
OCEAN ENERGY, INC.
as Assignee
By: By:
Name: Name:
Title: Title:
<PAGE>
EXHIBIT A
Administrative Questionnaire
Primary Contact
Bank Name:
Address:
Primary Contact:
Title:
Department:
Telephone Number:
Telecopier Number:
Alternate Contact
Alternate Contact:
Title:
Department:
Telephone Number:
Telecopier Number:
<PAGE>
Exhibit F - 2
Exhibit F
Form of
Competitive Bid Request
_______________, _____
Credit Suisse First Boston,
as Auction Administrative Agent
11 Madison Avenue, 20th Floor
New York, New York 10010-3629
Attention: Ms. Julia Kingsbury
Dear Sirs:
Reference is made to the 364-Day Credit Agreement dated as of November 9, 1999,
as modified and amended (the "Credit Agreement"), among the undersigned, the
Banks named therein, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the
Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction
Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent
for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation
Agent for the Banks. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
The undersigned hereby gives you notice pursuant to Section 2.9 of the Credit
Agreement that it requests a Competitive Loan under the Credit Agreement, and in
that connection sets forth below the terms on which such Competitive Loan is
requested to be made:
(A) Borrowing Date of Competitive Loan
(which is a Business Day)
(B) Principal Amount of Competitive Loan1
<PAGE>
(C) Interest Period and the last day thereof 2
By each of the delivery of this Request for Competitive Bids and the acceptance
of any or all of the Loans offered by the Banks in response to this Competitive
Bid Request, the undersigned represents and warrants that the applicable
conditions to lending specified in the Credit Agreement have been satisfied with
respect to the Competitive Loan requested hereby.
Very truly yours,
OCEAN ENERGY, INC.
By:
Name:
Title:
<PAGE>
Exhibit G - 2
Exhibit G
Form of
Notice to Banks of Competitive Bid Request
[Name of Bank]
[Address of Bank]
Attention: _______________, _____
Dear Sirs:
Reference is made to the 364-Day Credit Agreement dated as of November 9, 1999,
as modified and amended (the "Credit Agreement"), among OCEAN ENERGY, INC. (the
"Company"), the Banks named therein, CREDIT SUISSE FIRST BOSTON, as
Administrative Agent for the Banks ("Administrative Agent"), CREDIT SUISSE FIRST
BOSTON, as Auction Administrative Agent for the Banks, BANK OF AMERICA, N.A., as
Syndication Agent for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Documentation Agent for the Banks. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
Credit Agreement.
The Company delivered a Request for Competitive Bid by [Date] /Time].1 Your
Competitive Bid must comply with Section 2.9 of the Credit Agreement and the
terms set forth below on which the Notice of Competitive Loan was made:
(A) Date of Competitive Loan
(B) Principal Amount of Competitive Loan
<PAGE>
(C) Interest Period and the last day thereof
Very truly yours,
CREDIT SUISSE FIRST BOSTON, as Auction
Administrative Agent
By:
Name:
Title:
<PAGE>
Exhibit H - 3
Exhibit H
Form of
Competitive Bid
Credit Suisse First Boston,
as Auction Administrative Agent
11 Madison Avenue, 20th Floor
New York, New York 10010-3629
Attention: Ms. Julia Kingsbury _________, ______
Dear Sirs:
The undersigned, [Name of Bank], referred to in the 364-Day Credit Agreement
dated as of November 9, 1999, as modified and amended (the "Credit Agreement"),
among OCEAN ENERGY, INC. (the "Company"), the Banks named therein, CREDIT SUISSE
FIRST BOSTON, as Administrative Agent for the Banks ("Administrative Agent"),
CREDIT SUISSE FIRST BOSTON, as Auction Administrative Agent for the Banks, BANK
OF AMERICA, N.A., as Syndication Agent for the Banks, and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION, as Documentation Agent for the Banks. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to
such terms in the Credit Agreement.
The undersigned hereby makes a Competitive Bid pursuant to Section 2.9 of the
Credit Agreement, in response to the Request for Competitive Bids (the
"Competitive Bid Request") made by the Company on _______________, _____, and in
that connection sets forth below the terms on which such Competitive Bid is
made:
(A) Principal Amount 1
(B) Competitive Bid Rate 2
<PAGE>
(C) Interest Period and the last day thereof 3
The undersigned hereby confirms that it is prepared to extend credit to the
Company upon acceptance by the Company of this bid in accordance with Section
2.9 of the Credit Agreement.
Very truly yours,
[NAME OF BANK]
By:
Name:
Title:
<PAGE>
Exhibit I - 1
Exhibit I
Form of
Competitive Bid Administrative Questionnaire
Primary Contact
Competitive Auctions
Bank Name:
Address:
Primary Contact:
Title:
Department:
Telephone Number:
Telecopier Number:
Alternate Contact
Competitive Auctions
Alternate Contact:
Title:
Department:
Telephone Number:
Telecopier Number:
<PAGE>
Exhibit J - 3
Exhibit J
[Form of]
Certificate of Extension
,
Credit Suisse First Boston,
as Administrative Agent
11 Madison Avenue, 20th Floor
New York, New York 10010-3629
Attention:Ms. Julia Kingsbury
Re: Extension of Revolving Commitment Termination Date - 364 Day Credit
Agreement
Dear Sirs:
Reference is made to the 364-Day Credit Agreement dated as of November 9, 1999,
as modified and amended (the "Credit Agreement"), among the undersigned, the
Banks named therein, CREDIT SUISSE FIRST BOSTON, as Administrative Agent for the
Banks ("Administrative Agent"), CREDIT SUISSE FIRST BOSTON, as Auction
Administrative Agent for the Banks, BANK OF AMERICA, N.A., as Syndication Agent
for the Banks, and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Documentation
Agent for the Banks. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
Pursuant to the terms of Section 2.2 of the Credit Agreement, Company hereby
requests an extension of the Revolving Commitment Termination Date under the
Credit Agreement for a period of 364 days from the current Revolving Commitment
Termination Date.
To induce Banks to make such an extension of the current Revolving Commitment
Termination Date, Company hereby represents, warrants, acknowledges, and agrees
to and with each Agent and each Bank that:
(a) The Responsible Officer of Company signing this instrument is a duly
elected, qualified and acting officer of Company, holding the office indicated
below such officer's signature hereto and having all necessary authority to act
for Company in making and delivering this Certificate of Extension.
<PAGE>
(b) Except for the facts heretofore disclosed to the Administrative Agent under
the Credit Agreement in writing, which facts (I) are not materially more adverse
to the Company and its Subsidiaries or any other Obligor, (II) do not materially
decrease the ability of the Banks to collect the Obligations as and when due and
payable and (III) do not materially increase the liability of the Agents or any
of the Banks, in each case compared to those facts existing on the date hereof
and the material details of which have been set forth in the Financial
Statements delivered to the Administrative Agent under the Credit Agreement
prior to the date hereof or in the Disclosure Statements provided for in the
Credit Agreement, and except for the representations set forth in the Loan
Documents which, by their terms, are expressly (or by means of similar phrasing)
made as of the date of the Credit Agreement, only, the representations and
warranties made in each Loan Document are true and correct in all material
respects on and as of the time of delivery hereof, with the same force and
effect as if made on and as of the time of delivery hereof.
(c) There does not exist on the date hereof any condition or event which
constitutes a Default which has not been waived in writing as provided in
Section 13.1 of the Credit Agreement.
(d) Except to the extent waived in writing as provided in Section 13.1 of the
Credit Agreement, Company has performed and complied with all agreements and
conditions in the Credit Agreement required to be performed or complied with by
Company on or prior to the date hereof.
(e) The Loan Documents have not been modified, amended or supplemented by any
unwritten representations or promises, by any course of dealing, or by any other
means not provided for in Section 13.4 of the Credit Agreement. The Credit
Agreement and the other Loan Documents are hereby ratified, approved, and
confirmed in all respects.
Company agrees that if, prior to the time of the extension of the current
Revolving Commitment Termination Date requested hereby, any matter certified to
herein by it will not be true and correct at such time as if then made, it will
immediately so notify Administrative Agent. Except to the extent, if any, that,
prior to the time of the extension of the current Revolving Commitment
Termination Date requested hereby, Administrative Agent shall have received
written notice from Company to the contrary, each matter certified herein shall
be deemed once again to be certified as true and correct as of the date of such
extension as if then made.
The Responsible Officer of Company signing this instrument hereby certifies
that, to the best of his knowledge, the above representations, warranties,
acknowledgments and agreements of Company are true, correct and complete.
OCEAN ENERGY, INC.
By:
Name:
Title:
<PAGE>
Exhibit K - 1
Exhibit K
[Form of]
GUARANTY AGREEMENT
<PAGE>
Exhibit L - 1
Exhibit L
DISCLOSURE STATEMENT
I. Indebtedness of any Restricted Subsidiary existing on the date of this
Agreement per Section 10.1(i)(b):
Guarantee of "95 Indenture" as defined in the Agreement
Guarantee of "96 Indenture" as defined in the Agreement
Guarantee of "97 Indenture" as defined in the Agreement
Guarantee of "98 Senior Subordinated Indenture" as defined in the Agreement
Guarantee of Ocean Energy, Inc. $125,000,000 13 1/2% Senior Notes issued
December 1, 1994 due 2004
Guarantee of Ocean Energy, Inc. $125,000,000 7 5/8% Senior Notes issued July 8,
1998 due 2005
Guarantee of Ocean Energy, Inc. $125,000,000 8 1/4% Senior Notes issued July 8,
1998 due 2018
Guarantee of Seagull Energy Corporation $100,000,000 7 7/8% Senior Notes issued
July 1993 due August 1, 2003
Guarantee of Seagull Energy Corporation $150,000,000 8 5/8% Senior Subordinated
Notes issued July 1993 due August 1, 2005
Guarantee of Seagull Energy Corporation $150,000,000 7 1/2% Senior Notes issued
September 30, 1997 due September 15, 2027
Guarantee of obligations of Havre (as defined in the Agreement) in an amount not
exceeding $20,000,000 in the aggregate in connection with Indebtedness of Havre
<PAGE>
Exhibit M - 1
Exhibit M
Commitments
- --------------------------------- ---------------------------------------
Name of Bank Commitment
- --------------------------------- ---------------------------------------
- --------------------------------- ---------------------------------------
Credit Suisse First Boston $100,000,000
- --------------------------------- ---------------------------------------
- --------------------------------- ---------------------------------------
Chase Bank of Texas, National Association $50,000,000
- --------------------------------- ---------------------------------------
- --------------------------------- ---------------------------------------
Bank of America, N.A. $50,000,000
- --------------------------------- ---------------------------------------
- --------------------------------- ---------------------------------------
Total: $200,000,000
- --------------------------------- ---------------------------------------
1/ Not less than $25,000,000 or greater than the unused Total Commitment and in
integral multiples of $5,000,000.
2/ Which, subject to the Credit Agreement, shall have a duration of not less
than seven calendar days nor more than 180 calendar days, and which shall end
not later than the Termination Date.
1/ The Competitive Bid must be received by the Auction Administrative Agent not
later than noon, New York, New York time, four Business Days before the date of
the proposed Competitive Loan. 1/ Not less than $25,000,000 or greater than the
available Total Commitment and in integral multiples of $5,000,000. Multiple
bids will be accepted by the Auction Administrative Agent. 2/ Expressed as a
percentage 3/ The Interest Period must be the Interest Period specified in the
Competitive Bid Request.
FOURTH AMENDMENT
TO THE
OCEAN ENERGY, INC.
LONG-TERM INCENTIVE PLAN
FOR NONEXECUTIVE EMPLOYEES
WHEREAS, there is reserved to the Board of Directors of Ocean Energy, Inc.
(the "Board") in Section 7 of the Ocean Energy, Inc. Long-Term Incentive Plan
for Nonexecutive Employees (the "Plan") the right to amend the Plan: WHEREAS,
the Board desires to amend the Plan; NOW, THEREFORE, effective as of January 1,
2000, the Plan is amended as follows: 1. Section 4(a) of the Plan shall be
deleted and the following shall be substituted therefor: "(a) Shares Available.
Subject to adjustment as provided in Section 4(c), the number of Shares with
respect to which Awards may be granted under the Plan shall be 2,500,000;
provided, however, if as of any January 1 the number of Shares that are
available for Awards under the Plan is less than 2,500,000 Shares, the maximum
number of Shares available for Awards shall be increased automatically on such
January 1, by the number of Shares necessary to equal 2,500,000 Shares available
for Awards. 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, but only if, and to the extent that, the
number of Shares then available for Awards does not exceed 2,500,000 Shares."
2. As amended hereby, the Plan is specifically ratified and reaffirmed.
Houston:60062.2
OCEAN ENERGY, INC.
OUTSIDE DIRECTORS DEFERRED FEE PLAN
(As Amended and Restated Effective March 30, 1999)
1. History and Purposes of the Plan
The Ocean Energy, Inc. Outside Directors Deferred Fee Plan ("Plan") was
originally adopted on May 16, 1983 by Ocean Energy, Inc., a Texas
corporation (the "Company"), formerly known as Seagull Energy Corporation
and Seagull Pipeline Corporation, and is intended to provide a method for
attracting and retaining qualified outside directors for the Company and to
encourage them to devote their best efforts to the business of the Company,
thereby advancing the interests of the Company and its shareholders.
Effective as of March 30, 1999 (the "Effective Date"), the Company merged
the Ocean Energy, Inc. Outside Directors Fee Plan (the "OEI Plan") with and
into the Plan and amended and restated the Plan in order to reflect the
plan merger and the merger of Ocean Energy, Inc., a Delaware corporation
("OEI") with and into Seagull Energy Corporation.
2. Administration of the Plan
Except as otherwise specifically provided herein, the Plan shall be
administered by a committee (the "Committee") appointed by the Board of
Directors of the Company (the "Board") or such other committee designated
from time to time by the Board. The Committee is authorized to interpret
the Plan and may from time to time adopt such rules and regulations,
consistent with the provisions of the Plan, as it may deem advisable to
carry out the Plan. All decisions made by the Committee shall be final. All
expenses incurred in connection with the administration of the Plan shall
be borne by the Company. In certain cases arising under the Plan, action or
approval must be taken by either the full Board or by a committee of
"Non-Employee Directors" as described in Rule 16b-3 promulgated by the
Securities Exchange Commission (such board or committee being referred to
herein as the "Rule 16b-3 Committee")
3. Participation in the Plan
(a) Participation. Each outside director who was a participant in the Plan
("Participant") or the OEI Plan on the Effective Date shall remain a
Participant in this restatement of the Plan as of the Effective Date. Each
other director shall be eligible to become a Participant on date he becomes
an outside director. For purposes of this Paragraph, an "outside director"
is an individual who is a validly elected or appointed director of the
Company and who does not perform any services for the Company in a
common-law employee capacity.
(b) Deferral of Director's Fees. A Participant may elect to defer director's
fees (whether annual, periodic or special) to be earned by such Participant
for services rendered under the Plan by filing with the Committee an
election to defer receipt of all or a designated portion of such fees.
(c) Time and Manner of Making Elections. Any deferral election that may be made
by a Participant under the Plan shall be made with respect to the period
commencing on January 1 (or, if later, the date the Participant is first
elected or appointed to the Board) and ending on December 31 of each year
("Service Period") during which services are rendered by such Participant
and must be made prior to the first day of such Service Period; provided,
however, that the deferral election with respect to a Participant's initial
Service Period may be made no later than thirty days after the date the
Participant is first elected or appointed to the Board and shall be
prospective only. All deferral elections shall be made in the manner and
form prescribed by the Committee. Deferral elections made prior to the
Effective Date with respect to the Service Period that includes the
Effective Date shall remain in effect for the remainder of such Service
Period.
(d) Nature of Elections. A Participant's election to defer receipt of all or a
designated portion of his fees for a Service Period shall continue in force
and effect for future Service Periods unless modified or revoked by such
Participant. Any such modification or revocation shall be effective only as
of the first day of a Service Period and must be made prior to the first
day of such Service Period. A modification or revocation of an existing
deferral election shall be made in the manner and form prescribed by the
Committee. Any deferral election (whether in the nature of an initial
election, an unrevised continuing election or a revised continuing
election) with respect to a Service Period shall be irrevocable as of the
first day of such Service Period or, if later, the day following the last
day upon which an election may be made with respect to a Service Period.
4. Crediting of Deferred Fees to Plan Accounts
(a) Establishment of Plan Accounts. The Committee shall establish a memorandum
bookkeeping account or accounts (the "Plan Accounts") for each Participant
in the Plan. As of the Effective Date, a Participant's Required Deferral
Account and Elective Deferral Account shall be combined into a single Plan
Account. The Committee shall credit to each Participant's Plan Accounts the
Participant's deferred fees as of the date such fees are earned by the
Participant.
(b) Crediting of Interest Equivalents. As of the last day of each calendar
quarter in which a Participant has a balance credited to his Plan Accounts,
the Committee shall, subject to the other provisions of this Section 4,
credit to each Participant's Plan Accounts, as additional deferred fees, a
dollar amount equal to simple interest on the amounts credited to each such
Account (excluding any amounts being credited during such quarter) computed
at the sum of:
(1) the prime rate published in The Wall Street Journal on the last
business day of such calendar quarter, plus
(2) a rate based upon the number of complete years that Participant has
served on the Board (including service on the board of directors of
any predecessor of the Company or OEI), in accordance with the
following schedule:
<PAGE>
Number of Years Additional Rate of Interest
Less than 5 0% 5 but less than 10 1% 10 or more 2%
(c) Alternative Investment in Stock Units.
(1) In lieu of having his Plan Accounts credited with interest equivalents
pursuant to Paragraph (b) above, a Participant may elect from time to
time in accordance with the provisions of Paragraphs (d) and (e) below
to have all or a portion of the value of such Plan Accounts determined
as if it had been credited with a number of shares of stock (the
"Phantom Stock") equal to the number of shares of common stock of the
Company, par value $.10 per share, that could have been purchased with
such portion of his Accounts on the date of such election, or for
amounts that are subsequently credited to the Participant's Plan
Accounts, on the date so credited, at a price per share equal to the
average of the closing prices of the common stock of the Company on
the twenty trading days preceding such date.
(2) As of the last day of each calendar quarter and as of any other date
that the Committee shall determine, the Committee shall redetermine
the value of each Participant's Plan Accounts that are credited with
Phantom Stock based upon the increase or decrease in the value of the
common stock of the Company during such quarter. For the purpose of
such redetermination, one share of Phantom Stock shall be deemed to be
the equivalent of one share of common stock of the Company. Further,
the portion of each Participant's Plan Accounts that are credited with
such Phantom Stock shall be credited with the amount of any cash
dividends paid with respect to the common stock of the Company during
such quarter in accordance with Paragraph (c)(1) above.
(3) If, and whenever, the Company shall effect a subdivision or
consolidation of the common stock of the Company or the payment of a
stock dividend on the common stock of the Company (i) in the event of
an increase in the number of outstanding shares of the common stock of
the Company, the number of shares of Phantom Stock credited to each
Participant's Plan Accounts shall be proportionately increased and
(ii) in the event of an reduction in the number of outstanding shares
of the common stock of the Company, the number of shares of Phantom
Stock credited to each Participant's Plan Accounts shall be
proportionately reduced.
(d) Crediting Election. In accordance with procedures established by the
Committee, prior to the first day of any calendar quarter in which a
Participant has a balance credited to his Plan Accounts, but in no event
within six months of any election pursuant to Paragraph (e) below, a
Participant may elect to have all or a portion of the amounts in his Plan
Accounts deemed invested in Phantom Stock pursuant to Paragraph (c) above
for all of such quarter. Any such election shall be effective until revoked
by the Participant as provided in Paragraph (e) below. If a Participant
fails to make any election under this Paragraph, his Plan Accounts shall be
credited with interest equivalents pursuant to Paragraph (b) above.
(e) Revocation of Election. In accordance with procedures established by the
Committee, prior to the first day of any calendar quarter in which a
Participant has a balance credited to his Plan Accounts, but in no event
within six months of any election pursuant to Paragraph (d) above, a
Participant may revoke an election made pursuant to Paragraph (d) above
with respect to all or a portion of his Plan Accounts, effective as of the
first day of such quarter. The value, as determined as of the last day of
the quarter immediately preceding the effective date of such election
pursuant to Paragraph (c) above, of the portion of his Plan Accounts that
is affected by such revocation shall, as of such first day, be credited
with interest equivalents pursuant to Paragraph (b) above.
(f) Invalid Elections. An election pursuant to Paragraph (d) or Paragraph (e)
above that is attempted within six months of an election made pursuant to
the other Paragraph in violation of the prohibitions of such Paragraphs
shall have no force or effect and shall be null and void.
5. Payment of Deferred Fees
(a) Payment Election Generally. A Participant shall elect, subject to the
provisions of Paragraphs (b), (c) and (d) below, the time (which may not be
prior to the latest of (i) the date on which he ceases to be a member of
the Board, (ii) the date on which he ceases to be a member of the Senior
Advisory Council to the Board or (iii) the date that is at least six months
from the date of the Participant's last election, if any, pursuant to
Section 4(d) above) and the mode (which may either be a lump sum payment or
monthly, quarterly, or annual installment payments over a specified term
certain) for payment of amounts credited to his Plan Accounts during a
Service Period (and the income credited thereto). A Participant may revise
his election regarding the time and mode of payment of amounts credited to
his Plan Accounts only if, and at such time as, such revised election is
approved by a Rule 16b-3 Committee; provided, however, that such revised
election shall not be effective until the later of (A) the January 1
following the date such revised election is approved or (B) the date that
is six months after the date such revised election is approved. In the
absence of direction by a Participant regarding the time or mode of payment
of amounts credited to his Plan Accounts during a Service Period (and the
income credited thereto), such amounts shall be distributed in monthly
installments over a period of ten years, beginning on the first day of the
first month after the later of (i) the date on which he ceases to be a
member of the Board or (ii) the date on which he ceases to be a member of
the Senior Advisory Council to the Board.
(b) Payment Upon Death. In the event of a Participant's death, the balance of
such Participant's Plan Accounts, computed as of the date of his death,
shall be paid in one lump sum to his designated beneficiary within the
first four months following the date of such Participant's death. A
Participant, by written instrument filed with the Committee in such manner
and form as it may prescribe, may designate one or more beneficiaries to
receive payment of the amounts credited to his Plan Accounts in the event
of his death. Any such beneficiary designation may be changed from time to
time prior to the death of the Participant. In the absence of a beneficiary
designation on file with the Committee at the time of a Participant's
death, the executor or administrator of the Participant's estate shall be
deemed to be his designated beneficiary.
(c) Payment Upon Plan Termination. In the event the Plan is terminated by the
Company, the balance of each Participant's Plan Accounts, computed as of
the day immediately following the six-month anniversary of the date of such
Plan termination, shall be paid to such Participant in one lump sum as soon
as practicable after such date.
(d) Payment Upon Change of Control. With respect to any Participant that ceases
to be a director of the Company (or any successor) as a result of or in
connection with a change of control that is not approved, recommended and
supported by at least two-thirds of the directors that were also directors
prior to the occurrence of any such change of control in actions taken
prior to, and with respect to, such change of control, such Participant's
Plan Accounts, computed as of the later of the date such Participant ceases
to be a director of the Company or the date of such change of control,
shall be paid to such Participant in one lump sum as soon as practicable,
but no later than thirty days following such date. For purposes of the
Plan, "change of control" shall be deemed to have occurred if (i) any
person (other than Participant or the Company) including a "group" as
determined in accordance with Section 13(d)(3) of the Securities Exchange
Act of 1934, becomes the beneficial owner of shares of the Company having
40% or more of the total number of votes that may be cast for the election
of directors; or (ii) as a result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were directors before the
Transaction shall cease to constitute a majority of the Board or any
successor thereto. The determinations of whether a change of control has
occurred, whether such change of control was not approved, recommended or
supported by the Directors in actions taken prior to, and with respect to,
such change of control and whether any Participant ceased to be a director
of the Company as a result of or in connection with such change of control
shall be made by the Committee as existing at least six months prior to the
occurrence of such change of control and its determination shall be final.
(e) Conversion of Plan Accounts for Purposes of Payment.
(1) If a Participant has elected to receive payment of his Plan Accounts
in a lump sum pursuant to Paragraph (a) above, the value of his Plan
Accounts shall be determined as of the last day of the month preceding
the time that he has elected to receive such payment and an amount
equal to such value shall be paid to the Participant. To the extent
such Participant has elected to have his Plan Accounts credited based
on Phantom Stock pursuant to Paragraph 4(d), the value of his Plan
Accounts shall be based upon the average of the closing prices of
common stock of the Company on the twenty trading days preceding such
date.
(2) If a Participant has elected to receive payment of his Plan Accounts
in any mode other than lump sum pursuant to Paragraph (a) above, to
the extent his Plan Accounts are being credited with Interest
Equivalents pursuant to Paragraph 4(b), the value of his Plan Accounts
shall be determined as of the last day of the month preceding the date
of any such payment and each subsequent interval thereafter, and an
amount equal to the value of such Plan Accounts multiplied by a
fraction, the numerator of which is one and the denominator of which
is the remaining number of payments that the Participant elected,
shall be paid as of each interval such Participant elected; provided,
however, that any such amounts remaining credited to such
Participant's Plan Accounts shall continue to be credited with
Interest Equivalents pursuant to Paragraph 4(b), except that the
Interest Equivalents so credited shall be paid directly to the
Participant. If a Participant has elected to receive payment of his
Plan Accounts in a mode other than a lump sum pursuant to Paragraph
(a) above, to the extent his Plan Accounts are credited based on
Phantom Stock pursuant to Paragraph 4(d), the number of shares of
Phantom Stock credited to his Plan Accounts shall be determined as of
the last day of the month preceding the date of any such payment and
each subsequent interval thereafter, and such number shall be
multiplied by a fraction, the numerator of which is one and the
denominator of which is the remaining number of payments that the
Participant elected, and an amount equal to the value of the resulting
number of shares of Phantom Stock, based upon the average of the
closing prices of common stock of the Company on the twenty trading
days preceding such date, shall be paid to such Participant.
(3) If Paragraphs (b), (c) or (d) above apply, the value of a
Participant's Plan Accounts shall be determined as of the date
specified in the applicable Paragraph and an amount equal to such
value shall be paid to the Participant or his designated beneficiary;
provided, however, that if the Participant has elected to have his
Plan Accounts credited based on Phantom Stock pursuant to Paragraph
4(d), the value of his Plan Accounts shall be based upon the average
of the closing prices of common stock of the Company on the twenty
trading days preceding such date.
(f) Form of Payment. All payments under the Plan shall be solely in the form of
cash. Without limiting the generality of the foregoing, nothing in the Plan
shall be construed as giving any Participant any rights as a holder of
common stock or any other equity security of the Company as a result of
such Participant's participation in this Plan or his election to credit his
Plan Accounts with Phantom Stock.
(g) Debiting of Plan Accounts. Once an amount has been paid to a Participant or
his beneficiary, such amount or the Phantom Stock equivalent thereof shall
be debited from the Participant's Plan Accounts.
(h) Six-Month Payment Delay. Notwithstanding any of the foregoing provisions of
this Section 5 to the contrary, no payments to a Participant under this
Plan shall be made or commenced prior to the expiration of six months from
the making of any election pursuant to Paragraph 4(d) above, unless such
payments are made on account of the death, disability, retirement or
termination of employment of the Participant within the meaning of Rule
16b-3 promulgated by the Securities Exchange Commission.
6. Distributions for Unforseeable Emergency
In the event the Rule 16b-3 Committee, in its sole discretion, determines
that a Participant has an unforseeable emergency, the Rule 16b-3 Committee
may direct that such portion of the amounts credited to a Participant's
Plan Accounts as it determines is reasonably needed to satisfy such
unforseeable emergency be paid to the Participant in one lump sum payment
as soon as practicable following the Rule 16b-3 Committee's determination
of the existence and extent of such unforseeable emergency. For purposes of
this Paragraph 6, a unforseeable emergency shall mean severe financial
hardship to a Participant that arises from a sudden and unexpected illness
or accident of the Participant or of a dependent of a Participant, loss of
the Participant's property due to casualty, or similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
control of such Participant. Further, no payment may be made pursuant to
this Paragraph 6 to the extent such severe financial hardship may be
relieved (i) through reimbursement or compensation by insurance or
otherwise, (ii) by liquidation of the Participant's assets, to the extent
the liquidation of such assets would not itself cause severe financial
hardship, or (iii) by cessation of deferrals under the Plan. For purposes
of this Paragraph 6, the purchase of a house or education expenses for
children, shall not be considered to be unforseeable emergencies. The
decision of the Rule 16b-3 Committee regarding the existence or
nonexistence of an unforseeable emergency of a Participant shall be final
and binding. The Rule 16b-3 Committee shall have the authority to require a
Participant to provide such proof as it deems necessary to establish the
existence and nature of the Participant's unforseeable emergency. The
foregoing notwithstanding, a Participant who is a member of the Rule 16b-3
Committee shall not participate in the deliberations or decision of the
Rule16b-3 Committee regarding a hardship distribution to such Participant.
7. Prohibition Against Assignment or Encumbrance
No right, title, interest or benefit hereunder shall ever be liable for or
charged with any of the torts or obligations of a Participant or a person
claiming under a Participant, or be subject to seizure by any creditor of a
Participant or any person claiming under a Participant. No Participant or
any person claiming under a Participant shall have the power to anticipate
or dispose of any right, title, interest or benefit hereunder in any manner
until same shall have been actually distributed free and clear of the terms
of the Plan.
8. Nature of the Plan
The Plan and any election agreements executed thereunder constitute an
unfunded, unsecured liability of the Company to make payments in accordance
with the provisions hereof, and neither a Participant nor any person
claiming under the Participant shall have any security or other interest in
any specific assets of the Company by virtue of this Plan. Neither the
establishment of the Plan, the crediting of amounts to Plan Accounts nor
the setting aside of any funds shall be deemed to create a trust. The
Company at its election may fund the payment of benefits under the Plan by
setting aside and investing, in an account on the Company's books, such
funds as the Company may from time to time determine. Legal and equitable
title to any funds so set aside shall remain in the Company, and no
Participant shall have any security or other interest in such funds. Any
funds so set aside shall remain subject to the claims of the creditors of
the Company, present and future.
9. Amendment and Termination of Plan
The Company shall have the right to alter or amend the Plan or any part
thereof from time to time, except the Company shall not make any alteration
or amendment that would impair the rights of a Participant with respect to
amounts theretofore credited to that Participant's Plan Accounts. The
Company may terminate the Plan at any time. If not sooner terminated under
the provisions of this paragraph, the Plan shall terminate as of the date
on which all amounts theretofore credited to Plan Accounts have been paid.
10. No Tax Guarantee
Neither the Plan nor any representation made in connection with it shall be
construed to be an assurance or guarantee of a deferral of income for
income tax purposes of any amount to be paid pursuant to the Plan.
11. Number and Gender
Wherever appropriate herein, words used in the singular shall be considered
to include the plural, and words used in the plural shall be considered to
include the singular. The masculine gender, where appearing in the Plan,
shall be deemed to include the feminine gender.
12. Laws Governing
The Plan and any documents executed in connection therewith shall be
construed in accordance with and governed by the laws of the State of
Texas.
OCEAN ENERGY, INC.
By: ______________________
Name: ______________________
Title: ______________________
VEHOU02:138559.1
October 1, 1999
NATURAL GAS PURCHASE AND SALE AGREEMENT
Duke Energy Trading and Marketing, L.L.C., a Delaware limited liability
company, ("DETM" or "Buyer") and Seagull Energy E&P Inc., a Delaware
corporation, SGO Petroleum Inc., an Oklahoma corporation, Global Natural
Resources Corporation of Nevada, a Nevada corporation, Ocean Energy, Inc., a
Louisiana corporation, and Ocean Energy Resources, Inc., a Delaware corporation
and any permitted successor(s) and assign(s) (collectively "Ocean" or "Seller"),
referred to collectively as the "Parties" and individually as "Party", enter
into this Natural Gas Purchase and Sale Agreement (this "Agreement") effective
as of the 1st day of October, 1999 (the "Effective Date").
ARTICLE I
Term and Scope
This Agreement shall be in effect from the Effective Date through the
later of September 30, 2000 or until terminated by either Party on thirty (30)
days prior written notice, subject however to the earlier termination pursuant
to other specific provisions of this Agreement.
ARTICLE II
Quantity Obligations and Notice Procedures
The Parties recognize that the natural gas market is volatile; and,
therefore, it is mutually desirable to arrange transactions verbally and to be
bound by such oral agreements confirmed later in writing. The Parties agree to
the following procedures for confirmations of and changes to the quantities and
points of equivalent value of Ocean's Gas to be delivered to the Delivery
Point(s) by Ocean. Any oral confirmation of or change to the quantities and
points of equivalent value of Ocean's Gas made by Ocean shall be binding until
superseded by an effective confirmation or change notice. Either Party's
telephones may be monitored by recording equipment to record such confirmations
and changes in quantities and points of equivalent value of Ocean's Gas. The
Parties hereby consent to such recordings and any such recordings shall serve as
the best evidence of any oral agreement.
Ocean shall sell and deliver and DETM shall, as the exclusive buyer,
purchase and receive Ocean's owned and controlled gas volumes ("Ocean's Gas")
from properties specified in Appendix "A". Each month during the term of this
Agreement, Ocean shall provide to DETM on or before 12:00 p.m. central clock
time five (5) Business Days prior to the first day of the next succeeding month
a confirmation notice, in the form of Exhibit "A" which shows the daily volumes
of Ocean's Gas to be sold and delivered by Ocean and to be purchased and
received by DETM at the Delivery Point(s) during the next succeeding month
("Ocean's Baseload Gas"). Any changes to the quantities of Ocean's Gas that will
be delivered by Ocean to the Delivery Point(s) will be made by Ocean at least
one (1) Business Day prior to the day on which the change is effective and will
be confirmed in writing in the form of change notice which is attached hereto as
Exhibit "B. "Business Day" shall mean any day on which the member banks of the
Federal Reserve System in New York City, New York are open for business.
Each party shall use reasonable means to identify as far in advance as
possible any scheduled maintenance of facilities producing, delivering or
receiving Ocean's Gas to the Delivery Point(s) hereunder and shall notify the
other Party as soon as reasonably practicable of such scheduled maintenance.
Should a Party not so notify the other Party of scheduled maintenance then such
scheduled maintenance will not be an event of Force Majeure hereunder.
ARTICLE III
Delivery Point
The delivery points for Ocean's Gas to be delivered by Ocean and
received by DETM hereunder shall be those points specified on Appendix "A"
("Delivery Point(s)").
ARTICLE IV
Purchase Price
Except as provided in Article X, the purchase price for all Ocean's Gas
delivered to the Delivery Point(s) during a month shall be the index price(s) as
specified in Appendix "A" ("Index Price") less any actual transportation and
fuel charges actually paid by DETM to move Ocean's Gas to the applicable
Delivery Point, plus or minus the applicable adjustment as specified in Appendix
"A". If a publication referenced in Appendix "A" ceases to exist or does not
post an index price representative of a Delivery Point(s), then the Parties
shall mutually agree to an alternative publication and posting which reflects
the market value of Ocean's Gas at such Delivery Point(s). If the Parties fail
to agree on an alternative publication and posting for a Delivery Point within
ten (10) Business Days of a notice by a Party to the other Party that an Index
Price fails to exist then the new publication and posting will be determined by
the one arbitrator procedure of Article XI.
ARTICLE V
Force Majeure
Except with respect to payment obligations, in the event either Party
is rendered unable, wholly or in part, by Force Majeure to carry out its
obligations hereunder, it is agreed that upon such Party's giving notice of such
Force Majeure to the other Party as soon as reasonably possible (to be confirmed
in writing via facsimile or email with particulars of the event or occurrence as
soon as reasonably possible), the obligations of the Parties, to the extent they
are affected by such event, shall be suspended from the inception and during the
continuance of the Force Majeure for a period of thirty (30) consecutive days
after which time the Party not giving the notice of Force Majeure may declare a
breach of this Agreement and terminate this Agreement with respect to Ocean's
Gas which was the subject of the notice of Force Majeure upon thirty (30) days
written notice to the Party which has given notice of Force Majeure.
"Force Majeure" means an event, not anticipated as of the Effective
Date which is not within the reasonable control of a Party, or in the case of
third party obligations or facilities, the third party, claiming Force Majeure,
and which by the exercise of due diligence such Party, or third party, is unable
to overcome. Force Majeure shall not include: (i) the loss of Buyer's markets;
(ii) Buyer's inability economically to use or resell Ocean's Gas purchased
hereunder or (iii) Seller's ability to sell Ocean's Gas to a market at a more
advantageous price. "Force Majeure" shall include but not be limited to the
following: (i) physical events such as acts of God, landslides, lightning,
earthquakes, fires, storms or storm warnings which result in evacuation of the
affected area, floods, washouts, explosions, breakage or accident or necessity
of repairs to machinery or equipment or lines of pipe (other than maintenance),
weather related events such as hurricanes or freezing or failure of wells,
equipment or lines of pipe; (ii) acts of others such as strikes, riots,
sabotage, insurrections or wars; (iii) governmental actions such as necessity
for compliance with any court order, law, statute, ordinance, or regulation
promulgated by a governmental authority having jurisdiction; and (iv) any other
causes, whether of the kind herein enumerated or otherwise not reasonably within
the control of the affected Party to prevent or overcome. Seller and Buyer shall
make reasonable efforts to avoid Force Majeure and to resolve the event or
occurrence once it has occurred in order to resume performance with reasonable
dispatch.
Neither Party shall be entitled to the benefit of the provisions of
Force Majeure under either or both of the following circumstances: (i) to the
extent the failure to perform was caused by the sole or contributory negligence
of the Party claiming excuse; or (ii) to the extent the failure to perform was
caused by the Party claiming excuse having failed to remedy the condition and to
resume the performance of such covenants or obligations with reasonable
dispatch.
Force Majeure shall not excuse the payment of financial obligations
hereunder.
ARTICLE VI
Title, Risk of Loss, Indemnity and Imbalances
Seller warrants that title to Ocean's Gas is free from all liens and
adverse claims and warrants its right to sell the same. As between the Parties,
Seller shall be deemed to be in exclusive control and possession of Ocean's Gas
delivered hereunder and responsible for any damage or injury caused thereby or
loss thereto prior to the time the same shall have been delivered to Buyer at
the Delivery Point(s). After delivery of Ocean's Gas to Buyer at the Delivery
Point(s), Buyer shall be deemed to be in exclusive control and possession
thereof and responsible for any injury or damage caused thereby or loss thereto.
Each Party assumes all liability for and shall indemnify, defend and hold
harmless the other Party from any claims, including death or injury of persons
or damage to property arising from any act or incident occurring when title to
gas is vested in it. It is the intent of the Parties that this indemnity be
without regard to the causes thereof, including without limitation the
negligence of any indemnified Party, whether such negligence be sole, joint or
concurrent, or active or passive; provided, neither Party shall be liable in
respect of any claim to the extent same resulted from the gross negligence,
willful misconduct or bad faith of the indemnified Party. Title to Ocean's Gas
delivered hereunder shall pass from Seller to Buyer at the Delivery Point(s).
Notwithstanding the other provisions of this Article VI, as between
Seller and Buyer, Seller will be liable for all claims to the extent that such
arise from failure of Ocean's Gas delivered by Seller to the Delivery Point(s)
to meet the quality requirements of Article XIII.
The Parties shall use reasonable efforts to avoid imposition by any
transporter of Ocean's Gas of an imbalance charge, expense or penalty relating
to Ocean's Gas. Imbalance charges, expenses and penalties (including, but not
limited to, any cash-out costs) imposed by any transporter of Ocean's Gas prior
to, at or after the Delivery Point(s) will be the responsibility of and will be
paid by DETM unless such imbalance charge, expense or penalty was caused by
Ocean's failure to properly deliver, confirm or change its quantity of Ocean's
Gas as provided for hereunder and such failure causes a Party to incur and
actually pay an imbalance charge, expense or penalty to a transporter or other
third party.
ARTICLE VII
Taxes
Seller shall be responsible for and will pay all taxes, transportation
charges and expenses and production related costs attributable to Ocean's Gas
prior to its delivery to the Delivery Point(s). Seller shall reimburse Buyer for
any such taxes, transportation charges and expenses and production related costs
actually paid on behalf of Seller by Buyer. Buyer shall be responsible for and
will pay all taxes and transportation charges and expenses related to Ocean's
Gas at or after the Delivery Point(s) including, but not limited to, all sales
or use, gross receipts, consumption and franchise taxes. Buyer shall provide
Seller with any applicable certificate or other documentation of sales or use
tax exemption; and Buyer shall be liable for any sales or use tax and associated
interest or penalties assessed against Seller due to Buyer's failure to timely
provide or properly complete any such certificate or documentation.
ARTICLE VIII
Financial Responsibility
If a Party has reasonable grounds to suspect that the other Party's
ability to meet its payment obligations hereunder are materially impaired then a
Party may require upon notice to the other Party that such other Party make
assurance of the other Party's ability to pay which may include (i) the required
posting of a letter of credit acceptable to the Party requiring further
assurances and the issuing bank; (ii) cash prepayments; (iii) corporate
guarantee or (iv) other acceptable security.
In the event a Party shall not make adequate assurances as provided
above within five (5) Business Days of receipt of the notice requiring same then
in addition to any and all other remedies available hereunder or pursuant to
law, the other Party shall have the right upon prior notice to such Party to
withhold or suspend deliveries or receipts of Ocean's Gas hereunder or terminate
the Agreement upon thirty (30) days notice to such Party.
ARTICLE IX
Billing and Payment
Billing and payment will be based on actual quantities of Ocean's Gas
delivered to the Delivery Point(s). Properly confirmed and changed quantities of
Ocean's Baseload Gas shall be used if such actual quantities are unavailable to
make payment by the 25th of the month following the month of deliveries of
Ocean's Gas. Within ten (10) days of the request of either Party, the other
Party shall provide, to the extent it has a legal right of access thereto and/or
such statement which is then available, a copy of the applicable transporter's
allocation or imbalance statement requested by the Party.
Buyer shall pay Seller the full amount due in U.S. Dollars by wire
transfer, Automated Clearinghouse (ACH), electronic funds transfer or other
similarly expeditious means, as provided below, on or before the twenty-fifth
(25th) day of the month immediately following the delivery month or the first
Business Day thereafter. On the day of such payment Buyer will forward to Seller
a statement showing the quantity of Ocean's Gas delivered to the Delivery
Point(s), the price paid for Ocean's Gas at each Delivery Point and the total
amount paid to Seller. In the event Buyer fails to pay the full amount payable
by it when due, interest on the unpaid portion shall accrue from the date due
until the date of payment at a rate equal to the lower of (i) the then effective
prime rate of interest for large U.S. Money Center commercial banks, published
under "Money Rates" by The Wall Street Journal, plus two percent (2%) per annum
from the date due until the date of payment, or (ii) the maximum applicable
lawful interest rate.
Each of the Parties, at its own expense, shall have the right, upon
reasonable notice and at reasonable times during regular business hours, to
examine the books and records of the other Party to the extent reasonably
necessary to verify the accuracy of any statement, payment, demand, charge, or
computation made under this Agreement. Any such audit and any claim based upon
errors in any statement must be made within two (2) years of the date of such
statement. Neither Party shall have the right to perform more than two (2) such
audits per calendar year. Such right to audit shall be available for the term of
this Agreement and for two (2) years after its termination.
In the event an error is discovered in the amount in any statement
rendered hereunder such error shall be rectified by payment within ten (10) days
after notice of the error from the discovering Party to the other Party. In the
event a dispute arises as to the amount payable in any statement rendered
hereunder, the disputing Party shall provide written notice to the other Party
indicating the disputed amount and the reason for such dispute. In the event a
difference for volumes of Ocean's Gas delivered cannot be reconciled, payment
shall be based upon the delivery volumes specified by the delivering
transporter(s) to the Delivery Point(s). For a period of ninety (90) days
following the date of a statement hereunder no interest shall accrue or be
payable by a Party on amounts paid by Buyer which are in dispute hereunder
because of the reconciliation in differences of volumes of Ocean's Gas. A
payment hereunder shall not be deemed to be a waiver of the right by Buyer to
recoup any overpayment, nor shall acceptance of any payment be deemed to be a
waiver by Seller of any underpayment except as otherwise provided herein.
Payment: Duke Energy Trading and Marketing, L.L.C.
By Wire Transfer: Chase Manhattan Bank New York
For the Acct of: Duke Energy Trading and Marketing, L.L.C.
Account No. 910-2-771269
ABA No. 021000021
Payment: Duke Energy Trading and Marketing, L.L.C.
By Check: P.O. Box 201204
Houston, TX 77216-1204
Payment: Ocean Energy Inc.
By Wire Transfer: Chase Bank of Texas
Houston, Texas
Account No. 00101766047
ABA No. 113000609
ARTICLE X
Damages
For a breach of this Agreement for which an express remedy or measure
of damages is herein provided, such express remedy or measure of damages shall
be the sole and exclusive remedy hereunder, the obligor's liability shall be
limited as set forth herein and all other remedies or damages at law or in
equity for any such breach are waived. If no remedy or measure of damages is
expressly herein provided for a breach of this Agreement, the obligor's
liability shall be limited to actual damages only, such actual damages shall be
the sole and exclusive remedy hereunder for any such breach and all other
remedies or damages at law or in equity thereof are waived.
For a breach of this Agreement involving the failure of Buyer to
purchase and receive Ocean's Baseload Gas from Seller at the Delivery Point(s)
("Buyer's failure") the following liquidated damages will be the sole remedy
Seller will have for such breach. For Buyer's failure, Seller shall be entitled
to receive liquidated damages equal to an amount calculated by multiplying the
quantity of Ocean's Baseload Gas (expressed in MMBtu) that was required to be
purchased and received by Buyer from Seller at the Delivery Point(s) pursuant to
the terms and conditions of this Agreement which was not actually purchased and
received by Buyer from Seller at the Delivery Point(s) ("DETM's Default Gas")
times an amount per MMBtu equal to the positive difference between the price to
be paid by Buyer to Seller hereunder for DETM's Default Gas and the price
received by Seller for selling and delivering DETM's Default Gas to other
parties at the Delivery Point(s).
For breach by Seller in failing to deliver to the Delivery Point(s)
Ocean's Baseload Gas, the following liquidated damages will be the sole remedy
for such breach.
Instead of the purchase price for Ocean's Gas provided for in Article
IV above, the purchase price for all volumes of Ocean's Gas delivered on a day
to Delivery Point(s) which share a common Index Price in excess of one hundred
five percent (105%) of Ocean's Baseload Gas at such Delivery Point(s) shall be
the "Daily Midpoint" price published in Gas Daily for such day for the
applicable Delivery Point(s) where greater than one hundred five percent (105%)
of Ocean's Baseload Gas is delivered by Ocean ("Daily Midpoint Price") less any
actual transportation and fuel charges paid by DETM to move Ocean's Gas to the
applicable Gas Daily Point ("Adjusted Daily Midpoint Price").. If the downstream
transporter(s) does not provide or is unable to make available accurate daily
data for Ocean's Gas then the purchase price for such excess Ocean's Gas
delivered to a Delivery Point shall be the simple arithmetic average of the
Daily Midpoint Price for all of the days in the month (the "Averaged Daily
Midpoint Price") less any actual transportation and fuel charges paid by DETM to
move Ocean's Gas to the applicable Gas Daily Point.
In the event that Ocean fails to deliver to Delivery Point(s) which
share a common Index Price a quantity of Ocean's Gas at such Delivery Point(s)
that is at least ninety-five percent (95%) of Ocean's Baseload Gas, the
following adjustments will be made in a monthly statement and in the purchase
price to be paid by Buyer as appropriate for Ocean's Gas delivered to a Delivery
Point(s) which was less ninety-five percent (95%) of Ocean's Baseload Gas at
such Delivery Point(s) ("Undelivered Baseload"):
(i) If the Daily Midpoint Price on the day of Undelivered
Baseload is less than the Index Price, the purchase price will be
increased by an amount equal to the difference between the Index Price
and the Daily Midpoint Price (or the Averaged Daily Midpoint Price, as
appropriate, multiplied by the difference between ninety-five percent
(95%) of Ocean's Baseload Gas and the actual delivered quantity of
Ocean's Gas for the applicable day(s).
(ii) If the Daily Midpoint Price on the day of the
Underdelivered Baseload is greater than the Index Price, the purchase
price will be decreased by an amount equal to the difference between
the Daily Midpoint Price (or the Averaged Daily Midpoint price, as
appropriate) and the Index price multiplied by the difference between
ninety-five percent (95%) of Ocean's Baseload Gas and the actual
delivered quantity of Ocean's Gas for the applicable day(s).
Both Parties shall use commercially reasonable efforts to notify the
other Party of any deficiencies in the receipt or delivery of Ocean's Gas. The
Parties recognize that each Party may have access to certain information
necessary to confirm deliveries and receipts of Ocean's Gas hereunder
("confirming information") and agree to share such confirming information on a
commercially reasonable basis. Therefore, a Party shall not be considered to be
in default of its obligation to deliver or receive Ocean's Gas hereunder until
it has received the confirming information. A Party shall have until the end of
the Business Day following the day it received the confirming information to
eliminate the deficiencies in deliveries or receipts of Ocean's Gas. If Ocean's
Gas is delivered and received at a Delivery Point(s) where there is an operator
balancing agreement or similar agreement in place, then no default hereunder
shall be deemed to have occurred so long as DETM pays Ocean for all Ocean's Gas
delivered pursuant to this Agreement at such Delivery Point(s). For purposes of
this paragraph, a DETM default shall not be deemed to have occurred unless, and
then only to the extent that, Ocean's Gas is curtailed and not actually
delivered to the Delivery Point(s).
UNLESS EXPRESSLY OTHERWISE HEREIN PROVIDED, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY,
INDIRECT OR PUNITIVE DAMAGES OF ANY CHARACTER, INCLUDING BUT NOT LIMITED TO LOSS
OF USE, LOST PROFITS (PAST AND FUTURE), OR OTHER BUSINESS INTERRUPTION DAMAGES,
IRRESPECTIVE OF WHETHER SUCH DAMAGES (OR CLAIMS OR ACTIONS THEREFOR) ARE BASED
UPPON CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE
Notwithstanding any other provision in this Agreement, in no event
shall a Party be liable to the other Party for any penalties or charges assessed
by a transporter to a Party for the unauthorized delivery of Ocean's Gas.
ARTICLE XI
Arbitration
In the event the Parties are unable to resolve any dispute regarding
this Agreement and such dispute involves less than U.S. $5,000,000, both Parties
agree to resolve such dispute through the arbitration provisions of this Article
XI.
Within twenty (20) Business Days of either Party's written notice to
the other Party to arbitrate a dispute which arises under this Agreement
involving less than U.S. $500,000, the Parties shall agree on one arbitrator to
decide any such dispute. As to disputes involving between U.S. $500,000 and U.S.
$5,000,000, each Party shall choose one arbitrator within twenty (20) Business
Days of either Party's written notice to the other Party to arbitrate, and
within ten (10) Business Days after both such arbitrators are chosen, such
arbitrators shall choose a third arbitrator thus completing the whole
arbitration panel. In the event of a dispute as to whether the applicable amount
in dispute is less than U.S. $500,000, or if the Parties are unable to agree to
a single arbitrator, the arbitration panel shall consist of three arbitrators.
Any arbitrator chosen shall be a disinterested party with knowledge of the
industry.
The arbitrator(s), once chosen, shall consider any documents, tapes or
any other evidence which the arbitrator(s) deem necessary and shall then accept
sealed written resolutions of the subject dispute from each Party on a
confidential basis to be submitted within twenty (20) Business Days of
establishment of the arbitration panel. The written submissions shall be in a
form and subject to any limitations as may be prescribed by the arbitrator(s).
The arbitrator(s) shall then choose one of the proposed solutions, (without
modification) as the fairest solution to the dispute within ten (10) Business
Days of receipt of the written submissions of both Parties. In the event of a
three member arbitration panel, a majority vote shall govern. The decision of
the arbitrators shall be final and nonappealable.
Any expenses of the arbitrator(s) shall be shared and paid equally
between the Parties. Each Party shall bear and pay its own expenses incurred by
each in connection with the arbitration, unless otherwise included in a solution
chosen by the arbitration panel. In the event either Party must file a court
action to enforce an arbitration award under this Article XI, the prevailing
Party shall be entitled to recover its court costs and reasonable attorney fees.
This Article XI shall not apply to any disputes involving U.S.
$5,000,000 or more, and each Party retains its respective rights to pursue all
legal and equitable remedies regarding any such disputes. The Parties, however,
may consent to resolve such disputes by the provisions of this Article XI.
ARTICLE XII
Quality
Seller represents that all Ocean's Gas shall meet the
effective tariff or published quality specifications of the receiving
transporter at the applicable Delivery Point(s) or in the case of Ocean's Gas
Processed in a Processing plant downstream of the Delivery Point(s) the quality
specifications of the receiving transporter at the tailgate of such Processing
plant. Buyer shall have the right not to purchase and receive Ocean's Gas that
does not meet such quality specifications. Unless otherwise agreed nothing
herein, including an event of Force Majeure, shall require or permit either
Party to schedule Ocean's Gas at a point other than a Delivery Point or in
excess of Ocean's nominated quantity of Ocean's Gas on such day. If either Party
receives an operational flow order from a transporter requiring action (the
"OFO"), such Party shall immediately notify the other Party of the OFO and
provide a copy of same by facsimile. Each Party shall take all OFO actions
required by it and shall indemnify, defend and hold harmless the other Party
from any claims related to the OFO under which the indemnifying Party failed to
take the action required thereby.
ARTICLE XIII
Pressure and Measurement
DETM will receive Ocean's Gas at the Delivery Point(s) at the pressure
prevailing from time to time in the facilities delivering Ocean's Gas thereto.
Measurement of Ocean's Gas quantities hereunder shall be in accordance with the
effective tariff or published procedures of the receiving transporter(s) at the
Delivery Point(s).
ARTICLE XIV
Processing
Seller reserves the ongoing right, at its sole cost and expense, to
Process at a Processing plant all Ocean's Gas hereunder upstream and/or
downstream of the Delivery Point(s), provided that Processing does not render
such gas incapable of meeting the quality specification set forth in Article
XII. Seller shall reimburse Buyer for all transportation costs actually paid by
Buyer to transport Ocean's PTR and PVR from the Delivery Point(s) to a
Processing plant for Processing.
"Processing" or "Process" shall mean to separate and/or extract, by
whatever method, from gas liquid and liquefiable hydrocarbons and
non-hydrocarbons, including any commercially valuable constituents other than
methane that are entrained in the gas (together with such methane as must be
removed to effect the recovery of the components being extracted).
Buyer shall be responsible for and obligated to obtain and maintain
during the term of this Agreement transportation agreements to transport Ocean's
PTR and PVR from the Delivery Point(s) to Processing plant(s) as shown on
Appendix "A". Seller shall reimburse Buyer for all costs incurred for
transportation of PTR/PVR.
"PTR" shall mean the Btu equivalent of products extracted from Ocean's
Gas by a Processing plant, plus the gas used as plant fuel in the Processing
plant to Process such gas and to extract those products, plant flare and other
plant losses in the Processing plant. When expressed as a volume (in Mcf rather
than in Btu) PTR shall mean "PVR".
ARTICLE XV
EQUAL EMPLOYMENT OPPORTUNITY
The Equal Employment Opportunity Clause required under Executive Order
No. 11246, the affirmative action commitment for veterans set forth in 41 CFR
60-250.4, the affirmative action clause for handicapped workers set forth in CFR
650-741.4, and the related regulations of the Secretary of Labor, 41 CFR Chapter
60, are incorporated by reference in this Agreement, with which compliance
therewith is certified by each Party to the other Party.
ARTICLE XVI
EVENTS OF DEFAULT
Event of Default. Notwithstanding anything herein to the contrary, the
occurrence of any of the following events will constitute an event of default
under this Agreement (an "Event of Default") with respect to a Party:
(a) a failure to pay when due under this Agreement and such failure is not
remedied on or before the fifth Business Day after receipt of notice of such
failure;
(b) a failure to comply with or perform any obligation, other than failure to
deliver or receive Ocean's Gas for which a liquidated remedy is provided herein,
and such failure is not remedied within five Business Days after receipt of
notice of such failure;
(c) a general assignment or arrangement for the benefit of creditors;
(d) a filing of a petition or otherwise commencing a proceeding under any
bankruptcy, insolvency, reorganization or similar law, or having any such
petition filed or commenced against it;
(e) becoming insolvent, however evidenced, or unable to pay its debts as they
fall due;
(f) having a liquidator, administrator, receiver, trustee, conservator or
similar official appointed with respect to it or any substantial portion of its
property or assets;
(g) challenging its own legal authority or capacity to enter into natural gas
purchase and sale agreements with other third parties;
(h) is a Defaulting Party under any ISDA Agreement executed between the Parties;
(i) is in breach of a representation and warranty of this Agreement and such
breach is not remedied on or before the fifth Business Day after receipt of a
notice of such breach.
Upon the occurrence of an Event of Default, the Party not affected by
the event, (hereinafter referred to as the "Non-Defaulting Party") shall be
entitled to exercise the remedies as hereinafter set forth in this Article XVI.
After an occurrence of an Event of Default, the Non-Defaulting Party
shall have the right to terminate this Agreement upon five (5) Business Days
prior written notice to the other Party ("Early Termination Date").
ARTICLE XVII
Notices
All notices, invoices, payments, statements and communications made
pursuant to this Agreement shall be in writing and made as follows:
BUYER: SELLER:
- ----- ------
Duke Energy Trading and Ocean Energy, Inc.
Marketing, L.L.C. 1001 Fannin, Suite 1600
10777 Westheimer, Suite 650 Houston, Texas 77002
Houston, Texas 77042
Attention: Contract Administration Attention: Marketing Contract
Administration
Telephone: 713-260-1800 Telephone: 713-265-6368
Facsimile: 713-260-1825 Facsimile: 713-265-8823
All notices required pursuant to this Agreement may be sent by
facsimile or mutually acceptable electronic means, a nationally recognized
overnight courier service, first class mail, certified mail-return receipt
requested, or hand delivered.
Notice shall be given when received on a Business Day by the addressee.
In the absence of proof of the actual receipt date, the following presumptions
will apply. Notices sent by facsimile shall be deemed to have been received upon
the sending Party's receipt of its facsimile machine's confirmation of
successful transmission, if the day on which such facsimile is received is not a
business day or is after five p.m. (at the receiving Party's place of business)
on a business day, then such facsimile shall be deemed to have been received on
the next following business day. Notice by overnight mail or courier shall be
deemed to have been received on the next business day after it was sent or such
earlier time as is confirmed by the receiving Party. First class mail is deemed
delivered three (3) days after mailing.
ARTICLE XVIII
Assignment and Confidentiality
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Parties hereto, and the covenants, conditions,
rights and obligations of this Agreement shall run for the full term of this
Agreement. No assignment of this Agreement, in whole or in part, will be made by
a Party except that a Party may make an assignment of this Agreement, in whole
or in part, to a wholly owned affiliate or to any other party with the consent
of the non-assigning Party which consent will not be unreasonably withheld.
Notwithstanding any of the other provisions of this Article XVIII to the
contrary, if Seller sells any property specified on Appendix "A" then effective
at the end of the day on the last day of the month following the closing date of
the sale of any such property by Seller this Agreement will terminate as to such
property except for the provisions hereof which survive termination of this
Agreement in accordance with such provisions.
The terms and conditions of this Agreement including, but not limited
to, the price, the quantity, the term, the identified transporter(s) and all
other material terms hereof shall be kept confidential by the Parties hereto,
except to the extent that any information must be disclosed to a third party for
the purpose of transporting Ocean's Gas subject to this Agreement, to respond to
an audit request or to comply with any order, rule, regulation or directive of
any court, legislative body or governmental entity having jurisdiction or to
obtain any financing. As a condition of conducting an audit pursuant to the
terms of this Agreement, the auditing Party acknowledges that the documents and
records provided may contain proprietary or competitively sensitive information,
which the auditing Party shall treat as confidential and not use in competition
with the audited Party.
ARTICLE XIX
Forward Contract
The Parties agree this Agreement is a forward contract within the
meaning of and for the purposes of the United States Bankruptcy Code, as
amended. Further, each Party represents to the other Party that it is a forward
contract merchant as such term is defined in and for the purposes of the
Bankruptcy Code, as amended. Ocean recognizes DETM is not an end user of Ocean's
Gas.
ARTICLE XX
Set Off
Both Parties hereto acknowledge and agree that upon the designation or
deemed designation of an Early Termination Date under this Agreement the
Non-Defaulting Party may set off (i) all amounts, that are due to the Defaulting
Party hereunder, plus any cash or other form of collateral then available to the
Non-Defaulting Party pursuant to any collateral agreement with the other Party
plus any or all other amounts due to the Defaulting Party under any other
forward contract with the other Party (including, but not limited to, amounts
owed, but not yet paid, for commodities previously delivered in accordance with
the forward contracts) and, to the extent it is permitted by law, any amounts
due to the Defaulting Party pursuant to the ISDA Agreement (and the Exhibits and
Annexes thereto) entered into between the Parties ("ISDA") plus any cash or
other form of collateral then available to the Non-Defaulting Party pursuant
thereto, against (ii) all such amounts that are due to the Non-Defaulting Party
by the other Party, plus any cash or other form of collateral then available to
the other Party pursuant to any collateral agreement agreed to by the Parties
plus any or all other amounts due to the Non-Defaulting Party under any other
forward contracts between the Parties (including, but not limited to, amounts
owed, but not yet paid, for commodities previously delivered and reasonable
attorney's fees incurred by the Non-Defaulting Party) and, to the extent it is
permitted by applicable law, any amounts due to the Non-Defaulting Party
pursuant to the ISDA plus any cash or other form of collateral then available to
the Defaulting Party pursuant thereto, so that all such amounts shall be netted
to a single liquidated amount (the "Termination Payment") payable by one Party
to the other Party. The Termination Payment shall be made by the owing Party
within five (5) Business Days after notice requesting such is given. The
obligations of the Parties under this Agreement, any other forward contract
executed by the Parties and the ISDA in respect of such amounts shall be deemed
satisfied and discharged to the extent of any such set off. A Party performing a
set off under this Article XX will give the other Party notice of such set off
as soon as practicable thereafter provided that the failure to give such timely
notice shall not affect the validity of the set off. Notwithstanding any
contrary provision of this Agreement, where an Event of Default specified in
sub-sections (c), (d), (e) or (f) of Article XVI is governed by law which does
not permit an Early Termination Date to be declared on or after such an Event of
Default then termination of this Agreement shall be deemed to have taken place
at a time immediately preceding the occurrence of such Event of Default, and
upon the occurrence of any such automatic termination of this Agreement, the
Party causing the Event of Default shall indemnify the Non-Defaulting Party on
demand against all expense, loss, damage or liability that the Non-Defaulting
Party actually incurs with respect to this Agreement as a consequence thereof.
ARTICLE XXI
Miscellaneous
There are no third party beneficiaries to this Agreement and none are
intended by the Parties.
If any provision of this Agreement is determined to be invalid, void or
unenforceable by any court having jurisdiction, such determination shall not
invalidate, void or make unenforceable any other provision, agreement or
covenant of this Agreement.
No waiver of any breach of this Agreement shall be held to be a waiver
of any other or subsequent breach.
All rights, duties and obligations arising under this Agreement shall
be exercised and discharged in good faith and in a commercially reasonable
manner.
Each Appendix and Exhibit referenced herein and attached hereto is made
a part of this Agreement for all purposes. This Agreement sets forth all
understandings between the Parties respecting the subject matter hereof, and any
prior contracts, understandings and representations, whether oral or written,
relating to such matters are merged into and superseded by this Agreement. This
Agreement may be amended only by a writing executed by both Parties.
Each Party to this Agreement represents and warrants that it has full
and complete authority to enter into and perform this Agreement, including
having obtained any regulatory authority necessary to transact business under
this Agreement. Each person who executes this Agreement on behalf of either
Party represents and warrants that he/she has full and complete authority to do
so and that such Party will be bound thereby.
Compliance with the confirmation and change in quantities of Ocean's
Gas procedures of this Agreement satisfies any "writing" requirements imposed
under the Uniform Commercial Code or any other applicable contract law.
The interpretation and performance of this Agreement shall be governed
by, construed, interpreted and enforced in accordance with the substantive laws
of the State of Texas, without reference to its choice of law doctrine. Each
Party agrees to submit to the nonexclusive jurisdiction of the courts of the
State of Texas.
IN WITNESS WHEREOF, the Parties have executed this Agreement in
duplicate originals to be effective as of the day and year first written above.
DUKE ENERGY TRADING AND MARKETING, L.L.C.
By: ____________________________________________
Name: ____________________________________________
Title: ____________________________________________
SEAGULL ENERGY E&P INC.
By: ____________________________________________
Name: William L. Transier
Title: Executive Vice President & Chief Financial Officer
SGO PETROLEUM INC.
By: ____________________________________________
Name: William L. Transier
Title: Executive Vice President & Chief Financial Officer
GLOBAL NATURAL RESOURCES
CORPORATION OF NEVADA
By: ____________________________________________
Name: William L. Transier
Title: Executive Vice President & Chief Financial Officer
OCEAN ENERGY RESOURCES, INC.
By: ____________________________________________
Name: William L. Transier
Title: Executive Vice President & Chief Financial Officer
OCEAN ENERGY, INC.
By: ____________________________________________
Name: William L. Transier
Title: Executive Vice President & Chief Financial Officer
Ocean Energy, Inc.
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.
On March 30, 1999, Ocean Energy, Inc. merged with and into Seagull Energy
Corporation (the "Seagull Merger"). 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 those of Ocean Energy, Inc. on a stand-alone basis
for the first quarter of 1999 and of the combined company for the remainder of
1999, compared to Ocean's results for 1998 and 1997 on a stand-alone basis ("Old
Ocean").
The Company's accompanying Consolidated Financial Statements contain
detailed information that should be referred to in conjunction with the
following discussion.
<TABLE>
<CAPTION>
Results Of Operations
(Amounts in Thousands)
Year Ended
December 31,
--------------------------------------------------
1999 1998 1997
-------------- --------------- -------------
<S> <C> <C> <C>
Oil and gas operations:
Revenues:
Natural gas................................. $ 323,345 $ 221,973 $ 214,100
Oil and NGLs................................ 412,173 300,177 335,094
-------------- --------------- -------------
735,518 522,150 549,194
-------------- --------------- -------------
Operating expenses............................ 216,981 185,076 139,349
Depreciation, depletion and amortization...... 309,699 288,164 243,640
Impairment of oil and gas properties.......... 46,403 539,915 -
-------------- --------------- -------------
Operating profit (loss)...................... 162,435 (491,005) 166,205
Corporate........................................ (29,689) (24,950) (20,046)
-------------- --------------- -------------
Total operating profit (loss)................. $ 132,746 $ (515,955) $ 146,159
============== =============== =============
</TABLE>
With the Seagull Merger, the Company gained new operations in Egypt,
Russia and Indonesia and expanded its operations in the U.S. and Cote d'Ivoire.
These expanded operations combined with the recovery of world crude oil and
natural gas prices experienced during 1999 resulted in a $213 million increase
in revenues. During this period, the Company initiated various cost cutting
measures that reduced operating expenses per unit of production by $0.26 per BOE
to $4.12 per BOE. As discussed below, the Company recorded impairments of oil
and gas properties in the amount of $46 million during 1999. These impairments
related primarily to the sale of the Canadian subsidiary and to the
discontinuance of certain international operations. During 1998 the Company
recognized total noncash impairments in the amount of $540 million pursuant to
the ceiling limitation required by the full cost method of accounting for oil
and gas properties. The Company had no such impairments in 1999 and 1997. These
factors combined to improve total operating profit by $649 million for the year
ended December 31, 1999 as compared to 1998.
For the year ended December 31, 1999, the Company had net income excluding
special items of $50 million or $0.33 per basic share, compared to a loss
excluding special items of $40 million or $0.39 per basic share in 1998.
Including the effect of the various special items, net loss available to common
shareholders in 1999 was $47 million or $0.31 per basic share, compared to a
loss of $407 million or $4.04 per basic share in 1998.
The following is a reconciliation of income (loss) (excluding special
items) to net loss to common shareholders:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998
-------------------- --------------------
-------------------- --------------------
<S> <C> <C>
Income (Loss) (Excluding Special Items).......... $ 49,850 $ (39,700)
Effect of Special Items, Net of Income Tax:
Impairment of Oil and Gas Properties.......... (43,168) (334,747)
Merger Expenses............................... (31,498) (32,886)
Extraordinary Loss............................ (23,413) -
Income from Discontinued Operations........... 1,127 -
-------------------- --------------------
(96,952) (367,633)
-------------------- --------------------
Net Loss to Common Shareholders.................. $ (47,102) $ (407,333)
==================== ====================
</TABLE>
In addition, during 1999 the Company embarked on a program to reduce its
high debt levels and reduce all-in costs. To those ends, Ocean completed over
$700 million in asset sales, most notably the sales of the Arkoma assets for
$231 million and ENSTAR for $287 million, and reduced all-in costs from $13.27
per BOE for 1998 to $12.57 per BOE for 1999.
For the year ended December 31, 1998, the Company reported a net operating
loss of $516 million compared to net operating profit of $146 million for 1997.
Due
22
<PAGE>
to the significant deterioration of commodity prices which occurred during
1998 the Company experienced a 35% decline in realized crude oil prices and an
18% decline in natural gas prices before hedging activities. The impact of lower
commodity prices was partially offset by a 25% increase in production over 1997
volumes. The operating loss for 1998 also included the effects of noncash
impairments totaling $540 million.
Oil and Gas Operations
Revenues - Ocean operates in highly competitive markets where energy prices
fluctuate significantly. As oil and gas prices fluctuate, so too do the
Company's revenues, results of operations and cash flows. Oil prices declined
steadily through out 1997, 1998 and the first quarter of 1999, with oil prices
reaching multi-year lows in some markets. Natural gas prices, despite temporary
increases, also decreased over this time frame. Beginning in the second quarter
of 1999, oil and natural gas prices have increased dramatically.
Energy Prices
"GRAPHICS OMITTED"
NYMEX NYMEX
Oil Prices Gas Prices
Jan 97 25.18 4.25
Feb 97 22.17 2.87
Mar 97 20.97 1.88
Apr 97 19.73 1.90
May 97 20.87 2.10
Jun 97 19.22 2.33
Jul 97 19.66 2.22
Aug 97 19.95 2.16
Sep 97 19.78 2.51
Oct 97 21.28 3.22
Nov 97 20.22 3.51
Dec 97 18.32 2.68
Jan 98 16.73 2.27
Feb 98 16.08 2.04
Mar 98 15.04 2.23
Apr 98 15.46 2.33
May 98 14.93 2.29
Jun 98 13.67 2.07
Jul 98 14.09 2.35
Aug 98 13.38 1.95
Sep 98 14.97 1.75
Oct 98 14.42 2.13
Nov 98 13.04 2.13
Dec 98 11.31 2.14
Jan 99 12.49 1.81
Feb 99 12.02 1.75
Mar 99 14.68 1.69
Apr 99 17.30 1.85
May 99 17.77 2.33
Jun 99 17.92 2.20
Jul 99 20.10 2.27
Aug 99 21.28 2.57
Sep 99 23.79 2.96
Oct 99 22.67 2.61
Nov 99 24.77 3.04
Dec 99 26.09 2.17
Natural gas revenues increased $101 million, or 45%, to $323 million for
the year ended December 31, 1999, from $222 million for the year ended December
31, 1998. This increase is primarily due to production from properties acquired
in the Seagull Merger and to higher average gas prices realized during the
period. The average realized price for natural gas before hedging activities
increased 10% to $2.08 per Mcf for 1999 as compared to $1.89 for 1998. Daily
natural gas production for 1999 was 422.5 MMcf, an increase of 31% over 1998
volumes due primarily to the acquisition of producing properties in the Seagull
Merger, partially offset by the sale of the Canadian subsidiary.
In the low oil price environment of early 1999, the Company entered into
collars with floors of $12.00 and $15.00 per barrel and ceilings of $15.00,
$18.85 and $19.00 per barrel on a portion of the Company's oil production
through the remainder of 1999. With rapidly escalating oil prices, the Company's
derivative contracts decreased oil and gas revenues by $52 million for the year
ended 1999. For the years ended December 31, 1998 and 1997, oil and gas revenues
were increased (decreased) by $25 million and $(1) million, respectively, as a
result of derivative contracts. Weighted average oil prices including hedging
activities were $15.27, $13.21 and $18.54, respectively, for the years ended
December 31, 1999, 1998, and 1997. Weighted average natural gas prices including
hedging activities were $2.10, $1.89 and $2.28, respectively, for the years
ended December 31, 1999, 1998, and 1997.
Natural gas revenues increased $8 million, or 4%, to $222 million for 1998
from $214 million for 1997, the result of increased worldwide production more
than offsetting the decline in prices received for gas. Daily natural gas
production for 1998 was 321.4 MMcf, an increase of 25% over 1997 volumes due
primarily to increased production in the Gulf of Mexico, Cote d'Ivoire and
Canada and the impact of acquisitions, partially offset by property sales and
natural production declines in North America. The average realized price for
natural gas before hedging activities decreased 18% to $1.89 per Mcf for 1998 as
compared to $2.30 for 1997.
Oil revenues increased $112 million, or 37%, to $412 million for the year
ended December 31, 1999, from $300 million for 1998. This increase is the result
of production from properties acquired in the Seagull Merger and an increase in
the average realized oil price during 1999. The average realized price for oil
before hedging activities increased 43% to $17.32 for 1999 compared to $12.13
for 1998. Daily oil production increased 19% to 73,933 Bbl in 1999 as compared
to 62,269 Bbl for 1998.
Oil revenues decreased $35 million, or 10%, to $300 million for 1998 from
$335 million for 1997, as a result of the decline in the average realized price
received partially offset by an increase in worldwide oil production. Daily oil
production increased 26% to 62,269 MBbls for 1998 as compared to 1997 due
primarily to increased oil production in the Gulf of Mexico and
23
<PAGE>
Equatorial Guinea. The average sales price for oil before hedging
activities decreased 35% to $12.13 for 1998 compared to $18.54 for 1997.
<TABLE>
<CAPTION>
Operating Data (1)
Year Ended December 31,
-------------------------------------------------------
1999 1998 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Net Daily Natural Gas Production (MMcf):
Domestic ................................... 375.9 272.2 222.3
Canada (Sold in April 1999)................. 10.5 27.8 20.9
Cote d'Ivoire .............................. 30.3 21.4 13.6
Egypt....................................... 0.7 - -
Indonesia .................................. 5.1 - -
---------------- ----------------- -----------------
Total....................................... 422.5 321.4 256.8
================ ================= =================
Average Natural Gas Prices ($ per Mcf):
Domestic.................................... $ 2.11 $ 1.96 $ 2.41
Canada (Sold in April 1999)................. $ 1.54 $ 1.37 $ 1.40
Cote d'Ivoire .............................. $ 1.68 $ 1.64 $ 1.81
Egypt....................................... $ 3.66 $ - $ -
Indonesia .................................. $ 2.37 $ - $ -
Weighted Average............................ $ 2.08 $ 1.89 $ 2.30
Average Natural Gas Prices Including Hedging
Activities ($ per Mcf)...................... $ 2.10 $ 1.89 $ 2.28
Net Daily Oil and NGL Production (Bbl):
Domestic ................................... 37,076 40,165 33,312
Canada (Sold in April 1999)................. 351 1,234 1,203
Cote d'Ivoire .............................. 4,835 2,960 2,814
Equatorial Guinea........................... 20,062 17,910 12,200
Egypt ...................................... 8,217 - -
Russia...................................... 3,319 - -
Indonesia................................... 73 - -
---------------- ----------------- -----------------
Total....................................... 73,933 62,269 49,529
================ ================= =================
Average Oil and NGL Prices ($ per Bbl) :
Domestic ................................... $ 16.94 $ 12.46 $ 18.88
Canada (Sold in April 1999)................. $ 11.27 $ 11.78 $ 17.97
Cote d'Ivoire .............................. $ 18.24 $ 12.56 $ 18.35
Equatorial Guinea........................... $ 17.91 $ 11.35 $ 17.71
Egypt....................................... $ 19.32 $ - $ -
Russia...................................... $ 12.34 $ - $ -
Indonesia................................... $ 16.14 $ - $ -
Weighted Average............................ $ 17.32 $ 12.13 $ 18.54
Average Oil and NGL Prices Including
Hedging Activities ($ per Bbl).............. $ 15.27 $ 13.21 $ 18.54
</TABLE>
(1) 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 Seagull Merger on March 30, 1999.
Operating Expenses - Operating expenses per BOE decreased 6% to $4.12 per
BOE for the year ended December 31, 1999, compared to $4.38 per BOE in 1998.
Total operating expenses increased $32 million, or 17%, to $217 million for the
year ended December 31, 1999 from $185 million for 1998. This increase primarily
resulted from a 25% increase in production volumes which was the result of the
acquisition of additional producing properties in the Seagull Merger, as well as
from increased production from existing properties.
Total operating expenses increased $46 million, or 33%, to $185 million for
1998 from $139 million for 1997. This increase primarily results from a 25%
increase in production volumes and from the timing of workover and maintenance
activities and the impact of property acquisitions. Operating expenses increased
$0.24 per BOE, or 6%, to $4.38 per BOE for 1998, from $4.14 per BOE for 1997.
This unit increase is primarily the result of the timing of certain workover and
maintenance activities.
Depreciation, Depletion and Amortization Expense - Depreciation, depletion
and amortization (DD&A) expense per BOE related to oil and gas operations
decreased $0.94, or 14%, to $5.88 per BOE for the year ended December 31, 1999,
from $6.82 per BOE for 1998. This variance is primarily attributable to the
effect of the non-cash impairments of oil and gas properties recognized by the
Company in 1998. Total DD&A for oil and gas operations increased 8% to $310
million for the year ended December 31, 1999 compared to $288 million for 1998
primarily due to the increase in production.
DD&A expense related to oil and gas operations increased $44 million, or
18%, to $288 million for 1998, from $244 million for 1997. This variance is
primarily attributable to the Company's 25% increase in production and to
related current and future capital costs from the 1997 and 1998 Gulf of Mexico
and international drilling programs and acquisitions. Oil and gas DD&A decreased
$0.41 per BOE, or 6%, to $6.82 per BOE for 1998, from $7.23 per BOE for 1997
because of an increase in proved reserves resulting from such programs and
acquisitions.
Impairment of Oil and Gas Properties - During 1999, the Company recorded
impairments of oil and gas properties of $46 million. These impairments related
primarily to the sale of the Canadian subsidiary and to the discontinuance of
operations in Bangladesh and other international
24
<PAGE>
locations. During 1998, the Company recognized impairments of oil and gas
properties in the amount of $540 million pursuant to the ceiling limitation
required by the full cost method of accounting for oil and gas properties.
The 1998 impairments were the result of the precipitous decline in world
crude oil prices experienced during the second and fourth quarters of 1998.
The Company had no such ceiling limitations in 1999 or 1997.
Outlook - At year-end 1999, the Company was producing approximately 397
Mmcf per day of natural gas and 74 Mbbl per day of crude oil worldwide. The
Company has targeted a 10% increase in production for 2000 based on the low
point for 1999 and all-in costs of $12.00 per BOE. These estimates assume
closure of the Company's East Bay sale at the end of the first quarter 2000. No
other material acquisition or divestiture activities are expected at this time.
While oil prices have been at or near multi-year highs in recent months, there
can be no assurance that current price levels will continue. Oil and gas prices
have fluctuated significantly in recent years in response to numerous economic,
political and environmental factors, and the Company expects that commodity
prices will continue to fluctuate significantly in the future. Changes in
commodity prices could significantly affect the Company's expected operating
results. In addition to directly affecting revenues, price changes can affect
expected production because production estimates necessarily assume that oil and
gas can profitably be produced at the assumed pricing levels. In addition to the
above assumptions, the Company is assuming that demand, curtailment,
producibility and general market conditions for the Company's oil and gas for
2000 will be substantially similar to those of 1999.
Corporate
Corporate expenditures are comprised of general and administrative expenses
and DD&A expense for non-oil and gas assets.
General and Administrative Expenses - General and administrative expenses
increased $3 million or 16% to $22 million for the year ended December 31, 1999
compared to $19 million for 1998. This increase is due to the Seagull Merger
offset by a decline in general and administrative expense as cost savings
related to personnel reduction, office consolidations and reduced combined
expenses for professional fees and other expense items were realized.
General and administrative expenses increased $4 million, or 27%, to $19
million for 1998 from $15 million for 1997. This increase is primarily due to
costs of increased corporate staffing associated with both an increase in
drilling activities during 1998 and the Company's property acquisitions in 1997.
DD&A expense for non-oil and gas assets was approximately $8 million, $6
million and $5 million for the years 1999, 1998 and 1997, respectively.
Other
Interest Expense - Interest expense increased $43 million, or 68%, to $106
million for the year ended December 31, 1999 from $63 million in 1998. This
increase is primarily the result of the higher capital spending program in place
throughout 1998 and an increase in debt levels in 1999 resulting from the
assumption of debt in the Seagull Merger. However, the repayment of existing
long-term debt and the repurchase of outstanding public debt during the fourth
quarter of 1999 will serve to reduce interest expense for the year 2000 from the
1999 level.
Interest expense increased $14 million, or 29%, to $63 million for 1998,
from $49 million for 1997. This increase is primarily the result of an increase
in debt levels during 1998 resulting from the capital spending program for 1998
and lower than expected cash flows due to the deterioration in product prices,
offset by an increase in capitalized interest on significant projects in
process.
Merger Expense - Merger expenses of $50 million associated with the Merger
between Ocean and Seagull have been recorded for the year ended December 31,
1999. These costs consisted primarily of Old Ocean's severance costs ($30
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). 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 $0.1 million was recognized
for the year ended December 31, 1999, compared to a benefit of $210 million for
the year ended December 31, 1998. The decrease in income tax benefit is
primarily the result of three factors: (i) significant
25
<PAGE>
improvement in operating results; (ii) changes in the nature of deferred tax
assets and liabilities due to the Seagull Merger and subsequent asset
sales; and (iii) the relative significance of international operating results
and taxes to the Company's total results of operations.
An income tax benefit of $210 million was recognized for 1998, compared to
a provision of $41 million for 1997. The deferred tax benefit for 1998 was
impacted by the noncash impairment of oil and gas properties and the tax
treatment of certain merger costs, a portion of which was not deductible for tax
purposes.
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
Seagull Merger, the repurchase of outstanding debt, and the sales of ENSTAR, the
Canadian subsidiary and the Gulf of Mexico and Arkoma oil and gas assets as if
each event had occurred as of January 1, 1998. Accordingly, Seagull Merger
expense, the extraordinary loss on repurchase of debt, and the results of
operations of the disposed assets, including the impairment of Canadian assets,
are excluded from net income. The information does not purport to be indicative
of actual results, if any of these transactions had been in effect for the
periods indicated, or of future results. The information was prepared based on
the following assumptions:
- - The Seagull Merger, the sales of ENSTAR, the Canadian subsidiary and the
Gulf of Mexico and Arkoma oil and gas assets, and the repurchase of the
outstanding debt are assumed to have occurred as of January 1, 1998;
- - certain costs that Seagull had expensed under the successful efforts method
of accounting are capitalized under the full cost method of accounting;
- - 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;
- - 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, and from the repurchase of
outstanding public debt;
- - the proceeds from the asset sales were used to pay down debt at January 1,
1998; and
- - the related income tax effects of these adjustments are recorded based on
the applicable statutory tax rate.
<TABLE>
<CAPTION>
Unaudited Pro Forma Information
(Amounts in Thousands, Except Per Unit Data)
Year Ended December 31,
-------------------------------------------
<S> <C> <C>
1999 1998
------------------- -------------------
Oil and Gas Sales...................................................... $ 749,413 $ 757,986
Operating Profit (Loss)................................................ $ 146,047 $ (496,328)
Net Income (Loss) Available to Common Shareholders..................... $ 56,804 $ (387,321)
Basic and Diluted Earnings (Loss) per Share............................ $ 0.34 $ (2.36)
Operations Data:
Net daily natural gas production (MMcf)............................. 434.0 523.6
Net daily oil and NGL production (Bbl).............................. 76,723 79,297
Net daily production (MBOE)......................................... 149.1 166.6
Average natural gas prices ($ per Mcf) (1).......................... $ 2.06 $ 1.93
Average oil and NGL prices ($ per Bbl) (1).......................... $ 17.24 $ 11.83
Average all-in costs ($ per BOE).................................... $ 12.14 $ 12.39
</TABLE>
(1) Prices exclude the effects of hedging activities. Weighted average prices
including hedging were $15.28 and $12.65 for oil and $2.08 and $1.93 for
gas for 1999 and 1998, respectively.
Liquidity And Capital Resources
Liquidity - During 1998 and 1997, Ocean undertook aggressive capital
spending programs to find and produce oil and gas reserves. These capital
spending programs required the Company to increase outstanding debt from $441
million at the end of 1996 to $1.4 billion at the end of 1998 by issuing various
senior and senior subordinated notes and revolving credit facilities. With the
Seagull Merger, the Company had nearly $2 billion in debt at March 30, 1999. One
of management's 1999 goals was the reduction of these high debt levels. Ocean
undertook over $700 million in asset sales and completed a prepaid crude oil
sale for $100 million, reducing debt to $1.3 billion at the end of 1999. The
Company's debt to total capitalization ratio has decreased to 58% at December
31, 1999, from 78% at December 31, 1998.
Concurrently with the closing of the Seagull Merger on March 30, 1999, the
Company entered into two new credit facilities (the "Credit Facilities") which
replaced the existing credit facilities of both Old Ocean and Seagull. The
Credit Facilities consisted of a $500 million five-year revolving facility and a
renewable $300 million 364-day facility with a one-year term loan option. In
December 1999 the $300 million facility was replaced with a $200 million
facility with substantially the same terms. The Credit Facilities bear interest,
at the Company's
26
<PAGE>
option, at LIBOR or prime rates plus applicable margins ranging
from zero to 1.7% or at a competitive bid. As of December 31, 1999, borrowings
outstanding against the Credit Facilities totaled $300 million and Letters of
Credit totaled $44 million, leaving $356 million of available credit.
In the fourth quarter of 1999, the Company repurchased $150 million of its
outstanding 10?% Senior Subordinated Notes due 2005 and $158 million of its
outstanding 9 3/4% Senior Subordinated Notes due 2006. The repurchase of these
Notes was funded with available cash balances and borrowings under the Credit
Facilities. In connection with this repurchase, the Company recorded an
after-tax extraordinary loss of $23 million, or $0.16 per basic and diluted
share. The extraordinary item is net of a current tax benefit of approximately
$13 million. At current rates the Company expects to save approximately $11
million in interest expense annually as a result of the transaction.
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. 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 is being
amortized into revenue as deliveries of crude oil are made. The obligation is
included in accrued liabilities and other noncurrent liabilities and deferred
revenue on the consolidated balance sheet.
Effects of Leverage - The Company has outstanding indebtedness of
approximately $1.3 billion as of December 31, 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.
<TABLE>
<CAPTION>
Capital Expenditures
(Amounts in Thousands)
Year Ended December 31,
-----------------------------------------------------------
1999 1998 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
Oil and Gas Operations:
Leasehold acquisitions..................... $ 34,043 $ 156,947 $ 246,441
Exploration costs.......................... 148,033 395,827 269,942
Development costs.......................... 159,831 395,351 317,975
---------------- ---------------- -----------------
341,907 948,125 834,358
Corporate.................................... 20,177 13,854 11,018
---------------- ---------------- -----------------
Total Continuing Operations.................. 362,084 961,979 845,376
Discontinued Operations...................... 6,942 - -
---------------- ---------------- -----------------
Total Capital Expenditures................... $ 369,026 $ 961,979 $ 845,376
================ ================ =================
</TABLE>
Capital expenditures, excluding acquisitions, from oil and gas operations
in 1999 decreased $606 million or 64% from 1998 as the Company focused its
efforts on cost control, sales of non-strategic properties and debt reduction.
Domestic spending in 1999 totaled $167 million, of which $91 million was for
exploration, $52 million was for development and $24 million was for leasehold
acquisitions. International spending in 1999 totaled $175 million, of which $57
million was for exploration, $108 million was for development and $10 million
was for leasehold acquisitions. The Company completed drilling 40 exploratory
wells during 1999, 22 of which were successful. Another 31 exploratory wells
were in progress at year-end.
1999 Actual Expenditures of $369 Million
"GRAPHICS OMITTED"
Gulf of Mexico 28%
North America onshore 17%
Other International 16%
Equatorial Guinea 31%
Corporate and other 8%
The Company's capital expenditure budget for the year 2000 is approximately
$500 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.
27
<PAGE>
2000 Plan for Capital Expenditures of $500 Million
"GRAPHICS OMITTED"
Gulf of Mexico 47%
North America Onshore 19%
Other International 18%
Equatorial Guinea 14%
Corporate 2%
Through drilling, proved property acquisitions and the Seagull Merger, the
Company experienced a 504% reserve replacement of 1999 production. The Company's
proved oil and gas reserves increased by 42% or 123 MMBOE to 415 MMBOE at
December 31, 1999 from 292 MMBOE at December 31, 1998 primarily due to the
Seagull Merger, offset by sales of oil and gas properties that occurred during
the year. Excluding the effects of acquisitions (primarily the Seagull Merger
and the purchase of certain working interests from Duke Energy) reserve
replacement was 130%. The Company's finding and development ("F&D") cost per BOE
for the year ending December 31, 1999, was $5.13. Excluding the effects of
acquisitions, the F&D cost was $4.98 per BOE.
The standardized measure of discounted future net cash flows before taxes
for the Company's proved oil and gas reserves, calculated based on Securities
and Exchange Commission ("SEC") criteria, increased to $3.0 billion at December
31, 1999 compared with $0.9 billion at the end of 1998. This increase was
primarily due to the increase in oil and gas prices and the Seagull Merger,
offset by property sales. Year-end calculations were made using weighted average
prices of $2.04 and $1.83 per Mcf for gas and $23.33 and $10.02 per Bbl for oil
for 1999 and 1998, respectively. The Company's average realized prices for the
year ended December 31, 1999, excluding the effects of hedging, were $2.08 per
Mcf for gas and $17.32 per Bbl for oil. The Company's average realized prices
for the month ended January 31, 2000, excluding the effects of hedging, were
$2.30 per Mcf for gas and $25.27 per Bbl for oil. Because the disclosure
requirements for discounted future net cash flows are standardized by the SEC,
significant changes can occur in these estimates based upon oil and gas prices
in effect at year-end. The above estimates should not be viewed as an estimate
of fair market value. See Note 15 to the Company's Consolidated Financial
Statements.
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 capital
expenditures for the year 2000 primarily with cash flow provided by operations.
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 Facilities will be
adequate to execute its business plan for the year 2000. 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 Facilities 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.
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. While the Company has not yet completed its evaluation of the impact
of this statement, the Company does not believe the statement will have a
significant impact on its results of operations as it expects that its current
derivative activities would continue to qualify under hedge accounting.
28
<PAGE>
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 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 its 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
require modification to distinguish twenty-first century dates from twentieth
century dates ("Year 2000 issues"). To date, the Company has not experienced any
significant problems due to Year 2000 issues. While no assurance can be given,
the Company does not believe it will experience any significant Year 2000 issues
in the future.
Costs of $0.6 million for the Year 2000 compliance review, evaluation,
assessment and remediation efforts were incurred through December 31, 1999.
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 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:
- - Risks incident to the drilling and operation of oil and gas wells;
- - Future production and development costs;
- - The effect of existing and future laws and regulatory actions;
- - The political and economic climate in the foreign jurisdictions in which the
Company conducts oil and gas operations;
- - The effect of changes in commodity prices, hedging activities and
conditions in the capital markets; and
- - Competition from others in the energy industry.
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"). 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 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.
29
<PAGE>
Selected Quarterly Financial Data
Summarized quarterly financial data is as follows (amounts in thousands
except per share data):
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------------ ------------------ ------------------- -----------------
<S> <C> <C> <C> <C>
1999:
Revenues......................... $ 105,694 $ 196,206 $ 214,393 $ 219,225
Operating Profit (Loss) (2)...... $ (31,150) $ 32,744 $ 69,151 $ 62,001
Income (Loss) Before
Extraordinary Item(2)......... $ (81,051) $ 2,136 $ 28,805 $ 29,685
Earnings (Loss) per Share
Before Extraordinary Item:
Basic(1)....................... $ (0.79) $ 0.01 $ 0.17 $ 0.17
Diluted(1)..................... $ (0.79) $ 0.01 $ 0.16 $ 0.17
Net Income (Loss) (2)............ $ (81,051) $ 2,136 $ 28,805 $ 6,272
Earnings (Loss) per Share:
Basic(1)....................... $ (0.79) $ 0.01 $ 0.17 $ 0.03
Diluted(1)..................... $ (0.79) $ 0.01 $ 0.16 $ 0.03
1998:
Revenues......................... $ 141,056 $ 132,909 $ 123,369 $ 124,816
Operating Profit (Loss) (3)...... $ 21,337 $ (207,692) $ (1,528) $ (328,072)
Net Loss(3)...................... $ (28,133) $ (134,846) $ (14,417) $ (229,483)
Earnings per Share:
Basic(1)....................... $ (0.28) $ (1.34) $ (0.14) $ (2.27)
Diluted(1)..................... $ (0.28) $ (1.34) $ (0.14) $ (2.27)
</TABLE>
(1) Quarterly earnings (loss) per common share may not total to the full year
per share amount, as the weighted average number of shares outstanding for
each quarter fluctuated as a result of the assumed exercise of stock
options.
(2) Includes pre-tax impairments of oil and gas assets of $29 million and $17
million in the first and fourth quarters of 1999, respectively, and merger
expense of $41 million, $3 million, and $6 million in the first, third and
fourth quarters of 1999, respectively.
(3) Includes pre-tax noncash impairments pursuant to the ceiling limitation
required by the full cost method of accounting for oil and gas assets of
$218 million and $322 million in the second and fourth quarters of 1998,
respectively, and merger expense of $39 million in the first quarter of
1998.
Market Risk Disclosures
The Company experiences market risk in two areas: commodity prices and
interest rates. Because the U.S. dollar is the functional currency for all of
the Company's existing foreign operations, with predominantly all transactions
being denominated in U.S. dollars, the Company has little risk from foreign
currency translation. To mitigate a portion of its exposure to fluctuations in
energy prices, the Company has entered into various derivative financial
instruments for its oil and gas production for the year 2000. See Note 8 to the
Company's Consolidated Financial Statements for a discussion of hedging
activities during 1999. By applying the 12-month NYMEX oil and gas strip price
as of the end of 1999 to the quantity of the Company's oil and gas production
hedged as of December 31, 1999, the Company calculated the estimated potential
effect of the derivative contracts during the year 2000 to be an approximate $4
million net decrease in revenues. Assuming a 10% increase in oil and gas prices,
the potential effect of the derivatives contracts would be an approximate $18
million decrease in revenues for the year ended December 31, 2000. Assuming a
10% decrease in oil and gas prices, the potential effect of the derivatives
contracts would be an approximate $15 million increase in revenues for the year
ended December 31, 2000.
The Company also evaluated the potential effect that reasonably possible
near term changes in interest rates may have on the Company's Credit Facilities.
Debt outstanding under the Credit Facilities represents approximately 22% of the
Company's total debt as of December 31, 1999 and is the only floating rate debt.
Based upon an analysis, utilizing the actual interest rates in effect and
balances outstanding as of December 31, 1999 and assuming a 10% increase or
decrease in interest rates and no changes in the amount of debt outstanding, the
potential effect on annual interest expense is approximately $2 million.
30
<PAGE>
Ocean Energy, Inc.
Report of Management to Shareholders
The management of Ocean Energy, Inc. is responsible for the preparation and
integrity of financial statements and related data in this Annual Report,
whether audited or unaudited. The financial statements were prepared in
conformity with generally accepted accounting principles and include certain
estimates and judgments which management believes are reasonable under the
circumstances.
Management is also responsible for and maintains a system of internal
accounting controls that is sufficient to provide reasonable assurance that
assets are safeguarded against loss or unauthorized use and that financial
records are reliable for preparing financial statements, as well as to prevent
and detect fraudulent financial reporting. The internal control system is
supported by written policies and procedures and the employment of trained,
qualified personnel. The Company has an internal audit function which reviews
the adequacy of the internal accounting controls and compliance with them.
Management has considered the recommendations of internal audit and KPMG LLP,
independent certified public accountants, concerning the Company's system of
internal controls and has responded appropriately to those recommendations.
The accompanying consolidated financial statements of Ocean Energy, Inc. as
of December 31, 1999 have been audited by KPMG LLP, independent certified public
accountants, and their report is included herein. Their audit was made in
accordance with generally accepted auditing standards and included a review of
the system of internal controls to the extent considered necessary to determine
the audit procedures required to support their opinion on the consolidated
financial statements.
The Board of Directors, through its Audit Committee composed exclusively of
outside directors, meets periodically with representatives of management,
internal audit and the independent auditors to ensure the existence of effective
internal accounting controls and to ensure that financial information is
reported accurately and timely with all appropriate disclosures included. The
independent auditors and internal audit have full and free access to, and meet
with, the Audit Committee, with and without management present.
/s/James T. Hackett /s/William L. Transier /s/Gordon L. McConnell
James T. Hackett William L. Transier Gordon L. McConnell
Chairman of the Board, Executive Vice President Vice President and
President and Chief and Chief Financial Officer Controller
Executive Officer
January 31, 2000
31
<PAGE>
Ocean Energy, Inc.
Independent Auditors' Report
The Board of Directors and Shareholders
Ocean Energy, Inc.:
We have audited the accompanying consolidated balance sheet of Ocean
Energy, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ocean
Energy, Inc. and subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/KPMG LLP
Houston, Texas
January 31, 2000
To the Board of Directors and Shareholders
Ocean Energy, Inc.:
We have audited the accompanying consolidated balance sheet of Ocean
Energy, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the two years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ocean Energy, Inc. and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Houston, Texas
February 15, 1999
32
<PAGE>
Ocean Energy, Inc.
Consolidated Statements of Operations
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
---------------- --------------- --------------
<S> <C> <C> <C>
Revenues...................................................... $ 735,518 $ 522,150 $ 549,194
Costs of Operations:
Operating expenses......................................... 216,981 185,076 139,349
Depreciation, depletion and amortization................... 317,487 293,905 248,423
Impairment of oil and gas properties....................... 46,403 539,915 -
General and administrative................................. 21,901 19,209 15,263
---------------- --------------- --------------
602,772 1,038,105 403,035
---------------- --------------- --------------
Operating Profit (Loss)....................................... 132,746 (515,955) 146,159
Other (Income) Expense:
Interest expense........................................... 106,081 62,852 49,134
Merger expenses............................................ 49,603 39,000 -
Interest income and other.................................. (1,314) (1,229) (6,187)
---------------- --------------- --------------
154,370 100,623 42,947
---------------- --------------- --------------
Income (Loss) Before Income Taxes............................. (21,624) (616,578) 103,212
Income Tax Expense (Benefit).................................. (72) (209,699) 40,992
---------------- --------------- --------------
Income (Loss) from Continuing Operations...................... (21,552) (406,879) 62,220
Income from Discontinued Operations, Net of Income Taxes...... 1,127 - -
---------------- --------------- --------------
Income (Loss) Before Extraordinary Item....................... (20,425) (406,879) 62,220
Extraordinary Loss, Net of Income Taxes....................... (23,413) - (19,301)
---------------- --------------- --------------
Net Income (Loss)............................................. (43,838) (406,879) 42,919
Preferred Stock Dividends..................................... 3,264 454 -
---------------- --------------- --------------
Net Income (Loss) Available to Common Shareholders............ $ (47,102) $ (407,333) $ 42,919
================ =============== ==============
Basic Earnings (Loss) Per Common Share:
Income (Loss) From Continuing Operations................... $ (0.16) $ (4.04) $ 0.67
Income from Discontinued Operations, Net of
Income Taxes............................................. 0.01 - -
Extraordinary Loss, Net of Income Taxes.................... (0.16) - (0.21)
---------------- --------------- --------------
Net Income (Loss) to Common Shareholders................... $ (0.31) $ (4.04) $ 0.46
================ =============== ==============
Diluted Earnings (Loss) Per Common Share:
Income (Loss) from Continuing Operations................... $ (0.16) $ (4.04) $ 0.64
Income From Discontinued Operations, Net of
Income Taxes............................................. 0.01 - -
Extraordinary Loss, Net of Income Taxes.................... (0.16) - (0.20)
---------------- --------------- --------------
Net Income (Loss) to Common Shareholders................... $ (0.31) $ (4.04) $ 0.44
================ =============== ==============
Weighted Average Number of Common Shares Outstanding:
Basic...................................................... 151,022 100,705 93,315
================ =============== ==============
Diluted.................................................... 151,022 100,705 96,646
================ =============== ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
33
<PAGE>
Ocean Energy, Inc.
Consolidated Balance Sheets
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
Assets December 31,
--------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................ $ 64,889 $ 10,706
Accounts receivable, net............................................. 170,034 111,829
Inventories.......................................................... 28,723 16,802
Prepaid expenses and other........................................... 26,304 14,444
------------------ -----------------
Total Current Assets............................................... 289,950 153,781
Property, Plant and Equipment, at cost, full cost method for oil and
gas properties:
Evaluated oil and gas properties..................................... 3,706,288 2,759,686
Unevaluated oil and gas properties excluded from amortization........ 507,197 488,689
Other................................................................ 84,410 44,960
------------------ -----------------
4,297,895 3,293,335
Accumulated Depreciation, Depletion and Amortization.................... (2,094,885) (1,711,696)
------------------ -----------------
2,203,010 1,581,639
Deferred Income Taxes................................................... 233,406 217,824
Other Assets............................................................ 56,777 53,716
------------------ -----------------
Total Assets............................................................ $ 2,783,143 $ 2,006,960
================== =================
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts and note payable............................................ $ 275,629 $ 190,727
Accrued interest payable............................................. 41,119 36,206
Accrued liabilities.................................................. 51,542 9,413
Current maturities of long-term debt................................. 13,651 836
------------------ -----------------
Total Current Liabilities.......................................... 381,941 237,182
Long-Term Debt.......................................................... 1,333,410 1,371,890
Other Noncurrent Liabilities and Deferred Revenue....................... 120,097 20,945
Commitments and Contingencies........................................... - -
Shareholders' Equity:
Preferred stock, $1.00 and $0.01 par value, respectively; authorized
10,000,000 shares; issued 50,000 shares............................ 50 1
Common stock, $0.10 and $0.01 par value, respectively; authorized
230,000,000 and 250,000,000 shares, respectively; issued
166,979,981 and 101,753,646 shares, respectively................... 16,699 1,018
Additional paid-in capital........................................... 1,484,688 892,339
Accumulated deficit.................................................. (547,216) (500,114)
Accumulated other comprehensive loss................................. - (10,720)
Less - treasury stock, at cost; 378,171 and no shares, respectively.. (3,114) -
Less - notes receivable and other.................................... (3,412) (5,581)
------------------ -----------------
Total Shareholders' Equity......................................... 947,695 376,943
------------------ -----------------
Total Liabilities and Shareholders' Equity.......................... $ 2,783,143 $ 2,006,960
================== =================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
34
<PAGE>
Ocean Energy, Inc.
Consolidated Statements of Cash Flows
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1999 1998 1997
------------------- -------------------- ----------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss)............................................. $ (43,838) $ (406,879) $ 42,919
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization................. 317,487 293,905 248,423
Impairment of oil and gas properties..................... 46,403 539,915 -
Deferred income taxes.................................... (48,123) (213,514) 20,821
Noncash merger expenses.................................. 20,529 - -
Noncash items from discontinued operations............... 5,383 - -
Extraordinary loss, net of taxes......................... 23,413 - 19,301
Amortization of deferred financing costs................. 8,146 8,125 2,957
Other.................................................... 6,748 (2,477) (2,306)
------------------- -------------------- ----------------
336,148 219,075 332,115
Changes in operating assets and liabilities, net of
acquisitions:
Decrease (increase) in accounts receivable............... 475 23,724 (17,338)
Decrease (increase) in inventories, prepaid
expenses and other..................................... 18,446 8,059 (20,662)
Increase (decrease) in accounts and notes payable........ (51,731) (12,836) 48,156
Increase (decrease) in accrued expenses and other........ 30,413 (8,098) 21,931
------------------- -------------------- ----------------
Net Cash Provided by Operating Activities.................. 333,751 229,924 364,202
------------------- -------------------- ----------------
Investing Activities:
Capital expenditures of continuing operations.............. (362,084) (970,443) (830,483)
Capital expenditures of discontinued operations............ (6,942) - -
Acquisition costs, net of cash acquired.................... (33,169) - -
Proceeds from sales of property, plant and equipment....... 704,055 2,054 52,855
Increase in other assets................................... - - (23,878)
------------------- -------------------- ----------------
Net Cash Provided by (Used in) Investing Activities........ 301,860 (968,389) (801,506)
------------------- -------------------- ----------------
Financing Activities:
Proceeds from debt......................................... 1,543,601 1,918,873 826,081
Principal payments on debt ................................ (2,186,852) (1,219,356) (594,977)
Proceeds from deferred revenue............................. 100,000 - -
Premiums paid on debt buy back............................. (28,837) - (26,700)
Purchase of treasury stock................................. (2,840) - -
Proceeds from sales of common stock........................ - - 178,108
Proceeds from common stock options exercised............... 2,813 8,695 9,428
Proceeds from issuance of convertible preferred stock...... - 49,954 -
Deferred debt issue costs.................................. (6,406) (20,230) (3,648)
Preferred stock dividends paid............................. (2,907) (454) -
------------------- -------------------- ----------------
Net Cash Provided by (Used in) Financing Activities........ (581,428) 737,482 388,292
------------------- -------------------- ----------------
Increase (Decrease) in Cash and Cash Equivalents.............. 54,183 (983) (49,012)
Cash and Cash Equivalents at Beginning of Year................ 10,706 11,689 60,701
------------------- -------------------- ----------------
Cash and Cash Equivalents at End of Year...................... $ 64,889 $ 10,706 $ 11,689
=================== ==================== ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
35
<PAGE>
Ocean Energy, Inc.
Consolidated Statement of Shareholders' Equity
(Amounts in Thousands)
<TABLE>
<CAPTION>
Preferred Common Additional Accumulated
Stock Stock Paid-In-Capital Deficit
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance, January 1, 1999....................... $ 1 $ 1,018 $ 892,339 $ (500,114)
Effect of Seagull Merger..................... 49 15,621 588,088 -
Exercise of common stock options............. - 60 3,303 -
Treasury stock purchase...................... - - - -
Contribution to ESOP......................... - - (236) -
Amortization of compensation expense......... - - - -
Preferred stock dividends.................... - - - (3,264)
Other........................................ - - 1,194 -
Comprehensive income:
Net loss..................................... - - - (43,838)
Other comprehensive income:
Foreign currency translation adjustment:
Income arising during the year............... - - - -
Reclassification adjustment.................. - - - -
Net foreign currency translation adjustment.... - - - -
------------- ------------- -------------- --------------
Balance, December 31, 1999..................... $ 50 $ 16,699 $1,484,688 $ (547,216)
============= ============= ============== ==============
Balance, January 1, 1998....................... $ - $ 1,001 $ 823,956 $ (92,781)
Issuance of preferred stock.................. 1 - 49,953 -
Issuance of common stock..................... - 6 5,734 -
Exercise of common stock options............. - 11 12,696 -
Preferred stock dividends.................... - - - (454)
Comprehensive income:
Net loss..................................... - - - (406,879)
Other comprehensive income (loss):
Foreign currency translation adjustment...... - - - -
------------- ------------- -------------- --------------
Balance, December 31, 1998..................... $ 1 $ 1,018 $ 892,339 $ (500,114)
============= ============= ============== ==============
Balance, January 1, 1997....................... $ - $ 918 $ 632,111 $ (135,700)
Issuance of common stock..................... - 73 177,674 -
Exercise of common stock options............. - 10 14,171 -
Comprehensive income:
Net income................................... - - - 42,919
Other comprehensive income (loss):
Foreign currency translation adjustment...... - - - -
------------- ------------- -------------- --------------
Balance, December 31, 1997..................... $ - $ 1,001 $ 823,956 $ (92,781)
============= ============= ============== ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
36
<PAGE>
Ocean Energy, Inc.
Consolidated Statement of Shareholders' Equity
(Amounts in Thousands)
<TABLE>
<CAPTION>
Accumulated Other Notes Total
Comprehensive Treasury Receivable Shareholder's Comprehensive
Income Stock and Other Equity Income
----------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999................... $ (10,720) $ - $ (5,581) $ 376,943
Effect of Seagull Merger................. - (4,293) (4,261) 595,204
Exercise of common stock options......... - - - 3,363
Treasury stock purchase.................. - (2,840) - (2,840)
Contribution to ESOP..................... - 4,019 849 4,632
Amortization of compensation expense..... - - 5,581 5,581
Preferred stock dividends................ - - - (3,264)
Other.................................... - - - 1,194
Comprehensive income:
Net loss................................. - - - (43,838) $ (43,838)
Other comprehensive income:
Foreign currency translation adjustment:
Income arising during the year........... - - - - 981
Reclassification adjustment.............. - - - - 9,739
-------------
Net foreign currency translation adjustment 10,720 - - 10,720 10,720
------------------ ------------- -------------- -------------- -------------
Balance, December 31, 1999................. $ - $ (3,114) $ (3,412) $ 947,695 $ (33,118)
================== ============= ============== ============== =============
Balance, January 1, 1998................... $ (6,839) $ - $ - $ 725,337
Issuance of preferred stock.............. - - - 49,954
Issuance of common stock................. - - (5,581) 159
Exercise of common stock options......... - - - 12,707
Preferred stock dividends................ - - - (454)
Comprehensive income:
Net loss................................. - - - (406,879) $ (406,879)
Other comprehensive income (loss):
Foreign currency translation adjustment.. (3,881) - - (3,881) (3,881)
------------------- ------------- -------------- -------------- -------------
Balance, December 31, 1998................. $ (10,720) $ - $ (5,581) $ 376,943 $ (410,760)
=================== ============= ============== ============== =============
Balance, January 1, 1997................... $ (4,257) $ - $ - $ 493,072
Issuance of common stock................. - - - 177,747
Exercise of common stock options......... - - - 14,181
Comprehensive income:
Net income............................... - - - 42,919 $ 42,919
Other comprehensive income (loss):
Foreign currency translation adjustment.. (2,582) - - (2,582) (2,582)
------------------ ------------- -------------- -------------- -------------
Balance, December 31, 1997................. $ (6,839) $ - $ - $ 725,337 $ 40,337
================== ============= ============== ============== =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
37
<PAGE>
Ocean Energy, Inc.
Notes to Consolidated Financial Statements
1. Organization
Ocean Energy, Inc. (the "Company", "OEI", or "Ocean") is an independent
energy company engaged in the exploration, development, production and
acquisition of oil and natural gas offshore Gulf of Mexico, across North America
and in the oil and natural gas producing regions of Cote d'Ivoire, Egypt,
Equatorial Guinea, Russian Republic of Tatarstan, Indonesia, Pakistan, Angola
and the Republic of Yemen.
On November 24, 1998, Ocean Energy, Inc. ("Old Ocean") and Seagull Energy
Corporation ("Seagull") entered into a merger agreement that provided for a
stock-for-stock merger (the "Seagull Merger") of Old Ocean with and into
Seagull. The Seagull Merger was a tax-free transaction and was approved by the
Company's stockholders on March 30, 1999. In connection with the Seagull Merger,
Old Ocean stockholders received one share of common stock of Seagull for each
existing outstanding share of Ocean. Seagull amended its Articles of
Incorporation to change its name to Ocean Energy, Inc. ("New Ocean"). After the
Seagull Merger, the stockholders of Old Ocean owned approximately 61.5% of the
outstanding common stock of New Ocean and the shareholders of Seagull owned the
remaining 38.5% of the outstanding common stock of New Ocean. The transaction
was treated as a reverse purchase business combination for accounting purposes.
Effective March 27, 1998, pursuant to the Agreement and Plan of Merger
dated December 22, 1997, United Meridian Corporation ("UMC") was merged into the
Company (the "UMC Merger"). As a result of the UMC Merger, each outstanding
share of UMC common stock was converted into 1.3 shares of 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
Ocean. The Company's shareholders received 2.34 shares of Ocean common stock for
each share outstanding immediately preceding the UMC Merger representing
approximately 54% of all of the issued and outstanding shares of Ocean. The UMC
Merger was accounted for as a pooling of interests. Accordingly, the
accompanying consolidated financial statements for periods prior to the UMC
Merger have been restated to combine the historical results of Ocean and UMC.
All common share data throughout these financial statements have been restated
to reflect the impact of the respective stock splits resulting from the UMC
Merger.
2. Summary of Significant Accounting Policies
General - The accompanying consolidated financial statements of the Company
have been prepared according to generally accepted accounting principles and
pursuant to the rules and regulations of the Securities and Exchange Commission.
These accounting principles require the use of estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates. Certain
reclassifications of amounts previously reported have been made to conform to
current year presentations.
Consolidation - The accompanying consolidated financial statements include
the accounts of Ocean Energy, Inc. and its majority-owned entities. All
significant intercompany transactions have been eliminated.
Cash Equivalents - The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Inventories - Materials and supplies are valued at the lower of average
cost or market value (net realizable value).
Oil and Gas Properties - The Company's exploration and production
activities are accounted for using the full cost method. Under this method, all
acquisition, exploration and development costs, including certain related
employee costs and a portion of interest expense, incurred for the purpose of
finding oil and gas are capitalized. Such amounts include the cost of drilling
and equipping productive wells, dry hole costs, lease acquisition costs, delay
rentals and costs related to such activities. Employee costs associated with
production operations and general corporate activities are expensed in the
period incurred. Transactions involving sales of reserves in place, unless
significant, are recorded as adjustments to oil and gas properties. Capitalized
costs are limited to the sum of the
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present value of future net revenues using current unescalated pricing
discounted at 10%, related to estimated production of proved reserves and the
lower of cost or estimated fair value of unevaluated properties, all net of
expected income tax effects.
Depreciation, depletion and amortization of oil and gas properties is
computed on a country-by-country basis using a unit-of-production method based
on estimated proved reserves. All costs associated with evaluated oil and gas
properties, including an estimate of future development, restoration,
dismantlement and abandonment costs associated therewith, are included in the
computation base. The costs of investments in unproved properties and major
development projects are excluded from this calculation until the project is
evaluated and proved reserves established or impaired. Oil and gas reserves are
estimated annually by the Company, with reviews of certain data performed by
independent petroleum engineers.
Unproved leaseholds with significant acquisition costs are assessed
periodically, on a property-by-property basis. If a property has been evaluated,
or if impairment is needed, the costs related to that property are reclassified
as an evaluated property, and thus subject to the depreciation, depletion and
amortization method discussed above. Unproved leaseholds whose acquisition costs
are not individually significant are aggregated, and the portion of such costs
estimated to ultimately prove nonproductive, based on experience, are amortized
over an average holding period. As unproved leaseholds are determined to be
productive, the related costs are transferred to proved leaseholds. Pursuant to
the ceiling limitation required by the full cost method of accounting for oil
and gas properties, the Company recognized total non-cash impairments of oil and
gas properties in the amount of $540 million ($335 million after-tax) for the
year ended December 31, 1998. These write-downs were primarily the result of the
precipitous decline in world crude oil and natural gas prices experienced during
1998. The Company had no such ceiling limitations in 1999 or 1997.
The Company recognized impairments in the amount of $46 million ($43
million after-tax) for the year ended December 31, 1999. These impairments
related primarily to the sale of the Canadian subsidiary ($23 million, pre-tax)
and to the discontinuance of operations in Bangladesh ($18 million, pre-tax) and
other international locations ($5 million, pre-tax).
Interest cost capitalized as property, plant and equipment amounted to
approximately $41 million, $30 million and $13 million in 1999, 1998 and 1997,
respectively. The Company also capitalized certain employee-related costs in the
amounts of $41 million, $28 million, and $15 million, in 1999, 1998 and 1997,
respectively.
Other Property, Plant and Equipment - Depreciation of other property is
computed principally using the straight-line method over their estimated useful
lives, which vary from three to twenty years. The Company groups and evaluates
other property, plant and equipment for impairment based on the ability to
identify separate cash flows generated therefrom. No impairment charges related
to other property, plant and equipment were recorded during 1999, 1998 and 1997.
Maintenance, repairs and renewals are charged to operations and maintenance
expense except that renewals which extend the life of the asset are capitalized.
Environmental Liabilities - Environmental expenditures that relate to
current or future revenues are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
that do not contribute to current or future revenue generation, are expensed.
Liabilities are accrued when environmental assessments and/or clean-ups are
probable, and the costs can be reasonably estimated. Generally, the timing of
these accruals coincides with the Company's commitment to a formal plan of
action.
Treasury Stock - The Company follows the weighted average cost method of
accounting for treasury stock transactions.
Revenue Recognition - The Company records oil and natural gas revenue
following the entitlements method of accounting for production, in which any
excess amount received above the Company's share is treated as a liability. If
less than the Company's entitlement is received, the underproduction is recorded
as an asset.
Discontinued Operations - The Company has operated in Alaska through a
division of the Company and a wholly-owned subsidiary (collectively referred to
herein as "ENSTAR"). In July 1999, the Company committed to a plan to dispose of
ENSTAR, and on November 1, 1999, the Company completed the sale. See Note 5.
ENSTAR's
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net income was $1 million, net of income tax expense of $1 million, for the year
ended December 31, 1999. The net assets disposed of comprised net current
liabilities of $2 million, property, plant and equipment of $292 million, and
other long-term liabilities of $3 million, before liabilities assumed of $57
million. The results of operations of ENSTAR have been reflected as discontinued
operations.
Derivative Financial Instruments - From time to time, the Company has
utilized and expects to continue to utilize hedging transactions with respect to
a portion of its oil and gas production to achieve a more predictable cash flow
as well as to reduce its exposure to price fluctuations. These transactions
generally are swaps or price collars and are entered into with major financial
institutions or commodities trading institutions. 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 realized revenues if market prices exceed
the contracted ceiling price and limit losses if market prices fall below the
contracted floor price. 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.
The Company uses the hedge or deferral method of accounting for these
instruments. To qualify as hedges, these instruments must highly correlate to
anticipated future production such that the Company's exposure to the effects of
price changes is reduced. Income and costs related to these hedging activities
are recognized in oil and gas revenues when the commodities are produced. Income
and costs on commodity derivative financial instruments that are closed before
the hedged production occurs are also deferred until the production month
originally hedged. In the event of a loss of correlation between changes in oil
and gas reference prices under a commodity derivative financial instrument and
actual oil and gas prices, income or costs are recognized currently to the
extent the financial instrument has not offset changes in actual oil and gas
prices. Any realized income and costs that are deferred at the balance sheet
date are included in net current assets or liabilities.
Income Taxes - The Company uses the liability method of accounting for
income taxes under which deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as part of the
provision for income taxes in the period that includes the enactment date.
Foreign Currency Translation - The U.S. dollar is the functional currency
for all of the Company's existing foreign operations, as predominantly all
transactions in these operations are denominated in U.S. dollars. Prior to the
disposition of its Canadian subsidiary in April 1999, the Company's Canadian
operations used the applicable local currency as the functional currency.
Translation from Canadian dollars to U.S. dollars was performed for balance
sheet accounts using exchange rates in effect at the balance sheet date and for
revenue and expense accounts using primarily a weighted average exchange rate
during the period. Adjustments resulting from such translation were included as
a separate component of shareholders' equity and as a component of comprehensive
income.
Stock-Based Compensation - The Company accounts for stock-based
compensation under the intrinsic value method. Under this method, the Company
records no compensation expense for stock options granted when the exercise
price of options granted is equal to or greater than the fair market value of
the Company's common stock on the date of grant.
Concentrations Of Market Risk - The future results of the Company's oil and
gas operations will be affected by the market prices of oil and natural gas. The
availability of a ready market for natural gas, oil and liquid products in the
future will depend on numerous factors beyond the control of the Company,
including weather, production of other natural gas, crude oil and liquid
products, imports, marketing of competitive fuels, proximity and capacity of oil
and gas pipelines and other transportation facilities, any oversupply or
undersupply of gas, oil and liquid products, the regulatory environment and
other regional and political events, none of which can be predicted with
certainty.
The Company operates in various phases of the oil and natural gas industry.
The Company's receivables include amounts due from purchasers of oil and gas
production and amounts due from joint venture partners for their respective
portions of operating expense and exploration and development costs. The Company
believes that no single customer or joint venture partner exposes the Company to
significant credit risk. While certain of these customers and joint venture
partners are affected by peri-
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odic downturns in the economy in general or in their specific segment of the
natural gas or oil industry, the Company believes that its level of
credit-related losses due to such economic fluctuations has been and will
continue to be immaterial to the Company's results of operations in the long
term. Trade receivables are generally not collateralized; however, the Company
analyzes customers' and joint venture partners' historical credit positions
prior to extending credit. At December 31, 1999 and 1998, the Company had an
allowance for doubtful accounts receivable of $2 million and $1 million,
respectively.
For the years ended December 31, 1999, 1998 and 1997, the Company had one
customer who accounted for 18%, 15% and 15% of total revenues, respectively.
During 1999, the Company had one customer who accounted for 16% and one customer
who accounted for 11% of total revenues. In addition, the Company had one
customer who accounted for 12% and 21% of total revenues in 1998 and 1997,
respectively.
The Company has a significant portion of its operations in various
international areas. The Company's activities in these areas are subject to
risks associated with international operations, including political and economic
uncertainties, risks of cancellation or unilateral modification of agreements,
operating restrictions, currency repatriation restrictions, expropriation,
export restrictions, the imposition of new taxes and the increase of existing
taxes, inflation, foreign exchange fluctuations and other risks arising out of
international government sovereignty over areas in which the operations are
conducted. The Company has endeavored to protect itself against political and
commercial risks inherent in these operations. There is no certainty that the
steps taken by the Company will provide adequate protection.
Concentrations Of Credit Risk - Derivative financial instruments that hedge
the price of oil and natural gas and interest rates are generally executed with
major financial or commodities trading institutions which expose the Company to
acceptable levels of market and credit risks and may at times be concentrated
with certain counterparties or groups of counterparties. Although notional
amounts are used to express the volume of these contracts, the amounts
potentially subject to credit risk, in the event of non-performance by the
counterparties, are substantially smaller. The credit worthiness of
counterparties is subject to continuing review and full performance is
anticipated.
Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board ("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. While the Company has not yet completed its evaluation of the impact
of this statement, the Company does not believe the statement will have a
significant impact on its results of operations as it expects its current
derivative activities would continue to qualify under hedge accounting.
3. Earnings Per Share
Basic earnings per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is determined on the
assumption that outstanding stock options have been converted using the average
price for the period. For purposes of computing earnings per share in a loss
year, common stock equivalents have been excluded from the computation of
weighted average common shares outstanding because their effect is antidilutive.
For the year ended, December 31, 1997, the assumed conversion of stock options
resulted in an additional 3.3 million weighted average common shares included in
the diluted earnings calculation.
Options to purchase 22,515,302 shares of common stock (of which 5 million
were issued in connection with the Seagull Merger) and 12,667,983 shares of
common stock were outstanding at December 31, 1999 and 1998, respectively, but
were not included in the computation of diluted loss per share because the
effect of the assumed exercise of these stock options as of the beginning of the
year would have an antidilutive effect. These options had exercise prices
ranging from $2.11 to $36.55 and expire at various dates through 2009. Options
to purchase approximately 1.5 million shares of common stock at $26.44 to $36.53
per share were outstanding during 1997 but were not included in the computation
of diluted earnings per share because the options' exercise prices were greater
than the average market price of the common shares. These options, which as of
December 31, 1997 had various expiration dates from 1998 to 2007, remained
outstanding at the end of 1997.
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4. Supplemental Disclosures of Cash Flow Information
Supplemental disclosures of cash flow information (stated in thousands) are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest..................................................... $ 94,229 $ 54,758 $ 49,563
Income taxes................................................. $ 27,493 $ 3,869 $ 6,066
</TABLE>
As discussed in Note 5, the Seagull Merger was completed through the
issuance of common stock. Therefore, the Seagull Merger increased property,
plant and equipment by $1.3 billion, debt by $563 million, other liabilities by
$200 million, and equity by $595 million through a noncash transaction that was
not reflected in the statement of cash flows. However, $1.8 million of the $33
million of acquisition costs reflected in "investing activities" in the
statement of cash flows represents the cash expenses paid in connection with the
Seagull Merger, less the cash of Seagull on the date of the Seagull Merger.
5. Acquisition And Disposition of Assets
Seagull Merger - On March 30, 1999, the shareholders approved the Seagull
Merger. The Seagull Merger has been accounted for as a purchase under generally
accepted accounting principles. Because Old Ocean stockholders own a majority of
the outstanding shares of common stock of the merged company, the accounting
treatment of the Seagull 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 Seagull Merger are the same as Old
Ocean's historical results. At the date of the Seagull 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 the purchase price:
<TABLE>
<CAPTION>
<S> <C>
Calculation of the 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............................................... 54,216
----------------------
Purchase Price.............................................................. $ 641,700
======================
</TABLE>
Capitalized merger costs consisted primarily of severance costs of Seagull
($19 million), value of Seagull stock options maintained by OEI ($17 million),
investment banking fees ($10 million), and other transaction fees and
professional expenses ($8 million). In addition, merger costs of $50 million
were expensed through December 31, 1999. These costs consisted primarily of Old
Ocean's severance costs ($30 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). As
of December 31, 1999, $23 million of Old Ocean's severance costs have been paid.
Disposition of Assets - The Company disposed of the following assets in
1999 primarily using the proceeds to repay existing long-term debt:
- - ENSTAR for net proceeds of $287 million;
- - Domestic properties located in the Arkoma Basin and Gulf of Mexico for
net proceeds of $231 million and $66 million, respectively; and
- - Canadian subsidiary for net proceeds of $68 million.
The following reflects the results of operations of the disposed assets (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998
----------------------- ------------------
<S> <C> <C>
ENSTAR:
Revenues....................................................... $ 38,281 $ 93,592
Operating profit............................................... 4,961 23,143
Domestic Properties:
Revenues....................................................... 35,894 64,864
Operating profit............................................... 14,516 21,130
Canada:
Revenues....................................................... 7,316 19,232
Operating profit (loss) (including impairment)................. (21,123) 4,941
</TABLE>
Unaudited Pro Forma Information - The following table sets forth summary
unaudited pro forma condensed combined financial and operating data which are
presented to give effect to the Seagull Merger, the repurchase of outstanding
debt, and the sales of ENSTAR, the Canadian subsidiary and the Gulf of Mexico
and Arkoma oil and gas assets as if each event had occurred as of January 1,
1998. Accordingly, Seagull Merger expense, the extraordinary loss on repurchase
of debt and the results of operations of the disposed assets, including the
impairment of Canadian assets, are excluded from net income. The information
does not purport to be indicative of actual results, if any of these
transactions had been in effect for the periods indicated, or of future results.
The information was prepared based on the following assumptions:
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- The Seagull Merger, the sales of ENSTAR, the Canadian subsidiary and
the Gulf of Mexico and Arkoma oil and gas assets, and the repurchase
of the outstanding debt are assumed to have occurred as of January 1,
1998;
- certain costs that Seagull had expensed under the successful efforts
method of accounting are capitalized under the full cost method of
accounting;
- 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;
- 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, and
from the repurchase of outstanding public debt;
- the proceeds from the asset sales were used to pay down debt at
January 1, 1998; and
- the related income tax effects of these adjustments are recorded based
on the applicable statutory tax rate.
Unaudited Pro Forma Information
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1999 1998
----------------------- ------------------
<S> <C> <C>
Revenues.......................................................... $ 749,413 $ 757,986
Net income (loss) available to common shareholders................ 56,804 (387,321)
Basic and diluted earnings (loss) per share....................... 0.34 (2.36)
</TABLE>
1998 Transactions - Merger costs of $39 million relating to the Company's
merger with UMC were recorded in the first quarter of 1998. These costs
consisted primarily of investment banking and other transaction fees, employee
severance and relocation costs as well as the write-off of deferred financing
costs related to the former credit facilities replaced by the OEI Credit
Facility in March 1998. All such costs were paid in 1998.
In November 1998, the Company completed the acquisition of incremental
interests in several North American oil and gas properties in which it already
owned a working interest. The properties were acquired from John Hancock Mutual
Life Insurance Company for a net purchase price of $38 million. The acquisition
was financed through the issuance of Series A Convertible Preferred Stock.
In December 1998, the Company completed its acquisition of certain contract
interests in Angola for $39 million. In September 1998, the Company acquired
additional contract interests in certain production sharing contracts in Cote
d'Ivoire for a net purchase price of $20 million.
1997 Transactions - In March 1997, the Company completed an acquisition of
certain interests in various state leases in the Main Pass Block 69 field (the
"Main Pass Acquisition"), offshore Plaquemines Parish, Louisiana, for a net
purchase price of $56 million. The Main Pass Acquisition included interests
situated contiguous to the Company's existing Main Pass 69 holdings acquired in
June 1992.
In October 1997 the Company acquired certain oil and gas interests in
various federal leases in the South Pass 61 and 65 fields for a net purchase
price of $60 million and became operator of the properties.
In 1997, the Company acquired additional interests in various domestic
properties it operates and in which it holds an existing working interest
position from several of its institutional partners for a net cost of
approximately $50 million.
Subsequent Sale - In January 2000 the Company announced that it had
executed a purchase and sale agreement to sell all its interests and assets in
its East Bay Complex located in the Mississippi Delta Region of the Gulf of
Mexico for an agreed price of $86 million. The transaction is expected to close
March 31, 2000.
6. Other Noncurrent Assets
Other noncurrent assets (stated in thousands) include the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Oil and gas imbalances (net of current portion of $5 million in 1999)... $ 20,099 $ 6,491
Deferred financing costs................................................ 28,336 31,821
Restricted deposits..................................................... 168 10,773
Other................................................................... 8,174 4,631
------------------ ------------------
$ 56,777 $ 53,716
================== ==================
</TABLE>
Oil and Gas Imbalances - As discussed in Note 2, the Company records oil
and gas revenues following the entitlements method of accounting for production.
Deferred Financing Costs - Deferred financing costs represent financing
costs incurred in connection with the execution of various debt facilities
entered into or securities issued by the Company. These costs are capitalized
and amortized to interest expense over the life of the related debt.
Restricted Deposits - At December 31, 1998, the Company, as the operator of
certain oil and gas properties, was party to two escrow agreements which
required monthly deposits into an escrow account.
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These deposits were to provide for the future plugging and abandonment costs
associated with the oil and gas properties. The escrow balances, which totaled
approximately $11 million at December 31, 1998, were released in 1999.
7. Debt
Long-term debt consisted of the following at December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Credit Facilities (average interest rate of 6.3%) due 2004.............. $ 300,000 $ -
OEI Credit Facility (average interest rate of 7.0%)..................... - 357,000
Public Notes of Old Ocean:
8 1/4% Senior Notes, due July 2018................................... 125,000 125,000
7 5/8% Senior Notes, due July 2005................................... 125,000 125,000
10 3/8% Senior Subordinated Notes, due October 2005.................. - 150,000
9 3/4% Senior Subordinated Notes, due October 2006................... 1,783 159,318
8 7/8% Senior Subordinated Notes, due July 2007...................... 199,745 199,711
8 3/8% Senior Subordinated Notes, due July 2008...................... 250,000 250,000
Public Notes Assumed in the Seagull Merger:
7 7/8% Senior Notes, due August 2003................................. 98,553 -
7 1/2% Senior Notes, due September 2027.............................. 125,172 -
8 5/8% Senior Subordinated Notes, due August 2005.................... 99,559 -
Monetary Production Payment Assumed in the Seagull Merger............... 12,599 -
Other................................................................... 9,650 6,697
------------------ ------------------
1,347,061 1,372,726
Less: Current maturities............................................... (13,651) (836)
------------------ ------------------
Total Long-Term Debt.................................................... $ 1,333,410 $ 1,371,890
================== ==================
</TABLE>
Credit Facilities - Concurrent with the closing of the Seagull Merger on
March 30, 1999, the Company entered into two new credit facilities (the "Credit
Facilities") which replaced the existing credit facilities of both Old Ocean and
Seagull. The Credit Facilities consisted of a $500 million five-year revolving
facility and a renewable $300 million 364-day facility with a one-year term loan
option. In December 1999 the $300 million facility was replaced with a $200
million facility with substantially the same terms. The Credit Facilities bear
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. As of December 31,
1999, borrowings outstanding against the Credit Facilities totaled $300 million
and Letters of Credit totaled $44 million, leaving $356 million of available
credit.
Tender Offer - On November 9, 1999, the Company announced a tender offer to
repurchase $150 million of the 10 3/8% Senior Subordinated Notes and $160
million of the 9 3/4% Senior Subordinated Notes. As a result of the tender
offer, the Company repurchased on December 10, 1999 all of the 10?% Senior
Subordinated Notes and $158 million of the 9 3/4% Senior Subordinated Notes. The
repurchase of these Notes was funded with available cash balances and borrowings
under the Credit Facilities. In connection with this repurchase, the Company
recorded an after-tax extraordinary loss of $23 million, or $0.16 per basic and
diluted share, during the fourth quarter of 1999. The extraordinary loss
includes a current tax benefit of approximately $13 million.
7 7/8% Senior Notes - In connection with the Seagull Merger, the Company
assumed $100 million of 7 7/8% Senior Notes (the "7 7/8% Notes"). The 7 7/8%
Notes bear interest at 7 7/8% per annum and are not redeemable prior to maturity
or subject to any sinking fund.
7 1/2% Senior Notes - In connection with the Seagull Merger, the Company
assumed $150 million of 7 1/2% Senior Notes (the "7 1/2% Notes"), recorded at a
discount of $26 million. The 7 1/2% Notes are not redeemable prior to maturity
and are not subject to any sinking fund.
8 5/8% Senior Subordinated Notes - In connection with the Seagull Merger,
the Company assumed $100 million of 8 5/8% Senior Subordinated Notes (the "8
5/8% Notes"). The 8 5/8% Notes bear interest at 8 5/8% per annum and are not
subject to any sinking fund.
Monetary Production Payment - In connection with the Seagull Merger, the
Company assumed a monetary production payment. The investors receive 99% of the
operating cash flow from the properties, less funds required for working capital
purposes, until they reach a stated rate of return. Payout is expected to occur
sometime during the year 2000. The monetary production payment is included in
current maturities at December 31, 1999.
Notes Offering - On July 8, 1998, the Company closed an offering of $500
million Senior and Senior Subordinated Notes receiving net proceeds of
approximately $488 million, after deducting underwriting discounts and expenses.
The offering comprised three separate indentures including $125 million of 7
5/8% Senior Notes, $125 million of 8 1/4% Senior Notes, and $250 million of 8
3/8% Senior Subordinated Notes. On September 21, 1998, the Company filed a
registration statement
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on Form S-4 with the SEC to exchange the Notes for publicly-traded instruments
with identical terms. The exchange offer was completed on October 23, 1998.
OEI Credit Facility - Concurrent with the closing of the UMC Merger on
March 27, 1998, the Company entered into a five-year unsecured revolving credit
facility (the "OEI Credit Facility"). The OEI Credit Facility provided for
various borrowing options under either a base rate or Eurodollar margin rates.
As of December 31, 1998, total borrowings outstanding against the OEI Credit
Facility were approximately $357 million.
8 7/8% Senior Subordinated Notes - In 1997, the Company issued $200 million
of 8 7/8% Senior Subordinated Notes due 2007 (the "8 7/8% Notes") at a discount
for proceeds of approximately $195 million (after offering costs). Proceeds to
the Company were used primarily to finance the purchase of outstanding public
debt and to repay outstanding indebtedness under the existing credit facility.
The Company's senior and senior subordinated debt are general unsecured
obligations of the Company and are guaranteed by Ocean Louisiana, a direct
subsidiary of the Company, but are subordinate to the Credit Facility. The
Company's debt contains conditions and restrictive provisions including, among
other things, restrictions on additional indebtedness by the Company and its
subsidiaries and entering into sale and leaseback transactions and the
maintenance of certain financial ratios. Under the most restrictive of these
provisions, approximately $150 million was available for payment of cash
dividends on common stock or to repurchase common stock as of December 31, 1999.
Other Disclosures - In 1997, the Company repurchased approximately $125
million of outstanding public debt resulting in an extraordinary loss of $19
million, net of a deferred tax benefit of $12 million.
At December 31, 1998, the Company was party to a fixed LIBOR interest rate
swap contract that provided for fixed interest rates plus interest rate margins
to be realized on notional amounts of $45 million. The contract expired in
January 1999.
Annual Maturities - At December 31, 1999, the Company's aggregate annual
maturities of long-term debt are $14 million, $1 million, $1 million, $101
million and $301 million for the years 2000, 2001, 2002, 2003 and 2004,
respectively.
8. Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by
the Company using available market information and valuation methodologies
described below. Considerable judgment is required in interpreting market data
to develop the estimates of fair value. The use of different market assumptions
or valuation methodologies may have a material effect on the estimated fair
value amounts. The estimated fair values of the Company's financial instruments
(stated in thousands) are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Liabilities:
Debt..................................... $ 1,347,061 $ 1,297,959 $ 1,372,726 $ 1,349,030
Commodity hedging instruments:
In a receivable position.................. - 5,365 - 7,309
In a payable position..................... - (9,552) - -
</TABLE>
Debt - The fair value of the public debt is estimated based on quoted
market prices for the same or similar issues. The carrying amount of all other
debt approximates fair value because these instruments bear interest at rates
tied to current market rates or mature in one year.
Commodity Hedging Instruments - The fair value of the Company's commodity
hedging instruments is the estimated amount the Company would receive or pay to
settle the applicable commodity hedging instrument at the reporting date, taking
into account the difference between market prices or index prices at year-end
and the contract price of the commodity hedging instrument. Certain of the
Company's commodity hedging instruments, primarily swaps and options, are off
balance sheet transactions and, accordingly, no respective carrying amounts for
these instruments were included in the accompanying consolidated balance sheets.
As of December 31, 1999, the Company had hedged approximately 9.5 million
barrels of oil and 18.3 Bcf of natural gas, representing approximately 35% and
11% of its expected 2000 crude oil and natural gas production, respectively.
Assuming current strip prices, the average price of hedged production is
estimated at $20.93 per Bbl for crude oil and $2.75 per Mcf for natural gas.
The results of hedging increased (decreased) oil and natural gas revenues
by approximately $(52) million, $25 million and ($1) million for the years ended
December 31, 1999, 1998 and 1997, respectively.
45
<PAGE>
9. Other Noncurrent Liabilities and Deferred Revenue
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Deferred revenue........................................................ $ 71,845 $ -
Oil and gas imbalances (net of current portion of $3 million in 1999)... 14,968 5,286
Supplemental benefit and deferred directors fee plans................... 8,361 -
Redeemable bearer shares................................................ 6,160 -
Deferred income taxes................................................... - 8,010
Other................................................................... 18,763 7,649
------------------ ------------------
$ 120,097 $ 20,945
================== ==================
</TABLE>
Deferred Revenue - 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.
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 is being amortized into revenue as scheduled deliveries of
crude oil are made.
Oil and Gas Imbalances - As discussed in Note 2, the Company records oil
and gas revenues following the entitlements method of accounting for production.
Supplemental Benefit and Deferred Directors Fee Plans - Supplemental
benefit and deferred directors fee plans represent the Company's obligation
under its executive supplemental retirement plan, the deferred directors fee
plan and other supplemental benefit plans.
Redeemable Bearer Shares - As a result of the Seagull Merger, the Company
assumed an obligation in the form of an interest-free loan which is repayable on
demand only to the extent certain bearer share warrants are presented for
exchange prior to July 2008. At that time, the obligation will cease and
remaining cash will revert to the Company as an increase in additional
paid-in-capital.
10. Shareholders' Equity
The following table reflects the activity in shares of the Company's common
stock and preferred stock during the three years ended December 31, 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
---------------- --------------- ----------------
<S> <C> <C> <C>
Common Stock Outstanding:
Shares at beginning of year................................ 101,753,646 100,109,241 91,741,503
Shares issued in connection with Seagull Merger............ 64,629,732 - -
Exercise of common stock options........................... 596,603 1,084,405 1,110,277
Issuance of common stock................................... - - 7,254,000
Issuance of restricted stock............................... - 560,000 -
Other...................................................... - - 3,461
---------------- --------------- ----------------
Shares at end of year...................................... 166,979,981 101,753,646 100,109,241
================ =============== ================
Preferred Stock Outstanding:
Shares at beginning of year................................ 50,000 - -
Issuance of preferred stock................................ - 50,000 -
---------------- --------------- ----------------
Shares at end of year...................................... 50,000 50,000 -
================ =============== ================
Treasury Stock Outstanding:
Shares at beginning of year................................ - - -
Shares assumed in connection with Seagull Merger........... (472,278) - -
Purchase of shares......................................... (394,000) - -
Contribution of shares to ESOP............................. 488,107 - -
---------------- --------------- ----------------
Shares at end of year...................................... (378,171) - -
================ =============== ================
</TABLE>
Preferred Stock - The Company is authorized to issue 10,000,000 shares of
preferred stock, par value $1.00 and $0.01 per share at December 31, 1999 and
1998, respectively, in one or more series. On November 10, 1998, the Company
completed a private placement of 50,000 shares of Convertible Preferred Stock
for $38 million of oil and gas properties and $12 million cash from one of its
institutional investors and an affiliate of such investor. The preferred stock
has a 6.5% cumulative dividend payable semi-annually and ranks senior to the
Company's common stock with respect to dividend distribution and distribution
upon liquidation. Upon liquidation, the holders of the preferred shares are
entitled to receive $1,000 per share, plus any accrued and unpaid dividends. The
conversion price of the shares is $15.00.
Treasury Stock - In connection with the Seagull Merger, the Company
acquired 472,000 shares of treasury stock.
46
<PAGE>
In December 1999, the Company purchased 394,000 shares of stock in the open
market for $2.8 million and subsequently contributed 488,000 shares of treasury
stock to its Employee Stock Option Plan.
Preferred Share Purchase Rights - The Company has a Share Purchase Rights
Plan to protect the Company's shareholders from coercive or unfair takeover
tactics. Under this Plan, each outstanding share and each share of common stock
subsequently issued has attached to it one Right, exercisable at $30.75, subject
to certain adjustments. In the event a person or group acquires 10% or more of
the outstanding common stock, or in the event the Company is acquired in a
merger or other business combination or 50% or more of the Company's
consolidated assets or earning power is sold, each Right entitles the holder to
purchase $30.75 worth of shares of common stock of the Company or of the
acquiring company, as the case may be, for half of the then-current, per-share
market prices.
The Rights, under certain circumstances, are redeemable at the option of
OEI's Board of Directors at a price of $0.005 per Right, within 10 days (subject
to extension) following the day on which the acquiring person or group exceeds
the 10% threshold. If any person or group acquires 10% or more (but less than
50%) of the Company's outstanding common stock, the Board may, at its option,
issue common stock in exchange for all or part of the outstanding and
exercisable Rights (other than Rights owned by such person or group which would
become null and void) at an exchange ratio of one share of common stock for each
two shares of common stock for which each Right is then exercisable, subject to
adjustment. The Rights expire on May 21, 2000.
11. Benefit Plans
Stock Option Plans - The Company currently has various stock option plans.
The stock options generally become exercisable over a three-year period and
expire 10 years after the date of grant. At December 31, 1999, approximately 3
million shares of common stock were available for grant. Information relating to
stock options is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ------------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Per Price Per Price Per
Shares Share Shares Share Shares Share
-------------- ------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance outstanding -
Beginning of year........ 12,667,983 $ 13.42 9,334,600 $ 12.34 8,090,322 $ 9.30
Seagull options
assumed at merger
date................. 5,414,601 $ 16.16 - - - -
Granted................ 5,261,000 $ 7.23 7,960,300 $ 17.80 2,423,590 $ 20.87
Exercised............. (596,603) $ 5.64 (1,084,405) $ 8.07 (1,111,886) $ 7.07
Forfeited............. (231,679) $ 8.84 (3,542,512) $ 22.05 (67,426) $ 41.09
-------------- ------------- ---------------- -------------- -------------- --------------
Balance outstanding -
End of year.............. 22,515,302 $ 12.88 12,667,983 $ 13.42 9,334,600 $ 12.34
============== ============= ================ ============== ============== ==============
Options exercisable -
End of year............. 17,559,619 $ 14.45 8,009,163 $ 12.77 4,167,056 $ 8.19
============== ============= ================ ============== ============== ==============
</TABLE>
The weighted average fair value of stock options granted during 1999, 1998
and 1997 was $4.28, $11.42 and $10.56 per share, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
options-pricing model. The model assumed expected volatility of 65%, 61% and 43%
to 54%, weighted average risk-free interest rates of 5.24%, 4.73% to 5.75%, and
6.16% to 6.83%, for grants in 1999, 1998 and 1997, respectively, and an expected
dividend yield of 0% and an expected life of 5.0 to 6.5 years for each of the
three years. Actual value realized, if any, is dependent on the future
performance of Ocean common stock and overall stock market conditions. There is
no assurance the value realized by an optionee will be at or near the value
estimated by the Black-Scholes model.
Information relating to stock options outstanding at December 31, 1999 is
summarized as follows:
47
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------------------
Weighted Weighted
Number Average Average Number Weighted
Outstanding Remaining Exercise Exercisable at Average
Range of at Contractual Price Per December 31, Exercise Price
Exercise Prices December 31, 1999 Life Share 1999 Per Share
-------------------- --------------- -------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C>
$2.11 - 6.80 2,324,551 4.9 $ 4.84 2,324,551 $ 4.84
$6.81 - 6.90 4,348,000 8.8 $ 6.81 131,500 $ 6.81
$6.91 - 8.75 3,722,512 5.3 $ 8.47 3,703,345 $ 8.47
$8.76 - 12.00 3,561,991 5.2 $ 10.68 2,862,541 $ 10.82
$12.01 - 22.00 4,490,517 5.1 $ 17.57 4,490,517 $ 17.57
$22.01 - 36.55 4,067,731 4.9 $ 24.77 4,047,165 $ 24.78
-------------------- --------------- -------------- ----------------- ---------------------
22,515,302 5.8 $ 12.88 17,559,619 $ 14.45
==================== =============== ============== ================= =====================
</TABLE>
All outstanding options were issued at an exercise price equal to fair
market value or greater of the Company's common stock as of the date of grant.
Accordingly, as discussed in Note 2 for the years ended December 31, 1999, 1998
and 1997, no compensation expense relating to these options was recognized in
the Company's results of operations. Had compensation costs for the Company's
stock option plans been determined based on the fair value at the grant dates
for awards made after December 31, 1994 under those plans, the Company's net
income (loss) and earnings (loss) per share would have been restated to the pro
forma amounts (stated in thousands except per-share data) indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss):
As reported................................................ $ (43,838) $ (406,879) $ 42,919
Pro forma.................................................. (71,019) (427,166) 36,001
Earnings (loss) per share:
Basic: As reported........................ $ (0.31) $ (4.04) $ 0.46
Pro forma.......................... $ (0.49) $ (4.43) $ 0.39
Diluted: As reported........................ $ (0.31) $ (4.04) $ 0.44
Pro forma.......................... $ (0.49) $ (4.43) $ 0.37
</TABLE>
Under SFAS No. 123, the acceleration of vesting of options due to the
Seagull Merger resulted in the recognition of all remaining pro forma
unamortized compensation expense relating to those options in the calculation of
the 1999 pro forma amounts above.
Restricted Stock - In November 1998 the Company awarded a total of 560,000
shares of restricted stock with a fair market value of $10.25 per share and a
three-year vesting period to six executive officers at no cost to the employees.
Upon the completion of the Seagull Merger, any unvested shares automatically
became vested and all restrictions lapsed.
Other Benefit Plans - The Company has various other benefit plans,
primarily in the form of profit sharing and thrift plans. Collectively, Company
contributions to these plans were approximately $6 million, $2 million and $2
million in 1999, 1998 and 1997, respectively and were included in operating and
general and administrative expenses.
12. Income Taxes
The income (loss) before income taxes and the components of income tax
expense (benefit) for each of the years ended December 31, 1999, 1998 and 1997
(stated in thousands) were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997
--------------- ---------------- --------------
<S> <C> <C> <C>
Income (loss) before income taxes and extraordinary item:
Domestic................................................... $ (67,739) $ (494,687) $ 82,542
Foreign.................................................... 46,115 (121,891) 20,670
--------------- ---------------- --------------
$ (21,624) $ (616,578) $ 103,212
=============== ================ ==============
Current income tax expense (benefit):
Federal.................................................... $ 21,577 $ 321 $ 169
Foreign.................................................... 20,074 3,512 4,716
State...................................................... 6,400 (18) 1,335
--------------- ---------------- --------------
Total current............................................ 48,051 3,815 6,220
--------------- ---------------- --------------
Deferred income tax expense (benefit):
Federal.................................................... (38,179) (198,798) 28,278
Foreign.................................................... (2,362) (13,131) 5,408
State...................................................... (7,582) (1,585) 1,086
--------------- ---------------- --------------
Total deferred........................................... (48,123) (213,514) 34,772
--------------- ---------------- --------------
Income tax expense (benefit).................................. $ (72) $ (209,699) $ 40,992
=============== ================ ==============
</TABLE>
In addition, the Company incurred tax expense (benefit) of $1 million on
discontinued operations in 1999 and $(13) million and $(12) million on
extraordinary items in 1999 and 1997, respectively.
48
<PAGE>
As of December 31, 1999 and 1998, the Company and its subsidiaries had U.S.
federal net operating loss (NOL) carryforwards of approximately $81 and $193
million, respectively, which will expire in the year 2018.
For federal income tax purposes, certain limitations are imposed on an
entity's ability to utilize its NOLs in future periods if a change of control,
as defined for federal income tax purposes, has taken place. In general terms,
the limitation on utilization of NOLs and other tax attributes during any one
year is determined by the value of an acquired entity at the date of the change
of control multiplied by the then-existing long-term, tax-exempt interest rate.
The manner of determining an acquired entity's value has not yet been addressed
by the Internal Revenue Service. The Company has determined that, for federal
income tax purposes, a change of control has occurred. However, the Company does
not believe such limitations will significantly impact the Company's ability to
utilize the NOLs.
Income tax expense (benefit) for each of the years ended December 31, 1999,
1998 and 1997 (stated in thousands) was different than the amount computed using
the federal statutory rate (35%) for the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Amount computed using the statutory rate...................... $ (7,568) $ (215,802) $ 36,125
Increase (reduction) in taxes resulting from:
Net book deductions not available for tax due to differences
in book/tax basis........................................ 283 2,337 329
Tax gain in excess of book gain............................ 9,045 2,310 -
Nondeductible merger costs................................. - 7,103 -
State and local income taxes, net of federal effect........ (768) (1,575) 1,430
Taxation of foreign operations, net of federal effect...... 7,309 (10,114) 3,020
Accrual to actual adjustments.............................. (1,816) 1,072 459
Increase (decrease) in deferred tax asset valuation allowance (6,570) 4,476 -
Other...................................................... 13 494 (371)
--------------- -------------- --------------
Income tax expense (benefit).................................. $ (72) $ (209,699) $ 40,992
=============== ============== ==============
</TABLE>
The net decrease in the valuation allowance for the year ended December 31,
1999 of approximately $6.6 million included $4.5 million related to the
utilization in 1999 of net operating loss carryforwards expiring in 1999 for
which a valuation allowance had previously been provided. The remaining change
for 1999 is related to management's belief that, due to events occurring in the
year of change, it is more likely than not such deferred tax assets, for which a
valuation allowance had previously been established, will be realized.
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the years ended December
31, 1999, 1998 and 1997 (stated in thousands) were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1999 1998 1997
--------------- ---------------- --------------
<S> <C> <C> <C>
Deferred tax expense (benefit) exclusive of the effects of
other components listed below............................. $ (41,553) $ (217,990) $ 34,772
Increase (decrease) in deferred tax asset valuation allowance. (6,570) 4,476 -
--------------- ---------------- --------------
$ (48,123) $ (213,514) $ 34,772
=============== ================ ==============
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax liabilities and deferred tax assets as of December
31, 1999 and 1998 (stated in thousands) were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
Deferred tax assets:
Excess of tax basis in oil and gas properties over basis for
financial reporting purposes.................................... $ 131,796 $ 136,820
Deferred revenue.................................................. 35,000 -
Net operating loss carryforwards.................................. 28,317 108,583
Percentage depletion carryforwards................................ 2,688 2,969
Investment tax credit carryforwards............................... 25 25
Alternative minimum tax credit carryforwards...................... 24,415 4,187
Other............................................................. 17,573 886
----------------- ------------------
Deferred tax assets.................................................. 239,814 253,470
Less - valuation allowance........................................... (116) (6,686)
----------------- ------------------
Net deferred tax assets.............................................. 239,698 246,784
Deferred tax liabilities:
Property, plant and equipment, due to differences in depreciation,
depletion and amortization...................................... (3,596) (35,528)
Other............................................................. - (2,676)
----------------- ------------------
Deferred tax liabilities............................................. (3,596) (38,204)
----------------- ------------------
Net deferred tax assets.............................................. 236,102 208,580
Less - reclassification to current deferred assets (liabilities)..... (2,696) 1,234
----------------- ------------------
Net non-current deferred tax assets.................................. $ 233,406 $ 209,814
================= ==================
</TABLE>
49
<PAGE>
13. Related Party Transactions
The Company conducts a portion of its oil and gas activities in conjunction
with a group of institutional and corporate investors that participate in
certain of the Company's acquisition, development and exploration programs, and
provide the Company with certain carried interests and management fees.
Management fee income of $0.3 million, $3 million and $3 million, related to the
years ended December 31, 1999, 1998 and 1997, respectively, is included in
operating expenses.
During 1999, the Company paid fees of $4.9 million to Merrill Lynch & Co.,
Inc. for financial advisory services related to the Seagull Merger. A member of
the Company's Board of Directors also serves on the Board of Merrill Lynch &
Co., Inc.
During 1999, the Company paid fees totaling $1.1 million to the law firm of
Vinson & Elkins, L.L.P. to perform various legal services for the Company. A
member of the Company's Board of Directors is of counsel with Vinson and Elkins,
L.L.P.
The Company pays an annual consulting fee of $425,000 from June 1, 1999
through May 31, 2002 to a member of the Company's Board of Directors.
During 1999, 1998 and 1997, the Company paid $0.6 million, $0.8 million and
$1.5 million, respectively, to an affiliate of a stockholder associated with an
overriding royalty interest owned by it.
Effective January 1, 2000, the Company pays an annual salary of $100,000 to
the former Chairman of the Board of Directors of the Company for a period of two
years. In addition, severance benefits of $5.4 million paid to the former
Chairman have been included in Merger expenses for the year ended December 31,
1999.
Effective November 1, 1995, the Company entered into a consulting agreement
for geological services with a party related to a former officer of the Company.
The original term of this agreement expired on October 31, 1999 and the contract
is now on a month-to-month basis. In 1999, 1998, and 1997, the Company paid
approximately $127,000, $135,000 and $108,000, respectively, relating to the
agreement.
Management believes that all transactions with the aforementioned entities
are under normal industry terms and conditions.
14. Commitments And Contingencies
Marketing Contract - Approximately 90% of the Company's monthly domestic
gas production is being sold at market prices pursuant to a purchase and sale
agreement with Duke Energy Trading and Marketing, L.L.C. The agreement is in
effect through September 30, 2000.
Transportation Commitments - The Company has entered into various
agreements for transportation of specified quantities of natural gas with
estimated future minimum transportation expense payments required for years
ending December 31, 2000 through 2004 of $6 million, $3 million, $3 million, $2
million and $2 million, respectively.
Lease Commitments - The Company leases certain office space and equipment
under operating lease arrangements which require future minimum rental payments
ranging between $4 million and $8 million in each of the years 2000 through
2004, and total less than $100,000 for all subsequent years. Total rental
expense under operating leases was approximately $5 million, $4 million, and $3
million in 1999, 1998, and 1997, respectively.
Other - The Company is a party to other ongoing litigation in the normal
course of business. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. While the outcome of lawsuits or other proceedings
against the Company cannot be predicted with certainty, management believes that
the effect on its financial condition, results of operations and cash flows, if
any, will not be material.
15. Supplemental Oil and Gas Information (Unaudited)
As discussed in Note 5, during 1999, the Company sold its Canadian
subsidiary and portions of its domestic assets in the Arkoma and Gulf of Mexico
regions. Also, as a result of the Seagull Merger, the Company acquired
additional foreign operations primarily in Egypt, Russia and Indonesia, and
increased its domestic and COte d'Ivorian operations. In the following tables
"Other International" information includes primarily Indonesia and Russia at
December 31, 1999 and Canada at December 31, 1998 and 1997.
50
<PAGE>
Capitalized Costs Relating to Oil and Gas Producing Activities
(amounts in thousands)
<TABLE>
<CAPTION>
Cote Equatorial Other
Domestic d'Ivoire Guinea Egypt International Total
-------------- ----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1999:
Proved ................... $2,841,940 $227,131 $ 498,747 $ 85,271 $ 53,199 $3,706,288
Unproved ................. 371,265 - - 26,563 109,369 507,197
-------------- ----------- ------------ ----------- ------------- ------------
3,213,205 227,131 498,747 111,834 162,568 4,213,485
Accumulated depreciation,
depletion and amortization (1,707,338) (112,046) (203,288) (18,401) (20,275) (2,061,348)
-------------- ----------- ------------ ----------- ------------- ------------
Total Capitalized Costs...... $1,505,867 $115,085 $ 295,459 $ 93,433 $ 142,293 $2,152,137
============== =========== ============ =========== ============= ============
At December 31, 1998:
Proved ................... $2,119,574 $203,822 $309,127 $ - $ 127,163 $2,759,686
Unproved ................. 327,015 1,003 74,681 - 85,990 488,689
-------------- ----------- ------------ ----------- ------------- ------------
2,446,589 204,825 383,808 - 213,153 3,248,375
Accumulated depreciation,
depletion and amortization (1,385,738) (81,484) (167,740) - (56,761) (1,691,723)
-------------- ----------- ------------ ----------- ------------- ------------
Total Capitalized Costs...... $1,060,851 $123,341 $216,068 $ - $ 156,392 $1,556,652
============== =========== ============ =========== ============= ============
</TABLE>
Costs Incurred in Oil and Gas Property Acquisition,
Exploration and Development Activities (amounts in thousands)
<TABLE>
<CAPTION>
Cote Equatorial Other
Domestic d'Ivoire Guinea Egypt International Total
------------ ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Acquisition costs:
Proved .................... $ 751,266 $ 15,660 $ - $ 82,673 $ 50,717 $ 900,316
Unproved ................... 116,319 - 181 25,855 9,900 152,255
Exploration costs.............. 91,207 4,056 16,886 1,063 34,821 148,033
Development costs.............. 52,321 2,591 97,873 3,717 3,329 159,831
------------ ----------- ----------- ----------- ------------- -------------
Total costs incurred........... $1,011,113 $ 22,307 $114,940 $113,308 $ 98,767 $ 1,360,435
============ =========== =========== =========== ============= =============
Year ended December 31, 1998:
Acquisition costs:
Proved ..................... $ 59,534 $ - $ - $ - $ 5,197 $ 64,731
Unproved .................. 46,417 - - - 45,799 92,216
Exploration costs ............. 261,991 43,745 53,451 - 36,640 395,827
Development costs............. 232,585 29,446 (1) 121,213 - 12,107 395,351
------------ ----------- ----------- ----------- ------------- -------------
Total costs incurred........... $ 600,527 $ 73,191 $174,664 $ - $ 99,743 $ 948,125
============ =========== =========== =========== ============= =============
Year ended December 31, 1997:
Acquisition costs:
Proved .................... $ 120,520 $ - $ - $ - $ 9,554 $ 130,074
Unproved .................. 113,944 - - - 2,423 116,367
Exploration costs ............. 153,113 16,240 90,232 - 10,357 269,942
Development costs.............. 248,363 23,462 (1) 36,842 - 9,308 317,975
------------ ----------- ----------- ----------- ------------- -------------
Total costs incurred............ $ 635,940 $ 39,702 $127,074 $ - $ 31,642 $ 834,358
============ =========== =========== =========== ============= =============
</TABLE>
(1) Amounts do not include $4,125 and $17,229 incurred on the LPG Plant in
Cote d'Ivoire in 1998 and 1997, respectively.
51
<PAGE>
Of the $588 million of net unproved property costs (primarily seismic and
lease acquisition costs) at December 31, 1999, being excluded from the
amortizable base, $207 million was incurred in 1999, $245 million was incurred
in 1998, $133 million was incurred in 1997, and $3 million was incurred in prior
years. The majority of the costs will be evaluated over a five-year period.
Results of Operations for Oil and Gas Producing Activities
(amounts in thousands)
<TABLE>
<CAPTION>
Cote Equatorial Other
Domestic d'Ivoire Guinea Egypt International Total
------------- ----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Revenues .................... $ 467,565 $ 50,799 $131,153 $ 58,910 $ 27,091 $ 735,518
Operating expenses(1) ....... 161,253 11,390 22,138 10,690 11,510 216,981
DD&A(2)..................... 212,089 20,582 48,262 19,189 9,577 309,699
Impairment of oil and
gas properties........... - - - - 46,403 46,403
Income tax expense
(benefit)(3).............. 34,391 6,494 23,956 10,389 (12,032) 63,198
------------- ----------- ----------- ----------- ------------- ------------
Results of activities ....... $ 59,832 $ 12,333 $ 36,797 $ 18,642 $ (28,367) $ 99,237
============= =========== =========== =========== ============= ============
Year Ended December 31, 1998:
Revenues .................... $ 402,301 $ 26,397 $ 74,220 $ - $ 19,232 $ 522,150
Operating expenses(1) ....... 157,155 7,837 13,010 - 7,074 185,076
DD&A(2)..................... 219,189 11,775 49,980 - 7,220 288,164
Impairment of oil and
gas properties .......... 435,768 43,723 60,424 - - 539,915
Income tax expense (benefit)(3) (155,728) (14,036) (18,694) - 1,876 (186,582)
------------- ----------- ----------- ----------- ------------- ------------
Results of activities ....... $ (254,083) $(22,902) $(30,500) $ - $ 3,062 $(304,423)
============= =========== =========== =========== ============= ============
Year Ended December 31, 1997:
Revenues .................... $ 423,935 $ 27,803 $ 78,861 $ - $ 18,595 $ 549,194
Operating expenses(1) ....... 121,329 5,602 5,520 - 6,898 139,349
DD&A(2)..................... 175,245 14,555 46,474 - 7,366 243,640
Income tax expense(3) ...... 48,397 2,905 10,209 - 1,646 63,157
------------- ----------- ----------- ----------- ------------- ------------
Results of activities........ $ 78,964 $ 4,741 $ 16,658 $ - $ 2,685 $ 103,048
============= =========== =========== =========== ============= ============
</TABLE>
(1) Operating expenses represent costs incurred to operate and maintain wells
and related equipment and facilities. These costs include, among other
things, repairs and maintenance, labor, materials, supplies, property
taxes, insurance, severance taxes and all overhead expenses directly
related to oil and gas producing activities.
(2) DD&A represents depreciation, depletion and amortization.
(3) Income tax expense (benefit) is calculated by applying the statutory tax
rate to operating profit, then adjusting for any applicable permanent tax
differences or tax credits and allowances.
52
<PAGE>
Reserve Quantity Information
<TABLE>
<CAPTION>
Cote Equatorial Other
Domestic d'Ivoire Guinea Egypt International Total
-------------- ------------ ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves (MBOE):
January 1, 1999 ..................... 194,106 34,394 41,048 - 22,401 291,949
Revisions of previous estimates.... 7,696 1,036 14,498 (33) 2,469 25,666
Extensions and discoveries ....... 39,131 - - 271 3,638 43,040
Purchases of reserves in place .... 141,850 4,705 - 25,700 24,481 196,736
Sales of reserves in place ........ (63,901) - - (2,173) (23,639) (89,713)
Production ........................ (36,399) (3,606) (7,323) (3,043) (2,310) (52,681)
-------------- ------------ ------------ ---------- ------------- -----------
December 31, 1999..................... 282,483 36,529 48,223 20,722 27,040 414,997
============== ============ ============ ========== ============= ===========
January 1, 1998 ...................... 182,912 27,972 40,014 - 19,693 270,591
Revisions of previous estimates ... (4,960) 3,945 (1,659) - 750 (1,924)
Extensions and discoveries ........ 35,579 467 9,230 - 2,775 48,051
Purchases of reserves in place .... 12,138 4,395 - - 1,578 18,111
Sales of reserves in place ........ (345) - - - (256) (601)
Production......................... (31,218) (2,385) (6,537) - (2,139) (42,279)
-------------- ------------ ------------ ---------- ------------- -----------
December 31, 1998..................... 194,106 34,394 41,048 - 22,401 291,949
============== ============ ============ ========== ============= ===========
January 1, 1997....................... 141,532 19,218 19,940 - 13,963 194,653
Revisions of previous estimates ... 6,110 3,216 441 - 281 10,048
Extensions and discoveries ........ 35,234 780 24,086 - 3,697 63,797
Purchases of reserves in place .... 28,967 6,608 - - 3,608 39,183
Sales of reserves in place ........ (3,246) - - - (145) (3,391)
Production ........................ (25,685) (1,850) (4,453) - (1,711) (33,699)
-------------- ------------ ------------ ---------- ------------- -----------
December 31, 1997..................... 182,912 27,972 40,014 - 19,693 270,591
============== ============ ============ ========== ============= ===========
Proved developed reserves (MBOE):
December 31, 1999.................. 225,773 13,382 18,381 11,003 18,285 286,824
December 31, 1998.................. 143,603 10,566 10,620 - 21,467 186,256
December 31, 1997 ................. 145,044 8,580 11,482 - 19,693 184,799
Proved developed oil reserves (Mbbl):
December 31, 1999 ................ 74,445 2,836 18,381 10,809 11,929 118,400
December 31, 1998 ................ 64,183 2,251 10,620 - 3,900 80,954
December 31, 1997 ................. 70,632 1,861 11,482 - 3,383 87,358
Proved developed gas reserves (MMcf):
December 31, 1999 ................. 907,968 63,273 - 1,167 38,134 1,010,542
December 31, 1998 ................. 476,522 49,891 - - 105,401 631,814
December 31, 1997 ................. 446,472 40,313 - - 97,862 584,647
</TABLE>
The reserve volumes presented are estimates only and should not be
construed as being exact quantities. These reserves may or may not be recovered
and may increase or decrease as a result of future operations of the Company and
changes in economic conditions.
53
<PAGE>
Reserve Quantity Information
<TABLE>
<CAPTION>
Cote Equatorial Other
Domestic d'Ivoire Guinea Egypt International Total
------------ ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Proved Oil Reserves (Mbbl):
January 1, 1999 ..................... 82,936 6,437 41,048 - 3,900 134,321
Revisions of previous estimates .. 10,234 1,358 14,498 33 2,276 28,399
Extension and discoveries ........ 7,682 - - 271 3,638 11,591
Purchases of reserves in place ... 14,717 1,009 - 25,360 14,262 55,348
Sales of reserves in place ....... (12,229) - - (2,173) (4,473) (18,875)
Production ....................... (13,532) (1,765) (7,323) (2,999) (1,366) (26,985)
------------ ------------ ----------- ----------- ------------ ------------
December 31, 1999.................... 89,808 7,039 48,223 20,492 18,237 183,799
============ ============ =========== =========== ============ ============
January 1, 1998 ..................... 88,948 5,257 40,014 - 3,383 137,602
Revisions of previous estimates .. (11,818) 902 (1,659) - 397 (12,178)
Extension and discoveries ........ 14,515 373 9,230 - 230 24,348
Purchases of reserves in place ... 6,256 986 - - 360 7,602
Sales of reserves in place ....... (305) - - - (20) (325)
Production ....................... (14,660) (1,081) (6,537) - (450) (22,728)
------------ ------------ ----------- ----------- ------------ ------------
December 31, 1998.................... 82,936 6,437 41,048 - 3,900 134,321
============ ============ =========== =========== ============ ===========
January 1, 1997 ..................... 67,717 4,150 19,940 - 3,499 95,306
Revisions of previous estimates .. 404 854 441 - 192 1,891
Extension and discoveries ........ 16,809 218 24,086 - 181 41,294
Purchases of reserves in place ... 17,344 1,062 - - 45 18,451
Sales of reserves in place ....... (1,167) - - - (95) (1,262)
Production ....................... (12,159) (1,027) (4,453) - (439) (18,078)
------------ ------------ ----------- ----------- ------------ ------------
December 31, 1997.................... 88,948 5,257 40,014 - 3,383 137,602
============ ============ =========== =========== ============ ============
Proved Gas Reserves (MMcf):
January 1, 1999 ..................... 667,019 167,743 - - 111,004 945,766
Revisions of previous estimates .. (15,236) (1,927) - (400) 1,171 (16,392)
Extension and discoveries ........ 188,693 - - - - 188,693
Purchases of reserves in place ... 762,799 22,177 - 2,039 61,311 848,326
Sales of reserves in place ....... (310,031) - - - (115,000) (425,031)
Production........................ (137,195) (11,050) - (264) (5,666) (154,175)
------------ ------------ ----------- ----------- ------------ ------------
December 31, 1999.................... 1,156,049 176,943 - 1,375 52,820 1,387,187
============ ============ =========== =========== ============ ============
January 1, 1998 ..................... 563,783 136,290 - - 97,862 797,935
Revisions of previous estimates .. 41,146 18,256 - - 2,121 61,523
Extension and discoveries ........ 126,388 566 - - 15,262 142,216
Purchases of reserves in place ... 35,291 20,455 - - 7,308 63,054
Sales of reserves in place ....... (243) - - - (1,414) (1,657)
Production ....................... (99,346) (7,824) - - (10,135) (117,305)
------------ ------------ ----------- ----------- ------------ ------------
December 31, 1998.................... 667,019 167,743 - - 111,004 945,766
============ ============ =========== =========== ============ ============
January 1, 1997 ..................... 442,890 90,410 - - 62,781 596,081
Revisions of previous estimates .. 34,234 14,174 - - 533 48,941
Extension and discoveries ........ 110,547 3,370 - - 21,102 135,019
Purchases of reserves in place ... 69,740 33,275 - - 21,377 124,392
Sales of reserves in place ....... (12,474) - - - (301) (12,775)
Production........................ (81,154) (4,939) - - (7,630) (93,723)
------------ ------------ ----------- ----------- ------------ ------------
December 31, 1997.................... 563,783 136,290 - - 97,862 797,935
============ ============ =========== =========== ============ ============
</TABLE>
54
<PAGE>
The Company's standardized measure of discounted future net cash flows as
of December 31, 1999 and 1998 and changes therein for each of the years 1999,
1998 and 1997 are provided based on the present value of future net revenues
from proved oil and gas reserves estimated by internal petroleum engineers in
accordance with guidelines established by the Securities and Exchange
Commission. These estimates were computed by applying appropriate year-end
prices for oil and gas to estimated future production of proved oil and gas
reserves over the economic lives of the reserves and assuming continuation of
existing operating conditions. Year-end 1999 and 1998 calculations were made
using prices of $23.33 per Bbl and $10.02 per Bbl, respectively, for oil and
$2.04 per Mcf and $1.83 per Mcf, respectively, for gas. The Company's average
realized prices before hedging for the year ended December 31, 1999 were $17.32
per Bbl and $12.13 per Bbl, respectively, for oil and $2.08 per Mcf and $1.89
per Mcf, respectively for gas. Ocean's average prices before hedging for the
month ended January 31, 2000 were $25.27 per Bbl and $2.30 per Mcf for oil and
gas, respectively.
Because the disclosure requirements are standardized, significant changes
can occur in these estimates based upon oil and gas prices in effect at
year-end. The following estimates should not be viewed as an estimate of fair
market value. Income taxes are computed by applying the statutory income tax
rate in the jurisdiction to the net cash inflows relating to proved oil and gas
reserves less the tax bases of the properties involved and giving effect to
appropriate net operating loss carryforwards, tax credits and allowances
relating to such properties.
Standardized Measure of Discounted Future Net Cash Flows (amounts in thousands)
<TABLE>
<CAPTION>
Cote Equatorial Other
Domestic d'Ivoire Guinea Egypt International Total
-------------- ------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999:
Future cash inflows............... $4,381,919 $ 661,231 $ 1,154,462 $ 482,108 $ 491,695 $7,171,415
Future development costs.......... (569,875) (117,069) (206,963) (31,711) (16,724) (942,342)
Future production costs........... (1,285,846) (134,778) (110,286) (80,438) (164,770) (1,776,118)
-------------- ------------- ------------ ------------ ------------- -------------
Future net cash flows before
income taxes................... 2,526,198 409,384 837,213 369,959 310,201 4,452,955
10% annual discount .............. (897,360) (171,272) (193,135) (98,504) (140,831) (1,501,102)
-------------- ------------- ------------ ------------ ------------- -------------
Discounted future net cash flows
before income taxes............ 1,628,838 238,112 644,078 271,455 169,370 2,951,853
Discounted income taxes .......... (119,771) (98,239) (126,548) (95,762) (96,115) (536,435)
-------------- ------------- ------------ ------------ ------------- -------------
Standardized measure of discounted
future net cash flows.......... $1,509,067 $ 139,873 $ 517,530 $ 175,693 $ 73,255 $ 2,415,418
============== ============= ============ ============ ============= =============
December 31, 1998:
Future cash inflows............... $2,115,600 $ 328,562 $ 416,710 $ - $ 217,662 $3,078,534
Future development costs.......... (374,227) (111,048) (214,629) - (3,213) (703,117)
Future production costs........... (763,979) (105,528) (89,348) - (63,547) (1,022,402)
-------------- ------------- ------------ ------------ ------------- -------------
Future net cash flows before
income taxes................... 977,394 111,986 112,733 - 150,902 1,353,015
10% annual discount .............. (283,902) (50,347) (40,066) - (61,619) (435,934)
-------------- ------------- ------------ ------------ ------------- -------------
Discounted future net cash flows
before income taxes............ 693,492 61,639 72,667 - 89,283 917,081
Discounted income taxes .......... (8,619) 405 2,222 - (7,266) (13,258)
-------------- ------------- ------------ ------------ ------------- -------------
Standardized measure of discounted
future net cash flows.......... $ 684,873 $ 62,044 $ 74,889 $ - $ 82,017 $ 903,823
============== ============= ============ ============ ============= =============
</TABLE>
55
<PAGE>
Principal Sources of Change in the Standardized Measure of
Discounted Future Net Cash Flows (amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Beginning of Year............................................ $ 903,823 $ 1,220,407 $ 1,326,514
Revisions of previous quantity estimates less related costs 312,017 (19,572) 72,113
Extensions and discoveries less related costs............. 200,617 126,854 558,737
Purchases of reserves in place............................ 900,316 47,290 180,707
Sales of reserves in place................................ (417,231) (377) (28,976)
Net changes in future prices and production costs......... 1,191,165 (507,478) (793,915)
Future development costs incurred during the period....... 159,831 236,170 75,484
Sales of oil and gas produced, net of production costs.... (518,537) (333,978) (424,286)
Accretion of discount..................................... 91,708 133,906 149,599
Net changes in income taxes............................... (523,177) 111,025 210,628
Changes in production, future development costs,
timing and other ..................................... 114,886 (110,424) (106,198)
---------------- --------------- ---------------
1,511,595 (316,584) (106,107)
---------------- --------------- ---------------
End of Year.................................................. $2,415,418 $ 903,823 $ 1,220,407
================ =============== ===============
</TABLE>
16. 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.
56
<PAGE>
Supplemental Condensed Consolidating Statements of Operations
For the Three Years Ended December 31, 1999, 1998 and 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Unconsolidated
--------------------------------------------------------------
Guarantor Non-Guarantor
OEI Subsidiary Subsidiaries Consolidated OEI
------------------ -------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
1999
Revenues........................... $ - $ 223,732 $ 511,786 $ 735,518
Costs of Operations:
Operating expenses.............. - 82,823 134,158 216,981
Depreciation, depletion and
amortization.................. 7,712 95,229 214,546 317,487
Impairment of oil and gas
properties.................... - - 46,403 46,403
General and administrative...... 14,633 7,268 - 21,901
------------------ -------------------- ------------------- ------------------
Operating Profit (Loss)............ (22,345) 38,412 116,679 132,746
Interest Expense................... 116,398 13,126 (23,443) 106,081
Merger Expenses.................... - 49,603 - 49,603
Interest Income and Other.......... (6,238) (2,576) 7,500 (1,314)
------------------ -------------------- ------------------- ------------------
Income (Loss) Before Taxes......... (132,505) (21,741) 132,622 (21,624)
Income Tax Expense (Benefit)....... (48,364) 698 47,594 (72)
------------------ -------------------- ------------------- ------------------
Income (Loss) from Continuing
Operations...................... (84,141) (22,439) 85,028 (21,552)
Income from Discontinued
Operations, Net of Income Taxes. - - 1,127 1,127
Extraordinary Loss (Net of Taxes).. (23,413) - - (23,413)
------------------ -------------------- ------------------- ------------------
Net Income (Loss).................. $ (107,554) $ (22,439) $ 86,155 $ (43,838)
================== ==================== =================== ==================
1998
Revenues........................... $ - $ 307,318 $ 214,832 $ 522,150
Costs of Operations:
Operating expenses.............. - 116,424 68,652 185,076
Depreciation, depletion and
amortization.................. - 160,353 133,552 293,905
Impairment of oil and gas
properties.................... - 399,768 140,147 539,915
General and administrative...... 249 18,116 844 19,209
------------------ -------------------- ------------------- ------------------
Operating Loss..................... (249) (387,343) (128,363) (515,955)
Interest (Income) Expense.......... 36,545 42,950 (16,643) 62,852
Merger Expense..................... - 39,000 - 39,000
Interest Income and Other.......... - 552 (1,781) (1,229)
------------------ -------------------- ------------------- ------------------
Loss Before Taxes.................. (36,794) (469,845) (109,939) (616,578)
Income Tax Benefit................. (16,847) (151,444) (41,408) (209,699)
------------------ -------------------- ------------------- ------------------
Net Loss........................... $ (19,947) $ (318,401) $ (68,531) $ (406,879)
================== ==================== =================== ==================
1997
Revenues........................... $ - $ 343,263 $ 205,931 $ 549,194
Costs of Operations:
Operating expenses.............. - 87,480 51,869 139,349
Depreciation, depletion and
amortization.................. 125,003 123,420 248,423
General and administrative...... 120 14,447 696 15,263
------------------ -------------------- ------------------- ------------------
Operating Profit (Loss)............ (120) 116,333 29,946 146,159
Interest (Income) Expense.......... 16,115 65,670 (32,651) 49,134
Interest Income and Other.......... - (2,753) (3,434) (6,187)
------------------ -------------------- ------------------- ------------------
Income (Loss) Before Taxes......... (16,235) 53,416 66,031 103,212
Income Tax Expense (Benefit)....... (20,585) 57,556 4,021 40,992
Extraordinary Loss (net of taxes).. (19,301) - (19,301)
------------------ -------------------- ------------------- ------------------
Net Income (Loss).................. $ 4,350 $ (23,441) $ 62,010 $ 42,919
================== ==================== =================== ==================
</TABLE>
57
<PAGE>
Supplemental Condensed Consolidating Balance Sheets
At December 31, 1999 and 1998
(Amounts in Thousands)
<TABLE>
<CAPTION>
Unconsolidated
--------------------------------------------------
Guarantor Non-Guarantor Eliminating Consolidated
OEI Subsidiary Subsidiaries Entries OEI
-------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
December 31, 1999
Assets
Current Assets................ $ 3,266 $ 60,340 $ 226,344 $ - $ 289,950
Intercompany Investments...... 2,498,760 (167,761) (8,925) (2,322,074) -
Property, Plant and Equipment,
Net........................ 22,630 586,164 1,594,216 - 2,203,010
Other Assets.................. 72,943 187,393 29,847 - 290,183
-------------- --------------- --------------- --------------- ---------------
Total Assets.................. $ 2,597,599 $ 666,136 $ 1,841,482 (2,322,074) $ 2,783,143
============== =============== =============== =============== ===============
Liabilities and Shareholders' Equity
Current Liabilities........... $ 131,041 $ 107,628 $ 143,272 $ - $ 381,941
Long-Term Debt................ 1,324,811 - 8,599 - 1,333,410
Other Liabilities............. 102,976 11,390 5,731 - 120,097
Shareholders' Equity.......... 1,038,771 547,118 1,683,880 (2,322,074) 947,695
-------------- --------------- --------------- --------------- ---------------
Total Liabilities and
Shareholders' Equity....... $ 2,597,599 $ 666,136 $ 1,841,482 (2,322,074) $ 2,783,143
============== =============== =============== =============== ===============
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>
58
<PAGE>
Supplemental Condensed Consolidating Statements of Cash Flows
For the Three Years Ended December 31, 1999, 1998 and 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------------------------
Guarantor Non-Guarantor
OEI Subsidiary Subsidiaries Consolidated OEI
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
1999
Cash Flows from Operating
Activities:
Net Income (Loss)............... $ (107,554) $ (22,439) $ 86,155 $ (43,838)
Adjustments to reconcile net
income (loss) to net cash from
operating activities.......... (35,826) 2,190 413,622 379,986
Changes in operating assets and
liabilities, net of
acquisitions.................. 383,299 372,990 (758,686) (2,397)
------------------ ----------------- ----------------- ------------------
Net Cash Provided by (Used in)
Operating Activities............ 239,919 352,741 (258,909) 333,751
Cash Flows Provided by (Used in)
Investing Activities............ (20,194) 10,629 311,425 301,860
Cash Flows Provided by (Used in)
Financing Activities............ (218,173) (363,370) 115 (581,428)
------------------ ----------------- ----------------- ------------------
Net Increase in Cash and Cash
Equivalents..................... 1,552 - 52,631 54,183
Cash and Cash Equivalents:
Beginning of Period............. - - 10,706 10,706
------------------ ----------------- ----------------- ------------------
End of Period................... $ 1,552 $ - $ 63,337 $ 64,889
================== ================= ================= ==================
1998
Cash Flows from Operating
Activities:
Net Loss........................ $ (19,947) $ (318,401) $ (68,531) $ (406,879)
Adjustments to reconcile net
loss to net cash from
operating activities.......... (15,157) 412,254 228,857 625,954
Changes in assets and liabilities 28,030 70,907 (88,088) 10,849
------------------ ----------------- ----------------- ------------------
Net Cash Provided by (Used in)
Operating Activities............ (7,074) 164,760 72,238 229,924
Cash Flows Used in Investing
Activities...................... - (500,123) (468,266) (968,389)
Cash Flows Provided by Financing
Activities...................... 7,072 332,710 397,700 737,482
------------------ ----------------- ----------------- ------------------
Net Increase (Decrease) in Cash and
Cash Equivalents................ (2) (2,653) 1,672 (983)
Cash and Cash Equivalents:
Beginning of Period............. 2 2,653 9,034 11,689
------------------ ----------------- ----------------- ------------------
End of Period................... $ - $ - $ 10,706 $ 10,706
================== ================= ================= ==================
1997
Cash Flows from Operating
Activities:
Net Income (Loss)............... $ 4,350 $ (23,441) $ 62,010 $ 42,919
Adjustments to reconcile net
income (loss) to net cash from
operating activities.......... (20,033) 182,475 126,754 289,196
Changes in assets and liabilities (1) 44,685 (12,597) 32,087
------------------ ----------------- ----------------- ------------------
Net Cash Provided by (Used in)
Operating Activities............ (15,684) 203,719 176,167 364,202
Cash Flows Used in Investing
Activities...................... - (510,738) (290,768) (801,506)
Cash Flows Provided by Financing
Activities...................... 15,683 262,154 110,455 388,292
------------------ ----------------- ----------------- ------------------
Net Decrease in Cash and Cash
Equivalents..................... (1) (44,865) (4,146) (49,012)
Cash and Cash Equivalents:
Beginning of Period............. 3 47,518 13,180 60,701
------------------ ----------------- ----------------- ------------------
End of Period................... $ 2 $ 2,653 $ 9,034 $ 11,689
================== ================= ================= ==================
</TABLE>
59
Consent of Independent Auditors
The Board of Directors
Ocean Energy, Inc.:
We consent to the incorporation by reference in the following Registration
Statements of Ocean Energy, Inc. (formerly Seagull Energy Corporation) of our
report dated January 31, 2000, relating to the consolidated balance sheet of
Ocean Energy, Inc. and Subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended, which report is included in the December 31, 1999 Annual
Report on Form 10-K of Ocean Energy, Inc.
a. Form S-8, Seagull Thrift Plan (2-72014).
b. Form S-8, Seagull Energy Corporation 1981 Non-Qualified and
Incentive Stock Option Plan (2-80834).
c. Form S-8, ENSTAR Natural Gas Company Thrift Plan (33-14463).
d. Forms S-8 and S-3, Seagull Energy Corporation 1983 Stock Option
Plan (2-93087).
e. Forms S-8 and S-3, Seagull Energy Corporation 1986 Stock
Option Plan (33-22475).
f. Form S-8, Seagull Energy Corporation 1990 Stock Option Plan (33-43483).
g. Form S-8, Seagull Energy Corporation 1993 Stock Option Plan (33-50643).
h. Form S-8, Seagull Energy Corporation 1993 Nonemployee Directors'
Stock Option Plan (33-50645).
i. Form S-3, $350,000,000 Debt Securities of Seagull Energy
Corporation (33-65118).
j. Form S-3, $100,000,000 Debt Securities of Seagull Energy
Corporation (333-34841).
k. Form S-8, Seagull Energy Corporation 1995 Omnibus Stock Plan (33-64041).
l. Form S-3, $300,000,000 Debt Securities, Preferred Stock,
Depositary Shares, Common Stock or Securities Warrants of
Seagull Energy Corporation (33-64051).
m. Form S-8, Global Natural Resources In. 1989 Key Employees Stock
Option Plan and Global Natural Resources 1992 Stock Option Plan (333-13393).
n. Form S-8, Seagull Energy Corporation 1998 Omnibus Stock Plan (333-71375).
o. Form S-8, Ocean Energy, Inc. 1999 Long-Term Incentive Plan (333-95507).
p. Form S-3, Ocean Energy, Inc. $1 Billion Debt Securities, Common Stock,
Preferred Stock, Depository Shares, Warrants, Guarantees of
Debt Securities (333-79765).
q. Form S-8, Ocean Energy, Inc. 1996 Long-Term Incentive Plan, Ocean
Energy, Inc. 1994 Long-Term Incentive Plan, and United Meridian
Corporation 1994 Outside Directors' Nonqualified Stock Option
Plan (333-78255).
r. Post-Effective Amendment No. 1 to Form S-4 on Form S-8, Ocean Energy,
Inc. 1998 Long-Term Incentive Plan, Ocean Energy, Inc. Long-Term
Incentive Plan For Nonexecutive Employees, United Meridian Corporation
1994 Employee Nonqualified Stock Option Plan, and United Meridian
Corporation 1987 Nonqualified Stock Option Plan (333-68679).
s. Form S-4, Seagull/Ocean Merger (333-68679).
/s/KPMG LLP
Houston, Texas
March 27, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 15, 1999, on the consolidated balance sheet of Ocean
Energy, Inc. and subsidiaries as of December 31, 1998 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1998, incorporated by
reference in the Annual Report on Form 10-K of Ocean Energy, Inc. (formerly
Seagull Energy Corporation) for the year ended December 31, 1999, into the
following previously filed registration statements:
(a) Form S-8, Seagull Thrift Plan (2-72014).
(b) Form S-8, Seagull Energy Corporation 1981 Non-Qualified and
Incentive Stock Option Plan (2-80834).
(c) Form S-8, ENSTAR Natural Gas Company Thrift Plan (33-14463).
(d) Forms S-8 and S-3, Seagull Energy Corporation 1983 Stock
Option Plan (2-93087).
(e) Forms S-8 and S-3, Seagull Energy Corporation 1986 Stock
Option Plan (33-22475).
(f) Form S-8, Seagull Energy Corporation 1990 Stock Option Plan (33-43483).
(g) Form S-8, Seagull Energy Corporation 1993 Stock Option Plan (33-50643).
(h) Form S-8, Seagull Energy Corporation 1993 Nonemployee Directors'
Stock Option Plan (33-50645).
(i) Form S-3, $350,000,000 Debt Securities of Seagull
Energy Corporation (33-65118).
(j) Form S-3, $100,000,000 Debt Securities of Seagull
Energy Corporation (333-34841).
(k) Form S-8, Seagull Energy Corporation 1995 Omnibus Stock
Plan (33-64041).
(l) Form S-3, $300,000,000 Debt Securities, Preferred Stock,
Depositary Shares, Common Stock or Securities
Warrants of Seagull Energy Corporation (33-64051).
(m) Form S-8, Global Natural Resources Inc. 1989 Key Employees
Stock Option Plan and 1992 Stock Option Plan (333-13393).
(n) Form S-8, Seagull Energy Corporation 1998 Omnibus
Stock Plan (333-71375).
(o) Form S-8, Ocean Energy, Inc. 1999 Long-Term Incentive Plan (333-95507).
(p) Form S-3, $1 Billion Shelf Registration Statement of c
certain Debt and Equity Securities of Ocean Energy,Inc. (333-79765).
(q) Form S-8, Ocean Energy, Inc. 1996 Long-Term Incentive Plan,
Ocean Energy, Inc. 1994 Long-Term Incentive
Plan, United Meridian Corporation, and 1994 Outside
Directors' Nonqualified Stock Option Plan (333-78255).
(r) Post-Effective Amendment No. 1 to Form S-4 on Form S-8,
Ocean Energy, Inc. 1998 Long-Term Incentive
Plan, Ocean Energy, Inc. Long-Term Incentive Plan For
Nonexecutive Employees, United Meridian Corporation 1994
Employee Nonqualified Stock Option Plan, and United
Meridian Corporation 1987 Nonqualified Stock Option Plan (333-68679).
(s) Form S-4, Seagull/Ocean Merger (333-68679).
/s/Arthur Andersen LLP
Houston, Texas
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 64,889
<SECURITIES> 0
<RECEIVABLES> 170,034
<ALLOWANCES> 0
<INVENTORY> 28,723
<CURRENT-ASSETS> 289,950
<PP&E> 4,297,895
<DEPRECIATION> 2,094,885
<TOTAL-ASSETS> 2,783,143
<CURRENT-LIABILITIES> 381,941
<BONDS> 1,333,410
0
50
<COMMON> 16,699
<OTHER-SE> 930,946
<TOTAL-LIABILITY-AND-EQUITY> 2,783,143
<SALES> 735,518
<TOTAL-REVENUES> 735,518
<CGS> 0
<TOTAL-COSTS> 580,871
<OTHER-EXPENSES> 48,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,081
<INCOME-PRETAX> (21,624)
<INCOME-TAX> (72)
<INCOME-CONTINUING> (21,552)
<DISCONTINUED> 1,127
<EXTRAORDINARY> (23,413)
<CHANGES> 0
<NET-INCOME> (43,838)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
