As filed with the Securities and Exchange Commission on October 6, 1998
Registration No. 333-61171
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
McMoRan EXPLORATION CO.
(Exact name of Registrant as specified in its charter)
1479
Delaware 1311 72-1424200
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1615 Poydras Street
New Orleans, Louisiana 70112
(504) 582-4000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Richard C. Adkerson John G. Amato
McMoRan Oil & Gas Co. McMoRan Exploration Co.
1615 Poydras Street 1615 Poydras Street
New Orleans, Louisiana 70112 New Orleans, Louisiana 70112
(504) 582-4000 (504) 582-4000
Robert M. Wohleber
Freeport-McMoRan Sulphur
Inc.
1615 Poydras Street
New Orleans, Louisiana 70112
(504) 582-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
Copies to:
L. Richards McMillan, II David W. Ferguson
Jones, Walker, Waechter, Poitevent, Davis Polk & Wardwell
Carrere & Denegre, L.L.P. 450 Lexington Avenue
201 St. Charles Avenue New York, NY 10017
New Orleans, LA 70170-5100 (212) 450-4000
(504) 582-8000
----------------
Approximate date of commencement of proposed sale to the
public: Upon the effective time of the Mergers described herein.
----------------
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the SEC Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
McMoRan Oil & Gas Co.
------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: $___________
(5) Total fee paid: $____________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: --------------------
(2) Form, Schedule or Registration Statement No.: --------------------
(3) Filing Party: --------------------
(4) Date Filed: --------------------
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the SEC Only (as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Freeport-McMoRan Sulphur Inc.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies: Up to
__________ shares of MOXY Common Stock and _____________ shares of
FSC Common Stock.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: $___________
(5) Total fee paid: $____________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: --------------------
(2) Form, Schedule or Registration Statement No.: --------------------
(3) Filing Party: --------------------
(4) Date Filed: --------------------
MOXY LOGO MERGER PROPOSED FSC LOGO
YOUR VOTE IS VERY
IMPORTANT
The Boards of Directors of McMoRan Oil & Gas Co., a Delaware company ("MOXY"),
and Freeport-McMoRan Sulphur Inc., a Delaware company ("FSC"), have approved a
transaction involving two mergers that would result in MOXY and FSC becoming
wholly owned subsidiaries of a newly formed holding company, McMoRan
Exploration Co., a Delaware company ("McMoRan"). The transaction is intended to
create a combined natural resource company with substantial financial resources
and cash flows to fund future investments in their respective businesses and,
in particular, to fund investments in oil and gas exploration and development.
If the transaction is completed, MOXY stockholders will receive 0.2 shares of
McMoRan Common Stock for each share of MOXY Common Stock they own and FSC
stockholders will receive 0.625 shares of McMoRan Common Stock for each share
of FSC Common Stock they own.
We estimate that MOXY stockholders will own approximately 61% of the McMoRan
Common Stock after the transaction and FSC stockholders will own approximately
39% of the McMoRan Common Stock after the transaction.
Stockholders of MOXY are being asked, at MOXY's special meeting of
stockholders, to approve the transaction, the adoption of the Merger Agreement
and the adoption of the McMoRan 1998 Stock Option Plan, which is intended to
mirror MOXY's existing stock option plan that has been previously approved by
the MOXY stockholders. The Board of Directors of MOXY, after receiving the
recommendation of a special committee of the Board, has determined that the
transaction is fair to and in the best interests of the MOXY stockholders. The
Board of Directors of MOXY therefore recommends that the MOXY stockholders vote
to approve the transaction and the adoption of the Merger Agreement. The Board
of Directors also recommends that the MOXY stockholders vote to adopt the
McMoRan 1998 Stock Option Plan.
Stockholders of FSC are being asked, at FSC's special meeting of stockholders,
to approve the transaction, the adoption of the Merger Agreement and the
adoption of the McMoRan 1998 Stock Option Plan, which is intended to mirror
FSC's existing stock option plan that has been previously approved by the FSC
stockholders. The Board of Directors of FSC, after receiving the recommendation
of a special committee of the Board, has determined that the transaction is
fair to and in the best interests of the FSC stockholders. The Board of
Directors of FSC therefore recommends that the FSC stockholders vote in favor
of the transaction and the adoption of the Merger Agreement. The Board of
Directors also recommends that the FSC stockholders vote to adopt the McMoRan
1998 Stock Option Plan.
Approval of the MOXY and FSC proposals relating to the mergers discussed above
is not conditioned on adoption of the McMoRan 1998 Stock Option Plan proposal,
but approval of the McMoRan 1998 Stock Option Plan proposal is conditioned on
approval of the proposals related to the mergers.
YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend your meeting, please take the time to vote on
the proposals submitted to stockholders at your meeting by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you wish to vote, your proxy will be counted as a
vote in favor of the proposals submitted at your meeting. If you fail to return
your proxy card, the effect will be a vote against the transaction.
The dates, times and places of the meetings are:
For MOXY stockholders:
November 17, 1998 9 a.m.
1615 Poydras Street
3rd Floor
New Orleans, Louisiana 70112
For FSC stockholders:
November 17, 1998 10 a.m.
1615 Poydras Street
3rd Floor
New Orleans, Louisiana 70112
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed transaction, the Merger Agreement and the McMoRan 1998 Stock
Option Plan. In addition, you may obtain information about our companies from
documents that we have filed with the Securities and Exchange Commission (the
"SEC"). We encourage you to read this entire document carefully.
/s/ James R. Moffett
-----------------------
James R. Moffett
Co-Chairman
McMoRan Oil & Gas Co.
Freeport-McMoRan Sulphur Inc.
/s/ Richard C. Adkerson /s/ Robert M. Wohleber
- --------------------------------------- -------------------------------------
Richard C. Adkerson Robert M. Wohleber
Co-Chairman and Chief Executive Officer President and Chief Executive Officer
McMoRan Oil & Gas Co. Freeport-McMoRan Sulphur Inc.
Vice Chairman
Freeport-McMoRan Sulphur Inc.
Neither the SEC nor any state securities regulators have approved the McMoRan
Common Stock to be issued under this Joint Proxy Statement/Prospectus or
determined if this Joint Proxy Statement/Prospectus is accurate or adequate.
Any representation to the contrary is a criminal offense.
Joint Proxy Statement/Prospectus dated October 9, 1998,
and first mailed to stockholders on October 9, 1998.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE
TRANSACTION.................................................................1
SUMMARY........................................................................2
SELECTED HISTORICAL FINANCIAL
AND OPERATING DATA--MOXY.................................................7
SELECTED HISTORICAL AND
UNAUDITED PRO FORMA
FINANCIAL AND OPERATING
DATA--FSC................................................................9
SELECTED UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED
FINANCIAL DATA--McMoRan.................................................11
UNAUDITED COMPARATIVE PER
SHARE DATA..............................................................12
FORWARD-LOOKING STATEMENTS....................................................13
RISK FACTORS..................................................................14
Risk Factors Relating to MOXY's
Operations..............................................................14
Risk Factors Relating to FSC's Operations..................................18
Risk Factors Relating to the Mergers and
McMoRan.................................................................22
CONFLICTS OF INTEREST.........................................................24
Commonality of Directors and Officers......................................24
Certain Arrangements Regarding
McMoRan's Board and Management..........................................24
Treatment of Stock-Based Awards............................................24
Indemnification and Limitation of Liability
of MOXY's and FSC's Directors and
Officers................................................................25
THE MERGERS...................................................................26
General....................................................................26
Background of the Mergers..................................................27
MOXY's Reasons for the MOXY Merger;
Recommendation of the MOXY Board of
Directors...............................................................32
Opinion of Financial Advisor to MOXY's
Special Committee.......................................................33
FSC's Reasons for the FSC Merger;
Recommendation of the FSC Board of
Directors...............................................................38
Opinion of Financial Advisor to FSC's
Special Committee.......................................................39
Accounting Treatment.......................................................44
Federal Income Tax Consequences of the
Mergers.................................................................44
Regulatory Matters.........................................................45
No Appraisal Rights........................................................46
Federal Securities Laws Consequences;
Resale Restrictions.....................................................46
APPROVAL OF THE BENEFIT PLAN
PROPOSAL...................................................................46
Summary of the Stock Plan..................................................46
Federal Income Tax Consequences of Stock
Options.................................................................49
Awards to be Granted.......................................................50
Vote Required for Approval of the Stock
Plan....................................................................50
THE SPECIAL MEETINGS..........................................................51
Times and Places; Purposes.................................................51
Record Date; Voting Rights.................................................51
Voting Procedures..........................................................51
Quorum.....................................................................52
Votes Required.............................................................52
Share Ownership of Management..............................................53
Proxy Solicitation.........................................................53
STOCK OWNERSHIP INFORMATION...................................................54
Common Stock Ownership of Directors and
Executive Officers......................................................54
Common Stock Ownership of Certain
Beneficial Owners.......................................................56
MOXY AND FSC
MARKET PRICES, DIVIDENDS PAID
AND DIVIDEND POLICY........................................................59
McMoRan EXPLORATION CO.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
INFORMATION................................................................60
McMoRan EXPLORATION CO.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1998...........................................................61
McMoRan EXPLORATION CO.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF
OPERATIONS
YEAR ENDED DECEMBER 31, 1997...............................................62
McMoRan EXPLORATION CO.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF
OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998.............................................63
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AND DISCLOSURES ABOUT MARKET
RISKS......................................................................65
MOXY.......................................................................65
FSC........................................................................70
BUSINESS......................................................................77
Business of MOXY...........................................................77
Business of FSC............................................................86
MANAGEMENT FOLLOWING THE
MERGERS....................................................................99
McMoRan Management.........................................................99
Director Compensation.....................................................100
Committees of the Board of Directors......................................101
Executive Compensation....................................................101
Compensation Committee Interlocks and
Insider Participation..................................................101
THE MERGER AGREEMENT.........................................................102
Structure; Effective Time.................................................102
Merger Consideration......................................................102
Treatment of Stock-Based Awards ..........................................102
Conversion of Shares......................................................102
Certain Covenants.........................................................102
Certain Representations and Warranties....................................104
Conditions to the Merger..................................................104
Termination of the Merger Agreement.......................................106
Other Expenses............................................................106
Amendments; No Waivers....................................................107
EXECUTIVE COMPENSATION AND
CERTAIN TRANSACTIONS......................................................108
MOXY......................................................................108
FSC.......................................................................112
DESCRIPTION OF McMoRan CAPITAL
STOCK.....................................................................119
Description of Capital Stock..............................................119
Certain Charter and By-law Provisions.....................................120
Rights Agreement..........................................................122
Stock Exchange Listing; Delisting and
Deregistration of MOXY and FSC
Common Stock...........................................................124
Transfer Agent............................................................124
COMPARISON OF STOCKHOLDER RIGHTS.............................................124
General...................................................................124
Comparison of Stockholder Rights..........................................124
McMoRan STOCK OPTION PLANS...................................................128
Stock Option Plans........................................................128
Federal Income Tax Consequences of Stock
Options................................................................130
LEGAL MATTERS................................................................131
EXPERTS......................................................................132
FUTURE STOCKHOLDER PROPOSALS.................................................132
WHERE YOU CAN FIND MORE
INFORMATION...............................................................133
INDEX TO McMoRan EXPLORATION CO.
BALANCE SHEET.............................................................F-1
INDEX TO MOXY FINANCIAL STATEMENTS...........................................F-1
INDEX TO FSC FINANCIAL STATEMENTS............................................F-1
LIST OF ANNEXES
Annex A -- Agreement and Plan of Mergers
Annex B -- Opinion of Bear Stearns
Annex C -- Opinion of Lehman Brothers
Annex D -- McMoRan 1998 Stock Option Plan
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q: Why are the two companies proposing the transaction?
A: MOXY and FSC believe that the combination of the two companies will create
a combined natural resource company with substantial financial resources and
cash flows to fund future investments in their respective businesses and, in
particular, to fund investments in oil and gas exploration and development. The
companies also believe that their integration into a single company should
result in cost savings. Managements of MOXY and FSC believe that this is a
particularly opportune time to pursue oil and gas exploration in the Gulf of
Mexico and Gulf Coast areas. For MOXY, the transaction will provide access to a
source of cash flow to finance the expansion of its exploration and production
activities. For FSC, the combination will allow it to invest in oil and gas
opportunities that it believes have an attractive potential return, while
continuing to expand its sulphur terminaling, transportation and marketing
business. The combination will also diversify FSC's sources of revenue, thereby
reducing its dependence on the sulphur business.
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed return envelope as soon
as possible, so that your shares may be voted at the appropriate stockholder
meeting.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card to your company's Secretary
or transfer agent before your meeting or attend your meeting in person and
vote.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. Please tell your broker how you would like him or her to vote your
shares. If you do not tell your broker how to vote, your shares will not be
voted by your broker.
Q: Should I send in my stock certificates now?
A: No. After the transaction is completed, the exchange agent for the
transaction will send the respective stockholders of both companies written
instructions for exchanging their share certificates.
Q: Please explain what I will receive in the transaction.
A: If the transaction is completed, MOXY stockholders will receive 0.2 shares
of McMoRan Common Stock for each share of MOXY Common Stock.
If the transaction is completed, FSC stockholders will receive 0.625 shares
of McMoRan Common Stock for each share of FSC Common Stock.
We will not issue fractional shares of McMoRan Common Stock. Instead, both
MOXY and FSC stockholders will receive cash in an amount equal to the
applicable portion of the closing price of a share of McMoRan Common Stock on
the first trading day after completion of the transaction.
Q: Where will the shares of McMoRan Common Stock I receive in the transaction
trade?
A: MOXY and FSC expect the McMoRan Common Stock to be listed on the New
York Stock Exchange, Inc.
Q: Will the new company initially pay dividends?
A: MOXY and FSC have not in the past paid cash dividends and instead have
retained earnings to meet working capital needs and finance business
operations. McMoRan currently intends to continue this policy.
Q: When do you expect the transaction to be completed?
A: We are working toward completing the transaction as quickly as
possible and hope to complete the transaction by the end of November, 1998.
Q: What are the tax consequences to stockholders of the transaction?
A: For U.S. federal income tax purposes, the transaction will be tax-free to
MOXY and FSC stockholders who are U.S. persons, except to the extent they
receive cash in lieu of fractional shares.
Q: Whom should I call with questions?
A: You can call the proxy solicitor of MOXY and FSC, Georgeson & Company
Inc., at 1-800-223-2064 with your questions.
The Board of Directors of MOXY, after receiving the recommendation of a special
committee of the Board, has determined that the transaction is fair to and in
the best interests of the MOXY stockholders. The Board of Directors of MOXY
therefore recommends that the MOXY stockholders vote to approve the MOXY Merger
and the adoption of the Merger Agreement. The MOXY Board of Directors also
recommends that the MOXY stockholders vote to adopt the McMoRan 1998 Stock
Option Plan.
The Board of Directors of FSC, after receiving the recommendation of a special
committee of the Board, has determined that the transaction is fair to and in
the best interests of the FSC stockholders. The Board of Directors of FSC
therefore recommends that the FSC stockholders vote to approve the FSC Merger
and the adoption of the Merger Agreement. The FSC Board of Directors also
recommends that the FSC stockholders vote to adopt the McMoRan 1998 Stock
Option Plan.
SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the transaction fully and for a more complete
description of the legal terms of the transaction, you should read carefully
this entire document and the documents we have referred you to. See "Where You
Can Find More Information."
The Companies (See page 78)
MOXY
MOXY is an independent oil and gas company engaged in oil and gas
exploration, development and production. MOXY's operations are conducted
offshore in the Gulf of Mexico and onshore in the Gulf Coast area.
FSC
FSC is engaged in the mining, purchasing, transporting, terminaling and
marketing of sulphur, and the production of related oil and gas reserves.
McMoRan Exploration Co.
McMoRan is a new corporation formed for the purpose of this transaction.
At the effective time (the "Effective Time") of the mergers (the "Mergers"),
MOXY and FSC will each merge with and into wholly owned subsidiaries of McMoRan
and thus will continue to operate as wholly owned subsidiaries of McMoRan under
their current names.
The address of MOXY and FSC is 1615 Poydras Street, New Orleans, Louisiana
70112 and the phone number is (504) 582-4000. The address and phone number of
McMoRan will be the same as those of MOXY and FSC.
The Special Meetings (See page 51)
A special meeting of MOXY's stockholders will be held at 9 a.m. on
November 17, 1998 at 1615 Poydras Street, 3rd Floor, New Orleans, Louisiana
70112. At the MOXY special meeting, MOXY stockholders will be asked to approve
the merger of MOXY into a wholly owned subsidiary of McMoRan (the "MOXY
Merger"), the adoption of the Merger Agreement and the adoption of the McMoRan
1998 Stock Option Plan.
A special meeting of FSC's stockholders will be held at 10 a.m. on
November 17, 1998 at 1615 Poydras Street, 3rd Floor, New Orleans, Louisiana
70112. At the FSC special meeting, FSC stockholders will be asked to approve
the merger of FSC into a wholly owned subsidiary of McMoRan (the "FSC Merger"),
the adoption of the Merger Agreement and the adoption of the McMoRan 1998 Stock
Option Plan.
Voting Rights; Votes Required for Approval
(See page 52)
If you are a MOXY stockholder, you are entitled to vote at the MOXY
special meeting if you owned shares at the close of business on the record
date, which is October 2, 1998. On the MOXY record date, there were 42,948,694
shares of MOXY Common Stock entitled to vote at the MOXY special meeting. Each
MOXY stockholder will have one vote at the MOXY special meeting for each share
of MOXY Common Stock owned on the MOXY record date.
The affirmative vote of a majority of the shares of MOXY Common Stock
outstanding on the MOXY record date is required to approve the MOXY Merger and
the adoption of the Merger Agreement. A majority of the shares of MOXY Common
Stock present at the meeting is required to approve the McMoRan 1998 Stock
Option Plan.
If you are an FSC stockholder, you are entitled to vote at the FSC special
meeting if you owned shares at the close of business on the record date, which
is October 2, 1998. On the FSC record date, there were 8,790,646 shares of FSC
Common Stock entitled to vote at the FSC special meeting. Each FSC stockholder
will have one vote at the FSC special meeting for each share of FSC Common
Stock owned on the FSC record date.
The affirmative vote of a majority of the shares of FSC Common Stock
outstanding on the FSC record date is required to approve the FSC Merger and the
adoption of the Merger Agreement. A majority of the shares of FSC Common Stock
present at the meeting is required to approve the McMoRan 1998 Stock Option
Plan.
Approval of the MOXY and FSC proposals relating to the Mergers is not
conditioned on adoption of the McMoRan 1998 Stock Option Plan proposals, but
approval of the McMoRan 1998 Stock Option Plan proposals is conditioned on
approval of the Mergers.
The shares available for issuance under the McMoRan 1998 Stock Option Plan
will equal the aggregate number of shares that remain available under the
existing MOXY and FSC stock option plans that have been previously approved by
the MOXY and FSC stockholders, as adjusted by the exchange ratios.
Share Ownership of Management (See page 54)
On June 30, 1998, MOXY directors and executive officers owned 6,853,111
shares of MOXY Common Stock (approximately 15.4%). These directors and
executive officers have indicated that they intend to vote their MOXY Common
Stock in favor of the MOXY proposals.
On June 30, 1998, FSC directors and executive officers owned 361,708 shares
of FSC Common Stock (approximately 3.6%). These directors and executive officers
have indicated that they intend to vote their FSC Common Stock in favor of the
FSC proposals.
Reasons for the Merger (See page 26)
Both MOXY and FSC believe that the transaction will create a combined
natural resource company with substantial financial resources and cash flows to
fund future investments in their respective businesses and, in particular, to
fund investments in oil and gas exploration and development. The companies also
believe that their integration into a single company should result in cost
savings. Managements of MOXY and FSC believe that this is a particularly
opportune time to pursue oil and gas exploration in the Gulf of Mexico and Gulf
Coast areas. For MOXY, the transaction will provide access to a source of cash
flow to finance the expansion of its exploration and production activities. For
FSC, the combination will allow it to invest in oil and gas opportunities that
it believes have an attractive potential return, while continuing to expand its
sulphur terminaling, transportation and marketing business. The combination will
also diversify FSC's sources of revenue, thereby reducing its dependence on the
sulphur business.
Recommendations to Stockholders
To MOXY Stockholders:
The Board of Directors of MOXY, after receiving the recommendation of a
special committee of the Board, has determined that the transaction is fair to
and in the best interests of the MOXY stockholders. The Board of Directors of
MOXY therefore recommends that the MOXY stockholders vote to approve the MOXY
Merger and the adoption of the Merger Agreement. The Board of Directors also
recommends that the MOXY stockholders vote to adopt the McMoRan 1998 Stock
Option Plan.
To FSC Stockholders:
The Board of Directors of FSC, after receiving the recommendation of a
special committee of the Board, has determined that the transaction is fair to
and in the best interests of the FSC stockholders. The Board of Directors of
FSC therefore recommends that the FSC stockholders vote to approve the FSC
Merger and the adoption of the Merger Agreement. The Board of Directors also
recommends that the FSC stockholders vote to adopt the McMoRan 1998 Stock
Option Plan.
The Transaction (See page 103)
The Merger Agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus. We encourage you to read the Merger Agreement, as it is
the legal document that governs the transaction.
What MOXY Stockholders Will Receive
If the transaction is approved, MOXY stockholders will receive 0.2 shares
of McMoRan Common Stock for each share of MOXY Common Stock they own (the "MOXY
Exchange Ratio").
MOXY stockholders should not send in their stock certificates for exchange
until instructed to do so after we complete the transaction.
What FSC Stockholders Will Receive
If the transaction is approved, FSC stockholders will receive 0.625 shares
of McMoRan Common Stock for each share of FSC Common Stock they own (the "FSC
Exchange Ratio").
FSC stockholders should not send in their stock certificates for exchange
until instructed to do so after we complete the transaction.
Treatment of Fractional Shares
McMoRan will not issue any fractional shares. Instead, MOXY stockholders
and FSC stockholders otherwise entitled to receive fractional shares will
receive cash in an amount equal to the applicable fraction of the closing price
of a share of McMoRan Common Stock on the first trading day after completion of
the transaction.
Ownership of McMoRan After the Transaction
Immediately after the Mergers, the former stockholders of MOXY will own
approximately 61% of McMoRan and the former stockholders of FSC will own
approximately 39% of McMoRan. MOXY and FSC will become wholly owned
subsidiaries of McMoRan after the Mergers and will continue to operate as
separate business units under their current names.
The Board of Directors and Management of
McMoRan After the Transaction (See page 100)
MOXY's Board of Directors currently consists of five members. FSC's Board
of Directors currently consists of seven members. Three of those persons serve
on both boards. The Board of McMoRan will include all nine individuals who
currently serve on the MOXY Board and the FSC Board.
Mr. James R. Moffett, currently Co-Chairman of both MOXY and FSC, will
become Co-Chairman of the Board of McMoRan. Mr. Richard C. Adkerson, currently
Co-Chairman and Chief Executive Officer of MOXY and Vice Chairman of FSC, will
become the Co-Chairman, President and Chief Executive Officer of McMoRan. Mr.
Rene L. Latiolais, currently Co-Chairman of FSC, will become Vice Chairman of
McMoRan's Board. Mr. Robert M. Wohleber, currently President, Chief Executive
Officer and a director of FSC, will become Executive Vice President, Chief
Financial Officer and a director of McMoRan, and will serve as President and
Chief Operating Officer of FSC. Mr. C. Howard Murrish, currently President and
Chief Operating Officer of MOXY, will become Executive Vice President of
McMoRan and continue as President and Chief Operating Officer of MOXY.
Conflicts of Interest (See page 24)
As stated above, three of the MOXY directors also serve on the FSC Board.
The three directors who currently serve on both the MOXY Board and the FSC
Board have interests that are different from or in addition to, and inherently
conflict with, your interests as stockholders. In recognition of those
conflicts, the MOXY Board and the FSC Board each established a special
committee of independent directors to evaluate the merits of a business
combination involving the two companies and to negotiate the terms of such a
transaction if it were found to be desirable.
If the Mergers are completed, the directors and executive officers of MOXY
and FSC will receive certain benefits and other compensation from McMoRan that
are intended to mirror their existing compensation arrangements. In addition,
certain indemnification and insurance arrangements for the directors and
officers of MOXY and FSC will be continued. As a result, the directors and
executive officers of MOXY and FSC have interests in the transaction that are
different from or in addition to, and inherently conflict with, your interests
as stockholders.
Conditions to the Transaction (See page 105)
The transaction will be completed if a number of conditions are met,
including the following:
(1) the approvals of the stockholders of MOXY and FSC are obtained;
(2) a registration statement with respect to the McMoRan Common Stock
issuable in connection with the transaction has become effective and
no stop order suspending its effectiveness has been issued;
(3) the shares of McMoRan Common Stock issuable in connection with the
transaction shall have been approved for listing on either the New
York Stock Exchange, Inc. (the "NYSE") or the Nasdaq National Market
("Nasdaq"), subject to official notice of issuance;
(4) no judgment, injunction or order prohibits the transaction;
(5) the relevant waiting period imposed by the Federal Trade Commission
and the Department of Justice has expired;
(6) all authorizations or approvals of any governmental entity have been
obtained;
(7) no suit or proceeding by any governmental entity is pending or
threatened relating to the transaction that could reasonably have a
material adverse effect on MOXY or FSC; and
(8) the receipt by each party of an opinion of tax counsel that the
transaction will be tax- free for federal income tax purposes.
Certain of these conditions can be waived by MOXY or FSC under certain
circumstances.
Termination of the Merger Agreement (See
page 107)
MOXY and FSC may agree to terminate the Merger Agreement at any time. In
addition, either party may terminate the Merger Agreement if:
(1) the transaction is not completed by December 31, 1998; however,
neither MOXY nor FSC may terminate the agreement if its breach is
the reason the transaction has not been completed;
(2) any order or injunction permanently prohibits the transaction;
(3) the approval of the stockholders of MOXY or FSC shall not have been
obtained at their respective special meetings;
(4) the other party breaches its representations, warranties or
obligations under the Merger Agreement and the breach has a material
adverse effect on the breaching party; or
(5) the other party (or the other party's special committee) withdraws or
adversely modifies its approval or recommendation of the Merger
Agreement before the applicable special meeting of stockholders.
No Solicitation (See page 104)
Both MOXY and FSC have agreed not to solicit alternative proposals and not
to negotiate with, or provide non-public information to, an entity considering
making an alternative acquisition proposal. If the Board of Directors of MOXY
or FSC (or their respective special committees) determines that negotiations
with, or the provision of non-public information to, any such entity is
necessary for the Board of Directors of either MOXY or FSC to comply with its
fiduciary duties, it may do so, provided that it complies with certain
provisions of the Merger Agreement.
Each party must promptly notify the other after it receives an alternative
acquisition proposal.
Regulatory Approvals (See page 45)
MOXY and FSC are both required to make filings with or obtain approvals
from regulatory authorities in connection with the transaction including, among
others, antitrust authorities.
Accounting Treatment (See page 44)
The transaction is expected to be accounted for as a purchase, with MOXY
being treated as the acquiring entity for financial reporting purposes.
Opinion of Financial Advisors (See pages 33, 39)
In deciding to approve and recommend the transaction, the MOXY special
committee and the MOXY Board of Directors considered, among the numerous
factors discussed below in "The Mergers--MOXY's Reasons for the MOXY Merger;
Recommendation of the MOXY Board of Directors," the July 31, 1998 opinion of
Bear, Stearns & Co. Inc. ("Bear Stearns"), the financial advisor retained by
MOXY's special committee, that as of such date, and based on and subject to
certain matters stated therein, the exchange ratio of 0.2 shares of McMoRan
Common Stock for each share of MOXY Common Stock was fair from a financial
point of view to the MOXY stockholders. That opinion is attached as Annex B to
this Joint Proxy Statement/Prospectus. We encourage the MOXY stockholders to
read this opinion.
In deciding to approve and recommend the transaction, the FSC special
committee and the FSC Board of Directors considered, among the numerous factors
discussed below in "The Mergers--FSC's Reasons for the FSC Merger;
Recommendation of the FSC Board of Directors," the August 1, 1998 opinion of
Lehman Brothers Inc. ("Lehman"), the financial advisor retained by FSC's
special committee, that as of such date, and based on and subject to certain
matters stated therein, the exchange ratio of 0.625 shares of McMoRan Common
Stock for each share of FSC Common Stock was fair from a financial point of
view to the FSC stockholders. That opinion is attached as Annex C to this Joint
Proxy Statement/Prospectus. We encourage the FSC stockholders to read this
opinion.
Material Federal Income Tax Consequences (See page 44)
We have structured the transaction so that it will be tax-free to MOXY
stockholders and FSC stockholders who are U.S. persons for U.S. federal income
tax purposes except to the extent they receive cash in lieu of fractional
shares. In addition, none of McMoRan, MOXY or FSC will recognize any gain or
loss for U.S. federal income tax purposes in the transaction.
No Appraisal Rights (See page 46)
Under Delaware law, MOXY and FSC stockholders will not have any right to
an appraisal of the value of their shares in connection with the transaction.
Comparative Per Share Market Price Information (See page 59)
The MOXY Common Stock is listed on Nasdaq. The FSC Common Stock is listed
on the NYSE. On July 31, 1998, the last full trading day prior to the public
announcement of the proposed transaction, the reported closing sales price per
share for MOXY Common Stock was $4 on Nasdaq and for FSC Common Stock was $107/8
on the NYSE. On October 5, 1998, the most recent practicable date prior to the
mailing of this Joint Proxy Statement/Prospectus, the reported closing sales
price per share for MOXY Common Stock was $3.09375 and for FSC Common Stock was
$10.125.
Listing of McMoRan Common Stock
MOXY and FSC expect the McMoRan Common Stock to be listed on the NYSE.
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA--MOXY
The following table presents selected audited historical
financial and unaudited operating data of MOXY with respect to each year in
the three year period ended December 31, 1997 and for the period from
inception (May 1994) through December 31, 1994, which is derived from and
should be read in conjunction with the financial statements of MOXY. The
financial statements of MOXY for each year in the three year period ended
December 31, 1997 and the financial statements for the period from inception
through December 31, 1994 have been audited by Arthur Andersen LLP,
independent public accountants. The following selected historical financial
information as of and for each of the six-month periods ended June 30, 1998
and 1997 have been derived from and should be read in conjunction with the
unaudited interim financial statements of MOXY. Such unaudited interim
financial statements reflect all adjustments (consisting only of normal
recurring accruals) which the management of MOXY considers necessary to
present fairly the financial information for such periods. The results of
operations for any interim period are not necessarily indicative of results
for a full year. The following should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations and Disclosures about Market Risks--MOXY" and MOXY's financial
statements found elsewhere in this document.
<TABLE>
<CAPTION>
Inception
Six Months Ended Through
June 30, Years Ended December 31, December 31,
---------------------------- ------------------------------------------- -------------
1998 1997 1997 1996 1995 1994
----------- ---------- ------------ ----------- ----------- -------------
(Financial data in thousands, except per share amounts)
FINANCIAL DATA
<S> <C> <C> <C> <C> <C> <C>
Revenues ............. $ 11,778 $ 5,021 $ 13,552 $ 4,070 $ 3,267 $ 174 (a)
Exploration expenses . 12,258 4,272 11,966 9,818 (b) 11,756 15,518
Operating loss ....... (15,610) (3,452) (9,904) (9,883) (14,799) (17,682)
Net loss ............. (14,878) (3,884) (10,538) (9,862) (14,635) (15,200)
Basic and diluted net
loss per share ...... $ (0.35) $ (0.28) $ (0.56) $ (0.71) $ (1.06) $ (1.10)
Basic and diluted
average shares
outstanding ......... 42,816 (c) 14,044 18,847 (c) 13,895 13,772 13,770
At End of Period:
Working capital ...... $ 11,066 $ (3,076) $ 33,749 (c) $ 2,972 $ 8,257 $ 15,063
Property, plant and
equipment, net ...... 67,489 19,322 57,705 (c) 18,231 9,878 (d) 17,094
Total assets ......... 98,498 30,627 101,088 (c) 30,980 21,633 (d) 34,425
Production loan, less
current portion ..... -- 10,980 -- (c) 12,391 530 --
Stockholders' equity . 76,373 4,625 90,698 (c) 8,246 17,605 32,157
OPERATING DATA
Production:
Gas (thousand
cubic feet, or
Mcf) .............. 5,022,500 (e) 1,621,000 4,061,000 631,000 1,093,000 --
Oil (barrels) ....... 62,600 (e) 9,400 34,000 29,000 45,000 --
Average realization:
Gas (per Mcf) ....... $ 2.20 $ 2.44 $ 2.62 $ 2.72 $ 1.63 --
Oil (per barrel) .... 14.52 21.89 19.19 22.22 18.83 --
</TABLE>
- ----------
(a) Represents miscellaneous net royalty income; no production quantities or
average realizations shown since amounts are not meaningful.
(b) Includes a reduction of $2.1 million ($0.15 per share) resulting from
reimbursement of previously expensed costs.
(c) Reflects the sale of MOXY Common Stock upon completion of a rights
offering in November 1997, the net proceeds of which were used to purchase
producing property interests and repay borrowings, with the remainder held
to fund MOXY Exploration Program commitments.
(d) After giving effect to transfer of property interests to MCN in connection
with the formation of MOXY/MCN Program.
(e) Reflects the reduced net ownership interest in Vermilion Block 160 as a
result of a redetermination among the owners. Excludes the pre-1998
effects of the redetermination, which reduced quantities of gas by 150,400
Mcf and oil by 6,200 barrels.
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND OPERATING DATA--FSC
The following table presents selected audited historical and
unaudited pro forma financial information, as well as unaudited operating
data, for FSC for each year in the five year period ended December 31, 1997,
which is derived from and should be read in conjunction with the financial
statements of FSC. The financial statements of FSC for each year in the five
year period ended December 31, 1997 have been audited by Arthur Andersen LLP,
independent public accountants. The financial data as of and for each of the
six-month periods ended June 30, 1998 and 1997 have been derived from and
should be read in conjunction with the unaudited interim financial statements
of FSC. The results of operations for any interim period are not necessarily
indicative of results for a full year. Such unaudited interim financial
statements reflect all adjustments (consisting only of normal recurring
accruals), which management of FSC considers necessary to present fairly the
financial information for such periods. FSC was spun-off from PLP (as defined
in footnote (a) below) on December 22, 1997. The information presented below
reflects periods, except for the six months ended June 30, 1998, during which
FSC did not operate as an independent company, and, therefore, may not
necessarily reflect the consolidated results of operations or financial
position that would have existed if FSC had been an independent company during
the periods shown or the future performance of FSC as an independent company.
Additionally, the results of operations shown below include the 25.0% interest
in Main Pass acquired from IMC Global Inc. since December 22, 1997. The
financial information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Disclosures About Market Risks--FSC" and FSC's financial statements found
elsewhere in this document.
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------- --------------------------------------------------------------------
1998 1997(a) 1997(a) 1996(a) 1995(a) 1994(a) 1993(a)
------------ --------- ------------- --------- ---------- ---------- ---------------
(In thousands, except per share and realized price amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA
Revenues .................... $ 113,662 $ 107,750 $ 211,945 $ 221,426 $ 255,949 $ 151,795 $ 131,732
Operating Income (loss) ..... (479)(b) 1,260 (439,316)(c) 12,392 25,020 (d) 7,353 (122,253)(e)
Net Income (loss) ........... 148 (b) 1,260 (374,199)(c) 12,392 25,020 (d) 7,353 (122,253)(e)
Basic and diluted net income
(loss) per share ........... 0.01 (b) 0.12 (36.16)(c) 1.20 2.42 (d) 0.71 (11.82)(e)
Average shares
outstanding:(f)
Basic ...................... 9,950 10,347 10,347 10,347 10,347 10,347 10,347
Diluted .................... 10,031 10,347 10,347 10,347 10,347 10,347 10,347
Unaudited pro forma data:(a)
Net income (loss) before
income taxes ............... $ 1,260 $(439,304) $ 12,392 $ 25,020 $ 7,353 $(122,253)
Pro forma benefit (provisions)
for income taxes........... (436) 151,999 (4,659) (6,845) (2,691) 44,745
--------- --------- ---------- --------- --------- ---------
Pro forma net income (loss).. $ 824 $(287,305) $ 7,733 $ 18,175 $ 4,662 $ (77,508)
========= ========= ========== ========= ========= =========
Pro forma net income
(loss) per share ........... $ 0.08 $ (27.77) $ 0.75 $ 1.76 $ 0.45 $ (7.49)
Pro forma average shares(f).. 10,347 10,347 10,347 10,347 10,347 10,347
At End of Period:
Working capital ............. $ 50,798 $ 22,430 $ 65,604 $ 25,794 $ 42,059 $ 41,590 $ 25,105
Property, plant and
equipment net .............. 100,151 524,967 109,833 (c) 535,653 575,029 551,916 577,491
Total assets ................ 256,648 612,225 273,033 633,620 680,467 637,902 668,274
Stockholders' equity ........ 105,969 469,676 114,397(a)(c) 484,360 521,782 556,060 573,303
OPERATING DATA
Sulphur
Sales (long tons) .......... 1,678 1,477 2,908 2,900 3,050 2,088 1,403
Average realized price ..... $ 59.98 $ 60.29 $ 61.04 $ 61.78 $ 70.44 $ 53.07 $ 57.28
Oil
Sales (barrels) ............ 908 868 1,625 1,896 2,218 2,534 3,443
Average realized price ..... $ 12.88 $ 18.78 $ 18.15 $ 19.49 $ 15.82 $ 13.74 $ 14.43
</TABLE>
- ----------
(a) Results represent the operating results of the assets previously owned by
Phosphate Resource Partners Limited Partnership ("PLP"), formerly named
Freeport-McMoRan Resource Partners Limited Partnership, that were
transferred to FSC on December 22, 1997. As a partnership, PLP paid no
federal or state income taxes and historically did not provide for income
taxes on the results of operations of FSC. Upon the formation of FSC as a
wholly owned taxable subsidiary of PLP prior to being spun-off to PLP
unitholders, a deferred tax asset of $63.8 million was recognized in 1997
income to reflect the excess of tax over book basis in the related assets.
Unaudited pro forma net income includes an estimated tax benefit (provision)
for the applicable periods as if FSC operated as a stand-alone taxable
entity.
(b) Includes net charges totaling $6.0 million ($3.9 million to net income or
$0.39 per share) related to the planned shutdown of the Culberson sulphur
mine facility.
(c) Includes charges totaling $425.4 million ($41.11 per share) for an
impairment assessment of sulphur assets and $9.9 million ($0.96 per share)
for an increase in estimated reclamation costs for sulphur properties, for
drilling costs of an additional brine well and a reduction of sulphur
inventory book value to market value.
(d) Includes charges totaling $7.0 million ($0.68 per share) allocated to FSC to
reflect a compensation charge pursuant to a management services agreement.
(e) Includes charges totaling $86.6 million ($8.37 per share) for a loss on
valuation and sale of assets, and $11.6 million ($1.12 per share) for
restructuring and other related charges.
(f) Average shares outstanding prior to 1998 is based on the number of shares
distributed on December 22, 1997.
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA--McMoRan
The following selected unaudited pro forma condensed
consolidated statement of operations data and other financial data for the six
months ended June 30, 1998 and the year ended December 31, 1997 and selected
unaudited pro forma condensed consolidated balance sheet data as of June 30,
1998 have been prepared from the historical financial statements of MOXY and
FSC. The pro forma information is presented for illustrative purposes only,
and therefore is not necessarily indicative of the operating results and
financial position that would have been achieved had the Mergers occurred as
of an earlier date, nor is it necessarily indicative of operating results and
financial position that may occur in the future.
The pro forma information gives effect to accounting for the
Mergers as a "purchase" transaction, with MOXY as the acquiring entity, and
assumes the conversion of each outstanding share of MOXY Common Stock and FSC
Common Stock into 0.20 and 0.625 shares, respectively, of McMoRan Common
Stock. The pro forma statement of operations data and other financial data
have been prepared as if the Mergers had been consummated on January 1, 1997.
The pro forma balance sheet data reflects the Mergers as if they had occurred
on June 30, 1998.
The pro forma information should be read in conjunction with
the historical consolidated financial statements and notes thereto of MOXY and
FSC included elsewhere herein.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------- -----------------
(in thousands, except for per share amounts)
<S> <C> <C>
Statement of Operations Data:
Revenues.................................................................. $ 101,193 $ 220,168
Cost of sales............................................................. 90,410 209,211
Exploration expenses...................................................... 12,258 11,966
Operating loss............................................................ (8,698) (11,095)
Net loss (1).............................................................. (7,260) (10,445)
Basic and diluted net loss per common share............................... (0.52) (0.74)
Basic and diluted average shares outstanding.............................. 14,081 14,081
Other Financial Data:
Capital expenditures, including acquisitions, exploration and development. $ 30,228 $ 62,781
Depreciation and amortization............................................. 14,160 49,189
EBITDAX (2)............................................................... 19,158 50,710
</TABLE>
<TABLE>
As of
June 30, 1998
(in thousands)
--------------
<S> <C>
Balance Sheet Data:
Working capital................................. $ 57,864
Property, plant and equipment, net.............. 186,546
Total assets.................................... 362,332
Total stockholders' equity...................... 197,097
</TABLE>
- ----------
(1) Assumes no tax benefit associated with the losses shown, as further
explained in note (c) to the unaudited pro forma condensed consolidated
balance sheet.
(2) EBITDAX represents net loss before income taxes plus depreciation and
amortization expense and exploration expense. EBITDAX is not a measure of
cash flow, operating results or liquidity as determined by generally
accepted accounting principles. McMoRan has supplementally disclosed
information concerning EBITDAX because management believes that EBITDAX is
commonly accepted as providing useful information regarding a company's
historical ability to incur and service debt. Management of McMoRan
believes that factors that should be considered by investors in evaluating
EBITDAX include but are not limited to, trends in EBITDAX as compared to
cash flow from operations, debt service requirements and capital
expenditures. EBITDAX as defined and measured by McMoRan may not be
comparable to similarly titled measures of other companies. Further,
EBITDAX should not be considered in isolation or as an alternative to, or
more meaningful than, net income or cash flow provided by operations as
determined in accordance with generally accepted accounting principles as
an indicator of McMoRan's profitability or liquidity.
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth certain book value and earnings
(loss) per share data for MOXY and FSC on a historical and pro forma basis.
The pro forma earnings (loss) per share data, which gives effect to the
Mergers as if they had been consummated as of January 1, 1997, and the pro
forma book value per share data, which gives effect to the Mergers as if they
had been consummated as of June 30, 1998, are derived from the Unaudited Pro
Forma Condensed Consolidated Financial Information appearing elsewhere herein.
The information set forth below should be read in conjunction with the
Selected Financial Information of MOXY and FSC and the Unaudited Pro Forma
Condensed Consolidated Financial Information, including the notes thereto,
appearing elsewhere herein.
<TABLE>
<CAPTION>
McMoRan(1) MOXY Common Stock FSC Common Stock
---------- -------------------------- ----------------------------
Pro Forma Pro Forma
Pro Forma Historical Equivalent(2) Historical Equivalent(2)
--------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Book value per share as of:
June 30, 1998 ................................... $ 14.00 $ 1.78 $ 2.80 $ 10.88 $ 7.89
Earnings (loss) per share:
For the six months ended June 30, 1998 .......... $ (0.52) $ (0.35) $ (0.10) $ 0.01 $ (0.28)
For the year ended December 31, 1997 ............ (0.74) (0.56) (3) (0.34) (36.16) (3) (0.39)
</TABLE>
- ----------
(1) The McMoRan pro forma book value per share is calculated by dividing pro
forma stockholders' equity by pro forma diluted average shares outstanding,
The McMoRan loss per share data is calculated by dividing pro forma net
loss for the applicable period by the pro forma diluted average shares
outstanding for that period.
(2) The pro forma equivalent book value per share data for both MOXY and FSC is
calculated by multiplying the pro forma stockholders' equity of McMoRan at
June 30,1998 ($197,097,000) by the exchange ratio, 61% (MOXY) and 39%
(FSC), respectively, and then dividing by the total historical outstanding
shares of each company at June 30, 1998. The pro forma equivalent loss per
share data is calculated by multiplying the pro forma net loss of McMoRan
for the applicable period by the exchange ratio of 61% (MOXY) and 39%
(FSC) and then dividing by the historical diluted weighted average shares
outstanding for each company for the applicable period.
(3) Historical amounts reflected for the year ended December 31, 1997 reflect
certain acquisitions and other transactions by MOXY and FSC occurring
during that year, as more fully explained in note (a) to the unaudited pro
forma condensed consolidated statement of operations for the year ended
December 31, 1997 included elsewhere in this document. If MOXY and FSC
historical losses per share were adjusted to reflect these acquisitions and
transactions as if they had occurred as of January 1, 1997, the related pro
forma losses per share for MOXY and FSC would have been $(0.22) and
$(27.59), respectively.
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "1933 Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "1934 Act"). Forward-looking statements include all
statements other than statements of historical fact contained herein, including
without limitation such statements that appear under the headings
"Business--Business of MOXY," "Business--Business of FSC," "Risk Factors--Risk
Factors Relating to MOXY's Operations," "Risk Factors--Risk Factors Relating to
FSC's Operations," "Risk Factors--Risk Factors Relating to the Mergers and
McMoRan," "Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures About Market Risks--MOXY" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations and Disclosures About Market Risks--FSC" regarding the respective
companies' results of operations, financial position and liquidity; payment of
dividends; operating plans, business strategies and strategic alternatives;
capital needs; exploration, development and capital expenditures (including the
amounts and the nature thereof); drilling of wells; reserve estimates and
future net revenues attributable thereto; and other plans and objectives of the
managements of the respective companies and of McMoRan for future operations
and activities.
Forward-looking statements are based on certain assumptions and
analyses made by the companies in light of their experience and their
perceptions of historical trends, current conditions, expected future
developments and other factors they believe to be relevant under the
circumstances. Such statements and assumptions are subject to numerous risks
and uncertainties, including the risk factors discussed elsewhere herein,
general economic and business conditions, the business opportunities that may
be presented to and pursued by MOXY, FSC or McMoRan, changes in law or
regulations and other factors, many of which are beyond the control of MOXY,
FSC and McMoRan. Readers are cautioned that such statements are not guarantees
of future performance and that actual results and developments may differ
materially from those assumed or projected in the forward-looking statements.
Important factors that could cause actual results to differ materially from
expectations include, among others, those discussed under the captions "Risk
Factors--Risk Factors Relating to MOXY's Operations" and "Risk Factors--Risk
Factors Relating to FSC's Operations."
RISK FACTORS
Risk Factors Relating to MOXY's Operations
Limited Operating History and Significant Historical Operating Losses
MOXY commenced operations in 1994 and currently has only two
significant producing fields and several recent exploratory discoveries that
have not yet commenced production. Proved reserves and levels of future
production attributable to these exploratory discoveries are less susceptible
to reliable estimation than properties with a history of production. Also, as
a result of expensing non-productive exploratory drilling and related costs of
MOXY's exploration programs, MOXY has incurred and can be expected to continue
to incur significant operating losses. MOXY's viability must be considered in
light of the risks and difficulties frequently encountered by companies engaged
in the early stages of oil and gas exploration, development and production
activities.
Substantial Capital Requirements
The growth of MOXY's asset base of oil and gas reserves will
continue to require substantial expenditures. MOXY's future financial results
will depend on its ability to locate hydrocarbons in commercial quantities and
on market prices for oil and gas. There can be no assurance that MOXY will
achieve or sustain profitability or positive cash flows from future operating
activities.
MOXY incurred, and will continue to incur, substantial capital
expenditures for the exploration, development and production of oil and natural
gas reserves and related projects. If MOXY fails to discover significant
reserves, experiences operating difficulties or if oil and gas prices decline
and reduce cash generated from operations, MOXY may be required to obtain
additional financing to fund its operations. No assurance can be given that
such financing will be available, and if it is not available, MOXY may be
required to curtail its operations.
Volatility of Oil and Gas Prices
MOXY's revenues substantially depend on prevailing prices of
natural gas and, to a lesser extent, oil, which prices have declined in recent
months. In recent years, natural gas and oil prices have been extremely
volatile, which has affected the level of industrywide drilling, exploration,
development and production. Prices are affected by market supply and demand
factors as well as actions of state and local agencies, U.S. and foreign
governments and international cartels. All of these factors are beyond the
control of MOXY. Any significant or extended decline in oil and gas prices
will have a material adverse effect on MOXY's financial condition and
operations and could impair access to capital.
Exploration and Development Risks
Exploration for and development of natural gas and oil involve a
high degree of risk that no natural gas or oil will be found, that no
commercial production will be obtained or that the production will be
insufficient to recover drilling and completion costs. The cost of drilling,
completing and operating wells is often uncertain, and cost overruns in
offshore operations can adversely affect the economics of a project. MOXY's
drilling operations may be curtailed, delayed or canceled as a result of
numerous factors, including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of equipment.
Furthermore, completion of a well does not ensure a profit on the investment or
even the recovery of drilling, completion and operating costs.
Replacement of Reserves
MOXY's future financial performance depends in large part on its
ability to acquire, find and develop oil and gas reserves that are economically
recoverable. Without successful exploration or development activities, MOXY's
reserves will be depleted. No assurances can be given that MOXY will be able
to find and develop additional reserves on an economic basis.
MOXY's business is capital intensive and significant operating
cash flow must be reinvested in development or exploration activities in order
for MOXY to maintain or increase its asset base of proved oil and gas reserves.
To the extent that cash flow from operations is reduced or external sources of
capital become limited or unavailable, MOXY's ability to make the necessary
capital investments to maintain or increase its asset base will be impaired.
Without such investment, MOXY's oil and gas reserves will be depleted.
Although MOXY currently emphasizes reserve growth through
exploratory drilling, it may make acquisitions from time to time of producing
properties and properties with proved undeveloped reserves. Evaluation of
recoverable reserves of natural gas and oil, which is an integral part of the
property selection process, depends on evaluation of geological, engineering
and production data, some or all of which may prove to be unreliable or not
indicative of future performance.
Reserve Estimates and Future Net Cash Flow
MOXY's estimates of proved oil and gas reserves are based upon
engineering estimates. Reserve engineering is a subjective process of
estimating the recovery from underground accumulations of oil and natural gas
that cannot be measured in an exact manner, and the accuracy of any reserve
estimate is a function of the quality of available data and of engineering and
geological interpretation and judgment. Estimates of economically recoverable
oil and gas reserves and of future net cash flows necessarily depend upon a
number of variable factors and assumptions, such as historical production from
the area compared with production from other producing areas, the assumed
effects of governmental regulations and assumptions concerning future oil and
gas prices, future operating costs, severance and excise taxes, development
costs, and workover and remedial costs, all of which may vary considerably from
actual results. Because all reserve estimates are to some degree speculative,
the quantities of oil and natural gas that are ultimately recovered, the
production and operating costs attributable thereto, the amount and timing of
future development expenditures, and future oil and natural gas sales prices
may all vary materially from those assumed in arriving at reserve estimates.
In addition, different reserve engineers may make different estimates of
reserve quantities and cash flows based upon the same available data. See
"Business--Business of MOXY--Oil and Gas Reserves."
Proved reserves are estimated quantities of oil and natural gas
that geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic
and operating conditions. Proved reserves are limited to those quantities of
oil and gas that are expected to be recoverable commercially at current prices
and costs, under existing regulatory practices and with existing equipment and
conventional operating methods. Future cost increases or price declines could
cause reserve estimates to be reduced even in the absence of changes in
assumptions regarding the size or physical characteristics of the reservoirs.
The present values of estimated future net cash flows from
proved oil and gas reserves referred to in this Joint Proxy
Statement/Prospectus should not be construed as the current market value of the
estimated proved oil and gas reserves attributable to MOXY's properties. In
accordance with applicable requirements of 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, curtailments or increases in consumption by gas
purchasers and changes in governmental regulations or taxation. The timing of
actual future net cash flows from proved reserves, and thus their actual
present value, will be affected by the timing of production and the incurrence
of expenses in connection with development and production of oil and gas
properties. 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 oil
and gas properties owned by MOXY or the oil and gas industry in general.
Shortages of Supplies and Equipment
MOXY's ability to conduct its operations in a timely and cost
effective manner is subject to the availability of oil and gas field supplies,
equipment and service crews. The industry has experienced periodic shortages
of certain types of drilling rigs and work boats in the Gulf of Mexico. Such
shortages can result in delays in operations as well as higher operating and
capital costs. Shortages of other drilling equipment, tubular goods, drilling
service crews and seismic crews could occur from time to time, further
hindering MOXY's ability to conduct its operations as planned.
Operating Hazards; Limited Insurance Coverage
MOXY's operations are subject to hazards and risks inherent in
drilling for and producing and transporting natural gas and oil, such as fires,
natural disasters, encountering formations with abnormal pressures, blowouts,
cratering, pipeline ruptures and spills, any of which can result in
environmental pollution, personal injuries, property damage and substantial
losses to MOXY. Moreover, MOXY's operations in the Gulf of Mexico are subject
to a variety of operating risks peculiar to the marine environment, such as
hurricanes or other adverse weather conditions, more extensive governmental
regulation, (including regulations that may, in certain circumstances, impose
strict liability for pollution damage) and interruption or termination of
operations by governmental authorities based on environmental or other
considerations.
MOXY has in place certain liability, property damage, business
interruption and other insurance coverages in types and amounts that it
considers reasonable and believes to be customary in MOXY's business. This
insurance provides protection against loss from some, but not all, potential
liabilities incident to the ordinary conduct of MOXY's business, including
coverage for certain types of damages associated with environmental and other
liabilities that arise from sudden, unexpected and unforeseen events, with such
coverage limits, retentions, deductibles and other features as management deems
appropriate. The occurrence of an event that is not fully covered by insurance
could have a material adverse effect on MOXY's financial condition and results
of operations.
Governmental Regulation
MOXY's operations are affected by political developments and
federal and state laws and regulations. In particular, oil and natural gas
production, operations and economics are or have been affected by price
controls, taxes and other laws relating to the oil and natural gas industry, by
changes in such laws and by changes in administrative regulations. MOXY cannot
predict how existing laws and regulations may be interpreted by enforcement
agencies or court rulings, whether additional laws and regulations will be
adopted, or the effect such changes may have on its business or financial
condition.
MOXY's operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into
the environment in connection with drilling and production, limit or prohibit
drilling activities on certain lands lying within wilderness, wetlands and
other protected areas, and impose substantial liabilities for pollution that
could result from MOXY's operations. Moreover, the recent trend toward
stricter standards in environmental legislation and regulation is likely to
continue. Initiatives to further regulate the disposal of crude oil and natural
gas wastes are also pending in certain states and could have a similar impact.
MOXY could incur substantial costs to comply with environmental laws and
regulations. In addition to compliance costs, government entities and other
third parties may assert substantial liabilities against owners and operators
of oil and gas properties for oil spills, discharges of hazardous materials,
remediation and cleanup costs and other environmental damages, including
damages caused by previous property owners. The imposition of any such
liabilities on MOXY could have a material adverse effect on MOXY's financial
condition and results of operations.
Federal legislation (sometimes referred to as "Superfund"
legislation) imposes liability, without regard to fault, for clean-up of
certain waste sites, even though waste management activities at the site may
have been performed in compliance with regulations applicable at the time.
Under the Superfund legislation, one responsible party may be required to bear
more than its proportional share of clean-up costs if payments cannot be
obtained from other responsible parties. In addition, federal and state
regulatory programs and legislation mandate clean-up of certain wastes at
operating sites. Governmental authorities have the power to enforce compliance
with these regulations and permits, and violators are subject to civil and
criminal penalties, including fines, injunctions or both. Third parties also
have the right to pursue legal actions to enforce compliance. Liability under
these laws can be significant and unpredictable.
MOXY may receive in the future notices from governmental
agencies that it is one of many potentially responsible parties at certain
sites under relevant federal and state environmental laws. Some of these sites
may involve significant clean-up costs. The ultimate settlement of liability
for the clean-up of such sites usually occurs many years after the receipt of
notices identifying potentially responsible parties because of the many
complex, technical and financial issues associated with site clean-up. MOXY
cannot predict its potential liability for clean-up costs that it may incur in
the future.
The Oil Pollution Act of 1990 (the "OPA") imposes a variety of
regulations on "responsible parties" related to the prevention of oil spills.
The implementation of new, or the modification of existing, environmental laws
or regulations, including regulations promulgated pursuant to the OPA, could
have a material adverse effect on MOXY.
Competition
MOXY operates in the highly competitive areas of natural gas and
oil production, development and exploration with many companies, many of which
have significantly greater financial and other resources than MOXY. Factors
affecting MOXY's ability to compete in the marketplace include the availability
of capital, access to information relating to a property and the standards
established by MOXY for the minimum projected return on investment. MOXY's
competitors include major integrated oil companies and a substantial number of
independent energy companies, many of which may have substantially larger
financial resources, staffs and facilities than MOXY.
Risks Associated with "Year 2000" Issue
The year 2000 ("Y2K") issue is the result of computerized
systems being written to store and process the year portion of dates using two
digits rather than four. Date-aware systems, i.e., any system or component
that performs calculations, comparisons, sequencing, or other operations
involving dates, may fail or produce erroneous results on or before January 1,
2000 because the year 2000 will be interpreted as the year 1900.
MOXY has prepared and is in the process of executing a plan to
ensure all its significant computer systems and computer controlled plant and
equipment will be Y2K compliant. MOXY also has initiated an assessment of Y2K
external risk that may arise from the failure of critical suppliers and
customers to become Y2K compliant. MOXY believes all critical components of
the plan are on schedule for completion by the end of the second quarter of
1999. There can be no assurance that this plan will be achieved, and actual
results could differ materially from the plan.
MOXY believes that the cost of Y2K compliance will not be
material and will be provided for through its normal operating and capital
budgets. However, there can be no assurance that Y2K will not have a material
adverse effect on its financial condition or results of operations if required
software modifications and conversions are not made, or are delayed, or if
systems of other companies are not converted on a timely basis or fail to
convert. Although MOXY is developing specific contingency plans if any or all
of the above risks occur, there can be no assurance that these contingency
plans will be adequate to address these risks. In summary, while there can be
no assurance that MOXY will not be materially adversely affected by Y2K
problems, it is committed to ensuring that it is fully Y2K ready and believes
its plans adequately address the above-mentioned risks. For further discussion
of the Y2K issue, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations and Disclosures About Market
Risks--MOXY--Impact of Year 2000 Compliance."
Risk Factors Relating to FSC's Operations
Effect of Prices on Sulphur Mining Operations
Although current sulphur prices allow FSC to generate positive
cash flows from its Main Pass mining operations, there have been recent
declines in the market price of sulphur, which led to FSC's June 30, 1998
announcement that it would permanently discontinue sulphur production at the
Culberson mine. Because of the costs associated with closing and re-opening
mine sites, as well as the potential loss of mining or mineral development
rights if mining operations were suspended, FSC could decide to operate its
Main Pass operation for some period even if it did not generate positive cash
flow, and, if Main Pass operations were suspended, it could be difficult and
expensive for FSC subsequently to re-open the mine.
Reliance on IMC-Agrico as Continuing Customer
Approximately 65% of FSC's 1997 sulphur sales (72% on a pro
forma basis after the contribution of the Main Pass interest belonging to IMC
Global Inc. ("IGL")) and approximately 73% of sulphur sales for the six months
ended June 30, 1998 were made to IMC-Agrico, and IMC-Agrico will continue to
account for a substantial percentage of FSC's sulphur sales. Sales of sulphur
to IMC-Agrico are generally made at market prices, with a portion of such sales
receiving additional price consideration. Although FSC has a long-term supply
contract with IMC-Agrico that requires IMC-Agrico to purchase sulphur from FSC
as long as IMC-Agrico's phosphate fertilizer operations require the use of
sulphur, the loss of or a significant decline in its sales of sulphur to
IMC-Agrico could have a material adverse effect on FSC's business and
operating results.
Operating Hazards; Limited Insurance Coverage
FSC's offshore sulphur mining, oil production and marine
transportation operations are subject to marine perils, including collisions,
hurricanes and other adverse weather conditions. All of FSC's oil and sulphur
production activities are subject to blowouts, cratering, fires and other
risks, any of which could result in serious personal injury or death and
substantial damage to property and the environment. FSC's operations may be
subject to significant interruption, and FSC may be subject to significant
liability, due to industrial accidents, severe weather or other natural
disasters occurring at one or more of its mining operations.
FSC has in place, certain liability, property damage, business
interruption and other insurance coverages in types and amounts that it
considers reasonable and believes to be customary in FSC's business. This
insurance provides protection against loss from some, but not all, potential
liabilities incident to the ordinary conduct of FSC's business, including
coverage for certain types of damages associated with environmental and other
liabilities that arise from sudden, unexpected and unforeseen events, with such
coverage limits, retentions, deductibles and other features as management deems
appropriate. The occurrence of an event that is not fully covered by insurance
could have a material adverse effect on FSC's financial condition and results
of operations.
Environmental Matters and Reclamation Liabilities
FSC's operations include mining, development and production of
natural resources, and the extraction, handling, production, storage,
transportation and disposal of materials and waste products that may be toxic
or hazardous. Consequently, FSC is subject to numerous environmental laws and
regulations. FSC has incurred, and expects to continue to incur, significant
capital expenditures and operating expenses based on these laws and
regulations. Continued governmental and public emphasis on environmental issues
may result in increased capital and operating costs in the future, although the
impact of future laws and regulations or future changes to existing laws and
regulations cannot be predicted or quantified.
Federal legislation (sometimes referred to as "Superfund"
legislation) imposes liability, without regard to fault, for clean-up of
certain waste sites, even though waste management activities at the site may
have been performed in compliance with regulations applicable at the time.
Under the Superfund legislation, one responsible party may be required to bear
more than its proportional share of clean-up costs if payments cannot be
obtained from other responsible parties. In addition, federal and state
regulatory programs and legislation mandate clean-up of certain wastes at
operating sites. Governmental authorities have the power to enforce compliance
with these regulations and permits, and violators are subject to civil and
criminal penalties, including fines, injunctions or both. Third parties also
have the right to pursue legal actions to enforce compliance. Liability under
these laws can be significant and unpredictable.
FSC may receive in the future notices from governmental agencies
that it is one of many potentially responsible parties at certain sites under
relevant federal and state environmental laws. Some of these sites may involve
significant clean-up costs. The ultimate settlement of liability for the
clean-up of such sites usually occurs many years after the receipt of notices
identifying potentially responsible parties because of the many complex,
technical and financial issues associated with site clean-up. FSC cannot
predict its potential liability for clean-up costs that it may incur in the
future.
The recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. For instance, legislation has
been proposed in Congress from time to time that would reclassify certain crude
oil and natural gas exploration and production wastes as "hazardous wastes,"
which would make the wastes subject to significantly more stringent handling,
disposal and clean-up requirements. If such legislation were to be enacted, it
could have a significant impact on FSC's operating costs, as well as the
sulphur and oil and gas industries in general. Initiatives to further regulate
the disposal of crude oil and natural gas wastes are also pending in certain
states and could have a similar impact. In addition to compliance costs,
government entities and other third parties may assert substantial liabilities
against owners and operators of sulphur mining and oil and gas properties for
oil spills, discharges of hazardous materials, remediation and clean-up costs
and other environmental damages, including damages caused by previous property
owners. The imposition of any such liabilities on FSC could have a material
adverse effect on FSC's financial condition and results of operations.
The OPA imposes a variety of regulations on "responsible
parties" related to the prevention of oil spills. The implementation of new, or
the modification of existing, environmental laws or regulations, including
regulations promulgated pursuant to the OPA, could have a material adverse
effect on FSC.
In connection with PLP's spin-off of FSC in December 1997, FSC
assumed responsibility for potential liabilities, including environmental
liabilities, associated with the prior conduct of the businesses contributed by
PLP to FSC. Among these are potential liabilities arising from sulphur mines
that were depleted and closed in the past in accordance with reclamation and
environmental laws in effect at the time, particularly in coastal or marshland
areas that have experienced subsidence or erosion. FSC believes that it is in
compliance with existing laws regarding such closed operations, and has
implemented controls in some areas that it believes exceed its legal
responsibilities. Nevertheless, it is possible that new laws or actions by
governmental agencies could result in significant unanticipated additional
reclamation costs. For additional information regarding certain reclamation
obligations, see "Business--Business of FSC--Environmental Matters and
Reclamation Obligations."
FSC could also be subject to potential liability for personal
injury or property damage relating to wellheads and other materials at closed
mines in coastal areas that have become exposed through coastal erosion.
Although FSC has insurance in place to protect it against certain of these
liabilities, there can be no assurance that such insurance coverage would be
sufficient. There can also be no assurance that FSC's current or future
accruals for reclamation costs will be sufficient to fully cover such costs.
Competition
There are two principal sources of elemental sulphur: (i) mined
sulphur and (ii) recovered sulphur produced as a by-product by oil refineries
and gas processing plants. Recovered sulphur from domestic and foreign sources
is the major source for most sulphur customers and is the major source of
competition for FSC. As a by-product of the producer's refining or gas
processing operations, recovered sulphur can be produced at lower costs than
mined sulphur, but the costs to customers depend in significant part on the
costs of handling and transporting to customers.
Production of recovered sulphur from high-sulphur gas processing
plants and oil refineries in the United States has increased at an average rate
of approximately 200,000 tons per year for the last three years. Because U.S.
recovered sulphur producers do not have the ability to store large inventories
of sulphur, they must move it to market and, depending on the proximity of
their plants to the principal sulphur market of central Florida, such producers
may enjoy a significant cost advantage over FSC.
Because the supply of U.S. recovered sulphur alone cannot meet
total domestic demand, mined sulphur, along with imported recovered sulphur
obtained principally from Canada and Mexico, is required to supply the balance.
Canadian recovered sulphur producers have facilities for storing excess sulphur
production in solid form, and approximately 90% of the Western Hemisphere's
sulphur inventories currently consist of sulphur recovered from natural gas in
the province of Alberta in western Canada. At certain price levels in the U.S.
sulphur markets, and depending on prices in the foreign markets they supply,
Canadian producers can be expected to increase sulphur sales to U. S. buyers in
competition with FSC.
The principal competitive risk to FSC's ability to mine sulphur
profitably is the potential for decreased domestic demand for sulphur,
increased production from domestic recovered sulphur producers, increases in
imported recovered sulphur and the rate at which stored sulphur, particularly
in Canada, is released into the market. In addition, the current level of
Canadian sulphur inventories limits the potential of FSC to realize significant
price increases for its sulphur. See "Business--Business of FSC--Competition."
Seasonality and Volatility of Sulphur Markets
Because the principal use of sulphur is in the manufacture of
phosphate fertilizers, FSC's ability to successfully market its sulphur is
materially dependent on prevailing agricultural conditions and the worldwide
demand for fertilizers. Although phosphate fertilizer sales are fairly constant
month-to-month, seasonal increases occur in the domestic market prior to the
fall and spring planting season. Generally, domestic phosphate fertilizer
sales are at reduced levels after the spring planting season, although the
decline in domestic sales generally coincides with the time when major
commercial and governmental buyers in China, India and Pakistan purchase
product for mid-year delivery. Sales are also influenced by current and
projected grain inventories and prices, quantities of fertilizers imported to
and exported from North America, domestic fertilizer consumption and the
agricultural policies of certain foreign governments.
Like other commodities, the market and prices for sulphur have
been and will likely continue to be volatile. FSC's operating margins and cash
flow are subject to substantial fluctuations in response to changes in supply
and demand for sulphur, conditions in the domestic and foreign agriculture
industry, market uncertainties and other factors beyond its control.
Depletion of Oil and Gas Reserves; Increase of Royalty
Approximately 14% of FSC's 1997 revenues and 11% of FSC's
revenues for the six months ended June 30, 1998 were generated from the sale
of oil recovered from Main Pass. Oil revenues are expected to decline
substantially in 1998 and subsequent years, and FSC currently estimates that
proved oil reserves at the Main Pass site will be depleted by the year 2002.
Oil revenues will also decline because in the third quarter of 1998 FSC begins
paying a royalty to the original leaseowner. In addition, oil prices have
declined significantly since December 31, 1997. The Main Pass site is
currently FSC's only oil and gas property. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations and Disclosures
about Market Risks--FSC."
Absence of Independent Operating History
Until late 1997, FSC's operations were conducted by PLP, FTX
and their predecessors as part of a diversified business that was partly
integrated with PLP's other business activities and not as a stand-alone
business. Since its spin-off from PLP in late 1997, FSC has been operated
as an independent entity engaged, except for the production of oil and gas
at the Main Pass operations, exclusively in the sulphur business, and neither
PLP nor its affiliates has any obligation to provide financial or operational
support to FSC.
Limited Relevance of Historical Financial Information
Because FSC has not been operated in recent years as an
independent entity, the historical financial information included herein prior
to December 22, 1997 was derived from the audited financial statements of PLP
and is not necessarily indicative of the results of operations, financial
position and cash flows that would have been achieved if FSC had been an
independent entity during such periods or that will be achieved in the future.
FSC's operations were an integral part of PLP's operations during such periods,
and certain historical financial data included herein has been extracted from
PLP's books and records based on allocations between PLP's sulphur and oil and
gas operations and PLP's other businesses, and based on other assumptions
necessary to reflect FSC's operations as if they had been operated as an
independent enterprise. Additionally, the historical financial information
included herein prior to December 22, 1997 does not give effect to the
contribution of IGL's Main Pass interest. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations and Disclosures About
Market Risks--FSC."
Reserve Estimates
FSC's estimates of proved sulphur and oil and gas reserves are
based upon engineering estimates. Reserve engineering is a subjective process
of estimating the recovery from underground accumulations of sulphur, oil and
natural gas that cannot be measured in an exact manner, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Estimates of
economically recoverable oil and gas reserve quantities and of related future
net cash flows necessarily depend upon a number of variable factors and
assumptions, such as historical production from the area compared with
production from other producing areas, the assumed effects of governmental
regulations and assumptions concerning future oil and gas prices, future
operating costs, severance and excise taxes, development costs and workover and
remedial costs, all of which may vary considerably from actual results. Because
all reserve estimates are to some degree speculative, the quantities of sulphur
and oil and natural gas that are ultimately recovered, the production and
operating costs attributable thereto, the amount and timing of future
development and reclamation expenditures, and future sulphur, oil and natural
gas sales prices may all vary materially from those assumed in arriving at
reserve estimates, and those variances may be material. In addition, different
reserve engineers may make different estimates of reserve quantities and cash
flows based on the same data. While all of FSC's sulphur reserves are
considered proved because of extensive drilling and production experience,
the amount of sulphur actually produced may vary from the estimates, and such
variances could be material.
Proved reserves are estimated quantities of sulphur and oil and
natural gas that geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved reserves are limited to
those quantities of sulphur and oil and gas that are expected to be recoverable
commercially at current prices and costs, under existing regulatory practices
and with existing equipment and conventional operating methods. Future cost
increases or price declines could cause reserve estimates to be reduced even in
the absence of changes in assumptions regarding the size or physical
characteristics of the reservoirs. In particular, the sulphur and oil reserves
at Main Pass are highly sensitive to product prices and production volume
because of their relatively high level of fixed production costs.
The present value of estimated future net cash flows referred to
in this Joint Proxy Statement/Prospectus should not be construed as the current
market value of FSC's estimated proved oil and gas reserves. In accordance with
applicable requirements of 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 production, supply and demand for oil and gas,
curtailments or increases in consumption by oil and gas purchasers and changes
in governmental regulations and taxation. The timing of actual future net cash
flows from proved reserves, and thus their actual present value, will be
affected by the timing of production and the incurrence of expenses in the
development and production of oil and gas properties. In addition, the 10%
discount factor 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 oil and gas reserves owned by FSC or the oil and gas
industry in general.
Risks Associated with "Year 2000" Issue
The Y2K issue is the result of computerized systems being
written to store and process the year portion of dates using two digits rather
than four. Date-aware systems, i.e., any system or component that performs
calculations, comparisons, sequencing, or other operations involving dates,
may fail or produce erroneous results on or before January 1, 2000 because the
year 2000 will be interpreted as the year 1900.
FSC has prepared and is in the process of executing a plan to
ensure all its significant computer systems and computer controlled plant and
equipment will be Y2K compliant. FSC also has initiated an assessment of Y2K
external risk that may arise from the failure of critical suppliers and
customers to become Y2K compliant. FSC believes all critical components of
the plan are on schedule for completion by the end of the second quarter of
1999. There can be no assurance that this plan will be achieved, and actual
results could differ materially from the plan.
FSC believes that the cost of Y2K compliance will not be
material and will be provided for through its normal operating and capital
budgets. However, there can be no assurance that Y2K will not have a material
adverse effect on its financial condition or results of operations if required
software modifications and conversions are not made, or are delayed, or if
systems of other companies are not converted on a timely basis or fail to
convert. Although FSC is developing specific contingency plans if any or all
of the above risks occur, there can be no assurance that these contingency
plans will be adequate to address these risks. In summary, while there can be
no assurance that FSC will not be materially adversely affected by Y2K
problems, it is committed to ensuring that it is fully Y2K ready and believes
its plans adequately address the above-mentioned risks. For further
discussion of the Y2K issue, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures About Market
Risks--FSC--Impact of Year 2000 Compliance."
Risk Factors Relating to the Mergers and McMoRan
In addition to the risk factors outlined above, investors
should consider the following additional risk factors.
Fixed Merger Consideration Despite Potential Changes in Stock Prices
Each share of MOXY Common Stock and FSC Common Stock will be
converted at the Effective Time into a fixed number of shares of McMoRan
Common Stock and will not be adjusted for any increases or decreases in the
price of either MOXY Common Stock or FSC Common Stock. In addition, neither
party will have the right to terminate the Merger Agreement or elect not to
consummate the Mergers as a result of changes in the market prices of either
company's common stock. The prices of MOXY Common Stock and FSC Common Stock
at the Effective Time may vary from their respective prices at the date of
this Joint Proxy Statement/Prospectus and at the date of the special meeting
of MOXY stockholders (the "MOXY Meeting") and the meeting of FSC stockholders
(the "FSC Meeting," and together with the MOXY Meeting, the "Special
Meetings"). Such variations may be the result of changes in the business,
operations or prospects of MOXY or FSC, market assessments of the likelihood
that the Mergers will be consummated, the timing thereof and the prospects of
the Mergers and post-Merger operations, regulatory considerations, general
market and economic conditions and other factors. Because the Effective Time
may occur at a date later than the date on which the Special Meetings occur,
there can be no assurance that the prices of MOXY Common Stock and FSC Common
Stock on the date of the Special Meetings will be indicative of their
respective prices at the Effective Time. MOXY and FSC stockholders are urged
to obtain current market quotations for MOXY Common Stock and FSC Common Stock.
Risks Relating to the Realization of Synergies
The Mergers involve the integration of two companies that have
previously operated independently, although they have shared certain
administrative services. No assurance can be given that McMoRan will realize
anticipated operating or financial synergies from the Mergers.
Ability to Utilize Tax Losses and Deductions
At December 31, 1997 MOXY and FSC had $30.2 million and $61.5
million, respectively, of deferred tax assets comprised primarily of accumulated
tax losses, tax basis in excess of book basis on certain assets and other future
deductible costs (collectively referred to as "tax attributes"). For financial
reporting purposes MOXY has not recognized any tax benefit relating to its tax
attributes given its expectation that losses would continue to be incurred for
at least the near future as a result of ongoing exploration activities. For
financial reporting purposes FSC has recognized a deferred tax asset in its
financial statements relating to its tax attributes, based on an assessment that
it will more likely than not generate sufficient future income to utilize these
tax attributes. As a result of the Mergers, certain limitations will be imposed
on McMoRan's ability to utilize FSC's tax attributes. Such limitations will vary
based on FSC's total equity value at the closing of the Mergers, the fair market
value of the FSC assets, and other factors. Based on current estimates of future
consolidated income, the impact of these limitations, and the availability of
the MOXY tax attributes, McMoRan does not believe these limitations will result
in a material difference in the deferred tax asset amounts that it will
recognize on a consolidated basis compared with the deferred tax asset amounts
currently recognized by FSC and MOXY (net of valuation allowances), as adjusted
for the impact of purchase accounting. There can be no assurance that the
estimates of future income or the effect of the limitations or other factors on
the realizability of deferred tax assets will not differ from actual results.
Holding Company Structure
McMoRan intends to conduct all of its business through its
wholly owned subsidiaries. As a result, McMoRan will be dependent on the cash
flow of its subsidiaries and distributions thereof from its subsidiaries in
order to meet its financial obligations. Future borrowings by McMoRan's
subsidiaries may contain restrictions or prohibitions on the payment of
dividends by such subsidiaries to McMoRan. In addition, under applicable state
law, subsidiaries of McMoRan may be limited in the amount that they are
permitted to pay as dividends on their capital stock.
Absence of a Public Market for McMoRan Common Stock
The shares of McMoRan Common Stock are a new security for which
no public market exists. Although an application will be made to list the
shares of McMoRan Common Stock on the NYSE, and it is a condition to the
Mergers that the shares of McMoRan Common Stock issuable in the Mergers be
approved for listing on the NYSE or Nasdaq prior to the Effective Time (see
"Description of McMoRan Capital Stock--Stock Exchange Listing; Delisting and
Deregistration of MOXY and FSC Common Stock"), there can be no assurance that
an active public market will develop or be sustained upon completion of the
Mergers or at what prices holders of shares of McMoRan Common Stock would be
able to sell such securities, if at all. In addition, prevailing interest
rate levels, market fluctuations and general economic and political
considerations may adversely affect the liquidity and the market price of the
shares of McMoRan Common Stock, regardless of McMoRan's financial and
operating performance. Accordingly, no assurance can be given that a liquid
trading market in the shares of McMoRan Common Stock will develop or be
sustained.
CONFLICTS OF INTEREST
In considering the respective recommendations of the MOXY Board
and the FSC Board with respect to the Mergers, stockholders of MOXY and FSC
should be aware that certain directors and executive officers of MOXY and FSC
have interests in the Mergers that are different from or in addition to, and
inherently conflict with, the interests of the stockholders of MOXY and FSC.
Commonality of Directors and Officers
James R. Moffett serves as Co-Chairman of the Board for each of
MOXY and FSC. Richard C. Adkerson serves as MOXY's Co-Chairman of the Board
and Chief Executive Officer and as FSC's Vice Chairman of the Board. B. M.
Rankin, Jr. serves as a director of both MOXY and FSC. John G. Amato serves
as General Counsel of both MOXY and FSC. Michael C. Kilanowski, Jr. serves as
Secretary of both MOXY and FSC. C. Donald Whitmire, Jr. serves as
Controller--Financial Reporting for MOXY and as Vice President and
Controller--Financial Reporting for FSC.
As directors of FSC, certain members of the MOXY Board have
interests that are different from or in addition to, and inherently conflict
with, those of the MOXY stockholders generally. Likewise, as directors of
MOXY, certain members of the FSC Board have interests that are different from
or in addition to, and inherently conflict with, those of the FSC stockholders
generally. In recognition of those conflicts, each of the MOXY Board and the
FSC Board established a special committee of independent directors to evaluate
the merits of a business combination of the two companies and to negotiate the
terms of such a transaction if it were found to be desirable. See "The
Mergers--Background of the Mergers."
Certain Arrangements Regarding McMoRan's Board and Management
McMoRan Board of Directors. At the Effective Time, nine persons
will serve on the McMoRan Board, five of whom are MOXY Directors and seven of
whom are FSC directors. The McMoRan Board will be divided into three classes
of directors as described in "Description of the McMoRan Capital
Stock--Certain Charter and Bylaw Provisions."
McMoRan Management. At the Effective Time, Mr. Moffett will
hold the position of Co-Chairman of the Board of McMoRan, and Mr. Adkerson will
serve as McMoRan's Co-Chairman, President and Chief Executive Officer. Mr.
Latiolais, currently Co-Chairman of FSC, will become Vice Chairman of McMoRan.
Mr. Robert M. Wohleber, currently President, Chief Executive Officer and a
director of FSC, will become Executive Vice President, Chief Financial Officer
and a director of McMoRan and will serve as President and Chief Operating
Officer of the FSC operating subsidiary. C. Howard Murrish, currently
President and Chief Operating Officer of MOXY, will become Executive Vice
President of McMoRan and will serve as President and Chief Operating Officer of
the MOXY operating subsidiary.
Treatment of Stock-Based Awards
MOXY and FSC have outstanding non-qualified stock options and
MOXY has outstanding stock incentive units (the "Stock-Based Awards")
previously granted under certain MOXY and FSC benefit plans. Upon consummation
of the Mergers, all Stock-Based Awards will be canceled and, in substitution,
McMoRan will grant stock options to purchase McMoRan Common Stock ("McMoRan
Options") under the McMoRan Adjusted Stock Award Plan (the "McMoRan Adjusted
Plan").
The number of shares of McMoRan Common Stock subject to each
McMoRan Option will be equal to the number of shares underlying the related
Stock-Based Award multiplied by 0.2 for each MOXY Stock-Based Award and by
0.625 for each FSC Stock-Based Award. The exercise price with respect to each
McMoRan Option will be equal to the exercise price of the related Stock-Based
Award divided by 0.2 for each MOXY Stock-Based Award and by 0.625 for each FSC
Stock-Based Award. Each McMoRan Option will have the same vesting schedule,
expiration date and substantially the same terms and conditions as that of the
related Stock-Based Award. If, however, at any time within two years after the
Effective Time, the current directors of MOXY do not comprise a majority of the
McMoRan Board subject to certain exceptions, the McMoRan Options substituted
for the MOXY Stock-Based Awards will become fully exercisable. Similarly, if at
any time within two years after the Effective Time, the current directors of
FSC do not comprise a majority of the McMoRan Board subject to certain
exceptions, the McMoRan Options substituted for the FSC Stock-Based Awards will
become fully exercisable.
Indemnification and Limitation of Liability of MOXY's and FSC's Directors and
Officers
Pursuant to the Merger Agreement, all rights to indemnification
and exculpation existing in favor of a director, officer, employee or agent
(an "Indemnified Person") of MOXY or FSC or any of their respective
subsidiaries, as provided in MOXY's or FSC's certificate of incorporation or
by-laws as in effect on the date of the Merger Agreement and relating to
actions or events up to the Effective Time will continue in full force and
effect after the Effective Time. However, any determination required to be
made with respect to whether an Indemnified Person's conduct complies with the
standards set forth under Delaware Law or MOXY's or FSC's certificate of
incorporation or by-laws, as the case may be, will be made by independent
legal counsel selected by such Indemnified Person and reasonably acceptable
to McMoRan. For a period of six years after the Effective Time, McMoRan will
cause to be maintained in effect (i) the current provisions regarding
indemnification of officers and directors contained in the certificate of
incorporation and by-laws of MOXY and FSC, and (ii) if available, the current
policies of directors' and officers' liability insurance and fiduciary
liability insurance maintained by MOXY and FSC with respect to claims arising
from acts or omissions which occurred on or before the Effective Time.
However, McMoRan will not be obligated to pay aggregate annual premiums for
such insurance during such six-year period in excess of 200% of the per annum
rate of the aggregate premium currently paid by MOXY and FSC and their
subsidiaries for such insurance on the date of the Merger Agreement. McMoRan
will nevertheless be obligated to provide such coverage that shall then be
available at an annual premium equal to 200% of such rate. McMoRan has agreed
to pay all expenses (including fees and expenses of counsel) that may be
incurred by any Indemnified Person in successfully enforcing the indemnity or
other obligations under the Merger Agreement. The rights under the Merger
Agreement are in addition to rights that an Indemnified Person may have under
the certificate of incorporation, by-laws, or other similar organizational
documents of MOXY or FSC or any of their respective subsidiaries or Delaware
law.
Pursuant to the Merger Agreement, McMoRan has agreed at all
times after the Effective Time to indemnify each person who is or has been a
director or officer of MOXY or FSC or any of their respective subsidiaries,
their successors and assigns (individually an "Indemnified Party" and
collectively the "Indemnified Parties"), to the fullest extent permitted by
law, with respect to any claim, liability, loss, damage, judgment, fine,
penalty, amount paid in settlement or compromise, cost or expense (including
reasonable fees and expenses of legal counsel), whenever asserted or claimed,
based in whole or in part on, or arising in whole or in part out of the Merger
Agreement, the transactions contemplated by the Merger Agreement, or any other
facts or circumstances occurring at or prior to the Effective Time whether
commenced, asserted or claimed before or after the Effective Time, including
liability arising under the 1933 Act, the 1934 Act or state law and including
any liability for which an Indemnified Party is entitled to indemnification
from MOXY or FSC. In the event of any claim, liability, cost or other expense
described in the preceding sentence, McMoRan has agreed to pay the reasonable
fees and expenses of counsel selected by the Indemnified Parties and will
advance to such Indemnified Parties upon request reimbursement of documented
expenses reasonably incurred.
THE MERGERS
The discussion in this Joint Proxy Statement/Prospectus of the
Mergers and the principal terms of the Merger Agreement is subject to, and
qualified in its entirety by reference to, the Merger Agreement, a copy of
which is attached hereto as Annex A and incorporated herein by reference.
General
We are furnishing this Joint Proxy Statement/Prospectus to
holders of common stock, par value $0.01 per share ("MOXY Common Stock"), of
MOXY and holders of common stock, par value $0.01 per share ("FSC Common
Stock"), of FSC in connection with the solicitation of proxies by the Board of
Directors of MOXY for the MOXY Meeting and by the Board of Directors of FSC
for the FSC Meeting.
At the MOXY Meeting, MOXY stockholders will be asked to approve
the MOXY Merger, the adoption of the Merger Agreement and the adoption of the
McMoRan 1998 Stock Option Plan. At the FSC Meeting, FSC stockholders will be
asked to approve the FSC Merger, the adoption of the Merger Agreement and the
adoption of the McMoRan 1998 Stock Option Plan.
McMoRan is a new corporation formed for the purpose of the
Mergers. At the Effective Time of the Mergers, MOXY and FSC will each merge with
and into wholly owned subsidiaries of McMoRan and will continue to operate as
separate business units under their current names. Based on the number of MOXY
and FSC shares outstanding at the time that the transaction was announced, the
exchange ratios would have resulted in the MOXY and FSC stockholders receiving
approximately 58.5% and 41.5% of the McMoRan Common Stock, respectively. Since
that time, however, FSC has, pursuant to its open market purchase program,
purchased 953,900 shares of FSC Common Stock for approximately $9.4 million or
$9.88 per share. As a result, the former stockholders of MOXY will own
approximately 61% of McMoRan and the former stockholders of FSC will own
approximately 39% of McMoRan immediately after the Mergers.
Both MOXY and FSC believe that the transaction will create a
combined natural resource company with substantial financial resources and
cash flows to fund future investments in their respective businesses and, in
particular, to fund investments in oil and gas exploration and development.
Managements of MOXY and FSC believe that this is a particularly opportune time
to pursue oil and gas exploration in the Gulf of Mexico and Gulf Coast areas.
In particular, MOXY and FSC believe that there are an increasing number of
attractive oil and gas exploration opportunities in the Gulf region due in
part to the fact that an increased number of Gulf of Mexico oil and gas leases
have been granted over the past few years and that such leases expire five
years after the date of grant unless commercial hydrocarbons are discovered on
such leases. Management believes that its ability to select favorable
opportunities from available leases will be enhanced by the extensive 3-D
seismic imaging of the Gulf of Mexico that has been carried out in the last
few years. In addition, the costs of the third-party services necessary for
the support of oil and gas exploration have recently decreased, reflecting the
recent decline in exploration and drilling activity. The companies also
believe that their integration into a single company should result in cost
savings. For MOXY, the transaction will provide a source of cash flow to
finance the expansion of its exploration and production activities. For FSC,
the combination will allow it to invest in oil and gas opportunities that it
believes have an attractive potential return, while continuing to expand its
sulphur terminaling, transportation and marketing business. The combination
will also diversify FSC's sources of revenue, thereby reducing its dependence
on the sulphur business. Since a significant portion of the operating costs
of the Main Pass sulphur mine result from the consumption of natural gas to
heat water, FSC's combination with MOXY, a company that produces natural gas,
will provide FSC with an economic hedge against increases in natural gas
prices. FSC's decision to pursue this transaction follows on an intensive but
unsuccessful effort by management to find attractive expansion opportunities
in sulphur-related businesses and took into account the unfavorable pricing
environment in the domestic and international sulphur markets, which led to
FSC's recent decision to close its Culberson mine.
The Board of Directors of MOXY, after receiving the
recommendation of a special committee of the Board, has determined that the
transaction is fair to and in the best interests of the MOXY stockholders.
The Board of Directors of MOXY therefore recommends that MOXY stockholders
vote to approve the MOXY Merger and the adoption of the Merger Agreement.
The Board of Directors of FSC, after receiving the
recommendation of a special committee of the Board, has determined that the
transaction is fair to and in the best interests of the FSC stockholders. The
Board of Directors of FSC therefore recommends that FSC stockholders vote in
favor of the FSC Merger and the adoption of the Merger Agreement.
If the transaction is approved, MOXY stockholders will receive
0.2 shares of McMoRan Common Stock for each share of MOXY Common Stock they
own and FSC stockholders will receive 0.625 shares of McMoRan Common Stock for
each share of FSC Common Stock they own. McMoRan will not issue any
fractional shares. Instead, MOXY stockholders and FSC stockholders otherwise
entitled to receive fractional shares will receive cash in an amount equal to
the applicable fraction of the closing price of a share of McMoRan Common
Stock on the first trading day after completion of the transaction.
MOXY's Board of Directors currently consists of five members.
FSC's Board of Directors currently consists of seven members. Three of those
persons serve on both boards. The McMoRan Board will include all nine
individuals who serve on the MOXY Board and the FSC Board.
Mr. James R. Moffett, currently Co-Chairman of both MOXY and
FSC, will become Co-Chairman of the Board of McMoRan. Mr. Richard C.
Adkerson, currently Co-Chairman and Chief Executive Officer of MOXY and Vice
Chairman of FSC, will become the Co-Chairman, President and Chief Executive
Officer of McMoRan. Mr. Rene L. Latiolais, currently Co-Chairman of FSC, will
become Vice Chairman of McMoRan's Board. Mr. Robert M. Wohleber, currently
President, Chief Executive Officer and a director of FSC, will become
Executive Vice President, Chief Financial Officer and a director of McMoRan,
and will serve as President and Chief Operating Officer of FSC, which will
become a wholly owned subsidiary of McMoRan. Mr. C. Howard Murrish, currently
President and Chief Operating Officer of MOXY, will become Executive Vice
President of McMoRan and continue as President and Chief Operating Officer of
MOXY, which will also become a wholly owned subsidiary of McMoRan.
Background of the Mergers
Background of MOXY
MOXY commenced operations in May 1994 following the
distribution of all of its common stock (the "MOXY Spin-Off") to the
stockholders of Freeport-McMoRan Inc. ("FTX"), in order to continue, with
essentially the same management, the oil and gas exploration activities
previously conducted by FTX. FTX had been engaged in oil and gas exploration
since the mid-1970s but had sold substantially all of its oil and gas reserves
in order to pursue other business activities.
As a result, MOXY commenced business in 1994 with a group of
exploration prospects, an extensive geological and geophysical data base and
extensive technical and operational expertise, but with limited financial
resources. Following the MOXY Spin-Off, MOXY pursued a business plan of
exploring for and producing oil and gas, primarily in the Gulf of Mexico and
onshore in the Gulf Coast area. Most of those activities were engaged in
through a joint venture (the "MOXY/MCN Program") with MCN Energy Group, Inc.
("MCN"). By mid-1997, MOXY had identified and held interests in two producing
fields in the Gulf, and had acquired interests in a number of additional
exploration prospects. However, MOXY was nearing the completion of the
MOXY/MCN Program and expected that by the end of 1997 it would have expended
essentially all of its capital resources and would require significant
additional capital to continue its exploration activities.
In order to raise additional capital, MOXY explored a number of
strategies and ultimately undertook a rights offering (the "Rights Offering"),
which was completed in November 1997 and generated net proceeds of $92.2
million. In connection with the Rights Offering, MOXY established a multi-year
$210 million joint exploration program (the "MOXY Exploration Program") with
PLP and Gerald J. Ford, who subsequently became a director of MOXY. Following
his commitment to participate in the MOXY Exploration Program, Mr. Ford has
become a member of MOXY's Board of Directors. See "Business" for more detailed
information about the MOXY Exploration Program, and see "Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Disclosures About Market Risks--MOXY--Capital Resources and Liquidity" for
information regarding litigation recently initiated by IGL and PLP against MOXY
and certain other parties regarding the MOXY Exploration Program.
Since the latter part of 1997, MOXY has used a portion of the
proceeds of the Rights Offering and the funds made available by PLP and Mr.
Ford under the MOXY Exploration Program to pursue an aggressive exploration
program, which has resulted in several promising discoveries that are now
being developed. At the same time, MOXY is being presented with an increasing
number of oil and gas investment opportunities that MOXY's management would
like to pursue, but its financial resources have limited its ability to
aggressively pursue many of the opportunities available to it.
Background of FSC
FSC commenced operations as an independent company in December
1997 following the distribution of all of its common stock (the "FSC
Spin-Off") to the holders of units of partnership interest in PLP (including
FTX, which held a 51.6% interest in PLP and redistributed the FSC shares so
received to its common stockholders). Immediately prior to the distribution,
PLP had contributed to FSC its sulphur business and certain oil and gas
operations, which included a 58.3% interest in the Main Pass sulphur mining
and oil production operations, its 100% interest in the Culberson sulphur
mine, and related sulphur handling, terminaling and transportation assets. At
the same time, in connection with the merger of FTX with IGL, in December
1997, IGL contributed its 25% interest in Main Pass to FSC. FSC's operations
include the largest Frasch sulphur mining operation in the world at the Main
Pass facility and extensive sulphur terminaling and transportation operations.
FSC's business strategy has been to use its sulphur production
facilities and transportation and logistical capabilities to maintain its
leadership position in the U.S. sulphur market and to capitalize on new
marketing opportunities. In addition, FSC expected to evaluate opportunities
for growth by expanding its third party transportation and terminaling
services, increasing its recovered sulphur marketing activities, and
constructing and operating sulphur recovery and sulphuric acid plants for
third parties. FSC also expected to seek opportunities to expand its business
in technologies related to the Main Pass oil operations, such as sour crude
processing and the application of its seawater heating technology to such uses
as secondary oil recovery.
FSC's management has engaged in intensive efforts to identify
and analyze a wide variety of growth opportunities in sulphur related
businesses but has not yet found any opportunities that it considers likely to
provide significant growth and attractive returns on investment. Among other
efforts, management has (i) consulted with several investment banking firms,
commercial banks and consultants for assistance in identifying possible
acquisition targets; (ii) held exploratory discussions with a public company
specializing in the removal of sulphur-based by-products from oil refineries
and smelters and a subsidiary of a publicly held company engaged in the design
and construction of energy efficient sulphuric acid manufacturing plants, both
of which expressed no interest in pursuing acquisition discussions; and (iii)
evaluated several business opportunities involving the construction and
operation of sulphur recovery and sulphuric acid plants for third parties,
which were ultimately determined to be unattractive due to their high capital
costs, operating risks and the extended period of projected losses and
relatively small profit potential. During the same period, the sulphur market
has deteriorated, leading to several curtailments of production at the
Culberson mine, followed ultimately by a decision to close the mine
permanently by the end of 1998.
Background of the Mergers
On June 3, 1998, the MOXY Board held a special meeting for the
purpose of discussing a possible business combination of MOXY with FSC. At
that meeting the MOXY Board created a special committee consisting of Messrs.
Gerald J. Ford and Robert A. Day and charged such special committee with the
task of evaluating the merits of entering into a business combination with FSC.
On June 3, 1998, the FSC Board held a special meeting for the
purpose of discussing a possible business combination of FSC with MOXY. At
that meeting, the FSC Board created a special committee consisting of Messrs.
J. Terrell Brown and Thomas D. Clark, Jr. and charged such special committee
with the task of evaluating the merits of entering into a business combination
with MOXY.
On June 4, 1998, MOXY and FSC entered into a confidentiality
agreement to facilitate the exchange of information between MOXY and FSC and
their respective reviews of each other.
Following the June 3 board meetings, the members of each
special committee held informal discussions telephonically to review possible
legal and financial advisors. The MOXY Special Committee determined to retain
Haynes and Boone as its legal advisors, and invited Bear Stearns to make a
presentation to the MOXY Special Committee at its first meeting. The FSC
Special Committee decided to retain Jones, Day, Reavis & Pogue as its legal
advisors and invited Lehman to make a presentation to the FSC Special
Committee at its first meeting.
On June 16, 1998, the MOXY Special Committee held its first
meeting during which it discussed the scope of its duties and obligations in
connection with the evaluation and negotiation of a potential transaction with
FSC. At this meeting the MOXY Special Committee analyzed and reviewed, among
other things, various strategic, financial and legal considerations concerning
a possible business combination with FSC. The MOXY Special Committee also
listened to a presentation by Bear Stearns concerning its expertise as an
investment banking firm with transactions similar to the proposed transaction
with FSC. After consultation with its legal advisors and after disclosure by
Bear Stearns of its prior engagements with MOXY's affiliates and predecessors,
the MOXY Special Committee determined to retain Bear Stearns to serve as its
financial advisor. Immediately thereafter, Bear Stearns commenced its
financial review of MOXY and FSC.
On June 25, 1998, the FSC Special Committee held its first
meeting, during which it discussed the scope of its duties and obligations in
connection with the evaluation and negotiation of a potential transaction with
MOXY. At this meeting, the FSC Special Committee analyzed and reviewed, among
other things, various strategic, financial and legal considerations concerning
a possible business combination with MOXY. The FSC Special Committee also
listened to a description by Lehman of its expertise as an investment banking
firm with transactions similar to the proposed transaction with MOXY. After
consultation with its legal advisors and after disclosure by Lehman of its
prior engagements with FSC's affiliates and predecessors, the FSC Special
Committee retained Lehman to serve as the FSC Special Committee's financial
advisor. Immediately thereafter, Lehman commenced its financial review of
MOXY and FSC.
Also on June 25, 1998, at a meeting of the MOXY Special
Committee, Bear Stearns presented a preliminary financial analysis of MOXY and
FSC and the proposed transaction. This financial analysis focused primarily
upon publicly available information regarding both MOXY and FSC, together with
relevant stock trading histories. Representatives of Bear Stearns also
explained the evaluation methodologies that it expected to apply in reviewing
the fairness of the possible transaction.
In late June and throughout July 1998, the MOXY Special
Committee and the FSC Special Committee and representatives of their
respective financial and legal advisors conducted financial and legal due
diligence regarding MOXY and FSC and reviewed public and non-public
information regarding MOXY and FSC, and certain of such persons held various
meetings and discussions with members of senior management of MOXY and FSC
relating to the business and financial condition of MOXY and FSC and their
respective plans and prospects. During this period, the special committees
and their respective advisors discussed the information that had been reviewed
and the progress of their review on a regular basis.
On July 13, 1998, at a meeting of the MOXY Special Committee,
representatives of Bear Stearns formally presented the results of its review.
The presentation included a financial review of each of MOXY and FSC, together
with certain evaluations of MOXY and FSC, applying various methodologies. The
MOXY Special Committee also discussed the reasons for the proposed transaction
and agreed that, assuming that a fair exchange ratio could be negotiated, such
transaction would be in the best interests of MOXY and its stockholders.
Following this presentation, representatives from Haynes and Boone presented
certain legal due diligence findings and answered related questions raised by
the MOXY Special Committee. The MOXY Special Committee then agreed to prepare
a non-binding term sheet (the "MOXY Term Sheet") to submit to the FSC Special
Committee regarding the proposed transaction.
The MOXY Term Sheet provided that: (i) MOXY and FSC each would
be merged with and into separate Delaware limited liability companies that
would be formed as wholly-owned subsidiaries of a newly formed holding company;
(ii) upon consummation of the proposed transaction, shares of MOXY Common
Stock and FSC Common Stock would be converted into shares of McMoRan Common
Stock; (iii) the MOXY stockholders and the FSC stockholders would receive
62.5% and 37.5% of the McMoRan Common Stock, respectively, reflecting the
respective market capitalizations of MOXY and FSC as of the close of business
on July 13, 1998, and such amounts would not be subject to adjustment; (iv)
the Board of Directors of the holding company would have nine directors,
consisting of all of the individuals currently serving on the Boards of
Directors of MOXY and FSC; (v) the transaction would be structured so as to be
tax-free to the stockholders of both MOXY and FSC for federal income tax
purposes; (vi) the definitive agreement would reflect a "merger of equals" and
would set forth reasonable and customary representations and warranties,
covenants and conditions of the parties, as well as other provisions; (vii)
the definitive agreement would also include, subject to negotiation by the
special committees, provisions regarding (A) exclusivity, (B) termination
fees, (C) mutual stock options, (D) indemnification, and (E) termination;
(viii) following the execution of a definitive agreement, the parties would
cooperate to prepare and file a Joint Proxy Statement/Prospectus as soon as
practicable setting forth the terms of the proposed transaction for approval
by the stockholders of both MOXY and FSC; and (ix) each party would bear its
own costs and expenses incurred in connection with its pursuit of the proposed
transaction, including, without limitation, costs relating to the preparation
and negotiation of the definitive agreement.
On July 14, 1998, the MOXY Special Committee and its financial
and legal advisors met telephonically to review and discuss the MOXY Term
Sheet. The members of the MOXY Special Committee discussed each of the items
set forth on the MOXY Term Sheet and agreed upon certain revisions to the
draft being reviewed. At the conclusion of this meeting, the MOXY Special
Committee approved the MOXY Term Sheet, as revised, and voted to submit the
MOXY Term Sheet to the FSC Special Committee. The MOXY Term Sheet was
delivered to the FSC Special Committee later in the day on July 14, 1998.
The FSC Special Committee also met on July 14, 1998, prior to
receipt of the MOXY Term Sheet, to review a presentation by Lehman of its
extensive evaluation of the business, financial condition and prospects of
both MOXY and FSC. Lehman's report included an evaluation of each of MOXY and
FSC using various assumptions and methodologies.
Shortly after its meeting on July 14, 1998, the FSC Special
Committee received a copy of the MOXY Term Sheet from the MOXY Special
Committee.
On July 15, 1998, the FSC Special Committee met to discuss the
MOXY Term Sheet. After extensive discussions concerning various pricing
models, including the use of collars, walk away rights and contingent value
rights, the FSC Special Committee decided it needed additional information to
assess and respond to the MOXY Term Sheet. The FSC Special Committee
therefore directed Lehman to advise it further on the function and operation
of these pricing strategies in different hypothetical scenarios.
On July 22, 1998, the FSC Special Committee met to review the
materials and reports prepared by its financial and legal advisors, and after
extensive discussion, the FSC Special Committee authorized Lehman to prepare a
counteroffer to be submitted to the MOXY Special Committee (the "FSC Term
Sheet"), which generally provided for the same terms set forth in the MOXY
Term Sheet, but provided for (i) a fixed exchange ratio of 44% for FSC
stockholders and 56% for MOXY stockholders of McMoRan's outstanding shares;
(ii) collars resulting in an adjustment to the exchange ratio if MOXY's share
price increased by more than 15% or decreased by more than 10% based on MOXY's
share price as of July 21, 1998; and (iii) a covenant whereby each party
agreed not to "shop" the transaction, provided, however, that each party could
take such actions as were necessitated by their fiduciary duties under
applicable law. Later that day, the FSC Special Committee and its financial
and legal advisors communicated telephonically to review and discuss the FSC
Term Sheet. After discussion the FSC Special Committee agreed upon certain
revisions to the draft being reviewed. Thereafter, shortly prior to the close
of business on July 22, 1998, the FSC Special Committee delivered the FSC Term
Sheet to the MOXY Special Committee for its review.
On July 28, 1998, the MOXY Special Committee met with its
financial and legal advisors and discussed the terms of the FSC Term Sheet.
Representatives of Bear Stearns presented certain materials to the MOXY
Special Committee analyzing financial and other information pertinent to the
determination of a fair exchange ratio. At the conclusion of the meeting, the
MOXY Special Committee authorized Mr. Ford, the Chairman of the MOXY Special
Committee, to meet with Mr. Brown, the Chairman of the FSC Special Committee,
and to engage in further negotiations regarding the terms of the proposed
transaction.
On July 29, 1998, Messrs. Ford and Brown held negotiations
regarding the open items addressed in the two term sheets. After extensive
discussions between Mr. Brown and Mr. Ford, including discussions between
Messrs. Brown and Ford with the other members of their respective special
committees and their respective financial and legal advisors, an agreement was
reached. At that meeting, Messrs. Ford and Brown agreed in principle upon the
terms set forth in the FSC Term Sheet, subject to the following modifications:
(i) the MOXY stockholders and the FSC stockholders would receive 58.5% and
41.5% of the McMoRan Common Stock, respectively, and such amounts would not be
subject to adjustment; (ii) the definitive agreement would contain provisions
regarding exclusivity, but subject to a "fiduciary duty out" for both MOXY and
FSC; (iii) the definitive agreement would contain customary provisions
regarding indemnification by McMoRan of the directors and officers of MOXY and
FSC; (iv) the definitive agreement would be subject to termination upon the
occurrence of certain agreed events; and (v) each party would be required to
pay the expenses of the other party following certain termination events.
On July 30, 1998, the MOXY Special Committee met and approved
the terms of the proposed transaction, as negotiated by Mr. Ford, subject to
negotiation and completion of a satisfactory Merger Agreement. The MOXY
Special Committee also discussed final due diligence matters raised by its
financial and legal advisors.
On July 31, 1998, the MOXY Special Committee and its financial
and legal advisors met immediately prior to a special meeting of the MOXY
Board of Directors. At such meeting, representatives of Bear Stearns advised
the MOXY Special Committee that it had determined that the MOXY Exchange Ratio
was fair to the MOXY stockholders from a financial point of view and that it
was prepared to execute a letter to the MOXY Special Committee to that effect.
The MOXY Special Committee then unanimously determined that the terms of the
Merger Agreement and the MOXY Merger were fair to and in the best interests of
MOXY's stockholders and voted to recommend that the Merger Agreement and the
MOXY Merger be approved by the full MOXY Board of Directors.
At a meeting held on July 31, 1998, the MOXY Board of Directors
met and received presentations from the MOXY Special Committee, management of
MOXY, and Bear Stearns. After receiving such presentations and after
considering the factors set forth under "--MOXY's Reasons for the MOXY Merger;
Recommendation of the MOXY Board of Directors" that were considered by the
MOXY Special Committee, the MOXY Board of Directors unanimously (i) approved
the MOXY Merger and the Merger Agreement; (ii) determined that the terms of
the MOXY Merger are fair to, and in the best interests of, MOXY's
stockholders; (iii) determined to recommend to MOXY's stockholders that they
vote to approve the adoption of the MOXY Merger and the Merger Agreement.
On July 31, 1998, the FSC Special Committee met and
representatives of Lehman advised the FSC Special Committee that it had
determined that as of such date and based on and subject to certain matters
stated in their written opinion, the FSC Exchange Ratio was fair to the FSC
stockholders from a financial point of view and that it was prepared to
execute a letter to the FSC Special Committee to that effect. The FSC Special
Committee then unanimously determined that the terms of the Merger Agreement
and the FSC Merger were fair to and in the best interests of FSC's
stockholders and voted to recommend that the Merger Agreement and the FSC
Merger be approved by the full FSC Board of Directors.
At a meeting held on August 1, 1998, the FSC Board of Directors
met and received presentations from the FSC Special Committee, management of
FSC, and Lehman. After receiving such presentations and after considering the
factors set forth under "--FSC's Reasons for the FSC Merger; Recommendation of
the FSC Board of Directors" that were considered by the FSC Special Committee,
the FSC Board of Directors unanimously (i) approved the FSC Merger and the
Merger Agreement; (ii) determined that the terms of the FSC Merger are fair
to, and in the best interests of, FSC's stockholders; (iii) determined to
recommend to FSC's stockholders that they vote to approve the adoption of the
FSC Merger and the Merger Agreement.
On August 1, 1998, MOXY and FSC entered into the Merger
Agreement and publicly announced the transaction on August 3, 1998.
MOXY's Reasons for the MOXY Merger; Recommendation of the MOXY Board of
Directors
At a meeting held on July 31, 1998, the MOXY Special Committee
unanimously determined that the terms of the Merger Agreement and the MOXY
Merger are fair to and in the best interests of MOXY stockholders and voted to
recommend that the Merger Agreement and the MOXY Merger be approved by the
full MOXY Board of Directors. See "--Background of the Mergers."
At a meeting of the MOXY Board of Directors held immediately
thereafter, at which all MOXY directors were present, based on the
recommendation of the MOXY Special Committee, the MOXY Board of Directors
unanimously (i) approved the MOXY Merger and the Merger Agreement; (ii)
determined that the terms of the MOXY Merger are fair to, and in the best
interests of, MOXY's stockholders; and (iii) determined to recommend to MOXY's
stockholders that they vote to approve and adopt the MOXY Merger and the
Merger Agreement.
The MOXY Special Committee. In determining to recommend to the
MOXY Board of Directors that it approve the MOXY Merger and the Merger
Agreement and in determining the fairness of the terms of the MOXY Merger, the
MOXY Special Committee considered the following factors each of which, in the
MOXY Special Committee's view, supported the MOXY Special Committee's
determination to recommend the MOXY Merger:
(i) the financial condition, assets, results of operations,
business and prospects of MOXY and the risks inherent in achieving those
prospects;
(ii) the financial condition, assets, results of operations,
business and prospects of FSC, and the risks inherent in achieving those
prospects;
(iii) the reduction in general and administrative costs that should
result from the combination of two public companies into a single company;
(iv) the opportunity for MOXY to benefit from FSC's access to
capital following the consummation of the Mergers and the use of that capital
to fund MOXY's oil and gas exploration and production activities;
(v) the opportunity to create a combined company with a larger
market capitalization, greater liquidity and enhanced visibility in the
capital markets;
(vi) the integration of FSC's Main Pass oil and gas operations
with MOXY's existing oil and gas operations;
(vii) the fact that the Board of Directors of McMoRan would consist
of all of the individuals serving on the Boards of Directors of MOXY and FSC
immediately prior to the consummation of the Mergers;
(viii) the opinion of Bear Stearns that the MOXY Exchange Ratio was
fair to MOXY's stockholders from a financial point of view, and the various
analyses presented to the MOXY Special Committee by Bear Stearns (see
"--Opinion of Financial Advisor to MOXY's Special Committee");
(ix) the terms and conditions of the Merger Agreement, including
the amount and form of consideration, the nature of the parties'
representations, warranties, covenants and agreements and the fact that the
conditions to FSC's obligation to consummate the Merger are reasonably
limited;
(x) the trading histories of MOXY Common Stock and FSC Common
Stock, respectively; and
(xi) the structure of the Mergers, which permits MOXY's
stockholders to exchange their MOXY Common Stock for McMoRan Common Stock in a
transaction that is intended to be tax-free for federal income tax purposes
(see "--Federal Income Tax Consequences of the Mergers").
In light of the number and variety of factors the MOXY Special
Committee considered in connection with its evaluation of the MOXY Merger, the
MOXY Special Committee did not find it practical to assign relative weights to
the foregoing factors, and accordingly, they did not do so.
The MOXY Special Committee consulted with Bear Stearns during
the course of its work and relied upon the work and analysis of Bear Stearns
in the financial evaluation of FSC and of the MOXY Exchange Ratio. The MOXY
Special Committee believed that Bear Stearns' analysis was reasonable.
The MOXY Special Committee believes that the MOXY Merger is
procedurally fair because: (i) the MOXY Special Committee was comprised of
independent directors appointed to represent the interests of, and to
negotiate on an arm's-length basis with FSC on behalf of, the MOXY
stockholders; (ii) the MOXY Special Committee retained and was advised by
independent legal counsel; (iii) the MOXY Special Committee retained Bear
Stearns as its independent financial advisor to assist it in evaluating FSC
and the terms of the Mergers; and (iv) the MOXY Merger requires the approval
of the holders of at least a majority of the outstanding shares of MOXY Common
Stock. In addition, the MOXY Special Committee believes that the MOXY Merger
is procedurally fair because the MOXY Exchange Ratio and the other terms and
conditions of the Merger Agreement resulted from active arm's-length
bargaining between the MOXY Special Committee and the FSC Special Committee.
The MOXY Board of Directors. At a meeting held on July 31,
1998, the MOXY Board of Directors met and received presentations from the MOXY
Special Committee, management of MOXY and Bear Stearns. After receiving such
presentations, and after considering the factors set forth above that were
considered by the MOXY Special Committee, the MOXY Board of Directors
unanimously (i) approved the MOXY Merger and the Merger Agreement; (ii)
determined that the terms of the MOXY Merger are fair to, and in the best
interests of, MOXY's stockholders; and (iii) determined to recommend to MOXY's
stockholders that they vote to approve the adoption of the MOXY Merger and the
Merger Agreement.
Opinion of Financial Advisor to MOXY's Special Committee
Bear Stearns was retained by MOXY's Special Committee to act as
its financial advisor in connection with the Mergers. Bear Stearns is an
internationally recognized investment banking firm and was selected by MOXY's
Special Committee based on Bear Stearns' qualifications and expertise in the
natural resources industries.
At the July 31, 1998 meeting of the MOXY Board of Directors,
Bear Stearns rendered its oral opinion that, as of such date and based upon
and subject to the various considerations set forth in its opinion, the MOXY
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to holders of MOXY Common Stock. Bear Stearns subsequently delivered
to the MOXY Board of Directors a written opinion dated July 31, 1998
confirming its oral opinion.
THE FULL TEXT OF BEAR STEARNS' WRITTEN OPINION, WHICH SETS
FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND THE LIMITS OF THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
HOLDERS OF SHARES OF MOXY COMMON STOCK ARE URGED TO, AND SHOULD, READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY. BEAR STEARNS' OPINION IS ADDRESSED TO
THE MOXY SPECIAL COMMITTEE AND ADDRESSES THE FAIRNESS OF THE MOXY EXCHANGE
RATIO FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF MOXY COMMON STOCK. IT
DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGERS NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF MOXY COMMON STOCK AS TO HOW MOXY'S
STOCKHOLDERS SHOULD VOTE AT THE MOXY MEETING. THE SUMMARY OF THE OPINION OF
BEAR STEARNS SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion, Bear Stearns, among other things, (i)
reviewed the Merger Agreement; (ii) reviewed MOXY's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the fiscal years ended
December 31, 1995 through 1997, and its Quarterly Report on Form 10-Q for the
period ended March 31, 1998 and reviewed FSC's Annual Report to Shareholders
and Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and
its Quarterly Report on Form 10-Q for the period ended March 31, 1998 and
other such public information with respect to MOXY and FSC as it deemed
relevant; (iii) reviewed certain operating and financial information, including
projections, provided to it by management relating to MOXY's and FSC's
business and prospects; (iv) met with members of MOXY's and FSC's senior
management to discuss its operations, historical financial statements and
future prospects; (v) reviewed the historical prices and trading volumes of
the MOXY Common Stock and FSC Common Stock; (vi) reviewed publicly available
financial data and stock market performance data of companies which Bear
Stearns deemed generally comparable to MOXY and FSC; (vii) reviewed the
estimates of oil and natural gas reserves of MOXY and FSC as of December 31,
1997, as prepared by Ryder Scott Company ("Ryder Scott"); and (viii) conducted
such other studies, analyses, inquiries and investigations as it deemed
appropriate.
In the course of its review, Bear Stearns relied upon and
assumed, without independent verification, the accuracy and completeness of
the financial and other projections provided to it by MOXY and FSC. With
respect to MOXY's and FSC's projected financial results and potential
synergies that could be achieved upon consummation of the Mergers, Bear
Stearns assumed that they were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the managements of MOXY
and FSC as to the expected future performance of MOXY and FSC, respectively.
Bear Stearns did not assume any responsibility for the verification of any
such information or of the projections provided to it and Bear Stearns relied
upon the assurances of the senior management of MOXY and FSC that they were
unaware of any facts that would make the information or projections provided
to Bear Stearns incomplete or misleading. In arriving at its opinion, Bear
Stearns did not perform or obtain any independent appraisal of the assets or
liabilities of MOXY and FSC, nor has it been furnished with any such
appraisals. Bear Stearns' opinion is necessarily based on economic, market
and other conditions, and the information made available to it, as of the date
hereof. Bear Stearns also assumed that the Mergers will each qualify as a
tax-free "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
Bear Stearns did not express any opinion as to the price or
range of prices at which shares of stock of McMoRan may trade subsequent to
the consummation of the Mergers. In addition, upon advice of MOXY and its
legal advisors, Bear Stearns assumed that the outstanding litigation relating
to the MOXY Exploration Program will not have a material adverse impact upon
MOXY.
In arriving at its opinion, Bear Stearns was not authorized to
solicit, and did not solicit, indications of interest from any third party
with respect to the acquisition of MOXY.
The following is a brief summary of certain analyses performed
by Bear Stearns and reviewed with the MOXY Board of Directors on July 31, 1998.
Historical Common Stock Performance
Bear Stearns analyzed the stock price trading ratios of the FSC
Common Stock to the MOXY Common Stock during the period from December 23, 1997
to July 29, 1998. During this period the ratio reached a high of 4.43 on
February 17, 1998 and a low of 2.63 on July 13, 1998. Bear Stearns reported
that the ratio at the close of business on July 29, 1998 was 2.89. Bear
Stearns also presented a historical analysis comparing the relative ownership
based on the market equity value of the FSC Common Stock, to the ownership
based on the market equity value of the MOXY Common Stock as of July 29, 1998
and for certain periods. In addition, Bear Stearns analyzed the premium or
discount to the holders of FSC Common Stock based on the MOXY Exchange Ratio
and the FSC Exchange Ratio for the Mergers as of July 29, 1998 and for the
periods of 30, 60, 90 and 120 trading days ending July 29, 1998. The premium
(discount) to the holders of the FSC Common Stock ranged from a premium of
8.1% based on the prices of the FSC Common Stock and MOXY Common Stock on July
29, 1998 to a discount of 2.3% based on the average of such stock prices for
the 120 trading day period ended July 29, 1998.
Bear Stearns also analyzed the performance of MOXY Common
Stock, which review consisted of an historical analysis of closing prices and
trading volumes over the period from July 29, 1997 to July 29, 1998. During
that period, based on closing prices on the Nasdaq National Market System,
MOXY Common Stock achieved a high closing price of $5.69 on October 9, 1997
and a low closing price of $3.00 on February 2, 1998. Additionally, Bear
Stearns noted that MOXY Common Stock closed at a price of $4.00 on July 29,
1998, the last trading day prior to Bear Stearns' rendering its oral fairness
opinion to the Board of Directors of MOXY.
Bear Stearns analyzed the performance of FSC Common Stock,
which review consisted of an historical analysis of closing prices and trading
volumes over the period from December 23, 1997 to July 29, 1998. During that
period, based on closing prices on the NYSE, FSC Common Stock achieved a high
closing price of $16.00 on February 11, 1998 and a low closing price of $9.94
on January 6, 1998. Additionally, Bear Stearns noted that FSC Common Stock
closed at a price of $11.56 on July 29, 1998.
Relative Contribution Analysis
Bear Stearns analyzed the relative contribution to the combined
companies by each of MOXY and FSC based on (i) the implied equity value based
on the terms of the transaction, compared to operating cash flow (net income
plus deferred tax, depreciation, depletion, amortization and exploration
expenses ("OCF")) for the last twelve calendar months ended June 30, 1998, and
the 1998 and 1999 management estimates, (ii) enterprise value which was equal
to the market equity value based on the terms of the transaction minus cash
and cash equivalents plus total debt, if any, compared to earnings before
interest, taxes, depreciation, depletion, amortization and exploration
expenses ("EBITDA") for the last twelve months ended June 30, 1998, and the
1998 and 1999 management estimates and (iii) base case discounted cash flow
("DCF") as described below. Based on this analysis, Bear Stearns reported that
MOXY would contribute to the combined companies 58.5% based on equity value,
versus 51.9%, 43.2% and 45.5% of OCF based on the last twelve months and the
1998 and 1999 estimates, respectively, 63.4% of enterprise value, versus 46.6%,
43.7% and 48.3% of EBITDA for the last twelve months and the 1998 and 1999
estimates, respectively, and from 46.4% to 49.4% on the basis of the base case
DCF.
Discounted Cash Flow Analysis
Bear Stearns performed a DCF analysis of MOXY based on certain
financial projections prepared by MOXY management for the years 1998 through
2002. Bear Stearns discounted the unlevered free cash flows of MOXY over the
forecast period at a discount rate of 11% which is the midpoint of the
discount range used of 10% to 12% and determined terminal values by both a
range of EBITDA multiples from 5.0x to 7.0x and based on the estimated value
of estimated proved reserves using prices per thousand cubic feet equivalent
("Mcfe") ranging from $1.25 to $1.55 and discount rates of 10% and 12%.
Unlevered free cash flow was calculated as after-tax earnings plus the
aggregate of depreciation, depletion, amortization and exploration less the
sum of capital expenditures and investments in non-cash working capital.
Because of management's estimates that MOXY would experience after tax losses
in 1998 through 2001, and would incur significant capital expenses throughout
the period, Bear Stearns' analyses indicated that MOXY would have significant
negative unlevered cash flow. Bear Stearns prepared two cases: the first,
which is referred to herein as the "Base Case," was based on management's
estimates; the second, which is referred to herein as the "Upside Case,"
assumed escalating prices. Based on its analyses, Bear Stearns reported a
range of DCF value from $143.4 million to $188.7 million for MOXY and a range
of per share value of $3.34 to $4.40 per share of MOXY Common Stock for the
Base Case and a range of $207.4 million to $254.4 million for MOXY and $4.83
to $5.93 per share of MOXY Common Stock for the Upside Case.
Bear Stearns performed a similar DCF analysis of FSC based on
certain financial projections prepared by FSC management for the years 1998
through 2002. In making this analysis Bear Stearns also used a discount rate
of 14%, which is the midpoint of the discount range used of 13% to 15% with
respect to unlevered free cash flow and used a range of EBITDA multiples of
from 4.5x to 6.5x and discount rates of 13% and 15% to determine terminal
value. Management of FSC prepared financial projections both on a base case
and an optimized case basis. In analyzing the two cases Bear Stearns also
modified the projections prepared by FSC's management to assume no change from
current prices. As a result Bear Stearns presented four cases--a base case
with current prices, a base case with management's assumptions with respect to
price changes, an optimized case with current prices and an optimized case with
management's assumptions with respect to price changes. These four cases
reflected ranges of DCF value for FSC of $139.2 million to $163.2 million;
$165.4 million to $193.4 million; $185.2 million to $217.9 million; and $211.4
million to $248.2 million, respectively; and ranges of per share value for
FSC Common Stock of $14.35 to $16.82; $17.05 to $19.94; $19.09 to $22.46; and
$21.79 to $25.59.
Merger Consequences
Bear Stearns also presented a comparison of the contribution of
earnings per share and OCF per share of each of MOXY and FSC compared to the
portion thereof that the MOXY Common Stock and FSC Common Stock would
represent of McMoRan. This information was provided for calendar years 1998,
1999 and 2000 on a pro forma estimated basis and assumed no synergies from the
Mergers. This analysis showed that the earnings per share of MOXY Common
Stock would change from a loss in each of the years to positive earnings and
that OCF per share would increase by 16.2%, 26.7% and 16.8% in 1998, 1999 and
2000, respectively.
Comparable Public Company Analysis
As part of its analysis, Bear Stearns compared certain publicly
available financial information of a group of publicly traded exploration and
production companies, including Basin Exploration, Bellwether Exploration Co.,
Callon Petroleum, Co., Chieftain International, Inc., Forcenergy, Inc., Forest
Oil Corp., Houston Exploration, Co., Meridian Resource Corp., Newfield
Exploration, Co., Panaco, Inc. and Stone Energy Corp. (collectively, the "MOXY
Comparable Group") and compared these statistics to the financial performance
of MOXY. This financial information included price to cash flow multiples for
1998 and 1999, market-based enterprise value to EBITDA for the twelve months
ended March 31, 1998, such enterprise value to estimated reserve value (based
on pre-tax PV-10), such enterprise value to proved reserves and reserve life.
Cash flow estimates were based on the First Call median CFPS forecasts as of
July 29, 1998.
Such analyses indicated that as of July 29, 1998 and based on a
compilation of First Call estimates, MOXY traded at 8.5 and 6.0 times
forecasted cash flow for 1998 and 1999, respectively, compared with a range of
6.0 to 2.2 times and 4.4 to 1.6 times for the MOXY Comparable Group for 1998
and 1999, respectively, with a harmonized mean of 3.8 and 2.9 times,
respectively; enterprise value to EBITDA of 13.5 times compared to a range of
9.9 to 3.4 times and a mean of 5.6 times for the MOXY Comparable Group;
enterprise value to estimated reserve value of 3.5 times compared to a range
of 1.6 to 0.8 times and a mean of 1.2 times for the MOXY Comparable Group;
enterprise value to proved reserves of $3.71 compared to a range of $2.02 to
$0.86 and a mean of $1.48 for the MOXY Comparable Group; and a reserve life of
10.1 years compared to a range of 12.5 to 5.9 years and a mean of 8.3 years
for the MOXY Comparable Group.
As part of its analysis, Bear Stearns also compared certain
available financial information of two different groups of comparable publicly
traded companies and applied these statistics to the financial performance of
FSC. The first group of comparable companies ("FSC Group One") included Alcide
Corp., Lesco, Inc., Mississippi Chemical Corp., Terra Industries, Inc., Terra
Nitrogen Co. and U.S. Home & Garden, Inc. The second group of comparable
companies ("FSC Group Two") included AMCOL International Corp., A.P. Green
Industries, Arch Coal, Inc., Cleveland-Cliffs Inc. and Zeigler Coal Holding
Co. Such financial information included the price to earnings multiple based
on First Call estimates at July 29, 1998 for 1998 and 1999, and market-based
enterprise value, excluding any reclamation or shutdown liabilities, to EBITDA
for the twelve months ended March 31, 1998. Such analyses indicated that as of
July 29, 1998 and based on management estimates, FSC traded at 9.0 times and
5.7 times earnings per share for 1998 and 1999 as compared to a range of 21.5
to 8.3 times and a mean of 14.5 times for 1998 and a range of 15.8 to 7.2 times
and a mean of 10.0 times for 1999 for FSC Group One and a range of 20.9 to 7.6
times and a mean of 11.8 times for 1998 and a range of 12.9 to 12.3 times and
a mean of 12.6 times for 1999 for FSC Group Two. Such analyses indicated an
enterprise value to EBITDA ratio for FSC of 4.8 times compared to a range of
14.6 to 2.8 times and a mean of 6.5 times for FSC Group One and a range of 8.8
to 3.8 times and a mean of 5.6 times for FSC Group Two.
No company utilized in the comparable public company analysis
or the comparable stock price performance is identical to MOXY or FSC.
Accordingly, an analysis of the results of the foregoing necessarily involves
considerations and judgments concerning differences in financial and operating
characteristics of MOXY and FSC and other factors that could affect the public
trading value of the companies to which they are being compared. Mathematical
analysis, such as determining the mean, should not be considered, in itself, a
meaningful method of using comparable company data.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to a partial analysis or summary description.
Bear Stearns believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
process underlying its opinion. In addition, Bear Stearns may have deemed
various assumptions more or less probable than other assumptions, so that the
range of valuations resulting for any particular analysis described above
should therefore not be taken to be Bear Stearns' view of the actual value of
MOXY or FSC.
In connection with the review of the Mergers by the MOXY
Special Committee, Bear Stearns performed a variety of financial and
comparative analyses for purposes of its opinion given in connection
therewith. The summary set forth above does not purport to be a complete
description of the analyses performed by Bear Stearns in connection with the
Mergers.
In performing its analyses, Bear Stearns made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
MOXY or FSC. The analyses performed by Bear Stearns are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses. Such analyses were prepared solely as part
of Bear Stearns' preparation of its fairness opinion and were provided to the
MOXY Special Committee in connection with the delivery of Bear Stearns' oral
and written opinion. These analyses do not purport to be appraisals or to
reflect the prices at which MOXY or FSC might actually be sold.
As described above, Bear Stearns' opinion and presentation to
the MOXY Special Committee were one of many factors taken into consideration
by the MOXY Special Committee in making its determination to approve and
recommend the Merger Agreement and the Mergers. Consequently, the Bear
Stearns' analyses described above should not be viewed as determinative of the
opinion of the MOXY Special Committee or the management of MOXY with respect
to the value of MOXY or FSC or whether the MOXY Special Committee would have
been willing to agree to a different MOXY Exchange Ratio or FSC Exchange Ratio.
Bear Stearns is a full services securities firm, engaged in
securities trading and brokerage activities, as well as providing investment
banking, financial and financial advisory services. As part of its investment
banking business, Bear Stearns is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. In the ordinary course of its trading,
brokerage and financing activities, Bear Stearns and its affiliates may
actively trade or effect transactions in the equity securities of MOXY and FSC
for its own account and for the account of its customers, and, accordingly,
may at any time hold long or short positions in such securities.
Pursuant to an engagement letter between the MOXY Special
Committee and Bear Stearns, the MOXY Special Committee retained Bear Stearns
as financial advisor in connection with a potential transaction involving
MOXY. MOXY agreed to pay Bear Stearns a fee of $100,000 upon execution of the
engagement letter, $500,000 at the time of delivery of its fairness opinion
and $400,000 upon consummation of the Mergers. MOXY also agreed to indemnify
Bear Stearns and its affiliates, their respective directors, officers, agents
and employees, and each person, if any, controlling MOXY or any of its
affiliates against certain liabilities and expenses, including liabilities
under the federal securities laws arising out of or in connection Bear
Stearns' engagement thereunder.
FSC's Reasons for the FSC Merger; Recommendation of the FSC Board of Directors
At a meeting held on July 31, 1998, the FSC Special Committee
unanimously determined that the terms of the Merger Agreement and the FSC
Merger are fair to, and in the best interests of, FSC stockholders and voted to
recommend that the Merger Agreement and the FSC Merger be approved by the full
FSC Board of Directors.
At a meeting of the FSC Board of Directors held on August 1,
1998, at which all FSC Board members participated, based on the recommendation
of the FSC Special Committee, the FSC Board of Directors unanimously (i)
approved the FSC Merger and the Merger Agreement; (ii) determined that the
terms of the FSC Merger were fair to, and in the best interests of, FSC
stockholders; and (iii) determined to recommend to FSC stockholders that they
vote to approve and adopt the FSC Merger and the Merger Agreement.
The FSC Special Committee. In determining to recommend to the
FSC Board of Directors that it approve the FSC Merger and the Merger Agreement
and in determining the fairness to FSC stockholders of the terms of the FSC
Merger, the FSC Special Committee considered the following factors, each of
which, in the view of the FSC Special Committee, supported the FSC Special
Committee's determination to recommend approval of the FSC Merger and adoption
of the Merger Agreement:
(i) the financial condition, assets, results of operations,
business and prospects of FSC and the risks inherent in achieving those
prospects;
(ii) the financial condition, assets, results of operations,
business and prospects of MOXY and the risks inherent in achieving those
prospects;
(iii) the reduction in general and administrative costs that should
result from the combination of two public companies into one;
(iv) the fact that management of FSC had made an extensive, but
unsuccessful, effort to find attractive expansion opportunities in sulphur
related businesses;
(v) the unfavorable pricing environment in the sulphur markets,
which had led to FSC's recent decision to close its Culberson mine;
(vi) the fact that the Mergers would allow FSC to invest cash flow
not needed in its sulphur business in oil and gas exploration activities that
FSC management believes have an attractive potential return and that the
Mergers will diversify FSC's operations into businesses other than the sulphur
related business;
(vii) the opportunity to create a combined company with a larger
market capitalization, greater liquidity and enhanced visibility in the
capital markets;
(viii) the fact that the Mergers will permit the integration of
FSC's oil and gas operations at its Main Pass facility with the existing oil
and gas operations of MOXY;
(ix) the opinion of Lehman that the FSC Exchange Ratio was fair to
FSC's stockholders from a financial point of view, and the various analyses
presented to the FSC Special Committee by Lehman (see "--Opinion of Financial
Advisor to FSC's Special Committee").
(x) the terms and conditions of the Merger Agreement, including
the amount and form of the consideration, the nature of the parties'
representations, warranties, covenants and agreements and the fact that the
conditions to MOXY's obligation to consummate the MOXY Merger are reasonably
limited;
(xi) the trading histories of FSC Common Stock and MOXY Common
Stock, respectively; and
(xii) the structure of the Mergers which permits FSC stockholders
to exchange their shares of FSC Common Stock for McMoRan Common Stock in a
transaction that is intended to be tax-free for federal income tax purposes
(see "--Federal Income Tax Consequences of the Mergers").
In light of the number and variety of factors taken into
consideration in its evaluation of the Mergers, the FSC Special Committee did
not consider it practical to, and did not attempt to, quantify or otherwise
assign relative weights to such factors in reaching its decision.
The FSC Special Committee consulted with Lehman during the
course of its work and relied upon the work and analyses of Lehman in the
financial evaluation of MOXY and the FSC Exchange Ratio. The FSC Special
Committee believes that Lehman's analyses are reasonable.
The FSC Special Committee believes that the FSC Merger is
procedurally fair because: (i) the FSC Special Committee was comprised of
independent directors appointed to represent the interests of, and to negotiate
on an arm's-length basis with MOXY on behalf of, the FSC stockholders; (ii) the
FSC Special Committee retained and was advised by independent legal counsel;
(iii) the FSC Special Committee retained Lehman as its financial advisor to
assist it in evaluating MOXY and the terms of the Mergers; and (iv) the FSC
Merger requires the approval of the holders of at least a majority of the
outstanding shares of FSC Common Stock. In addition, the FSC Special Committee
believes that the FSC Merger is procedurally fair because the FSC Exchange Ratio
and the other terms and conditions of the Merger Agreement resulted from active
arm's-length bargaining between the FSC Special Committee and the MOXY Special
Committee.
The FSC Board of Directors. At a meeting held on August 1,
1998, the FSC Board of Directors met and received presentations from the FSC
Special Committee, management of FSC, and Lehman. After receiving such
presentations and after considering the factors set forth above that were
considered by the FSC Special Committee, the FSC Board of Directors
unanimously (i) approved the FSC Merger and the Merger Agreement; (ii)
determined that the terms of the FSC Merger are fair to, and in the best
interests of, FSC's stockholders; (iii) determined to recommend to FSC's
stockholders that they vote to approve the adoption of the FSC Merger and the
Merger Agreement.
Opinion of Financial Advisor to FSC's Special Committee
On July 1, 1998, the FSC Special Committee engaged Lehman to
act as its financial advisor in connection with its consideration of the
Mergers. The FSC Special Committee instructed Lehman, in its role as a
financial advisor, to evaluate the fairness, from a financial point of view,
to FSC's stockholders of the FSC Exchange Ratio offered to such stockholders
in the Mergers. On August 1, 1998, Lehman delivered its oral opinion to the
FSC Special Committee (subsequently confirmed in writing as of August 1, 1998)
to the effect that as of such date and based upon and subject to certain
matters stated in the written opinion, from a financial point of view, the FSC
Exchange Ratio was fair to the stockholders of FSC.
The full text of Lehman's written opinion is attached as Annex
C to this Proxy Statement and is incorporated herein by reference.
Stockholders may read the Lehman Opinion for a discussion of assumptions made,
matters considered and limitations on the review undertaken by Lehman in
rendering its opinion. The summary of the opinion set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of such
opinion.
No limitations were imposed by the FSC Special Committee on the
scope of Lehman's investigation or the procedures to be followed by Lehman in
rendering its opinion, except that the FSC Special Committee did not authorize
Lehman to solicit, and Lehman did not solicit, any indications of interest to
purchase all or a part of FSC's business or assets. Lehman was not requested
to and did not make any recommendation to the FSC Special Committee or the FSC
Board of Directors as to the form or amount of the consideration to be
received by FSC's stockholders in the Mergers, which was determined through
arm's-length negotiations between the FSC Special Committee and the MOXY
Special Committee. In arriving at its opinion, Lehman did not ascribe a
specific range of values to FSC or MOXY but made its determination as to the
fairness of the FSC Exchange Ratio on the basis of the financial and
comparative analyses described below. Lehman's opinion is for the use and
benefit of the FSC Board of Directors and was rendered to the FSC Special
Committee in connection with its consideration of the Mergers. Lehman's
opinion does not constitute a recommendation to any stockholder of FSC as to
how such stockholders should vote with respect to the Mergers. Lehman was not
requested to opine as to, and its opinion does not address, FSC's underlying
business decision to proceed with or effect the Mergers.
In arriving at its opinion, Lehman reviewed and analyzed: (1) a
draft of the Agreement and Plan of Mergers dated July 30, 1998 and the specific
terms of the Mergers; (2) such publicly available information concerning FSC
and MOXY that Lehman believed to be relevant to its analysis, including,
without limitation, each of the periodic reports and proxy statements filed
with the SEC by FSC and MOXY since December 23, 1997; (3) financial and
operating information with respect to the respective businesses, operations and
prospects of FSC and MOXY as furnished to Lehman by FSC and MOXY, respectively,
including financial projections based on the respective business plans of FSC
and MOXY and, in particular, (A) certain estimates of proved and probable
reserves, as well as the reports of independent reserve engineers and company
engineers, (B) projected annual production of such reserves, and (C) the amount
and timing of expenditures on exploration and development programs; (4) the
potential pro forma impact of the Mergers on FSC and MOXY, including the cost
savings and other synergies expected by the managements of FSC and MOXY to
result from the Mergers; (5) a trading history of FSC Common Stock from
December 23, 1997 to July 29, 1998 and a comparison of that trading history
with those of other companies that Lehman deemed relevant; (6) a trading
history of MOXY Common Stock from December 23, 1997 to July 29, 1998 and a
comparison of that trading history with those of other companies that Lehman
deemed relevant; (7) a comparison of the historical financial results and
present financial condition of FSC with those of other companies that Lehman
deemed relevant; (8) a comparison of the historical financial results and
present financial condition of MOXY with those of other companies that Lehman
deemed relevant; and (9) a comparison of the financial terms of the Mergers
with the financial terms of certain other transactions that Lehman deemed
relevant; and (10) the relative contributions of FSC and MOXY, on a pro forma
basis, to the historical and projected cash flow of McMoRan. In addition,
Lehman (i) had discussions with the senior managements of FSC and MOXY
concerning their respective businesses, operations, assets, financial
conditions and prospects and the cost savings and strategic benefits expected
by the managements of FSC and MOXY to result from a combination of the
businesses of FSC and MOXY, (ii) had discussions with the independent auditors
and reserve engineers of MOXY, and (iii) undertook such other studies, analyses
and investigations as Lehman deemed appropriate.
In arriving at its opinion, Lehman assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of managements of FSC and
MOXY that they were not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections of FSC and MOXY, upon the advice of FSC and MOXY, Lehman assumed
that such projections had been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the managements of FSC and
MOXY, respectively, as to the future financial performance of FSC and MOXY and
that each of FSC and MOXY would perform substantially in accordance with such
projections. In arriving at its opinion, Lehman did not conduct a physical
inspection of the properties and facilities of FSC or MOXY and did not make or
obtain any evaluations or appraisals of the assets or liabilities of FSC or
MOXY. In addition, Lehman was not authorized to solicit, and did not solicit,
any indications of interest from any third party with respect to the purchase
of all or a part of FSC's business. Upon the advice of FSC and its legal and
accounting advisors, Lehman assumed that the Mergers will qualify as a
reorganization within the meaning of Section 368(a) of the Code, and therefore
as a tax-free transaction to the stockholders of FSC. In addition, upon the
advice of FSC and its legal advisors, Lehman assumed that the outstanding
litigation relating to the MOXY Exploration Program would not have a material
adverse impact upon MOXY or McMoRan. Lehman's opinion necessarily is based
upon market, economic and other conditions as they existed on, and could be
evaluated as of, the date of its opinion letter.
In connection with rendering its opinion, Lehman performed
certain financial, comparative and other analyses as described below. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial and comparative analysis
and the application of those methods to the particular circumstances, and
therefore such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its opinion, Lehman did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Lehman believes that its analyses must be considered
as a whole and that considering any portion of such analyses or of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the opinion. In
performing its analyses, Lehman made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of FSC and MOXY. Any estimates
contained in the analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or
less favorable than as set forth therein. In addition, analyses relating to
the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Discounted Cash Flow Analysis of FSC and MOXY
With respect to MOXY, Lehman prepared three cases with varying
oil and gas prices and finding and development costs ("Case I," "Case II," and
"Case III," collectively, the "Pricing Scenarios"). Case I and Case II both
assumed finding and development costs of $1.20 per Mcfe and Case III assumed
finding and development costs of $1.00/Mcfe. The oil price forecasts in the
Pricing Scenarios were based on NYMEX WTI crude oil prices. In Case I, WTI
oil prices per Bbl for years 1998 to 2000 were assumed to be $15.18, $16.81
and $17.54, respectively, and were assumed to increase 3% per annum
thereafter. In Case II and Case III, WTI oil prices per Bbl for years 1998 to
2000 were assumed to be $15.18, $18.00 and $18.90, respectively, and were
assumed to increase 5% per annum thereafter. The gas price forecasts in the
Pricing Scenarios were based on NYMEX (Henry Hub, Louisiana delivery) price
forecasts from which adjustments were made for location and quality
differentials. In addition, adjustments to the forecasted NYMEX prices were
made to reflect the value per mcf of gas. In Case I, NYMEX gas prices per mcf
for years 1998 to 2000 were assumed to be $2.36, $2.45, and $2.38,
respectively, and were assumed to escalate at 3% per annum thereafter. In Case
II and Case III, NYMEX gas prices per mcf for years 1998 to 2000 were assumed
to be $2.36, $2.50, and $2.63, respectively, and were assumed to escalate at
5% per annum thereafter.
With respect to the after-tax cash flow of MOXY, Lehman used
discount rates of 10% to 15% and terminal value multiples of $1.30 to $1.50
per Mcfe of year 2003 projected year-end reserves. The MOXY discount rates
were based on Lehman's review of the financial terms of similar transactions
in the sector of exploration and production companies with a focus and asset
base in the Gulf of Mexico. The terminal value multiples were selected based
on the current trading multiples of similar publicly traded companies and the
multiples from recent acquisitions of similar companies. Based on its
analyses, Lehman reported a DCF value for MOXY of $123 million to $167
million, $149 million to $199 million, and $185 million to $246 million for
Case I, Case II and Case III, respectively. These results implied value
ranges per fully diluted MOXY share of $2.57 to $3.49, $3.11 to $4.14 and
$3.86 to $5.13 for Case I, Case II and Case III, respectively.
Lehman prepared a similar DCF analysis of FSC based on certain
financial projections prepared by FSC's management for the years 1998 through
2002 which included both a base case and an optimization case. Accordingly,
Lehman prepared both a base case and an upside case DCF analysis of FSC. In
its base case, Lehman used a discount rate of 10% to 12% and a terminal value
based on a multiple of EBITDA ranging from 4.0x to 6.0x. In its upside case,
Lehman used a 12% to 14% discount rate and a terminal value based on a
multiple of EBITDA ranging from 4.0x to 6.0x. The discount rates and terminal
values used in the DCF analysis of FSC were based on Lehman's assessment of
the risk associated with FSC's operations and the probability of achieving
FSC's projected results. Lehman modified FSC management's sulphur price
projections in each case to reflect a flat realized sulphur price of $61.50
per ton beginning with fiscal year 1999 and continuing throughout the
projection period. The upside case was created by the management of FSC at
the request of Lehman and is based, in part, on the development and
implementation of new technologies for the filtration of sulphur at the Main
Pass mine, the timing, costs and probability of the success of which are
uncertain. Based on its analyses, Lehman reported DCF value ranges for FSC of
$114 million to $155 million for the base case analysis and $149 million to
$211 million for the upside case. These results implied value ranges per fully
diluted FSC share of $11.62 to $15.52 and $14.95 to $20.85 for the base case
and upside case, respectively.
NAV Analysis of MOXY
With respect to MOXY, Lehman, utilizing the price decks from
Case I and Case II (as defined above), estimated the present value of the
future after-tax cash flows that MOXY could be expected to generate from
MOXY's proved, probable and possible reserves as of January 1, 1998 based on
reserve, production and production cost estimates and a range of discount
rates, all as provided by MOXY management and discussed with MOXY management.
Lehman added to such estimated values for proved, probable and possible
reserves assessments of the historical value of certain other assets and
liabilities of MOXY, including certain exploration and exploitation prospects.
These assessments were made by Lehman based on information provided by MOXY's
management and on various industry benchmarks and assumptions provided by and
discussed with MOXY's management. Based on its NAV analysis, Lehman reported
NAV ranges for MOXY of $108 million to $125 million and $118 million to $151
million for Case I and Case II, respectively. These results implied value
ranges per fully diluted MOXY share of $2.53 to $2.93 and $2.75 to $3.15 for
Case I and Case II, respectively.
Comparable Acquisition Analysis of MOXY
With respect to MOXY, Lehman reviewed certain publicly
available information on selected Gulf of Mexico exploration and production
companies including, but not limited to, Lomak Petroleum/Domain, Forest
Oil/LLOG Exploration, Ocean Energy/United Meridian, Meridian Resource
Corporation/Shell Oil, Sonat Inc./Zilkha Energy Company, Kelley Oil and Gas
Corporation/SCANA Petroleum Resources, Inc., Meridian Resource
Corporation/Cairn Energy USA, Inc. and Louis Dreyfus Natural Gas
Corp./American Exploration Company. For each transaction, Lehman calculated
an enterprise transaction value multiple based on proved oil and gas reserves.
Lehman added to such estimated reserve values MOXY's assessments of the value
of MOXY's exploration and development opportunities and other land and
acreage. Lehman also calculated enterprise transaction multiples based on
earnings before interest, taxes, depreciation, and exploration ("EBITDE") and
equity multiples based on cash flow from operations.
Because the market conditions, rationale and circumstances
surrounding each of the transactions analyzed were specific to each
transaction and because of the inherent differences between the businesses,
operations and prospects of MOXY and the companies involved in the comparable
transactions analyzed, Lehman believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis,
and accordingly, also made qualitative judgments concerning differences
between the characteristics of these transactions and the Mergers that would
affect the equity values of MOXY and such other companies. Lehman interpreted
the comparable acquisition analyses as of July 29, 1998 to indicate (i) equity
market value multiples of 6.0x to 7.0x 1998 estimated cash flow from
operations, (ii) adjusted net market capitalization multiples of 7.0x to 8.0x
1998 estimated EBITDE and (iii) adjusted net market capitalization multiples
of $1.30 to $1.50 per Mcfe of July 1998 estimated proved reserves. From these
interpretations and Lehman's Case I cash flow analysis, a MOXY valuation range
of $3.75 to $4.25 per share was implied.
Comparable Company Trading Analysis of FSC and MOXY
With respect to MOXY, Lehman reviewed the public stock market
trading multiples for selected exploration and production companies with a
focus in the Gulf of Mexico, including Basin Exploration Inc., Chieftain
International Inc., Newfield Exploration Company, PETSEC Energy Inc., Houston
Exploration Co. and Stone Energy Corporation. Using publicly available
information, Lehman calculated and analyzed the common equity market value
multiples of certain projected financial criteria (such as net income and cash
flow from operations) and the adjusted net market capitalization multiples of
certain historical and projected financial criteria (such as EBITDE and proved
reserves of gas equivalent). Projected financial information was derived from
research analysts' estimates, as published by First Call. The adjusted net
market capitalization of each company was obtained by adding long-term debt to
the sum of the market value of its common equity, the value of its preferred
stock (market value if publicly traded, liquidation value if not) and the book
value of any minority interest minus the cash balance. Lehman interpreted the
comparable company analyses as of July 29, 1998 to indicate (i) equity market
value multiples of 5.0x to 6.0x and 3.0x to 4.0x 1998 and 1999 estimated cash
flow from operations, respectively, and (ii) adjusted net market
capitalization multiples of 5.5x to 6.0x and 4.0x to 4.5x 1998 and 1999
estimated EBITDE, respectively. From these interpretations and Lehman's Case
I cash flow analysis, a MOXY valuation range of $3.50 to $4.00 per share was
implied.
Lehman analyzed two sets of public companies it deemed
applicable as trading proxies for FSC. Lehman reviewed the public stock
market trading multiples for selected fertilizer companies, including Agrium
Inc., Amcol International Corp., IGL, Mississippi Chemical, Phosphate Resource
Partners, L.P., Potash Corp., Soc. Quimica Minera and Terra Industries Inc.
In addition, Lehman also reviewed the public stock trading multiples for
selected commodity chemical companies, including Georgia Gulf, Great Lakes,
M.A. Hannah, Marsulex and Millennium. Using publicly available information,
Lehman calculated and analyzed the common equity market value multiples of
certain projected financial criteria (such as net income and cash flow from
operations) and the adjusted net market capitalization multiples of certain
historical and projected financial criteria. Projected financial information
was derived from research analysts' estimates, as published by First Call.
The adjusted net market capitalization of each company was obtained by adding
long-term debt to the sum of the market value of its common equity, the value
of its preferred stock (market value if publicly traded, liquidation value if
not) and the book value of any minority interest minus the cash balance.
Lehman interpreted the comparable company analyses as of July 29, 1998 to
indicate (i) equity market value multiples of 11.0x to 13.0x and 9.5x to 10.5x
1998 and 1999 estimated net income, respectively, (ii) equity market value
multiples of 5.5x to 6.5x and 5.0x to 6.0x 1998 and 1999 estimated cash flow
from operations, respectively, and (iii) adjusted net market capitalization
multiples of 5.5x to 6.5x and 5.0x to 6.0x 1998 and 1999 estimated EBITDA,
respectively. From these interpretations and Lehman's base case cash flow
analysis, an FSC valuation range of $11.50 to $15.00 per share was implied.
Because of the inherent differences between the businesses,
operations and prospects of FSC and MOXY and the businesses, operations and
prospects of the companies included in the comparable company groups (and, in
the case of FSC, the lack of direct comparables), Lehman believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis, and accordingly, also made qualitative judgments
concerning differences between the financial and operating characteristics of
FSC and MOXY and companies in the comparable company groups that would affect
the public trading values of FSC and MOXY and such comparable companies.
Historical Common Stock Trading Analysis of FSC and MOXY
Lehman reviewed the daily historical closing prices of FSC
Common Stock and MOXY Common Stock for the period from December 23, 1997 to
July 29, 1998 and as of July 29, 1998. The average closing prices for the
December 23, 1997 to July 29, 1998 period, and the July 29, 1998 closing
prices imply ownership percentages in McMoRan of 43.0% and 39.6% for FSC
stockholders and 57.0% and 60.4% for MOXY stockholders, respectively. In
addition, Lehman reviewed the ratio of the closing share prices for FSC and
MOXY based on the prior 30, 60 and 90 trading day averages, respectively, as
of July 29, 1998 which implied ownership ranges of 40.1%, 41.0% and 41.1% for
FSC stockholders and 59.9%, 59.0% and 58.9% for MOXY stockholders,
respectively.
Pro Forma Merger Consequences
Lehman prepared a pro forma merger model which incorporates
FSC's and MOXY's financial projections based on certain assumptions for the
years 1998 through 2002 as well as the companies' estimates of future cost
savings and synergies resulting from the Mergers. Lehman then compared the
earnings and cash flow from operations of FSC on a standalone basis to the
earnings and cash flow from operations attributable to FSC's interest in pro
forma McMoRan. This analysis showed that, as a result of MOXY's (and the
combined McMoRan's) exploration expenditures, the Mergers would be dilutive to
FSC's 1999 and 2000 earnings per share; but the Mergers would be accretive to
FSC's cash flow from operations per share by approximately 26.3% and 15.9% in
1999 and 2000, respectively.
Lehman is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. The FSC Special Committee selected Lehman because of its expertise,
reputation and familiarity with FSC and because its investment banking
professionals have substantial experience in transactions comparable to the
Mergers.
Lehman has previously rendered certain financial advisory and
investment banking services (for which it has received customary compensation)
to other entities related to or predecessors to FSC, but has not been involved
in a transaction or financing for FSC or MOXY. Pursuant to the terms of an
engagement letter agreement, dated July 1, 1998, between Lehman and FSC, (a)
FSC paid Lehman an initial retainer fee of $150,000, (b) FSC paid a fee of
$250,000 upon delivery of the fairness opinion, (c) FSC agreed to pay a fee of
$250,000 upon the inclusion of the fairness opinion in this Proxy Statement
and (d) FSC has agreed to pay an additional fee of $350,000 upon the
successful completion of the Mergers. In addition, FSC has agreed to
reimburse Lehman for its reasonable expenses (including, without limitation,
professional and legal fees and disbursements) incurred in connection with its
engagement, and to indemnify Lehman and certain related persons against
certain liabilities in connection with its engagement, including certain
liabilities that may arise under the federal securities laws.
In the ordinary course of its business, Lehman may trade in the
equity securities of FSC and MOXY for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position
in such securities.
Accounting Treatment
For financial reporting purposes, the Mergers will be treated
as a purchase by MOXY of the business of FSC. Accordingly, the assets and
liabilities of McMoRan will reflect MOXY's historical balances, and the assets
and liabilities of FSC will be recorded at their fair values. The revenues
and expenses in McMoRan's financial statements will include MOXY's historical
revenues and expenses for all periods and FSC's revenues and expenses from the
date of consummation of the Mergers.
Federal Income Tax Consequences of the Mergers
The following discussion is a summary of the material U.S.
federal income tax consequences of the Mergers to stockholders of MOXY and FSC
that hold their shares of MOXY Common Stock or FSC Common Stock as a capital
asset at the Effective Time. The discussion is based on the Code, Treasury
regulations, Internal Revenue Service ("IRS") rulings, and court decisions in
effect on the date hereof, all of which are subject to change (possibly with
retroactive effect). The discussion does not address all aspects of federal
taxation that may be relevant to particular stockholders in light of their
personal investment circumstances or to stockholders subject to special
treatment under the Code (including banks, insurance companies, dealers in
securities, tax-exempt organizations, and stockholders who are not U.S.
persons as defined in section 7701(a)(30) of the Code). In addition, the
discussion does not address the state, local or foreign tax consequences of
the Mergers. Each MOXY and FSC stockholder is urged to consult his or her own
tax advisor regarding the specific tax consequences of the Mergers to him or
her.
Consummation of the Mergers is conditioned upon MOXY's receipt
of the opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre
L.L.P., its counsel, and FSC's receipt of the opinion of Miller & Chevalier,
Chartered, its tax counsel, each dated as of the Effective Time, in each
case, on the basis of facts, representations and assumptions set forth or
referred to in such opinion, substantially to the effect that (i) each Merger
will constitute a "reorganization" for U. S. federal income tax purposes
within the meaning of section 368(a) of the Code, and MOXY, FSC, and McMoRan
each will be a party to the reorganization; (ii) no gain or loss will be
recognized by McMoRan, MOXY or FSC as a result of the Mergers; and (iii) no
gain or loss will be recognized by stockholders of MOXY or FSC who are U.S.
persons (within the meaning of the Code) to the extent that they exchange
their stock solely for shares of McMoRan Common Stock pursuant to the Mergers.
The opinions also will address the tax basis and holding period of the McMoRan
Common Stock received by MOXY and FSC stockholders pursuant to the Mergers,
and the treatment of the receipt of cash in lieu of a fractional share of
McMoRan Common Stock. The tax opinions will be subject to certain limitations
and qualifications and will be based on, among other things, certain
representations made by the respective managements of MOXY and FSC. The tax
opinions are not binding on the IRS or the courts and no assurances can be
made that the IRS will agree with the opinions expressed therein.
In the event that MOXY or FSC is unable to obtain its
respective tax opinion, as set forth in the preceding paragraph, each of MOXY
and FSC is permitted under the Merger Agreement to waive the receipt of the
tax opinion as a condition to such party's obligation to consummate the
Mergers. As of the date of this Joint Proxy Statement/Prospectus, neither
MOXY nor FSC intends to waive the condition as to the receipt of the tax
opinion, and neither MOXY nor FSC anticipates that the material income tax
consequences of the Mergers will be materially different from those described
above. In the event of such a failure to obtain the tax opinions, and either
of MOXY's or FSC's determination to waive such condition to the consummation
of the Mergers, each of MOXY and FSC will resolicit the votes of its
respective stockholders to approve the consummation of the Mergers.
Exchange of McMoRan Common Stock for MOXY Common Stock and FSC
Common Stock. Stockholders of MOXY and FSC who exchange shares of MOXY Common
Stock and FSC Common Stock for McMoRan Common Stock pursuant to the Mergers
will not recognize gain or loss, except in respect of cash received in lieu of
a fractional share of McMoRan Common Stock (as discussed below). The
aggregate adjusted basis of the McMoRan Common Stock received (including
fractional shares) will be equal to the aggregate adjusted tax basis of the
shares of MOXY Common Stock or FSC Common Stock surrendered, and the holding
period will include the period during which the surrendered shares were held.
If a stockholder has differing bases and holding periods in its shares of MOXY
Common Stock or FSC Common Stock, it should consult its tax advisor prior to
the Mergers with regard to identifying the basis or holding periods of the
shares received in the Mergers.
Cash Received in Lieu of a Fractional Share. A MOXY or FSC
stockholder who receives cash in lieu of a fractional share of McMoRan Common
Stock will be treated as having sold the fractional share for the amount of
cash received. The stockholder will recognize capital gain or loss, measured
by the difference between the amount of cash received and the portion of the
basis of the McMoRan Common Stock allocated to the fractional share.
Regulatory Matters
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Mergers may not be consummated until
notifications have been given and certain information has been furnished to
the FTC and the Antitrust Division of the United States Department of Justice
(the "Antitrust Division") and specified waiting period requirements have been
satisfied. MOXY and FSC filed the required notification and report forms
under the HSR Act with the FTC and the Antitrust Division shortly after filing
the registration statement of which this Joint Proxy Statement/Prospectus forms
a part, and the FTC granted early termination of the waiting period on August
25, 1998. However, the Department of Justice and the FTC have the authority
to challenge the Mergers on antitrust grounds before or after the Mergers are
completed. Each state that may be affected by the Mergers may also review the
Mergers under applicable state antitrust laws.
Any person who is to receive shares of McMoRan Common Stock
pursuant to the Mergers may be required to file a Premerger Notification and
Report Form pursuant to the HSR Act and observe the applicable waiting period
under the HSR Act prior to acquiring McMoRan Common Stock pursuant to the
Mergers, if (1) such person would own, upon consummation of the Mergers,
McMoRan Common Stock that exceeds $15 million in value or 15% of the
outstanding voting securities of McMoRan (whichever is larger), (2) certain
jurisdictional requirements are met regarding the amount of assets currently
held by the acquiring person, and (3) no exemption applies. If the waiting
period has not expired or been terminated at the Effective Time with respect to
such recipient, McMoRan may be required to deliver the recipient's shares of
McMoRan Common Stock into an escrow facility pending the expiration or
termination of the waiting period. MOXY and FSC stockholders who will acquire
more than $15 million or 15% of McMoRan Common Stock in the Mergers should
consult their legal counsel to determine whether the requirements of the HSR
Act will apply to their receipt of shares of McMoRan Common Stock in the
Mergers.
MOXY and FSC believe that they will have obtained all required
regulatory approvals prior to their respective Special Meetings.
No Appraisal Rights
Holders of MOXY Common Stock and holders of FSC Common Stock
are not entitled to appraisal rights under Delaware law in connection with the
MOXY Merger and the FSC Merger because the MOXY Common Stock is traded on
Nasdaq, the FSC Common Stock is listed on the NYSE, and the McMoRan Common
Stock to be issued in the Mergers will either be listed for trading on the
NYSE or traded on Nasdaq.
Federal Securities Laws Consequences; Resale Restrictions
All shares of McMoRan Common Stock issued in connection with
the Mergers will be freely transferable, except that shares of McMoRan Common
Stock received by any person who is an "affiliate" of either MOXY or FSC for
purposes of Rule 145 under the 1933 Act (which includes directors and
executive officers) may not be resold except in transactions permitted by Rule
145 or as otherwise permitted under the 1933 Act. Each of MOXY and FSC has
agreed to prepare and deliver to the other a list identifying each person who,
at the time of its Special Meetings, is an "affiliate." Each of MOXY and FSC
will also use its reasonable best efforts to cause each person identified as an
"affiliate" to deliver to the other on or prior to the Effective Time a
written agreement, in a form satisfactory to the other, providing that such
person will not offer, sell or otherwise dispose of any shares of McMoRan
Common Stock issued to him or her in connection with the Mergers in violation
of the 1933 Act or the rules and regulations promulgated under the 1933 Act.
APPROVAL OF THE BENEFIT PLAN PROPOSAL
In addition to approving the Mergers, because McMoRan is a new
company, the stockholders of MOXY and FSC are being asked to approve an
incentive plan for McMoRan. Each of MOXY and FSC currently has in effect a
stock option plan previously approved by MOXY and FSC stockholders,
respectively. The McMoRan 1998 Stock Option Plan (the "Stock Plan"), which is
summarized below, is intended to mirror the existing MOXY and FSC stock option
plans. The shares available for issuance under the Stock Plan will equal the
aggregate number of shares that remain available under the existing MOXY and
FSC stock option plans, as adjusted by the exchange ratios. Following the
Mergers, the Stock Plan will be used to motivate and reward the key personnel
of McMoRan with stock-based awards. The Stock Plan was adopted by McMoRan's
Board of Directors and approved by MOXY and FSC as stockholders of McMoRan.
The following summary of the Stock Plan is qualified in its entirety by
reference to the text of the Stock Plan, which is attached to this Joint Proxy
Statement/Prospectus as Annex D.
The purpose of submitting the Stock Plan to the MOXY and FSC
stockholders for approval is to satisfy the stockholder approval requirement
of Section 162(m) ("Section 162(m)") of the Code for performance-based awards
granted under the Stock Plan. Under Section 162(m), the allowable deduction
for compensation paid or accrued with respect to the Chief Executive Officer
and the four other most highly compensated executive officers of McMoRan is
limited to $1 million per year. An exclusion from the $1 million limitation
is available for compensation that satisfies the requirements provided in
Section 162(m) of the Code for qualified performance-based compensation if, in
addition to the satisfaction of other requirements, the material terms of the
performance goals are disclosed to and approved by the stockholders. To meet
these requirements and protect McMoRan's deduction for performance-based
compensation paid pursuant to future awards, McMoRan is submitting the Stock
Plan to the MOXY and FSC stockholders for approval.
Summary of the Stock Plan
Administration
Awards under the Stock Plan are generally made by the Corporate
Personnel Committee (the "Compensation Committee") of McMoRan's Board of
Directors, which will consist of two members of the McMoRan Board, each of whom
qualifies as an "outside director" under Section 162(m) of the Code. The
Committee will have full power and authority to designate participants, set the
terms of awards and to make any determinations necessary or desirable for the
administration of the Stock Plan. The McMoRan Board may, however, make awards to
executive officers subject to Section 16 ("Section 16") of the 1934 Act if Board
action is necessary to obtain an exemption from liability under Section 16 for
the grant of the award or any subsequent transaction contemplated by the award.
Eligible Participants
Employees and officers (whether or not employees) of McMoRan and
its existing or future subsidiaries, employees and officers (whether or not
employees) of any entity with which McMoRan has contracted to receive executive,
management or legal services and who provide services to McMoRan under such
arrangement, consultants, advisers and any person who has agreed in writing to
become a person otherwise eligible to participate within not more than 30 days,
in each case who can make substantial contributions to the successful
performance of McMoRan, are eligible to participate in the Stock Plan. It is
anticipated that the Compensation Committee will delegate to McMoRan's Chief
Executive Officer the power, subject to the limitations established by the
Compensation Committee, to make awards to eligible persons other than those
persons whose compensation is subject to the deduction limitations of Section
162(m) or who are subject to Section 16, if Board approval is necessary to
obtain an exemption from liability under Section 16 for grants to them. It is
anticipated that the Compensation Committee's determinations of which eligible
individuals will be granted awards and the terms thereof will be based on each
individual's present and potential contribution to the success of McMoRan and
its subsidiaries. It is estimated that approximately 560 persons will be
eligible for awards under the Stock Plan.
Number of Shares
The maximum number of shares of McMoRan Common Stock with
respect to which awards payable in shares of McMoRan Common Stock may be
granted under the Stock Plan is 775,000. Awards that may be paid only in cash
are not counted against the 775,000-share limit. However, grants of stock
appreciation rights, limited rights and other stock-based awards not granted
in tandem with options and payable only in cash may relate to no more than
775,000 shares of McMoRan Common Stock. No individual may receive in any
calendar year awards under the Stock Plan that relate to more than 230,000
shares of McMoRan Common Stock. Shares subject to awards that are forfeited or
canceled will again be available for award. The shares to be delivered under
the Stock Plan will be made available from the authorized but unissued shares
of McMoRan Common Stock or from treasury shares.
Types of Awards
Stock options, stock appreciation rights, limited rights, and
other stock-based awards may be granted under the Stock Plan in the discretion
of the Compensation Committee. Options granted under the Stock Plan may be
either non-qualified or incentive stock options. Only employees of McMoRan and
its subsidiaries will be eligible to receive incentive stock options. Stock
appreciation rights and limited rights may be granted in conjunction with or
unrelated to other awards and, if in conjunction with an outstanding option or
other award, may be granted at the time of the award or thereafter, at the
exercise price of the other award. The Compensation Committee has discretion to
fix the exercise price of stock options at a price not less than 100% of the
fair market value of the underlying McMoRan Common Stock at the time of grant
thereof (or at the time of grant of the related award in the case of a stock
appreciation right or limited right granted in conjunction with an outstanding
award), except that this limitation on the Compensation Committee's discretion
does not apply in the case of awards granted in substitution for outstanding
awards previously granted by an acquired company or a company with which McMoRan
combines. The Compensation Committee has broad discretion as to the terms and
conditions upon which options and stock appreciation rights are exercisable, but
under no circumstances will an option, a stock appreciation right or a limited
right have a term exceeding 10 years.
The option exercise price may be satisfied in cash, or in the
discretion of the Compensation Committee, by exchanging McMoRan Common Stock
owned by the optionee or by a combination of cash and McMoRan Common Stock.
The ability to pay the option exercise price in McMoRan Common Stock would
permit an optionee to engage in a series of successive stock-for-stock
exercises of an option (sometimes referred to as "pyramiding") and thereby
fully exercise an option with little or no cash investment; however, it is
expected that the Compensation Committee's policy will be to require any stock
tendered in payment of the exercise price to be in certificated form and to
have been held by the exercising optionee for such time as is sufficient to
avoid any adverse accounting consequences to McMoRan resulting from the
permitting of stock-for-stock exercises.
Upon the exercise of a stock appreciation right with respect to
McMoRan Common Stock, a participant would be entitled to receive, for each
such share subject to the right, the excess of the fair market value of such
shares on the exercise date over the exercise price of the right. The
Compensation Committee has the authority to determine whether the value of a
stock appreciation right is paid in cash or McMoRan Common Stock or a
combination thereof.
Limited rights generally are exercisable only during a period
beginning not earlier than one day and ending not later than 90 days after the
expiration date of any tender offer, exchange offer or similar transaction
that results in any person or group becoming the beneficial owner of more than
40% of all classes and series of McMoRan's stock outstanding, taken as a
whole, that have voting rights with respect to the election of directors of
McMoRan (not including shares of preferred stock which may be issued in the
future that have the right to elect directors only if McMoRan fails to pay
dividends). Upon the exercise of a limited right granted under the Stock
Plan, a participant would be entitled to receive, for each share of McMoRan
Common Stock subject to such right, the excess, if any, of the highest price
paid in or in connection with such transaction over the grant price of the
limited right.
The Stock Plan also authorizes the Compensation Committee to
grant to participants awards of McMoRan Common Stock and other awards that are
denominated in, payable in, valued in whole or in part by reference to, or are
otherwise based on the value of, McMoRan Common Stock ("Other Stock-Based
Awards"). The Compensation Committee has discretion to determine the
participants to whom Other Stock-Based Awards are to be made, the times at
which such awards are to be made, the size of such awards, the form of
payment, and all other conditions of such awards, including any restrictions,
deferral periods or performance requirements. The terms of Other Stock-Based
Awards will be subject to such rules and regulations as the Compensation
Committee determines.
Any award under the Stock Plan may provide that the participant
has the right to receive currently or on a deferred basis dividends or
dividend equivalents or other cash payments in addition to or in lieu of such
awards, all as the Compensation Committee determines.
Transferability
No award granted under the Stock Plan may be transferred,
pledged, assigned, or encumbered except by will, by the laws of descent and
distribution, or, if permitted by the Compensation Committee, pursuant to a
domestic relations order, as defined in the Code. If permitted by the
Compensation Committee, stock options and limited rights granted in tandem
with stock options under the Stock Plan may also be transferred or assigned by
the grantee to immediate family members of the grantee or certain entities
owned by or for the benefit of immediate family members of the grantee.
Adjustments
If the Compensation Committee determines that any stock split,
stock dividend or other distribution (whether in the form of cash, securities
or other property), recapitalization, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase or exchange
of shares, issuance of warrants or other rights to purchase securities of
McMoRan, or other similar corporate transaction or event affects the McMoRan
Common Stock such that an adjustment is appropriate to prevent dilution or
enlargement of the benefits intended under the Stock Plan, then the
Compensation Committee has discretion to (i) adjust the number and kind of
shares that may be the subject of future awards under the Stock Plan, (ii)
make equitable adjustment in the number and kind of shares (or other
securities or property) subject to outstanding awards and the respective grant
or exercise prices thereof and (iii) if appropriate, provide for the payment
of cash to a participant.
Amendment or Termination
The Stock Plan may be amended or terminated at any time by the
Board of Directors, except that no amendment may be made without stockholder
approval if such approval is determined by the Compensation Committee to be
necessary or advisable to comply with any tax or regulatory requirement,
including any approval requirement that is necessary to qualify awards as
"performance-based" compensation under Section 162(m) of the Code.
Federal Income Tax Consequences of Stock Options
An optionee will not recognize any income for federal income
tax purposes upon the grant of a non-qualified stock option, nor will McMoRan
normally realize any deduction for federal income tax purposes at the time of
grant. When an optionee exercises a non-qualified option, the difference
between the exercise price and any higher fair market value of the McMoRan
Common Stock on the date of exercise will be ordinary income to the optionee
(subject to withholding) and will generally be allowed as a deduction at that
time for federal income tax purposes to McMoRan.
Any gain or loss realized by an optionee on disposition of the
McMoRan Common Stock acquired upon exercise of a non-qualified option will
generally be capital gain or loss to the optionee, long-term or short-term
depending on the holding period, and will not result in any additional federal
income tax consequences to McMoRan. The optionee's basis in the McMoRan
Common Stock for determining gain or loss on the disposition will be the fair
market value of the McMoRan Common Stock determined generally at the time of
exercise.
When an optionee exercises an incentive stock option while
employed by McMoRan or a subsidiary or within three months (one year for
disability) after termination of employment by reason of retirement or death,
no ordinary income will be recognized by the optionee at that time, but the
excess (if any) of the fair market value of the McMoRan Common Stock acquired
upon such exercise over the option price will be an adjustment to taxable
income for purposes of the federal alternative minimum tax applicable to
individuals. If the McMoRan Common Stock acquired upon exercise of the
incentive stock option is not disposed of prior to the expiration of one year
after the date of acquisition and two years after the date of grant of the
option, the excess (if any) of the sale proceeds over the aggregate option
exercise price of such McMoRan Common Stock will be long-term capital gain,
but McMoRan will not be entitled to any tax deduction with respect to such
gain. Generally, if the McMoRan Common Stock is disposed of prior to the
expiration of such periods (a "Disqualifying Disposition"), the excess of the
fair market value of such McMoRan Common Stock at the time of exercise over
the aggregate option exercise price (but not more than the gain on the
disposition if the disposition is a transaction on which a loss, if realized,
would be recognized) will be ordinary income at the time of such Disqualifying
Disposition (and McMoRan will generally be entitled to a federal income tax
deduction in a like amount). Any gain realized by the optionee as the result
of a Disqualifying Disposition that exceeds the amount treated as ordinary
income will be capital in nature, long-term or short-term depending on the
holding period. If an incentive stock option is exercised more than three
months (one year for disability) after termination of employment, the federal
income tax consequences are the same as described above for non-qualified
stock options.
If the exercise price of an option is paid by the surrender of
previously owned shares, the basis of the previously owned shares carries
over to the shares received in replacement. If the option is a non-qualified
option, the income recognized on exercise is added to the basis. If the
option is an incentive stock option, the optionee will recognize gain if the
shares surrendered were acquired through the exercise of an incentive stock
option and have not been held for the applicable holding period. This gain
will be added to the basis of the shares received in replacement of the
previously owned shares.
Awards that are granted, accelerated or enhanced upon the
occurrence of a change of control may give rise, in whole or in part, to
excess parachute payments within the meaning of Section 280G of the Code to
the extent that such payments, when aggregated with other payments subject to
Section 280G, exceed the limitations contained therein. Such excess parachute
payments will be nondeductible to McMoRan and subject the recipient of the
payments to a 20% excise tax.
If permitted by the Compensation Committee, at any time that a
participant is required to pay to McMoRan the amount required to be withheld
under applicable tax laws in connection with the exercise of a stock option,
the participant may elect to have McMoRan withhold from the shares that the
participant would otherwise receive shares of McMoRan Common Stock having a
value equal to the amount to be withheld. This election must be made prior to
the date on which the amount of tax to be withheld is determined.
The foregoing discussion summarizes the federal income tax
consequences of stock options that may be granted under the Stock Plan, based
on current provisions of the Code, which are subject to change. This summary
does not cover any foreign, state or local tax consequences or participation
in the Stock Plan.
Awards to be Granted
The grant of awards under the Stock Plan is entirely in the
discretion of the Compensation Committee. The Compensation Committee has not
yet made a determination as to the awards to be granted under the Stock Plan.
Vote Required for Approval of the Stock Plan
Approval of the Stock Plan requires (a) the affirmative vote of
a majority of the shares of MOXY Common Stock present and entitled to vote at
the MOXY Meeting and (b) the affirmative vote of a majority of the shares of
FSC Common Stock present and entitled to vote at the FSC Meeting. Approval of
the MOXY and FSC proposals relating to the Mergers is not conditioned on
adoption of the Stock Plan proposal, but approval of the Stock Plan proposal is
conditioned on approval of the proposals related to the Mergers.
Each of the MOXY Board and FSC Board unanimously recommends a
vote FOR approval of the Stock Plan by the stockholders of MOXY and FSC,
respectively.
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is furnished in
connection with the solicitation of proxies from (i) the holders of MOXY
Common Stock by the MOXY Board for use at the MOXY Meeting and (ii) the
holders of the FSC Common Stock by the FSC Board for use at the FSC Meeting.
Times and Places; Purposes
MOXY. The MOXY Meeting will be held on November 17, 1998 at
9:00 a.m., local time, at MOXY's office, 1615 Poydras Street, New Orleans,
Louisiana. At the MOXY Meeting, the stockholders of MOXY will be asked to
consider and vote on a proposal to approve the MOXY Merger and adopt the
Merger Agreement (the "MOXY Merger Proposal"). A copy of the Merger Agreement
is included as Annex A to this Joint Proxy Statement/Prospectus. At the MOXY
Meeting, the stockholders of MOXY will also be asked to consider and vote on a
proposal to approve the McMoRan 1998 Stock Option Plan (the "Benefit Plan
Proposal" and, together with the MOXY Merger Proposal, the "MOXY Proposals"),
and such other matters as may properly come before the MOXY Meeting.
FSC. The FSC Meeting will be held on November 17, 1998, at
10:00 a.m., local time, at FSC's office, 1615 Poydras Street, New Orleans,
Louisiana. At the FSC Meeting, the stockholders of FSC will be asked to
consider and vote on a proposal to approve the FSC Merger and adopt the Merger
Agreement (the "FSC Merger Proposal"). At the FSC Meeting, the stockholders of
FSC will also be asked to consider and vote on a proposal to approve the
Benefit Plan Proposal (together with the FSC Merger Proposal, the "FSC
Proposals"), and such other matters as may properly come before the FSC
Meeting.
Record Date; Voting Rights
The MOXY Board and the FSC Board have fixed the close of
business on October 2, 1998, as the record date for their respective Special
Meetings (the "Record Date").
MOXY. On the Record Date, there were 42,948,694 shares of MOXY
Common Stock, held by approximately 9,987 stockholders of record, outstanding
and entitled to vote at the MOXY Meeting. Only holders of record of shares of
MOXY Common Stock on the Record Date are entitled to notice of and to vote at
the MOXY Meeting and any adjournments thereof. Each share of MOXY Common Stock
is entitled to one vote at the MOXY Meeting.
FSC. On the Record Date, there were 8,790,646 shares of FSC
Common Stock, held by approximately 14,464 stockholders of record, outstanding
and entitled to vote at the FSC Meeting. Only holders of record of shares of
FSC Common Stock on the Record Date are entitled to notice of and to vote at
the FSC Meeting and any adjournments thereof. Each share of FSC Common Stock
is entitled to one vote at the FSC Meeting.
Voting Procedures
MOXY. The MOXY Board is soliciting a proxy in the enclosed
form to provide you with an opportunity to vote on all matters scheduled to
come before the MOXY Meeting, whether or not you attend in person. If you
properly execute and return a proxy in the enclosed form, your shares will be
voted as you specify. If you make no specifications, the proxy will be voted
in favor of the MOXY Proposals. If you submit a proxy, you may subsequently
revoke it or submit a revised proxy at any time before it is voted. Record
holders of MOXY Common Stock as of the Record Date may also attend the MOXY
Meeting in person and vote by ballot, which would cancel any proxy that you
previously have given. The inspectors of election will count all votes cast.
Management expects no matters to be presented for action at the
MOXY Meeting other than the MOXY Proposals. If, however, any other matters
properly come before the MOXY Meeting, the persons named as proxies on the
enclosed form of proxy will have discretionary authority to vote on any such
matters and the persons named as proxies intend to vote on such matters in
accordance with their best judgment.
FSC. The FSC Board is soliciting a proxy in the enclosed form
to provide you with an opportunity to vote on all matters scheduled to come
before the FSC Meeting, whether or not you attend in person. If you properly
execute and return a proxy in the enclosed form, your shares will be voted as
you specify. If you make no specifications, the proxy will be voted in favor
of the FSC Proposals. If you submit a proxy, you may subsequently revoke it
or submit a revised proxy at any time before it is voted. Record Holders of
FSC Common Stock as of the Record Date may also attend the FSC Meeting in
person and vote by ballot, which would cancel any proxy that you previously
have given. The inspectors of election will count all votes cast.
Management expects no matters to be presented for action at the
FSC Meeting other than the FSC Proposals. If, however, any other matters
properly come before the FSC Meeting, the persons named as proxies on the
enclosed form of proxy will have discretionary authority to vote on any such
matters and the persons named as proxies intend to vote on such matters in
accordance with their best judgment.
Stockholders should not send any certificates representing MOXY
Common Stock or FSC Common Stock with the enclosed proxy card. A Letter of
Transmittal with instructions for the surrender of stock certificates for MOXY
Common Stock and FSC Common Stock will be mailed to MOXY and FSC stockholders
as soon as practicable after the consummation of the Mergers.
Quorum
MOXY. The holders of a majority of the shares of MOXY Common
Stock issued and outstanding and entitled to vote at the MOXY Meeting, present
in person or represented by proxy, will constitute a quorum at the MOXY
Meeting. The persons appointed by MOXY to act as inspectors of election will
treat shares of MOXY Common Stock represented by a properly executed and
returned proxy as present at the MOXY Meeting for purposes of determining a
quorum. The shares of MOXY Common Stock present at the MOXY Meeting that
abstain from voting or that are the subject of broker non-votes will be
counted as present for purposes of determining a quorum. A broker non-vote
occurs when a nominee holding MOXY Common Stock for a beneficial owner does
not vote on a particular matter because the nominee does not have
discretionary voting power with respect to that item and has not received
voting instructions from the beneficial owner.
FSC. The holders of a majority of the shares of FSC Common
Stock issued and outstanding and entitled to vote at the FSC Meeting, present
in person or represented by proxy, will constitute a quorum at the FSC
Meeting. The persons appointed by FSC to act as inspectors of election will
treat shares of FSC Common Stock represented by a properly executed and
returned proxy as present at the FSC Meeting for purposes of determining a
quorum. The shares of FSC Common Stock present at the FSC Meeting that
abstain from voting or are the subject of broker non-votes will be counted as
present for purposes of determining a quorum. A broker non-vote occurs when a
nominee holding FSC Common Stock for a beneficial owner does not vote on a
particular matter because the nominee does not have discretionary voting power
with respect to that item and has not received voting instructions from the
beneficial owner.
Votes Required
MOXY. The affirmative vote of the holders of a majority of the
shares of MOXY Common Stock outstanding on the Record Date is required to
approve the MOXY Merger Proposal. Accordingly, abstentions and broker
non-votes with respect to the MOXY Merger Proposal will have the same effect
as a vote against the MOXY Merger Proposal.
Except as otherwise provided by law, MOXY's certificate of
incorporation or the by-laws, all other matters coming before the MOXY
Meeting, including the Benefit Plan Proposal, will be decided by the vote of a
majority of the shares of MOXY Common Stock present in person or represented
by proxy and entitled to vote at the MOXY Meeting. Broker non-votes will not
be deemed as votes cast with respect to, will not count as votes for or
against, and will not be included in calculating the number of votes necessary
for approval of those matters.
FSC. The affirmative vote of the holders of a majority of the
shares of FSC Common Stock outstanding on the Record Date is required to
approve the FSC Merger Proposal. Accordingly, abstentions and broker
non-votes with respect to the FSC Merger Proposal will have the same effect as
a vote against the FSC Merger Proposal.
Except as otherwise provided by law, FSC's certificate of
incorporation or by-laws, all other matters coming before the FSC Meeting,
including the Benefit Plan Proposal, will be decided by the vote of a majority
of the shares of FSC Common Stock present in person or represented by proxy
and entitled to vote at the FSC Meeting. Broker non-votes will not be deemed
as votes cast with respect to, will not count as votes for or against, and
will not be included in calculating the number of votes necessary for approval
of those matters.
Share Ownership of Management
MOXY. As of June 30, 1998, MOXY's directors and executive
officers and their affiliates as a group beneficially owned 6,853,111 shares
of MOXY Common Stock, or approximately 15.4% of the outstanding shares of MOXY
Common Stock. See "Stock Ownership Information." These directors and
executive officers have indicated that they intend to vote their MOXY Common
Stock in favor of the MOXY Proposals.
FSC. As of June 30, 1998, directors and executive officers of
FSC and their affiliates as a group beneficially owned 361,708 shares of FSC
Common Stock, or approximately 3.6% of the shares of the outstanding FSC Common
Stock. See "Stock Ownership Information." These directors and executive
officers have indicated that they intend to vote their FSC Common Stock in
favor of the FSC Proposals.
Proxy Solicitation
MOXY. MOXY will pay all expenses of soliciting proxies for the
MOXY Meeting. In addition to solicitations by mail, arrangements have been
made for brokers and nominees to send proxy materials to their principals, and
MOXY will reimburse them for their reasonable expenses in doing so. MOXY has
retained Georgeson & Company Inc., Wall Street Plaza, New York, New York, to
assist with the solicitation of proxies from brokers and nominees. It is
estimated that the fees for such firm's services will be $10,000 plus its
reasonable out-of-pocket expenses. Certain officers and employees of MOXY,
who will receive no additional compensation for their services, may also
solicit proxies by telephone, telegram, telex, telecopy or personal interview.
FSC. FSC will pay all expenses of soliciting proxies for the
FSC Meeting. In addition to solicitations by mail, arrangements have been
made for brokers and nominees to send proxy materials to their principals, and
FSC will reimburse them for their reasonable expenses in doing so. FSC has
retained Georgeson & Company Inc., Wall Street Plaza, New York, New York, to
assist with the solicitation of proxies from brokers and nominees. It is
estimated that the fees for such firm's services will be $10,000 plus its
reasonable out-of-pocket expenses. Certain officers and employees of FSC, who
will receive no additional compensation for their services, may also solicit
proxies by telephone, telegram, telex, telecopy or personal interview.
STOCK OWNERSHIP INFORMATION
Common Stock Ownership of Directors and Executive Officers
None of the directors or executive officers of MOXY, FSC, or
McMoRan currently own any shares of McMoRan Common Stock. They will receive
shares of McMoRan Common Stock in respect of shares of MOXY Common Stock and
FSC Common Stock held by them at the time of the Mergers. In addition,
McMoRan has agreed to issue to them and other holders of stock options granted
under certain MOXY and FSC benefit plans options to purchase McMoRan Common
Stock under the McMoRan Adjusted Plan described below.
The following table sets forth certain information regarding
the number of shares of MOXY Common Stock ("MOXY Shares") and FSC Common Stock
("FSC Shares") beneficially owned as of June 30, 1998 by, and the number of
shares of McMoRan Common Stock ("McMoRan Shares") expected to be beneficially
owned immediately after the Mergers by, (i) each of the directors and
executive officers of MOXY, FSC, and McMoRan, (ii) all directors and executive
officers of MOXY as a group, (iii) all directors and executive officers of FSC
as a group, and (iv) all directors and executive officers of McMoRan as a
group. In determining the number of McMoRan Shares expected to be
beneficially owned by them, it was assumed that each MOXY Share and each FSC
Share beneficially owned by them will be converted at the Effective Time of
the Mergers into 0.2 and 0.625 of a McMoRan Share, respectively, and that each
option and stock incentive unit held by them relating to a MOXY Share and each
option and stock incentive unit held by them relating to an FSC Share will be
converted at the Effective Time of the Mergers into an option granted under
the McMoRan Adjusted Plan to purchase 0.2 and 0.625 of a McMoRan Share,
respectively. Unless otherwise indicated, all MOXY Shares and FSC Shares
shown are, and all McMoRan Shares shown are anticipated to be, held with sole
voting and investment power.
<TABLE>
<CAPTION>
Number of
Number of McMoRan
MOXY Number of Shares
Shares FSC Shares Anticipated to
Beneficially Beneficially be Beneficially
Name of Individual or Identity of Group Owned (1)(2) Owned (1)(2) Owned (1)(2)
- --------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C>
Richard C. Adkerson.................................. 479,892 28,186 113,587
John G. Amato........................................ 553,222 (3) 44,102 (3) 138,197 (3)
Michael J. Arnold.................................... 56,716 6,750 15,553
J. Terrell Brown..................................... 0 0 0
Thomas D. Clark, Jr.................................. 0 500 312
Robert A. Day........................................ 70,099 6,446 18,040
Gerald J. Ford....................................... 2,265,900 (4) 0 453,180 (4)
Glenn A. Kleinert.................................... 75,931 0 15,183
Rene L. Latiolais.................................... 147,338 110,820 98,797
James H. Lee......................................... 53,308 846 11,322
James R. Moffett..................................... 1,774,359 (5) 130,670 (5) 436,534 (5)
C. Howard Murrish.................................... 471,110 (6) 2,037 (6) 95,491 (6)
B.M. Rankin, Jr...................................... 1,109,290 (7) 37,736 (7) 245,428 (7)
Craig E. Saporito.................................... 28,850 2,217 7,148
Robert M. Wohleber................................... 11,992 9,694 8,450
All MOXY directors and executive officers as a group
(9 persons) (8)..................................... 6,853,111 (9) 250,023 (9) 1,526,962 (9)
All FSC directors and executive officers as a group
(8 persons) (10).................................... 4,076,093 (11) 361,708 (11) 1,041,305 (11)
All current and prospective McMoRan directors and
executive officers as a group (13 persons) (12)..... 6,968,768 (13) 379,158 (13) 1,630,717 (13)
</TABLE>
- ----------
(1) With the exception of Mr. Adkerson (who beneficially owns 1.1% of the
outstanding MOXY shares), Mr. Amato (who beneficially owns 1.3% of the
outstanding MOXY shares), Mr. Ford (who beneficially owns 5.3% of the
outstanding MOXY Shares and is anticipated to own beneficially 3.1% of the
outstanding McMoRan Shares), Mr. Latiolais (who beneficially owns 1.1% of
the outstanding FSC Shares), Mr. Moffett (who beneficially owns 4.1% of the
outstanding MOXY Shares and 1.3% of the outstanding FSC Shares and is
anticipated to own beneficially 2.9% of the outstanding McMoRan Shares),
Mr. Murrish (who beneficially owns 1.1% of the outstanding MOXY Shares),
and Mr. Rankin (who beneficially owns 2.6% of the outstanding MOXY Shares
and is anticipated to own beneficially 1.7% of the outstanding McMoRan
Shares), each individual holds less than 1% of the outstanding MOXY Shares
and FSC Shares, respectively, and is anticipated to hold less than 1% of
the outstanding McMoRan Shares, respectively.
(2) Includes MOXY Shares, FSC Shares, and McMoRan Shares that could be acquired
within sixty days after June 30, 1998 upon the exercise of options granted
pursuant to MOXY and FSC benefit plans and options anticipated to be
granted under the McMoRan Adjusted Plan as follows:
<TABLE>
<CAPTION>
Number of Number of Number of
Name of Individual or Identity of Group MOXY Shares FSC Shares McMoRan Shares
- --------------------------------------- ----------- ---------- --------------
<S> <C> <C> <C>
Mr. Adkerson................................................. 304,362 25,862 77,029
Mr. Amato.................................................... 166,057 22,193 47,077
Mr. Arnold................................................... 26,504 6,750 9,511
Mr. Day...................................................... 22,128 1,164 5,145
Mr. Kleinert................................................. 75,931 0 15,183
Mr. Latiolais................................................ 130,342 99,091 88,068
Mr. Lee...................................................... 33,308 846 7,322
Mr. Moffett.................................................. 653,286 76,937 178,738
Mr. Murrish.................................................. 316,400 0 63,279
Mr. Rankin................................................... 22,128 5,469 7,831
Mr. Saporito................................................. 28,367 2,217 7,052
Mr. Wohleber................................................. 11,140 6,550 6,315
All MOXY directors and executive officers as a group......... 1,593,600 132,471 401,604
All FSC directors and executive officers as a group.......... 1,287,315 236,102 405,058
All current and prospective McMoRan directors and
executive officers as a group............................ 1,680,714 246,233 490,045
</TABLE>
(3) Includes (a) 6,000 MOXY Shares and 3 FSC Shares held in, and 1,201 McMoRan
Shares anticipated to be held in, a retirement trust for the benefit of Mr.
Amato's spouse but as to which he disclaims beneficial ownership, (b)
22,328 MOXY Shares and 823 FSC Shares held by, and 4,978 McMoRan Shares
anticipated to be held by, Mr. Amato as custodian for his children but as
to which he disclaims beneficial ownership, (c) 20,000 MOXY Shares and 633
FSC Shares held by, and 4,395 McMoRan Shares anticipated to be held by, Mr.
Amato as president of a charitable foundation but as to which he disclaims
beneficial ownership, and (d) 34,521 MOXY Shares and 7,082 FSC Shares held
for, and 11,330 McMoRan Shares anticipated to be held for, the benefit of
trusts with respect to which Mr. Amato, as trustee, has or is anticipated
to have sole voting and investment power, but as to which he disclaims
beneficial ownership. Does not include any of the shares referred to in
note (5) below.
(4) Includes 2,265,900 MOXY Shares held for, and 453,180 McMoRan Shares
anticipated to be held for, the benefit of a trust, of which Mr. Ford is
trustee.
(5) Includes (a) 1,099,609 MOXY Shares and 45,944 FSC Shares held by, and
248,636 McMoRan Shares anticipated to be held by, a limited liability
company with respect to which Mr. Moffett, as a member, shares or is
anticipated to share voting and investment power and (b) 21,464 MOXY Shares
and 7,789 FSC Shares held for, and 9,160 McMoRan Shares anticipated to be
held for, the benefit of a trust with respect to which Mr. Moffett and Mr.
Amato, as co-trustees, have or are anticipated to have sole voting and
investment power but as to which each disclaims beneficial ownership.
(6) Includes (a) 2,060 MOXY Shares held in, and 412 McMoRan Shares anticipated
to be held in, a retirement trust for the benefit of Mr. Murrish's spouse,
(b) 45,000 MOXY Shares held by, and 9,000 McMoRan Shares anticipated to be
held by, Mr. Murrish as trustee of a trust for the benefit of one of his
sons, (c) 2,112 MOXY Shares and 4 FSC Shares owned by, and 424 McMoRan
Shares anticipated to be owned by, an adult son who shares the same home as
Mr. Murrish but as to which he disclaims beneficial ownership, (d) 2,212
MOXY Shares and 4 FSC Shares held by, and 444 McMoRan Shares anticipated to
be held by, Mr. Murrish as custodian for one of his sons, and (e) 1,000
MOXY Shares held by, and 200 McMoRan Shares anticipated to be held by, Mr.
Murrish as custodian for his grandson.
(7) Includes (a) 316,303 MOXY Shares, 12,219 FSC Shares and 70,896 McMoRan
Shares with respect to which Mr. Rankin, under a power of attorney, has or
is anticipated to have sole voting and investment power but as to which he
disclaims beneficial ownership and (b) 63,224 MOXY Shares and 12,644
McMoRan Shares with respect to which Mr. Rankin, under a power of attorney,
shares or is anticipated to share investment power but as to which he
disclaims beneficial ownership.
(8) Consists of Messrs. Adkerson, Amato, Day, Ford, Kleinert, Lee, Moffett,
Murrish, and Rankin.
(9) Represents approximately 15.4% of the outstanding MOXY Shares,
approximately 2.5% of the outstanding FSC Shares, and approximately 10.1%
of the McMoRan Shares anticipated to be outstanding, respectively.
(10) Consists of Messrs. Adkerson, Amato, Brown, Clark, Latiolais, Moffett,
Rankin, and Wohleber.
(11) Represents approximately 9.2% of the outstanding MOXY Shares,
approximately 3.6% of the outstanding FSC Shares, and approximately 6.9% of
the McMoRan Shares anticipated to be outstanding, respectively.
(12) Consists of Messrs. Adkerson, Amato, Arnold, Brown, Clark, Day, Ford,
Latiolais, Moffett, Murrish, Rankin, Saporito, and Wohleber.
(13) Represents approximately 15.6% of the outstanding MOXY Shares,
approximately 3.8% of the outstanding FSC Shares and approximately 10.8% of
the McMoRan Shares anticipated to be outstanding, respectively.
Common Stock Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding
the MOXY Shares and the FSC Shares beneficially owned by, and the number of
McMoRan Shares expected to be beneficially owned immediately after the Mergers
by, each person known to MOXY and FSC to be a beneficial owner of more than 5%
of both the outstanding MOXY Shares and the outstanding FSC Shares,
respectively, determined in accordance with Rule 13d-3 of the 1934 Act based
on information furnished by them. In determining the number of McMoRan Shares
expected to be beneficially owned by them, it was assumed that each MOXY Share
and each FSC Share included below will be converted at the Effective Time of
the Mergers into 0.2 and 0.625 of a McMoRan Share, respectively, and that each
option to purchase a MOXY Share and each option to purchase an FSC Share
referred to below will be converted at the Effective Time of the Mergers into
an option granted under the McMoRan Adjusted Plan to purchase 0.2 and 0.625 of
a McMoRan Share, respectively. Unless otherwise indicated, all shares
indicated as beneficially owned are or are anticipated to be held with sole
voting and investment power.
<TABLE>
<CAPTION>
Number of
McMoRan
Number of Shares
MOXY Numbers of Anticipated
Shares FSC Shares to be
Beneficially Percent of Beneficially Percent of Beneficially Percent of
Name and Address Owned Class Owned Class Owned Class
- ---------------- ------------ ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alpine Capital, L.P.
Algenpar, Inc.
Keystone, Inc.
Robert W. Bruce III
J. Taylor Crandall
Robert M. Bass
201 Main Street
Suite 3100
Fort Worth, TX 76102. 6,996,496 (1) 16.3% 1,119,499 (2) 11.5% 2,098,974 14.3%
</TABLE>
(1) Based on Amendment No. 6 to the Schedule 13D dated August 28, 1998 filed
jointly by Alpine Capital, L.P., Algenpar, Inc., Keystone, Inc., Robert W.
Bruce III, J. Taylor Crandall and Robert M. Bass with the SEC. According to
Amendment No. 6 to the Schedule 13D, (a) Alpine Capital, L.P. is the
beneficial owner of 5,956,307 of the MOXY Shares, and J. Taylor Crandall,
as the sole owner of Algenpar, Inc., and Algenpar, Inc. and Robert W. Bruce
III, as the general partners in Alpine Capital, L.P., have shared voting
and investment power with respect to the MOXY Shares beneficially owned by
Alpine Capital, L.P., (b) Robert W. Bruce III is the beneficial owner of
154,082 of the MOXY Shares and has sole voting and investment power with
respect to the MOXY Shares beneficially owned by him, (c) Robert W. Bruce
III, a former director of MOXY, could acquire 19,907 of the MOXY Shares
upon the exercise of options granted pursuant to MOXY benefit plans and (d)
Keystone, Inc. is the beneficial owner of 866,200 of the MOXY Shares, and
Robert M. Bass, as the sole director and president of Keystone, Inc., has
sole voting and investment power with respect to the MOXY Shares
beneficially owned by Keystone, Inc.
(2) Based on Amendment No. 3 to the Schedule 13D dated September 16, 1998 filed
jointly by Alpine Capital, L.P., Algenpar, Inc., Keystone, Inc., Robert W.
Bruce III, J. Taylor Crandall and Robert M. Bass with the SEC. According to
Amendment No. 3 to the Schedule 13D, (a) Alpine Capital, L.P. is the
beneficial owner of 819,300 of the FSC Shares, and J. Taylor Crandall, as
the sole owner of Algenpar, Inc., and Algenpar, Inc. and Robert W. Bruce
III, as the general partners in Alpine Capital, L.P., have shared voting
and investment power with respect to the FSC Shares beneficially owned by
Alpine Capital, L.P., (b) Robert W. Bruce III is the beneficial owner of
352 of the FSC Shares and has sole voting and investment power with respect
to the FSC Shares beneficially owned by him, (c) Robert W. Bruce III, as a
former director of the former parent of FSC, could acquire 4,847 of the FSC
Shares upon the exercise of options granted pursuant to FSC benefit plans
and (d) Keystone, Inc. is the beneficial owner of 295,000 of the FSC
Shares, and Robert M. Bass, as the sole director and president of Keystone,
Inc., has sole voting and investment power with respect to the FSC Shares
beneficially owned by it.
The following table sets forth information regarding the number
of MOXY Shares beneficially owned by, and the number of McMoRan Shares expected
to be beneficially owned immediately after the Mergers by, each person (other
than those persons identified in the immediately preceding ownership tables)
known to MOXY to be a beneficial owner of more than 5% of the outstanding MOXY
Shares, determined in accordance with Rule 13d-3 of the 1934 Act based on
information furnished by them. In determining the number of McMoRan Shares
expected to be beneficially owned by them, it was assumed that each MOXY Share
included below will be converted at the Effective Time of the Mergers into 0.2
of a McMoRan Share. Unless otherwise indicated, all shares indicated as
beneficially owned are or are anticipated to be held with sole voting and
investment power.
<TABLE>
<CAPTION>
Number of
McMoRan
Number of Shares
MOXY Anticipated
Shares to be
Beneficially Percent of Beneficially Percent of
Name and Address Owned Class Owned Class
- ---------------- ---------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Phosphate Resource Partners Limited Partnership
IMC Global Inc.
FMRP Inc.
2100 Sanders Road
Northbrook, Illinois 60062..................... 3,847,679 (1) 9.0% 769,535 5.2%
</TABLE>
- ----------
(1) Based on a Form 4 dated November 24, 1997 filed jointly by PLP, IGL and
FMRP Inc. IGL and FMRP Inc. are the general partners in PLP, which is the
beneficial owner of all the MOXY Shares shown.
The following table sets forth information regarding the number
of FSC Shares beneficially owned by, and the number of McMoRan Shares expected
to be beneficially owned immediately after the Mergers by, each person (other
than those persons identified in the immediately preceding ownership tables)
known to FSC to be a beneficial owner of more than 5% of the outstanding FSC
Shares, determined in accordance with Rule 13d-3 based on information
furnished by them. In determining the number of McMoRan Shares expected to be
beneficially owned by them, it was assumed that each FSC Share included below
will be converted at the Effective Time of the Mergers into 0.625 of a McMoRan
Share. Unless otherwise indicated, all shares indicated as beneficially owned
are or are anticipated to be held with sole voting and investment power.
<TABLE>
<CAPTION>
Number of
McMoRan
Shares
Number of Anticipated
FSC Shares to be
Beneficially Percent of Beneficially Percent of
Name and Address Owned Class Owned Class
- ---------------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
HM 4 FSC, L.P.
Hicks, Muse Fund IV LLC
Thomas O. Hicks
200 Crescent Court, Suite 1600
Dallas, Texas 75201........... 1,171,900 (1) 12.0% 732,436 5.0%
</TABLE>
- ----------
(1) Based on the Schedule 13D dated August 31, 1998 filed jointly by HM 4 FSC,
L.P., Hicks, Muse Fund IV LLC, and Thomas O. Hicks with the SEC. According
to the Schedule 13D, HM 4 FSC, L.P. is the beneficial owner of all
1,171,900 FSC Shares and, along with Hicks, Muse Fund IV LLC and Thomas O.
Hicks, has shared voting and investment power with respect to all 1,171,900
FSC Shares. Hicks, Muse Fund IV LLC is the sole general partner in HM 4
FSC, L.P., and Thomas O. Hicks is the sole member of Hicks, Muse Fund IV
LLC. Hicks, Muse Fund IV LLC and Thomas O. Hicks disclaim beneficial
ownership of all 1,171,900 FSC Shares.
MOXY AND FSC
MARKET PRICES, DIVIDENDS PAID AND DIVIDEND POLICY
MOXY Common Stock is traded on Nasdaq under the symbol "MOXY."
FSC Common Stock is traded on the NYSE under the symbol "FSC." The following
table sets forth, for the periods indicated, the range of the high and low bid
prices for MOXY Common Stock as reported by Nasdaq and the range of high and
low sales prices of FSC Common Stock on the NYSE Composite Transaction Tape,
respectively.
<TABLE>
<CAPTION>
MOXY Common Stock FSC Common Stock
------------------------------ ------------------------------
High Low High Low
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Calendar Year 1996:
Quarter ended March 31........................... $ 3.7500 $ 2.8125 -- --
Quarter ended June 30............................ 3.8750 2.5000 -- --
Quarter ended September 30....................... 2.9375 1.7500 -- --
Quarter ended December 31........................ 3.0625 1.5000 -- --
Calendar Year 1997:
Quarter ended March 31........................... 3.9375 2.0625 -- --
Quarter ended June 30............................ 3.8125 2.3125 -- --
Quarter ended September 30....................... 5.5000 3.3125 -- --
Quarter ended December 31(a)..................... 5.7500 3.0000 $ 13.1667 $ 11.6250
Calendar Year 1998:
Quarter ended March 31........................... 4.4375 2.8750 16.4375 9.7500
Quarter ended June 30............................ 5.3125 3.8125 15.3750 13.0000
Quarter ended September 30....................... 4.4375 2.6250 13.1875 8.8750
Quarter ended December 31 (through October 5,
1998).......................................... 3.5000 3.0000 10.5000 10.0000
</TABLE>
- ----------
(a) Reflects inception of trading of FSC Common Stock on December 23, 1997.
Neither MOXY nor FSC has paid cash dividends since inception
and instead have retained earnings to meet working capital needs and finance
business operations. McMoRan currently intends to continue this policy.
On July 31, 1998, the last full trading day prior to the public
announcement of the proposed transaction, the reported closing sale price per
share on Nasdaq for MOXY Common Stock was $4 and for FSC Common Stock on the
NYSE was $10 7/8.
The market prices of shares of MOXY Common Stock and FSC Common
Stock are subject to fluctuation. As a result, MOXY and FSC stockholders are
urged to obtain current market quotations.
McMoRan EXPLORATION CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated
Balance Sheet as of June 30, 1998 and Unaudited Pro Forma Condensed
Consolidated Statements of Operations for the six months ended June 30, 1998
and the year ended December 31, 1997 have been prepared from the historical
financial statements of MOXY and FSC included elsewhere herein.
The pro forma financial information gives effect to accounting
for the Mergers as a "purchase transaction," based on the conversion of each
share of MOXY Common Stock into 0.2 shares of McMoRan Common Stock and each
share of FSC Common Stock into 0.625 shares of McMoRan Common Stock. MOXY is
the acquiring entity in this transaction for financial reporting purposes.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
presented herein have been prepared as if the Mergers occurred on January 1,
1997. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June
30, 1998 reflects the Mergers as if they had occurred on June 30, 1998.
The pro forma financial information should be read in
conjunction with the accompanying notes and the historical financial
statements and notes thereto of MOXY and FSC included elsewhere herein.
The pro forma financial information includes estimates and
information currently available and is subject to change based upon final
purchase accounting adjustments for the Mergers. The pro forma financial
information is not necessarily indicative of the financial position or results
which actually would have been attained if the Mergers had been consummated on
the dates indicated above, nor are they indicative of future results.
McMoRan EXPLORATION CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
Historical Historical Merger Pro Forma
MOXY FSC McMoRan Adjustments Consolidated
---------- ---------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents....................... $ 19,355 $ 33,790 $ -- $ (4,000) (a) $ 49,145
Accounts receivable............................. 11,488 24,875 -- -- 36,363
Inventories..................................... -- 23,531 -- -- 23,531
Deferred tax asset.............................. -- 7,590 -- -- 7,590
Other current assets............................ -- 2,552 -- -- 2,552
---------- ---------- ------ ---------- -----------
Total current assets.......................... 30,843 92,338 -- (4,000) 119,181
Property, plant and equipment, net............... 67,489 100,151 -- 18,906 (b) 186,546
Deferred tax asset............................... -- 53,856 -- (9,922) (c) 43,934
Other assets..................................... 166 10,303 -- 2,202 (d) 12,671
---------- ---------- ------ ---------- -----------
Total assets..................................... $ 98,498 $ 256,648 $ -- $ 7,186 $ 362,332
========== ========== ====== ========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities........ $ 19,777 $ 25,191 $ -- $ -- $ 44,968
Current reclamation and mine shutdown reserves.. -- 16,349 -- -- 16,349
---------- ---------- ------ ---------- -----------
Total current liabilities..................... 19,777 41,540 -- -- 61,317
Reclamation and mine shutdown reserves........... 1,349 52,141 -- -- 53,490
Accrued postretirement and pension benefits...... -- 10,771 -- (7,569) (d) 3,202
Other noncurrent liabilities..................... 999 46,227 -- -- 47,226
Stockholders' equity:
Common stock.................................... 429 104 -- (386) (e) 147
Capital in excess of par value.................. 141,058 117,050 -- 3,956 (a,e) 262,064
Accumulated deficit............................. (65,114) (2,338) -- 2,338 (e) (65,114)
Treasury stock.................................. -- (8,847) -- 8,847 (e) --
---------- ---------- ------ ---------- -----------
Total stockholders' equity.................... 76,373 105,969 -- 14,755 197,097
---------- ---------- ------ ---------- -----------
Total liabilities and stockholders' equity....... $ 98,498 $ 256,648 $ -- $ 7,186 $ 362,332
========== ========== ====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
- ----------
(a) Reflects estimated costs for the Mergers of $4.0 million, with
approximately $3.0 million allocated to purchase price and $1.0 million
allocated to capital in excess of par value.
(b) Reflects application of estimated excess of purchase price over net book
value of the FSC acquired assets to property, plant and equipment to the
extent of their estimated fair values. Purchase price was calculated using
MOXY's July 31, 1998 closing market price of $4.00 per share and
approximately $3.0 million of costs discussed in note (a).
(c) Reflects adjustments to the deferred tax asset relative to the adjustments
in notes (b) and (d). Based on a preliminary pro forma assessment of the
realizability of the acquired deductible temporary differences, as required
by SFAS No. 109, recognition of pro forma deferred tax assets was limited
to the adjusted amounts shown above in the pro forma balance sheet.
Accordingly, no additional deferred tax benefits relating to the pre-tax
losses shown for the six months ended June 30, 1998 and for the year ended
December 31, 1997 are reflected in the accompanying unaudited pro forma
condensed consolidated statements of operations for these periods.
(d) Reflects purchase accounting adjustments to FSC employee benefit
liabilities assumed by McMoRan. Specifically, reflects adjustments to
record a net pension asset for the excess of pension plan assets
($2,202,000) over the estimated projected benefit obligation and to
eliminate the $6,656,000 accrued pension balance recorded by FSC. Also
reflects a $913,000 reduction in FSC's accrued postretirement benefits to
the estimated obligation at June 30, 1998.
(e) Reflects issuance of McMoRan Common Stock at the fair value of FSC less the
elimination of FSC's historical equity.
McMoRan EXPLORATION CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Historical Historical Other Merger Pro Forma
MOXY FSC Adjustments(a) McMoRan Adjustments Consolidated
---------- ---------- -------------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues....................... $ 13,552 $ 211,945 $ 51,926 $ -- $ (57,255) (b) $ 220,168
Cost of sales:
Production and delivery....... 1,180 183,227 33,258 -- (57,643) (b,c) 160,022
Depreciation and
amortization.............. 10,071 461,084 12,980 -- (434,946) (b,d,e) 49,189
---------- ---------- ---------- ------- ----------- -----------
Total cost of sales......... 11,251 644,311 46,238 -- (492,589) 209,211
Exploration expenses........... 11,966 -- -- -- -- 11,966
General and administrative
expenses...................... 2,528 6,950 3,897 -- (1,000) (f) 12,375
Gain on property sale.......... (2,289) -- -- -- -- (2,289)
---------- ---------- ---------- ------- ----------- -----------
Total cost and expenses..... 23,456 651,261 50,135 -- (493,589) 231,263
---------- ---------- ---------- ------- ----------- -----------
Operating loss................. (9,904) (439,316) 1,791 -- 436,334 (11,095)
Other income, net.............. 638 12 -- -- -- 650
Interest expense............... (1,272) -- 1,272 -- -- --
---------- ---------- ---------- ------- ----------- -----------
Net loss before income taxes... (10,538) (439,304) 3,063 -- 436,334 (10,445)
Income tax benefit............. -- 65,105 -- -- (65,105) (g) --
---------- ---------- ---------- ------- ----------- -----------
Net loss.................... $ (10,538) $ (374,199) $ 3,063 -- $ 371,229 $ (10,445)
========== ========== ========== ======= =========== ============
Basic and diluted net loss per
share.......................... $ (0.56) $ (36.16) $ (0.74)
Basic and diluted weighted
average shares
outstanding.................... 18,847 10,347 14,081 (h)
</TABLE>
The accompanying notes on the following page are an integral
part of these unaudited pro forma condensed consolidated financial statements.
McMoRan EXPLORATION CO.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Historical Historical Merger Pro Forma
MOXY FSC McMoRan Adjustments Consolidated
---------- ---------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 11,778 $ 113,662 $ -- $ (24,247) (b) $ 101,193
Cost of sales:
Production and delivery............. 1,811 96,032 -- (21,593) (b,c) 76,250
Depreciation and amortization....... 10,970 12,735 -- (9,545) (b,d) 14,160
---------- ---------- ----- ---------- ----------
Total cost of sales............... 12,781 108,767 -- (31,138) 90,410
Exploration expenses................. 12,258 -- -- -- 12,258
General and administrative expenses.. 2,349 5,374 -- (500) (f) 7,223
---------- ---------- ----- ---------- ----------
Total cost and expenses......... 27,388 114,141 -- (31,638) 109,891
---------- ---------- ----- ---------- ----------
Operating loss....................... (15,610) (479) -- 7,391 (8,698)
Other income, net.................... 732 706 -- -- 1,438
Net income (loss) before taxes....... (14,878) 227 -- 7,391 (7,260)
Provision for taxes.................. -- (79) -- 79 (g) --
---------- ---------- ----- ---------- ----------
Net income (loss)............... $ (14,878) $ 148 $ -- $ 7,470 $ (7,260)
========== ========== ===== ========== ==========
Basic and diluted net loss per share. $ (0.35) $ 0.01 $ (0.52)
Weighted average shares outstanding:
Basic.......................... 42,816 9,950 14,081 (h)
Diluted........................ 42,816 10,031 14,081 (h)
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
- ----------
(a) Reflects pro forma adjustments to effect MOXY's Rights Offering and
acquisitions of the MCN and certain other oil and gas properties and FSC's
acquisition of IGL's 25.0% interest in Main Pass actually occurring during
1997 as if they had occurred as of January 1, 1997 as follows:
<TABLE>
<CAPTION>
Combined
MOXY FSC Total
-------- -------- --------
<S> <C> <C> <C>
Revenues .................................. $ 10,348 $ 41,578 $ 51,926
Cost of sales:
Production and delivery costs ............. 1,436 31,822 33,258
Depreciation and amortization ............. 8,986 3,994 12,980
-------- -------- --------
Total cost of sales .................... 10,422 35,816 46,238
General and administrative expenses ....... -- 3,897 3,897
-------- -------- --------
Total costs and expenses ............... 10,422 39,713 50,135
Operating income (loss) ................... (74) 1,865 1,791
Interest expense .......................... 1,272 -- 1,272
-------- -------- --------
Income before tax ......................... 1,198 1,865 3,063
Income tax benefit ........................ -- -- --
-------- -------- --------
Net income (loss) ......................... $ 1,198 $ 1,865 $ 3,063
======== ======== ========
</TABLE>
(b) Reflects the elimination of operating results attributable to the
operations of the Culberson mine, which will permanently cease operations
by the end of 1998.
(c) Reflects a $952,000 annual increase in pension and postretirement costs
resulting from the adjustments discussed in note (d) of the Unaudited Pro
Forma Condensed Consolidated Balance Sheet.
(d) Reflects a $716,000 annual increase in depreciation and amortization
expense for the increase in book value for FSC's acquired assets resulting
from applying purchase accounting for the Mergers, based on useful lives of
approximately 20 years (see note (b) of Unaudited Pro Forma Condensed
Consolidated Balance Sheet).
(e) In September 1997, FSC concluded that the carrying value of the Main Pass
sulphur assets exceeded the undiscounted estimated future net cash flows,
such that an impairment writedown of $416,400,000 was required under
Statement of Financial Accounting Standards No. 121. A similar analysis of
the Culberson mine sulphur assets, based on recoverable reserves utilizing
recent production history, indicated that a writedown of $9,000,000 was
required. Fair values were estimated using discounted estimated future net
cash flows related to these assets. Reflects elimination of the impairment
assessment of sulphur assets ($425,400,000) recorded by FSC in the 1997
third quarter and the related depreciation recorded on those sulphur assets
prior to the impairment assessment ($9,391,000).
(f) Reflects estimated identifiable decrease in McMoRan general and
administrative expenses primarily related to public entity related costs
($1.0 million annually).
(g) Assumes no tax benefit associated with the losses shown, as further
explained in note (c) to the unaudited pro forma condensed consolidated
balance sheet.
(h) Reflects estimated McMoRan common shares expected to be issued in
connection with the Mergers.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AND DISCLOSURES ABOUT MARKET RISKS
MOXY
Overview
MOXY is an independent oil and gas company engaged in the
exploration, development and production of oil and natural gas. MOXY commenced
operations in May 1994 following the distribution of its common stock to the
stockholders of FTX in order to carry on substantially all of the oil and gas
exploration activities previously conducted by FTX. MOXY and its predecessors
have conducted exploration, development and production operations offshore in
the Gulf of Mexico and onshore in the Gulf Coast region and other areas for
more than 25 years, which have provided MOXY with an extensive geological and
geophysical data base and significant technical and operational expertise.
MOXY expects to continue to concentrate its efforts in this selected
geographic area where its management team has significant exploration
experience.
Management believes the opportunities for MOXY to discover
meaningful oil and gas reserves are significant and that these opportunities
can best be achieved through the use of advanced 3-D seismic technology,
applied in conjunction with a large, long-term exploration program, and MOXY's
extensive data base and geological expertise. In 1995, MOXY entered into an
agreement with MCN that established the MOXY/MCN Program. Under the MOXY/MCN
Program revenues and costs were shared 60% by MCN and 40% by MOXY, with MOXY
borrowing its share of costs from MCN. In 1997, as the MOXY/MCN Program was
nearing completion, MOXY undertook the Rights Offering to raise funds that
would allow it to recapitalize, restructure its exploration and development
operations and engage in a significantly expanded and more diversified,
multi-year exploratory drilling program. In November 1997, MOXY completed the
Rights Offering, raising $92.2 million of net proceeds and enabling it to
repay all borrowings under the MOXY/MCN Program, acquire the interest
previously owned by MCN in the Vermilion Block 160 and 410 fields and provide
its share of funding under the newly formed, multi-year $210 million MOXY
Exploration Program with PLP and an individual investor, Mr. Gerald J. Ford,
who subsequently became a director of MOXY. Most of the exploration
expenditures related to the MOXY Exploration Program will be shared 37.6% by
MOXY, 56.4% by PLP and 6% by Mr. Ford. All revenues and other costs will be
shared 48% by MOXY, 47% by PLP and 5% by Mr. Ford. For additional information
about the MOXY Exploration Program, see "--Capital Resources and Liquidity."
Operational Activities
Exploration and Development. For information regarding MOXY's
exploration and development activities during 1997 and the first six months of
1998, see "Business--Business of MOXY--Oil and Gas Properties."
Purchase of Property Interests. In September 1997 MOXY
purchased for $4.5 million all of the oil and gas interests owned by Stratus
Properties Inc. ("Stratus"), a publicly traded company affiliated with MOXY at
that time through common management and a common director. These properties
are located in the offshore Gulf of Mexico and in various onshore areas of the
United States. The acquisition cost of interests in the three most significant
exploration properties, which together represented $3.0 million of the total
$4.5 million acquisition price, was shared 60% by PLP and 40% by MOXY, and
those properties have been included in the MOXY Exploration Program. Net oil
and gas revenues generated by the producing properties acquired from Stratus
totaled $0.8 million in 1997 (prior to acquisition), $1.4 million in 1996 and
$0.6 million in 1995, although a single property that generated $0.7 million
of revenues in 1996 ceased production in the second quarter of 1997.
Results of Operations
MOXY reported a net loss of $10.5 million ($0.56 per share) for
1997 compared with losses of $9.9 million ($0.71 per share) for 1996 and $14.6
million ($1.06 per share) for 1995. MOXY reported a net loss of $14.9 million
($0.35 per share) for the first six months of 1998 compared with losses of
$3.9 million ($0.28 per share) for the first six months of 1997. As a result
of anticipated future exploration expenditures, MOXY expects to continue to
report operating losses for at least the near future. See "Business--Business
of MOXY--Production, Unit Prices and Costs."
First Six Months of 1998 Compared with First Six Months of
1997. MOXY's revenues for the first six months of 1998 increased to $11.8
million compared with $5.0 million for the same period of 1997. The increase
resulted primarily from MOXY's purchase of additional net revenue interests in
Vermilion Blocks 160 and 410 (see "Capital Resources and Liquidity" below) and
from a substantial increase in production of natural gas and oil over last
year's levels at Vermilion Block 160 as a result of three additional wells
commencing production during the fourth quarter of 1997. The increase in
revenues was partially offset by declining natural gas and oil prices
throughout the first six months of 1998 and a cumulative adjustment for
production prior to 1998 following a redetermination of ownership interests in
Vermilion Block 160, which reduced combined revenues from gas and oil by
approximately $486,000 during the first six months of 1998.
Depreciation and amortization increased to $11.0 million for
the six-month period of 1998 from $4.8 million for the comparable period of
1997. The increase resulted from the increased production volumes, together
with increased depreciable capitalized costs incurred since the 1997 first
quarter.
Production and delivery cost for the six months ended June 30,
1998 increased to $1.8 million from $0.5 million during the six months ended
June 30, 1997 as a result of the increased production volumes.
MOXY's exploration expenses fluctuate from period to period
based on the level, results and costs of exploratory drilling activity. MOXY
charged $9.3 million to expense for exploratory drilling and leasehold costs
associated with the unsuccessful Atchafalaya Bay, Grand Isle Block 54 #1, West
Cameron Block 617 #2 and West Cameron Block 157 #1 exploratory wells during
the six months ended June 30, 1998, compared to $1.0 million of exploratory
drilling and leasehold costs during the six months ended June 30, 1997.
MOXY's interest expense decreased from $0.7 million for the
first six months of 1997 to zero for the comparable period of 1998. The
reduction reflects the repayment of the outstanding debt upon completion of
the Rights Offering in November 1997.
1997 Compared with 1996. Oil and gas sales revenues for 1997
increased nearly four-fold over 1996 due to increased production from the
Vermilion Block 410 field and, late in 1997, from the Vermilion Block 160
field unit. Production from the additional interests in these fields acquired
from PLP in November 1997 also contributed to the increase. Management fee
revenue increased due to different interim contractual arrangements with PLP
prior to MOXY's acquisition of these additional interests. Production costs
and depreciation and amortization expenses increased consistent with increased
production volumes. In addition, proved reserves at the Vermilion Block 410
field were revised downward in the 1997 second quarter based on production
experience, resulting in additional depreciation of $1.0 million being
recognized. Exploration expenses, which fluctuate with the number, cost and
results of exploratory drilling projects and the volume of and extent to which
seismic data is acquired and interpreted, were similar to the prior year's
level after considering a $2.1 million reimbursement of previously expensed
costs in 1996. General and administrative expenses were substantially the
same as the prior year's levels. Interest expense increased consistent with
increased borrowings on the MCN production loan before repayment of those
borrowings with proceeds from the Rights Offering.
1996 Compared with 1995. Oil and gas sales revenues decreased
11% in 1996 from 1995 following the formation of the MOXY/MCN Program in
mid-September 1995, which resulted in 60% of MOXY's revenue interest in the
Vermilion Block 160 field unit being conveyed to MCN. Production costs and
depreciation and amortization expenses also decreased accordingly.
Exploration expenses decreased from the 1995 level largely as a result of the
significant acquisition in 1995 of 3-D seismic survey data covering the
project area owned by MOXY's joint venture with Phillips Petroleum Company
("Phillips") and PLP. General and administrative expenses declined 29%
following cost reductions implemented in the 1995 third quarter, including a
reduction in the number of employees and in the cost of consulting
arrangements and administrative and managerial services.
Capital Resources and Liquidity
Upon completion of the Rights Offering in November 1997, MOXY
realized net proceeds of $92.2 million from the sale of 28.6 million shares of
MOXY Common Stock, of which 3.8 million were purchased by PLP. These proceeds
enabled MOXY to retire all indebtedness previously incurred under the MOXY/MCN
Program ($20.0 million) and acquire from PLP the interests in the Vermilion
Block 160 and Block 410 fields previously owned by MCN, which PLP had acquired
in August 1997 to facilitate completion of the Rights Offering ($24.5 million).
The remaining proceeds provided MOXY with a portion of the funding necessary to
participate in the multi-year $210 million MOXY Exploration Program, in which
MOXY manages the exploration and development of exploratory prospects primarily
in the Gulf of Mexico and onshore in the Gulf Coast region. MOXY serves as
operator and selects all prospects and drilling opportunities. Most of the
exploration expenditures related to the program will be shared 37.6% by MOXY,
56.4% by PLP and 6% by an individual investor, Mr. Gerald J. Ford, who
subsequently became a director of MOXY. See "Executive Compensation and
Certain Transactions." All revenues and other costs will be shared 48% by
MOXY, 47% by PLP and 5% by the individual investor.
The MOXY Exploration Program Agreement provides that, without
the consent of the participants, exploration expenditures will be scheduled so
that expenditures will not likely exceed $60.0 million for any 12 month period
on a cumulative basis. As of June 30, 1998, the program had committed to
approximately $60.0 million of exploration costs for 1998, as a result of
numerous drilling opportunities that became available during the period. As a
result, MOXY's operational activities during the second half of 1998 will
focus primarily on developing its recent discoveries and identifying
exploration prospects for 1999.
Cash provided by operating activities amounted to $18.1 million
for the six months ended June 30, 1998 compared with $4.3 million for the
comparable prior year period. Operating cash flow in 1998 reflects
significant accrued costs incurred with the development of West Cameron Block
616, the exploratory drilling costs associated with the successful wells at
Brazos Block A-19, Vermilion Block 159 and the unsuccessful Grand Isle 54
well. Additionally, operating cash flow for the six months ending June 30,
1998 reflects the collection of outstanding joint interest receivables.
MOXY incurred $27.9 million of cash exploration and development
expenditures during the six months ended June 30, 1998, principally consisting
of: $15.5 million for capitalized drilling costs, primarily for the West
Cameron Block 616 #5 development well; the facility costs associated with West
Cameron Block 616; platform and facility costs associated with the Vermilion
Block 160 #4 sidetrack well; $9.3 million in drilling and leasehold costs
charged to expense, primarily relating to the Atchafalaya Bay, Grand Isle
Block 54 #1, West Cameron Block 617 #2 and West Cameron Block 157 #1
exploratory wells; and $3.1 million of geological and geophysical costs. MOXY
has remaining committed exploration and development expenditures of
approximately $18.3 million as of June 30, 1998, which are expected to be
funded with available cash, cash from operating activities and bank financing
(see discussion below).
MOXY incurred $33.3 million of cash exploration and development
expenditures during 1997, consisting principally of $6.4 million for
development at Vermilion Block 160, $15.7 million for capitalized drilling
costs, $4.9 million of geological and geophysical costs charged to expense and
$6.3 million in expensed drilling and leasehold costs. Cash expenditures for
1996 totaled $20.7 million, consisting principally of $7.0 million for
development at Vermilion Block 410, $2.8 million for capitalized drilling
costs, $5.7 million of geological and geophysical costs charged to expense and
$5.0 million in expensed drilling and leasehold costs. Cash expenditures for
1995 totaled $21.0 million and consisted principally of $6.7 million for
development at Vermilion Block 410, $1.8 million for development at Vermilion
Block 160 and $9.8 million of geological and geophysical costs charged to
expense. No payment of dividends to MOXY's stockholders is presently
contemplated.
In August 1998, MOXY entered into a one-year, unsecured,
variable rate $15.0 million line of credit with Chase Bank of Texas. The
credit facility is for general corporate purposes, and is intended primarily
to provide funding for any portion of MOXY's development activities in excess
of its available cash generated from operations. Under the terms of the
credit facility, MOXY is able to increase the size of the facility to $20
million and extend its term for two additional years subject to certain
conditions, including providing security for the facility. Borrowings under
the facility are subject to a borrowing base redetermined semiannually. No
amounts were outstanding under this facility as of September 30, 1998.
On May 18, 1998, IGL and PLP filed suit in Delaware Court of
Chancery of New Castle County (IMC Global, Inc. v. Moffett, et al, C.A. No.
16387-NC) against four former directors of FTX and against MOXY. The
plaintiffs allege that the individual defendants, as directors of FTX, breached
fiduciary duties in the approval by FTX of the MOXY Exploration Program and
that MOXY conspired with the individual defendants and aided and abetted in
that alleged breach. The plaintiffs seek unspecified monetary damages and
rescission or equitable reformation of the agreement governing the MOXY
Exploration Program. By letter dated May 22, 1998, PLP stated that it will
continue to meet its legal obligations under the MOXY Exploration Program
agreement. PLP has continued to participate in the MOXY Exploration Program in
compliance with its contractual agreement and is current in the payment of all
joint interest billings. A second lawsuit (Gottlieb v. Moffett, et al, C.A. No.
16393-NC), was filed in the Delaware Chancery Court on May 19, 1998 on behalf
of a purported class of public unitholders of PLP. The complaint in this
action makes substantially similar allegations to those set forth in the IGL
complaint, which includes IGL as a party defendant. The Gottlieb complaint
also alleges that IGL and FTX breached fiduciary duties to PLP, and PLP's
public unitholders. The plaintiff seeks unspecified monetary damages and other
relief. MOXY believes that these suits are without merit and intends to
vigorously defend itself and enforce its contract rights in both cases.
Impact of Year 2000 Compliance
The Year 2000 ("Y2K") issue is the result of computerized systems being
written to store and process the year portion of dates using two digits rather
than four. Date-aware systems (i.e. any system or component that performs
calculations, comparisons, sequencing or other options involving dates) may fail
or produce erroneous results on or before January 1, 2000 because the year 2000
will be interpreted as the year 1900.
MOXY's State of Readiness
MOXY has been pursuing a strategy to ensure all significant computer
systems and computer controlled plant and equipment will be Y2K complaint.
Computerized systems are integral to the operations of MOXY, particularly for
various engineering systems used for exploration, reserve, production and
modeling functions. Certain computerized business systems and related services
are provided by FM Services Company ("FMS"), which is responsible for ensuring
Y2K compliance for the systems it manages. FMS has separately prepared a plan
for its Y2K compliance. Progress of the Y2K plan is being monitored by MOXY
executive management and reported to the Audit Committee of the MOXY Board. In
addition, MOXY is obtaining independent assessments of progress by the
independent accounting firm functioning as its internal auditors. MOXY believes
all critical components of the plan are on schedule for completion by the end of
the second quarter of 1999.
The majority of computerized date-sensitive hardware and software
components used by MOXY or FMS are covered by maintenance contracts with the
vendors who originally implemented them. All of these vendors have already been
contacted regarding Y2K compliance of their products. Where necessary, software
modifications to ensure compliance will be provided by the appropriate vendors
under their maintenance contracts.
Information Technology (IT) Systems. The bulk of MOXY's oil and gas
specific processing is provided through third party software licensed by MOXY.
The Y2K compliant version of this software is being tested by MOXY and scheduled
for implementation in the fourth quarter of 1998. The remaining business
processing is provided by FMS. Third party software is used for general
accounting and accounts payable. FMS will install a Y2K compliant version of
this same software in the fourth quarter of 1998 for an affiliated entity,
allowing any installation issues to be identified and rectified prior to
installation of this system at MOXY in the second quarter of 1999. FMS also
provides payroll and cash disbursements processing for MOXY. FMS has implemented
the Y2K version of the payroll interface software and will conduct Y2K
compliance testing of third party-provided payroll services in early 1999. FMS
will also conduct Y2K testing of the interfaces to its primary bank and
bank-provided computerized disbursement services in early 1999 after the bank
has completed its internal Y2K compliance work.
Non-IT Systems. Systems used for exploration, reserve, production and
modeling functions are integral to the operations of MOXY. The major provider of
these systems has indicated that Y2K compliant versions of its software will be
available in the second quarter of 1999. MOXY is participating in an oil and gas
industry Y2K consortium to jointly help ensure compliance of products. MOXY also
utilizes process control systems in the operation of its offshore facilities.
MOXY has engaged an engineering firm to complete an assessment of the compliance
of these systems in the fourth quarter of 1998.
Third Party Risks. MOXY also has initiated an assessment of Y2K
external risk that may arise from the failure of critical suppliers and
customers to become Y2K compliant. As is the case with most oil and gas
exploration companies, MOXY relies extensively on third party contractors for a
significant portion of its operating functions. An assessment of third-party
risk is underway and scheduled for completion in the fourth quarter of 1998.
The Costs to Address MOXY's Y2K Issues
Expenditures for the necessary modifications required during 1998 and
1999 will largely be funded by routine software and hardware maintenance fees
paid by MOXY or FMS to the related software providers. Based on current
information, MOXY estimates that the cost of Y2K compliance will not be material
and will be provided for through its normal operating and capital budgets. If
the software modifications and conversions referred to above are not made, or
are delayed, the Y2K issue could have a material impact on MOXY operations.
Additionally, the above cost estimates are based on management's best estimates,
which were derived using numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. There can be no assurance that these estimates will be achieved,
and actual results could differ materially from those plans. There also can be
no assurance that the systems of other companies will be converted on a timely
basis or that failure to convert will not have a material adverse effect on
MOXY.
The Risks of MOXY's Y2K Issues
Based on preliminary risk assessment work conducted thus far, MOXY
believes the most likely Y2K-related failures would probably be temporary
disruption in certain materials and services provided by third parties, which
would not be expected to have a material adverse effect on MOXY's financial
condition or results of operations. A more definitive assessment of this risk
will be available at the conclusion of the risk assessment phase of the Y2K
project, which is scheduled for completion in the fourth quarter of 1998.
MOXY's Contingency Plans
Although MOXY believes the likelihood of any or all of the above risks
occurring to be low, specific contingency plans to address certain risk areas
will be developed, if needed, beginning in the first quarter of 1999. While
there can be no assurance that MOXY will not be materially adversely affected by
Y2K problems, it is committed to ensuring that it is fully Y2K ready and
believes its plans adequately address the above-mentioned risks.
Disclosures about Market Risks
MOXY's revenues are derived from the sale of crude oil and
natural gas. MOXY's results of operations and cash flow can vary
significantly with fluctuations in the market prices of these commodities. At
the present time MOXY does not hedge or otherwise enter into price protection
contracts for its principal products. Based on projected annual sales volumes
from existing producing properties and those expected to commence production
later in 1998, a $.10 per Mcf change in the average price realized on natural
gas sales would have an approximate $0.9 million impact on both revenues and
results of operations. A $1 per barrel change in the average price realized
on annual crude oil sales would have an approximate $0.1 million impact on
both revenues and results of operations.
Because MOXY currently has no outstanding debt, conducts all
its operations within the U.S. in U.S. dollars and has no investments in
equity securities, it is not subject to interest rate risk, foreign currency
exchange risk or equity price risk.
Environmental
MOXY, through its predecessors, has a history of commitment to
environmental responsibility. MOXY's environmental policy commits its
operations to compliance with local, state and federal laws and regulations,
and prescribes the use of periodic environmental audits of all facilities to
evaluate compliance status and communicate that information to management.
MOXY believes that its operations are being conducted pursuant to necessary
permits and are in compliance in all material respects with applicable laws,
rules and regulations. MOXY has access to environmental specialists who have
developed and implemented corporate-wide environmental programs.
Federal legislation (sometimes referred to as "Superfund"
legislation) requires payments for cleanup of certain waste sites, even though
waste management activities were performed in compliance with regulations
applicable at the time. Under the Superfund legislation, one party may, under
certain circumstances, be required to bear more than its proportional share of
cleanup costs at a site where it has responsibility pursuant to the
legislation, if payments cannot be obtained from other responsible parties.
Other legislation mandates cleanup of certain wastes at operating sites.
States also have regulatory programs that can mandate waste cleanup.
Liability under these laws involves inherent uncertainties. MOXY has, at this
time, no known significant liability under these laws.
Through June 30, 1998 MOXY had accrued $1.3 million in other
liabilities, representing a portion of the $5.9 million in total estimated
costs to abandon its offshore oil and gas production facilities in accordance
with current regulatory requirements. Although MOXY has no other known
environmental liabilities, increasing emphasis on environmental protection
could result in additional costs, which would be charged against MOXY's
operations in future periods. Present and future environmental laws and
regulations applicable to MOXY's operations could require substantial capital
expenditures or could adversely affect its operations in other ways that
cannot be accurately predicted at this time.
MOXY maintains insurance coverage in amounts deemed prudent for
certain types of damages associated with environmental liabilities that arise
from sudden, unexpected and unforeseen events.
Cautionary Statements
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures about Market Risks contains
forward-looking statements. All statements other than statements of
historical fact included in this report, including without limitation
statements regarding management's plans and objectives for future operations
and MOXY's exploration and development activities, are forward-looking
statements.
Important factors that could cause actual results to differ
materially from MOXY's expectations include, without limitation, drilling
results, unanticipated fluctuations in flow rates of producing wells,
depletion rates, economic and business conditions, general development risks
and hazards and risks inherent with the production of oil and gas, such as
fires, natural disasters, blowouts and the encountering of formations with
abnormal pressures, changes in laws or regulations and other factors, many of
which are beyond the control of MOXY. Further information regarding these and
other factors that may cause MOXY's future performance to differ from that
projected in the forward-looking statements are described in more detail under
"Forward-Looking Statements," and "Risk Factors--Risk Factors Relating to
MOXY's Operations" included elsewhere herein.
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
FSC
Overview
FSC became an independent, publicly held company as of December
22, 1997, when PLP distributed to its unitholders its sulphur business,
including its 58.3% interest in the Main Pass sulphur and oil operations,
together with the 25.0% interest in Main Pass previously owned by IGL, a joint
venture partner with PLP (the "Distribution"). The results of operations
discussed below include IGL's 25.0% interest in Main Pass only since December
22, 1997. FSC operated as an integral part of PLP prior to the Distribution.
FSC's financial statements have been prepared from the books and records of
PLP. Certain data have been extracted from PLP's records, or in certain cases
derived on the basis of allocations between FSC and PLP's other businesses.
The results of operations described below are not necessarily indicative of
the operating results that FSC would have achieved on an independent basis or
of future operating results.
FSC's sulphur business consists of the sale of sulphur, the
marketing of logistics services, and the operation of a sulphur mine and a
logistics system consisting of sulphur transportation and terminaling assets.
FSC's operations include the Main Pass mine located offshore Louisiana in the
Gulf of Mexico, five sulphur terminals located across the Gulf Coast, and
marine and rail transportation assets. The oil operations consist of FSC's
interest in the Main Pass operations, where crude oil is produced in
conjunction with the sulphur mining operations.
On June 30, 1998, FSC announced plans to permanently
discontinue sulphur production at its Culberson sulphur mine because sulphur
prices had fallen to a level at which it was no longer economically feasible
to operate the mine. As a result, FSC recorded net charges totaling $6.0
million ($3.9 million to net income, or $0.40 per share) in the second quarter
of 1998, including charges of $9.5 million ($6.2 million to net income) to
depreciation and amortization expense for a writedown of the Culberson mine
assets and $0.6 million ($0.4 million to net income) to production costs for
other closure-related costs, partially offset by a $4.1 million benefit ($2.7
million to net income) to production costs for a related reduction in pension
and postretirement benefit liabilities. Production at the mine is expected to
cease by the end of 1998. FSC will continue to meet its customers' sulphur
requirements in the long term from production at its Main Pass mine and from
third party purchases of recovered sulphur and, in the short term, by
liquefying solid inventories held at its Port Sulphur, Louisiana terminal.
Impairment Assessment of Sulphur Assets
In 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, which requires an
assessment of the carrying amount of long-lived assets and a reduction of such
carrying value to fair value when events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. In September
1997 FSC concluded that the carrying value of the Main Pass sulphur assets
exceeded the undiscounted estimated future net cash flows, such that an
impairment writedown of $416.4 million was required. A similar analysis of the
Culberson mine sulphur assets, based on a reassessment of recoverable reserves
utilizing recent production history, also indicated that a writedown of $9.0
million was required. Fair values were estimated using discounted estimated
future net cash flows related to these assets. The writedowns to fair value
were recorded in the third quarter of 1997 and are reflected in the financial
statements as additional depreciation and amortization charges. Future
operating results of FSC will reflect lower depreciation and amortization
expense as a result of these writedowns.
Results of Operations
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------------ --------------------------------------------
1998(a) 1997(b) 1997(b,c) 1996(b) 1995(b,d)
------------- ----------- ------------- ----------- ----------
(Dollars in millions, except realized prices)
<S> <C> <C> <C> <C> <C>
Revenues:
Sulphur................................ $ 101.7 $ 91.4 $ 182.4 $ 184.4 $ 220.8
Oil.................................... $ 12.0 $ 16.4 $ 29.5 $ 37.0 $ 35.1
Operating income (loss):
Sulphur................................ $ (6.0) $ (2.9) $ (441.2) $ 3.3 $ 23.0
Oil.................................... $ 5.5 $ 4.2 $ 1.9 9.1 $ 2.0
Sulphur sales (long tons)................. 1,678,000 1,476,900 2,907,500 2,900,000 3,049,700
Sulphur average realized price per ton.... $ 59.98 $ 60.29 $ 61.04 $ 61.78 $ 70.44
Oil sales (barrels)....................... 907,600 867,500 1,625,200 1,895,500 2,217,600
Oil average realized price per barrel..... $ 12.88 $ 18.78 $ 18.15 $ 19.49 $ 15.82
</TABLE>
- ----------
(a) Includes net charges to sulphur operating income totaling $6.0 million for
the Culberson mine shutdown.
(b) Results for 1995-1997 represent the operating results of the assets
previously owned by PLP that were transferred to FSC on December 22, 1997.
These results do not include the 25.0% interest in Main Pass owned by IGL
prior to December 22, 1997 when it was contributed to FSC.
(c) Includes charges to sulphur operating income totaling $425.4 million for
an impairment assessment of sulphur assets and $9.9 million for an increase
in estimated reclamation costs for sulphur properties, drilling costs of an
additional brine well and a reduction of sulphur inventory book value to
market value.
(d) Includes charges totaling $7.0 million allocated to FSC to reflect a
compensation charge pursuant to a management services agreement.
First Six Months of 1998 Compared with First Six Months of
1997. Sulphur operations reported operating losses of $6.0 million in the
1998 six-month period compared with operating losses of $2.9 million for the
1997 six-month period. The 1998 period includes net charges of $6.0 million
for the Culberson shutdown discussed above.
Average realized sulphur prices for the 1998 period were lower
than the 1997 period, while sulphur sales volumes rose because of the
additional 25.0% interest acquired from IGL and an increase in recovered
sulphur purchases. FSC has a long-term supply contract with IMC-Agrico
Company ("IMC-Agrico"), which extends as long as IMC-Agrico's operations have
a requirement for sulphur. As a percentage of total sulphur sales, sales to
IMC-Agrico totaled 73% in the 1998 period and 63% in the 1997 period.
Overall average sulphur unit production costs, excluding the $3.5
million net benefit related to the Culberson shutdown, were slightly higher in
the 1998 period primarily because of lower production and higher drilling costs
at Main Pass. Depreciation and amortization expense in the 1998 period includes
$9.5 million to write off the Culberson mine assets. Unit depreciation rates
were significantly lower in 1998 following the third-quarter 1997 impairment
write-down, resulting in an $8.0 million decrease in depreciation costs in the
first six months of 1998 compared with the 1997 period.
Main Pass operating income from oil operations totaled $5.5
million in the 1998 six-month period compared with $4.2 million in the 1997
period. Higher sales volumes in the 1998 period reflects FSC's additional
25.0% interest acquired from IGL, partially offset by a natural production
decline. Gross oil production averaged 7,200 barrels per day in the first six
months of 1998 compared with 9,700 barrels per day in the first six months of
1997. The benefits of higher sales volumes were more than offset by an
approximate 30% decline in average realized prices compared with the 1997
period. Oil sales volumes are expected to decline as the reserves continue to
deplete over a period expected to extend through the year 2002. Revised unit
depreciation rates in 1998 resulted in a $4.9 million decrease in depreciation
expense for the 1998 six-month period compared with the 1997 period. FSC's
share of 1998 oil sales is expected to approximate 1.6 million barrels,
compared with 1.6 million barrels in 1997.
The original oil and gas leaseholder of the oil reserves at Main
Pass owns a royalty equal to 25% of revenues (less transportation costs) from
oil production, limited to 50% of net operating revenue, after 36 million
barrels of oil have been produced at Main Pass. FSC exceeded 36 million
barrels of cumulative oil production in June 1998 and as a result will now be
required to pay royalties to the original leaseholder at the rate of 50% of net
operating revenue from Main Pass oil production.
General and administrative expenses were higher in the 1998
periods compared with the 1997 periods primarily because of FSC's increased
interest in Main Pass and certain employee benefit costs.
1997 Compared with 1996. Sulphur operations reported an
operating loss of $441.2 million in 1997 compared with operating income of
$3.3 million for 1996, primarily because of the asset impairment charges. The
1997 period also includes charges totaling $9.9 million for an increase in
estimated reclamation costs for sulphur properties, drilling costs of an
additional brine well and a reduction of sulphur inventory book value to
market value. Average realized sulphur prices for the 1997 period were only
slightly lower than the 1996 period while sulphur sales volumes rose slightly,
primarily because of increased sales to IMC-Agrico. As a percentage of total
revenues, sales to IMC-Agrico totaled 55% in 1997 and 54% in both 1996 and
1995. Production levels at the Main Pass and Culberson sulphur mines were
reduced in early 1996 in response to lower domestic demand for sulphur.
Combined production from the two mines averaged 7,600 tons per day in 1997
compared with 7,800 tons per day in 1996. Unit production and delivery costs
in 1997, excluding the charges discussed above, were 12% higher than in 1996
because of higher maintenance costs, and higher natural gas usage and prices.
Main Pass operating income from oil operations totaled $1.9
million in 1997 and $9.1 million in 1996 reflecting lower average realizations
and reduced production levels.
Total production and delivery costs were higher in 1997 because
of higher maintenance costs, energy costs and the charges discussed above.
Depreciation and amortization in 1997 included the asset impairment charges.
Excluding those charges and the additional reclamation charge, depreciation
expense was lower compared with 1996 because of lower production rates.
General and administrative expenses were lower in 1997 compared with 1996
primarily because of lower incentive compensation costs and a reimbursement in
1997 for certain costs expensed in 1996.
1996 Compared with 1995. Sulphur operating income totaled $3.3
million in 1996 compared with $23.0 million in 1995 primarily because of lower
prices and volumes and slightly higher unit costs. Sulphur sales volumes in
1996 were 5% lower than the 1995 level. Production levels at the Main Pass and
Culberson mines were reduced in early 1996 in response to lower domestic
sulphur sales to U.S. phosphate fertilizer producers. Combined production
averaged 7,800 tons per day in 1996 compared with 8,500 tons per day in 1995.
Sulphur realizations were 12% lower than in the 1995 period, reflecting lower
demand from the phosphate fertilizer industry and higher recovered sulphur
supplies. Unit production costs in 1996 rose slightly from 1995 levels because
of the reduced production levels and increased energy costs.
Main Pass oil operating income in 1996 totaled $9.1 million
compared with $2.0 million in 1995. Despite lower sales volumes, net income
benefitted in 1996 from a significant increase in average realizations caused
by the overall rise in world oil prices which occurred in mid-1996 and again
in late 1996. Lower production for 1996 reflected declining reservoir
production levels.
Total production and delivery, and depreciation and
amortization costs were lower in 1996 because of reduced production levels.
General and administrative expenses were lower in 1996 primarily because of a
$7.0 million charge ($5.2 million to sulphur operations and $1.8 million to
oil operations) that was allocated to FSC in 1995 to reflect compensation
costs related to FTX stock appreciation rights. Pursuant to a management
services agreement with FTX, these costs were allocated to PLP, and thus to
FSC, based on relative payroll costs.
Recent Developments
Sulphur production at Main Pass averaged 4,300 long tons per day for
the six months ended June 30, 1998 compared to 5,200 long tons per day for the
year ended December 31, 1997. In an effort to replace sulphur production from
wells reaching depletion and restore production to optimum levels given the
curtailment at the Culberson mine, FSC has increased and plans to continue to
increase its drilling activities throughout 1998.
All Main Pass drilling and production operations were shut down in late
September 1998 in accordance with standard safety procedures in response to
significant adverse weather conditions caused by Hurricane Georges. FSC is
currently restarting production, which involves re-heating the portion of the
sulphur deposit being produced prior to the shutdown, and evaluating the
previously producing wells to determine whether those wells can be restored to
production or must be redrilled. A number of previously producing sulphur wells
will require redrilling. As a result, production levels will decrease and unit
production costs will increase for the second half of 1998 and possibly the
first half of 1999 compared with the first half of 1998.
In addition to its two sulphur drilling rigs at Main Pass, FSC is
contemplating contracting one or two third-party drilling rigs to help restore
production to optimum levels. In the interim, FSC will attempt to meet customer
requirements from available Main Pass production, existing inventories,
increased purchases of recovered sulphur and extending production from the
Culberson mine until its final shutdown, which is now expected by the end of
1998. In response to a weak sulphur market, FSC curtailed production at its
Culberson mine in early 1998 and announced on June 30, 1998 that it planned to
permanently cease operations at the mine during the third quarter of 1998.
However, as a result of decreased production at Main Pass, FSC now expects to
continue production at Culberson through the fourth quarter of 1998.
FSC has been seeking an increase in sulphur contract prices compared
with prices realized in the first half of 1998, and contract prices have
generally settled at a $3.00 per ton increase for the fourth quarter of 1998.
Capital Resources and Liquidity
Net cash provided by operating activities totaled $23.2 million
for the first six months of 1998, compared with $16.3 million for the first
six months of 1997. A reduction in sulphur inventories was the primary reason
for higher net cash provided by operating activities in the 1998 six-month
period compared with the 1997 six-month period. Net cash provided by
operating activities totaled $16.7 million for 1997, $51.8 million for 1996
and $65.4 million for 1995. Lower net income and an increase in reclamation
and mine shutdown expenditures related to a non-operating sulphur mine
resulted in lower net cash provided by operating activities in 1997 compared
with 1996, while lower net income was the primary reason for the decline in
1996 compared with 1995.
Capital expenditures, which primarily relate to maintaining
current levels of production, totaled $2.3 million for the 1998 six-month
period and $2.7 million for the 1997 six-month period. Capital expenditures
for 1998 are expected to total approximately $8.0 million, slightly higher
than for 1997 because of the addition of IGL's former 25.0% interest and
additional drilling activities scheduled in 1998 to maintain required levels
of water treatment capacity for sulphur mining operations at Main Pass.
Capital expenditures totaled $3.5 million for 1997, $3.8 million for 1996 and
$3.7 million for 1995. Proceeds from asset sales included certain warehousing
and supply assets totaling $0.9 million in 1997, and totaled $2.1 million in
1996, mostly from the sale of certain marine assets.
In December 1997, FSC's Board of Directors announced an open
market share purchase program and the Board expanded the program in May 1998
from a total of 1.0 million shares of FSC Common Stock to up to 1.6 million
shares. As of September 10, 1998, FSC had completed its share purchase program
purchasing a total of 1.6 million shares of FSC Common Stock for $18.3 million
(an average of $11.42 per share).
Based on current projections, management believes that FSC will
generate sufficient cash flow from operations to fund its ongoing working
capital requirements, reclamation costs and projected capital expenditures for
the foreseeable future. Additionally, in December 1997 FSC established a $100
million revolving credit facility to further enhance its liquidity and financial
flexibility. No amounts were outstanding under this facility as of September 30,
1998. As of June 30, 1998, FSC held cash balances totaling $33.8 million which
are available to fund working capital requirements, reclamation costs, projected
capital expenditures and other growth opportunities that FSC may pursue in the
future.
Impact of Year 2000 Compliance
The Year 2000 ("Y2K") issue is the result of computerized systems being
written to store and process the year portion of dates using two digits rather
than four. Date-aware systems (i.e. any system or component that performs
calculations, comparisons, sequencing or other operations involving dates) may
fail or produce erroneous results on or before January 1, 2000 because the year
2000 will be interpreted as the year 1900.
FSC's State of Readiness
FSC has been pursuing a strategy to ensure all its significant computer
systems and computer controlled plant and equipment will be Y2K compliant.
Computerized systems are integral to the operations of FSC, particularly for
plant and equipment process control at the Main Pass mine. Certain computerized
business systems and related services are provided by FMS, which is responsible
for ensuring Y2K compliance for the systems it manages. FMS has separately
prepared a plan for its Y2K compliance. Progress of the Y2K plan is being
monitored by FSC executive management and reported to the Audit Committee of the
FSC Board. In addition, FSC is obtaining independent assessments of progress by
the independent accounting firm functioning as its internal auditors. FSC
believes all critical components of the plan are on schedule for completion by
the end of the second quarter of 1999.
The majority of computerized date-sensitive hardware and software
components used by FSC or FMS are covered by maintenance contracts with the
vendors who originally implemented them. Almost all of these vendors have
already been contacted regarding Y2K compliance of their products. Where
necessary, software modifications to ensure compliance will be provided by the
appropriate vendors under their maintenance contracts.
Information Technology (IT) Systems. The bulk of FSC's business systems
have been determined to be Y2K compliant, with modification and testing work
completed earlier in 1998. The major remaining FSC system which is currently not
fully Y2K compliant is its accounting system. By the end of 1998 FMS will
install, for an affiliated entity, a Y2K compliant version of the same
accounting system used by FSC, allowing any installation issues to be identified
and rectified prior to installation of this system at FSC in the second quarter
of 1999. FMS also provides payroll and cash disbursements processing for FSC.
FMS has implemented the Y2K version of the payroll interface software and will
conduct Y2K compliance testing of third party-provided payroll services in early
1999. FMS will also conduct Y2K testing of the interfaces to its primary bank
and bank-provided computerized disbursement services in early 1999 after the
bank has completed its internal Y2K compliance work.
Non-IT Systems. With the exception of the Main Pass production
facilities, FSC is not heavily reliant on computerized process control systems.
The company has contracted with a third party to conduct a Y2K compliance review
for the Main Pass process control system. This work will be completed in the
fourth quarter of 1998. Based on the company's own internal review, FSC does not
believe that any significant problems will be found. However, the results of
this third-party review will be used to determine the need, if any, for
subsequent efforts to address compliance problems.
Third Party Risks. FSC computer systems are not widely integrated with
the systems of their suppliers or customers. The primary potential risk
attributable to third parties would be from a disruption of FSC operations due
to a failure by a supplier to meet its contractual obligations for services
and/or materials (rather than a failure associated with integrated computer
systems). Every FSC supplier has been contacted regarding Y2K compliance, and
effective August 1, 1998, Y2K compliance requirements have been included in all
FSC purchasing contracts.
An assessment of third-party risk is scheduled for completion in the
fourth quarter of 1998. Based on preliminary work performed to date, FSC does
not believe overall risk from third parties is significant.
The Costs to Address FSC's Y2K Issues
Expenditures for the necessary modifications required during 1998 and
1999 will largely be funded by routine software and hardware maintenance fees
paid by FSC or FMS to the related software providers. Based on current
information, FSC believes that the cost of Y2K compliance will not be material
and will be provided for through its normal operating and capital budgets. If
the software modifications and conversions referred to above are not made, or
are delayed, the Y2K issue could have a material impact on FSC operations.
Additionally, the above cost estimates are based on management's best estimates,
which are derived using numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. There also can be no assurance that the systems of other
companies will be converted on a timely basis or that failure to convert will
not have a material adverse effect on FSC.
The Risks of FSC's Y2K Issues
The Y2K risk that could have the largest potential business impact on
FSC would probably be a short-term shutdown of Main Pass operations caused
by a disruption of key materials from suppliers, especially natural gas. FSC
is addressing this potential risk with its natural gas supplier and pipeline
company and expects to have a definitive assessment of this risk in the fourth
quarter of 1998.
FSC's Contingency Plans
Although FSC believes the likelihood of any or all of the above risks
occurring to be low, specific contingency plans are being developed to address
certain risk areas. The schedule for contingency plan development has a
projected completion date of March, 1999. While there can be no assurances that
FSC will not be materially adversely affected by Y2K problems, it is committed
to ensuring that it is fully Y2K ready and believes its plans adequately address
the above-mentioned risks.
Environmental
FSC, through its predecessors, has a history of commitment to
environmental responsibility. Since the 1940's, long before public attention
focused on the importance of maintaining environmental quality, FSC has
conducted pre-operational, bioassay, marine ecological and other environmental
surveys to ensure the environmental compatibility of its operations. FSC's
environmental policy commits its operations to compliance with local, state and
federal laws and regulations, and prescribes the use of periodic environmental
audits of all facilities to evaluate compliance status and communicate that
information to management. FSC believes that its operations are being conducted
pursuant to necessary permits and are in compliance in all material respects
with applicable laws, rules and regulations. FSC has access to environmental
specialists who have developed and implemented corporate-wide environmental
programs. FSC continues to study methods to reduce discharges and emissions.
Federal legislation (sometimes referred to as "Superfund"
legislation) requires payments for cleanup of certain waste sites, even though
waste management activities were performed in compliance with regulations
applicable at the time. Under the Superfund legislation, one party may, under
certain circumstances, be required to bear more than its proportional share of
cleanup costs at a site where it has responsibility pursuant to the
legislation, if payments cannot be obtained from other responsible parties.
Other legislation mandates cleanup of certain wastes at operating sites.
States also have regulatory programs that can mandate waste cleanup. Liability
under these laws involves inherent uncertainties. FSC has, at this time, no
known significant liability under these laws.
Estimated future expenditures to restore properties and related
facilities to a condition that complies with environmental and other
regulations are accrued over the life of the properties. The future
expenditures are estimated based on current costs, laws and regulations. As of
June 30, 1998, FSC has accrued $32.9 million ($10.6 million of which will be
reimbursed by third parties) for abandonment and restoration of its
non-operating sulphur assets. In addition, abandonment and restoration costs
for the Culberson sulphur mine are estimated to total approximately $20
million, all of which had been accrued at June 30, 1998, with approximately
$13 million expected to be incurred within the next year. Total estimated
abandonment cost for Main Pass oil operations is $9.7 million and was fully
accrued at June 30, 1998. FSC's share of abandonment and restoration costs
for its Main Pass sulphur mine is estimated to total approximately $48
million, $6.4 million of which had been accrued at June 30, 1998, with
essentially all such costs expected to be incurred after mine closure. These
estimates are by their nature imprecise and can be expected to be revised over
time because of changes in government regulations, operations, technology and
inflation.
FSC has made, and will continue to make, expenditures at its
operations for protection of the environment. Continued government and public
emphasis on environmental issues can be expected to result in increased future
investments for environmental controls, which will be charged against income
from future operations. Present and future environmental laws and regulations
applicable to current operations may require substantial capital expenditures
and may affect its operations in other ways that cannot now be accurately
predicted.
FSC maintains insurance coverage in amounts deemed prudent for
certain types of damages associated with environmental liabilities that arise
from sudden, unexpected and unforeseen events.
Disclosures About Market Risks
FSC's revenues are derived from the sale of sulphur and crude
oil. In addition, natural gas purchases comprise a significant portion of
FSC's production costs. FSC's net income can vary significantly with
fluctuations in the market prices of these commodities. Based on projected
1998 annual sales volumes, a $5.00 per ton change in the average price
realized on sulphur sales would have an approximate $17.0 million impact on
revenues and an approximate $3.6 million impact on net income. Each $2.00 per
barrel change in the average price realized on annual crude oil sales would
have an approximate $3.2 million impact on revenues and an approximate $2.1
million impact on net income. A $0.50 per mmBtu change in the average cost of
annual natural gas purchases would have an approximate $3.5 million impact on
production costs and an approximate $2.3 million impact on net income.
At the present time FSC does not hedge or otherwise enter into
price protection contracts for its principal products, although FSC has
entered into a price protection program for its anticipated natural gas
purchase requirements. In April 1998, FSC entered into contracts to purchase
450,000 million British thermal units ("mmBtu's") of natural gas per month
(approximately 75% of FSC's expected Main Pass natural gas purchases) for
$2.175 per mmBtu through December 1998. Pursuant to the terms of the
contracts, the supplier has the option to put 450,000 mmBtu's per month to FSC
at a price of $2.175 per mmBtu during 1999. As of June 30, 1998, these
contracts had a fair value of approximately $0.9 million.
As FSC has no outstanding debt, conducts all its operations
within the U.S. in U.S. dollars and has no investments in equity securities,
it is currently not subject to interest rate risk, foreign currency exchange
risk or equity price risk.
Cautionary Statement
Management's discussion and analysis of financial condition and
results of operations contains forward-looking statements, including without
limitation FSC's reserve expectations, operating costs, demand for sulphur, the
availability of financing, the ability to satisfy future cash obligations and
environmental costs. Important factors that might cause future results to
differ from these projections include the reliance on IMC-Agrico as a
continuing customer, the seasonality and volatility of sulphur markets,
competition and environmental issues, as described in more detail elsewhere in
this Joint Proxy Statement/Prospectus under "Forward-Looking Statements" and
"Risk Factors--Risk Factors Relating to FSC's Operations."
BUSINESS
Business of MOXY
General
MOXY is an independent oil and gas company engaged in the
exploration, development and production of oil and natural gas. MOXY's
operations are conducted offshore in the Gulf of Mexico and onshore in the
Gulf Coast area. MOXY commenced operations in May 1994 following the
distribution of all of MOXY's Common Stock to the stockholders of FTX in order
to carry on substantially all of the oil and natural gas exploration
activities previously conducted by FTX. MOXY and its predecessors have
conducted exploration, development and production operations offshore in the
Gulf of Mexico and onshore in the Gulf Coast and other areas for more than 25
years, which have provided MOXY an extensive geological and geophysical
database and extensive technical and operational expertise.
MOXY's business strategy is to create value for its
stockholders through the discovery of oil and gas reserves in its exploration
and development activities. MOXY expects to concentrate its efforts in
selected geographic areas where MOXY's management team has significant
exploration experience. MOXY evaluates substantially all of its exploratory
prospects with 3-D seismic surveys prior to drilling. MOXY intends to
continue to generate exploratory prospects and evaluate selected opportunities
to acquire producing oil and gas properties and to maximize its geological and
geophysical experience and expertise by using 3-D seismic data and other state
of the art technology.
In 1995, MOXY entered into an agreement with MCN establishing
the MOXY/MCN Program, a $65 million oil and gas exploration and development
program in the Gulf of Mexico. By mid-1997, MOXY had expended most of its
capital resources and required significant additional capital to continue its
exploration activities and to participate in a broader range of prospects.
After considering various financing and expansion options, in 1997 MOXY
undertook the Rights Offering, a $100 million rights offering to raise funds
that would allow it to recapitalize, restructure its exploration and
development operations and engage in a significantly expanded and more
diversified, multi-year exploratory drilling program. In November 1997 MOXY
completed the Rights Offering, raising $92.2 million of net proceeds and
enabling it to repay all borrowings under the MOXY/MCN Program, acquire the
interest previously held by MCN in the Vermilion Block 160 and 410 fields and
provide a portion of its share of funding under a newly-formed exploration
program with PLP, formerly Freeport-McMoRan Resource Partners, Limited
Partnership. See "--Oil and Gas Properties" and "--Exploration and
Development Programs" below.
Oil and Gas Properties
As of June 30, 1998, MOXY owned interests in 97 oil and gas
leases in the Gulf and onshore Louisiana and Texas covering approximately
144,539 gross acres (approximately 48,322 acres net to MOXY). MOXY's
exploratory drilling has established estimated proved reserves attributable to
MOXY's interest in its leases of approximately 57 billion cubic feet of gas
and 481,000 barrels ("Bbls") of condensate as of June 30, 1998 based on a
reserve report prepared by Ryder Scott, an independent petroleum engineering
firm.
Producing Properties
o Vermilion Block 160 Field Unit. Gross production from the field unit
averaged 14.8 million cubic feet ("Mmcf") of natural gas and 537 Bbls of
condensate per day during 1997. Production from three new development wells
drilled earlier in 1997 commenced during the 1997 fourth quarter,
increasing the field's average gross production rates to approximately 49
Mmcf of gas and 1,379 barrels of condensate per day during the first six
months of 1998. MOXY has a 25.5% net revenue interest, subject to an
approximate 2.6% net profits interest, in the Vermilion 160 field unit.
MOXY's net production from the field unit in the first six months of 1998
averaged 12 Mmcf of natural gas and 343 Bbls of condensate per day. The
Vermilion Block 160 field unit is comprised of portions of four leases
(Vermilion Blocks 143, 144, 159 and 160) totaling 5,625 acres located in
approximately 100 feet of water 42 miles offshore Louisiana.
o Vermilion Block 410 Field. In late 1996, the operator completed installation
of the production platforms and related facilities and commenced production
from one of two platforms. Production began from the second platform in
February 1997. MOXY has a 28% net revenue interest in this field. Daily gross
production averaged approximately 53 Mmcf of natural gas during the first six
months of 1998, or 15 Mmcf net to MOXY. The Vermilion Block 410 field
includes portions of multiple blocks totaling 11,015 acres and is located in
approximately 360 feet of water 115 miles offshore Louisiana.
Development Properties
o Vermilion Block 160 #4 Sidetrack Development Well. During the fourth
quarter of 1997 MOXY, as operator, drilled and saved the Vermilion Block
160 #4 sidetrack development well at a location remote from the existing
platform and outside of the field unit area. The well encountered 106 feet
of net gas pay in four sands. A production platform substructure was
installed in late June 1998, and fabrication of a deck and processing
facilities is underway. The processing facilities are being designed to
handle up to 60 Mmcf per day in order to accommodate both this well and the
Vermilion Block 159 #3 exploratory well discussed below. Production from
these wells is expected to commence by early 1999 at an initial combined
gross rate of approximately 40 Mmcf equivalent per day. MOXY has a 58% net
revenue interest, subject to an approximate 12.7% net profits interest, in
this well, which is located 42 miles offshore Louisiana in approximately
100 feet of water.
o West Cameron Block 616. During the fourth quarter of 1997, MOXY, as
operator, drilled and saved the West Cameron Block 616 #3 exploratory well,
which encountered 426 feet of net gas pay in eight sands. MOXY subsequently
drilled and saved for future production the West Cameron Block 616 #4 well
to develop reserves discovered by the #3 well. In March 1998 MOXY completed
drilling the #5 well, a development well planned to develop the reserves
discovered by the West Cameron Block 616 #2 well. The #2 well, which was
drilled in 1996 and is located approximately one mile southeast of the #5
well, encountered 190 feet of net gas pay in a different fault block. The
West Cameron Block 616 #5 well encountered three gas sands not seen in the
#2 well and was credited with a total of 324 feet of net gas pay in eight
sands. A previously owned platform with facilities designed to process 75
Mmcf per day was installed during the third quarter of 1998, and initial
production is expected in early 1999 at an initial gross rate of
approximately 70 Mmcf per day from five well completions. MOXY has a 50%
working interest and an approximate 38% net revenue interest in West Cameron
Block 616. Additionally, MOXY drilled an exploratory well on an offset
block, West Cameron Block 617, as further discussed below. West Cameron
Block 616 covers 5,000 acres and is located in approximately 300 feet of
water approximately 130 miles offshore Louisiana.
o Brazos Block A-19. In April 1998 the Brazos Block A-19 #2 well encountered
hydrocarbons in a separate reservoir compartment within the larger Picaroon
Field area. The field extension was defined by a 3-D seismic survey. Platform
and facility design work have begun with production expected in the second
half of 1999. The operator continues to evaluate the field to determine the
need for additional drilling. The #2 well was drilled to a total depth of
18,790 feet. MOXY has a 16.8% working interest and a 13.3% net revenue
interest in the field. Brazos Block A-19 covers 5,760 acres and is located in
approximately 135 feet of water, 35 miles offshore Texas.
o Vermilion Block 159. In May 1998, MOXY's Vermilion Block 159 #3 exploratory
well encountered 80 true vertical feet of net hydrocarbon pay in two sands
logged between 13,566 feet and 13,870 feet. MOXY, as operator, set protective
pipe and continued drilling to test additional objectives. The deeper
drilling resulted in discoveries of an additional 93 true vertical feet of
net hydrocarbon pay in three sands logged between 13,982 feet and 14,702
feet, bringing the well total to 173 true vertical feet of net hydrocarbon
pay in five sands. A production platform substructure, deck and test facility
are planned to be installed to allow initial production to commence by early
1999. Production will be processed at the Vermilion Block 160 #4 sidetrack
facility, as discussed above. MOXY has a 48% working interest and a 33.8% net
revenue interest in the Vermilion Block 159 #3 area, encompassing 3,438 acres
located in approximately 90 feet of water, 42 miles offshore Louisiana.
o West Cameron Block 617. In April 1998, MOXY's West Cameron Block 617 #1
exploratory well encountered approximately 306 true vertical feet of net gas
pay in eight sands logged above 7,919 feet true vertical depth. The West
Cameron Block 617 #2 exploratory well commenced drilling in April 1998 to
test an adjacent fault block. The well was drilled to a measured depth of
9,670 feet and was plugged and abandoned. Related costs of approximately $0.7
million were charged to income in the second-quarter. Evaluation of the field
continues. MOXY has a 24% working interest and a 19.2% net revenue interest
in West Cameron Block 617, which encompasses 5,000 acres located in
approximately 300 feet of water, 130 miles offshore Louisiana.
Exploration Properties
MOXY continually evaluates its current exploration prospects,
as well as others offered by third parties, and drills those considered to
have the highest potential. Exploratory activities on prospects during 1997
and the first six months of 1998 are summarized below.
o West Cameron Block 519. In July 1998, MOXY sold its interest in West
Cameron Block 519 for $450,000, recognizing a gain for the same amount.
The proceeds were used in the development of MOXY's recent discoveries.
o West Cameron Block 492. During the 1997 fourth quarter MOXY's West Cameron
492 #1 exploratory well discovered 93 feet of net hydrocarbon pay in five
sands. Additionally, the West Cameron 492 #3 well, which was successfully
drilled as a delineation well, encountered 83 feet of net hydrocarbon pay in
two sands, 57 feet of which was in a new sand. Both wells were saved for
future production, and further drilling later in 1998 is contemplated on this
block. MOXY, as operator, owns a 19% net revenue interest in this block,
which encompasses 5,000 acres in approximately 150 feet of water
approximately 110 miles south of Lake Charles, Louisiana.
o West Cameron Block 503. In April 1997, MOXY sold its interest in West
Cameron Block 503 for $2.9 million, recognizing a $2.3 million gain ($0.12
per share). The proceeds were used to repay borrowings from MCN.
o Vermilion Block 391/392/408. MOXY has a 14.4% working interest and 11.6%
net revenue interest in Vermilion Blocks 392/408 and a 15.3% working interest
and 12.3% net revenue interest in Vermilion Block 391. The operator drilled
an unsuccessful exploratory well in the third quarter of 1996 on Vermilion
Block 391. MOXY acquired the Vermilion Block 392 lease in the Central Gulf of
Mexico lease sale in 1996 and acquired the shallow rights on Vermilion Block
408 by trading the deep rights at Vermilion Block 392. Vermilion Blocks
391/392/408 cover a total of 15,000 acres and are located four miles from the
Vermilion Block 410 field, which is in approximately 360 feet of water
approximately 115 miles offshore Louisiana.
o Brazos Block A-26/A-9. MOXY has a 24% working interest in Brazos Block A-26,
which is adjacent to MOXY's development property at Brazos Block A-19. MOXY
was the high bidder on the Brazos Block A-9 lease at the Western Gulf of
Mexico lease sale held in August 1998. If MOXY is awarded the lease, MOXY
will have a 16.8% working interest in this block. The two blocks cover
11,520 acres located in approximately 135 feet of water, 35 miles offshore
Texas.
o Lease Sale. MOXY was high bidder on seven tracts at the Central Gulf of
Mexico lease sale held in March 1997, one of which was subsequently drilled
without discovering commercial hydrocarbons. As part of the MOXY Exploration
Program the related acquisition and exploration costs are shared 37.6% by
MOXY, 56.4% by PLP and 6% by an individual investor (see "--Business of
MOXY--Exploration and Development Programs").
o Other. During 1997 exploratory drilling on the Eugene Island Block 19,
Vermilion Block 159 #2 well and Grand Isle Block 65 prospects concluded
without discovery of commercial hydrocarbons. MOXY has farmed out the related
acreage in Grand Isle Block 65. The West Cameron Block 157 #1 exploratory
well was determined to be unsuccessful in March, 1998 and was plugged and
abandoned with related drilling costs of $4.5 million charged to 1998
first-quarter income. In May 1998, the Atchafalaya Bay exploratory well and
the Grand Isle Block 54 #1 exploratory well were plugged and abandoned. As a
result, charges to income in the second-quarter were $2.4 million and $1.7
million, respectively, for these two wells.
Oil and Gas Reserves
Estimates of MOXY's total proved developed and proved
undeveloped reserves of oil and gas as of the dates indicated by Ryder Scott
were as follows:
<TABLE>
<CAPTION>
Gas (Mmcf) Oil (Bbls)
------------------------- ------------------------
Proved Proved Proved Proved
Developed Undeveloped Developed Undeveloped
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
At December 31, 1997. 23,086 17,148 383,000 80,300
At June 30, 1998..... 14,869 42,518 206,200 274,800
------ ------ ------- -------
</TABLE>
Proved reserve additions during the first half of 1998 totaled
22.7 billion cubic feet of natural gas equivalents ("BCFE", determined using a
ratio of six thousand cubic feet of natural gas as equivalent to one barrel of
oil), an increase of approximately 40% from equivalent proved reserves at
December 31, 1997 and representing an approximate 420% replacement of
approximately 5.4 BCFE of production during the first half of 1998.
Additionally, MOXY has announced estimates of probable reserves at June 30,
1998 of approximately 21 BCFE. Probable reserves are less certain than proved
reserves and can only be estimated with a degree of certainty sufficient to
indicate they are more likely to be recovered than not. Such probable reserve
volumes are not included in the foregoing table. Both proved and probable
reserves are based on a mid-year reserve report prepared by Ryder Scott. The
1998 reserve additions were primarily attributable to successful exploration
drilling at Brazos Block A-19, Vermilion Block 159 and West Cameron Block 617.
On each of these blocks, a single successful exploration well has been drilled
which provided the data for the current estimates of proved and probable
reserves. MOXY anticipates that it will conduct future drilling on certain
of these blocks and on certain adjacent blocks, which may add to the current
estimates of proved and probable reserves for these properties.
Estimates of proved undeveloped reserves that may be developed
and produced in the future are based upon volumetric calculations and upon
analogy to similar types of reserves rather than upon actual production
history. Estimates based on these methods are generally less reliable than
those based on actual production history. Subsequent evaluation of the same
reserves based upon production history will result in variations, which may be
substantial, in the estimated reserves. Further, MOXY's proved undeveloped
reserves will require additional capital to develop and produce. See "Risk
Factors--Risk Factors Relating to MOXY's Operations--Reserve Estimates and
Future Net Cash Flow" below, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures about Market
Risks--MOXY" included elsewhere herein.
The following table sets forth as of the dates indicated the
estimated future net cash flows before income taxes and the present value of
estimated future net cash flows before income taxes, discounted at 10% per
annum, from the production and sale of the proved developed and undeveloped
reserves attributable to MOXY's interest in oil and gas properties as of such
date, as determined by Ryder Scott.
<TABLE>
<CAPTION>
Proved Proved Total
Developed Undeveloped Proved
--------- ----------- ----------
<S> <C> <C> <C>
At December 31, 1997:
Estimated future net cash flows before income taxes(1)....................... $ 39,253 $ 20,207 $ 59,460
Present value of estimated future net cash flows before income taxes(1)...... 33,933 11,690 45,623
At June 30, 1998:
Estimated future net cash flows before income taxes(1)....................... 21,782 41,263 63,045
Present value of estimated future net cash flows before income taxes(1)...... 19,070 28,327 47,397
</TABLE>
- ----------
(1) In preparing such estimates, Ryder Scott used prices of $17.60 and $12.28
per barrel of oil and $2.57 and $2.13 per Mcf of gas as of December 31,
1997 and June 30, 1998, respectively, the weighted average prices that MOXY
estimates it would have received, assuming production from all of its
properties with proved reserves.
----------------------
In the opinion of MOXY's management, the June 30, 1998 prices
reflect seasonally low gas prices and depressed oil prices as of that date.
Using late August 1998 average prices for natural gas and oil futures contracts
for delivery over the next five years of $2.30 per mmBtu and $16.26 per barrel
of oil applied to the June 30, 1998 proved reserves, the related present value
of estimated future net cash flows before income taxes would have been
approximately $60 million.
In accordance with applicable requirements of the SEC, the
estimated discounted future net revenues from estimated proved reserves are
based on prices and costs at the dates indicated above. Actual future prices
and costs may be materially higher or lower. See "Risk Factors" and
"Forward-Looking Statements" above.
In accordance with methodology specified by the SEC, certain
assumptions were applied in the computation of the reserve evaluation
estimates. Under this methodology, future net cash flows are determined by
reducing estimated future gross cash inflows to MOXY for oil and gas sales by
the estimated costs to develop and produce the underlying reserves, including
future capital expenditures, operating costs, transportation costs, net
profits interests, royalty and overriding royalty burdens on certain of MOXY's
properties. Future net cash flows were discounted at 10% per annum to arrive
at discounted future net cash flows. The present value of future net cash
flows shown above should not be construed as the current market value as of
any date of the estimated oil and gas reserves attributable to MOXY's
properties. See "Risk Factors" and "Forward-Looking Statements" above.
MOXY is periodically required to file estimates of its oil and
gas reserve data with various governmental regulatory authorities and
agencies. In addition, estimates are from time to time furnished to
governmental agencies in connection with specific matters pending before such
agencies. The basis for reporting estimates of reserves to these agencies, in
some cases, is not comparable to that furnished above because of the nature of
the various reports required. The major variations include differences in
when such estimates are made, in the definition of reserves, in the
requirements to report in some instances on a gross, net or total operator
basis and in the requirements to report in terms of smaller geographical units.
Production, Unit Prices and Costs
The following table sets forth certain information regarding
the production volumes of, average sales prices received and average
production costs for MOXY's sales of oil and gas for each of the years ended
December 31, 1997, 1996 and 1995, and for the six-month periods ended June 30,
1998 and 1997:
<TABLE>
<CAPTION>
Six Months ended
June 30, Years ended December 31,
--------------------------- -------------------------------------------
1998(1) 1997 1997 1996 1995
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net gas production (Mcf)................. 5,022,500 1,621,000 4,061,000 631,000 1,093,000
Net crude oil and condensate production
(Bbls).................................. 62,600 9,400 34,000 29,000 45,000
Sales Price:
Natural gas (per Mcf)................. $ 2.20 $ 2.44 $ 2.62 $ 2.72 $ 1.63
Crude oil and condensate (per Bbl).... 14.52 21.89 19.19 22.22 18.83
Production (lifting) costs per Mcf
equivalent(2)........................... 0.18 0.23 0.16 0.75 0.68
</TABLE>
- ----------
(1) MOXY's net ownership interest in Vermillion Block 160 field unit revenues
was reduced during the 1998 first quarter as a result of a redetermination
of the participants' interests in the unit. The 1998 production quantities
shown above reflect MOXY's adjusted net revenue interest for the periods.
Additionally, six-month revenues were reduced by $486,000 to reflect
reductions to MOXY's share of production volumes recorded prior to 1998
(150,400 mcf of gas and 6,200 barrels of oil). These volume adjustments
are not reflected in the table above.
(2) Production costs were converted to an Mcf equivalent on the basis of one
barrel of oil being equivalent to six Mcf of natural gas. Production costs
exclude all depreciation and amortization associated with property and
equipment. The components of production costs may vary substantially among
wells depending on the production characteristics of the particular
producing formation and method of recovery employed and other factors, but
include charges under transportation agreements and all lease operating
expenses.
The relationship between MOXY's sales prices and its production
(lifting) costs depicted by the table above is not necessarily indicative of
future results of operations expected by MOXY. See "Risk Factors" and
"Forward-Looking Statements" above.
Marketing
MOXY's gas sales are currently made in the "spot market" at
prevailing prices. Prices on the spot market fluctuate with demand. Crude oil
and condensate production is generally sold one month at a time at prevailing
prices.
Acreage
The following table sets forth the oil and gas acreage in which
MOXY held an interest as of June 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
At June 30, 1998 At December 31, 1997
------------------------------------------------- -------------------------------------------------
Developed(1) Undeveloped Developed(1) Undeveloped
----------------------- ----------------------- ----------------------- -----------------------
Gross Gross Gross Gross
Acres(2) Net Acres(3) Acres(2) Net Acres(3) Acres(2) Net Acres(3) Acres(2) Net Acres(3)
-------- ------------ -------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Offshore (federal waters). 47,089 16,195 93,527 31,052 32,981 12,631 101,787 32,670
Onshore Louisiana and
Texas..................... 115 29 3,808 1,046 -- -- 5,448 1,434
------ ------ ------ ------ ------ ------ ------- ------
Total.................. 47,204 16,224 97,335 32,098 32,981 12,631 107,235 34,104
====== ====== ====== ====== ====== ====== ======= ======
</TABLE>
- ----------
(1) "Developed" acreage includes acreage by lease, unit or offshore block in
which there are one or more producing wells or shut-in wells capable of
commercial production and/or acreage with established reserves in
quantities deemed sufficient to develop.
(2) The term "gross acres" refers to acres in which MOXY owns a working
interest and/or operating rights.
(3) The term "net acres" refers to gross acres multiplied by the percentage of
the working interest and/or operating rights owned therein.
Oil and Gas Drilling Activity
The following table sets forth the gross and net number of
productive, dry and total exploratory wells and development wells that MOXY
drilled in each of the years ended December 31, 1997, 1996 and 1995, and for
the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Years ended December 31,
Six Months ended --------------------------------------------------------------
June 30, 1998 1997 1996 1995
---------------------- ------------------ ------------------ ------------------
Gross Net Gross Net Gross Net Gross Net
----- ---------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory
Productive.. 3 0.888 4 1.251 4 0.910 1 0.375
Dry......... 4 1.440 3 0.737 4 0.948 -- --
-- ----- -- ----- -- ----- -- -----
Total....... 7 2.328 7 1.988 8 1.858 1 0.375
== ===== == ===== == ===== == =====
Development
Productive.. 1 0.500 5 2.484 5 1.875
Dry......... -- -- -- -- -- -- -- --
-- ----- -- ----- -- ----- -- -----
Total....... 1 0.500 5 2.484 -- -- 5 1.875
== ===== == ===== == ===== == =====
</TABLE>
Operating Hazards and Insurance
MOXY's operations are subject to the usual hazards incident to
the drilling and production of natural gas and crude oil. MOXY maintains
insurance of various types that it considers to be adequate to cover its
operations. For further information, see "Risk Factors--Risk Factors Relating
to MOXY's Operations--Operating Hazards; Limited Insurance Coverage."
Competition
Competition in the oil and gas industry is intense. In seeking
to obtain desirable new leases and exploration prospects, MOXY faces
competition from both major and independent oil and gas companies. Many of
these competitors have financial and other resources substantially in excess
of those available to MOXY and may, accordingly, be better positioned to
acquire and exploit prospects, hire personnel and market production. In
addition, many of MOXY's larger competitors may be better able to withstand
the effect of changes in factors such as worldwide oil and natural gas prices
and levels of production, the cost and availability of alternative fuels and
the application of government regulations, which affect demand for MOXY's oil
and natural gas production and are beyond the control of MOXY.
Exploration and Development Programs
In 1995, MOXY entered into an agreement with MCN that
established the MOXY/MCN Program. Under the MOXY/MCN Program revenues and
costs were shared 60% by MCN and 40% by MOXY, and MCN was obligated to lend
MOXY its share of all exploration and development costs. MOXY's 40% share of
future revenues from the MOXY/MCN Program was dedicated to repaying the loan
amounts which bore interest at the annual base rate quoted from time to time
by the Chase Manhattan Bank plus 2%. MOXY's obligation to repay loans under
the MOXY/MCN Program was non-recourse, except to the properties developed
under the MOXY/MCN Program.
In 1997, MOXY undertook the Rights Offering to raise funds that
would allow it to recapitalize, restructure its exploration and development
operations and engage in a significantly expanded and more diversified,
multi-year exploratory drilling program. In November 1997, MOXY received net
proceeds of $92.2 million from the sale of a total of 28.6 million shares of
MOXY Common Stock at $3.50 per share under the terms of the Rights Offering to
existing stockholders. PLP purchased 3.8 million of these shares,
representing approximately 9% of total MOXY shares outstanding, for $13.5
million in fulfillment of its commitment to purchase any shares relating to
unexercised rights from the Rights Offering (the "Stand-By Commitment"). MOXY
concurrently used $44.5 million of these proceeds, including $0.8 million of
interest costs, to acquire from PLP certain assets of and repay MOXY's
borrowings under the MOXY/MCN Program. PLP had purchased the assets from, and
repaid the debt due to MCN in August 1997 for an equivalent amount, before
interest costs. The assets consisted of MCN's interest in the Vermilion Block
160 and 410 oil and gas fields ($24.5 million), and the debt representing
MOXY's borrowings to fund MOXY's share of program costs ($20.0 million). MOXY
paid PLP a $6.0 million fee for acquiring and holding the MOXY/MCN Program
assets referred to above until completion of the Rights Offering, entering
into the Stand-By Commitment and agreeing to enter into the MOXY Exploration
Program.
MOXY is using the remaining net Rights Offering proceeds to fund
a portion of its share of the aggregate $210 million, MOXY Exploration Program
to explore and develop prospects primarily offshore in the Gulf of Mexico and
onshore in the Gulf Coast region, which was formed upon completion of the
Rights Offering to replace the MOXY/MCN Program. MOXY manages the program,
selecting all prospects and drilling opportunities, and serves as operator.
MOXY and PLP contributed to the MOXY Exploration Program their interests in all
exploration properties formerly part of the MOXY/MCN Program and their joint
interests in certain other properties. Under this program most exploration
expenditures will be shared 56.4% by PLP, 37.6% by MOXY and 6% by Gerald J.
Ford who subsequently became a director of MOXY, with all other costs and
revenues shared 47% by PLP, 48% by MOXY and 5% by the individual investor.
Exploration costs consist of all costs associated with leasehold acquisition
and maintenance, geological and geophysical studies, seismic surveys, drilling
exploratory wells, overhead reimbursements, and all other aspects of
identifying prospects and drilling exploratory wells. MOXY and PLP agreed to
apply an aggregate of $8.3 million of certain exploratory costs against their
program commitment. The MOXY Exploration Program will terminate after initial
exploration program expenditures of $210 million have been committed or on
March 31, 2002, whichever is earlier.
On December 22, 1997, FTX, the administrative managing general
partner and owner of a 51.6% interest in PLP, merged into IGL (the "IGL
Merger"). As a result of the IGL Merger, IGL acquired control of FTX and PLP
and became the administrative managing partner of PLP. For information
regarding litigation initiated by IGL and PLP against MOXY and certain other
parties, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures About Market Risks--MOXY--Capital
Resources and Liquidity."
Regulation
General
The oil and gas industry is extensively regulated by federal and
state authorities in the United States. Legislation affecting the oil and gas
industry is under constant review and relevant statutes are constantly being
adopted, expanded or amended. Further, numerous departments and agencies, both
federal and state, have issued rules and regulations binding on the oil and gas
industry and its individual members, some of which carry substantial penalties
for the failure to comply. The regulatory burden on the oil and gas industry
increases its cost of doing business and, consequently, affects its
profitability.
Exploration, Production and Development
The exploration, production and development operations of MOXY
are subject to regulation at both the federal and state levels. Such
regulation requires operators to obtain permits to drill wells and to meet
certain bonding and insurance requirements in order to drill or operate wells.
Such regulation also controls the location of wells, the method of drilling and
casing wells, the surface use and restoration of properties upon which wells
are drilled and the plugging and abandoning of wells. MOXY's exploration,
production and development 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, the density of wells that may be drilled, the
levels of production, and the unitization or pooling of oil and gas properties.
MOXY presently has interests in or rights to 33 offshore leases
located in federal waters on the outer continental shelf ("OCS"). Federal
leases are administered by the Mineral Management Service ("MMS"). Individuals
and entities must qualify with the MMS prior to owning and operating any
leasehold or right-of-way interest in federal waters. Such qualification with
the MMS generally involves filing certain documents with the MMS and obtaining
performance bonds. For offshore operations, lessees must obtain MMS approval
for exploration plans and development and production plans prior to the
commencement of such operations. In addition to permits required from other
agencies (such as the Coast Guard, the Army Corp of Engineers and the
Environmental Protection Agency ("EPA")), lessees must obtain a permit from the
MMS prior to the commencement of drilling. The MMS has promulgated regulations
requiring offshore production facilities located on the OCS to meet stringent
engineering and construction specifications, and has recently proposed and/or
promulgated additional safety-related regulations concerning the design and
operating procedures of OCS production platforms and pipelines. The MMS also
has regulations restricting the flaring or venting of natural gas, and has
proposed amendments to such regulations that would prohibit the flaring of
liquid hydrocarbons and oil without prior authorization. Similarly, the MMS
has promulgated other regulations governing the plugging and abandonment of
offshore wells and the removal of all production facilities. To cover the
various obligations of an OCS lease, the MMS generally requires that lessees
post substantial bonds or other acceptable assurances that such obligations
will be met. The cost of such bonds or other security can be substantial and
there is no assurance that bonds or other surety can be obtained in all cases.
Under certain circumstances, the MMS may require all of MOXY's operations on
federal leases to be suspended or terminated. Any such suspension or
termination would materially adversely affect MOXY's financial condition and
operations.
Environmental
General. MOXY's operations are subject to extensive federal,
state and local regulatory requirements relating to environmental affairs,
health, safety and waste management and chemical products. These laws and
regulations require the acquisition of permits before construction or drilling
commences, limit or prohibit construction and drilling activities on certain
lands lying within wilderness or wetlands and other protected areas and impose
substantial liabilities for pollution resulting from MOXY's operations.
Moreover, the recent trend toward stricter standards in
environmental legislation and regulations is likely to continue. For instance,
legislation has been proposed in Congress from time to time to reclassify oil
and gas production wastes as "hazardous waste." If such legislation were to be
enacted, it could have a significant impact on the operating costs of MOXY, as
well as the oil and gas industry in general. State initiatives to further
regulate the disposal of oil and gas wastes are also pending in certain states
and could have a similar impact on MOXY. Management believes that compliance
with current applicable environmental laws and regulations will not have a
material adverse impact on MOXY. MOXY believes that its operations are and
will continue to be in substantial compliance with applicable environmental
laws, regulations and ordinances.
It is possible, however, that future developments such as
stricter environmental laws or regulations could adversely affect MOXY's
operations. Moreover, some risk of environmental costs and liabilities is
inherent in MOXY's operations as it is with other companies engaged in similar
or related businesses, and there can be no assurance that material costs and
liabilities, including substantial fines or criminal sanctions for violation of
environmental laws and regulations, will not be incurred by MOXY.
MOXY, through its predecessors, has a history of commitment to
environmental responsibility. MOXY's environmental policy commits its
operations to compliance with applicable laws and regulations. MOXY has
implemented corporate-wide environmental programs.
Solid Waste. MOXY's operations may generate or involve the
transport of both hazardous and nonhazardous solid wastes that are subject to
the requirements of the Federal Resource Conservation and Recovery Act and
comparable state statutes. In addition, the EPA is presently in the process
of developing stricter disposal standards for nonhazardous waste. Changes in
these regulations may result in additional expenditures or operating expenses
by MOXY.
Hazardous Substances. The Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") and comparable state
statutes, also known as "Superfund" laws, impose liability on certain classes
of persons that contribute to the release of a "hazardous substance" into the
environment. These persons include the owner or operator of a site, and
companies that transport, dispose of or arrange for the disposal of, the
hazardous substances found at the site. CERCLA also authorizes the EPA, and
in some cases, third parties to take actions in response to threats to the
public health or the environment and to recover their costs from the
responsible classes of persons. Despite the "petroleum exclusion" of CERCLA
that encompasses wastes directly associated with crude oil and gas production,
MOXY may generate or transport "hazardous substances" within the meaning of
CERCLA or comparable state statutes in the course of its ordinary operations.
Thus, MOXY may be responsible under CERCLA or the state equivalents for all or
part of the costs required to clean up sites where a release has occurred.
Air. MOXY's operations may also be subject to the Clean Air
Act ("CAA") and comparable state statutes. Amendments to the CAA were adopted
in 1990 and contain provisions that may result in the gradual imposition of
certain pollution control requirements with respect to air emissions from
operations. The EPA has been developing regulations to implement these
requirements. MOXY may be required to incur certain capital expenditures in
the next several years for air pollution control equipment in connection with
maintaining or obtaining operating permits and approvals addressing other air
emission-related issues.
Water. The Federal Water Pollution Control Act ("FWPCA")
strictly regulates the unauthorized discharge of produced waters and other oil
and gas wastes into navigable waters. The FWPCA provides for civil and
criminal penalties for any unauthorized discharges of oil and other hazardous
substances in reportable quantities and imposes substantial potential
liability for the costs of removal, remediation and damages. Similarly, the
OPA imposes liability for the discharge of oil into or upon navigable waters
or adjoining shorelines. Among other things, the OPA raises liability limits,
narrows defenses to liability and provides more instances in which a
responsible party is subject to unlimited liability. State laws for the
control of water pollution also provide varying civil and criminal penalties
and liabilities in the case of an unauthorized discharge of petroleum or its
derivatives into state waters. Further, the Coastal Zone Management Act
authorizes state implementation and development of programs or management
measures for nonpoint source pollution to restore and protect coastal waters.
Endangered Species. Several federal laws impose regulations
designed to ensure that endangered or threatened plant and animal species are
not jeopardized and their critical habitats are neither destroyed nor modified.
These laws may restrict MOXY's exploration, development and production
operations and impose civil or criminal penalties for non-compliance.
Safety and Health Regulations
MOXY is also subject to laws and regulations concerning
occupational safety and health. It is not anticipated that MOXY will be
required in the near future to expend amounts that are material in the
aggregate to MOXY's overall operations by reason of occupational safety and
health laws and regulations, but inasmuch as such laws and regulations are
frequently changed, MOXY is unable to predict the ultimate cost of compliance.
Employees
At June 30, 1998, MOXY had 17 employees. All of MOXY's
employees are devoted primarily to managerial, land and geological functions.
MOXY intends to continue its policy of limiting its number of permanent
employees and, to that end, generally utilizes the services of independent
consultants and contractors to perform various professional services,
particularly in the areas of construction, design, well site surveillance and
environmental assessment. Field and on-site production operation services
such as pumping, maintenance, dispatching, inspection and testing, are also
generally provided by independent contractors. Currently, a major portion of
MOXY's geological and geophysical services are performed by CLK Company,
L.L.C. ("CLK"). Under MOXY's exclusive agreement with CLK, MOXY pays CLK an
annual fee of $2.2 million, with $0.5 million of this fee paid in MOXY Common
Stock, and reimburses CLK's direct expenses incidental to its work for MOXY
and for its office space. In addition, CLK receives a 3% overriding royalty
interest on all new domestic prospects accepted by MOXY. For the year ended
December 31, 1997, and the six months ended June 30, 1998, MOXY incurred $3.0
million and $1.6 million of expenses, respectively, under its agreement with
CLK.
Other than those functions performed by MOXY's employees and
those provided under third party contracts, since January 1, 1996 numerous
services necessary for the business and operations of MOXY, including certain
executive, technical, administrative, accounting, financial, tax and other
services, have been performed by FMS, currently owned 25% by MOXY, pursuant to
a services agreement between FMS and MOXY (the "Services Agreement"). Prior to
1996, substantially the same services were provided by FTX. From September
1995 through December, 1997 these services were provided for a fixed annual
fee of $1.0 million, subject to annual cost of living increases beginning in
the first quarter of 1997. Prior to September 1995, such services were
provided on a cost reimbursement basis. For the year ended December 31, 1997,
MOXY incurred $1.0 million of expenses under its agreement with FMS. As of
January 1, 1998, MOXY and FMS amended the Services Agreement whereby FMS
provides services on a cost reimbursement basis. Such amounts totaled $1.2
million for the six months ended June 30, 1998. The Services Agreement is
terminable by MOXY at any time upon 90 days notice.
Business of FSC
General
FSC is a Delaware corporation formed in August 1997 to succeed
to the sulphur and certain oil and gas operations of PLP, of which FTX served
as administrative managing general partner and was the owner of a 51.6%
partnership interest. Effective December 22, 1997, FTX merged into IGL, and
PLP contributed to FSC all of its sulphur operations, and certain of its oil
and gas operations, including PLP's 58.3% interest in those businesses
commonly referred to as the "Main Pass" operations, and its sulphur mine in
Culberson County, Texas. In addition, in connection with the IGL Merger, IGL
transferred to PLP, which in turn contributed to FSC, IGL's 25% interest in
the Main Pass operations. Following the contributions, PLP distributed all of
the shares of FSC's Common Stock to FTX and the other holders of PLP's units
of partnership interest, and, as part of the IGL Merger consideration, FTX
distributed to its stockholders the shares of FSC Common Stock that it
received. PLP, which is now managed by IGL as successor to FTX's ownership
interest in PLP and to FTX's position as administrative managing general
partner of PLP, is engaged in the production and sale of phosphate crop
nutrients and animal feed ingredients as well as the exploration and
development and production of oil and gas reserves.
Unless otherwise noted or the context requires otherwise,
references herein to the historical operations and performance of "FSC" refer
to the businesses that PLP contributed to FSC, except that IGL's 25% interest
in Main Pass is included in FSC's operations only for periods after December
22, 1997.
FSC's operations include the mining, purchase, transportation,
terminaling and marketing of sulphur and the production and sale of oil and
gas from its Main Pass facilities. Management believes that FSC is the world's
largest producer of mined, or "Frasch," sulphur and the largest supplier of
elemental sulphur in the United States. FSC now has an 83.3% interest in the
Main Pass operations, and Homestake Sulphur Company ("Homestake") owns the
remaining 16.7% interest. FSC also continues to serve as the operator of the
Main Pass operations.
Sulphur, both in its elemental form and in the form of
sulphuric acid, is essential to agriculture and industry. Sulphur is a base
element primarily used in the production of sulphuric acid, which is used in
the manufacture of phosphate fertilizers and other agricultural chemicals, and
has numerous industrial applications, including ore and metal leaching,
petroleum and mineral refining, and chemical manufacturing. While sulphur is
essential in almost every segment of the economy, it is generally used as a
processing agent and is seldom apparent in the final product.
FSC is the successor to a line of business that had been
conducted by PLP and its predecessors since 1912, making it the longest
continuously operating sulphur company in the United States. Since its
founding, FSC has introduced numerous innovations in the production and
transportation of sulphur, including the development of a mine in marsh terrain
near the mouth of the Mississippi River, the use of directional drilling (a
critical technique for exploiting offshore sulphur deposits), and the
development of technology for transporting molten sulphur, which has earned the
acceptance of U.S. sulphur consumers as an environmentally and economically
superior method. FSC was the first, and remains the only, company to superheat
seawater for sulphur mining, and in 1960 constructed the first offshore sulphur
mine, followed by a second offshore mine constructed in 1968, and a third
offshore mine with the construction of the Main Pass mine in 1992. FSC remains
the only company to successfully operate offshore sulphur mines. Over its
history, FSC has mined more than 160 million long tons of sulphur, and in 1988
discovered the largest sulphur deposit in North America at Main Pass in the
Gulf of Mexico. FSC believes it is one of the world's largest producers of
mined sulphur and a leading supplier of sulphur to the United States market,
and has the industry's largest molten sulphur handling system.
The Main Pass sulphur deposit is the largest known sulphur
reserve in North America. FSC's Main Pass offshore mining complex is the
largest structure of its type in the Gulf of Mexico and one of the largest in
the world, and was designed to produce an average of 5,500 long tons per day
over its life. As of June 30, 1998, the Main Pass mine was estimated to
contain proved sulphur reserves totaling 52.9 million long tons net to FSC.
In 1995 FSC acquired substantially all of the sulphur assets of
Pennzoil Company ("Pennzoil"), including the Culberson mine and Pennzoil's
sulphur terminals and handling facilities in Galveston, Texas and Tampa,
Florida, land and marine transportation equipment, and sales and other related
commercial contracts and obligations. FSC announced on June 30, 1998 that it
plans to permanently discontinue sulphur productions at the Culberson mine, but
it plans to retain and continue to operate substantially all of the other
assets acquired from Pennzoil.
FSC's principal business is the sale of sulphur and the
marketing of its terminaling and transportation assets for use by recovered
sulphur producers and industrial consumers of sulphur. The phosphate fertilizer
industry generally accounts for approximately 90% of FSC's sulphur sales. FSC's
1997 sulphur sales were approximately 2.9 million long tons, representing 24.8%
of domestic consumption (or 3.4 million long tons, representing 30% of domestic
consumption, on a pro forma basis after the contribution of IGL's Main Pass
interest). Sales to IMC-Agrico, a joint venture partnership between IGL and PLP
that is a manufacturer of phosphate fertilizers and the largest purchaser of
elemental sulphur in the world, represented approximately 65% of FSC's 1997
sulphur sales (or 72% on a pro forma basis after the contribution of IGL's Main
Pass interest) and approximately 73% of sulphur sales for the six months ended
June 30, 1998. Pursuant to a sulphur supply agreement, FSC has agreed to supply
and IMC-Agrico has agreed to purchase approximately 75% of IMC-Agrico's annual
sulphur consumption for as long as IMC-Agrico has an operational need for
sulphur. The price per ton for all sulphur delivered under the agreement is
based upon the weighted average market price for sulphur delivered by other
sources to IMC-Agrico's New Wales production plant in central Florida, except
that FSC is entitled to a premium with respect to approximately 40% of the
sulphur that it delivers under the agreement. IMC-Agrico also pays a portion of
the freight costs associated with the delivery of sulphur under the agreement.
Although the sulphur supply agreement was entered into at a time when
IMC-Agrico was an affiliate of FSC, management believes that the terms of the
sulphur supply agreement are no less favorable to FSC than those that could
have been negotiated with an unaffiliated party.
FSC operates the largest molten sulphur handling system in
North America and has the capacity to transport and terminal over five million
long tons of molten sulphur annually. FSC uses this system to support both the
movement of its own mined and purchased sulphur and as a service that it
markets to recovered sulphur producers and industrial consumers.
FSC is a major purchaser of recovered sulphur, which is sulphur
recovered from the processing of sour natural gas and refining of sour crude
oil, purchasing over one million tons per year. Approximately 33% of FSC's
1997 sulphur sales and approximately 34% of its sulphur sales for the six
months ended June 30, 1998 were supplied from its recovered sulphur purchases.
Substantially all of the sulphur purchased by FSC, along with the sulphur
produced at the Main Pass and Culberson mines, is sold by FSC to industrial
companies for use in the manufacture of sulphuric acid.
The Main Pass operations also contain proved oil reserves from
which FSC produces and sells oil for the Main Pass joint venture. Gross oil
production averaged approximately 9,000 barrels per day (4,400 barrels net to
FSC, or 6,300 barrels net to FSC on a pro forma basis after the contribution of
IGL's Main Pass interest) during the year ended December 31, 1997 and
approximately 7,200 barrels per day (6,000 barrels net to FSC) during the six
months ended June 30, 1998. Oil sales have provided FSC with a significant
source of revenues and cash flow. The financial contribution from Main Pass oil
production is, however, expected to decline because of a decrease in expected
production rates resulting from normal depletion and because in the third
quarter of 1998 FSC is required to begin paying a royalty to the original
leaseowner. In addition, oil prices have declined significantly since December
31, 1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures about Market Risks--FSC." As of December
31, 1997, Main Pass was estimated to contain 8.7 million barrels (5.3 million
barrels net to FSC) of proved oil reserves, which are expected to decline
substantially in subsequent years and to be fully depleted by 2002. See "--Oil
and Gas Business" below.
Strategy
FSC's business strategy has been to utilize its sulphur
production facilities and its transportation and logistical assets and
capabilities to maintain its leadership position in the U.S. sulphur market
and to capitalize on new marketing opportunities. In addition, FSC expected
to evaluate opportunities for growth by expanding its third party
transportation and terminaling services business and increasing its recovered
sulphur marketing activities. FSC also planned to evaluate additional
business opportunities involving business activities that would be
complementary to its existing operations including, without limitation,
construction and operation of sulphur recovery and sulphuric acid plants, sour
crude oil processing for others in the Gulf of Mexico region, application of
its seawater heating technology to uses such as secondary oil recovery, and
others.
While FSC has increased its recovered sulphur marketing
activities and its third party services business, deteriorating sulphur
markets have led to decisions by FSC to curtail production from and ultimately
close its Culberson mine by the end of 1998. Additionally, FSC will continue
to identify and assess additional growth opportunities discussed above. As a
result, FSC broadened its consideration of additional business opportunities.
See "The Mergers--Background of the Mergers--Background of FSC".
FSC's future sulphur sales volumes and realizations will
continue to depend on the level of demand from the phosphate fertilizer
industry and the availability of competing supplies from recovered sulphur
producers. Accordingly, FSC continually evaluates its sulphur business
strategy in light of competitive factors and the dynamics of the sulphur
market, including the possibility of adjusting overall production levels to
match changes in market fundamentals.
Sulphur Business
Sources and Uses of Sulphur
Sulphur is present in many areas of the world and its
production is generally classified into three categories: elemental, pyrites
and sulphur in other forms ("SOF"). Elemental sulphur represents over
two-thirds of worldwide supplies of sulphur in all forms. Its sources include
sulphur mined by the Frasch process from underground deposits and recovered
sulphur. The remaining one-third of worldwide sulphur is in the form of
pyrites (metal sulphides) and SOF, with the most significant source being
sulphuric acid recovered as a by-product from the smelting of non-ferrous
metals. In the United States, mined elemental sulphur is principally found in
the caprock that covers salt domes in the coastal areas of the Gulf of Mexico
and in strata-bound deposits in West Texas. Recovered elemental sulphur is
produced from the processing of natural gas that contains hydrogen sulfide and
from the refining of sour (high sulphur content) crude oil. Recovered sulphur
is the largest source of sulphur in the world, representing approximately 85%
of global production of elemental sulphur.
While sulphur is essential in almost every segment of the
economy, it is generally used as a processing agent and is seldom apparent in
the final product. Sulphur is used primarily in the manufacture of phosphate
fertilizer, with over 60% of worldwide sulphur consumption being used for this
purpose. Sulphur is burned to form sulphuric acid, which is then used to
convert phosphate rock to phosphoric acid, the base material for the
manufacture of phosphate fertilizer. Approximately 0.4 of a long ton of
sulphur is required to produce one short ton of diammonium phosphate
fertilizer, the principal form of phosphate fertilizer. Although FSC is highly
dependent on the phosphate fertilizer market, management believes that the
overall strength of the phosphate fertilizer market and the resulting demand
for sulphuric acid should support Main Pass production at current levels for
the immediate future. Industry studies indicate that world demand for
phosphate fertilizer, driven by anticipated population growth, increases in
levels of grain consumption and other factors, will exceed production
capacities in the next several years. This has led to plans to construct new
capacity and feasibility studies evaluating the expansion of existing capacity
and the addition of new capacity for the manufacture of phosphate fertilizer.
Sulphur is itself an important plant nutrient, along with
nitrogen, phosphorous and potassium. In 1996, 9.0 million tons of sulphur were
applied to soils worldwide through fertilizer application. Sulphur is also a
key raw material in the manufacture of many fungicides and other agricultural
chemicals. The Sulphur Institute estimates the current annual worldwide plant
nutrient sulphur deficit at 8.2 million tons and the outlook is for increasing
deficiencies, thus making the use of sulphur as a fertilizer a developing and
growing market.
In addition to its agricultural applications, sulphur (usually in
the form of sulphuric acid) is essential to the manufacturing processes of
pharmaceuticals, paper, chemicals, paint, steel, petroleum and other products.
Sulphuric acid is also used in the manufacture of detergents and animal feed.
There is a growing demand for sulphur in the form of sulphuric acid for ore
leaching by the non-ferrous metals industry mainly due to advancements in
solvent extraction-electrowinning technology (SX/EW). This advancement has
allowed the development of oxide ore bodies that previously were not considered
commercially exploitable.
Sulphur Mine Operations
Overview. Although sulphur is one of the most common elements
in the earth's crust, discoveries of elemental sulphur in quantities that can
be mined economically are rare. FSC is currently mining one such deposit, the
Main Pass mine offshore Louisiana in the Gulf of Mexico. FSC has recently
announced its decision to permanently discontinue production at the Culberson
mine. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures about Market Risks--FSC--Overview."
FSC's sulphur discovery at Main Pass in 1988 was the first major sulphur
discovery in North America in over 25 years. The Main Pass mine utilizes the
Frasch mining process, which involves drilling wells and injecting superheated
water into the underground sulphur deposit to melt solid sulphur, which is
then recovered in liquid form. FSC has used the Frasch process for more than
80 years, and has developed technology using superheated seawater in the
Frasch process, thereby enhancing offshore mining.
The Frasch Process. The sulphur deposit at FSC's Main Pass mine
is located approximately 2,000 feet underground. Sulphur production wells are
drilled into sulphur bearing formations by rotary drilling rigs employing a
directional drilling technique that permits drilling from the well platform at
angles of up to 90 degrees from vertical, allowing sulphur within a radius of
more than 3,800 feet to be mined from a single platform. In addition to
production wells, pressure control wells must also be drilled to recover
excess water from the underground formation and to facilitate water flow. The
Frasch process used by FSC permits cost efficient extraction of sulphur from
these underground deposits. Superheated water and compressed air are forced
separately through concentric pipes towards the sulphur deposit where the
heated water liquefies the sulphur and the compressed air helps lift the
molten sulphur to the surface. The Frasch process was developed in the 1890s
and FSC was only the second company to use this technology. FSC has also
developed proprietary technology that enables it to use seawater in the Frasch
process without experiencing the corrosion and scaling that otherwise would
affect the heat exchangers and pipelines. Frasch mining of sulphur deposits at
locations where large quantities of fresh water are unavailable, such as Main
Pass, would not be commercially viable without these techniques.
Natural gas and water are the two resources essential to the
Frasch process. Natural gas fired boilers are used to produce steam to heat
the water in heat exchanges to the superheated state necessary for sulphur
liquefaction. FSC's Main Pass operations currently consume approximately
eight billion cubic feet of natural gas annually. FSC is dependent on others
for the supply of natural gas, but has never experienced difficulty in
obtaining the required supply of natural gas because it has long-term supply
agreements in place with prices tied to market indices. Natural gas is
supplied to the Main Pass operation by a single supplier, but FSC has access
to a large multiple-supplier pipeline should its primary supplier have
difficulties in delivering its requirements. FSC also supplements its natural
gas needs at Main Pass with the gas that is produced in conjunction with its
Main Pass oil operations, which is provided to the sulphur mining operations
in exchange for electricity used by the oil operations. In the event of a
national shortage of natural gas, curtailment may be imposed by federal
authorities and may interfere with the mining process, but FSC believes that
the risk of such curtailment during the anticipated life of the mines is
remote. Moreover, if necessary, the boilers can be converted to operate on
fuel oil. The availability of water for the Main Pass mine is not a factor for
FSC because of its ability to use seawater.
The Mines. The Main Pass deposit was discovered by FSC in 1988.
The mine currently has the highest production rate of any sulphur mine in the
world and contains the largest known Frasch sulphur reserve in North America.
The free sulphur in the Main Pass deposit exists in the porous limestone that
is part of the caprock covering a salt dome. The Main Pass offshore complex,
which is more than a mile in length, is one of the largest structures of its
type in the world and is the largest in the Gulf of Mexico. The Main Pass mine
was designed to produce an average of 5,500 long tons per day over its life and
has two sulphur storage tanks with a combined capacity of 24,000 long tons. The
facility, which has housing capacity for 240 persons, is located in 210 feet of
water and is designed to withstand hurricane force conditions. During the year
ended December 31, 1997 and the six months ended June 30, 1998, sulphur
production at Main Pass averaged approximately 5,200 and 4,300 long tons,
respectively, per day. All Main Pass sulphur is transported to FSC's terminal
in Port Sulphur, Louisiana in 7,500-ton self-propelled tankers. FSC receives a
fee from Homestake for operating the Main Pass mine and for processing,
transporting and marketing Homestake's share of the Main Pass sulphur. At June
30, 1998, the Main Pass deposit was estimated to contain proved sulphur
reserves totaling 63.5 million long tons (52.9 million long tons net to FSC).
Production from the Main Pass mine is subject to a royalty of
12.5% of net mine revenues that is payable to MMS.
FSC began operating the Culberson mine, which is located in
West Texas south of the New Mexico border, in January 1995 after acquiring the
mine from Pennzoil. For the year ended December 31, 1997, production at the
Culberson mine averaged approximately 2,400 long tons per day. At December
31, 1997, the Culberson mine was estimated to contain proved sulphur reserves
totaling 7.6 million long tons. As previously discussed, FSC has decided to
permanently cease production at the Culberson mine, with final production
expected by the end of 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures about Market
Risks--FSC--Overview."
The agreement pursuant to which FSC obtained the Culberson mine
requires FSC to make quarterly payments to Pennzoil, based on a unit volume
payment multiplied by an assumed volume of sulphur, both of which are
determined by the average market price of sulphur during the quarter. FSC is
obligated to make these payments irrespective of whether the Culberson mine is
operational. The payments terminate upon the earlier of January 2015 or the
quarter in which the cumulative assumed volume of production exceeds 18.6
million long tons. Under this arrangement, FSC paid Pennzoil $2.0 million and
$2.1 million for fiscal 1996 and 1997, respectively, and $0.9 million for the
six months ended June 30, 1998. FSC estimates that the annual royalty will be
$1.8 million, based on a $65 per long ton sulphur price. FSC has the right,
exercisable on January 1, 1999 (the "First Option Date") and each subsequent
third anniversary of that date, to terminate its obligation to make further
quarterly installment payments in exchange for a lump sum payment of $65
million less a cumulative inflation adjustment on the date such right is
exercised, but in no event less than $10 million. If FSC does not exercise its
right on any option date, Pennzoil may, within a defined time period after each
option date, require FSC to make a single payment of $10 million in exchange
for relinquishing its rights to receive any further payments under the
agreement.
FSC also has rights to sulphur deposits at its Caminada Mine,
located eight miles from Grand Isle in the Gulf of Mexico, which FSC is not
currently mining. FSC is maintaining its lease rights to the remaining sulphur
resource under a "suspension of production" issued by the MMS. FSC estimates
that the Caminada mine has approximately 1.8 million long tons of recoverable
proved sulphur remaining.
Sulphur Reserves. The table below sets forth FSC's portion of
the proved developed reserves for FSC's Main Pass sulphur mine.
<TABLE>
<CAPTION>
Proved Developed Reserves(1) Long Tons at June 30, 1998(2)
- ---------------------------- -----------------------------
<S> <C>
Main Pass............................ 52.9 million
</TABLE>
- ----------
(1) All sulphur reserves are considered proved because of FSC's extensive
drilling and production experience.
(2) Reserves represent long tons (2,240 lbs.) of sulphur that are expected to
be recovered from the host formation. Long tons of sulphur are calculated
in place and a recovery factor, based on the percentage of residual sulphur
expected to be left behind, is applied to calculate the total estimated
recoverable tons.
Sulphur Purchases
FSC is a major purchaser of recovered sulphur in the United
States and management expects its sulphur purchasing program, which is
currently averaging over one million long tons per year, to increase and
become a more significant component of FSC's business. FSC purchases recovered
sulphur principally from oil refineries located along the lower Mississippi
River and in the Louisiana and Texas Gulf Coast regions, and from gas
processing plants in Mississippi and Texas.
FSC's recovered sulphur purchase program provides it with a
source of sulphur that is as important as the production from its mines in
enabling FSC to meet its sales contract commitments. Approximately 33% of
FSC's 1997 sulphur sales volume and approximately 34% of sulphur sales volumes
for the six months ended June 30, 1998 were supplied through recovered sulphur
purchases. FSC believes that its position as a leading sulphur supplier in the
domestic market, coupled with its extensive sulphur handling capabilities,
would allow it to replace any curtailed mine production with purchased
recovered sulphur at price levels that would maintain FSC's profitability;
however there can be no assurance that it will be able to do so.
Sulphur Handling Operations
Overview. FSC operates the largest molten sulphur handling
system in North America and has the capacity to transport and terminal over
five million long tons of molten sulphur annually. FSC uses this system both
to support the movement of its own mined and purchased sulphur, and as a
service that it markets to recovered sulphur producers and industrial
consumers. FSC believes that the integration of the sulphur handling business
with its production, purchasing and marketing operations gives FSC a
synergistic competitive advantage over other suppliers of similar services.
Marine Transportation. FSC operates two molten sulphur
tankers, each having a capacity of approximately 25,000 tons. The two tankers
have the combined capacity to transport 3.5 million long tons of sulphur per
year across the Gulf of Mexico, which are loaded at FSC's Galveston and Port
Sulphur terminals and delivered to its Tampa terminals. FSC's inland barge
system is capable of transporting over one million tons annually. Each of
FSC's barges has a capacity of approximately 2,500 long tons and serves the
Texas, Louisiana and Mississippi Gulf Coast regions and the lower Mississippi
River. Two 7,500-ton tankers are used to transport sulphur from the Main Pass
mine's offshore production platform and can also be used in Gulf Coast service
to transport sulphur from FSC's terminals to its customers.
Land Transportation. FSC owns a rail car fleet that formerly
transported sulphur from the Culberson mine and which is intended to be used
to transport recovered sulphur following the closure of the Culberson mine.
FSC also makes other rail movements in connection with transporting sulphur
directly to customers' plants. FSC also transports approximately 500,000 tons
of molten sulphur per year through a third party trucking service used
primarily to serve the Galveston, Texas, lower Mississippi River and
Pensacola, Florida areas.
Terminals. FSC owns and operates five sulphur terminals in the
United States, the largest of which is located at Port Sulphur, Louisiana. The
Port Sulphur facility is a combined liquid storage tank farm and stockpile
area for solid sulphur. Liquid sulphur is stored in steam-heated, insulated
tanks having an aggregate capacity of approximately 110,000 long tons. The
solid storage area can hold approximately 1.3 million long tons of solid
sulphur. Because substantially all of FSC's domestic customers consume sulphur
in liquid form, FSC delivers all of its production in liquid form. This
reduces the need to remelt the sulphur, conserves energy and reduces costs,
and is an environmentally superior handling method. Sulphur can be solidified
for long-term storage to maintain inventory reserves. FSC owns a high capacity
sulphur melter that permits the conversion of solid sulphur into liquid
sulphur to supplement mine production during periods of high demand and to
cover shortfalls in mine production or in recovered sulphur purchases. Sulphur
is transported from Port Sulphur by barge to customers' plants in Louisiana on
the lower Mississippi River or along the Gulf Coast of Texas and
Mississippi, or by tanker to FSC's terminals in Tampa.
FSC's other terminals are located in Tampa and Pensacola,
Florida and Galveston, Texas. There are two Tampa terminals, each of which has
a liquid storage capacity of 90,000 long tons and is supplied with sulphur
from Port Sulphur and Galveston by FSC's sulphur tankers. Each of the Tampa
facilities ships molten sulphur to phosphate fertilizer producers in central
Florida by tank truck. The Pensacola terminal has a storage capacity of 10,000
long tons and is used for the storage, handling and shipping of recovered
sulphur purchases or transporting recovered sulphur for third parties. Molten
sulphur is shipped by barge from the Pensacola terminal to either the Port
Sulphur terminal or directly to lower Mississippi River customers.
The Galveston terminal was acquired from Pennzoil in 1995 and
has 75,000 long tons of liquid storage tanks and solid storage capacity of one
million long tons. This terminal formerly received sulphur from FSC's
Culberson mine by unit train, and currently receives recovered sulphur
purchases by truck, barge or rail, and then ships sulphur to local customers
by truck or barge or to the Tampa terminals by tanker. The Galveston terminal
also has the ability to load solid sulphur aboard large oceangoing vessels,
giving FSC access to international markets should market conditions favor
sulphur exports.
Sulphur Sales
Substantially all of FSC's sulphur is sold to the phosphate
fertilizer industry for the manufacture of sulphuric acid, which is used to
produce phosphoric acid, a base chemical used in the production of phosphate
fertilizers. Typically, the phosphate fertilizer industry accounts for
approximately 90% of FSC's total sulphur sales. FSC's domestic shipments to
its five largest customers represented 88% of total shipments in 1997, 91% in
1996 and 89% in 1995. The majority of FSC's sulphur supply contracts, with
the exception of its contract with IMC-Agrico discussed below, are for a term
of one year or longer and generally call for the repricing of sulphur on a
quarterly or six-month basis.
FSC also processes, transports, and markets Homestake's
share of production at the Main Pass mine for a fee. In addition to supplying
the domestic sulphur market and providing transportation and terminaling
services for others, FSC maintains the capability of marketing sulphur
internationally should market conditions favor export sales.
Sales to IMC-Agrico, a manufacturer of phosphate fertilizers
and the largest purchaser of elemental sulphur in the world, represented
approximately 65% of FSC's sulphur sales (or 72% on a pro forma basis after
the contribution of IGL's Main Pass interest) and 55% of its total revenues
(or 60% on a pro forma basis after the contribution of IGL's Main Pass
interest) during 1997. Such sales represented approximately 73% of FSC's
sulphur sales and 64% of its total revenues during the six months ended June
30, 1998. Pursuant to a Sulphur Supply Agreement, FSC has agreed to supply
and IMC-Agrico has agreed to purchase approximately 75% of IMC-Agrico's annual
sulphur consumption for as long as IMC-Agrico has an operational need for
sulphur. The price per ton for all sulphur delivered under the agreement is
based upon the weighted average market price for sulphur delivered by other
sources to IMC-Agrico's New Wales production plant in central Florida, except
that FSC is entitled to a premium with respect to approximately 40% of the
sulphur that it delivers under the agreement. IMC-Agrico also pays a portion
of the freight costs associated with the delivery of sulphur under the
agreement. Although this contract was entered into at a time when IMC-Agrico
was an affiliate of FSC, management believes that the terms of the Sulphur
Supply Agreement are no less favorable to FSC than those that could have been
negotiated with an unaffiliated party.
Revenues from FSC's sulphur sales depend significantly on
production levels of phosphate fertilizer, the availability of sulphur that is
recovered from high-sulphur oil and natural gas refining and the rate at which
stored surpluses, particularly in Canada, are released into the market and
depleted. Current prices are substantially weaker than the high levels of the
early 1990's, primarily because of economic and political changes in Eastern
Europe and the former Soviet Union, which led to the closure of plants
consuming in excess of seven million tons of sulphur per year. Improved
phosphate consumption rates, coupled with reduced imports and curtailed mine
production, stabilized sulphur prices beginning mid-year 1996 and continued
into 1997. To the extent that current United States phosphate fertilizer
production remains strong, sustained sulphur demand is expected to continue;
however, the current level of Canadian sulphur inventories limits the
potential for significant price increases. See "--Competition."
Recent Developments
For a discussion of recent developments at Main Pass and
sulphur contract prices, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures About Market
Risks - FSC."
Oil and Gas Business
Reserves and Acreage
The Main Pass site also contains oil and gas reserves located
within the same caprock reservoir that contains the sulphur reserves. FSC's
estimate of proved recoverable oil reserves at Main Pass at December 31, 1997
was 6.3 million barrels, (5.3 million barrels net to FSC). During the first
six months of 1998 production volumes totaled 1.1 million barrels (0.9 million
barrels net to FSC). The Main Pass oil and gas reserves are expected to
decline substantially in subsequent years and to be fully depleted by 2002.
For information relating to estimates of FSC's net interests in
proved oil reserves as of December 31, 1997, and for supplementary information
relating to estimates of discounted future net cash flows from proved oil
reserves, and changes in such estimates, reference is made to FSC's financial
statements included elsewhere herein.
At various times, FSC is required to report estimates of oil
reserves to various governmental authorities. The basis for reporting
estimates of reserves to these authorities may not be comparable to the
reserves presented herein because of differences in the times at which such
estimates are made and variances in reserve and other definitions of the
particular governmental authority. Generally, however, the reserve data used
for these governmental reports is computed from the same reserve information
base as reported herein.
FSC's interest in Main Pass, which is located in federal waters
offshore Louisiana, constitutes the only oil and gas producing property owned
by FSC. The property consists of 1,125 gross acres and is fully developed
within the meaning of governmental reporting requirements.
FSC possesses a leasehold interest in its Main Pass oil
property that is maintained by production and will remain in effect until
production and drilling and development operations cease. FSC believes that
the lease terms are sufficient to allow for reasonable development of the
reserves and that it has satisfactory title to such property.
Production
Recoverable hydrocarbons at Main Pass are located in the upper
portion of the same caprock that hosts the sulphur reserves and in an
overlying layer of sand. The limestone caprock reservoir and the overlying
sand are in fluid contact with each other, share a common oil and gas
composition and have the same pressure characteristics. Oil production
commenced in the fourth quarter of 1991 with cumulative total production as of
June 30, 1998 totaling 36.2 million barrels. Oil production has been enhanced
by the injection of superheated water in the sulphur mining operations, which
both lowers oil viscosity, allowing it to flow more freely, and maintains
reservoir pressure, thereby enhancing recovery. Any associated gas that is
produced with the oil is provided to the sulphur mining operation in exchange
for electricity used in the oil operations. The co-development of the sulphur
and oil reserves has yielded significant operating synergies and efficiencies.
The purchase agreement pursuant to which FSC obtained the rights
to the Main Pass oil lease obligates FSC under certain circumstances to make an
annual production payment to Chevron U.S.A. Inc. The payment amount is based on
the amount of annual oil production at the Main Pass site and the amount by
which the average annual price of oil exceeds certain specified prices during
the term of the contract. If the average annual price of oil does not exceed
the specified prices, no payment is due. No payments were made for 1997 in
connection with this obligation. This payment obligation converted to a royalty
right on behalf of Chevron after an aggregate of 36 million barrels of oil had
been produced at Main Pass, which occurred in June 1998. Under this royalty
right, Chevron is entitled to receive 25% of revenues (less transportation
costs) of oil and gas production; provided that the 25% overriding royalty is
limited to 50% of net operating revenue realized on oil production. Oil sales
have provided FSC with a significant source of revenues and cash flow. The
financial contribution from Main Pass oil production is, however, expected to
decline because of a decrease in expected production rates resulting from
normal depletion and because of an increase beginning in June 1998 of the
royalty payable to Chevron. In addition, oil prices have declined
significantly since December 31, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations and Disclosures about
Market Risks--FSC."
Oil Sales
Oil prices have historically exhibited, and can be expected to
continue to exhibit, volatility as a result of such factors as conflicts in
the Middle East, actions by the Organization of Petroleum Exporting Countries
and other producing nations, and changes in worldwide economic and political
conditions. The oil produced at Main Pass contains sulphur and is generally
heavier than other Gulf Coast crude oils. As a result, it sells at a discount
relative to Gulf Coast crude oils containing less sulphur and to lighter grade
crude oils.
Oil produced at the Main Pass mine is sold to Amoco Production
Company. This sales contract is for a term of six months, ending December 31,
1998, and is priced at market for the oil's grade. It accounted for 71% of
FSC's oil revenues and 9% of FSC's total revenues for 1997.
Competition
Sulphur
In the United States, there are two principal sources of
elemental sulphur: (i) mined sulphur produced by FSC and (ii) recovered
sulphur produced by more than 50 companies at more than 130 refineries and gas
treatment plants. There are four producers of mined sulphur worldwide, of
which management believes FSC is the largest and the only mined sulphur
producer serving the United States market. For 1997, FSC estimates that
sulphur production at its Main Pass and Culberson mines accounted for
approximately 27% of domestic, and 7% of world, elemental sulphur
production.
FSC estimates that total domestic sulphur consumption in 1997
was 11.7 million tons, of which domestic Frasch sulphur accounted for
approximately 23%, domestic recovered sulphur accounted for approximately 60%,
and imported sulphur, primarily from Canada and Mexico, accounted for
approximately 17%.
The following table sets forth for each of the years 1995
through 1997 the total estimated domestic sulphur consumption in tons,
together with the percentage supplied by Frasch suppliers, domestic recovered
sulphur and imported sulphur:
<TABLE>
Domestic Sulphur Consumption
-----------------------------------------------------------------------------------------
Total Consumption
Year (millions of tons) Frasch Suppliers Domestic Recovered Percentage Imported
- ---- ------------------ ---------------- ------------------ -------------------
<S> <C> <C> <C> <C>
1997 11.7 23% 60% 17%
1996 11.5 25% 60% 14%
1995 11.7 27% 55% 17%
</TABLE>
Recovered sulphur from domestic and foreign sources is the
major source of competition for FSC. Approximately 90% of the Western
Hemisphere's sulphur inventories currently consist of sulphur recovered from
natural gas in the province of Alberta in western Canada, primarily because
United States recovered sulphur suppliers do not have the ability to store
large inventories of sulphur. During the 1990s world sulphur supply has been
in surplus resulting in a build up of Canadian sulphur inventories. Canadian
sulphur inventories were estimated to be 10.6 million tons at year end 1997
and are expected to increase.
Production of recovered sulphur in the United States has
increased at an average rate of approximately 200,000 tons per year for the
last three years, and totaled approximately 7.8 million tons in 1997.
Although FSC is not aware of any planned increases in high-sulphur gas
processing capacity in the U.S., the sulphur content of crude oil feedstocks
delivered to U.S. oil refineries is expected to continue to increase. Although
growth in U.S. recovered sulphur production is expected to continue, the rate
of growth is expected to slow, as the refining industry is consolidating into
a smaller number of large refineries, and it is estimated that total U.S.
refinery processing will not increase substantially. Technology for recovery
of sulphur from coal and oil-burning utility plants is well advanced and this
and other sources of sulphur resulting from air pollution abatement efforts
will have some impact on sulphur supplies. Industry studies vary in their
forecast of the worldwide elemental sulphur balance; however it is widely
accepted that a surplus currently exists and will continue into the
foreseeable future.
Recovered sulphur from domestic and foreign sources is the
major source for most sulphur customers and is the major source of competition
for FSC. As a by-product of the producer's refining or gas processing
operations, recovered sulphur can be produced at lower cost than mined
sulphur, but the costs to the customers depend in significant part on the
costs of handling and transportation to customers. The supply of U.S.
recovered sulphur alone, however, cannot satisfy total domestic demand, and
mined sulphur, along with imported recovered sulphur obtained principally from
Canada and Mexico are required to supply the balance. The principal
competitive risk to FSC's ability to mine sulphur profitably is the potential
for decreased domestic demand for sulphur, increased production from domestic
recovered sulphur producers, increases in imported recovered sulphur, and the
rate at which stored sulphur, particularly in Canada, is released into the
market.
Oil
A large number of companies and individuals are engaged in the
development and production of oil. A substantial number of the companies
engaged in the development and production of oil possess financial resources
considerably greater than those of FSC.
Customers
IMC-Agrico is FSC's single largest sulphur customer, accounting
for approximately 65% of sulphur sales and 55% of total revenues for 1997 (or
72% and 60%, respectively, on a pro forma basis after the contribution of
IGL's Main Pass interest), and approximately 73% of sulphur sales and 64% of
total revenues during the six months ended June 30, 1998. FSC's next four
largest customers represent approximately 23% of sulphur sales. These
companies represent a mix of industrial companies and phosphate fertilizer
manufacturers.
Oil produced at the Main Pass mine is sold to AMOCO Production
Company. This sales contract is for a term of six months, ending December 31,
1998, and is priced at market for the oil's grade.
Engineering, Research and Development
Crescent Technology, Inc. ("Crescent") furnishes certain
engineering consulting, research and development, environmental and safety
services to FSC. Many of Crescent's employees are former employees of FSC and
other formerly related companies who formed Crescent in 1993 to provide
technical services to such companies and others on an outsourced basis.
Crescent owns and operates laboratory and pilot plant facilities at Belle
Chasse, Louisiana, where minerals analysis, metallurgical work and other
research and testing are conducted, which contributes to FSC's technical
operations and commercial activities. Additionally, Crescent maintains
engineering consulting and mine development groups in New Orleans, Louisiana,
which provide the engineering consulting, environmental services and design
and construction supervision activities required to implement new ventures and
apply improvements to FSC's existing operations.
Regulatory Matters
FSC's mining, production and exploration activities are subject
to various federal, state and local laws governing exploration, development,
production, exports, taxes, labor standards, occupational health and safety,
toxic substances and other matters. Regulations pertaining to the environment
mandate, among other things, the maintenance of air and water quality
standards, solid and hazardous waste standards, protection of underground
sources of drinking water, and protection and regulation of wetland areas.
FSC succeeded to all licenses, permits or other authorizations obtained or
held by PLP or any of its affiliates insofar as they relate to the sulphur and
Main Pass oil and gas businesses. All material licenses, permits and other
authorizations currently required of each existing operation have been
obtained or timely applied for.
To comply with these federal, state and local laws, material
capital and operating expenditures on environmental projects, both with
respect to maintaining current operations and initiating new operations, may
be required in the future. The amount of such expenditures cannot be estimated
at this time, but such costs could have an adverse effect on FSC's financial
condition and results of operations. There is also a risk that more stringent
laws affecting the operation of mining companies could be enacted, and
although such regulations would affect the industry as a whole, compliance
with such new regulations could be costly.
Domestic oil operations are subject to extensive state and
federal regulation. Compliance is often burdensome, and failure to comply
carries substantial penalties. The heavy and increasing regulatory burden on
the oil industry increases the cost of doing business and consequently affects
profitability.
Environmental Matters and Reclamation Obligations
Federal laws and regulations have expanded greatly in recent
years with respect to environmental considerations. The United States
Department of Interior, the EPA and the Coast Guard administer laws and
regulations that impose liability upon the lessee under a federal lease for
the cost of cleanup of pollution damages. A serious incident of pollution may
also result in any one of these agencies requiring lessees under federal
leases to suspend or cease operations in the particular area. FSC carries
insurance against some, but not all, of these risks.
FSC, through its predecessors, has a history of commitment to
environmental responsibility. Since the 1940s, long before the general public
recognized the importance of maintaining environmental quality, FSC has
conducted pre-operational, bioassay, marine ecological and other environmental
surveys to ensure the environmental compatibility of its operations. FSC's
environmental policy commits its operations to compliance with applicable laws
and regulations. FSC has implemented corporate-wide environmental programs and
continues to study methods to reduce discharges and emissions.
The largest effluent from sulphur mining operations is the
pressure control water recovered from the sulphur-bearing formation. At Main
Pass, pressure control wells remove water from the formation and discharge the
water under the terms of a National Pollutant Discharge Elimination System
permit issued by the EPA. Other water discharges at Main Pass and five
terminals are made under permits issued by the EPA, state regulatory agencies
in the States of Texas, Louisiana or Florida, or local regulatory authorities.
All of these discharges are in compliance with applicable regulations in all
material respects.
FSC has various other permits with respect to air emissions,
solid waste production and disposal, dredging of bottom sediment and the
operation of port facilities that facilitate its business activities. Agencies
that provide these permits and authorizations include the MMS, the U.S. Coast
Guard, the Louisiana Department of Environmental Quality, the Louisiana
Department of Natural Resources, the Texas Natural Resources Conservation
Commission, and the Florida Department of Environmental Protection. FSC
believes it is in compliance in all material respects with the terms and
conditions of these permits and does not anticipate any significant new costs
to obtain new permits or to maintain compliance with existing permits.
FSC assumed responsibility for environmental liabilities
associated with the prior conduct of the businesses that PLP contributed to
FSC, including reclamation responsibilities at three previously producing
sulphur mines. Sulphur production was suspended at FSC's Caminada offshore
sulphur mine in 1994, and FSC will be required to salvage the mining
facilities once the remaining reserves are produced or it becomes certain that
such reserves will not be economically recoverable. FSC's salvage expense will
be shared on a 50/50 basis with Exxon Corporation, and the estimated expense
has been accrued.
FSC's Grande Ecaille mine, which was depleted in 1978, was
salvaged in accordance with applicable regulations at the time of closure.
Although FSC has no legal obligation to do so, it has undertaken to reclaim
wellheads and other materials, none of which are classified as hazardous, that
are being exposed through coastal erosion, and it is anticipated that these
reclamation activities will continue for several more years. Additional
expenditures may be required from time to time if erosion continues, although
FSC does not expect such expenditures to be material. Additional expenditures
may be necessary in the future to remove building foundations should FSC
decide it is in the best interest of FSC to do so.
In September 1997, FSC completed the salvage of its Grand Isle
mine in the Gulf of Mexico, which was depleted in 1991, by converting it into
an artificial reef for the enhancement of marine life. The reef was
constructed at the request of the State of Louisiana as part of its
"Rigs-to-Reefs" program through which the State and private industry are
cooperating to provide useful marine habitats using offshore structures that
are no longer needed for commercial activities. The Grand Isle reef is the
first in shallow water and is the largest in the Gulf of Mexico. The reef is
in the process of being donated to the State of Louisiana, after which time
the State will assume all responsibility for its upkeep, although FSC will
retain responsibility for any environmental liabilities that may arise from
previous mining activities with respect to this site.
On June 30, 1998, FSC announced plans to permanently
discontinue sulphur production at its Culberson sulphur mine. Production at
the mine is expected to cease by the end of 1998. Abandonment and restoration
costs for the Culberson mine have all been accrued at June 30, 1998, with
approximately $13 million of these costs expected to be incurred within the
next year. FSC has also closed nine other sulphur mines, all of which have
been reclaimed in accordance with applicable regulations and customary
industry practices. Reclamation of FSC's Main Pass sulphur mine will be
required upon the closure of that facility, and the related future costs are
being accrued.
Although FSC believes that its prior reclamation activities
were carried out in compliance with then applicable laws and regulations and
that it is accruing adequate reserves to cover future reclamation costs, no
assurance can be given that FSC will not incur materially greater reclamation
costs than those anticipated.
Employees
As of June 30, 1998, FSC had 312 active employees. There are
301 employees working at FSC's mine sites and terminals, and 11 employees
located at its New Orleans headquarters. A total of 99 employees are expected
to terminate employment by the first quarter of 1999 in connection with the
closure of the Culberson mine. None of the employees of FSC is represented
by any union or covered by any collective bargaining agreement. FSC believes
its employee relations are satisfactory.
FSC also uses contract personnel to perform many of the
technical tasks customarily conducted by FSC employees at its Main Pass mine,
which minimizes development costs and allows FSC to use its management staff
to direct the efforts of both the sulphur mine and oil operations. FSC also
receives executive, financial, legal and administrative and other related
services through a services agreement with FMS, a company that is 25% owned by
FSC.
MANAGEMENT FOLLOWING THE MERGERS
McMoRan Management
The following table sets forth certain information with respect
to McMoRan's current and prospective directors (the "Directors") and executive
officers (the "Executive Officers").
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
James R. Moffett................. 60 Co-Chairman of the Board
Richard C. Adkerson.............. 51 Co-Chairman of the Board, President and Chief Executive Officer
Rene L. Latiolais................ 56 Vice Chairman of the Board
Robert M. Wohleber............... 47 Executive Vice President, Chief Financial Officer and Director
C. Howard Murrish................ 57 Executive Vice President
Michael J. Arnold................ 45 Senior Vice President
Craig E. Saporito................ 47 Senior Vice President and Treasurer
John G. Amato.................... 54 General Counsel
J. Terrell Brown................. 58 Director
Thomas D. Clark, Jr.............. 57 Director
Robert A. Day.................... 54 Director
Gerald J. Ford................... 54 Director
B.M. Rankin, Jr.................. 68 Director
</TABLE>
James R. Moffett has served as the Chairman of the Board and
Chief Executive Officer of Freeport-McMoRan Copper & Gold Inc. ("FCX"), a
mining company, since July 1995, and as Chairman of the Board of FCX since May
1992. Mr. Moffett is also President Commissioner of P.T. Freeport Indonesia
Company ("PTFI"), an operating subsidiary of FCX, and Co-Chairman of the Board
of both MOXY and FSC. Mr. Moffett served as Chairman of the Board of FTX
until December 1997.
Richard C. Adkerson has served as President and Chief Operating
Officer of FCX since April 1997 and as Chief Financial Officer of FCX since
1994. Mr. Adkerson is also Co-Chairman of the Board and Chief Executive
Officer of MOXY, Vice Chairman of the Board of FSC. He served as Executive
Vice President of FCX from July 1995 to April 1997 and as Senior Vice
President of FCX from February 1994 to July 1995. He also served as Chairman
of the Board of Stratus Properties Inc. ("Stratus"), a real estate development
company, from May 1993 to August 1998, as President from August 1995 to May
1996 and as Chief Executive Officer from May 1996 to May 1998. Mr. Adkerson
served as Vice Chairman of FTX until December 1997 and as Senior Vice
President and Chief Financial Officer of FTX from 1992 to 1995.
Rene L. Latiolais has served as Vice Chairman of the Board of
FCX since 1994 and as Co-Chairman of FSC since December 1997. He held the
office of President and Chief Executive Officer of FTX until December 1997,
the office of Chief Operating Officer of FTX until 1995, and the office of
Executive Vice President of FTX until 1993. Mr. Latiolais is also a director
of IGL, an agricultural minerals company.
Robert M. Wohleber has served as President, Chief Executive
Officer and a director of FSC since November 1997. Mr. Wohleber has also
served as Senior Vice President of FCX since November 1997. He served as a
Vice President of FCX from July 1994 to November 1997 and as Vice President
and Treasurer of FCX from July 1993 to June 1994. Mr. Wohleber served as
Senior Vice President and Chief Financial Officer of FTX from November 1996 to
December 1997, as Vice President of FTX from June 1994 to November 1996, and
as Vice President and Treasurer of FTX from May 1992 to June 1994.
C. Howard Murrish has served as President and Chief Operating
Officer of MOXY since September 1994. He was a partner in CLK from February
1992 to September 1994 and has served in officer positions of FTX and its
subsidiaries since 1977.
Michael J. Arnold has served as Senior Vice President of FCX
since November 1996. From July 1994 to November 1996, Mr. Arnold was Vice
President and Controller -- Operations of FCX. Mr. Arnold also serves as a
Director and Executive Vice President of PTFI. Mr. Arnold also served as a
Senior Vice President of FTX from November 1996 until December 1997. From
October 1991 to November 1996, he was Vice President of FTX, serving as
Controller -- Operations from May 1993 to November 1996.
Craig E. Saporito has served as Senior Vice President and
Treasurer of FCX since November 1997. Mr. Saporito is also Treasurer of PTFI
and Vice President of MOXY. From July 1994 to November 1997, Mr. Saporito
was a Vice President of FCX and from May 1988 to December 1997 he was a Vice
President of FTX.
John G. Amato has served as General Counsel of MOXY since 1994
and of FSC since December 1997. Mr. Amato served as general counsel of
Stratus from August 1995 to August 1998. Prior to August 1995, Mr. Amato
served as General Counsel of FTX and FCX. Mr. Amato currently provides legal
and business advisory services to FCX under a consulting arrangement.
J. Terrell Brown is Chairman of the Board of Directors and
Chief Executive Officer of United Companies Financial Corporation ("United
Companies"), a provider of non-traditional consumer and mortgage lending. He
is also Chairman of the Board of Directors and Chief Executive Officer of each
of United Companies' subsidiaries. Mr. Brown is also a director of Hibernia
Corporation, a bank holding company, and Sizler Corporation, a real estate
company. He has served as a director and executive officer of United
Companies since 1969 and was named Chief Executive Officer in 1985. Mr. Brown
has served as a director of FSC since 1997.
Thomas D. Clark, Jr. has served as the Dean of E. J. Ourso
College of Business Administration at Louisiana State University since 1995
and is the Ourso Distinguished Professor of Business. Prior to his current
position, Mr. Clark held a variety of positions at Florida State University
and the Air Force Institute of Technology, including Chairman of Information
and Management Services and Director of the Center for Information Systems
Research. Mr. Clark also serves as a director of Ocean Energy, Inc., an oil
and gas exploration company. Mr. Clark has served as a director of FSC since
1997.
Robert A. Day has served as Chairman of the Board of Trust
Company of the West, an investment management company, for the last five
years. Mr. Day also serves as Chairman and President of W.M. Keck Foundation
and director of Fisher Scientific International Inc. He has been a director
of FCX since 1995 and a director of MOXY since 1994.
Gerald J. Ford has served as a Director, the Chairman of the
Board and Chief Executive Officer of California Federal Bank, Director of
Liberte Investors Inc., First Nationwide Holdings, Inc. and California Federal
Preferred Capital Corp. for the last five years. Mr. Ford has served as a
director of MOXY since 1998.
B.M. Rankin, Jr. is a private investor. Mr. Rankin has served
as a director of MOXY since 1994, FSC since 1997 and FCX since 1995.
McMoRan's Board of Directors consists of three classes, each
serving a three-year term of office, with the members of one class being
elected each year. Messrs. Clark, Ford and Wohleber are members of the class
serving until the 1999 annual meeting of stockholders, Messrs. Brown, Day and
Latiolais are members of the class serving until the 2000 annual meeting of
stockholders, and Messrs. Adkerson, Moffett and Rankin are members of the
class serving until the 2001 annual meeting of stockholders.
Director Compensation
Each Director who is not an employee of McMoRan will be paid an
annual director's fee of $15,000 and an attendance fee of $500 for each
committee meeting attended. Each Director also receives a fee of $1,000 for
attending each Board meeting and is also reimbursed for reasonable
out-of-pocket expenses incurred in attending board and committee meetings.
Each Director who is not an employee of McMoRan is also eligible to receive
options to purchase shares of McMoRan Common Stock under the terms of the
Director Plan described below.
Committees of the Board of Directors
McMoRan's Board of Directors will establish an Audit Committee
and a Compensation Committee. The Audit Committee will be responsible for
reviewing McMoRan's financial statements and annual audit and meeting with
McMoRan's independent public accountants to review McMoRan's internal controls
and financial management practices. The members of the Audit Committee are
expected to be Messrs. Day, Ford and Rankin.
The Compensation Committee will be responsible for recommending
to the Board of Directors compensation for McMoRan's key employees, including
its Executive Officers, and administering McMoRan's incentive plan and
performing such other similar functions as may be assigned by the Board of
Directors. The members of the Compensation Committee are expected to be Messrs.
Brown and Clark.
Executive Compensation
McMoRan was incorporated on July 30, 1998, and did not have any
Executive Officers or employees during the year ended December 31, 1997. The
future compensation and employment arrangements of McMoRan's Executive
Officers and employees will be determined by McMoRan's Board of Directors and
the Compensation Committee.
The services of the Executive Officers who are not employed by
McMoRan will be provided to McMoRan by FMS under a management services
agreement. FMS currently provides services to MOXY, FSC, FCX and Stratus.
McMoRan will reimburse FMS at FMS' cost, including allocated overhead, for
such services. Such Executive Officers will be compensated exclusively by FMS
for their services to McMoRan. Those Executive Officers who are also
employees of FMS are eligible to participate in certain FMS employee benefit
plans and programs. The total costs to FMS for such Executive Officers,
including the costs borne by FMS with respect to such plans and programs, will
be allocated to McMoRan, to the extent practicable, in proportion to the time
spent by such Executive Officers on McMoRan affairs. No other payment will be
made by McMoRan to FMS for providing such compensation and benefit plans and
programs to such Executive Officers.
Compensation Committee Interlocks and Insider Participation
The members of McMoRan's Compensation Committee are expected to
be Messrs. Brown and Clark, neither of whom has ever been an officer of
employee of McMoRan, nor has or has had any other significant relationship with
McMoRan. No Executive Officer of McMoRan serves as a director or member of the
compensation committee of another entity, one of whose executive officers will
serve as a Director or on the Compensation Committee of McMoRan.
THE MERGER AGREEMENT
This section of the Joint Proxy Statement/Prospectus describes
certain aspects of the proposed Merger, including certain provisions of the
Merger Agreement. The description of the Merger Agreement contained in this
Proxy Statement/Prospectus does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Annex A and which is incorporated herein by reference. All MOXY
stockholders and FSC stockholders are urged to read carefully the Merger
Agreement in its entirety.
Structure; Effective Time
The Merger Agreement provides that at the Effective Time of the
Mergers MOXY and FSC will each merge with and into wholly owned subsidiaries
of McMoRan and will continue to operate as separate businesses under their
current names. The Merger will become effective at the time the certificates
of merger are filed with the Delaware Secretary of State (or such later time
as is agreed in writing by the parties and specified in the certificates of
merger), which is expected to occur as soon as practicable after the last
condition precedent to the Merger set forth in the Merger Agreement has been
satisfied or waived.
Merger Consideration
The Merger Agreement provides that (i) each share of MOXY
Common Stock outstanding immediately prior to the Effective Time will, at the
Effective Time, be converted into 0.2 shares of McMoRan Common Stock and (ii)
each share of FSC Common Stock outstanding immediately prior to the Effective
Time will, at the Effective Time, be converted into 0.625 shares of McMoRan
Common Stock.
No fractional shares of McMoRan Common Stock shall be issued in
the Merger. In lieu thereof, each holder of shares of MOXY Common Stock or
FSC Common Stock otherwise entitled to receive a fractional share of McMoRan
Common Stock will be entitled to receive a cash payment in an amount equal to
such fraction of a share of McMoRan Common Stock multiplied by the closing
price of a share of McMoRan Common Stock on the NYSE or Nasdaq on the first
trading day following the date on which the Effective Time occurs.
Treatment of Stock-Based Awards
At the Effective Time, each outstanding option to purchase
shares of MOXY Common Stock or FSC Common Stock and each outstanding stock
appreciation right and stock incentive unit with respect to MOXY Common Stock
or FSC Common Stock granted under any of MOXY's or FSC's incentive plans,
whether vested or unvested, shall be canceled, and, in substitution therefor,
McMoRan shall issue an adjusted option to purchase McMoRan Common Stock
pursuant to a McMoRan incentive plan to be adopted at or prior to the Effective
Time. See "Conflicts of Interest--Treatment of Stock-Based Awards."
Conversion of Shares
Promptly after the Effective Time, ChaseMellon Shareholder
Services, L.L.C. ( the "Exchange Agent") will send to each holder of MOXY
Common Stock or FSC Common Stock a letter of transmittal and instructions for
use in exchanging certificates representing shares of MOXY Common Stock or FSC
Common Stock (together, the "Certificates") for the Merger Consideration.
Holders of unexchanged shares of MOXY Common Stock and FSC Common Stock will
not be entitled to receive any dividends payable by McMoRan after the Effective
Time until their Certificates are surrendered.
Certain Covenants
Interim Operations of MOXY and FSC. From the date of execution
of the Merger Agreement until the Effective Time, each of MOXY and FSC and its
subsidiaries are required to conduct their business in the ordinary course
consistent with past practice and to use their reasonable best efforts to
preserve intact their business organizations and relationships with third
parties and to keep available the services of their officers and employees. In
particular, during this period, each of MOXY and FSC may not amend its
organizational documents or incur or guarantee indebtedness other than pursuant
to existing credit facilities or credit facilities currently being negotiated
or in the ordinary course and neither MOXY nor FSC nor their subsidiaries may
merge or consolidate with any other person, acquire or dispose of material
assets except in the ordinary course, or take any action that would make any of
its representations and warranties under the Merger Agreement materially
inaccurate in any respect or agree or commit to any of the foregoing actions.
Each of MOXY and FSC has covenanted that it: will not make or allow any of its
non-wholly owned subsidiaries to make dividends or distributions with respect
to outstanding capital stock; will not make certain changes in employee and
other benefit arrangements; and will not and will not allow its subsidiaries to
issue any shares of capital stock or otherwise change its capitalization, grant
options, repurchase stock except in connection with a previously announced
repurchase program or amend any term of outstanding securities.
Certain Other Covenants. The Merger Agreement contains certain
mutual covenants of the parties, including, without limitation, covenants
requiring each of MOXY and FSC to: consult with the other before making public
announcements; notify the other of certain Mergers-related matters; cooperate
with the other in making certain governmental filings and in obtaining
consents and approvals necessary to consummate the Mergers; use its reasonable
best efforts to list the shares of McMoRan Common Stock to be issued in
connection with the Mergers on the NYSE or Nasdaq; give the other and the
other's representatives reasonable access to its and its subsidiaries'
offices, properties, books and records; use reasonable efforts to obtain prior
to the Effective Time certain letters from its affiliates.
No Solicitation by either MOXY or FSC; MOXY Board's and FSC
Board's Covenant to Recommend. Each of MOXY and FSC has covenanted that it
will not, and will cause its subsidiaries and its subsidiaries' officers,
directors, employees, investment bankers, consultants and other agents and its
affiliates not to, directly or indirectly, take any action to solicit,
initiate, encourage or facilitate the making of any Third Party Acquisition
Proposal (as defined below) or any inquiry with respect thereto, or engage in
discussions or negotiations with any person with respect thereto, or disclose
any non-public information relating to it or any of its subsidiaries or afford
access to its or any of its subsidiaries' properties, books or records to any
person that has made or is considering making any Third Party Acquisition
Proposal; provided, that the Merger Agreement does not prevent either MOXY or
FSC from furnishing non-public information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited bona fide Third
Party Acquisition Proposal received from such person so long as prior to
furnishing non-public information to, or entering into discussions or
negotiations with, such person (i) the Board of Directors of MOXY or FSC
(and/or its special committee), as the case may be, by a majority vote
determines in its good faith judgment that it is necessary to do so to comply
with its fiduciary duty to stockholders under applicable law, as advised by
legal counsel, and (ii) MOXY or FSC, as the case may be, receives from such
person an executed confidentiality agreement. Nothing contained in the Merger
Agreement prevents the Board of Directors of MOXY or FSC (and/or its special
committee), as the case may be, from complying with Rule 14e-2 under the
Exchange Act with regard to a Third Party Acquisition Proposal; provided, that
the Board of Directors of MOXY or FSC (and/or its special committee), as the
case may be, cannot recommend that its stockholders tender their shares in
connection with a tender offer except to the extent that such board or special
committee determines by majority vote in its good faith judgment that such a
recommendation is required to comply with the fiduciary duties of such board
(and/or such special committee) to stockholders under applicable law, as
advised by legal counsel. MOXY and FSC are required to promptly notify each
other (which notice must be provided orally and in writing and must identify
the person making such Third Party Acquisition Proposal and set forth the
material terms thereof) after receipt of any Third Party Acquisition Proposal,
indication that any person is considering making a Third Party Acquisition
Proposal or any request for non-public information relating to it or any of its
subsidiaries or for access to its properties, books or records or those of any
of its subsidiaries by any person that may be considering making, or has made,
a Third Party Acquisition Proposal. MOXY and FSC are required to keep each
other fully informed of the status and material terms of any such Third Party
Acquisition Proposal or request. Each of MOXY and FSC must, and must cause its
subsidiaries and the officers, directors, employees and other agents of it and
its subsidiaries and its affiliates to, immediately cease and cause to be
terminated all discussions and negotiations, if any, that have taken place
prior to August 1, 1998 with any parties with respect to any Third Party
Acquisition Proposal.
"Third Party Acquisition Proposal" means any offer or proposal
for, or any indication of interest in, a merger, share exchange,
reorganization, recapitalization action or other business combination
involving MOXY or FSC or any of their respective subsidiaries or the
acquisition of any equity interest in, or a substantial portion of the assets
of, MOXY or FSC, respectively, or any of their respective subsidiaries, other
than the transactions contemplated by this Agreement and other than an offer
for a bona fide de minimis equity interest, or for an amount of assets not
material to MOXY or FSC, as appropriate, and its respective subsidiaries taken
as a whole, that MOXY or FSC, as appropriate, has no reason to believe would
lead to a change of control of MOXY or FSC, as appropriate (or to the
acquisition of a substantial portion of the assets of MOXY or FSC, as
appropriate, and its respective subsidiaries).
Reasonable Best Efforts. Each party to the Merger Agreement
has agreed to use its reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable antitrust laws and regulations to consummate the
transactions contemplated by the Merger Agreement.
Indemnification and Limitation of Liability of MOXY's and FSC's
Directors and Officers
See "Conflicts of Interest--Indemnification and Limitation of
Liability of MOXY's and FSC's Directors and Officers."
Certain Representations and Warranties
The Merger Agreement contains, subject to certain exceptions,
reciprocal representations and warranties made by MOXY and FSC as to, among
other things: due organization and good standing; corporate authorization to
execute the Merger Agreement and consummate the Mergers and the other
transactions contemplated by the Merger Agreement; governmental approvals
required in connection with the transactions contemplated by the Merger
Agreement; absence of any breach of organizational documents and certain
material agreements as a result of the transactions contemplated by the Merger
Agreement; capitalization; SEC filings; financial statements; information
included in this Proxy Statement/Prospectus; absence of certain changes
(including changes which would have a material adverse effect) since March 31,
1998; absence of undisclosed material liabilities; compliance with laws;
litigation; finders' fees; tax matters; employee matters; environmental
matters; receipt of an opinion of its financial advisor; material contracts;
and transactions with its affiliates. "Material adverse effect" means a
material adverse change in the business, assets, condition (financial or
otherwise) or results of operations of MOXY and its subsidiaries, taken as a
whole, or FSC and its Subsidiaries, taken as a whole, as the case may be.
MOXY has represented to FSC that it has approved the Merger
Agreement, the MOXY Merger and the other transactions contemplated by the
Merger Agreement and has taken such action as is necessary to (i) satisfy any
applicable restrictions on business combinations contained in the Delaware
General Corporation Law or its certificate of incorporation and (ii) eliminate
the applicability of MOXY's Rights Agreement dated as of May 14, 1992, as
amended, to the Merger Agreement and the transactions contemplated thereby,
including the Mergers.
FSC has represented to MOXY that it has approved the Merger
Agreement, the FSC Merger and the other transactions contemplated by the Merger
Agreement and has taken such action as is necessary to (i) satisfy any
applicable restrictions on business combinations contained in the General
Corporation Law of the State of Delaware (the "DGCL") or its certificate of
incorporation and (ii) eliminate the applicability of FSC's Stockholder
Protection Rights Agreement, dated as of December 17, 1997, as amended, to the
Merger Agreement and the transactions contemplated thereby, including the
Mergers.
The representations and warranties contained in the Merger
Agreement do not survive the Effective Time.
Conditions to the Merger
Conditions to MOXY's and FSC's Obligations to Effect the
Merger. The obligations of each of MOXY and FSC to consummate the Merger
involving it are subject to the satisfaction of the following conditions:
(i) receipt of the approval of MOXY stockholders and FSC
stockholders;
(ii) absence of any judgment, injunction, order or decree
prohibiting or enjoining the consummation of the Mergers;
(iii) the registration statement of which this Proxy
Statement/Prospectus is a part being effective at the Effective Time and not
being subject to any stop order or related proceedings by the SEC;
(iv) the shares of McMoRan Common Stock to be issued in the
Mergers having been approved for listing on the NYSE or Nasdaq, subject to
official notice of issuance, if applicable;
(v) all authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations of waiting periods imposed by,
any governmental entity, having been made or having occurred; and
(vi) absence of any suit, action or proceeding by any governmental
entity having been instituted or being pending, or threatened, as a result of
the Merger Agreement or any of the transactions contemplated thereby that
could reasonably be expected, in the good faith opinion of MOXY or FSC, to
have a Material Adverse Effect on MOXY or FSC.
Conditions to the Obligations of MOXY. The obligations of MOXY
to effect the MOXY Merger are subject to the satisfaction of the following
further conditions:
(i) the performance in all material respects by FSC of its
obligations under the Merger Agreement at or prior to the Effective Time;
(ii) the representations and warranties of FSC contained in the
Merger Agreement being true in all material respects at and as of the
Effective Time as if made at and as of such time;
(iii) the receipt of the opinion of Jones, Walker, Waechter,
Poitevent, Carrere & Denegre, L.L.P. as to certain tax effects of the MOXY
Merger; and
(iv) since the date of the Merger Agreement, August 1, 1998, there
shall have been no event that has resulted or could reasonably be expected to
result in a material adverse effect on FSC.
Conditions to the Obligations of FSC. The obligation of FSC to
effect the FSC Merger is subject to the satisfaction of the following further
conditions:
(i) the performance in all material respects by MOXY of its
obligations under the Merger Agreement at or prior to the Effective Time;
(ii) the representations and warranties of MOXY contained in the
Merger Agreement being true in all material respects at and as of the
Effective Time as if made at and as of such time;
(iii) FSC having received the legal opinion of Miller & Chevalier,
Chartered as to certain tax effects of the FSC Merger; and
(iv) since the date of the Merger Agreement, August 1, 1998, there
having been no event that has resulted or could reasonably be expected to
result in a material adverse effect on MOXY.
Termination of the Merger Agreement
Right to Terminate. The Merger Agreement may be terminated at
any time prior to the Effective Time as follows:
(i) by mutual written consent of MOXY and FSC;
(ii) by either MOXY or FSC if:
(a) the Mergers have not been consummated by December 31,
1998 (but neither MOXY nor FSC may terminate if its breach is the reason
that the Mergers have not been consummated);
(b) the stockholders of MOXY or FSC fail to approve the
Merger Agreement at the applicable Special Meeting (including any
adjournments thereof);
(c) any final and non-appealable judgment, ruling,
injunction, order or decree enjoins MOXY or FSC from consummating the
Mergers; or
(d) there has been a breach by the other of any
representation, warranty or covenant, which breach cannot be cured and would
have a Material Adverse Effect on the party committing such breach;
(iii) by MOXY if prior to the FSC Meeting, the special committee
or Board of Directors of FSC shall have withdrawn or modified, or resolved to
withdraw or modify, in a manner adverse to MOXY its approval or recommendation
of the Merger Agreement; or
(iv) by FSC if prior to the MOXY Meeting, the special committee
or Board of Directors of MOXY shall have withdrawn or modified, or resolved to
withdraw or modify, in a manner adverse to FSC its approval or recommendation
of the Merger Agreement.
If the Merger Agreement is validly terminated, no provision
thereof shall survive (except for the provisions relating to survival of
covenants regarding insurance, further action and indemnification, agreements
relating to stock-based awards, termination expenses, governing law,
jurisdiction and waiver of jury trial and except for the separate provisions
of the Confidentiality Agreement) and such termination shall be without any
liability on the part of any party, unless such party is in breach of any
provision of the Merger Agreement.
Termination Expenses Payable by MOXY. MOXY has agreed to
reimburse FSC for all out-of-pocket expenses incurred by FSC in connection
with the transactions contemplated by the Merger Agreement if the Merger
Agreement is terminated in the circumstances described in paragraph (ii)(d) or
in paragraph (iv) of "--Right to Terminate."
Termination Expenses Payable by FSC. FSC has agreed to
reimburse MOXY for all out-of-pocket expenses incurred by MOXY in connection
with the transactions contemplated by the Merger Agreement, if the Merger
Agreement is terminated in the circumstances described in paragraph (ii)(d) or
in paragraph (iii) of "--Right to Terminate."
Other Expenses
Except as described above, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs or expenses, except that the
filing fee in connection with any HSR Act filing, transfer taxes and other
out-of-pocket transaction costs, including the expenses and compensation of
the Exchange Agent, and the expenses incurred in connection with the printing
and mailing of the Joint Proxy Statement/Prospectus, filing the Registration
Statement with the SEC and any expenses incurred by McMoRan relating to the
issuance, registration and listing of the McMoRan Common Stock and the
qualification thereof under state blue sky or securities laws, will be shared
equally by MOXY and FSC.
Amendments; No Waivers
Any provision of the Merger Agreement may be amended or waived
prior to the Effective Time only if the amendment or waiver is in writing and
signed, in the case of an amendment, by MOXY and FSC, and, in the case of a
waiver, by the party against whom the waiver is to be effective; provided,
that after the approval of the Merger Agreement by the stockholders of MOXY
and FSC, no amendment may be made to the conversion ratios or that by law
requires the further approval of the MOXY or FSC stockholders, unless so
approved.
EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS
MOXY
Director Compensation
Each non-employee and non-officer director of MOXY receives an annual
fee of $15,000 and a fee of $500 for attending each committee meeting. Each
director receives a fee of $1,000 for attending each MOXY Board meeting and is
also reimbursed for reasonable out-of-pocket expenses incurred in attending
MOXY Board and committee meetings.
Director Stock Options
Each non-employee and non-officer director of MOXY is eligible
for the grant of options under the MOXY 1994 Stock Option Plan for
Non-Employee Directors (the "MOXY Directors Plan"). Each MOXY option is
granted with an exercise price equal to 100% of the fair market value of the
shares of MOXY Common Stock on the grant date and expires ten years after the
grant date. Each eligible director may transfer his MOXY options during his
lifetime to his immediate family members or certain entities owned by or for
the benefit of his immediate family members or pursuant to a domestic
relations order.
In connection with MOXY's recapitalization transactions in
1997, MOXY amended the MOXY Directors Plan. The MOXY Directors Plan previously
provided for an annual grant to each eligible director of an option to purchase
1,656 shares of MOXY Common Stock; the MOXY Directors Plan now provides that,
commencing on June 1, 1998, the annual grant on June 1 of each year through
2003 to each eligible director will be an option to purchase 5,000 shares of
MOXY Common Stock. In addition, the MOXY Directors Plan, as amended, provided
for a grant on July 14, 1997 of an option to purchase 13,248 shares of MOXY
Common Stock. The adjustment for future annual grants and the additional grant
on July 14, 1997 provided each eligible director with options to purchase
approximately the same percentage of outstanding shares of MOXY Common Stock
following the consummation of the recapitalization transactions that he could
have purchased prior to the recapitalization transactions. In connection with
the Rights Offering, the exercise price of, and the number of shares subject
to, all outstanding stock options granted to eligible MOXY directors, other
than the MOXY options granted on July 14, 1997, were adjusted pursuant to
applicable anti-dilution provisions.
In accordance with the MOXY Directors Plan, each eligible MOXY
director was granted (i) on June 1, 1997 an adjusted option to purchase 2,205
shares of MOXY Common Stock at an adjusted exercise price of $2.4644 and (ii)
on July 14, 1997 an option to purchase 13,248 shares of MOXY Common Stock at
an exercise price of $3.6563. In 1997, none of the current directors exercised
MOXY options granted to them.
Executive Officer Compensation
Throughout 1997, James R. Moffett, Co-Chairman of the Board of
MOXY, Richard C. Adkerson, Co-Chairman of the Board and Chief Executive
Officer of MOXY, and James H. Lee, Senior Vice President of MOXY, were
employed by other entities and performed their duties for MOXY in accordance
with a Services Agreement between MOXY and FMS. In 1997, Messrs. Moffett,
Adkerson and Lee were compensated by their employers. MOXY paid a fixed fee of
$1,000,000 in 1997 for all services under the Services Agreement, which
included executive, technical, administrative, accounting, financial, tax and
other services. The Services Agreement was recently amended effective January
1, 1998 to provide that the amount that MOXY will pay for future services will
no longer be a fixed fee but will instead be the sum of (i) the expenses
incurred by FMS that are readily identifiable as having been incurred on
behalf of MOXY, (ii) the costs of goods, services and other items paid by FMS
on behalf of MOXY, and (iii) an allocable portion of all other expenses
incurred by FMS in connection with providing services to MOXY.
C. Howard Murrish and Glenn A. Kleinert were the only MOXY
executive officers employed by MOXY who earned in excess of $100,000 for
services provided to MOXY in 1997. The following table shows compensation that
MOXY paid to Messrs. Murrish and Kleinert (collectively with Messrs. Moffett,
Adkerson and Lee, the "Named MOXY Executive Officers") for all services
rendered to MOXY and its subsidiaries in 1997, 1996 and 1995.
MOXY Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------------------------- --------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation(1) Options/SARs(2) Compensation(3)
- --------------------------- ---- --------- --------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
C. Howard Murrish, 1997 $ 243,400 $ 175,000 $ 7,131 566,574 $ 22,658
President and Chief 1996 233,250 125,000 6,829 -- 9,658
Operating Officer 1995 225,000 125,000 4,827 99,861 9,311
Glenn A. Kleinert, 1997 160,883 75,000 -- 146,630 20,512
Senior Vice President 1996 154,700 50,000 -- -- 7,497
1995 148,842 50,000 -- 26,630 7,442
</TABLE>
- ----------
(1) Comprised of MOXY's payments of taxes in connection with certain benefits
that MOXY provided to Mr. Murrish. These reported amounts do not include
the total amounts of the perquisites provided to Messrs. Murrish and
Kleinert in 1997, 1996, and 1995, respectively, which were less than
$50,000 in each year.
(2) Reflects the adjustment of options for the Rights Offering.
(3) Comprised of (a) contributions under MOXY's defined contribution plans for
Mr. Murrish in the amounts of $20,500, $7,500 and $7,500, and for Mr.
Kleinert in the amounts of $20,502, $7,497 and $7,442 for 1997, 1996 and
1995, respectively, and (b) with respect to Mr. Murrish, MOXY's payments
for life insurance premiums in the amounts of $2,158, $2,158 and $1,811 for
1997, 1996 and 1995, respectively.
--------------------
The following table sets forth information with respect to the
grant of MOXY stock options to the Named MOXY Executive Officers in 1997.
MOXY Option Grants in 1997
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options
Underlying Granted to Grant Date
Options Employees in Exercise Present
Name Granted(1) 1997 Price Expiration Date Value(2)
- ---- ----------- ---------------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
James R. Moffett..... 66,574 (3) 2.1% $ 2.3236 (3) Apr. 29, 2007 $ 219,028
400,000 12.8 3.6563 July 14, 2007 1,164,000
Richard C. Adkerson.. 66,574 (3) 2.1 2.3236 (3) Apr. 29, 2007 219,028
400,000 12.8 3.6563 July 14, 2007 1,164,000
C. Howard Murrish.... 66,574 (3) 2.1 2.3236 (3) Apr. 29, 2007 219,028
500,000 16.0 3.6563 July 14, 2007 1,455,000
Glenn A. Kleinert.... 26,630 (3) 0.9 2.3236 (3) Apr. 29, 2007 87,613
120,000 3.8 3.6563 July 29, 2007 349,200
James H. Lee......... 15,978 (3) 0.5 2.3236 (3) Apr. 29, 2007 52,568
64,000 2.0 3.6563 July 14, 2007 186,240
</TABLE>
- ----------
(1) The MOXY options will become exercisable over a four-year period. The MOXY
options will become immediately exercisable in their entirety if (a) any
person or group of persons acquires beneficial ownership of shares
representing 20% or more of MOXY's total voting power or (b) under certain
circumstances, the composition of the MOXY Board is changed after a tender
offer, exchange offer, merger, consolidation, sale of assets or contested
election or any combination thereof. The MOXY options granted to Mr.
Adkerson may be transferred by him during his lifetime to his immediate
family members or certain entities owned by or for the benefit of his
immediate family members or pursuant to a domestic relations order.
(2) The Black-Scholes option pricing model was used to determine the grant date
present value of the options that MOXY granted to the Named MOXY Executive
Officers on April 29, 1997, as adjusted in connection with the Rights
Offering on October 10, 1997, and July 14, 1997. Under the Black-Scholes
option pricing model, the grant date present value of each MOXY option was
calculated to be $3.29 on April 29, 1997, as adjusted in connection with
the Rights Offering on October 10, 1997, and $2.91 on July 14, 1997. The
following facts and assumptions were used in making these calculations: (a)
an adjusted exercise price for each MOXY option as set forth under the
column labeled "Exercise Price"; (b) a fair market value of $3.875 and
$3.6563 for one share of MOXY Common Stock on April 29, 1997, as adjusted
in connection with the Rights Offering on October 10, 1997, and July 14,
1997, respectively; (c) a term for MOXY options as set forth under the
column labeled "Expiration Date"; (d) stock volatility of 69.4% and 67.2%,
respectively, based on an analysis of weekly closing stock prices of MOXY
Common Stock over a 3-year period and a 143-week period, respectively; and
(e) assumed risk-free interest rates of 5.92% and 6.54%, respectively,
these rates being equivalent to the yield on the respective grant date on a
treasury note with a maturity date comparable to the respective expiration
date of the MOXY options. No other discounts or restrictions related to
vesting or the likelihood of vesting of MOXY options were applied. The
resulting grant date present value for each MOXY option was multiplied by
the total number of MOXY options granted to each of the Named MOXY
Executive Officers.
(3) Reflects the adjustment of MOXY options in connection with the Rights
Offering.
The following table sets forth information with respect to all
outstanding MOXY stock options and SARs held by each of the Named MOXY
Executive Officers as of December 31, 1997. None of the Named MOXY Executive
Officers exercised any MOXY stock options or SARs in 1997.
MOXY Option/SAR Values at December 31, 1997
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Options/SARs at Money Options/SARs at
December 31, 1997(1) December 31, 1997(1)
------------------------------ --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James R. Moffett............ 536,642 566,436 263,152 170,093
Richard C. Adkerson......... 183,972 570,182 119,209 170,093
C. Howard Murrish........... 174,756 658,114 123,056 137,445
Glenn A. Kleinert........... 38,979 166,899 25,615 42,188
James H. Lee................ 13,314 93,294 14,733 29,037
</TABLE>
- ----------
(1) Reflects the adjustment of MOXY options and SARs in connection with the
Rights Offering.
Compensation Committee Interlocks and Insider Participation
The current members of the Corporate Personnel Committee of the
MOXY Board are Messrs. Day and Ford. In 1997, no MOXY executive officer served
as a director or member of the compensation committee of another entity, where
one of the other entity's executive officers served as a director of MOXY or
on the Corporate Personnel Committee of the MOXY Board.
Certain Transactions Involving MOXY
PLP is the owner of approximately 9% of the outstanding MOXY
Common Stock. Messrs. Adkerson and Moffett, directors and executive officers
of MOXY, were in 1997 executive officers of PLP and executive officers of FTX,
which was formerly the Administrative Managing General Partner and the
beneficial owner of a majority of the units of beneficial interests in PLP.
Prior to the IGL Merger in December 1997, FTX owned 50% of the
equity interest of FMS. The services of Messrs. Moffett and Adkerson, and
James Lee and John G. Amato, General Counsel of MOXY, are provided to MOXY
under the Services Agreement.
In February 1997, PLP agreed to acquire an interest in seven
leases (the "Offshore Leases") acquired by MOXY at a federal offshore lease
sale held in March 1997. At the lease sale MOXY's bids aggregated $5.5
million.
In August 1997, PLP acquired from affiliates of MCN (i) their
contractual rights to the MOXY/MCN Program, in which revenues and costs were
shared by MOXY and MCN 40% and 60%, respectively, (ii) the two producing oil
and gas properties (the "MCN Producing Properties") developed as a part of the
MOXY/MCN Program, and (iii) other exploratory properties acquired under the
MOXY/MCN Program for approximately $31 million, and PLP paid the MCN
affiliates approximately $12 million representing all the indebtedness that
MCN loaned to MOXY to fund its 40% interest in the MOXY/MCN Program. After
this acquisition, MOXY and PLP amended the MOXY/MCN Program to (i) extend the
MOXY/MCN Program term, (ii) include in the MOXY/MCN Program their interests in
the Offshore Leases, (iii) provide for the conduct of mutually agreed
exploration projects until the termination of the MOXY/MCN Program, (iv)
provide that PLP would reimburse MOXY for approximately $290,000 in overhead
costs each month, and (v) provide for the advancement of funds by PLP to MOXY
during the remaining term of the MOXY/MCN Program.
In connection with the foregoing transactions, MOXY and PLP
entered into a standby purchase agreement (the "Standby Purchase Agreement")
in 1997 pursuant to which MOXY paid PLP a standby fee of $6 million for (i)
providing a Standby Commitment to purchase for the subscription price of $3.50
per share (the "Subscription Price") all the shares of Common Stock not
purchased by the holders of MOXY subscription rights in the Rights Offering,
(ii) acquiring and holding the MCN Producing Properties for resale to MOXY,
and (iii) entering into the new $210 million MOXY Exploration Program with
MOXY and Mr. Ford, who subsequently became a director of MOXY, to explore and
develop exploratory prospects primarily in the Gulf of Mexico and onshore in
the Gulf Coast area. PLP also obtained from MOXY the option to purchase (the
"Purchase Option") at the Subscription Price, after its purchases pursuant to
the Standby Commitment, such additional shares of MOXY Common Stock as would
be necessary to provide it with up to a maximum of a 30% ownership interest in
MOXY.
In accordance with its Standby Commitment, PLP purchased from
MOXY in November 1997, 3,847,679 shares of Common Stock at the Subscription
Price. PLP elected not to exercise the Purchase Option, which expired in
November 1997. The Subscription Price was determined by negotiations between
MOXY and PLP.
Upon completion of the Rights Offering in 1997, MOXY acquired
from PLP the MCN Producing Properties for $24.5 million and paid PLP
approximately $20 million, which represented all amounts advanced to MOXY
under the MOXY/MCN Program. In connection therewith, MOXY and PLP terminated
the MOXY/MCN Program and dedicated to the MOXY Exploration Program all
properties that were subject to the MOXY/MCN Program, other than the MCN
Producing Properties, and their combined interest in a joint venture to
explore a project area in Terrebonne Parish, Louisiana. MOXY manages the MOXY
Exploration Program, selects all prospects and drilling opportunities, and
serves as operator of the MOXY Exploration Program. MOXY, Mr. Ford, and PLP
have committed $210 million for exploration expenditures to be incurred under
the MOXY Exploration Program. Most exploration expenditures under the
Exploration Program will be shared 56.4% by PLP, 37.6% by MOXY, and 6% by Mr.
Ford, with all other costs and revenues shared 47% by PLP, 48% by MOXY, and 5%
by Mr. Ford. The MOXY Exploration Program will terminate after initial
exploration program expenditures of $210 million have been committed or on
March 31, 2002, whichever is earlier.
Upon completion of the Rights Offering in 1997, MOXY and PLP
entered into an agreement pursuant to which MOXY markets all of PLP's oil and
gas production, including production from properties included in the MOXY
Exploration Program.
Management believes that each of the transactions summarized
above were conducted on terms as favorable to MOXY as could have been
negotiated in unaffiliated, third-party transactions.
In September 1997 MOXY and PLP acquired from Stratus of which
Mr. Adkerson was Chairman of the Board and Chief Executive Officer at that
time, interests in certain exploration properties for $3 million and dedicated
them to the MOXY/MCN Program. In addition, MOXY purchased from Stratus small
interests in a large number of other oil and gas properties for $1.5 million.
PLP loaned MOXY $2.7 million under the MOXY/MCN Program to pay its share of
the aggregate purchase price. The purchase price for the oil and gas
properties was determined by negotiations between the managements of MOXY and
Stratus based on the risk adjusted reserves attributable to the overriding
royalty interest, the acreage of the exploration prospects and the cash flow
generated by the other oil and gas properties.
During 1997, Mr. Day participated directly or indirectly
through various entities, on substantially the same basis as other parties, in
exploration and development operations on certain properties owned or operated
by MOXY. Mr. Day and such entities have ownership interests in such
properties ranging generally from 12.5% to 25%. Mr. Day's and such entities'
share of expenditures for exploration and development operations during 1997
amounted to approximately $7.6 million, and Mr. Day's and such entities' share
of revenues generated from the production operations on those properties
during 1997 amounted to approximately $2.4 million.
FMS and Mr. Rankin are parties to an agreement, renewable
annually, under which Mr. Rankin is obligated to render services to MOXY
relating to finance, accounting and business development and FMS provides Mr.
Rankin compensation, medical coverage under the FMS medical plan, and
reimbursement for taxes in connection with those benefits. In 1997, FMS paid
Mr. Rankin $56,000 pursuant to this arrangement.
FSC
Director Compensation
Each non-employee and non-officer director of FSC receives an
annual fee of $15,000 and a fee of $500 for attending each committee meeting.
Each director receives a fee of $1,000 for attending each FSC Board meeting and
is also reimbursed for reasonable out-of-pocket expenses incurred in attending
FSC Board and committee meetings.
Stock Option Plan for Non-Employee Directors
Each non-employee and non-officer director of FSC is eligible
for the grant of options under the FSC 1997 Stock Option Plan for Non-Employee
Directors (the "FSC Directors Plan"). On December 23, 1998, each eligible FSC
director was granted an option to purchase 5,000 shares of FSC Common Stock at
an exercise price of $11.5625, which was 100% of the fair market value of the
FSC shares on the grant date. On May 1, 1998 and on May 1 for each subsequent
year that the FSC Directors Plan is in effect, each eligible FSC director will
be granted an option to purchase 1,000 shares of FSC Common Stock at 100% of
the fair market value of the FSC shares on the grant date. Each option granted
under the FSC Directors Plan expires ten years after the grant date, and each
eligible FSC director may transfer his FSC options during his lifetime to his
immediate family members or certain entities owned by or for the benefit of
his immediate family members or pursuant to a domestic relations order. During
1997, none of the current non-employee and non-officer directors of FSC
exercised options granted under the FSC Directors Plan.
Adjusted Stock Award Plan
In connection with the FSC Spin-Off, all outstanding awards
granted under the stock option and incentive unit plans of FTX held by FSC's
directors, officers and employees were converted into an adjusted FTX award
(which was then converted into an IGL award in connection with the IGL Merger)
and a new non-qualified option to purchase FSC Common Stock (an "FSC Option")
under the FSC Adjusted Stock Award Plan. The number of shares of FSC Common
Stock subject to an FSC Option is the number of shares of FSC Common Stock
that a record holder of the number of shares of FTX common stock subject to
the related FTX award would have received from FTX in the FSC Spin-Off. If the
FTX award contained a "tax-offset" payment right feature, the FSC Option
derived from it relates to a number of shares of FSC Common Stock determined
as described above multiplied by a factor of 1.6556. No FSC Option contains a
"tax-offset" payment right feature. Each FSC Option has, however, in-tandem
"limited rights" equal in number to the number of shares of FSC Common Stock
subject to the FSC Option. The exercise price of each FTX award was allocated
between the adjusted FTX award and the FSC Option based on the relative fair
market values of FTX common stock and FSC Common Stock at the time of the IGL
Merger. Each FSC Option became fully exercisable as a result of the IGL Merger
and has the same remaining duration and other provisions as the FTX award from
which it was derived.
The following table sets forth information with respect to all
FSC Options granted to each non-officer director of FSC pursuant to the terms
of the FSC Adjusted Stock Award Plan on December 23, 1997. Information
regarding grants to officer directors is set forth in the table entitled "FSC
Option Grants in 1997" under the heading "Executive Officer Compensation"
below.
Option Grants to FSC Non-Officer Directors
under the FSC Adjusted Stock Award Plan
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Options Exercise
Name Granted Price Expiration Date
- ---- ----------- ------------ ---------------
<S> <C> <C> <C>
J. Terrell Brown...... 0 $ -- --
Thomas D. Clark, Jr... 0 -- --
B.M. Rankin, Jr....... 644 5.1733 May 2, 1998
622 7.2251 May 2, 1999
622 6.0824 May 2, 2000
622 6.3158 May 2, 2001
622 7.8395 May 2, 2002
617 7.9339 May 2, 2003
617 7.5867 May 2, 2004
583 7.5596 May 1, 2005
582 13.8382 May 1, 2006
582 11.0564 May 1, 2007
</TABLE>
Executive Officer Compensation
Throughout 1997, each of FSC's executive officers, including
Robert M. Wohleber, its President and Chief Executive Officer, was employed by
other entities or self-employed and performed duties for FSC in accordance with
a Services Agreement dated December 23, 1997 between FSC and FMS. Under the
Services Agreement, FMS provides FSC with executive, technical, administrative,
accounting, financial, tax and other services and FSC pays FMS (i) the expenses
incurred by FMS that are readily identifiable as having been incurred on behalf
of FSC, (ii) the cost of goods, services and other items paid by FMS on behalf
of FSC, and (iii) an allocable portion of all other expenses incurred by FMS in
connection with providing services to FSC. FSC paid FMS approximately $200,000
under the Services Agreement for services rendered from December 23 to December
31, 1997.
The amount of compensation that each of FSC's executive
officers earned after the FSC Spin-Off and that was allocated to FSC pursuant
to the Services Agreement was less than $100,000. The following table shows
compensation that was earned by Messrs. Wohleber, Moffett and Adkerson after
the FSC Spin-Off on December 22, 1997 and allocated to FSC pursuant to the
Services Agreement. For information with respect to Mr. Latiolais' consulting
arrangement, see "--Certain Transactions Involving FSC" below.
FSC Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term
-------------------------------------------- Compensation
Awards
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation(1) Options Compensation(2)
- --------------------------- ---- ------- -------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. Wohleber............. 1997 $ 6,164 $ 7,767 (3) $ 101 $ 109,694 $ 224
President and Chief Executive
Officer
James R. Moffett............... 1997 1,541 -- 65 126,937 115
Co-Chairman of the Board
Richard C. Adkerson............ 1997 1,320 -- 100 75,862 102 (4)
Vice Chairman of the Board
</TABLE>
- ----------
(1) Consists of payment of taxes in connection with certain benefits provided
to the listed officers. Does not include perquisites provided to the listed
officers in 1997, the aggregate amount of which did not exceed $50,000 for
any officer.
(2) Comprised of contributions to defined contribution plans and premium
payments for universal life insurance policies as follows:
<TABLE>
<CAPTION>
Life
Plan Insurance
Name Contributions Premiums
- ---- ------------- ----------
<S> <C> <C>
Mr. Wohleber............. $ 224 $ --
Mr. Moffett.............. 78 37
Mr. Adkerson............. 66 14
</TABLE>
(3) The amount of the bonus was determined by FTX and, prior to the IGL
Merger, FTX transferred to FSC funds equal to that amount.
(4) Includes $22 for a scholarship provided for the benefit of Mr. Adkerson's
child.
The following table sets forth information with respect to the
grant of FSC stock options to Messrs. Wohleber, Moffett, Adkerson and
Latiolais during 1997.
FSC Option Grants in 1997
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Grant Date
Name Granted (1) 1997 Price Expiration Date Present Value
- ---- ----------- ------------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Wohleber.... 465 (2) .06% $6.9850 May 3, 1999 $ 2,390 (3)
465 (2) .06% 6.7824 Nov. 7, 2000 2,720 (3)
659 (2) .08% 7.6406 May 5, 2002 3,769 (3)
691 (2) .09% 6.9990 Dec. 7, 2003 4,581 (3)
864 (2) .11% 7.4799 May 3, 2004 5,599 (3)
211 (2) .03% 13.7910 April 30, 2006 893 (3)
6,339 (2) .80% 10.9150 April 29, 2007 36,259 (3)
100,000 (4) 12.65% 11.5625 Dec. 23, 2007 562,000 (5)
James R. Moffett...... 7,205 (2) .91% 7.4319 Aug. 4, 2002 43,518 (3)
69,732 (2) 8.82% 13.1309 May 14, 2006 311,702 (3)
50,000 (4) 6.32% 11.5625 Dec. 23, 2007 281,000 (5)
Richard C. Adkerson... 1,442 (2) .18% 7.4319 Aug. 4, 2002 8,710 (3)
1,591 (2) .20% 6.9990 Dec. 7, 2003 10,548 (3)
3,811 (2) .48% 7.4799 May 3, 2004 24,695 (3)
19,018 (2) 2.41% 13.1309 May 14, 2006 85,010 (3)
50,000 (4) 6.32% 11.5625 Dec. 23, 2007 281,000 (5)
Rene L. Latiolais..... 12,967 (2) 1.64% 7.4319 Aug. 4, 2002 78,321 (3)
4,771 (2) .60% 6.9990 Dec. 7, 2003 31,632 (3)
81,353 (2) 10.29% 13.1309 May 14, 2006 363,648 (3)
25,000 (4) 3.16% 11.5625 Dec. 23, 2007 140,500 (5)
</TABLE>
- ----------
(1) Each FSC stock option has an equal number of tandem "limited rights," which
may be exercisable only for a limited period in the event of a tender
offer, exchange offer, a series of purchases or other acquisitions or any
combination thereof resulting in a person or group of persons becoming a
beneficial owner of shares representing 40% or more of FSC's total voting
power. Each limited right entitles the holder to receive cash equal to the
amount by which the highest price paid in such transaction exceeds the
exercise price.
(2) The options were granted pursuant to the FSC Adjusted Stock Award Plan and
were immediately exercisable upon grant. See "--FSC--Adjusted Stock Award
Plan" above.
(3) The Black-Scholes option pricing model was used to determine the grant date
present value of the options that FSC granted to the listed officers. The
following facts and assumptions were used in making this calculation: (a)
an exercise price for each FSC option as set forth under the column labeled
"Exercise Price"; (b) a fair market value of $11.5625 for one share of FSC
Common Stock on the grant date; (c) a term for FSC options as set forth
under the column labeled "Expiration Date"; (d) a stock volatility of
21.2%, based on an analysis of weekly closing stock prices of FTX common
stock over a 78-week period ending before the announcement in July, 1997,
of the IGL Merger; and (e) an assumed risk-free interest rate that ranges
from 5.67% to 5.83%, each rate being equivalent to the yield on the grant
date on a treasury note with a maturity date comparable to the expiration
date of the FSC options. No other discounts or restrictions related to
vesting or the likelihood of vesting of the FSC options were applied. The
resulting grant date present value for the FSC options was multiplied by
the total number of shares covered by the FSC options granted to the listed
officers.
(4) The FSC options will become exercisable over a four-year period. The FSC
options will become immediately exercisable in their entirety if (a) any
person or group of persons acquires beneficial ownership of shares
representing 20% or more of FSC's total voting power or (b) under certain
circumstances, the composition of the FSC Board is changed after a tender
offer, exchange offer, merger, consolidation, sale of assets or contested
election or any combination thereof. The FSC options granted to each of the
listed officers may be transferred by him during his lifetime to his
immediate family members or certain entities owned by or for the benefit of
his immediate family members or pursuant to a domestic relations order.
(5) The Black-Scholes option pricing model was used to determine the grant date
present value of the options that FSC granted to the listed officers. Under
the Black-Scholes option pricing model, the grant date present value of the
FSC options was calculated to be $5.62. The following facts and assumptions
were used in making this calculation: (a) an exercise price for each FSC
option of $11.5625; (b) a fair market value of $11.5625 for one share of
FSC Common Stock on the grant date; (c) a term for FSC options as set forth
under the column labeled "Expiration Date"; (d) a stock volatility of
21.2%, based on an analysis of weekly closing stock prices of FTX common
stock over a 78-week period ending before the announcement in July, 1997,
of the IGL Merger; and (e) an assumed risk-free interest rate of 5.83%,
this rate being equivalent to the yield on the grant date on a treasury
note with a maturity date comparable to the expiration date of the FSC
options. No other discounts or restrictions related to vesting or the
likelihood of vesting of the FSC options were applied. The resulting grant
date present value for the FSC options was multiplied by the total number
of shares covered by the FSC options granted to the listed officers.
--------------------
The following table sets forth information with respect to all
outstanding FSC stock options held by Messrs. Wohleber, Moffett, Adkerson and
Latiolais as of December 31, 1997. None of the listed officers exercised any
FSC stock options during 1997.
FSC Option Values at December 31, 1997
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options at
Options at December 31, 1997 December 31, 1997
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert M. Wohleber......... 9,694 100,000 $ 19,499 $ 18,750
James R. Moffett........... 76,937 50,000 31,112 9,375
Richard C. Adkerson........ 25,862 50,000 30,059 9,375
Rene L. Latiolais.......... 99,091 25,000 78,660 4,688
</TABLE>
Compensation Committee Interlocks and Insider Participation
The current members of the Corporate Personnel Committee of the
FSC Board are Messrs. Brown and Clark. In 1997, no FSC executive officer
served as a director or member of the compensation committee of another
entity, where one of the other entity's executive officers served as an FSC
director or on the Corporate Personnel Committee of the FSC Board.
Certain Transactions Involving FSC
Prior to the FSC Spin-Off, Messrs. Adkerson, Latiolais, Moffett,
Rankin, and Wohleber were affiliates of FTX and PLP, which beneficially owned
all FSC Common Stock, and following the FSC Spin-Off and the IGL Merger,
Messrs. Latiolais and Moffett joined the Board of Directors of IGL. Mr.
Moffett resigned from the IGL Board in 1998. In 1997, contemporaneously with
the execution of the agreement and plan of merger between FTX and IGL pursuant
to which the IGL Merger was consummated, FTX, PLP and FSC entered into a
distribution agreement (the "Distribution Agreement"), pursuant to which PLP
contributed to FSC substantially all the assets used by PLP in the production,
marketing and distribution of sulphur and its oil and gas production
operations, and FSC assumed generally those liabilities associated with the
ownership, acquisition, conduct or past operation of the assets received from
PLP (the "Transferred Businesses"). In connection therewith, PLP obtained all
the issued and outstanding shares of FSC Common Stock, which it distributed to
its unitholders. The FSC shares received by FTX were subsequently distributed
by FTX to its stockholders. The Distribution Agreement provides that FTX and
PLP, on the one hand, and FSC, on the other hand, will indemnify one another
against certain losses, damages, claims and liabilities assumed or retained by
the indemnifying party.
In 1997, FSC, FTX and PLP entered into an employee benefits
agreement (the "Employee Benefits Agreement") that provided for the transfer
to FSC of assets and liabilities pertaining to certain employee benefits plans
maintained by FTX for the benefit of FTX employees who performed services to
PLP in connection with the Transferred Businesses and who became FSC employees
(the "Transferred Employees"). Assets sufficient to fund the transferred
qualified plan liabilities were transferred from the FTX plans to the
comparable FSC plans, and assets sufficient to fund the transferred
non-qualified plan liabilities were transferred from FTX to FSC. FTX paid FSC
an amount to cover the liability that FTX accrued prior to the IGL Merger, but
FSC agreed to reimburse FTX quarterly for a portion of those expenses for
former employees who provided services primarily for the Transferred
Businesses. In addition, FSC agreed to reimburse FTX for claims and premiums
related to "COBRA" coverage for certain employees who lose medical coverage as
a result of the IGL Merger and related transactions.
Pursuant to the Employee Benefits Agreement, certain
outstanding stock options, stock appreciation rights, and stock incentive
units relating to FTX common stock that had been granted under an FTX stock
option or stock incentive plan were converted into, among other things, an FSC
Option. For information with respect to FSC Options, see "--FSC--Adjusted
Stock Award Plan" above.
In accordance with the terms of the Employee Benefits Agreement,
FTX calculated its liability under various non-qualified incentive plans in
respect of the deferred compensation of the Transferred Employees. In
consideration of a cash payment by FTX to FSC in an amount equal to that
liability, FSC assumed that liability in respect of the Transferred Employees.
Similarly, FTX determined the total amount of cash bonus payments that it would
have made to the Transferred Employees as a group under non-qualified incentive
plans for 1997, and, in consideration of a cash payment by FTX to FSC in an
amount equal thereto, FSC assumed the payment of those amounts to the
Transferred Employees.
FSC and IMC-Agrico are parties to a sulphur supply agreement
(the "Sulphur Supply Agreement"). At the time that the Sulphur Supply
Agreement was negotiated and executed, FSC was a wholly owned subsidiary of
PLP, which currently owns a 41.45% interest in IMC-Agrico. Pursuant to the
Sulphur Supply Agreement, FSC has agreed to supply, and IMC-Agrico has agreed
to purchase, approximately 75% of IMC-Agrico's annual sulphur consumption for
as long as IMC-Agrico has an operational need for sulphur. The price per ton
for all sulphur delivered under this agreement is based upon the weighted
average market price for sulphur delivered by other sources to IMC-Agrico's
New Wales production plants in central Florida, except that FSC is entitled to
a premium with respect to approximately 40% of the sulphur that it delivers
under this agreement. IMC-Agrico also pays a portion of the freight costs
associated with the delivery of sulphur under this agreement.
FSC and MOXY entered into an agreement effective as of the FSC
Spin-Off pursuant to which MOXY will market all of FSC's oil and gas
production.
In December 1997, FMS entered into an agreement pursuant to
which Mr. Latiolais will provide consulting services relating to the
businesses, operations, and prospects of FSC and other entities during 1998.
Under this agreement, Mr. Latiolais will receive an annual fee of $230,000,
and reimbursement of reasonable out-of-pocket expenses incurred in connection
with rendering consulting services. Pursuant to this agreement, Mr. Latiolais
receives no annual fee for serving on the FSC Board, no FSC Board meeting
attendance fees and no additional stock options under any FSC stock option
plan.
DESCRIPTION OF McMoRan CAPITAL STOCK
Description of Capital Stock
The authorized capital stock of McMoRan will consist of
150,000,000 shares of McMoRan Common Stock and 50,000,000 shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). Upon completion of the
Mergers, approximately 14.1 million shares of McMoRan Common Stock will be
outstanding, and no shares of Preferred Stock will be outstanding. Prior to the
Mergers, there has been no public market for the McMoRan Common Stock.
Application has been made to have the McMoRan Common Stock listed on the NYSE.
The following summary description of the capital stock of McMoRan is qualified
in its entirety by reference to McMoRan's Certificate of Incorporation ("McMoRan
Charter") and McMoRan's by-laws ("McMoRan Bylaws"), copies of which are filed as
exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part.
McMoRan Common Stock
Each holder of McMoRan Common Stock is entitled to one vote for
each share of McMoRan Common Stock held of record on all matters as to which
stockholders are entitled to vote and stockholders may not cumulate votes for
the election of directors. Subject to any preferences accorded to the holders
of the Preferred Stock, if and when issued by the Board of Directors, holders
of McMoRan Common Stock are entitled to dividends at such times and in such
amounts as the Board of Directors may determine. McMoRan does not intend to
pay dividends for the foreseeable future. Upon the dissolution, liquidation
or winding up of McMoRan, after payment of debts, expenses and the liquidation
preference plus any accrued dividends on any outstanding shares of Preferred
Stock, the holders of McMoRan Common Stock will be entitled to receive all
remaining assets of McMoRan ratably in proportion to the number of shares held
by them. Holders of McMoRan Common Stock have no preemptive, subscription or
conversion rights and are not subject to further calls or assessments, or
rights of redemption by McMoRan.
Preferred Stock
McMoRan's Board of Directors has the authority, without
approval of the stockholders, to issue shares of Preferred Stock in one or
more series and to fix the number of shares and rights, preferences and
limitations of each series. Among the specific matters that may be determined
by the Board of Directors are the dividend rights, the redemption price, if
any, the terms of a sinking fund, if any, the amount payable in the event of
any voluntary liquidation, dissolution or winding up of the affairs of
McMoRan, conversion rights, if any, and voting powers, if any.
The existence of authorized but unissued McMoRan Common Stock
and undesignated Preferred Stock may enable the Board of Directors to make
more difficult or to discourage an attempt to obtain control of McMoRan by
means of a merger, tender offer, proxy contest or otherwise. If, in the
exercise of its fiduciary responsibilities, the Board of Directors were to
determine that a takeover proposal was not in McMoRan's best interest, such
shares could be issued by the Board of Directors without stockholder approval
in one or more transactions that might prevent or make more difficult or
costly the completion of the takeover transaction by diluting the voting or
other rights of the proposed acquiror or insurgent stockholder group, by
creating a substantial voting block in institutional or other hands that might
undertake to support the position of the incumbent Board of Directors, by
effecting an acquisition that might complicate or preclude the takeover, or
otherwise. McMoRan Charter grants the Board of Directors broad power to
establish the rights and preferences of the authorized and unissued Preferred
Stock, one or more series of which could be issued entitling holders (i) to
vote separately as a class on any proposed merger or consolidation, (ii) to
cast a proportionately larger vote together with the McMoRan Common Stock on
any such transaction or for all purposes, (iii) to elect directors having
terms of office or voting rights greater than those of other directors, (iv)
to convert Preferred Stock into a greater number of shares of McMoRan Common
Stock or other securities, (v) to demand redemption at a specified price under
prescribed circumstances related to a change of control or (vi) to exercise
other rights that could have the effect of impeding a takeover. The issuance
of shares of Preferred Stock pursuant to the Board of Directors' authority
described above may adversely effect the rights of holders of the McMoRan
Common Stock.
In addition, certain other charter provisions that are
described below may have the effect, either alone, in combination with each
other, or combined with the existence of authorized but unissued capital
stock, or making more difficult or discouraging an acquisition of McMoRan
deemed undesirable by the Board of Directors.
Certain Charter and By-law Provisions
Classified Board of Directors. McMoRan Charter and By-laws
divide the members of the Board of Directors into three classes, with each
class to be as nearly equal in number of directors as possible, serving
staggered three-year terms.
Size of the Board of Directors; Removal of Directors; Filling
of Vacancies on the Board of Directors. McMoRan Charter and By-laws provide
that the number of directors shall be fixed from time to time by the Board of
Directors, but shall not be fewer than the number required by Delaware law.
Under McMoRan Charter, a vote of 80% of the outstanding shares of capital
stock entitled to vote generally in an election of directors (the "Voting
Stock") is required to remove a director, and a director may only be so
removed for cause involving fraud or a violation of the duty of loyalty as
determined by a final judgment of a court of competent jurisdiction. McMoRan
Charter also provides that a newly created directorship resulting from an
increase in the number of directors may only be filled by the Board of
Directors. Any vacancies on the Board of Directors resulting from death,
resignation, removal or other cause may be filled only by the affirmative vote
of both (a) a majority of the remaining directors then in office and (b) a
majority of all Continuing Directors (defined below), voting as a separate
group. In addition, these provisions specify that any director elected to
fill a vacancy on the Board of Directors will serve for the remainder of the
full term of the class of directors in which the new directorship was created
or in which the vacancy occurred.
Stockholder Action by Unanimous Consent. Under Delaware law,
unless a corporation's certificate of incorporation specifies otherwise, any
action that could be taken by its stockholders at an annual or special meeting
may be taken, instead, without a meeting and without notice to or a vote of
other stockholders, if a consent in writing is signed by holders of
outstanding stock having voting power that would be sufficient to take such
action at a meeting at which all outstanding shares were present and voted.
McMoRan Charter provides that stockholder action may be taken only at an
annual or special meeting of stockholders. As a result, McMoRan's
stockholders may not act upon any matter except at a duly called meeting.
Amendment of the By-laws. Under Delaware law, the power to
adopt, amend or repeal by-laws is conferred upon the stockholders; however, a
corporation may in its certificate of incorporation also confer upon the board
of directors the power to adopt, amend or repeal its By-laws. McMoRan Charter
and By-laws grant the Board of Directors the power to adopt, amend and repeal
the By-laws at any regular or special meeting of the Board of Directors but
only upon the affirmative vote of both (i) a majority of the directors then in
office and (ii) a majority of the Continuing Directors (defined below), voting
as a separate group. McMoRan's stockholders may adopt, amend or repeal the
By-laws but only at any regular or special meeting of stockholders by an
affirmative vote of 80% of the Voting Stock.
Advance Notice of Stockholder Nominations and Stockholder
Business. McMoRan's By-laws permit stockholders to nominate a person for
election as a director or bring other matters before a stockholders' meeting
only if written notice of such intent to nominate or bring business before a
meeting is given as described below.
A stockholder intending to nominate a person for election as a
director or to propose other matters at the annual stockholders' meeting must
furnish notice of such intention to McMoRan's Secretary not less than 60 days
nor more than 90 days prior to the meeting, subject to certain exceptions.
The notice must, among other things, state the name, age and address of the
stockholder submitting the notice and any persons acting in concert with such
stockholder, the class and number of shares of Voting Stock held by the
stockholder and the dates such stock was acquired, and must include a
representation by such stockholder that he or she is a holder of record of
McMoRan's capital stock and intends to appear at the meeting in person and
make the nomination or bring up the specified matter.
In the case of nominations for directors, the notice must also
state (i) the name, age, address and principal occupation of each nominee,
(ii) a description of all arrangements between the nominating stockholder and
each nominee, (iii) other information required to be included in a proxy
statement pursuant to the proxy rules of the SEC and (iv) the consent of each
nominee to serve as a director of McMoRan if elected and an affidavit of each
such nominee certifying that he meets the qualifications necessary to serve as
a director of McMoRan. In case of other proposed business, the notice must
set forth a brief description of the business, the reasons for conducting such
business at the meeting and any material interest of the stockholder therein.
The Chairman of the stockholders' meeting will have the power to disregard any
nomination or other matter that fails to comply with these procedures. In
addition, McMoRan's Secretary may require any stockholders submitting a notice
of intent to make a nomination or bring other business before a stockholders'
meeting to furnish such documentary information as may be necessary to
determine that such stockholder is a holder of record of McMoRan's capital
stock.
McMoRan's By-laws provide that McMoRan may disregard any
stockholder proposal that is, in the judgment of the Board of Directors, not a
proper subject for action by stockholders under Delaware law. Notwithstanding
the foregoing, a stockholder seeking to have a proposal included in McMoRan's
proxy statement shall comply with the requirements of Regulation 14A under the
1934 Act (including, without limitation, Rule 14a-8 or any successor
provision).
Amendment of Certain Provisions of the Certificate of
Incorporation. Under Delaware law, unless the certificate of incorporation
specifies otherwise, a corporation's certificate of incorporation may be
amended by the affirmative vote of the majority of the stockholders. McMoRan
Charter requires the affirmative vote of 80% of the Voting Stock to amend,
alter or repeal certain provisions of the Certificate regarding (i)
stockholder unanimous written consents, (ii) the classification, filling of
vacancies and removal of members of the Board of Directors, (iii) the
limitation of liability of directors, (iv) business combinations and (v)
amendments to the Certificate and the By-laws.
Special Meetings of the Stockholders. McMoRan's By-laws provide
that special meetings of stockholders may be called only by either Co-Chairman
or any Vice Chairman of the Board of Directors, McMoRan's President and Chief
Executive Officer or by a vote of the majority of the Board of Directors.
Stockholders do not have the power to call a special meeting.
Business Combinations. Delaware law provides that, unless
otherwise provided in a corporation's certificate of incorporation, a merger,
sale of substantially all of the assets or dissolution of a company requires
the approval of the holders of a majority of the outstanding capital stock.
McMoRan Charter does not alter this vote requirement generally, but provides
that, if one of these transactions or certain issuances, reclassifications or
other transactions affecting McMoRan's capital stock involves an Interested
Stockholder (defined below), the transaction must be approved (i) by a
majority of both the directors then in office and a majority of the Continuing
Directors (defined below), voting as a separate group and (ii) by the
affirmative vote of (A) the holders of 80% of the Voting Stock, voting
together as a single class, and (B) 75% of the Voting Stock other than Voting
Stock beneficially owned by the Interested Stockholder. An Interested
Stockholder is any person who (i) beneficially owns 15% or more of the Voting
Stock or (ii) is an affiliate of McMoRan and, at any time within two years
prior to the date in question, beneficially owned 15% or more of the then
outstanding Voting Stock, other than McMoRan or its subsidiaries, or any
person owning any shares of the capital stock of McMoRan as of the date of
filing of McMoRan Charter and any person whose beneficial ownership of any
capital of McMoRan arises solely as a result of a trusteeship or a custodial
relationship with any employee stock ownership or other employee benefit plan
of McMoRan. A Continuing Director is any member of the Board of Directors who
is not an Interested Stockholder or an affiliate thereof and (i) was a
director prior to the time the Interested Stockholder became an Interested
Stockholder or (ii) was recommended or elected by a majority of the Continuing
Directors at a meeting at which a quorum consisting of a majority of the
Continuing Directors was present. In the absence of an Interested
Stockholder, the Continuing Directors shall mean all the directors then in
office.
This additional voting requirement does not apply if the
transaction has been approved by a majority of the Continuing Directors, or if
all of the following conditions have been met: (i) the aggregate amount of
consideration received per share by the holders meet certain "fair price"
criteria, (ii) prior to the consummation of the transaction (a) there has been
no failure to declare or pay dividends on any outstanding Preferred Stock or
Common Stock, (b) the Interested Stockholder has not received the benefits
(except proportionately as a stockholder) of any loans, advances or other
financial assistance or tax advantages provided by McMoRan, and the interested
stockholder has not caused any material change in McMoRan's equity capital
structure; and (iii) the Interested Stockholder has not become the beneficial
owner of any additional shares of Voting Stock except as part of the
transaction that resulted in such Interested Stockholder becoming an
Interested Stockholder or as a result of a pro rata stock dividend.
McMoRan is also subject to Section 203 of the DGCL, which
imposes a three-year moratorium on the ability of Delaware corporations to
engage in a wide range of specified transactions with any interested
stockholder, defined to include, among others, any person other than such
corporation and any of its majority-owned subsidiaries who own 15% or more of
any class or series of stock entitled to vote generally in the election of
directors, unless, among other exceptions, the transaction is approved by (i)
the Board of Directors prior to the date the interested stockholder obtained
such status, or (ii) the holders of two-thirds of the outstanding shares of
each class or series of stock entitled to vote generally in the election of
directors, not including those shares owned by the interested stockholder.
The provisions described above may tend to deter any potential
unfriendly offers or other efforts to obtain control of McMoRan that are not
approved by the Board of Directors and thereby deprive the stockholders of
opportunities to sell shares of McMoRan Common Stock at prices higher than the
prevailing market price. On the other hand, these provisions will tend to
assure continuity of management and corporate policies and to induce any
person seeking control of McMoRan or a business combination with McMoRan to
negotiate on terms acceptable to the then elected Board of Directors.
Rights Agreement
McMoRan plans to adopt a rights agreement at or prior to the
Mergers, pursuant to which each share of McMoRan Common Stock, including any
shares issued in connection with the Mergers and any other shares of McMoRan
Common Stock issued prior to the Distribution Date (as defined below), will
include an associated preferred stock purchase right (a "Right"). The terms
and conditions of the Rights are to be set forth in a Rights Agreement between
McMoRan and Mellon Securities Trust Company, as rights agent (the "Rights
Agreement"). Prior to the Distribution Date, the Rights will be evidenced by
the certificates for and will be transferred with the McMoRan Common Stock,
and the registered holders of the McMoRan Common Stock will be deemed to be
the registered holders of the Rights. After the Distribution Date, the rights
agent will mail separate certificates evidencing the Rights to each record
holder of McMoRan Common Stock as of the close of business on the Distribution
Date, and thereafter the Rights will be transferable separately from McMoRan
Common Stock. The "Distribution Date" generally means the earlier of (i) the
close of business on the 10th day after the date (the "Stock Acquisition
Date") of the first public announcement that a person (other than McMoRan or
any of its subsidiaries or any employee benefit plan of McMoRan or any such
subsidiary) has acquired beneficial ownership of 15% or more of the
outstanding shares of McMoRan Common Stock (an "Acquiring Person") and (ii)
the close of business on the 10th business day (or such later day as may be
designated before any person has become an Acquiring Person by McMoRan's Board
of Directors) after the date of the commencement of a tender or exchange offer
by any person which would, if consummated, result in such person becoming an
Acquiring Person.
After the Distribution Date, each Right will be exercisable to
purchase, for $80.00 (the "Purchase Price"), one one-hundredth of a share of
Series A Participating Cumulative Preferred Stock, par value $0.01 per share
(the "Preferred Stock"). Prior to the Distribution Date, the Rights will not be
exercisable to purchase the Preferred Stock.
At any time after any person has become an Acquiring Person
(but before the occurrence of any of the events described in the second
succeeding paragraph), each Right (other than Rights beneficially owned by the
Acquiring Person and certain affiliated persons) will entitle the holder to
purchase, for the Purchase Price, a number of shares of McMoRan Common Stock
having a market value of twice the Purchase Price.
At any time after any person has become an Acquiring Person
(but before any person becomes the beneficial owner of 50% or more of the
outstanding shares of McMoRan Common Stock or the occurrence of any of the
events described in the next paragraph), the McMoRan Board of Directors may
exchange all or part of the Rights (other than Rights beneficially owned by an
Acquiring Person and certain affiliated persons) for shares of McMoRan Common
Stock at an exchange ratio of one share of McMoRan Common Stock per Right.
If, after any person has become an Acquiring Person, (1)
McMoRan is involved in a merger or other business combination in which McMoRan
is not the surviving corporation or McMoRan Common Stock is exchanged for other
securities or assets or (2) McMoRan and/or one or more of its subsidiaries
sells or otherwise transfers assets or earning power aggregating more than 50%
of the assets or earning power of McMoRan and its subsidiaries, taken as a
whole, then each Right (other than Rights beneficially owned by the Acquiring
Person and certain affiliated persons) will entitle the holder to purchase,
for the Purchase Price, a number of shares of common stock of the other party
to such business combination or sale (or in certain circumstances, an
affiliate) having a market value of twice the Purchase Price.
McMoRan's Board of Directors may redeem all of the Rights at a
price of $0.01 per Right at any time before any person has become an Acquiring
Person. The Rights will expire ten years from the date of the Rights
Agreement, unless earlier exchanged or redeemed.
For so long as the Rights are redeemable, the Rights Agreement
may be amended in any respect. At any time when the Rights are no longer
redeemable, the Rights Agreement may be amended in any respect that does not
adversely affect Rights holders (other than any Acquiring Person and certain
affiliated persons), cause the Rights Agreement to become amendable other than
in accordance with this sentence or cause the Rights again to become
redeemable.
Rights holders have no rights as stockholders of McMoRan,
including the right to vote and to receive dividends.
The Rights Agreement includes antidilution provisions designed
to prevent efforts to diminish the effectiveness of the Rights.
The Rights have certain anti-takeover effects. The Rights may
cause substantial dilution to a person that attempts to acquire McMoRan without
a condition to such an offer that the Rights be redeemed or declared invalid.
The Rights should not interfere with any merger or other business combination
approved by McMoRan's Board of Directors since the Rights may be redeemed by
McMoRan as described above. The Rights are intended to encourage any person
desiring to acquire a controlling interest in McMoRan to do so through a
transaction negotiated with McMoRan's Board of Directors rather than through a
hostile takeover attempt. The Rights are intended to assure that any acquisition
of control of McMoRan will be subject to review by the Board to take into
account, among other things, the interests of all McMoRan's stockholders.
While the dividend of the Rights will not be taxable to
stockholders of McMoRan Common Stock or to McMoRan, such stockholders or
McMoRan may, depending upon the circumstances, recognize taxable income in the
event that the Rights become exercisable as set forth above.
Limitation of Directors' and Officers' Liability and Indemnification
In accordance with the DGCL, McMoRan Charter contains
provisions eliminating the personal liability of the directors to McMoRan and
its stockholders for monetary damages for breaches of their fiduciary duties
as directors to the fullest extent permitted by Delaware law. By virtue of
these provisions, under current Delaware law, a director of McMoRan will not
be personally liable for monetary damages for a breach of his or her fiduciary
duty except for liability for (a) a breach of his or her duty of loyalty to
McMoRan or its stockholders, (b) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (c) dividends or
stock repurchases or redemptions that are unlawful under Delaware law and (d)
any transaction from which he or she receives an improper personal benefit.
In addition, the McMoRan Charter provides that if Delaware law is amended to
authorize the further elimination or limitation of the liability of a
director, then the liability of the directors shall be eliminated or limited to
the fullest extent permitted by Delaware law, as amended. These provisions
pertain only to breaches of duty by directors as directors and not in any
other corporate capacity, such as officers, and limit liability only for
breaches of fiduciary duties under Delaware corporate law and not for
violations of other laws such as the federal securities laws.
As a result of the inclusion of such provisions, stockholders
may be unable to recover monetary damages against directors for actions taken
by them that constitute negligence or gross negligence or that are in
violation of their fiduciary duties, even though it may be possible to obtain
injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against the
challenged conduct. These provisions may have the effect of reducing the
likelihood of derivative litigation against directors that might have
benefitted McMoRan.
McMoRan believes that such provisions are necessary to attract
and retain qualified individuals to serve as directors. In addition, such
provisions will allow directors to perform their duties in good faith without
concern for the application of monetary liability on a retrospective basis in
the event that a court determines their conduct to have been negligent or
grossly negligent.
The McMoRan Bylaws require McMoRan to indemnify its officers
and directors against expenses and costs, judgments, settlements and fines
incurred in the defense of any claim, including any claim brought by or in the
right of McMoRan, to which they were made parties by reason of being or having
been officers or directors.
Stock Exchange Listing; Delisting and Deregistration of MOXY and FSC Common
Stock
It is a condition to the Mergers that the shares of McMoRan
Common Stock issuable in the Mergers be approved for listing on the NYSE or
Nasdaq prior to the Effective Time, subject to official notice of issuance.
If the Mergers are consummated, MOXY Common Stock and FSC Common Stock will
cease to be listed on Nasdaq and the NYSE, respectively.
Transfer Agent
The transfer agent and registrar for the McMoRan Common Stock
is ChaseMellon Shareholder Services, L.L.C.
COMPARISON OF STOCKHOLDER RIGHTS
General
The rights of MOXY stockholders are currently governed by the
DGCL and the certificate of incorporation of MOXY (the "MOXY Charter") and the
bylaws of MOXY (the "MOXY Bylaws"). The rights of FSC shareholders are
currently governed by the DGCL and the certificate of incorporation of FSC (the
"FSC Charter") and the bylaws of FSC (the "FSC Bylaws"). The rights of McMoRan
stockholders are currently governed by the DGCL, the McMoRan Charter and the
McMoRan Bylaws. The McMoRan Charter is identical to the FSC Charter in all
material respects. The McMoRan Bylaws are the same as the FSC Bylaws in most
material respects. Accordingly, upon consummation of the Mergers, the rights of
MOXY stockholders and of FSC stockholders who become McMoRan stockholders in
the Mergers will be governed by the DGCL, the McMoRan Charter and the McMoRan
Bylaws. The following is a summary of the principal differences between the
current rights of MOXY stockholders, of FSC stockholders and those of McMoRan
stockholders following the Mergers.
The following discussions are not intended to be complete and
are qualified by reference to the DGCL, the MOXY Charter, the MOXY Bylaws, the
FSC Charter, the FSC Bylaws, the McMoRan Charter and the McMoRan Bylaws.
Copies of all of these documents will be sent to holders of shares of MOXY
Common Stock and FSC Common Stock upon request. See "Where You Can Find More
Information."
Comparison of Stockholder Rights
Authorized Capital Stock. The authorized capital stock of MOXY
consists of 150,000,000 shares of MOXY Common Stock and 50,000,000 shares of
MOXY Preferred Stock. The authorized capital stock of FSC consists of
100,000,000 shares of FSC Common Stock and 50,000,000 shares of FSC Preferred
Stock. The authorized capital stock of McMoRan is set forth under "Description
of McMoRan Capital Stock--Description of Capital Stock." The DGCL permits a
corporation's certificate of incorporation to allow the directors to issue,
without stockholder approval, a series of preferred or preference stock and to
designate its rights, preferences, privileges and restrictions.
Board of Directors. The MOXY Charter provides that the number
of directors will be fixed by the Board of Directors, but may not be reduced
to less than three. MOXY currently has five directors. Pursuant to the MOXY
Charter, the MOXY Board is divided into three classes, with the directors in
each class serving until the third annual meeting of stockholders after the
annual meeting at which the class was elected. The MOXY Charter prohibits
cumulative voting for the election of directors.
The McMoRan Bylaws and FSC Bylaws provide that the number of
directors shall be determined by a resolution of the Board of Directors.
Pursuant to the McMoRan Bylaws, the McMoRan Board is divided into three
classes, with directors of each class serving until the third annual meeting
of stockholders after the annual meeting at which that class was elected. The
FSC Bylaws structure the FSC Board in the same manner. McMoRan will, as of
the Effective Time, have nine directors. Under the DGCL, stockholders of a
corporation cannot elect directors by cumulative voting unless its certificate
of incorporation so provides. The McMoRan Charter and FSC Charter do not
provide for cumulative voting for the election of directors.
The MOXY Bylaws and McMoRan Bylaws provide for nomination for
the election of directors by (i) the directors or (ii) any stockholder entitled
to vote in the election of directors who complies with the procedures
described in the MOXY Bylaws or McMoRan Bylaws, as appropriate. The FSC Bylaws
provide that nominations for the election of directors may be made by (i) the
directors or (ii) any person who has held at least 1% of the Voting Stock
entitled to vote for the director for at least one year and who complies with
the procedures described in the FSC Bylaws.
Under the MOXY Bylaws, vacancies on the Board, however caused,
will be filled by the vote of a majority of the remaining directors (even if
less than a majority of the whole authorized number of directors) for the
remainder of the unexpired term. The McMoRan Charter and FSC Charter provide
that vacancies and newly-created directorships shall be filled by a majority
of Continuing Directors or of the directors then in office (even if less than
a quorum) and such new directors shall hold office until the next election of
the class for which they have been chosen.
The McMoRan Charter and FSC Charter allow removal of any director
or directors but only for cause involving fraud or a violation of the duty of
loyalty and only with a vote of 80% of the Voting Stock. Neither the MOXY
Charter nor the MOXY Bylaws contains provisions regarding the removal of
directors, and accordingly the matter is governed by the DGCL, which provides
that directors of a corporation with a classified board may be removed only for
cause by a vote of the holders of a majority of shares entitled to vote at an
election of directors.
Special Meetings of Stockholders. Under the DGCL, special
stockholder meetings may be called by the board of directors and by any
person(s) authorized by the certificate of incorporation or the bylaws. The
MOXY Charter provides that special meetings of stockholders may be called only
by the Chairman of the Board or the President of the Company, or by the board
of directors pursuant to a resolution approved by a majority of the board of
directors. The FSC Bylaws allow special meetings of stockholders to be called
only by the Chairman or Co-Chairman of the Board or the President of
the Company, or by a vote of the majority of the Board. The McMoRan Bylaws
allow special meetings of stockholders to be called only by Co-Chairman
or any Vice Chairman of the Board, the President and Chief Executive Officer
of the Company, or by a vote of the majority of the Board.
Stockholder Action by Written Consent. Under the DGCL, unless
the certificate of incorporation provides otherwise, any action by
stockholders must be taken at a meeting of stockholders, unless a consent in
writing setting forth the action so taken is signed by stockholders having not
less than the minimum number of votes necessary to take such action at a
meeting at which all shares entitled to vote were present and voted. The MOXY
Charter, FSC Charter and McMoRan Charter all prohibit stockholder action by
written consent.
Amendment of Corporate Charter and Bylaws. The DGCL provides that
a charter amendment requires that (i) the board of directors adopt a resolution
setting forth the proposed amendment and (ii) a majority of the voting power of
the then outstanding capital stock of the company approves the amendment. The
approval of 85% of capital stock then outstanding is required if the amendment
of the MOXY Charter is of certain provisions relating to the Board of Directors
or Annual or Special Meetings of Stockholders. Further, amendment of the section
of the MOXY Charter relating to Business Combinations requires an affirmative
vote of 85% of Common Stock then outstanding. The MOXY Charter does not provide
for its amendment relating to other provisions. Accordingly, amendment of any
other provision of the MOXY Charter is governed by the DGCL.
The DGCL provides that amendment of a company's bylaws may be
made by holders of a majority of the voting power of the then outstanding
capital stock of the company. Pursuant to the MOXY Charter, the MOXY Bylaws
may be amended by the Board of Directors. However, according to the MOXY
Bylaws, certain provisions of the MOXY Bylaws (relating to special meetings of
stockholders and to the Board of Directions) may only be amended with the
affirmative vote of the holders of 85% of capital stock then outstanding.
Certain provisions of the McMoRan Charter and FSC Charter
relating to the Board of Directors, business combinations, limitation of
liability and indemnification, and amendments to the certificate of
incorporation or Bylaws may only be amended with the affirmative vote of at
least 80% of the outstanding Voting Stock, voted as a single class, or with
affirmative votes of a majority of the directors, of the Continuing Directors,
and of the outstanding Voting Stock, voted as a single class. The McMoRan
Charter does not provide for its amendment relating to other provisions.
Accordingly, amendment of any other provision of the McMoRan Charter is
governed by the DGCL.
Pursuant to the McMoRan Charter, the McMoRan Bylaws may be
amended by the directors, with affirmative votes of a majority of directors
and a majority of Continuing Directors or the stockholders with an affirmative
vote of 80% of outstanding Voting Stock, voted as a single class.
Voting Rights. The MOXY Common Stock is the only class of MOXY
capital stock entitled to vote generally on all matters submitted to MOXY
shareholders, including the approval of the MOXY Merger and the Merger
Agreement. Each share of MOXY Common Stock is entitled to one vote on all
matters submitted to MOXY shareholders.
The FSC Common Stock is the only class of FSC capital stock
entitled to vote generally on all matters submitted to FSC stockholders,
including the approval of the FSC Merger and the Merger Agreement. Each share
of FSC Common Stock is entitled to one vote on all matters submitted to FSC
stockholders.
Similarly, the McMoRan Common Stock is the only class of
McMoRan capital stock entitled to vote generally on all matters submitted to
McMoRan stockholders. Under the DGCL, each share of McMoRan Common Stock is
entitled to one vote on all matters submitted to McMoRan stockholders.
Certain Business Combinations. The DGCL generally requires
approval of any merger, consolidation or sale of substantially all the assets
of a corporation by vote of the holders of a majority of all outstanding
shares entitled to vote thereon, although the certificate of incorporation may
provide for a greater vote. Article Nine of the MOXY Charter requires the
vote of the holders of Common Stock representing not less than 85% of
outstanding shares for any Business Combination (defined below).
Notwithstanding the foregoing, the affirmative vote of not less than a majority
of the shares of the entire voting power will be required to approve any such
proposal if: (i) not less than a majority of Continuing Directors
affirmatively vote to approve either the Business Combination or the
acquisition of Common Stock that caused the Interested Party to become an
Interested Party, (ii) the Business Combination is only between MOXY and a
corporation or corporations owned by MOXY, or (iii) certain provisions
regarding the price to be paid for Common Stock are fulfilled.
The term "Business Combination" is defined by the MOXY Charter
to mean (i) any merger or consolidation of MOXY or a subsidiary of MOXY with
or into an Interested Party; (ii) any merger or consolidation of an Interested
Party with or into MOXY or a subsidiary of MOXY; (iii) any sale, lease,
exchange, mortgage, pledge, transfer, or other disposition (in one transaction
or a series of transactions) of all or any substantial part of the assets of
either MOXY or of a subsidiary of MOXY, in which an Interested Party is
involved; (iv) the adoption of any plan or proposal for the liquidation or
dissolution of MOXY proposed or on the behalf of any Interested Party; (v) the
issuance or transfer (in one transaction or a series of transactions) by MOXY
or a subsidiary of MOXY to an Interested Party of any securities of MOXY or a
subsidiary of MOXY if the securities have a market value of $1 million or
more; or (vi) any recapitalization, reclassification, merger or consolidation
involving MOXY or a subsidiary of MOXY that would have the effect of
increasing, directly or indirectly, the Interested Party's voting power in
MOXY or its subsidiary.
The term "Continuing Director" is defined by the MOXY Charter
to mean a director of MOXY who is not affiliated with an Interested Party or
an affiliate or associate thereof and who was a member of the MOXY Board of
Directors immediately prior to the time when the Interested Party became an
Interested Party, and any successor to a Continuing Director who is not
affiliated with the Interested Party and is recommended to succeed a Continuing
Director by a majority of the Continuing Directors in office at the time of
the nomination.
The term "Interested Party" is defined by the MOXY Charter to
mean (i) any person or entity, other than FTX or any of its affiliates and
associates, which together with its affiliates and associates is (or was
within two years prior to any Business Combination) a beneficial owner of 20%
or more of the outstanding Common Stock of MOXY, or (ii) any affiliate or
associate of any such person or entity.
With regard to McMoRan or any subsidiary of McMoRan, any (i)
merger, consolidation or share exchange with an Interested Stockholder or
affiliate or associate thereof; (ii) sale, lease, transfer, exchange, mortgage,
pledge, loan, advance or other similar disposition, for the benefit of an
Interested Stockholder or affiliate or associate thereof, of McMoRan assets with
a value greater than 5% of the lesser of McMoRan's net worth or the total market
value of outstanding McMoRan stock; (iii) adoption of a plan or proposal for the
liquidation or dissolution of McMoRan; (iv) issuance or transfer of stock of
market value of $1 million or more to an Interested Stockholder or affiliate or
associate thereof except by a method offering the stock to all holders on a pro
rata basis; (v) transaction that increases by 5% or more the voting power or
proportionate amount of outstanding securities owned by an Interested
Stockholder or affiliate or associate thereof; or (vi) loans, advances,
guarantees, pledges or other financial assistance, or any tax credits or
advantages, provided to an Interested Stockholder or affiliate or associate
thereof, is required by Article VIII of the McMoRan Charter to have the approval
of a majority of both the directors and the Continuing Directors, and
affirmative votes of both 80% of the Voting Stock and 75% of the Voting Stock
other than that owned by the Interested Stockholder or affiliates or associates
thereof.
Notwithstanding the foregoing, Article VIII of the McMoRan
Charter further provides that a Business Combination will require only any vote
required by law if (i) the Business Combination was approved prior to the
Interested Stockholder becoming an Interested Stockholder by a majority of both
the directors and the Continuing Directors, or (ii) several conditions provided
in the McMoRan Charter specifying the price and method for such a Business
Combination are fulfilled.
The term "Continuing Director" is defined by the McMoRan
Charter to mean a director of McMoRan who is not affiliated with an Interested
Stockholder or an affiliate or associate thereof and who was a member of the
McMoRan Board of Directors prior to the time that the Interested Stockholder
became an Interested Stockholder, and any successor to a Continuing Director
who is not affiliated with the Interested Stockholder and is recommended to
succeed a Continuing Director by a majority of the Continuing Directors who
are then members of the Board of Directors.
The term "Interested Stockholder" is defined to mean any person
or entity (other than McMoRan, any subsidiary, any employee benefit plan, any
fiduciary of such plan, any person who owned McMoRan stock as of the date of
filing of the Certificate of Incorporation, or any affiliate or associate of
any of the foregoing) who (i) is the beneficial owner, directly or indirectly,
of more than 15% of the outstanding Voting Stock, or (ii) is an affiliate or
associate of McMoRan and at any time within the two-year period immediately
prior to the date in question was the beneficial owner, directly or
indirectly, of 15% or more of the outstanding Voting Stock.
The FSC Charter has provisions that are identical to those in
the McMoRan Charter with respect to Business Combinations as described above.
Rights Agreements. Each of MOXY and FSC has a rights agreement
and, as described under "Description of McMoRan Capital Stock--Rights
Agreement," McMoRan plans to adopt a rights agreement at or prior to the
Mergers. Each rights agreements is intended to encourage any person desiring to
acquire a controlling interest in the company to do so through a transaction
negotiated with the board rather than through a hostile takeover attempt. Each
of the MOXY and FSC and McMoRan rights agreements provide that a person
generally becomes an "acquiring person" when a person acquires beneficial
ownership of 15% or more of the outstanding shares of common stock of the
company. However, in connection with the Mergers, each of the MOXY and FSC
Boards amended their respective rights agreements to exclude the transactions
pursuant to the Merger Agreement. In addition, in August 1998 the MOXY Board
amended the MOXY rights agreement to provide that an "acquiring person" will not
include Alpine Capital, L.P., Robert W. Bruce III, Algenpar, Inc., J. Taylor
Crandall, Keystone, Inc., Robert M. Bass and their respective subsidiaries,
affiliates and associates unless such group acquires beneficial ownership of 25%
or more of the shares of MOXY Common Stock.
McMoRan STOCK OPTION PLANS
Stock Option Plans
McMoRan Adjusted Stock Award Plan
McMoRan has adopted the McMoRan Adjusted Plan to provide for
the issuance of McMoRan Options as described under "Conflicts of
Interest--Treatment of Stock-Based Awards." No other awards will be made under
McMoRan Adjusted Stock Plan.
The maximum number of shares of McMoRan Common Stock in respect
of which stock options may be granted under McMoRan Adjusted Stock Award Plan
is expected to be approximately 1.5 million, and will be determined in
accordance with the procedures described under "Conflicts of
Interest--Treatment of Stock-Based Awards." No individual will be granted
awards under McMoRan Adjusted Plan with respect to more than 310,000 shares of
McMoRan Common Stock. The shares of McMoRan Common Stock to be delivered
under McMoRan Adjusted Plan will be made available from the authorized but
unissued shares of McMoRan Common Stock or from treasury shares.
The McMoRan Adjusted Plan will be administered by the
Compensation Committee, upon which no Director who is an officer of McMoRan
may serve. Holders of Stock-Based Awards at the Effective Time are eligible
to receive stock options under McMoRan Adjusted Plan. It is estimated that
approximately 166 persons will receive stock options under McMoRan Adjusted
Plan in substitution for their MOXY and FSC Stock-Based Awards.
Stock options granted under McMoRan Adjusted Plan will have the
same vesting schedule, term and substantially the same conditions as that of
the related Stock-Based Award. If, however, at any time within two years
after the Effective Time the current directors of MOXY do not comprise a
majority of the McMoRan Board, the McMoRan Options substituted for the MOXY
Stock-Based Awards will become fully exercisable. Similarly, if at any time
within two years after the Effective Time the current directors of FSC do not
comprise a majority of the McMoRan Board, the McMoRan Options substituted for
the FSC Stock-Based Awards will become fully exercisable.
If the Compensation Committee determines that any dividend or
other distribution (whether in the form of cash, securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase or exchange
of shares, issuance of warrants or other rights to purchase securities of
McMoRan, or other similar corporate transaction or event affects the McMoRan
Common Stock such that an adjustment is appropriate to prevent dilution or
enlargement of the benefits intended under McMoRan Adjusted Plan, then the
Compensation Committee has discretion to (i) adjust the number and type of
shares (or other securities or property) with respect to which options may be
granted, (ii) make equitable adjustments in the number and kind of shares (or
other securities or property) subject to outstanding stock options and the
respective exercise prices thereof and (iii) if appropriate, provide for the
payment of cash to a participant.
The McMoRan Adjusted Plan may be amended at any time by the
McMoRan Board, except that stockholder approval will be required if determined
by the Compensation Committee to be necessary or advisable in order to comply
with any tax or regulatory requirement.
The federal income tax consequences of the stock options are
described below under "--Federal Income Tax Consequences of Stock Options."
The following table sets forth information with respect to the
stock options anticipated to be granted under McMoRan Adjusted Plan to (i)
each of the Executive Officers, (ii) all Executive Officers as a group, (iii)
each of the Directors who is not an Executive Officer, (iv) all Directors who
are not Executive Officers as a group and (v) all employees of McMoRan,
including all officers who are not Executive Officers as a group, based on the
number of MOXY and FSC Stock-Based Awards held by each of them as of June 30,
1998. No associate of any Director or Executive Officer is anticipated to be
eligible to participate in McMoRan Adjusted Plan. Other than the persons
identified in the following table, no person is anticipated to receive more
than 5% of the awards anticipated to be granted under McMoRan Adjusted Plan.
Each stock option is granted in conjunction with a limited right, the terms
of which are as described under "Approval of Benefit Plan ProposalSummary of
the Stock Plan."
Plan Benefits Under the McMoRan Adjusted Stock Award Plan
<TABLE>
<CAPTION>
Number of Shares Percent of Total Options
Underlying Options Anticipated to be Granted
Name and Position Anticipated to be Granted to Employees
- ----------------- ------------------------- -------------------------
<S> <C> <C>
James R. Moffett, Co-Chairman of the Board................... 309,950 20.38%
Richard C. Adkerson, Co-Chairman of the Board, President
and Chief Executive Officer................................. 208,247 13.69%
Rene Latiolais, Vice Chairman of the Board................... 103,697 6.82%
Robert M. Wohleber, Executive Vice President, Chief
Financial Officer and Director.............................. 68,823 4.53%
C. Howard Murrish, Executive Vice President.................. 176,574 11.61%
John G. Amato, General Counsel............................... 107,855 7.09%
Craig E. Saporito, Senior Vice President and Treasurer....... 15,671 1.03%
Michael J. Arnold, Senior Vice President..................... 18,434 1.21%
J. Terrell Brown, Director................................... 3,750 0.25%
Thomas D. Clark, Jr., Director............................... 3,750 0.25%
Robert A. Day, Director...................................... 8,804 0.58%
Gerald J. Ford, Director..................................... 1,000 0.07%
B. M. Rankin, Jr., Director.................................. 15,246 1.00%
Executive Officer Group...................................... 1,009,251 66.37%
Non-Executive Officer Director Group......................... 32,550 2.14%
Non-Executive Officer Employee Group......................... 478,844 31.49%
</TABLE>
- ----------
* Less than 1%
McMoRan 1998 Stock Option Plan for Non-Employee Directors
McMoRan has adopted the McMoRan 1998 Stock Option Plan for
Non-Employee Directors (the "Director Plan"). The purpose of the Director
Plan is to align more closely the interests of McMoRan's non-employee
Directors with that of McMoRan's stockholders by providing for the automatic
grant of stock options to such Directors in accordance with the terms of the
Director Plan.
The maximum number of shares of Common Stock in respect of
which options may be granted under the Director Plan is 75,000. The shares of
McMoRan Common Stock to be delivered under the Director Plan will be made
available from the authorized but unissued shares of McMoRan Common Stock or
from treasury shares.
Except for determinations with respect to the transferability
of options, which will be made by the Compensation Committee, the Director
Plan will be administered by the McMoRan Board.
All Directors who are not employees of McMoRan or a subsidiary
will be "Eligible Directors" under the Director Plan. There will initially be
five Eligible Directors. Each Eligible Director will be granted an option to
purchase 1,000 shares of McMoRan Common Stock on June 1 of each year that the
Director Plan is in effect.
Options granted under the Director Plan will be non-qualified
options. The exercise price of options granted under the Director Plan will
be 100% of the fair market value of the underlying shares of McMoRan Common
Stock on the grant date. Each option becomes exercisable in 25% annual
increments beginning on the first anniversary of the date of grant, and will
have a term of 10 years. Upon termination of Board service, except in the
case of death or retirement, an option may be exercised, to the extent
exercisable at the time of termination of Board service, for a period of three
months, but no later than the expiration date of the option. Upon death or
retirement from service as a Director, a Director's options that were
exercisable on the date of death or retirement or could have become
exercisable within one year after such date will remain exercisable until the
earlier of (i) in the case of death, the first anniversary of the date of
death, or in the case of retirement, the third anniversary of the date of such
retirement or (ii) the expiration date of the option. An option will become
exercisable in full upon a change of control of McMoRan, as defined in the
Director Plan.
The option exercise price may be satisfied in cash or by
delivering shares of McMoRan Common Stock owned by the optionee.
If the Board determines that any stock split, stock dividend or
other distribution (whether in the form of cash, securities, or other property),
recapitalization, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase or exchange of securities of
McMoRan, issuance of warrants or other rights to purchase securities of McMoRan,
or other similar corporate transaction or event affects the McMoRan Common Stock
such that an adjustment is appropriate to prevent dilution or enlargement of the
benefits intended under the Director Plan, then the Board has discretion to (i)
adjust the number and type of shares (or other securities or property) with
respect to which options may be granted, (ii) make equitable adjustment in the
number and kind of shares (or other securities or property) subject to
outstanding stock options and the respective exercise prices thereof and (iii)
if appropriate, provide for the payment of cash to a participant. In the event
McMoRan is merged or consolidated into or with another corporation in a
transaction in which McMoRan is not the survivor, or in the event that
substantially all of McMoRan's assets are sold to another entity not affiliated
with McMoRan, any holder of any option, whether or not then exercisable, will be
entitled to receive (unless McMoRan takes such alternative action as may be
necessary to preserve the economic benefit of the option for the optionee) on
the effective date of any such transaction, in cancellation of such option, an
amount in cash equal to the excess, if any, of the fair market value on the
effective date of any such transaction of the shares underlying such option over
the aggregate exercise price thereof.
The Director Plan may be amended or terminated at any time by
the Board of Directors, except that no amendment will be made without
stockholder approval if stockholder approval is deemed necessary to comply
with regulatory requirements.
The federal income consequences of the stock options are
described below under "--Federal Income Tax Consequences of Stock Options."
McMoRan 1998 Stock Option Plan
McMoRan has adopted, subject to MOXY and FSC stockholder
approval, the McMoRan 1998 Stock Option Plan. For more information regarding
the Stock Plan, see "Approval of the Benefit Plan Proposal".
Federal Income Tax Consequences of Stock Options
An optionee will not recognize any income for federal income
tax purposes upon the grant of a non-qualified stock option, nor will McMoRan
normally realize any deduction for federal income tax purposes at the time of
grant. When an optionee exercises a non-qualified option, the difference
between the exercise price and any higher fair market value of the McMoRan
Common Stock on the date of exercise will be ordinary income to the optionee
(subject to withholding) and will generally be allowed as a deduction at that
time for federal income tax purposes to McMoRan.
Any gain or loss realized by an optionee on disposition of the
McMoRan Common Stock acquired upon exercise of a non-qualified option will
generally be capital gain or loss to the optionee, long-term or short-term
depending on the holding period, and will not result in any additional federal
income tax consequences to McMoRan. The optionee's basis in the McMoRan
Common Stock for determining gain or loss on the disposition will be the fair
market value of the McMoRan Common Stock determined generally at the time of
exercise.
When an optionee exercises an incentive stock option while
employed by McMoRan or a subsidiary or within three months (one year for
disability) after termination of employment by reason of retirement or death,
no ordinary income will be recognized by the optionee at that time, but the
excess (if any) of the fair market value of the McMoRan Common Stock acquired
upon such exercise over the option price will be an adjustment to taxable
income for purposes of the federal alternative minimum tax applicable to
individuals. If the McMoRan Common Stock acquired upon exercise of the
incentive stock option is not disposed of prior to the expiration of one year
after the date of acquisition and two years after the date of grant of the
option, the excess (if any) of the sale proceeds over the aggregate option
exercise price of McMoRan Common Stock will be long-term capital gain, but
McMoRan will not be entitled to any tax deduction with respect to such gain.
Generally, if the McMoRan Common Stock is disposed of prior to the expiration
of such periods, the excess of the fair market value of the McMoRan Common
Stock at the time of exercise over the aggregate option exercise price (but
not more than the gain on the disposition if the disposition is a transaction
on which a loss, if realized, would be recognized) will be ordinary income at
the time of such Disqualifying Disposition (and McMoRan will generally be
entitled to a federal income tax deduction in a like amount). Any gain
realized by the optionee as the result of a Disqualifying Disposition that
exceeds the amount treated as ordinary income will be capital in nature,
long-term or short-term depending on the holding period. If an incentive
stock option is exercised more than three months (one year for disability)
after termination of employment, the federal income tax consequences are the
same as described above for non-qualified stock options.
If the exercise price of an option is paid by the surrender of
previously owned shares, the basis of the previously owned shares carries over
to the shares received in replacement. If the option is a non-qualified
option, the income recognized on exercise is added to the basis. If the
option is an incentive stock option, the optionee will recognize gain if the
shares surrendered were acquired through the exercise of an incentive stock
option and have not been held for the applicable holding period. This gain
will be added to the basis of the shares received in replacement of the
previously owned shares.
Awards that are granted, accelerated or enhanced upon the
occurrence of a change of control may give rise, in whole or in part, to
excess parachute payments within the meaning of Section 280G of the Code to
the extent that such payments, when aggregated with other payments subject to
Section 280G, exceed the limitations contained therein. Excess parachute
payments will be nondeductible to McMoRan and subject the recipient of the
payments to a 20% excise tax.
If permitted by the Compensation Committee, at any time that a
participant is required to pay to McMoRan the amount required to be withheld
under applicable tax laws in connection with the exercise of a stock option the
participant may elect to have McMoRan withhold from the shares that the
participant would otherwise receive shares of McMoRan Common Stock having a
value equal to the amount to be withheld. This election must be made prior to
the date on which the amount of tax to be withheld is determined.
The foregoing discussion summarizes the federal income tax
consequences of stock options that may be granted under the McMoRan Adjusted
Plan and the Director Plan, based on current provisions of the Code, which are
subject to change. This summary does not cover any foreign, state or local
tax consequences or participation in such plans.
LEGAL MATTERS
The validity of the McMoRan Common Stock to be issued to MOXY
stockholders pursuant to the MOXY Merger and to FSC stockholders pursuant to
the FSC Merger will be passed upon by Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P., counsel to McMoRan. It is a condition to the
consummation of the MOXY Merger that MOXY receive an opinion from Jones,
Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel to MOXY, with
respect to the tax treatment of the MOXY Merger. It is a condition to the
consummation of the FSC Merger that FSC receive an opinion from Miller &
Chevalier, Chartered, tax counsel to FSC, with respect to the tax treatment of
the FSC Merger. See "The Merger Agreement--Conditions to the Merger" and "The
Mergers--Federal Income Tax Consequences of the Mergers."
EXPERTS
The financial statements of MOXY as of December 31, 1997 and
1996 and the related statements of operations, cash flow and changes in
stockholders' equity for each of the three years in the period ended December
31, 1997 included in this Joint Proxy Statement/Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in accounting and auditing in giving such
reports.
The financial statements and schedules of FSC and its
predecessors as of December 31, 1997 and 1996 and the related statements of
operations, cash flow and changes in stockholders' equity for each of the
three years in the period ended December 31, 1997 included in this Joint Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of such firm as experts in
accounting and auditing in giving such reports.
The balance sheet of McMoRan as of July 30, 1998 included in
this Joint Proxy Statement/Prospectus has been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority of such firm as
experts in accounting and auditing in giving such report.
With respect to the unaudited interim financial information for
the quarters ended June 30 and March 31, 1998 and 1997, for both MOXY and FSC,
Arthur Andersen LLP has applied limited procedures in accordance with
professional standards for a review of that information. However, their
separate reports thereon state that they did not audit and they do not express
an opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on that information should be restricted in light of
the limited nature of the review procedures applied. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
1933 Act for their reports on the unaudited interim financial information
because those reports are not a "report" or a "part" of the registration
statement prepared or certified by the accountants within the meaning of
Sections 7 and 11 of the 1933 Act.
The information included in this Joint Proxy
Statement/Prospectus regarding the gross quantities of reserves of the oil and
gas properties described herein and the future cash flows therefrom and
present values thereof is based on estimates of such reserves and present
values prepared by Ryder Scott Company, Petroleum Engineers, in reliance upon
the authority of such firm as experts in petroleum engineering.
FUTURE STOCKHOLDER PROPOSALS
If the Mergers are consummated, neither MOXY nor FSC will hold
an annual meeting in 1999. If the Mergers are not consummated, MOXY must
receive stockholder proposals no later than November 30, 1998 in order to be
considered for inclusion in MOXY's 1999 proxy materials, and FSC must receive
stockholder proposals no later than November 24, 1998 in order to be
considered for inclusion in FSC's 1999 proxy materials.
In addition, MOXY's By-Laws provide that MOXY stockholders
intending to nominate a director or bring any other matter before a MOXY
stockholders' meeting must furnish timely written notice containing specified
information concerning, among other things, the matters to be brought before
the meeting and the MOXY stockholder proposing the matters. In general, to be
timely a MOXY stockholder's notice must be received by MOXY's Secretary not
less than 60 nor more than 90 days prior to the MOXY stockholders' meeting.
If less than 70 days' notice or prior public disclosure of the date of the
MOXY stockholders' meeting is made, the MOXY Secretary must receive the MOXY
stockholder's notice within 10 days of the mailing of the meeting notice or
public disclosure of the meeting date. MOXY will be permitted to disregard
any nomination or other matter that fails to comply with these By-Law
procedures.
Similarly, FSC's By-Laws provide that stockholders intending to
nominate a director or bring any other matter before an FSC stockholders'
meeting must furnish timely written notice containing specified information
concerning, among other things, the matters to be brought before the meeting
and the FSC stockholder proposing the matters. In general, to be timely an
FSC stockholder's notice must be received by FSC's Secretary between August
15, 1998 and March 15, 1999. If the date of the 1999 FSC annual meeting is
more than 30 days earlier or later than May 12, 1999, the FSC Secretary must
receive the FSC stockholder's notice within 15 days of the earlier of the
mailing of the meeting notice or public disclosure of the meeting date. FSC
will be permitted to disregard any nomination or other matter that fails to
comply with these By-Law procedures.
If the Mergers are consummated, any proxy submitted for the
1999 annual meeting of McMoRan shall confer discretionary authority to vote on
any matter submitted for consideration at the 1999 McMoRan annual meeting later
than November 30, 1998. If the Mergers are not consummated, any proxy
submitted for the 1999 annual meeting of MOXY or FSC shall confer
discretionary authority to vote (i) with regard to MOXY, on any matter
submitted for consideration at the 1999 MOXY annual meeting later than
November 30, 1998 and (ii) with regard to FSC, on any matter submitted for
consideration at the 1999 FSC annual meeting later than November 24, 1998.
WHERE YOU CAN FIND MORE INFORMATION
MOXY and FSC file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
McMoRan filed a Registration Statement on Form S-4 to register
with the SEC the McMoRan Common Stock to be issued to MOXY stockholders and
the FSC stockholders in the Mergers. This Joint Proxy Statement/Prospectus
is a part of that Registration Statement and constitutes a prospectus of
McMoRan in addition to being a proxy statement of MOXY and FSC for the their
respective Meetings. As allowed by SEC rules, this Joint Proxy Statement/
Prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
<TABLE>
<S> <C>
MOXY SEC Filings (File No. 0-23870) Period
- ----------------------------------- ------
Annual Report on Form 10-K.................................... Year ended December 31, 1997
Quarterly Reports on Form 10-Q................................ Quarters ended March 31, 1998 and June 30, 1998
Current Reports on Form 8-K................................... Filed on February 3, 1998, June 1, 1998, August 4, 1998
and September 9, 1998
Proxy Statement............................................... Filed March 27, 1998
FSC SEC Filings (File No. 1-13617) Period
- ---------------------------------- ------
Annual Report on Form 10-K.................................... Fiscal Year ended December 31, 1997
Quarterly Reports on Form 10-Q................................ Quarters ended March 31, 1998 and June 30, 1998
Current Reports on Form 8-K................................... Filed on July 2, 1998 and August 4, 1998
Proxy Statement............................................... Filed March 24, 1998
The description of FSC Common Stock set forth in the
Registration Statement on Form 8-A........................... Filed on December 18, 1997
</TABLE>
McMoRan has supplied all information contained in this Joint
Proxy Statement/Prospectus relating to McMoRan, MOXY has supplied all such
information relating to MOXY, and FSC has supplied all such information
relating to FSC.
If you are a stockholder of either MOXY or FSC, we may have
sent you some of the documents listed above, but you can obtain any of them
through us or the SEC. Documents listed above are available from us without
charge. Stockholders may obtain documents listed above in this section by
requesting them in writing from the appropriate party at the following address:
McMoRan Oil & Gas Co. Freeport-McMoRan Sulphur Inc.
1615 Poydras Street 1615 Poydras Street
New Orleans, LA 70112 New Orleans, LA 70112
Attention: Investor Relations Attention: Investor Relations
Department Department
Tel: (504) 582-4000 Tel: (504) 582-4000
If you would like to request documents from us, please do so by
November 10, 1998 to receive them before the Special Meetings.
You should rely only on the information contained in this Joint
Proxy Statement/Prospectus to vote on the MOXY Proposals, if you are a MOXY
stockholder, and the FSC Proposals, if you are an FSC stockholder. We have not
authorized anyone to provide you with information that is different from what
is contained in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus is dated October 9, 1998. You should not assume that the
information contained in the Joint Proxy Statement/Prospectus is accurate as of
any date other than such date, and neither the mailing of this Joint Proxy
Statement/Prospectus to stockholders of MOXY and FSC nor the issuance of
McMoRan Common Stock in the Mergers shall create any implication to the
contrary.
INDEX TO McMoRan EXPLORATION CO. BALANCE SHEET
Report of Independent Public Accountants...................................F-2
Balance Sheet as of July 30, 1998..........................................F-3
Note to Balance Sheet......................................................F-3
INDEX TO MOXY FINANCIAL STATEMENTS
Report of Independent Public Accountants...................................F-4
Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 and
1996.......................................................................F-5
Statements of Operations for the six-month periods ended June 30, 1998
and 1997 (unaudited), and years ended December 31, 1997, 1996 and
1995....................................................................F-6
Statements of Cash Flow for the six-month periods ended June 30, 1998
and 1997 (unaudited), and years ended December 31, 1997, 1996 and
1995....................................................................F-7
Statements of Changes in Stockholders' Equity for the six-month period
ended June 30, 1998 (unaudited), and years ended December 31, 1997,
1996 and 1995...........................................................F-8
Notes to Financial Statements..............................................F-9
INDEX TO FSC FINANCIAL STATEMENTS
Report of Independent Public Accountants..................................F-18
Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997 and
1996..................................................................F-19
Statements of Operations for the six-month periods ended June 30, 1998
and 1997 (unaudited), and years ended December 31, 1997, 1996 and
1995...................................................................F-20
Statements of Cash Flow for the six-month periods ended June 30, 1998
and 1997 (unaudited), and years ended December 31, 1997, 1996 and
1995.......................... F-21
Statements of Changes in Stockholders' Equity for the six-month period
ended June 30, 1998 (unaudited), and years ended December 31, 1997,
1996 and 1995..........................................................F-22
Notes to Financial Statements.............................................F-23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To McMoRan Exploration Co.:
We have audited the accompanying balance sheet of McMoRan
Exploration Co. (a Delaware Corporation) as of July 30, 1998. This balance
sheet is the responsibility of the Company's management. Our responsibility
is to express an opinion on this balance sheet 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 balance sheet is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. 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 balance sheet referred to above presents
fairly, in all material respects, the financial position of McMoRan
Exploration Co. as of July 30, 1998 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana
October 5, 1998
McMoRan EXPLORATION CO.
BALANCE SHEET
July 30, 1998
<TABLE>
<S> <C>
Cash...................................................................................................... $ --
========
Preferred stock, par value $0.01, 50,000,000 shares authorized, none issued or outstanding................ $ --
Common stock, par value $0.01, 100,000,000 shares authorized,
1,000 shares issued and outstanding...................................................................... 10
Additional paid-in capital................................................................................ 990
Less subscription receivable.............................................................................. (1,000)
--------
Total stockholders' equity.......................................................................... $ --
========
</TABLE>
The accompanying note is an integral part of this financial statement.
NOTE TO BALANCE SHEET
On August 3, 1998, McMoRan Oil & Gas Co. ("MOXY") and
Freeport-McMoRan Sulphur Inc. ("FSC") announced that they had signed a
definitive agreement to combine their operations. In the proposed transaction,
a new holding company, McMoRan Exploration Co. ("McMoRan"), would issue
approximately 5.5 million of its common shares in exchange for all of FSC's
common shares and approximately 8.6 million of its common shares in exchange
for all of MOXY's common shares. FSC shareholders would receive 0.625 McMoRan
shares for each common share of FSC outstanding and MOXY shareholders would
receive 0.20 McMoRan shares for each common share of MOXY outstanding.
Immediately following the transaction, McMoRan would have approximately 14.1
million common shares outstanding that would be owned approximately 61% by
MOXY's existing common shareholders and approximately 39% by FSC's existing
common shareholders. McMoRan's Board of Directors and executive management
will include current members of the Board of Directors and executive management
of both MOXY and FSC. The transaction would be tax-free with respect to both
MOXY and FSC shareholders and will be reported on the basis of purchase
accounting, reflecting MOXY as the acquiring entity. The completion of the
merger transaction is subject to approval by MOXY and FSC shareholders and
applicable regulatory approvals.
On July 30, 1998, MOXY and FSC each acquired 500 shares of
McMoRan common stock, par value $0.01 per share for a $1,000 subscription.
McMoRan, a Delaware corporation, was formed to become the parent company for
both MOXY and FSC. MOXY and FSC will merge into wholly owned subsidiaries of
McMoRan and McMoRan will distribute approximately 14.1 million shares of its
common shares to MOXY and FSC shareholders.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of McMoRan Oil & Gas Co.:
We have audited the accompanying balance sheets of McMoRan Oil
& Gas Co. (a Delaware Corporation) as of December 31, 1997 and 1996 and the
related statements of operations, cash flow and changes in stockholders' equity
for each of the three years in the period ended December 31, 1997. 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 McMoRan
Oil & Gas Co. as of December 31, 1997 and 1996 and the results of its
operations and its cash flow for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana
January 20, 1998
McMoRan OIL & GAS CO.
BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31,
------------------------
June 30, 1998 1997 1996
------------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 19,355 $ 29,149 $ 10,500
Accounts receivable:
Oil and gas sales.................................................. 2,361 3,168 1,243
Joint interest participants........................................ 8,361 10,070 626
Prepaid expenses.................................................... 766 827 380
---------- --------- ---------
Total current assets............................................... 30,843 43,214 12,749
---------- --------- ---------
Property, plant and equipment (successful efforts method for
oil and gas properties)............................................ 88,574 68,585 19,514
Less accumulated depreciation and amortization...................... (21,085) (10,880) (1,283)
---------- --------- ---------
67,489 57,705 18,231
---------- --------- ---------
Other assets........................................................ 166 169 --
---------- --------- ---------
Total assets........................................................ $ 98,498 $ 101,088 $ 30,980
========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities:
Trade............................................................ $ 3,214 $ 2,766 $ 980
Joint interest participants...................................... 734 3,037 6,038
Accrued drilling costs and other................................. 15,829 3,662 2,393
Current portion of production loan................................. -- -- 366
---------- --------- ---------
Total current liabilities........................................ 19,777 9,465 9,777
Production loan, less current portion............................... -- -- 12,391
Other liabilities................................................... 2,348 925 566
Stockholders' equity:
Preferred stock, par value $0.01, 50,000,000 shares
authorized and unissued............................................ -- -- --
Common stock, par value $0.01, 150,000,000 shares authorized,
42,887,380 shares, 42,740,476 shares and 13,989,317 shares
issued and outstanding, respectively............................... 429 427 140
Capital in excess of par value of common stock...................... 141,057 140,506 47,803
Accumulated deficit................................................. (65,113) (50,235) (39,697)
---------- --------- ---------
76,373 90,698 8,246
---------- --------- ---------
Total liabilities and stockholders' equity.......................... $ 98,498 $ 101,088 $ 30,980
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
McMoRan OIL & GAS CO.
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------- -----------------------------------
1998 1997 1997 1996 1995
--------- ---------- --------- --------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales....................... $ 11,778 $ 4,203 $ 11,441 $ 2,434 $ 2,722
Management fees......................... -- 818 2,111 1,636 545
--------- --------- --------- --------- ---------
Total revenues.................... 11,778 5,021 13,552 4,070 3,267
--------- --------- --------- --------- ---------
Costs and expenses:
Depreciation and amortization........... 10,970 4,822 10,071 741 1,525
Production and delivery costs........... 1,811 490 1,180 759 1,098
Exploration expenses.................... 12,258 4,272 11,966 9,818 11,756
General and administrative expenses..... 2,349 1,178 2,528 2,635 3,687
Gain on sale of oil and gas property.... -- (2,289) (2,289) -- --
--------- --------- --------- --------- ---------
Total costs and expenses.......... 27,388 8,473 23,456 13,953 18,066
--------- --------- --------- --------- ---------
Operating loss.......................... (15,610) (3,452) (9,904) (9,883) (14,799)
Interest expense........................ -- (681) (1,272) (403) --
Other income, net....................... 732 249 638 424 164
--------- --------- --------- --------- ---------
Net loss................................ $ (14,878) $ (3,884) $ (10,538) $ (9,862) $ (14,635)
========= ========= ========= ========= =========
Basic and diluted, net loss per share... $ (0.35) $ (0.28) $ (0.56) $ (0.71) $ (1.06)
========= ========= ========= ========= =========
Basic and diluted average shares
outstanding............................. 42,816 14,044 18,847 13,895 13,772
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
McMoRan OIL & GAS CO.
STATEMENTS OF CASH FLOW
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
------------------------- --------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss.................................... $ (14,878) $ (3,884) $ (10,538) $ (9,862) $ (14,635)
Adjustments to reconcile net loss to net
cash provided by (used in)
operating activities:
Depreciation and amortization......... 10,970 4,822 10,071 741 1,525
Exploration expenses.................. 12,258 4,272 11,966 9,818 11,756
Gain on sale of oil and gas property.. -- (2,289) (2,289) -- --
(Increase) decrease in working capital:
Accounts receivable, prepaid
expenses and other..................... 13,009 (1,866) (11,831) (988) (1,347)
Accounts payable and accrued liabilities. (3,213) 3,293 (1,305) 6,954 1,555
--------- ---------- --------- --------- ---------
Net cash provided by (used in) operating 18,146 4,348 (3,926) 6,663 (1,146)
activities................................. --------- ---------- --------- --------- ---------
Cash flow from investing activities:
Exploration and development expenditures.... (27,940) (10,454) (33,263) (20,678) (20,957)
Purchase of producing properties from PLP
and Stratus................................ -- -- (26,005) -- --
Proceeds from joint venture arrangements,
property sale and other.................... -- 2,884 2,382 2,059 14,472
--------- ---------- --------- --------- ---------
Net cash used in investing activities....... (27,940) (7,570) (56,886) (18,619) (6,485)
--------- ---------- --------- --------- ---------
Cash flow from financing activities:
Proceeds from Rights Offering, net of
expenses................................... -- -- 92,217 -- --
Proceeds from production loan............... -- 4,741 13,520 12,927 750
Payments on production loan................. -- (4,877) (26,276) (794) (127)
--------- ---------- --------- --------- ---------
Net cash provided by financing activities... -- (136) 79,461 12,133 623
--------- ---------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (9,794) (3,358) 18,649 177 (7,008)
Cash and cash equivalents at beginning of
year....................................... 29,149 10,500 10,500 10,323 17,331
--------- ---------- --------- --------- ---------
Cash and cash equivalents at end of period.. $ 19,355 $ 7,142 $ 29,149 $ 10,500 $ 10,323
========= ========== ========= ========= =========
Interest paid............................... $ -- $ 681 $ 1,272 $ 304 $ --
========= ========== ========= ========= =========
</TABLE>
The accompanying notes, which include information in Notes 2, 5
and 6 regarding noncash transactions, are an integral part of these financial
statements.
McMoRan OIL & GAS CO.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Capital in
Preferred Common Excess of Par Accumulated
Stock Stock Value Deficit Total
--------- -------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ -- $ 138 $ 47,219 $ (15,200) $ 32,157
Stock payment to CLK and other....... -- -- 83 -- 83
Net loss............................. -- -- -- (14,635) (14,635)
-------- ------- --------- --------- ---------
Balance at December 31, 1995.......... -- 138 47,302 (29,835) 17,605
Stock payment to CLK and other....... -- 2 501 -- 503
Net loss............................. -- -- -- (9,862) (9,862)
-------- ------- --------- --------- ---------
Balance at December 31, 1996.......... -- 140 47,803 (39,697) 8,246
Shares issued in Rights Offering..... -- 286 91,931 -- 92,217
Stock payment to CLK and other....... -- 1 772 -- 773
Net loss............................. -- -- -- (10,538) (10,538)
-------- ------- --------- --------- ---------
Balance at December 31, 1997.......... -- 427 140,506 (50,235) 90,698
(Unaudited)
Stock payment to CLK and other....... -- 2 551 -- 553
Net loss............................. -- -- -- (14,878) (14,878)
-------- ------- --------- --------- ---------
Balance at June 30, 1998.............. $ -- $ 429 $ 141,057 $ (65,113) $ 76,373
======== ======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
MCMORAN OIL & GAS CO.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. The financial statements of McMoRan
Oil & Gas Co. (MOXY) reflect investments in joint ventures and partnerships
using the proportionate consolidation method in accordance with standard
industry practice. Certain prior year amounts have been reclassified to
conform to the 1997 presentation.
The MOXY balance sheet as of June 30, 1998 and the related
statements of operations, cash flow and changes in stockholders' equity for
the six-month periods ended June 30, 1998 and 1997 are unaudited. These
unaudited financial statements have been prepared from the books and records
of MOXY and reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of results for the periods. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in these
financial statements and the accompanying notes. The more significant
estimates include useful lives for depreciation and amortization, valuation
allowances for deferred tax assets and estimates of proved oil and gas
reserves and related future cash flows. Actual results could differ from
those estimates.
Cash and Cash Equivalents. Highly liquid investments purchased
with a maturity of three months or less are considered cash equivalents.
Property, Plant and Equipment. MOXY follows the successful
efforts method of accounting for its oil and gas exploration and development
activities. Costs of exploratory wells are capitalized pending determination
of whether the wells find proved reserves. Costs of leases, productive
exploratory wells and development activities are also capitalized. Other
exploration costs are expensed. Depreciation and amortization is determined on
a field-by-field basis using the unit-of-production method. Gains or losses
are included in earnings when properties are sold. Estimated future
expenditures to restore oil and gas properties and related facilities to a
condition that complies with environmental and other regulations are accrued
over the life of the properties. These expenditures are estimated based on
current costs, laws and regulations. Estimated future abandonment costs total
$3.9 million, of which $0.6 million was accrued at December 31, 1997. These
estimates are by their nature imprecise and can be expected to be revised over
time because of changes in government regulations, operations, technology and
inflation.
Other property, plant and equipment are carried at cost less
salvage value and are depreciated on a straight-line basis over estimated
useful lives of 5 years.
Statement of Financial Accounting Standards No. 121 (SFAS 121)
requires a reduction of the carrying amount of long-lived assets to fair value
when events indicate that the carrying amount may not be recoverable.
Measurement of the impairment loss is based on the fair value of the asset.
Generally, MOXY determines fair value using valuation techniques such as
expected future cash flows. Since MOXY's adoption of SFAS 121 effective
January 1, 1995, no impairment losses have been incurred.
Financial Instruments. The carrying amounts of receivables,
other current assets and accounts payable reported in the balance sheet
approximate fair value.
Earnings Per Share. In February 1997, the Financial Accounting
Standards Board issued SFAS 128, "Earnings Per Share," which simplifies the
computation of earnings per share (EPS). MOXY adopted SFAS 128 in the fourth
quarter of 1997 and restated prior years' EPS data as required by SFAS 128.
Net loss per share of common stock was calculated by dividing
net loss applicable to common stock by the weighted-average number of common
shares outstanding during the year. Dilutive stock options, which represented
626,000 shares in 1997, no shares in 1996 and 36,000 shares in 1995, have been
excluded from the calculation of dilutive EPS as these options would be
anti-dilutive considering the net losses incurred during the years presented.
Options to purchase common stock that were outstanding during
the years presented but are not included as dilutive options above because the
exercise prices were greater than the average market price of MOXY's common
shares totaled 2,139,000 options at an average exercise price of approximately
$3.66 per share in 1997, 867,000 options at an average of approximately $2.45
per share in 1996 and 1,679,000 options at an average of approximately $4.30
per share in 1995.
2. RIGHTS OFFERING AND EXPLORATION AGREEMENTS
In November 1997, MOXY received net proceeds of $92.2 million
from the sale of a total of 28.6 million shares of common stock at $3.50 per
share under the terms of a rights offering to existing shareholders (the
Rights Offering). Phosphate Resource Partners Limited Partnership (PLP),
formerly Freeport-McMoRan Resource Partners, Limited Partnership, purchased
3.8 million of these shares, representing approximately 9% of total MOXY
shares outstanding, for $13.5 million in fulfillment of its commitment to
purchase any shares relating to unexercised rights from the Rights Offering
(the Stand-By Commitment). MOXY concurrently used $44.5 million of these
proceeds, including $0.8 million of interest costs, to acquire from PLP
certain assets of, and repay MOXY's borrowings under, the exploration program
previously formed by MOXY and MCN Energy Group Inc. (MCN) (the MOXY/MCN
Program). PLP purchased the assets from, and repaid the debt due, MCN in
August 1997 for an equivalent amount, before interest costs. The assets
consisted of MCN's interest in the Vermilion Block 160 and 410 oil and gas
fields ($24.5 million), and the debt represented MOXY's borrowings to fund its
share of program costs ($20.0 million), which bore interest at prime plus 2%.
As MOXY's financial statements only reflect operating results of these
purchased properties since the acquisition date, the following selected
unaudited pro forma information is provided to present MOXY's results as if
both this acquisition and that described in Note 3 had occurred as of January
1, 1996. The pro forma data are for informational purposes only and do not
necessarily represent results which actually would have occurred if the
acquisition had taken place on this date, nor are they indicative of future
results.
Unaudited Pro Forma Data
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C>
Revenues............ $ 23,900 $ 9,046
Net loss............ (9,340) (8,784)
Net loss per share.. (0.22) (0.21)
</TABLE>
MOXY is using a portion of the remaining net Rights Offering
proceeds to fund its share of an aggregate $210 million, multi-year oil and gas
exploration program to explore and develop prospects primarily offshore in the
Gulf of Mexico and onshore in the Gulf Coast region (the MOXY Exploration
Program) formed upon completion of the Rights Offering to replace the MOXY/MCN
Program. MOXY and PLP contributed their interests in all exploration
properties formerly part of the MOXY/MCN Program and their joint interests in
certain other properties to the MOXY Exploration Program. Under this program
most exploration expenditures will be shared 56.4% by PLP, 37.6% by MOXY and 6%
by an individual investor who subsequently became a director of MOXY (see Note
3), with all other costs and revenues shared 47% by PLP, 48% by MOXY and 5% by
the individual investor. MOXY paid PLP a $6.0 million Stand-By Commitment fee
for acquiring and holding the MOXY/MCN Program assets referred to above until
completion of the Rights Offering, entering into the Stand-By Commitment and
agreeing to enter into the MOXY Exploration Program. The fee is reflected in
the accompanying financial statements as a reduction of the Rights Offering
proceeds.
On December 22, 1997, Freeport-McMoRan Inc. (FTX), the
administrative managing general partner and owner of a 51.6% interest in PLP,
merged into IMC Global Inc. (IGL) (the Merger). As a result of the Merger,
IGL acquired control of FTX and PLP and became the administrative managing
partner of PLP. The Merger had no impact on the terms and conditions of the
MOXY Exploration Program.
In 1995, MOXY and Phillips Petroleum Company (Phillips) entered
into an exploration agreement covering a project area in south Louisiana.
MOXY conveyed one-half of its interest in the area to Phillips for $3.8
million. In 1996, MOXY sold one-half of its remaining 50% leasehold interest
to PLP for $2.1 million. This payment from PLP represented a reimbursement of
previously expensed exploration costs by MOXY in connection with this project
area and accordingly was recorded as a reduction to exploration expenses.
MOXY sold the interest to PLP on the same proportionate basis as the prior
Phillips sale.
3. TRANSACTIONS WITH AFFILIATES
Management Services. FTX or its affiliate FM Services Company
(FMS) previously have provided certain management and administrative services
for MOXY. MOXY restructured its services agreement with FTX during 1995 to
provide specified services for an annual fee of $1.0 million and entered into
a similar agreement with FMS in 1996. Costs of services provided pursuant to
these agreements, included in general and administrative expenses, totaled $1.0
million in 1997 and 1996 and $1.3 million in 1995. Effective with the Merger,
MOXY and FMS, now 25% owned by MOXY, implemented an amended services agreement
whereby FMS provides services on a cost reimbursement basis. MOXY believes
that the above expenses do not (and in the future will not) differ materially
from those costs which would have been incurred had the relevant personnel
providing these services been employed directly by MOXY.
Property Purchase. In September 1997, MOXY purchased for $4.5
million cash all of the oil and gas interests owned by Stratus Properties Inc.
(Stratus), a publicly traded company affiliated with MOXY because of common
management and a common director. These properties, which included three
exploration prospects representing $3.0 million of the purchase price and
numerous producing property interests for the remainder, are located offshore
in the Gulf of Mexico and in various onshore areas of the United States. The
acquisition cost of the most significant exploration property was shared 60%
by PLP and 40% by MOXY and was included in the MOXY Exploration Program. Oil
and gas revenues generated by the producing properties acquired by MOXY
totaled $0.8 million in 1997 (prior to acquisition), $1.4 million in 1996 and
$0.6 million in 1995, although a single property which generated $0.7 million
of revenues in 1996 ceased production in the second quarter of 1997.
Program Participant. Effective December 15, 1997 Mr. Gerald J.
Ford, an individual investor elected to MOXY's Board of Directors in January
1998, became an individual participant in the MOXY Exploration Program. At
December 31, 1997 Mr. Ford has paid $0.6 million for his proportionate share
of MOXY Exploration Program costs incurred.
4. EMPLOYEE BENEFITS
Stock Options. MOXY's Stock Option Plan and Stock Option Plan
for Non-Employee Directors (the Plans) authorize MOXY to grant stock options
to purchase up to approximately 3.6 million shares of MOXY stock at no less
than market value at time of grant. Generally, stock options are exercisable
in 25% annual increments beginning one year from the date of grant and expire
10 years after the date of grant. A summary of stock options outstanding
(including options to purchase approximately 1.7 million MOXY shares and
approximately 46,000 stock appreciation rights, as adjusted, originally issued
in connection with the 1994 FTX distribution of MOXY shares) follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ------------------------------ -----------------------------
Number of Average Number of Average Number of Average
Options Option Price Options Option Price Options Option Price
-------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year .................. 2,139,694 $ 3.88 2,257,828 $ 3.92 1,829,867 $ 4.26
Granted ............................ 2,347,732 3.59 24,904 2.54 529,028 2.85
Adjustments ........................ 782,244 -- -- -- -- --
Exercised .......................... (34,661) 3.28 (581) 3.03 -- --
Expired/forfeited .................. (128,873) 3.54 (142,457) 4.33 (101,067) 4.39
--------- --------- ---------
End of year ........................ 5,106,136 3.16 2,139,694 3.88 2,257,828 3.92
========= ========= =========
</TABLE>
In July 1997 the MOXY Board of Directors approved, subject to
stockholder approval, certain amendments to the Plans. These amendments
provided for a grant to non-employee directors of options exercisable over a
four-year period to purchase a total of 105,984 shares and increased the
number of options to be granted to non-employee directors in future periods.
The amendments also authorized additional shares under the Stock Option Plan.
In July 1997 new options exercisable over a four-year period to purchase a
total of 1,954,000 shares were granted to certain officers, employees and
others providing services to MOXY. All options were granted at the July 1997
market price of $3.625. MOXY's stockholders approved the amendments and
option grants in October 1997. MOXY will record an aggregate non-cash charge
against earnings of approximately $1.3 million over the four-year exercise
period for the difference between the July 1997 price and the market price of
$4.27 following stockholder approval. Additionally, in October 1997 the Board
of Directors approved certain adjustments to the number of shares granted and
exercise prices of previously granted options to reflect the issuance of
Rights under the Rights Offering. These adjustments did not result in a
charge to earnings.
At December 31, 1997, options for approximately 246,000 shares
were available for new grants under the Plans. Summary information of fixed
stock options outstanding at December 31, 1997 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Option Number Option
Range of Exercise Prices of Options Life Price of Options Price
------------------------ ------------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$1.46 to $2.11 682,387 7.9 years $ 2.10 337,857 $ 2.11
$2.21 to $3.29 1,519,430 4.8 years 2.77 1,089,902 2.92
$3.37 to $4.13 2,858,672 7.9 years 3.62 837,465 3.54
--------- ---------
5,060,489 2,265,224
========= =========
</TABLE>
MOXY has adopted the disclosure-only provisions of SFAS 123 and
continues to apply APB Opinion No. 25 and related interpretations in
accounting for its stock-based compensation plans. Accordingly, no
compensation cost has been recognized for MOXY's fixed stock option grants
except as discussed above. Had compensation cost for MOXY's fixed stock
option grants been determined based on the fair value at the grant dates for
awards under those plans consistent with SFAS 123, MOXY's pro forma net loss
would have been $11.6 million ($ 0.62 per share) in 1997, $10.1 million ($0.73
per share) in 1996 and $14.7 million ($1.06 per share) in 1995. For the pro
forma computations, the fair values of the fixed option grants were estimated
on the dates of grant using the Black-Scholes option pricing model. The
weighted average fair value for fixed stock option grants was $2.89 per option
in 1997, $1.69 per option in 1996 and $2.15 per option in 1995. The weighted
average assumptions used include a risk-free interest rate of 6.6% in 1997 and
1996 and 6.4% in 1995, with expected volatility of 67% in 1997, 45% in 1996
and 60% in 1995 and expected lives of 10 years. The pro forma effects on net
income are not representative of future years because they do not take into
consideration grants made prior to 1995. No other discounts or restrictions
related to vesting or the likelihood of vesting of fixed stock options were
applied.
5. INCOME TAXES
MOXY has $30.2 million of net deferred tax assets as of
December 31, 1997 resulting from temporary differences related to MOXY's
exploration activities. MOXY has provided a valuation allowance equal to
these tax assets because of the expectation of incurring tax losses for at
least the near future, resulting in no tax benefits for the periods presented.
The components of MOXY's deferred taxes follow (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
--------- -----------
<S> <C> <C>
Net operating loss carryforwards (expire 2006-2017). $ 21,559 $ 17,976
Capital losses (expire 1999)........................ 5,511 5,511
Other tax carryforwards............................. 371 303
Oil & gas properties................................ 2,111 2,272
Other............................................... 613 453
Less valuation allowance............................ (30,165) (26,515)
--------- ---------
Net deferred tax assets............................ $ -- $ --
========= =========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Commitments. MOXY has drilling and related expenditure
commitments of approximately $22 million in 1998. In addition, MOXY has
minimum committed expenditures under a multi-year agreement with a geophysical
services company to purchase 3-D seismic surveys which totaled $1.5 million at
December 31, 1997. MOXY also has a contract with CLK Company LLC (CLK), a
company independently owned by its employees, to provide geological and
geophysical services to MOXY on an exclusive basis. The contract was amended
during 1997 to provide for an annual retainer fee of $2.2 million ($0.5
million of the annual fee paid in MOXY common stock, recorded at fair market
value), plus certain expenses and an overriding royalty interest in prospects
accepted by MOXY. Costs of services provided by CLK, included in exploration
expenses, totaled $3.0 million in 1997, $3.1 million in 1996 and $3.5 million
in 1995.
Environmental. Although MOXY has no known environmental
liabilities other than the estimated costs of abandoning its offshore oil and
gas production facilities in accordance with current regulatory requirements
(Note 1), increasing emphasis on environmental matters could result in
additional costs, which would be charged against MOXY's operations in future
periods. Present and future environmental laws and regulations applicable to
MOXY's operations could require substantial capital expenditures or could
adversely affect its operations in other ways that cannot be accurately
predicted at this time.
7. SUPPLEMENTARY OIL AND GAS INFORMATION
MOXY's oil and gas exploration, development and production
activities are conducted in the offshore Gulf of Mexico and onshore Gulf Coast
areas of the United States. Oil and gas production are sold to various U.S.
purchasers, including one gas purchaser comprising over 90% of total revenues.
Supplementary information presented below is prepared in accordance with
requirements prescribed by SFAS 69.
Oil and Gas Capitalized Costs
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1997 1996
------------ -------------
(In Thousands)
<S> <C> <C>
Unevaluated properties......................... $ 14,856 $ 2,173
Proved properties.............................. 53,229 17,341
Less accumulated depreciation and amortization. (10,880) (1,283)
----------- ----------
Net oil and gas properties..................... $ 57,205 $ 18,231
=========== ===========
</TABLE>
Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1997 1996 1995
---------- ---------- -----------
(In Thousands)
<S> <C> <C> <C>
Acquisition of properties:
Proved.................. $ 26,005 $ -- $ --
Unproved................ 3,332 2,499 863
Exploration costs............ 20,137 11,672 13,928
Development costs............ 9,794 6,507 6,166
--------- --------- ---------
$ 59,268 $ 20,678 $ 20,957
========= ========= =========
</TABLE>
Proved Oil and Gas Reserves (Unaudited). Proved oil and gas
reserves at December 31, 1997, have been estimated by independent petroleum
engineers in accordance with guidelines established by the Securities and
Exchange Commission (SEC). Thus, the following reserve estimates are based
upon existing economic and operating conditions; they are only estimates and
should not be construed as being exact. MOXY's 1997 proved reserves are
located in offshore United States waters. Oil, including condensate and plant
products, is stated in thousands of barrels and natural gas is in millions of
cubic feet.
<TABLE>
<CAPTION>
Oil Gas
----------------------------- -----------------------------------
1997 1996 1995 1997 1996 1995
------ ------ ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year.................... 168 94 262 16,054 8,521 9,714
Revisions of previous estimates...... 1 31 54 38 1,155 88
Discoveries and extensions........... 195 72 -- 21,481 7,009 4,999
Production........................... (34) (29) (45) (4,061) (631) (1,093)
Transfer to MCN...................... -- -- (177) -- -- (5,187)
Sale of reserves..................... (17) -- -- (3,307) -- --
Purchase of reserves from PLP........ 150 -- -- 10,029 -- --
--- --- ---- ------ ------ ------
End of year.......................... 463 168 94 40,234 16,054 8,521
=== === ==== ====== ====== ======
Proved developed reserves:
Beginning of year.................... 58 20 -- 7,530 779 --
=== === ==== ====== ====== ======
End of year.......................... 383 58 20 23,086 7,530 779
=== === ==== ====== ====== ======
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows From Proved Oil and
Gas Reserves (Unaudited)
MOXY's standardized measure of discounted future net cash flows
and changes therein relating to proved oil and gas reserves were computed
using reserve valuations based on regulations prescribed by the SEC. These
regulations provide for the use of current oil and gas prices (escalated only
when known and determinable price changes are provided by contract and law) in
the projection of future net cash flows.
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
Future cash flows............................................................... $ 111,655 $ 66,260
Future costs applicable to future cash flows:
Production costs............................................................... (20,984) (7,805)
Development and abandonment costs.............................................. (31,211) (12,874)
---------- ---------
Future net cash flows before income taxes....................................... 59,460 45,581
Future income taxes............................................................. -- --
---------- ---------
Future net cash flows........................................................... 59,460 45,581
Discount for estimated timing of net cash flows (10% discount rate)............. (13,837) (10,240)
---------- ---------
$ 45,623 $ 35,341
========== =========
</TABLE>
Because MOXY has sufficient tax deductions and losses to
utilize against estimated future taxable income, in accordance with SFAS 69 no
deductions for future income taxes have been made above.
Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Oil and Gas Reserves (Unaudited)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Beginning of year................................................. $ 35,341 $ 8,330 $ 6,413
Revisions:
Changes in prices............................................... (13,869) 12,894 7,815
Accretion of discount........................................... 3,534 833 641
Other changes, including revised estimates of development
costs and rates of production................................ (6,040) (2,863) (3,083)
Discoveries and extensions, less related costs.................... 15,502 10,837 3,368
Development costs incurred during the year........................ 6,630 6,985 1,750
Revenues, less production costs................................... (10,193) (1,675) (1,589)
Sale of reserves.................................................. (3,437) -- --
Transfer to MCN................................................... -- -- (6,985)
Purchase of reserves from PLP..................................... 18,155 -- --
---------- ---------- ----------
End of year....................................................... $ 45,623 $ 35,341 $ 8,330
========== ========== ==========
</TABLE>
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Operating Net Income
Income Net Income (Loss)
Revenues (Loss) (Loss) Per Share
---------- ----------- ------------ -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
1997
1st Quarter..... $ 2,773 $ (2,260) $ (2,489) $ (0.18)
2nd Quarter..... 2,248 (1,192) (a) (1,395) (a) (0.10) (a)
3rd Quarter..... 2,688 (6,274) (b) (6,545) (b) (0.46) (b)
4th Quarter..... 5,843 (178) (109) --
---------- ---------- -----------
$ 13,552 $ (9,904) $ (10,538) $ (0.56)
========== ========== ===========
1996
1st Quarter..... $ 1,073 $ (4,453) $ (4,330) $ (0.31)
2nd Quarter..... 949 418 (c) 525 (c) 0.04 (c)
3rd Quarter..... 919 (2,087) (2,148) (0.15)
4th Quarter..... 1,129 (3,761) (3,909) (0.28)
---------- ---------- -----------
$ 4,070 $ (9,883) (d) $ (9,862) $ (0.71)
========== ========== ===========
</TABLE>
- -------------
(a) Includes a gain of $2.3 million ($0.16 per share) resulting from the sale
of the West Cameron Block 503 property and $1.0 million ($0.07 per share)
of additional depreciation from downward revisions to reserve estimates for
the Vermilion Block 410 property.
(b) Includes $3.9 million ($0.21 per share) of non-productive exploratory
drilling costs on the Grand Isle Block 65, Eugene Island 18/19 and
Vermilion Block 159 prospects.
(c) Includes a reduction to exploration expense of $2.1 million ($0.15 per
share) resulting from the reimbursement of previously expensed costs.
(d) Foreign exploration costs totaled $0.4 million in 1996.
9. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
Merger Agreement. On August 3, 1998 MOXY and Freeport-McMoRan
Sulphur Inc. (FSC) announced that they had signed a definitive agreement to
combine their operations. In the proposed transaction, a new holding company,
McMoRan Exploration Co. (McMoRan), would issue approximately 5.5 million
McMoRan common shares in exchange for all of FSC's common shares and
approximately 8.6 million McMoRan common shares in exchange for all of MOXY's
common shares. FSC shareholders would receive 0.625 McMoRan shares for each
common share of FSC outstanding and MOXY shareholders would receive 0.20
McMoRan shares for each common share of MOXY outstanding. Immediately
following the transaction, McMoRan would have approximately 14.1 million
common shares outstanding that would be owned approximately 61% by MOXY's
existing common shareholders and approximately 39% by FSC's existing common
shareholders. McMoRan's Board of Directors and executive management will
include current members of the Boards of Directors and executive management of
both MOXY and FSC. The transaction would be tax-free with respect to both
MOXY and FSC shareholders and will be reported on the basis of purchase
accounting, reflecting MOXY as the acquiring entity. The completion of the
merger transaction is subject to approval by MOXY and FSC shareholders and
applicable regulatory approvals.
Litigation. On May 18, 1998 IGL and PLP filed a lawsuit in the
Delaware Court of Chancery of New Castle County against MOXY, and four former
directors of FTX, which merged into IGL in December 1997. The plaintiffs
allege that the individual defendants, as directors of FTX, breached fiduciary
duties in the approval by FTX of a joint oil and gas exploration program
between MOXY and PLP. The suit also alleges that MOXY conspired with the
individual defendants and aided and abetted their alleged breach of fiduciary
duties. The plaintiffs seek unspecified monetary damages and recission or
equitable reformation of the program agreement. Currently PLP continues to
participate in the joint oil and gas exploration program pursuant to its
contractual agreements and is current on payments due on its joint interest
billings. A second lawsuit was filed on May 19, 1998, by the plaintiff of a
purported class of plaintiffs who own depository units of PLP. The lawsuit
alleges allegations substantially identical to those in the complaint
described above, as well as, allegations that IGL and FTX breached fiduciary
duties to PLP, and PLP's public unitholders. The plaintiff seeks unspecified
monetary damages and other relief. MOXY believes that these suits are without
merit and intends to vigorously defend itself and enforce its contract rights
in both cases.
New Accounting Standards. In June 1998, the FASB issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activity," which
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 is effective for fiscal years beginning
after June 15, 1999 with earlier application permitted beginning as early as
July 1, 1998. As MOXY does not currently have any derivative instruments,
adoption of this standard would not have any impact on its financial
statements, financial position or results of operations.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF FREEPORT-McMoRan
SULPHUR INC.:
We have audited the accompanying balance sheets of
Freeport-McMoRan Sulphur Inc. (the Company), a Delaware Corporation, and its
predecessors as of December 31, 1997 and 1996, and the related statements of
operations, cash flow and changes in stockholders' equity for each of the
years in the three-year period ended December 31, 1997. 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 the
Company and its predecessors as of December 31, 1997 and 1996 and the results
of its operations and its cash flow for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New Orleans, Louisiana
January 20, 1998
FREEPORT-McMoRan SULPHUR INC.
BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
June 30, 1998 1997 1996
--------------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 33,790 $ 21,293 $ 3,116
Accounts receivable:
Customers......................................................... 21,124 27,266 27,402
Other............................................................. 3,751 6,473 15,849
Inventories:
Products.......................................................... 13,861 24,841 21,859
Materials and supplies............................................ 9,670 9,580 8,214
Deferred tax asset................................................. 7,590 4,768 --
Prepaid expenses and other......................................... 2,552 1,214 6,764
----------- ---------- ----------
Total current assets.............................................. 92,338 95,435 83,204
----------- ---------- ----------
Property, plant and equipment...................................... 843,618 841,222 916,858
Less accumulated depreciation and amortization..................... (743,467) (731,389) (381,205)
----------- ---------- ----------
Net property, plant and equipment................................. 100,151 109,833 535,653
----------- ---------- ----------
Deferred tax asset................................................. 53,856 56,757 --
Other assets....................................................... 10,303 11,008 14,763
----------- ---------- ----------
Total assets....................................................... $ 256,648 $ 273,033 $ 633,620
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................... $ 25,191 $ 25,175 $ 32,149
Current portion of reclamation and mine shutdown reserves.......... 16,349 4,656 25,261
----------- ---------- ----------
Total current liabilities......................................... 41,540 29,831 57,410
Reclamation and mine shutdown reserves............................. 52,141 67,518 56,848
Accrued postretirement and pension benefits........................ 10,771 15,594 --
Other liabilities.................................................. 46,227 45,693 35,002
Stockholders' equity:
Net assets from PLP............................................... -- -- 484,360
Preferred stock, par value $0.01 per share, 50,000,000
authorized...................................................... -- -- --
Common stock, par value $0.01 per share, 100,000,000 shares
authorized, 10,386,703 and 10,346,578 shares issued and
outstanding, respectively....................................... 104 103 --
Capital in excess of par value of common stock.................... 117,050 116,780 --
Accumulated deficit............................................... (2,338) (2,486) --
Treasury stock, 646,100 shares at cost....................... (8,847) -- --
----------- ---------- ----------
Total stockholders' equity...................................... 105,969 114,397 484,360
----------- ---------- ----------
Liabilities and stockholders' equity............................... $ 256,648 $ 273,033 $ 633,620
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan SULPHUR INC.
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Six Months Ended June 30, Years Ended December 31,
----------------------------- ----------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $ 113,662 $ 107,750 $ 211,945 $ 221,426 $ 255,949
Cost of sales:
Production and delivery................... 96,032 85,767 183,227 160,982 168,504
Depreciation and amortization............. 12,735 16,889 461,084 37,800 43,700
----------- ----------- ----------- ----------- ----------
Total cost of sales...................... 108,767 102,656 644,311 198,782 212,204
General and administrative expenses....... 5,374 3,834 6,950 10,252 18,725
----------- ----------- ----------- ----------- ----------
Total costs and expenses................. 114,141 106,490 651,261 209,034 230,929
----------- ----------- ----------- ----------- ----------
Operating income (loss)................... (479) 1,260 (439,316) 12,392 25,020
Other income, net......................... 706 -- 12 -- --
----------- ----------- ----------- ----------- ----------
Net income (loss) before income taxes..... 227 1,260 (439,304) 12,392 25,020
Income tax (provision) benefit............ (79) -- 65,105 -- --
----------- ----------- ----------- ----------- ----------
Net income (loss)......................... $ 148 $ 1,260 $ (374,199) $ 12,392 $ 25,020
=========== =========== =========== =========== ==========
Basic and diluted net income (loss) per
share..................................... $ 0.01 $ 0.12 $ (36.16) $ 1.20 $ 2.42
=========== =========== =========== =========== ==========
Average common shares outstanding:
Basic .............................. 9,950 10,347 10,347 10,347 10,347
=========== =========== =========== =========== ==========
Diluted............................. 10,031 10,347 10,347 10,347 10,347
=========== =========== =========== =========== ==========
UNAUDITED PRO FORMA DATA
(NOTE 1)
Net income (loss) before income taxes
reported above........................... $ 1,260 $ (439,304) $ 12,392 $ 25,020
Pro forma benefit (provision) for income
taxes.................................... (436) 151,999 (4,659) (6,845)
----------- ----------- ----------- ----------
Pro forma net income (loss)............... $ 824 $ (287,305) $ 7,733 $ 18,175
=========== =========== =========== ==========
Pro forma net income (loss) per share..... $ 0.08 $ (27.77) $ 0.75 $ 1.76
=========== =========== =========== ==========
Pro forma average shares outstanding...... 10,347 10,347 10,347 10,347
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan SULPHUR INC.
STATEMENTS OF CASH FLOW
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
------------------------- ------------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ------------ ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)......................... $ 148 $ 1,260 $ (374,199) $ 12,392 $ 25,020
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization............ 12,735 16,889 461,084 37,800 43,700
Curtailment gain on Culberson
pension and postretirement
liabilities............................ (4,148) -- -- -- --
Reclamation and mine shutdown
expenditures........................... (3,505) (4,822) (20,562) (7,504) (2,476)
Deferred income taxes.................... 79 -- (65,105) -- --
Other.................................... (307) (880) 3,653 6,421 4,642
(Increase) decrease in working
capital net of effect of
acquisitions:
Accounts receivable................. 8,937 2,005 18,946 (3,234) (17,504)
Inventories......................... 10,890 578 399 1,690 5,465
Prepaid expenses and other.......... (1,338) 1,309 4,816 166 (1,605)
Accounts payable and accrued
liabilities....................... (303) (71) (12,304) 4,113 8,165
---------- ---------- ----------- ---------- ----------
Net cash provided by operating
activities................................ 23,188 16,268 16,728 51,844 65,407
---------- ---------- ----------- ---------- ----------
Cash flow from investing activities:
Capital expenditures...................... (2,288) (2,744) (3,513) (3,834) (3,710)
Sale of assets and other.................. 141 891 890 2,146 375
---------- ---------- ----------- ---------- ----------
Net cash used in investing activities..... (2,147) (1,853) (2,623) (1,688) (3,335)
---------- ---------- ----------- ---------- ----------
Cash flow from financing activities:
Net distributions from (to) PLP........... -- (15,944) 4,072 (49,814) (59,298)
Purchase of FSC common stock.............. (8,847) -- -- -- --
Other..................................... 303 -- -- -- --
---------- ---------- ----------- ---------- ----------
Net cash provided by (used in)
financing activities...................... (8,544) (15,944) 4,072 (49,814) (59,298)
---------- ---------- ----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents......................... 12,497 (1,529) 18,177 342 2,774
Cash and cash equivalents at
beginning of year......................... 21,293 3,116 3,116 2,774 --
---------- ---------- ----------- ---------- ----------
Cash and cash equivalents at end of
period.................................... $ 33,790 $ 1,587 $ 21,293 $ 3,116 $ 2,774
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes, which include information in Notes 1, 2
and 8 regarding non-cash transactions, are an integral part of these financial
statements.
FREEPORT-McMoRan SULPHUR INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Six Months Years Ended December 31,
Ended -----------------------------------------
June 30, 1998 1997 1996 1995
------------- ----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net assets from PLP:
Balance at beginning of year................................ $ -- $ 484,360 $ 521,782 $ 556,060
Net income (loss) before distribution to PLP unitholders.... -- (371,713) 12,392 25,020
Contribution of IGL Main Pass interest...................... -- 18,458 -- --
Net PLP liabilities allocated to FSC........................ -- (18,294) -- --
Net distributions from (to) PLP............................. -- 4,072 (49,814) (59,298)
Distribution of shares to PLP unitholders................... -- (116,883) -- --
----------- ---------- ---------- ----------
Balance at end of period................................... -- -- 484,360 521,782
----------- ---------- ---------- ----------
Preferred stock:
Balance at beginning and end of period...................... -- -- -- --
----------- ---------- ---------- ----------
Common stock:
Balance at beginning of year................................ 103 -- -- --
Shares issued to PLP unitholders............................ -- 103 -- --
Exercised stock options..................................... 1 -- -- --
----------- ---------- ---------- ----------
Balance at end of period................................... 104 103 -- --
----------- ---------- ---------- ----------
Capital in excess of par value of common stock:
Balance at beginning of year................................ 116,780 -- -- --
Shares issued to PLP unitholders............................ -- 116,780 -- --
Exercised stock options and other 270 -- -- --
----------- ---------- ---------- ----------
Balance at end of period................................... 117,050 116,780 -- --
----------- ---------- ---------- ----------
Accumulated deficit:
Balance at beginning of year................................ (2,486) -- -- --
Net income (loss) subsequent to December 22, 1997........... 148 (2,486) -- --
----------- ---------- ---------- ----------
Balance at end of period................................... (2,338) (2,486) -- --
----------- ---------- ---------- ----------
Treasury Stock:
Balance at beginning of year................................ -- -- -- --
Purchase of 646,100 FSC shares.............................. (8,847) -- -- --
----------- ---------- ---------- ----------
Balance at end of period.............................. (8,847) -- -- --
----------- ---------- ---------- ----------
Total stockholders' equity............................... $ 105,969 $ 114,397 $ 484,360 $ 521,782
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FREEPORT-MCMORAN SULPHUR INC. NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
Background. Freeport-McMoRan Sulphur Inc. (FSC) became an
independent, publicly held company as of December 22, 1997, when Phosphate
Resource Partners Limited Partnership (PLP), formerly Freeport-McMoRan
Resource Partners, Limited Partnership, distributed to its unitholders its
sulphur business, including its 58.3% interest in Main Pass sulphur and oil
operations, together with the 25.0% interest in Main Pass previously owned by
IMC Global Inc. (IGL) (Note 8), a joint venture partner with PLP (the
Distribution). PLP distributed 10,346,578 shares of FSC common stock pro rata
to its unitholders in connection with the merger of Freeport-McMoRan Inc.
(FTX), the former administrative general partner and majority owner of PLP,
with and into IGL (the Merger). FTX distributed the shares of FSC common stock
that it received from PLP to FTX stockholders on a pro rata basis in
connection with the Merger.
Basis of Presentation. FSC operated as an integral part of PLP
prior to the Distribution. FSC's financial statements have been prepared from
the books and records of PLP. Certain data has been extracted from PLP
records, or in certain cases derived on the basis of allocations between FSC
and PLP's other businesses, for purposes of presentation in the accompanying
financial statements. FSC's investment in the Main Pass joint venture is
reflected using the proportionate consolidation method in accordance with
standard industry practice. No interest expense has been allocated to FSC as
no interest costs have been incurred in the past by FSC and no debt previously
recorded by PLP was assumed by FSC. Intercompany balances between PLP and FSC
have related to various general and administrative and similar charges and
have been settled monthly. PLP is not a taxable entity and historically has
not provided income taxes on the results of operations of FSC. Upon formation
of FSC as a wholly owned taxable subsidiary of PLP prior to being spun-off to
PLP unitholders, a deferred tax asset of $63.8 million was recognized in 1997
income to reflect the excess of tax over book basis in the related assets.
Unaudited pro forma income taxes are included in the statements of operations
as if FSC had been a separate taxable entity for the periods presented. FTX
provided benefit plans for certain employees that became FSC employees upon
completion of the Merger. FTX transferred certain liabilities related to these
plans to FSC and paid cash to FSC for the assumption of certain of these
liabilities as discussed further in Note 6.
The FSC balance sheet as of June 30, 1998 and the related
statements of operations, cash flow and changes in stockholders' equity for
the six-month periods ended June 30, 1998 and 1997 are unaudited. These
unaudited financial statements have been prepared from the books and records
of FSC and reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of results for the periods. All such
adjustments are, in the opinion of management, of a normal recurring nature.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of FSC's financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in these financial statements and accompanying notes. The more significant
areas requiring the use of management estimates include valuation allowances
for deferred tax assets, reclamation and environmental obligations,
postretirement and other employee benefits, future cash flows associated with
assets and useful lives for depreciation and amortization. Actual results
could differ from those estimates.
Cash and Cash Equivalents. Highly liquid investments purchased
with a maturity of three months or less are considered cash equivalents.
Inventories. Inventories are stated at the lower of average
cost or market.
Property, Plant and Equipment. Property, plant and equipment
are carried at cost, including interest capitalized during the construction
and development period. Expenditures for replacements and improvements are
capitalized. Depreciation for mining and production assets, including mineral
interests, is determined using the unit-of-production method based on
estimated recoverable reserves. Other assets are depreciated on a
straight-line basis over estimated useful lives of 15 to 20 years for
buildings and 5 to 15 years for machinery and equipment.
In 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS 121) which requires
an assessment of the carrying value of long-lived assets and a reduction of
such carrying value to fair value when events or changes in circumstances
indicate that the carrying amount may not be recoverable. In September 1997
FSC concluded that the carrying amount of the Main Pass sulphur assets exceeded
the undiscounted estimated future net cash flows, such that an impairment
writedown of $416.4 million was required. A similar analysis of the Culberson
sulphur assets, based on a reassessment of recoverable reserves utilizing
recent production history, also indicated an impairment writedown of $9.0
million was required. Fair values were estimated using discounted estimated
future net cash flows related to these assets. The writedowns to fair value
were recorded as additional depreciation and amortization charges. Future
operating results of FSC will reflect lower depreciation and amortization
expense as a result of these writedowns.
Oil Capitalized Costs. Oil producing operations are reflected
using the successful efforts method of accounting. Costs of leases, productive
exploratory wells and development activities are capitalized. Other
exploration costs are expensed. Depreciation and amortization is determined on
a field-by-field basis using the unit-of-production method. Gain or loss is
included in income when properties are sold.
Financial Instruments and Contracts. FSC had outstanding
contracts at December 31, 1997 to purchase 1,350,000 million British thermal
units (mmBtu) of natural gas in the first quarter of 1998 at no more than
$2.65 per mmBtu and no less than $2.33 per mmBtu. These contracts had a fair
value of $(0.1) million at December 31, 1997.
Environmental Remediation and Compliance. FSC incurs
significant costs for environmental programs and projects. Expenditures
pertaining to future revenues from operations are capitalized. Expenditures
resulting from the remediation of conditions caused by past operations which
do not contribute to future revenue generation are expensed. Liabilities are
recognized for remedial activities when the efforts are probable and the cost
can be reasonably estimated.
Estimated future expenditures to restore properties and related
facilities to a condition that complies with environmental and other
regulations are accrued over the life of the properties. The future
expenditures are estimated based on current costs, laws and regulations. As of
December 31, 1997, FSC had a $36.5 million accrual for abandonment and
restoration of non-operating sulphur assets, offset by $10.8 million in Other
Assets which will be reimbursed by third parties. Total estimated abandonment
cost for Main Pass oil operations is $9.7 million and was fully accrued at
December 31, 1997. FSC's share of abandonment and restoration costs for its
two operating sulphur mines is estimated to total approximately $78 million,
$26.0 million of which had been accrued at December 31, 1997, with essentially
all costs being incurred after mine closure. These estimates are by their
nature imprecise and can be expected to be revised over time because of
changes in government regulations, operations, technology and inflation.
A rollforward of the reclamation and mine shutdown reserves
follows (in thousands):
<TABLE>
<CAPTION>
Balance at Charged to Charged to Other -
Beginning of Costs and Other Add Balance at End
Period Expenses Accounts (Deduct) of Period
------------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1997
Sulphur. $ 75,918 $ 9,349 $ -- $ (22,762) (a)(b) $ 62,505
Oil..... 6,191 (248) -- 3,726 (a) 9,669
---------- -------- --------- --------- ----------
$ 82,109 $ 9,101 -- $ (19,036) $ 72,174
========== ======== ========= ========= ==========
1996
Sulphur. $ 83,145 $ 3,920 -- $ (11,147) (b)(c) $ 75,918
Oil..... 4,903 1,288 -- -- 6,191
---------- -------- --------- --------- ----------
$ 88,048 $ 5,208 -- $ (11,147) $ 82,109
========== ======== ========= ========= ==========
1995
Sulphur. $ 59,446 $ 2,643 $ -- $ 21,056 (b)(c) $ 83,145
Oil..... 3,657 1,257 -- (11) 4,903
---------- -------- --------- --------- ----------
$ 63,103 $ 3,900 $ -- $ 21,045 $ 88,048
========== ======== ========= ========= ==========
</TABLE>
- ------------
(a) Includes $5.5 million of liabilities assumed ($1.8 million for sulphur and
$3.7 million for oil) in connection with the acquisition of IGL's 25.0
percent interest in Main Pass.
(b) Includes expenditures of $20.6 million in 1997, $7.5 million in 1996 and
$2.5 million in 1995.
(c) Includes $23.5 million of liabilities assumed in 1995 in connection with
the acquisition of the sulphur assets of Pennzoil which was subsequently
reduced by $8.3 million in 1996.
Earnings Per Share. In February 1997 the FASB issued SFAS 128,
"Earnings Per Share," which simplifies the computation of earnings per share
(EPS). FSC adopted SFAS 128 in the fourth quarter of 1997. Net income (loss)
per share and pro forma net income (loss) per share for all periods presented
was calculated by dividing the applicable net income (loss) amount by the
number of shares outstanding (10,346,578 shares) as of December 22, 1997, the
date of the spin off from PLP. Options to purchase 790,517 shares of common
stock at a weighted average price of $10.93 per share were outstanding for the
last nine days of 1997, but were excluded from the calculation of EPS as they
are anti-dilutive considering the loss reported in 1997. No options were
outstanding prior to 1997.
In December 1997, FSC announced an open market share purchase
program for up to 1.0 million shares of its common stock, representing
approximately 10% of the shares outstanding. The timing of the purchases is
dependent upon many factors, including the price of the common shares; FSC's
operating results, cash flows and financial position; and general economic and
market conditions. FSC has purchased 49,800 shares, all in 1998, for $0.5
million (an average of $10.77 per share) through January 20, 1998.
3. PROPERTY, PLANT AND EQUIPMENT, NET
The components of net property, plant and equipment follow (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Buildings and facilities........................................................... $ 555,616 $ 613,412
Capitalized oil exploration and development costs.................................. 203,946 201,517
Transportation, terminaling and other assets....................................... 81,660 101,929
---------- ----------
Property, plant and equipment..................................................... 841,222 916,858
Accumulated depreciation and amortization, including $203.9 million and
$192.5 million at December 31, 1997 and 1996, respectively, for
capitalized oil exploration and development costs................................. 731,389 381,205
---------- ----------
Property, plant and equipment, net................................................. $ 109,833 $ 535,653
========== ==========
</TABLE>
4. MANAGEMENT SERVICES
FTX provided certain management and administrative services to
PLP (and thus FSC), including technical, administrative, accounting,
financial, tax and other services under a management services agreement. The
costs of such services, which include related overhead, were allocated to FSC
based on time spent by FTX employees in the conduct of FSC's business
activities. Such costs were non-interest bearing and reimbursed monthly. The
total amount charged by FTX to FSC for such services was $2.0 million in 1996
and $15.9 million in 1995 (including $7.0 million for stock appreciation
rights costs resulting from the rise in FTX's common stock price during the
year). Beginning in 1996, FM Services Company (FMS), an entity now owned 25%
by FSC, began providing most of the services previously provided by FTX on a
similar cost-reimbursement basis, totaling $5.1 million in 1997 and $6.7
million in 1996. Management believes the costs for such services do not differ
materially from the costs that would have been incurred had the relevant
personnel providing these services been employed directly by FSC.
Prior to 1997, FTX operated the Main Pass oil facilities and
charged FSC $1.3 million in 1996 and $1.0 million in 1995 for specified
overhead and other costs. Beginning in 1997, PLP operated the facilities and
charged FSC $1.0 million. Subsequent to consummation of the Merger, FSC
operates the Main Pass oil facilities.
5. INCOME TAXES
Because PLP is not a taxable entity, historically it has not
provided for income taxes. FSC recorded a deferred income tax asset pursuant
to SFAS 109 immediately upon the transfer of assets and liabilities from PLP
(Note 1). The financial statements reflect an unaudited pro forma tax
provision as if FSC had been a taxable entity as FSC believes this is a more
meaningful presentation. The components of deferred taxes based upon temporary
differences existing at December 31, 1997 and the estimated amounts as of
December 31, 1996 follow (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax asset:
Property, plant and equipment............................................. $ 23,189 $ --
Reclamation and shutdown reserve.......................................... 21,158 22,656
Deferred compensation, postretirement and pension benefits................ 11,571 11,752
Other..................................................................... 5,607 4,538
--------- ---------
Total deferred tax asset................................................ 61,525 38,946
Deferred tax liability:
Property, plant and equipment............................................. -- (121,668)
--------- ---------
Net deferred tax asset (liability)......................................... 61,525 (82,722)
Current portion............................................................ (4,768) (8,889)
--------- ---------
Deferred tax asset (liability)............................................. $ 56,757 $ (91,611)
========= =========
</TABLE>
FSC believes it will generate sufficient income to realize its
deferred tax assets such that no valuation reserve is required. Unaudited pro
forma income taxes consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ---------
<S> <C> <C> <C>
Current.......... $ (7,752) $ (6,201) $ 4,942
Deferred......... (144,247) 10,860 1,903
---------- --------- --------
$ (151,999) $ 4,659 $ 6,845
========== ========= ========
</TABLE>
Unaudited reconciliations of the differences between pro forma
income taxes computed at the federal statutory tax rate and pro forma income
taxes recorded follow (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- --------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------------ -------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pro forma income taxes computed
at the federal statutory tax
rate.................................. $ (153,756) 35% $ 4,337 35% $ 8,757 35%
Increase (decrease) attributable to:
Statutory depletion................... -- -- -- -- (2,385) (10)
State taxes and other................. 1,757 -- 322 3 473 2
----------- --- -------- --- -------- ---
Pro forma income taxes................. $ (151,999) 35% $ 4,659 38% $ 6,845 27%
=========== === ======== === ======== ===
</TABLE>
6. PENSION AND OTHER EMPLOYEE BENEFITS
Pensions. Substantially all employees have been covered by
FTX's or FMS's defined benefit plans. Additionally, unfunded non-qualified
plans are sponsored for those participants in the qualified defined benefit
plans whose benefits are limited under federal income tax laws. The
accumulated benefits and plan assets were not separately determined and
amounts allocated to FSC under these plans have not been material. In
connection with the Merger, FSC formed its own defined benefit plans and FTX
transferred to the new FSC plan (for the qualified plan), or to FSC (for the
non-qualified plan), assets and liabilities pertaining to those FTX employees
who became FSC employees. The FSC plans have substantially the same provisions
as the FTX plans and provide credit for prior FTX service. The estimated
actuarial liability related to the FSC plans as of January 1, 1998 follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Accumulated Benefit Obligation.................... $ (10,159)
===========
Projected Benefit Obligation (PBO)................ (12,694)
Less Plan assets.................................. 14,116
-----------
Overfunded PBO................................... 1,422
Unrecognized amounts:
Transition asset................................. (145)
Prior service credit............................. (7,829)
Gains............................................ (4,464)
-----------
Accrued pension liability......................... $ (11,016)
===========
</TABLE>
In determining the present value of benefit obligations, FSC
used a discount rate of 7.25% in 1997, a 5% annual increase in future
compensation levels and a 9% average expected rate of return on assets.
Other Postretirement Benefits. FTX and FMS provided certain
health care and life insurance benefits for retired employees. The related
expense allocated to FSC from FTX totaled $2.7 million in 1997 (including $0.7
million for service cost and $2.0 million in interest for prior period
services), $2.5 million in 1996 ($0.2 million and $2.3 million, respectively)
and $4.7 million in 1995 ($0.2 million and $4.5 million, respectively). FSC's
share of the FMS plan was not significant for 1997 and 1996.
In connection with the Merger, FSC assumed the liability for
the portion of FTX's postretirement benefit liability related to active
employees transferred to FSC and FTX paid FSC cash for the amount of the
liability. The estimated actuarial information as of January 1, 1998 follows
(in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefits................ $ (2,730)
Unrecognized prior service credits................. (662)
Unrecognized gains................................. (1,186)
----------
Accrued postretirement liability................... $ (4,578)
==========
</TABLE>
The initial health care cost trend rate used was 8% for 1998,
decreasing 0.5% per year until reaching 5%. A 1% increase in the trend rate
would increase the amounts by approximately 10%. The discount rate used was
7.25%. FSC has the right to modify or terminate these benefits.
Stock Options. In December 1997 FSC adopted an Adjusted Stock
Award Plan to provide for the issuance of fixed stock options to holders of
FTX fixed stock options and FTX stock appreciation rights (SARs). FSC granted
425,517 fully vested fixed stock options on December 22, 1997 at a weighted
average option price of $10.38 under the Adjusted Stock Award Plan to reflect
the FTX option holder's economic position under the FTX stock options as
adjusted for the proportionate market value of FSC shares at the time of the
Merger. The number of fixed options issued by FSC was based upon the number of
FTX options and SARs outstanding as of the date of consummation of the Merger,
adjusted for the distribution ratio of FSC shares to FTX shares.
Compensation expense for the aggregate intrinsic value of the FTX SARs has
already been recorded in the accompanying FSC financial statements through
allocations of general and administrative costs from FTX. As these SARs were
converted to fixed options under the FSC Adjusted Stock Award Plan, the
related accrued SAR liability was recorded as additional paid-in capital in
the FSC balance sheets.
FSC also adopted the 1997 Stock Option Plan (the 1997 Plan) in
December 1997 to provide for the issuance of stock options at no less than
market value at the time of grant. Under this plan, FSC can grant options to
eligible participants to purchase up to 1.0 million common shares. FSC also
adopted the 1997 Stock Option Plan for Non-Employee Directors (the Director
Plan) authorizing FSC to grant options to purchase up to 75,000 shares.
Options granted under the 1997 Plan and the Director Plan generally are
exercisable in 25% annual increments beginning one year from the date of grant
and expire 10 years after the date of grant. Options for 650,000 shares under
the 1997 Plan and 60,000 shares under the Director Plan were available for new
grants as of December 31, 1997. A summary of FSC stock options outstanding
follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Option Price
----------- --------------
<S> <C> <C>
Balance at January 1, 1997......... -- $ --
Granted upon PLP spin off......... 425,517 10.38
Granted........................... 365,000 11.56
Exercised......................... -- --
Expired/Forfeited................. -- --
--------
Balance at December 31, 1997....... 790,517 10.93
========
</TABLE>
Summary information of stock options outstanding at December
31, 1997 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------------
Weighted Weighted Weighted
Number of Average Average Option Number of Average Option
Range of Exercise Prices Options Remaining Life Price Options Price
- ------------------------ ----------- --------------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
$4.89 to $7.23.............. 60,552 3.3 years $ 6.56 60,552 $ 6.56
$7.43 to $11.06............. 162,019 5.5 years 8.30 162,019 8.30
$11.56 to $13.84............ 567,946 9.4 years 12.14 202,946 13.19
---------- ----------
790,517 425,517
========== ==========
</TABLE>
FSC has adopted the disclosure only provisions of SFAS 123 and
applies APB Opinion No. 25 and related interpretations in accounting for its
stock based compensation plans. Had compensation cost for FTX's fixed stock
option grants been determined in accordance with SFAS 123, FSC would have been
allocated additional charges totaling $1.5 million ($1.0 million to pro forma
net loss or $0.09 per share) in 1997, $1.2 million ($0.7 million to pro forma
net income or $0.07 per share) in 1996 and none in 1995. FSC recognized a $7.0
million charge in 1995 for the cost of FTX SARs as discussed earlier. Had
compensation cost for FSC's December 23, 1997 stock option grants been
determined based on the fair value at the grant date for awards under those
plans consistent with SFAS 123, FSC's stock-based compensation costs would
have increased by $12,600 in 1997. For the pro forma computations, the fair
values of the option grants were estimated on the date of grant using the
Black-Scholes option-pricing model. The weighted average fair value for stock
option grants was $5.62 per option. The weighted average assumptions used
include a risk-free interest rate of 5.83%, expected volatility of 21%,
expected lives of 10 years and no annual dividend. The pro forma effects on
net income for 1997 are not representative of future years because FSC first
adopted its stock option plans in 1997. No other discounts or restrictions
related to vesting or the likelihood of vesting of fixed stock options were
applied.
FSC has adopted other benefit plans, certain of which are
related to its performance, which costs are recognized in general and
administrative expense. Upon consummation of the Merger, FSC also assumed
certain FTX liabilities totaling approximately $0.4 million under its plans
related to those employees transferred from FTX to FSC in exchange for an
equal cash payment.
7. COMMITMENTS AND CONTINGENCIES
Credit Facility. In December 1997 FSC established a $100
million variable rate revolving credit facility with a group of banks. The
variable rate facility matures in December 2002, provides specified cash flow
to interest coverage and maximum allowable debt to cash flow levels. The
facility is subject to a negative pledge on FSC's assets. Facility fees on the
unused amount are variable at a minimum 0.2% annually. No amounts were
outstanding under the facility as of December 31, 1997.
Long-Term Contracts and Operating Leases. FSC's minimum annual
contractual charges under non-cancelable long-term contracts and operating
leases total $194.9 million, with $19.7 million in 1998, $16.1 million in
1999, $13.5 million in 2000, $13.5 million in 2001 and $13.5 million in 2002.
Other Liabilities. In connection with the Merger, FSC assumed a
liability to IGL for a portion of IGL's postretirement benefit costs relating
to certain retired employees of FSC. At December 31, 1997 the liability was
estimated to total $13.7 million, including $2.0 million in current
liabilities. Future changes to this estimate because of changes in assumptions
or actual results varying from projected results will be recorded in earnings.
Environmental. FSC has made, and will continue to make,
expenditures for protection of the environment. FSC is subject to
contingencies as a result of environmental laws and regulations. The related
future cost is indeterminable because of such factors as the unknown timing
and extent of the corrective actions that may be required and the application
of joint and several liability.
8. ACQUISITIONS
Pennzoil Company. In 1995 PLP acquired essentially all of the
domestic assets of Pennzoil Company's sulphur division, including the
Culberson sulphur mine in West Texas. FSC assumed the terms of the purchase
agreement with Pennzoil. Under the terms of the purchase agreement, Pennzoil
will receive quarterly payments from FSC over 20 years based on the prevailing
price of sulphur. The estimated future installment payments, based on the
prevailing sulphur price at the time of acquisition, are included in accrued
long-term liabilities. These payments totaled $2.1 million in 1997, $2.0
million in 1996 and $5.2 million in 1995. The installment payments may be
terminated earlier either by FSC through the exercise of a $65 million call
option or by Pennzoil through the exercise of a $10 million put option. Neither
option may be exercised prior to 1999. The purchase price allocation follows
(in thousands):
<TABLE>
<S> <C>
Current assets....................................... $ 5,635
Property, plant and equipment........................ 48,837
Current liabilities.................................. (7,499)
Reclamation and mine shutdown reserves............... (15,200)
Accrued long-term liabilities........................ (31,773)
---------
Net cash investment................................. $ --
=========
</TABLE>
IGL Interest in Main Pass. Immediately prior to and as part of
the Merger, IGL transferred its 25.0% interest in the Main Pass Joint Venture
to PLP for no consideration. The transfer was accounted for using purchase
accounting and recorded at fair value. The allocation of fair value follows
(in thousands):
<TABLE>
<S> <C>
Current Assets....................................... $ 8,020
Property, plant and equipment........................ 22,500
Current liabilities.................................. (3,863)
Reclamation and mine shutdown reserves............... (5,492)
Other, net........................................... (2,707)
Net assets from PLP.................................. (18,458)
---------
Net cash investment................................. $ --
=========
</TABLE>
The following selected unaudited pro forma information assumes
that the acquisition of the 25.0% interest in Main Pass and the Distribution
occurred on January 1, 1996. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of results that
would have been realized had the acquisition occurred on January 1, 1996, nor
are they indicative of future results.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1997 1996
------------- -------------
(In Thousands, Except per Share
Amounts)
<S> <C> <C>
Revenues....................... $ 253,523 $ 268,919
Operating income (loss)........ (436,452) 25,576
Net income (loss).............. (285,440) 15,959
Net income (loss) per share.... (27.59) 1.53
</TABLE>
9. BUSINESS SEGMENTS
FSC has adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information" which requires that companies disclose
segment data based on how management makes decisions about allocating resources
to segments and measuring their performance. FSC has two business segments,
sulphur and oil. Frasch sulphur is produced through the offshore Louisiana
Main Pass mine and the Culberson mine in West Texas. The sulphur business
segment also includes an extensive logistics network, including sulphur
terminaling and transportation assets, and purchases of recovered sulphur. Oil
is produced at Main Pass from the same geologic formation that holds the
deposit's sulphur. The segment data presented below was prepared on the same
basis as FSC's financial statements.
A significant portion of the sulphur production is sold to the
IMC-Agrico Joint Venture (IMC-Agrico), a chemical fertilizer producer jointly
owned by IGL and PLP, under a long-term supply contract that extends for as
long as IMC-Agrico's operations have a requirement for sulphur. As a percentage
of total FSC's revenues, sales to IMC-Agrico totaled 55% in 1997 and 54% in 1996
and 1995. As a percentage of total customer accounts receivable, receivables
from IMC-Agrico totaled 39% at December 31, 1997 and 47% at December 31, 1996.
Oil produced from Main Pass is sold to two major Gulf Coast refining companies.
As a percentage of total FSC revenues, oil sales to one of these refining
companies, Amoco, totaled 9% in 1997, 12% in 1996 and 11% in 1995. No other
single customer accounted for greater than 10% of total revenues in 1995 through
1997. All of FSC's customers are located in the United States.
<TABLE>
<CAPTION>
Sulphur Oil Total
---------- ---------- -----------
(In Thousands)
<S> <C> <C> <C>
1997
Revenues................................. $ 182,380 $ 29,565 $ 211,945
Production and delivery.................. 167,050 16,177 183,227
Depreciation and amortization............ 449,870 11,214 461,084
General and administrative expense....... 6,667 283 6,950
---------- --------- ----------
Operating income (loss).................. $ (441,207) $ 1,891 $ (439,316)
========== ========= ==========
Capital expenditures..................... $ 1,406 $ 2,107 $ 3,513
========== ========= ==========
Total assets............................. $ 246,794 $ 26,239 $ 273,033
========== ========= ==========
1996
Revenues................................. $ 184,425 $ 37,001 $ 221,426
Production and delivery.................. 150,086 10,896 160,982
Depreciation and amortization............ 23,006 14,794 37,800
General and administrative expense....... 8,040 2,212 10,252
---------- --------- ----------
Operating income......................... $ 3,293 $ 9,099 $ 12,392
========== ========= ==========
Capital expenditures..................... $ 2,777 $ 1,057 $ 3,834
========== ========= ==========
Total assets............................. $ 612,051 $ 21,569 $ 633,620
========== ========= ==========
1995
Revenues................................. $ 220,796 $ 35,153 $ 255,949
Production and delivery.................. 158,703 9,801 168,504
Depreciation and amortization............ 24,564 19,136 43,700
General and administrative expense....... 14,489 4,236 18,725
---------- --------- ----------
Operating income......................... $ 23,040 $ 1,980 $ 25,020
========== ========= ==========
Capital expenditures..................... $ 2,148 $ 1,562 $ 3,710
========== ========= ==========
Total assets............................. $ 647,650 $ 32,817 $ 680,467
========== ========= ==========
</TABLE>
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Pro forma Net
Operating Pro forma Net Income (Loss)
Revenues Income (Loss) Income (Loss) per share(a)
---------- -------------- ---------------- ----------------
(In Thousands, Except per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
1997
1st Quarter $ 53,395 $ 549 $ 359 $ 0.03
2nd Quarter 54,355 711 465 0.04
3rd Quarter 50,554 (426,431) (b) (278,886) (b) (26.95) (b)
4th Quarter 53,641 (14,145) (c) (9,243) (c) (0.89) (c)
---------- ----------- ----------
$ 211,945 $ (439,316) $ (287,305) (27.77)
========== =========== ==========
1996
1st Quarter $ 60,133 $ 5,286 $ 3,298 $ 0.32
2nd Quarter 54,447 2,450 1,529 0.15
3rd Quarter 52,799 3,884 2,424 0.23
4th Quarter 54,047 772 482 0.05
---------- ----------- ----------
$ 221,426 $ 12,392 $ 7,733 0.75
========== =========== ==========
</TABLE>
- ---------------
(a) Pro forma per share amounts shown were calculated using the number of
shares outstanding (10,346,578 shares) as of December 22, 1997, the date of
the Merger (Note 1).
(b) Includes charges totaling $425.4 million ($278.2 million to pro forma net
loss or $26.89 per share) for an impairment assessment of sulphur assets.
(c) Includes charges totaling $9.9 million ($6.5 million to pro forma net loss
or $0.63 per share) for an increase in estimated reclamation costs for
sulphur properties, for drilling costs of an additional brine well and a
reduction of sulphur inventory book value to market value.
11. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED)
Proved and probable mineral reserves follow (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sulphur-long tons (a) 61,184 53,149 55,185 41,018 38,637
</TABLE>
- -----------------
(a) Main Pass reserves are subject to a 12.5% royalty based on net mine
revenues. Culberson reserves totaled 7.6 million tons at December 31,
1997, 14.5 million tons at December 31, 1996 and 15.4 million tons at
December 31, 1995 and are subject to a 9.0% royalty based on net mine
revenues.
12. SUPPLEMENTARY OIL INFORMATION
The supplementary information presented below is prepared in
accordance with requirements prescribed by SFAS 69. Note 3 includes
information regarding capitalized oil exploration and development costs.
Costs Incurred in Oil Property Acquisition, Exploration and
Development Activities. Costs incurred (all of which were development costs)
totaled $2.1 million in 1997, $1.1 million in 1996 and $1.6 million in 1995.
Proved Oil Reserves (Unaudited). Proved oil reserves at
December 31, 1997 have been estimated by independent petroleum engineers in
accordance with guidelines established by the Securities and Exchange
Commission (SEC). There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting the future rates of production
and timing of development expenditures. Thus, the following reserve estimates,
which relate to reserves attributable to FSC, are based upon existing economic
and operating conditions; they are only estimates and should not be construed
as being exact. The reserves related to FSC are located in offshore United
States waters. Oil, including condensate and plant products, is stated in
thousands of barrels.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Proved reserves:
Beginning of year.................. 5,188 6,638 7,279
Revisions of previous estimates.... 85 446 1,577
Production......................... (1,597) (1,896) (2,218)
Reserves transferred from IGL...... 1,578 -- --
------ ------ ------
End of year........................ 5,254 5,188 6,638
====== ====== ======
Proved developed reserves:
Beginning of year.................. 4,108 5,155 5,383
====== ====== ======
End of year........................ 5,254 4,108 5,155
====== ====== ======
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows From
Proved Oil Reserves (Unaudited). The standardized measure of discounted future
net cash flows and changes therein relating to the proved oil reserves of FSC
were computed using reserve valuations based on regulations prescribed by the
SEC. These regulations provide for the use of year-end realized oil prices
(escalated only when known and determinable price changes are provided by
contract and law) in the projection of future net cash flows.
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996 1995
--------- ---------- -----------
In Thousands)
<S> <C> <C> <C> <C>
Future cash flows......................................... $ 79,209 $ 107,118 $ 113,231
Future costs applicable to future cash flows:
Production costs......................................... 61,640 50,590 39,720
Development and abandonment costs........................ 14,252 15,251 17,971
--------- ---------- ----------
Future net cash flows before income taxes................. 3,317 41,277 55,540
Future income taxes....................................... -- -- --
--------- ---------- ----------
Future net cash flows..................................... 3,317 41,277 55,540
Discount for estimated timing of net cash flows (10%
discount rate)........................................... (3,704)(a) 2,323 6,787
--------- ---------- ----------
$ 7,021 $ 38,954 $ 48,753
========= ========== ==========
</TABLE>
- -------------------
(a) Amount is negative due to the effect of discounting to present value
abandonment costs to be incurred in future periods once production ceases.
Because FSC will have sufficient tax deductions to utilize
against estimated future taxable income, in accordance with SFAS 69 no
deductions for future income taxes arising subsequent to the Merger have been
made above. Main Pass oil prices used in the above disclosures declined
approximately $1.25 per barrel through January 20, 1998. Additionally,
subsequent to year-end FSC has signed a letter of intent with an oil producing
company to treat their oil production at the Main Pass Facility for a fee.
This company would also assume a portion of the total estimated future
abandonment costs shown above. This arrangement, which is not reflected in the
above future cash flows, is subject to completion of a definitive agreement.
Changes in Standardized Measure of Discounted Future Net Cash Flows From
Proved Oil Reserves (Unaudited)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1997 1996 1995
---------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Beginning of year $ 38,954 $ 48,753 $ 45,650
Revisions:
Changes in prices............................................... (21,111) 7,316 8,841
Accretion of discount........................................... 3,895 4,875 4,565
Other changes (primarily revised estimates of quantities
in 1995)........................................................ (5,554) 3,058 13,487
Development costs incurred during the year....................... 2,107 1,057 1,562
Reserves transferred from IGL.................................... 2,118 -- --
Revenues, less production costs.................................. (13,388) (26,105) (25,352)
--------- --------- ---------
End of year...................................................... $ 7,021 $ 38,954 $ 48,753
========= ========= =========
</TABLE>
13. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
Merger Agreement. On August 3, 1998, McMoRan Oil & Gas Co
(MOXY) and FSC announced that they had signed a definitive agreement to
combine their operations. In the proposed transaction, a new holding company,
McMoRan Exploration Co. (McMoRan), would issue approximately 5.5 million
McMoRan common shares in exchange for all of FSC's common shares and
approximately 8.6 million McMoRan common shares in exchange for all of MOXY's
common shares. FSC shareholders would receive 0.625 McMoRan shares for each
common share of FSC outstanding and MOXY shareholders would receive 0.20
McMoRan shares for each common share of MOXY outstanding. Immediately
following the transaction, McMoRan would have approximately 14.1 million
common shares outstanding that would be owned approximately 61% by MOXY's
existing common shareholders and approximately 39% by FSC's existing common
shareholders. McMoRan's Board of Directors and executive management will
include current members of the Boards of Directors and executive management of
both MOXY and FSC. The transaction would be tax-free with respect to both
MOXY and FSC shareholders and will be reported on the basis of purchase
accounting, reflecting MOXY as the acquiring entity. The completion of the
merger transaction is subject to approval by MOXY and FSC shareholders and
applicable regulatory approvals.
Culberson Mine Closure. On June 30, 1998 FSC announced that it
will permanently discontinue sulphur production at its Culberson sulphur mine
because sulphur prices have fallen to a level at which it is no loner
economically feasible to operate the mine. As a result, FSC recorded net
charges totaling $6.0 million ($3.9 million to net income or $0.40 per share)
in the second quarter of 1998, including charges of $9.5 million ($6.2 million
to net income) to depreciation and amortization expense for a writedown of
Culberson mine assets and $0.6 million ($0.4 million to net income) to
production costs for other closure-related costs, partially offset by a $4.1
million benefit ($2.7 million to net income) to production costs for a related
reduction in pension and postretirement liabilities. Production at the mine
has declined since June 30, 1998 and is expected to cease by the end of 1998.
FSC will continue to meet its customers' sulphur requirements in the long term
from production at its remaining mine at Main Pass and from third party
purchases of recovered sulphur and, in the short term, by liquefying solid
inventories held at its Port Sulphur, Louisiana terminal.
Financial Contracts. In April 1998, FSC entered into financial
contracts to manage certain risks resulting from fluctuations in the price of
natural gas, which comprises a significant portion of its production costs, by
creating offsetting exposures. FSC views all of its financial contracts as
hedges for its future purchases of natural gas consumed in its operations.
Gains or losses on the contracts are recognized with the hedged transaction.
Also, gains or losses are recognized if the hedged transaction is no longer
expected to occur or if deferral criteria are not met. FSC monitors its
credit risk on an ongoing basis and considers this risk to be minimal because
its contracts are with a financially strong counterparty.
As of June 30, 1998 FSC had contracts to purchase 450,000
million British thermal units (mmBtu's) of natural gas per month
(approximately 75% of FSC's expected Main Pass natural gas purchases) for
$2.175 per mmBtu through December 1998 and, pursuant to the terms of the
contracts, the counterparty has the option to put 450,000 mmBtu's per month to
FSC at a price of $2.175 per mmBtu during 1999. As of June 30, 1998 these
contracts had a fair value of approximately $0.9 million.
New Accounting Standards. In June 1998, the FASB issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activity," which
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS 133 is effective for fiscal years beginning after June
15, 1999 with earlier application permitted beginning as early as July 1,
1998. FSC is currently assessing the impact that adoption of SFAS 133 would
have on its current accounting for the financial contracts discussed above and
on its financial statements, if any, and has not yet determined the timing or
method of adoption of SFAS 133; however, it could impact earnings and other
comprehensive income.
Annex A
Execution Copy
AGREEMENT AND PLAN OF MERGERS
by and among
McMoRan Exploration Co.,
McMoRan Oil & Gas Co.,
Freeport-McMoRan Sulphur Inc.
MOXY LLC
and
Brimstone LLC
August 1, 1998
TABLE OF CONTENTS
Page
----
ARTICLE 1
The Mergers 2
Section 1.01. The MOXY Merger....................................... 2
Section 1.02. The FSC Merger........................................ 3
Section 1.03. Cancellation of Parent Stock.......................... 4
Section 1.04 Exchange Agent; Payment of Merger Consideration....... 4
Section 1.05. Closing of MOXY and FSC Transfer Books................ 5
Section 1.06. Withholding........................................... 5
Section 1.07. Fractional Shares..................................... 5
Section 1.08. Stock-Based Awards.................................... 6
Section 1.09. Adjustments........................................... 6
ARTICLE 2
The Surviving Entities 7
Section 2.01. MOXY Surviving LLC and FSC Surviving LLC.............. 7
ARTICLE 3
Stockholder Approval; Effective Time; Closing 7
Section 3.01. Stockholder Approval.................................. 7
Section 3.02. Closing; Effective Time............................... 7
ARTICLE 4
Representations and Warranties of MOXY 8
Section 4.01. Organization, Standing and Power...................... 8
Section 4.02. Corporate Authorization............................... 8
Section 4.03. Governmental Authorization............................ 9
Section 4.04. Non-Contravention..................................... 9
Section 4.05. Capitalization........................................ 9
Section 4.06. SEC Documents......................................... 10
Section 4.07. Compliance with Laws.................................. 11
Section 4.08. No Undisclosed Liabilities............................ 11
Section 4.09. Litigation............................................ 11
Section 4.10. Environmental Matters................................. 11
Section 4.11. ERISA................................................. 12
Section 4.12. Joint Proxy Statement; Registration Statements........ 14
Section 4.13. Absence of Certain Changes............................ 14
Section 4.14. Taxes................................................. 16
Section 4.15. Fairness Opinion...................................... 17
Section 4.16. Takeover Statutes; Charter Provisions; Rights Plan.... 17
Section 4.17. Finders' Fees......................................... 17
Section 4.18. Contracts............................................. 17
Section 4.19. Transactions with Affiliates.......................... 18
ARTICLE 5
Representations and Warranties of FSC 18
Section 5.01. Organization, Standing and Power...................... 18
Section 5.02. Corporate Authorization............................... 18
Section 5.03. Governmental Authorization............................ 19
Section 5.04. Non-Contravention..................................... 19
Section 5.05. Capitalization...... ................................. 18
Section 5.06. SEC Documents......................................... 20
Section 5.07. Compliance with Laws.................................. 20
Section 5.08 Undisclosed Liabilities............................... 20
Section 5.09 Litigation............................................ 21
Section 5.10. Environmental Matters................................. 21
Section 5.11. ERISA................................................. 21
Section 5.12. Joint Proxy Statement; Registration Statements........ 23
Section 5.13. Absence of Certain Changes............................ 23
Section 5.14. Taxes................................................. 25
Section 5.15. Fairness Opinion...................................... 26
Section 5.16. Takeover Statutes; Charter Provisions; Rights Plan.... 26
Section 5.17. Finders' Fees......................................... 26
Section 5.18. Contracts............................................. 26
Section 5.19. Transactions with Affiliates.......................... 27
ARTICLE 6
Covenants 27
Section 6.01. Conduct of Business................................... 27
Section 6.02. Investigation......................................... 29
Section 6.03. Special Meetings; Proxy Material...................... 30
Section 6.04. Cooperation........................................... 30
Section 6.05. Affiliates............................................ 31
Section 6.06. Insurance Extension................................... 31
Section 6.07. Filings; Other Action................................. 31
Section 6.08. Further Assurances.................................... 31
Section 6.09. Takeover Statutes..................................... 32
Section 6.10. No Solicitation....................................... 32
Section 6.11. Public Announcements.................................. 34
Section 6.12. Indemnification and Insurance......................... 34
Section 6.13. Accountants' "Comfort" Letters........................ 35
Section 6.14. Additional Reports.................................... 35
Section 6.15. No Purchase........................................... 36
Section 6.16. Notice of Certain Events............................... 36
Section 6.17. Certain Litigation.................................... 36
ARTICLE 7
Conditions to the Mergers 36
Section 7.01. Conditions to Both Mergers............................ 36
Section 7.02. Additional Conditions to the MOXY Merger.............. 37
Section 7.03. Additional Conditions to the FSC Merger............... 38
ARTICLE 8
Termination, Waiver and Amendment 39
Section 8.01. Termination or Abandonment............................ 39
Section 8.02 Amendment............................................. 40
Section 8.03. Extension of Time, Waiver, Etc........................ 40
ARTICLE 9
Miscellaneous 41
Section 9.01. No Survival of Representations and Warranties......... 41
Section 9.02. Expenses.............................................. 41
Section 9.03. Counterparts; Effectiveness........................... 42
Section 9.04. Governing Law; Consent to Jurisdiction................ 42
Section 9.05. WAIVER OF JURY TRIAL.................................. 42
Section 9.06. Notices............................................... 42
Section 9.07. Assignment; Binding Effect............................ 43
Section 9.08. Severability.......................................... 43
Section 9.09 Entire Agreement: Benefits............................ 43
Section 9.10. Headings.............................................. 44
TABLE OF DEFINED TERMS
Affiliate...............................4.19
Affiliate Agreement.....................6.05
Agreement...........................Preamble
Bear Stearns.........................1.01(c)
Closing.................................3.02
Closing Date............................3.02
Code....................................1.06
Confidentiality Agreement...............6.02
Delaware Law.........................1.01(a)
Effective Time..........................3.02
Environmental Claims.................4.10(b)
Environmental Laws...................4.10(a)
ERISA................................4.11(a)
ERISA Affiliate......................4.11(a)
Exchange Act.........................4.03(c)
Exchange Agent.......................1.04(a)
FSC.................................Preamble
FSC Benefits Arrangements............5.11(e)
FSC Board of Directors..............Preamble
FSC Common Stock.....................1.02(b)
FSC Conversion Ratio.................1.02(b)
FSC Employee Plans...................5.11(a)
FSC Merger...........................1.02(a)
FSC Merger Sub......................Preamble
FSC Preferred Stock..................5.05(a)
FSC SEC Documents.......................5.06
FSC Special Meeting.....................3.01
FSC Surviving LLC....................1.02(a)
GAAP.................................4.06(f)
Holders..............................1.04(a)
HSR Act..............................4.03(b)
Indemnified Party(ies)...............6.12(b)
Indemnified Person...................6.12(a)
Joint Proxy Statement...................3.01
Lehman...............................1.02(c)
Lien.................................4.04(d)
Losses...............................4.10(c)
Material Adverse Effect..............4.01(b)
Merger Consideration ................1.04(a)
Mergers..............................1.02(a)
Merger Shares........................1.04(a)
MOXY................................Preamble
MOXY Benefit Arrangements............4.11(e)
MOXY Board of Directors.............Preamble
MOXY Common Stock....................1.01(b)
MOXY Conversion Ratio................1.01(b)
MOXY Employee Plans..................4.11(a)
MOXY Merger..........................1.01(a)
MOXY Merger Sub.....................Preamble
MOXY Preferred Stock.................4.05(a)
MOXY SEC Documents......................4.06
MOXY Special Meeting....................3.01
MOXY Surviving LLC...................1.01(a)
Multiemployer Plan...................4.11(b)
NYSE....................................1.07
Old Certificate......................1.04(b)
Parent..............................Preamble
Parent Common Stock..................1.01(b)
Person...............................4.01(b)
Registration Statement...............6.04(a)
SEC..................................1.08(e)
Securities Act.......................1.08(e)
Special Committees..................Preamble
Special Meeting.........................3.01
Stock-Based Awards...................1.08(a)
Subject Entity..........................6.05
Subsidiary...........................4.01(b)
Substitute Option....................1.08(a)
Taxes................................4.14(a)
Taxing Authorities...................4.14(a)
Tax Return...........................4.14(a)
Termination Date........................6.01
Third Party Acquisition Proposal........6.10
AGREEMENT AND PLAN OF MERGERS
This Agreement and Plan of Mergers (the "Agreement"), dated as of August
1, 1998, is by and among McMoRan Exploration Co., a Delaware corporation
("Parent"), McMoRan Oil & Gas Co., a Delaware corporation ("MOXY"),
Freeport-McMoRan Sulphur Inc., a Delaware corporation ("FSC"), MOXY LLC, a
Delaware limited liability company and a wholly owned subsidiary of Parent
("MOXY Merger Sub"), and Brimstone LLC, a Delaware limited liability company
and a wholly owned subsidiary of Parent ("FSC Merger Sub").
W I T N E S S E T H
WHEREAS, the respective boards of directors of MOXY and FSC (the "MOXY
Board of Directors" and the "FSC Board of Directors," respectively, and,
collectively, the "Boards of Directors") have established special committees
(the "MOXY Special Committee" and the "FSC Special Committee," respectively,
and, collectively, the "Special Committees"), and charged them with
considering a possible business combination between MOXY and FSC and making
recommendations to their respective Boards of Directors with respect thereto;
WHEREAS, the Special Committees deem it advisable and in the best
interests of MOXY and FSC, respectively, and of their respective stockholders,
that such corporations become subsidiaries of Parent pursuant to mergers of
MOXY and FSC into MOXY Merger Sub and FSC Merger Sub, respectively;
WHEREAS, the Boards of Directors, acting on the recommendations of their
respective Special Committees, deem it advisable and in the best interests of
MOXY and FSC, respectively, and of their respective stockholders, that such
corporations become subsidiaries of Parent pursuant to mergers of MOXY Merger
Sub and FSC Merger Sub, respectively, as set forth herein;
WHEREAS, in such mergers the stockholders of MOXY and FSC would become
stockholders of Parent based on the conversion ratios provided for herein; and
WHEREAS, Parent is a newly-formed corporation, 50% of the capital stock
of which is owned by MOXY and 50% of the capital stock of which is owned by
FSC;
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements, and subject to the
conditions specified herein, the parties hereto agree as follows:
ARTICLE 1
The Mergers
Section 1.01. The MOXY Merger.
(a) At the Effective Time, MOXY shall be merged (the "MOXY Merger")
with and into MOXY Merger Sub in accordance with the General Corporation Law
and the Limited Liability Company Act of the State of Delaware ("Delaware
Law"), whereupon the separate existence of MOXY shall cease, and MOXY Merger
Sub shall be the surviving limited liability company (the "MOXY Surviving
LLC"). From and after the Effective Time, the MOXY Surviving LLC shall
possess all the rights, privileges, powers and franchises, and shall be
subject to all of the restrictions and duties, of MOXY and MOXY Merger Sub,
all as provided under Delaware Law.
(b) Pursuant to the MOXY Merger, at the Effective Time:
(i) each share of common stock, par value $0.01 per share, of
MOXY ("MOXY Common Stock") outstanding immediately prior to the
Effective Time shall, except as otherwise provided in Section
1.01(b)(ii) or Section 1.07, be converted into 0.200 (the "MOXY
Conversion Ratio") shares of common stock, par value $0.01 per share, of
Parent ("Parent Common Stock");
(ii) each share of MOXY Common Stock held by MOXY as treasury
stock or owned by MOXY or FSC or any Subsidiary of MOXY or FSC
immediately prior to the Effective Time shall be canceled, and no
payment shall be made with respect thereto; and
(iii) each membership interest of MOXY Merger Sub shall remain
outstanding as a membership interest of MOXY Surviving LLC and shall
constitute the only membership interests of the MOXY Surviving LLC
outstanding as of such time.
Each share of Parent Common Stock issued pursuant to this Agreement shall be
accompanied by a right issued pursuant to a rights plan substantially
comparable to the FSC rights plan, subject to such changes as shall be
approved by the Board of Directors of Parent.
(c) MOXY hereby represents that (i) the MOXY Special Committee has
unanimously (A) determined that the terms of this Agreement and the MOXY
Merger are fair to and in the best interests of MOXY's stockholders and (B)
recommended that this Agreement and the MOXY Merger be approved by the full
MOXY Board of Directors, and (ii) the MOXY Board of Directors, at a meeting
duly called and held, and acting on such unanimous recommendation of the MOXY
Special Committee, has unanimously (A) determined that this Agreement and the
MOXY Merger are fair to and in the best interests of MOXY's stockholders, (B)
approved this Agreement and the MOXY Merger, which approval satisfies in full
the requirements of Delaware Law that the Agreement be approved by MOXY's
Board of Directors and (C) resolved to recommend approval and adoption of this
Agreement and the MOXY Merger by its stockholders; provided, that such
recommendation may be withdrawn, modified or amended to the extent the MOXY
Board of Directors has made a good faith, reasonable judgment to do so in the
exercise of its fiduciary duties under applicable law, after consultation with
its legal counsel. MOXY further represents that Bear, Stearns & Co. Inc.
("Bear Stearns") has delivered to the MOXY Special Committee its written
opinion that, as of the date of such opinion, the MOXY Conversion Ratio is
fair to the holders of MOXY Common Stock from a financial point of view. MOXY
has been advised that all of its directors and executive officers who hold
MOXY Common Stock intend to vote in favor of the MOXY Merger.
Section 1.02. The FSC Merger.
(a) At the Effective Time, FSC shall be merged (the "FSC Merger" and,
together with the MOXY Merger, the "Mergers") with and into FSC Merger Sub in
accordance with Delaware Law, whereupon the separate existence of FSC shall
cease, and FSC Merger Sub shall be the surviving limited liability company
(the "FSC Surviving LLC"). From and after the Effective Time, the FSC
Surviving LLC shall possess all the rights, privileges, powers and franchises,
and shall be subject to all of the restrictions and duties, of FSC and FSC
Merger Sub, all as provided under Delaware Law.
(b) Pursuant to the FSC Merger, at the Effective Time:
(i) each share of common stock, par value $0.01 per share, of
FSC ("FSC Common Stock") outstanding immediately prior to the Effective
Time shall, except as otherwise provided in Section 1.02(b)(ii) or in
Section 1.07, be converted into 0.625 (the "FSC Conversion Ratio")
shares of Parent Common Stock;
(ii) each share of FSC Common Stock held by FSC as treasury stock
or owned by FSC or MOXY or any Subsidiary of FSC or MOXY immediately
prior to the Effective time shall be canceled, and no payment shall be
made with respect thereto; and
(iii) each membership interest of FSC Merger Sub shall remain
outstanding as a membership interest of FSC Surviving LLC and shall
constitute the only membership interests of FSC Surviving LLC
outstanding as of such time.
Each share of Parent Common Stock issued pursuant to this Agreement shall be
accompanied by a right issued pursuant to a rights plan substantially
comparable to the FSC rights plan, subject to such changes as shall be
approved by the Board of Directors of Parent.
(c) FSC hereby represents that (i) the FSC Special Committee has
unanimously (A) determined that the terms of this Agreement and the FSC Merger
are fair to and in the best interests of FSC's stockholders and (B)
recommended that this Agreement and the FSC Merger be approved by the full FSC
Board of Directors, and (ii) the FSC Board of Directors, at a meeting duly
called and held, and acting on such unanimous recommendation of the FSC Special
Committee, has unanimously (A) determined that this Agreement and the FSC
Merger are fair to and in the best interests of FSC's stockholders, (B)
approved this Agreement and the FSC Merger, which approval satisfies in full
the requirements of Delaware Law that the Agreement be approved by FSC's Board
of Directors and (C) resolved to recommend approval and adoption of this
Agreement and the FSC Merger by its stockholders; provided, that such
recommendation may be withdrawn, modified or amended to the extent the FSC
Board of Directors has made a good faith, reasonable judgment to do so in the
exercise of its fiduciary duties under applicable law, after consultation with
its legal counsel. FSC further represents that Lehman Brothers Inc.
("Lehman") has delivered to the FSC Special Committee its written opinion
that, as of the date of such opinion, the FSC Conversion Ratio is fair to the
holders of FSC Common Stock from a financial point of view. FSC has been
advised that all of its directors and executive officers who hold FSC Common
Stock intend to vote in favor of the FSC Merger.
Section 1.03. Cancellation of Parent Stock. The shares of capital
stock of Parent owned by MOXY and FSC immediately prior to the Effective Time
shall be canceled immediately upon consummation of the MOXY Merger and the FSC
Merger, respectively.
Section 1.04. Exchange Agent; Payment of Merger Consideration.
(a) As soon as reasonably practicable after the Effective Time, Parent
shall deposit or cause to be deposited with Chase Mellon Shareholder Services,
L.L.C. or such other institution as may be designated by Parent, as exchange
agent ("Exchange Agent"), for the benefit of the holders of MOXY Common Stock
and FSC Common Stock (collectively, the "Holders"), (i) certificates
representing the number of whole shares of Parent Common Stock (the "Merger
Shares") to which each Holder has become entitled pursuant to Section 1.01 or
1.02, as the case may be, and (ii) the cash in lieu of any fractional shares
to which a Holder is entitled as provided in Section 1.07 (such cash and the
Merger Shares, together, the "Merger Consideration").
(b) As soon as reasonably practicable after the Effective Time, and in
any event within 30 days after the Effective Time, the Exchange Agent shall
mail to each Holder of record as of the Effective Time, a form of letter of
transmittal and instructions for use in effecting the surrender of the
certificates representing MOXY Common Stock or FSC Common Stock, as the case
may be (each such certificate, an "Old Certificate"), in exchange for the
Merger Consideration. Upon the proper delivery and surrender to the Exchange
Agent of an Old Certificate, together with a duly completed and executed
letter of transmittal, the record Holder of the Old Certificate shall be
entitled to receive, and the Exchange Agent (pursuant to irrevocable
instructions from Parent) shall deliver to such record Holder, in exchange
therefor (i) a certificate representing the Merger Shares to which such Holder
shall have become entitled pursuant to Section 1.01 or 1.02, as the case may
be, and (ii) if applicable, cash in lieu of fractional shares as provided in
Section 1.07. Any Old Certificate delivered to the Exchange Agent with a duly
completed and executed letter of transmittal shall be canceled. Until so
delivered, each Old Certificate shall, after the Effective Time, represent for
all purposes only the right to receive the Merger Consideration as set forth
in this Agreement. No interest will accrue or be paid on any portion of the
Merger Consideration payable upon the surrender of an Old Certificate. Any
Holder whose Old Certificate has been lost or destroyed may obtain the Merger
Consideration into which the MOXY Common Stock or FSC Common Stock, as the case
may be, represented by the lost Old Certificate has been converted pursuant to
Section 1.01 or 1.02, as the case may be, provided such Holder delivers to
Parent and the Exchange Agent a statement certifying to the fact of such loss
or destruction and posts a bond in such amount as Parent may reasonably direct
as indemnity against any loss or expense that either Parent or the Exchange
Agent may incur as a result of the lost or destroyed Old Certificate being
thereafter surrendered to Parent or the Exchange Agent. In the event of a
transfer of ownership of any MOXY Common Stock or FSC Common Stock prior to
the Effective Time that is not registered in the transfer records of MOXY or
FSC, as the case may be, the Merger Consideration may be delivered to a
transferee if the Old Certificate representing the stock so transferred is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable transfer
taxes have been paid or are not payable. All deliveries and payments that are
made in accordance with the terms hereof shall be deemed to have been made in
full satisfaction of all rights pertaining to such securities, except as may
be required otherwise by law.
(c) No dividends payable with respect to any Merger Shares shall be
paid to persons entitled to receive such Merger Shares until such persons have
surrendered their Old Certificates (or required documentation with respect to
lost or destroyed Old Certificates) to the Exchange Agent in accordance with
Section 1.04(b). As soon as practicable after such surrender, there shall be
paid to the person in whose name the Merger Shares shall be issued any
dividends on such Merger Shares that have a record date prior to the date of
such surrender. If the payment date for such dividend is after the date of
such surrender, payment shall be made on such payment date. In no event will
any person entitled to receive Merger Shares be entitled to interest on any
dividend declared or paid with respect to Merger Shares.
(d) Any Old Certificates that have not been surrendered to the
Exchange Agent or properly certified as lost or destroyed within one year
after the Effective Time shall be delivered to Parent, upon demand, and any
Holder who has not theretofore complied with Section 1.04(b) shall thereafter
look only to Parent for payment of the Merger Consideration. Notwithstanding
the foregoing, neither the Exchange Agent nor any party hereto shall be liable
for any cash or securities delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
Section 1.05. Closing of MOXY and FSC Transfer Books. At the Effective
Time, the stock transfer books of MOXY and FSC shall be closed and no
transfers of MOXY Common Stock or FSC Common Stock shall thereafter be made.
Section 1.06. Withholding. Parent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement
to any Holder such amounts as Parent may be required to deduct and withhold
with respect to the making of such payment under the Internal Revenue Code of
1986, as amended (the "Code"), or any provision of state, local or foreign tax
law. To the extent that such amounts are so withheld by Parent, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the Holder in respect of whom such deduction and withholding were made.
Section 1.07. Fractional Shares. No fractional shares of Parent Common
Stock shall be issued in connection with the MOXY Merger or FSC Merger, but in
lieu thereof each holder of MOXY Common Stock or FSC Common Stock otherwise
entitled to a fractional share of Parent Common Stock (considering all Old
Certificates held of record by such holder together) shall be entitled to
receive a cash payment in an amount equal to such fraction of a share of
Parent Common Stock multiplied by the closing price of a share of Parent
Common Stock on the New York Stock Exchange (the "NYSE") or Nasdaq National
Market, as the case may be, on the first trading day following the date on
which the Effective Time shall occur.
Section 1.08. Stock-Based Awards.
(a) At the Effective Time, each outstanding option to purchase shares
of MOXY Common Stock or FSC Common Stock and each outstanding stock
appreciation right and stock incentive unit with respect to MOXY Common Stock
or FSC Common Stock granted under any of MOXY's or FSC's incentive plans (the
"Stock-Based Awards"), whether vested or unvested, shall be canceled, and, in
substitution therefor, Parent shall issue an option to purchase Parent Common
Stock on the terms and conditions described herein (each such replacement
option, a "Substitute Option"). Substitute Options shall be issued under a
Parent incentive plan to be adopted at or prior to the Effective Time.
(b) The number of shares of Parent Common Stock subject to each
Substitute Option shall equal the number of shares subject to the original
Stock-Based Award multiplied by the MOXY Conversion Ratio for each MOXY
Stock-Based Award, and the FSC Conversion Ratio for each FSC Stock-Based
Award. The exercise price of each Substitute Option shall equal the exercise
price of each original Stock-Based Award divided by the MOXY Conversion Ratio
for each MOXY Stock-Based Award and the FSC Conversion Ratio for each FSC
Stock-Based Award.
(c) Each Substitute Option will have the same vesting schedule as that
of the related Stock-Based Award. Each Substitute Option will have the same
term and substantially the same other conditions as that of the related
Stock-Based Award.
(d) Prior to the Effective Time, each of MOXY and FSC shall (i) use
commercially reasonable efforts to obtain consents from holders of any
Stock-Based Awards to the extent Parent determines such consents to be
advisable and (ii) make any amendments to the terms of any of its incentive
plans or arrangements, in each case as necessary to give effect to the
transactions contemplated by this Section 1.08.
(e) As soon as practicable after the Effective Time, Parent shall file
with the Securities and Exchange Commission (the "SEC") a registration
statement on Form S-8 with respect to the shares of Parent Common Stock
underlying the Substitute Options and shall use its reasonable best efforts to
have such registration statement declared effective under the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act").
Section 1.09. Adjustments. If, prior to the Effective Time, any change
in the outstanding shares of capital stock of MOXY or FSC shall occur,
including by reason of any reclassification, stock split, stock dividend,
combination, exchange or adjustment of shares, or a record date for any of the
foregoing shall be established, then the MOXY Conversion Ratio or the FSC
Conversion Ratio, as the case may be, shall be appropriately and
proportionately adjusted.
ARTICLE 2
The Surviving Entities
Section 2.01. MOXY Surviving LLC and FSC Surviving LLC.
(a) At the Effective Time, the respective certificates of
incorporation and by-laws of MOXY and FSC shall be canceled.
(b) The respective certificates of formation and operating agreements
of the MOXY Surviving LLC and the FSC Surviving LLC in effect at the Effective
Time shall continue to be the certificates of formation and operating
agreements of the MOXY Surviving LLC and the FSC Surviving LLC, respectively,
after the Effective Time, until amended in accordance with applicable law.
(c) From and after the Effective Time, until successors are duly
elected or appointed and qualified in accordance with applicable law, (i) the
officers of MOXY and FSC at the Effective Time shall be the officers of the
MOXY Surviving LLC and the FSC Surviving LLC, respectively, and (ii) the Board
of Directors of Parent shall consist of all of the members of the Boards of
Directors of MOXY and FSC at the Effective Time.
ARTICLE 3
Stockholder Approval; Effective Time; Closing
Section 3.01. Stockholder Approval. Subject to the terms and
conditions contained herein, this Agreement and the transactions contemplated
hereby shall be submitted for approval (i) to the holders of shares of MOXY
Common Stock at a special meeting of stockholders to be duly held for such
purpose by MOXY (the "MOXY Special Meeting") and (ii) to the holders of shares
of FSC Common Stock at a special meeting of stockholders to be duly held for
such purpose by FSC (the "FSC Special Meeting" and, together with the MOXY
Special Meeting, the "Special Meetings"). MOXY and FSC shall coordinate and
cooperate with respect to the timing of the Special Meetings and shall
endeavor to hold such meetings on the same day and as soon as practicable
after the date hereof. Each of MOXY and FSC shall recommend that their
respective stockholders approve and adopt this Agreement and the transactions
contemplated hereby and such recommendations shall be contained in the Joint
Proxy Statement (defined below); provided, that nothing herein shall prevent
the Board of Directors of either MOXY or FSC from withdrawing or modifying its
recommendation if such Board of Directors has made a good faith, reasonable
judgment, after consultation with its, or its Special Committee's, legal
counsel, that the failure to do so would violate applicable law or its
fiduciary duties under applicable law. The letters to stockholders, notices
of meeting, joint proxy statement and prospectus and forms of proxies to be
distributed to stockholders of MOXY and FSC in connection with the Mergers,
and any schedules required to be filed with the SEC in connection therewith,
are collectively referred to herein as the "Joint Proxy Statement."
Section 3.02. Closing; Effective Time. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., 201 St.
Charles Avenue, New Orleans, Louisiana 70170 at 10:00 a.m., local time, on
the second business day after satisfaction or waiver of the conditions set
forth in Article 7, or at such other time and place as MOXY and FSC may agree
(the "Closing Date"). On the Closing Date, Certificates of Merger relating to
the MOXY Merger and the FSC Merger, each specifying that the Merger to which
it relates shall become effective at such date and time as are specified
therein (which date and time shall be the same for each Merger), shall be
filed with the Delaware Secretary of State by MOXY and FSC, respectively, in
accordance with Delaware Law, and the Mergers shall become effective
simultaneously in accordance with the terms of such Certificates of Merger
(such time and date being referred to as the "Effective Time").
ARTICLE 4
Representations and Warranties of MOXY
MOXY represents and warrants to FSC as follows:
Section 4.01. Organization, Standing and Power.
(a) Each of MOXY and its Subsidiaries is a corporation, partnership or
limited liability company duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and has all
requisite power and authority to carry on its business as now conducted. Each
of MOXY and its Subsidiaries is duly qualified to do business and is in good
standing in each jurisdiction in which the business it is conducting, or other
operation, ownership or leasing of its properties, makes such qualification
necessary, other than jurisdictions where the failure to so qualify would not,
individually or in the aggregate, have a Material Adverse Effect on MOXY.
MOXY has previously made available to FSC complete and correct copies of its
certificate of incorporation and by-laws.
(b) As used in this Agreement:
(i) "Subsidiary" means, as to any Person, any corporation,
partnership, limited liability company or other entity in which such
Person holds, directly or indirectly, more than 50% of the securities or
other ownership interests the holders of which are generally entitled to
vote with respect to the election of the members of the board of
directors or other governing body thereof or such Person otherwise
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies thereof;
(ii) "Person" means an individual, corporation, partnership,
limited liability company, association, trust or other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof; and
(iii) "Material Adverse Effect" means, as to any Person, a
material adverse change in the business, assets, condition (financial or
otherwise) or results of operations of such Person and its Subsidiaries,
taken as a whole.
Section 4.02. Corporate Authorization. The execution, delivery and
performance by MOXY of this Agreement and the consummation by MOXY of the
transactions contemplated hereby are within MOXY's corporate powers and,
except for approval of this Agreement and the MOXY Merger by MOXY's
stockholders, have been duly authorized by all necessary corporate action.
Without limiting the generality of the foregoing, the Board of Directors of
MOXY has unanimously adopted a resolution adopting and approving this
Agreement. The affirmative vote of a majority of the outstanding shares of
MOXY Common Stock is the only vote of any class or series of MOXY's capital
stock necessary to approve and adopt this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
MOXY and constitutes a valid and binding agreement of MOXY, enforceable
against MOXY in accordance with its terms, subject to (a) bankruptcy,
insolvency, moratorium and other similar laws and court decisions now or
hereafter in effect relating to or affecting creditors' rights generally and
(b) general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
Section 4.03. Governmental Authorization. The execution, delivery and
performance by MOXY of this Agreement and the consummation of the MOXY Merger
by MOXY require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (a) the filing of
a Certificate of Merger in accordance with Delaware Law, (b) compliance with
any applicable requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (c) compliance with any applicable
requirements of the Securities Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the "Exchange
Act") and any applicable Blue Sky laws; and (d) compliance with such other
applicable regulatory requirements as would not have a Material Adverse Effect
on MOXY.
Section 4.04. Non-Contravention. Except as disclosed in Schedule 4.04,
the execution, delivery and performance by MOXY of this Agreement and the
consummation by MOXY of the transactions contemplated hereby do not and will
not (a) contravene or conflict with the certificate of incorporation or
by-laws of MOXY, (b) assuming compliance with the matters referred to in
Section 4.03, contravene, conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to MOXY or any of its Subsidiaries, (c) constitute
a default (or an event that with notice, the lapse of time or both would
become a default), or give rise to a right of termination, cancellation or
acceleration of any right or obligation, under any provision of any agreement,
contract or other instrument binding upon MOXY or any of its Subsidiaries, or
(d) result in the creation or imposition of any Lien on any asset of MOXY or
any of its Subsidiaries, except for such contraventions, conflicts or
violations referred to in clause (b), (c) or (d) that would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect
on MOXY. For purposes of this Agreement, "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset.
Section 4.05. Capitalization.
(a) As of the date hereof, the authorized capital stock of MOXY
consists of 150,000,000 shares of MOXY Common Stock, and 50,000,000 shares of
preferred stock, par value $0.01 per share (the "MOXY Preferred Stock"). At
the close of business on June 30, 1998, (i) 42,887,380 shares of MOXY Common
Stock were issued and outstanding and no shares were held in its treasury,
(ii) 5,196,792 shares of MOXY Common Stock were reserved for issuance pursuant
to outstanding options to acquire MOXY Common Stock (of which options to
purchase an aggregate of 2,304,053 shares of MOXY Common Stock were
exercisable), and (iii) no shares of MOXY Preferred Stock were issued or
outstanding. All outstanding shares of MOXY Common Stock have been validly
issued and are fully paid and nonassessable. Except for the outstanding stock
options covering 5,196,792 shares of MOXY Common Stock, as of the date hereof,
there are no options, warrants, calls, rights, commitments or agreements to
which MOXY or any of its Subsidiaries is a party, or by which it is bound,
obligating MOXY or any of its Subsidiaries to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed
or acquired, any shares of capital stock or other voting securities of MOXY or
any of its Subsidiaries or obligating MOXY or any of its Subsidiaries to
grant, extend or enter into any such option, warrant, call right, commitment or
agreement.
(b) Except as disclosed in any of the MOXY SEC Documents, all of the
outstanding capital stock of, or other ownership interests in, each Subsidiary
of MOXY is owned by MOXY, directly or indirectly, free and clear of any Lien
and free of any other limitation or restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests).
Section 4.06. SEC Documents. MOXY has previously furnished to FSC true
and complete copies of the following (collectively, the "MOXY SEC Documents"):
(a) MOXY's Annual Reports on Form 10-K filed with the SEC for each of
the years ended December 31, 1995 through 1997;
(b) MOXY's Quarterly Reports on Form 10-Q filed with the SEC for the
quarter ended March 31, 1998;
(c) each definitive proxy statement filed by MOXY with the SEC since
December 31, 1995;
(d) each final prospectus filed by MOXY with the SEC since December
31, 1995, except any final prospectus included in a registration statement on
Form S-8;
(e) all Current Reports on Form 8-K filed by MOXY with the SEC since
December 31, 1995; and
(f) all of its other reports, statements, schedules and registration
statements filed with the SEC since December 31, 1995.
As of their respective dates, such MOXY SEC Documents (i) complied as to
form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in the MOXY SEC Documents (including any related notes and
schedules) present fairly the financial position of MOXY and its consolidated
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods covered thereby (subject, in the case of unaudited
interim period statements, to normal year-end adjustments), in each case in
accordance with past practice and generally accepted accounting principles
("GAAP") consistently applied during the periods involved (except as otherwise
disclosed in the notes thereto). Since December 31, 1995, MOXY has timely
filed all reports, registration statements and other filings required to be
filed by it with the SEC.
Section 4.07. Compliance with Laws. Since December 31, 1995, the
businesses of MOXY and its Subsidiaries have not and are not being conducted
in violation of, nor were they conducted in violation of, any law, ordinance
or regulation of any governmental entity (provided that no representation or
warranty is made in this Section 4.07 with respect to Environmental Laws),
except as disclosed in any of the MOXY SEC Documents and except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on MOXY.
Section 4.08. No Undisclosed Liabilities. As of March 31, 1998,
neither MOXY nor any of its Subsidiaries had any liabilities or obligations of
any nature, whether absolute, accrued, contingent, determined, determinable or
otherwise, that would be required by GAAP to be reflected on a consolidated
balance sheet of MOXY and its Subsidiaries (or in the notes thereto) and there
is no existing condition, situation or set of circumstances that could
reasonably be expected to result in such a liability, except (a) liabilities
or obligations reflected in the financial statements included in the MOXY SEC
Documents, (b) liabilities or obligations incurred in the ordinary course of
business consistent with past practice that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on MOXY,
and (c) liabilities and obligations under this Agreement.
Section 4.09. Litigation. As of the date of this Agreement, except as
disclosed in any of the MOXY SEC Documents, there is no (i) class action
litigation pending or, to the best knowledge of MOXY, threatened against or
affecting MOXY or any of its Subsidiaries, (ii) other suit, action or
proceeding pending (or any known basis therefor) or, to the best knowledge of
MOXY, threatened against or affecting MOXY or any of its Subsidiaries or any
of their respective properties that could reasonably be expected to have a
Material Adverse Effect on MOXY or that in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the Mergers or any of the other
transactions contemplated hereby, or (iii) judgment, decree, injunction, rule
or order of any court, governmental entity or arbitrator outstanding against
MOXY or any of its Subsidiaries, if determined adversely to MOXY, that is
reasonably likely to have a Material Adverse Effect on MOXY or that in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
Mergers or any of the other transactions contemplated hereby.
Section 4.10. Environmental Matters. Except as previously disclosed in
writing to FSC or described in the MOXY SEC Documents, (a) each of MOXY and
its Subsidiaries is in material compliance with all applicable federal, state,
local and foreign laws, regulations, rules, orders, decrees, treaties,
judicial decisions, judgments, injunctions, permits and governmental
restrictions relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "Environmental
Laws"), except for such non-compliance as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on MOXY,
and, to the best knowledge of MOXY, there are no circumstances that are
reasonably likely to materially prevent or interfere with such compliance in
the next three years, (b) neither MOXY nor any of its Subsidiaries has
received written notice of or, to the best knowledge of MOXY, is the subject
of, any actions, causes of action, claims, investigations, demands, notices,
requests for information, complaints, suits or proceedings by any Person
alleging liability under or non-compliance with any Environmental Law
("Environmental Claims") that are reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on MOXY; and (c) as of March 31,
1998, neither MOXY nor any of its Subsidiaries had any liabilities or
obligations of any nature whether absolute, accrued, contingent or otherwise,
and whether relating to MOXY, any of its Subsidiaries or any predecessor
entities of MOXY or any of its Subsidiaries, arising under or relating to any
Environmental Law, except for liabilities or obligations that would not, (i)
individually or in the aggregate, be reasonably expected to result in
liabilities, losses, damages or expenses of any kind, including without
limitation capital expenditures ("Losses"), in excess of $5.0 million during
the five-year period beginning on the date hereof or (ii) individually or in
the aggregate, have a Material Adverse Effect on MOXY (taking into account any
applicable reserves).
Section 4.11. ERISA.
(a) Schedule 4.11 contains a list identifying each "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974 ("ERISA"), that is (i) subject to any provision of ERISA and (ii)
maintained, administered or contributed to by MOXY or any ERISA Affiliate and
covers any employee or former employee of MOXY or any Subsidiary of MOXY or
under which MOXY or any Subsidiary of MOXY has or may have any liability.
Copies of such plans (and if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof have been made
available to FSC together with (A) any recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan and (B) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to collectively herein
as the "MOXY Employee Plans." For purposes of this Agreement, an "ERISA
Affiliate" of any Person means any other Person which, together with such
Person, would be treated as a single employer under Section 414 of the Code.
(b) Except as set forth in Schedule 4.11, no MOXY Employee Plan (i)
constitutes a "multiemployer plan," as defined in Section 3(37) of ERISA (a
"Multiemployer Plan"), (ii) is maintained in connection with any trust
described in Section 501(c)(9) of the Code or (iii) is subject to Title IV of
ERISA. Neither MOXY nor any ERISA Affiliate of MOXY has (A) engaged in, or
is a successor or parent corporation to an entity that has engaged in, a
transaction of a type described in Sections 4069 or 4212(c) of ERISA or (B)
incurred, or reasonably expects to incur prior to the Effective Time, (1) any
liability under Title IV of ERISA arising in connection with the termination
of, or a complete or partial withdrawal from, any plan covered or previously
covered by Title IV of ERISA or (2) any liability under Section 4971 of the
Code that in either case could become a liability of Parent or any of its
Subsidiaries after the Effective Time. Nothing done or omitted to be done,
and no transaction or holding of any asset under or in connection with any
MOXY Employee Plan, has made or will make MOXY or any Subsidiary of MOXY, or
any officer or director of MOXY or any Subsidiary of MOXY, subject to any
liability under Title I of ERISA or liable for any tax pursuant to Section
4975 of the Code that individually or in the aggregate could have a Material
Adverse Effect on MOXY.
(c) With respect to each MOXY Employee Plan that is intended to be
qualified under Section 401(a) of the Code, MOXY has received a favorable
determination letter that the plan is so qualified and that each trust forming
a part thereof is exempt from tax pursuant to Section 501(a) of the Code and,
to the best knowledge of MOXY, no event has occurred since the date of such
determination that would adversely affect such qualification and exception.
MOXY has made available to FSC copies of the most recent Internal Revenue
Service determination letters with respect to each such Plan. Each MOXY
Employee Plan has been maintained in all material respects in compliance with
its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, that are applicable to such Plan including but
not limited to ERISA and the Code.
(d) Except as set forth in Schedule 4.11, there is no contract,
agreement, plan or arrangement covering any employee or former employee of
MOXY or any of its Subsidiaries that, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to the
terms of Sections 162(a)(1), 162(m) or 280G of the Code.
(e) MOXY has provided FSC with a list of each employment, severance
and other similar contract, arrangement or policy, and each plan or
arrangement (whether written or oral but excluding any state mandated program
or policy) providing for insurance coverage (including any self-insured
arrangements), with respect to workers' compensation benefits, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not a MOXY
Employee Plan, (ii) has been entered into, maintained or contributed to, as the
case may be, by MOXY or any of its ERISA Affiliates and (iii) covers any
employee or former employee of MOXY or any of its Subsidiaries. Such
contracts, plans and arrangements as are described above, copies or
descriptions of all of which have been furnished or made available previously
to FSC, are referred to collectively herein as the "MOXY Benefit
Arrangements." Each MOXY Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations.
(f) Except as set forth in Schedule 4.11, neither MOXY nor any
Subsidiary of MOXY has any current or projected liability in respect of
post-employment or post-retirement health or medical or life insurance
benefits for retired, former or current employees of MOXY or any Subsidiary of
MOXY, except as required to avoid excise taxes under Section 4980B of the
Code. No condition exists that would prevent MOXY or any Subsidiary of MOXY
from amending or terminating any MOXY Employee Plan or MOXY Benefit
Arrangement providing health or medical benefits in respect of any active,
former or retired employee of MOXY or any of its Subsidiaries.
(g) Except as set forth in Schedule 4.11, there has been no amendment
to, written interpretation or announcement (whether or not written) by MOXY or
any of its Subsidiaries relating to, or change in employee participation or
coverage under, any MOXY Employee Plan or MOXY Benefit Arrangement that would
increase materially the expense of maintaining such MOXY Employee Plan or MOXY
Benefit Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended on December 31, 1997.
(h) There is no unfair labor practice complaint pending or, to the
best knowledge of MOXY, threatened against MOXY or any of its Subsidiaries
before the National Labor Relations Board that would reasonably be expected to
have a Material Adverse Effect on MOXY.
(i) Except as set forth in Schedule 4.11, there is no issue with
respect to any MOXY Employee Plan or MOXY Benefit Arrangement that is now, or
within the last twelve months has been, under examination by the Internal
Revenue Service or the Department of Labor. There is no (i) pending
investigation by any governmental or regulatory agency or authority involving
or relating to any MOXY Employee Plan or MOXY Benefit Arrangement, or (ii)
threatened or pending claim (except for claims for benefits payable in the
normal operations of the MOXY Employee Plans or MOXY Benefit Arrangement),
suit or proceeding against any MOXY Employee Plan or MOXY Benefit Arrangement
or asserting any rights or claims to benefits under any MOXY Employee Plan or
MOXY Benefit Arrangement that could reasonably be expected to have a Material
Adverse Effect on MOXY.
Section 4.12. Joint Proxy Statement; Registration Statements. None of
the information with respect to MOXY or its Subsidiaries or the MOXY Merger to
be included in the Joint Proxy Statement or the Registration Statement will,
in the case of the Joint Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Joint Proxy Statement
or any amendments or supplements thereto, and at the time of the MOXY Special
Meeting, or, in the case of the Registration Statement, at the time it becomes
effective, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that no representation is made by MOXY with
respect to information relating to FSC or its Subsidiaries. The Joint Proxy
Statement will comply as to form in all material respects with the provisions
of the Exchange Act.
Section 4.13. Absence of Certain Changes. Since March 31, 1998, each
of MOXY and its Subsidiaries has conducted its business in the ordinary course
consistent with past practice and has not, except as set forth on Schedule
4.13:
(a) declared, set aside or paid any dividend or other distribution
with respect to any shares of capital stock of MOXY or any of its Subsidiaries
or repurchased, redeemed or acquired any outstanding shares of capital stock
or other securities of, or other ownership interests in, MOXY or any of its
Subsidiaries;
(b) amended any term of any of its outstanding securities;
(c) incurred, assumed or guaranteed any indebtedness from any third
party for borrowed money other than in the ordinary course of business;
(d) created or assumed any Lien on any material asset, other than in
the ordinary course of business consistent with past practices;
(e) loaned, advanced or contributed to, or invested in, any Person
other than (i) loans, advances or capital contributions to or investments in
wholly owned Subsidiaries of MOXY, (ii) investments in securities consistent
with past practice or (iii) other loans, advances, capital contributions or
investments in an aggregate amount not exceeding $1.0 million;
(f) incurred any damage, destruction or other casualty loss (whether
or not covered by insurance) affecting its business or assets that,
individually or in the aggregate, has had or may reasonably be expected to
have a Material Adverse Effect on MOXY;
(g) engaged in any transaction or entered into or amended any
agreement relating to its assets or businesses (including, without limitation,
the acquisition or disposition of any assets) or relinquished any contract,
license or other right that, in any such case, individually or in the
aggregate, has had or may reasonably be expected to have a Material Adverse
Effect on MOXY, other than transactions or agreements contemplated by this
Agreement;
(h) changed any method of accounting or accounting principle or
practice, except for any such change required by reason of a concurrent change
in GAAP;
(i) except in the ordinary course of business consistent with past
practices, (A) granted any severance or termination pay to, or entered into
any employment, termination, severance, deferred compensation or other similar
arrangement with, any of its directors, officers or employees; (B) amended in
any material respect any employment, termination, severance, deferred
compensation or other similar arrangement with any of its directors, officers
or employees (it being understood that any increase or acceleration of
benefits under any such agreement or arrangement shall be deemed material);
(C) established, adopted, entered into, amended or otherwise accelerated or
enhanced any rights or benefits under, (i) any plan providing for options,
stock, performance awards or other forms of incentive or deferred compensation
or (ii) any bonus, profit sharing, compensation, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any of
its directors, officers or employees; or (D) increased the compensation or
benefits of any other employees or payment of any benefit not required by any
plan or arrangement as in effect on March 31, 1998;
(j) except such contracts as would not be material to MOXY and its
Subsidiaries as a whole, entered into any contract limiting the right of MOXY
or any of its Subsidiaries at any time on or after the date of this Agreement
or Parent or any of its Subsidiaries at or after the Effective Time, to engage
in, or to compete with any Person in, any business;
(k) entered into any acquisition or joint venture that is material to
MOXY and its Subsidiaries, taken as a whole;
(l) amended its articles of incorporation, by-laws or similar
organizational documents;
(m) been the subject of any labor dispute, other than routine
individual grievances, or any activity or proceeding by a labor union or
representative thereof to organize any of its employees, which employees were
not subject to a collective bargaining agreement at March 31, 1998, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees; or
(n) been subject to any event, occurrence or development that,
individually or in the aggregate, has had or would be reasonably likely to
have a Material Adverse Effect on MOXY, except for general economic changes,
changes that affect the industry of MOXY or any of its Subsidiaries generally,
and changes in MOXY's business after the date hereof attributable solely to
the execution of this Agreement or actions taken by Parent.
Section 4.14. Taxes.
(a) For purposes of this Agreement, "Taxes" means all United States
Federal, state, local and foreign taxes, levies and other assessments,
including, without limitation, all income, sales, use, goods and services,
value added, capital, capital gains, net worth, transfer, profits,
withholding, payroll, employer health, unemployment insurance payments,
excise, real property and personal property taxes, any other taxes,
assessments or similar charges in the nature of a tax, including without
limitation, interest, additions to tax, fines and penalties, imposed by a
governmental or public body, agency, official or authority (the "Taxing
Authorities"). For purposes of this Agreement, "Tax Return" shall mean any
return, report, information return or other document (including any related or
supporting information) required to be filed with any Taxing Authority in
connection with the determination, assessment, collection, administration or
imposition of any Taxes.
(b) All Tax Returns required to be filed (taking into account all
extensions heretofore granted) on or before the date hereof or the Effective
Time by or on behalf of MOXY or any of its Subsidiaries have been filed within
the time and in the manner prescribed by law, other than those Tax Returns the
failure of which to file would not have a Material Adverse Effect on MOXY.
(c) As of the time of filing, all such Tax Returns correctly reflected
in all material respects all facts regarding the income, business, assets,
operations, activities and status of MOXY and its Subsidiaries and any other
information required to be shown therein.
(d) All Taxes shown to be due and payable by MOXY and any of its
Subsidiaries on all such Tax Returns have been timely paid, or withheld and
remitted to the appropriate Taxing Authorities.
(e) Except as set forth on Schedule 4.14, all applicable statutes of
limitations for the assessment of material Taxes against MOXY and any of its
Subsidiaries have expired. No deficiency payment of any Taxes for any period
has been asserted by any Taxing Authority which remains unsettled at the date
hereof except for deficiencies which would not have a Material Adverse Effect
on MOXY.
(f) Except for Tax Returns required to be filed with respect to the
1997 taxable year, neither MOXY nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return which has not yet been
filed.
(g) There are no material Liens upon any property or assets of MOXY or
any of its Subsidiaries for Taxes, except for Tax liens in respect of Taxes
not yet due or which are being contested in good faith and by appropriate
proceedings (and for the payment of which adequate reserves have been
provided) and reflected in the MOXY SEC Documents.
(h) Except as set forth on Schedule 4.14, there is no claim, audit,
action, suit, proceeding or investigation now pending or threatened against or
with respect to MOXY or any of its Subsidiaries in respect of any Taxes.
(i) Except as set forth on Schedule 4.14, neither MOXY nor any of its
Subsidiaries has any contractual obligations under any tax sharing agreement
or similar agreement or tax indemnity agreement with any corporation which is
not a member of the affiliated group of corporations of which MOXY is the
common parent.
(j) There are no requests for rulings or determinations in respect of
any Tax pending between MOXY or any of its Subsidiaries and any Taxing
Authorities.
(k) Neither MOXY nor any of its Subsidiaries own any interest in real
property in the State of New York or in any other jurisdiction in which a Tax
is imposed on the transfer of a controlling interest in an entity that owns
any interest in real property.
Section 4.15. Fairness Opinion. The MOXY Special Committee has
received the opinion of Bear Stearns to the effect that, as of the date
thereof, the MOXY Conversion Ratio is fair to the holders of MOXY Common
Stock from a financial point of view.
Section 4.16. Takeover Statutes; Charter Provisions; Rights Plan. The
Board of Directors of MOXY has approved this Agreement, the MOXY Merger and
the other transactions contemplated hereby and has taken such action as is
necessary to (i) satisfy any applicable restrictions on business combinations
contained in Section 203 of the Delaware General Corporation Law and Article
Ninth of the certificate of incorporation of MOXY and (ii) eliminate the
applicability of MOXY's Rights Agreement dated as of May 14, 1992, as amended,
to this Agreement, the Mergers and the other transactions contemplated hereby.
No other state takeover statutes are applicable to the Mergers or the other
transactions contemplated hereby.
Section 4.17. Finders' Fees. Except for Bear Stearns, which has been
retained by the MOXY Special Committee and whose fees will be paid by MOXY,
there is no investment banker, broker, finder or other intermediary who might
be entitled to any fee or commission from MOXY or any of its affiliates (other
than FSC) upon consummation of the transactions contemplated by this Agreement.
Section 4.18. Contracts. All material contracts of MOXY and its
Subsidiaries that are required to be described in the MOXY SEC Documents or to
be filed as exhibits thereto have been described or filed as required.
Neither MOXY nor any of its Subsidiaries nor, to the knowledge of MOXY, any
other party is in breach of or default under any such contracts that are
currently in effect, except for such breaches and defaults as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on MOXY. Except as set forth in the MOXY SEC Documents,
neither MOXY nor any of its Subsidiaries is a party to or bound by any
noncompetition agreement or any other agreement or obligation that purports
to limit in any material respect the manner in which, or the localities in
which, MOXY or any such Subsidiary is entitled to conduct all or any material
portion of the business of MOXY and its Subsidiaries taken as a whole.
Section 4.19. Transactions with Affiliates. Except to the extent
disclosed in the MOXY SEC Documents filed prior to the date of this Agreement,
from December 31, 1995 through the date of this Agreement and except for the
transactions contemplated hereby, there have been no transactions, agreements,
arrangements or understandings between MOXY or its Subsidiaries, on the one
hand, and MOXY's Affiliates (other than wholly owned Subsidiaries of MOXY) or
other Persons, on the other hand, that would be required to be disclosed under
Item 404 of Regulation S-K under the Securities Act. For purposes of this
Agreement, the term "Affiliate," when used with respect to any Person, means
any other Person directly or indirectly controlling, controlled by, or under
common control with such Person. As used in the definition of "Affiliate,"
the term "control" means possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
ARTICLE 5
Representations and Warranties of FSC
FSC represents and warrants to MOXY as follows:
Section 5.01. Organization, Standing and Power. Each of FSC and its
Subsidiaries is a corporation, partnership or limited liability company duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite power and authority to
carry on its business as now conducted. Each of FSC and its Subsidiaries is
duly qualified to do business and is in good standing in each jurisdiction in
which the business it is conducting, or other operation, ownership or leasing
of its properties, makes such qualification necessary, other than
jurisdictions where the failure to so qualify would not, individually or in
the aggregate, have a Material Adverse Effect on FSC. FSC has previously made
available to MOXY complete and correct copies of its certificate of
incorporation and by-laws.
Section 5.02. Corporate Authorization. The execution, delivery and
performance by FSC of this Agreement and the consummation by FSC of the
transactions contemplated hereby are within FSC's corporate powers and, except
for approval of this Agreement and the FSC Merger by FSC's stockholders, have
been duly authorized by all necessary corporate action. Without limiting the
generality of the foregoing, the Board of Directors of FSC has unanimously
adopted a resolution adopting and approving this Agreement. The affirmative
vote of a majority of the outstanding shares of FSC Common Stock is the only
vote of any class or series of FSC's capital stock necessary to approve and
adopt this Agreement and the transactions contemplated hereby. This Agreement
has been duly executed and delivered by FSC and constitutes a valid and
binding agreement of FSC, enforceable against FSC in accordance with its
terms, subject to (a) bankruptcy, insolvency, moratorium and other similar
laws and court decisions now or hereafter in effect relating to or affecting
creditors' rights generally and (b) general principles of equity (regardless
of whether considered in a proceeding at law or in equity),
Section 5.03. Governmental Authorization. The execution, delivery and
performance by FSC of this Agreement and the consummation of the FSC Merger by
FSC require no action by or in respect of, or filing with, any governmental
body, agency, official or authority other than (a) the filing of a Certificate
of Merger in accordance with Delaware Law; (b) compliance with any applicable
requirements of the HSR Act; (c) compliance with any applicable requirements
of the Securities Act, the Exchange Act and any applicable Blue Sky laws; and
(d) compliance with such other applicable regulatory requirements as would not
have a Material Adverse Effect on FSC.
Section 5.04. Non-Contravention. Except as disclosed in Schedule 5.04,
the execution, delivery and performance by FSC of this Agreement and the
consummation by FSC of the transactions contemplated hereby do not and will
not (a) contravene or conflict with the certificate of incorporation or
by-laws of FSC, (b) assuming compliance with the matters referred to in
Section 5.03, contravene, conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to FSC or any of its Subsidiaries, (c) constitute a
default (or an event that with notice, the lapse of time or both would become
a default), or give rise to a right of termination, cancellation or
acceleration of any right or obligation, under any provision of any agreement,
contract or other instrument binding upon FSC or any of its Subsidiaries, or
(d) result in the creation or imposition of any Lien on any asset of FSC or
any of its Subsidiaries, except for such contraventions, conflicts or
violations referred to in clause (b), (c) or (d) that would not, individually
or in the aggregate, have a Material Adverse Effect on FSC.
Section 5.05. Capitalization.
(a) As of the date hereof, the authorized capital stock of FSC
consists of 150,000,000 shares of FSC Common Stock, and 50,000,000 shares of
preferred stock, par value $0.01 per share (the "FSC Preferred Stock"). At
the close of business on June 30, 1998, (i) 9,740,603 shares of FSC Common
Stock were issued and outstanding and 646,100 were held in its treasury, (ii)
756,408 shares of FSC Common Stock were reserved for issuance pursuant to
options to acquire FSC Common Stock (of which options to purchase an aggregate
of 381,408 shares of FSC Common Stock were exercisable), and (iii) no shares
of FSC Preferred Stock were issued or outstanding. All outstanding shares of
FSC Common Stock have been validly issued and are fully paid and
nonassessable. Except for the outstanding Stock Options covering 756,408
shares of FSC Common Stock, as of the date hereof, there are no options,
warrants, calls, rights, commitments or agreements to which FSC or any of its
Subsidiaries is a party or by which it is bound, obligating FSC or any of its
Subsidiaries to issue, deliver, sell, purchase, redeem or acquire, or cause to
be issued, delivered, sold, purchased, redeemed or acquired, any shares of
capital stock or other voting securities of FSC or any of its Subsidiaries or
obligating FSC or any of its Subsidiaries to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement.
(b) Except as disclosed in any of the FSC SEC Documents, all of
the outstanding capital stock of, or other ownership interests in, each
Subsidiary of FSC is owned by FSC, directly or indirectly, free and clear of
any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests).
Section 5.06. SEC Documents. FSC has previously furnished to MOXY true
and complete copies of the following (collectively, the "FSC SEC Documents"):
(a) FSC's Annual Report on Form 10-K filed with the SEC for the year
ended December 31, 1997;
(b) FSC's Quarterly Reports on Form 10-Q filed with the SEC for the
quarter ended March 31, 1998;
(c) each definitive proxy statement filed by FSC with the SEC since
December 22, 1997;
(d) each final prospectus filed by FSC with the SEC since December 22,
1997, except any final prospectus included in a registration statement on Form
S-8;
(e) all Current Reports on Form 8-K filed by FSC with the SEC since
December 22, 1997; and
(f) all of its other reports, statements, schedules and registration
statements filed with the SEC since December 22, 1997.
As of their respective dates, such FSC SEC Documents (i) complied as to
form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in the FSC SEC Documents (including any related notes and
schedules) present fairly the financial position of FSC and its consolidated
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods covered thereby (subject, in the case of unaudited
interim period statements, to normal year-end adjustments), in each case in
accordance with past practice and GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto). Since December
31, 1997, FSC has timely filed all reports, registration statements and other
filings required to be filed by it with the SEC.
Section 5.07. Compliance with Laws. Since December 22, 1997, the
businesses of FSC and its Subsidiaries have not and are not being conducted in
violation of, nor were they conducted in violation of, any law, ordinance or
regulation of any governmental entity (provided that no representation or
warranty is made in this Section 5.07 with respect to Environmental Laws),
except as disclosed in any of the FSC SEC Documents and except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on FSC.
Section 5.08. Undisclosed Liabilities. As of March 31, 1998 neither
FSC nor any of its Subsidiaries had any liabilities or obligations of any
nature, whether absolute, accrued, contingent, determined, determinable or
otherwise, that would be required by GAAP to be reflected on a consolidated
balance sheet of FSC and its Subsidiaries (or in the notes thereto) and there
is no existing condition, situation or set of circumstances that could
reasonably be expected to result in such a liability, except (a) liabilities
or obligations reflected in the financial statements included in the FSC SEC
Documents, (b) liabilities or obligations incurred in the ordinary course of
business consistent with past practice that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on FSC,
and (c) liabilities and obligations under this Agreement.
Section 5.09. Litigation. As of the date of this Agreement, except as
disclosed in any of the FSC SEC Documents, there is no (i) class action
litigation pending or, to the best knowledge of FSC, threatened against or
affecting FSC or any of its Subsidiaries, (ii) other suit, action or
proceeding (or any known basis therefor) pending or, to the best knowledge of
FSC, threatened against or affecting FSC or any of its Subsidiaries or any of
their respective Properties that could reasonably be expected to have a
Material Adverse Effect on FSC or that in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the Mergers or any of the other
transactions contemplated hereby, or (iii) judgment, decree, injunction, rule
or order of any court, governmental entity or arbitrator outstanding against
FSC or any of its Subsidiaries that, if determined adversely to FSC, is
reasonably likely to have a Material Adverse Effect on FSC or that in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
Mergers or any other transactions contemplated hereby.
Section 5.10. Environmental Matters. Except as previously disclosed in
writing to MOXY or described in the FSC SEC Documents, (a) each of FSC and its
Subsidiaries is in material compliance with all applicable Environmental Laws
except for such non-compliance as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on FSC, and, to the
best knowledge of FSC, there are no circumstances that are reasonably likely
to materially prevent or interfere with such compliance in the next three
years, (b) neither FSC nor any of its Subsidiaries has received written notice
of, or to the best knowledge of FSC, is the subject of, any Environmental
Claims that are reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on FSC; and (c) as of March 31, 1998, neither FSC nor
any of its Subsidiaries had any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, and whether relating to FSC,
any of its Subsidiaries or any predecessor entities of FSC or any of its
Subsidiaries, arising under or relating to any Environmental Law, except for
liabilities or obligations that would not, (i) individually or in the
aggregate, be reasonably expected to result in Losses in excess of $5.0
million during the five-year period beginning on the date hereof or (ii)
individually or in the aggregate, have a Material Adverse Effect on FSC
(taking into account any applicable reserves).
Section 5.11. ERISA
(a) Schedule 5.11 contains a list identifying each "employee benefit
plan," as defined in Section 3(3) of ERISA, that is (i) subject to any
provision of ERISA and (ii) maintained, administered or contributed to by FSC
or any Subsidiary of FSC and covers any employee or former employee of FSC or
any ERISA Affiliate of FSC or under which FSC or any Subsidiary of FSC has or
may have any liability. Copies of such plans (and, if applicable, related
trust agreements) and all amendments thereto and written interpretations
thereof have been made available to MOXY together with (A) any annual reports
(Form 5500 including, if applicable, Schedule B thereto) prepared in
connection with any such plan and (B) the most recent actuarial valuation
report prepared in connection with any such plan. Such plans are referred to
collectively herein as the "FSC Employee Plans."
(b) Except as set forth in Schedule 5.11, no FSC Employee Plan (i)
constitutes a Multiemployer Plan, or (ii) is maintained in connection with any
trust described in Section 501(c)(9) of the Code. Neither FSC nor any ERISA
Affiliate of FSC has (A) engaged in, or is a successor or parent corporation
to an entity that has engaged in, a transaction of a type described in
Sections 4069 or 4212(c) of ERISA or (B) incurred, or reasonably expects to
incur prior to the Effective Time, (1) any liability under Title IV of ERISA
arising in connection with the termination of, or a complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA
or (2) any liability under Section 4971 of the Code that in either case could
become a liability of Parent or any of its Subsidiaries after the Effective
Time. Nothing done or omitted to be done, and no transaction or holding of
any asset under or in connection with any FSC Employee Plan, has made or will
make FSC or any Subsidiary of FSC, or any officer or director of FSC or any
Subsidiary of FSC, subject to any liability under Title I of ERISA or liable
for any tax pursuant to Section 4975 of the Code that individually or in the
aggregate could have a Material Adverse Effect on FSC.
(c) With respect to each FSC Employee Plan that is intended to be
qualified under Section 401(a) of the Code, FSC intends to request within the
next twelve months a favorable determination letter from the Internal Revenue
Service that each plan is so qualified and that each trust forming a part
thereof is exempt from tax pursuant to Section 501(a) of the Code. To the
best knowledge of FSC, no event has occurred that would adversely effect such
qualification and exception. Each FSC Employee Plan has been maintained in
all material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, that are
applicable to such Plan including but not limited to ERISA and the Code.
(d) Except as set forth in Schedule 5.11, there is no contract,
agreement, plan or arrangement covering any employee or former employee of FSC
or any of its Subsidiaries that, individually or collectively, could give rise
to the payment of any amount that would not be deductible pursuant to the
terms of Sections 162(a)(1), 162(m) or 280G of the Code.
(e) FSC has provided MOXY with a list of each employment, severance
and other similar contract, arrangement or policy, and each plan or
arrangement (written or oral but excluding any state mandated program or
policy) providing for insurance coverage (including any self-insured
arrangements), with respect to workers' compensation benefits, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits that (i) is not an FSC
Employee Plan, (ii) has been entered into, maintained or contributed to, as
the case may be, by FSC or any of its ERISA Affiliate and (iii) covers any
employee or former employee of FSC or any of its Subsidiaries. Such
contracts, plans and arrangements as are described above, copies or
descriptions of all of which have been furnished or made available previously
to MOXY, are referred to collectively herein as the "FSC Benefit
Arrangements." Each FSC Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statues, orders, rules and regulations.
(f) Except as set forth in Schedule 5.11, neither FSC nor any
Subsidiary of FSC has any current or projected liability in respect of
post-employment or post-retirement health or medical or life insurance
benefits for retired, former or current employees of FSC or any Subsidiary of
FSC, except as required to avoid excise taxes under Section 4980B of the Code.
No condition exists that would prevent FSC or any Subsidiary of FSC from
amending or terminating any FSC Employee Plan or FSC Benefit Arrangement
providing health or medical benefits in respect of any active, former or
retired employee of FSC or any of its Subsidiaries.
(g) Except as set forth in Schedule 5.11, there has been no amendment
to, written interpretation or announcement (whether or not written) by FSC or
any of its Subsidiaries relating to, or change in employee participation or
coverage under, any FSC Employee Plan or FSC Benefit Arrangement that would
increase materially the expense of maintaining such FSC Employee Plan or FSC
Benefit Arrangement above the level of the expense anticipated when each FSC
Employee Plan or FSC Benefit Arrangement was adopted after December 22, 1997.
(h) There is no unfair labor practice complaint pending or, to the
best knowledge of FSC, threatened against FSC or any of its Subsidiaries
before the National Labor Relations Board that would reasonably be expected to
have a Material Adverse Effect on FSC.
(i) Except as set forth on Schedule 5.11, there is no issue with
respect to any FSC Employee Plan or FSC Benefit Arrangement that is now, or
since December 22, 1997, has been, under examination by the Internal Revenue
Service or the Department of Labor. There is no (i) pending investigation by
any governmental or regulatory agency or authority involving or relating to
any FSC Employee Plan or FSC Benefit Arrangement, or (ii) threatened or
pending claim (except for claims for benefits payable in the normal operations
of the FSC Employee Plans or FSC Benefit Arrangement), suit or proceeding
against any FSC Employee Plan or FSC Benefit Arrangement or asserting any
rights or claims to benefits under any FSC Employee Plan or FSC Benefit
Arrangement that could reasonably be expected to have a Material Adverse
Effect on FSC.
Section 5.12. Joint Proxy Statement; Registration Statements. None of
the information with respect to FSC or its Subsidiaries or the FSC Merger to
be included in the Joint Proxy Statement or the Registration Statement will,
in the case of the Joint Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Joint Proxy Statement
or any amendments or supplements thereto, and at the time of the FSC Special
Meeting, or, in the case of the Registration Statement, at the time it becomes
effective, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that no representation is made by FSC with
respect to information relating to MOXY or its Subsidiaries. The Joint Proxy
Statement will comply as to form in all material respects with the provisions
of the Exchange Act.
Section 5.13. Absence of Certain Changes. Since March 31, 1998, each
of FSC and its Subsidiaries has conducted its business in the ordinary course
consistent with past practice and has not, except as set forth on Schedule
5.13:
(a) declared, set aside or paid any dividend or other distribution
with respect to any shares of capital stock of FSC or any of its Subsidiaries
or repurchased, redeemed or acquired any outstanding shares of capital stock
or other securities of, or other ownership interests in, FSC or any of its
Subsidiaries;
(b) amended any term of any of its outstanding securities;
(c) incurred, assumed or guaranteed any indebtedness from any third
party for borrowed money other than in the ordinary course of business and in
amounts and on terms consistent with past practices;
(d) created or assumed any Lien on any material asset, other than in
the ordinary course of business consistent with past practices;
(e) loaned, advanced or contributed to, or invested in, any Person
other than (i) loans, advances or capital contributions to or investments in
wholly owned Subsidiaries of FSC, (ii) investments in securities consistent
with past practice or (iii) other loans, advances, capital contributions or
investments in an aggregate amount not exceeding $1.0 million;
(f) incurred any damage, destruction or other casualty loss (whether
or not covered by insurance) affecting its business or assets that,
individually or in the aggregate, has had or may reasonably be expected to
have a Material Adverse Effect on FSC;
(g) engaged in any transaction or entered into or amended any
agreement relating to its assets or businesses (including, without limitation,
the acquisition or disposition of any assets) or relinquished any contract,
license or other right that, in any such case, individually or in the
aggregate, has had or may reasonably be expected to have a Material Adverse
Effect on FSC, other than transactions or agreements contemplated by this
Agreement;
(h) changed any method of accounting or accounting principle or
practice, except for any such change required by reason of a concurrent change
in GAAP;
(i) except in the ordinary course of business consistent with past
practices, (A) granted any severance or termination pay to, or entered into
any employment, termination, severance, deferred compensation or other similar
arrangement with, any of its directors, officers or employees; (B) amended in
any material respect any employment, termination, severance, deferred
compensation or other similar arrangement with any of its directors, officers
or employees (it being understood that any increase or acceleration of
benefits under any such agreement or arrangement shall be deemed material);
(C) established, adopted, entered into, amended or otherwise accelerated or
enhanced any rights or benefits under, (i) any plan providing for options,
stock, performance awards or other forms of incentive or deferred compensation
or (ii) any bonus, profit sharing, compensation, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any of
its directors, officers or employees; or (D) increased the compensation or
benefits of any other employees or payment of any benefit not required by any
plan or arrangement as in effect on March 31, 1998;
(j) except such contracts as would not be material to FSC and its
Subsidiaries as a whole, entered into any contract limiting the right of FSC
or any of its Subsidiaries at any time on or after the date of this Agreement
or Parent or any of its Subsidiaries at or after the Effective Time, to engage
in, or to compete with any Person in, any business;
(k) entered into any acquisition or joint venture that is material to
FSC and its Subsidiaries, taken as a whole;
(l) amended its articles of incorporation, by-laws or similar
organizational documents;
(m) been the subject of any labor dispute, other than routine
individual grievances, or any activity or proceeding by a labor union or
representative thereof to organize any of its employees, which employees were
not subject to a collective bargaining agreement at March 31, 1998, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees; or
(n) been subject to any event, occurrence or development that,
individually or in the aggregate, has had or would be reasonably likely to
have a Material Adverse Effect on FSC, except for general economic changes,
changes that affect the industry of FSC or any of its Subsidiaries generally,
and changes in FSC's business after the date hereof attributable solely to the
execution of this Agreement or actions taken by Parent.
Section 5.14. Taxes.
(a) All Tax Returns required to be filed (taking into account all
extensions heretofore granted) on or before the date hereof or the Effective
Time by or on behalf of FSC or any of its Subsidiaries have been filed within
the time and in the manner prescribed by law, other than those Tax Returns the
failure of which to file would not have a Material Adverse Effect on FSC.
(b) As of the time of filing, all such Tax Returns correctly reflected
in all material respects all facts regarding the income, business, assets,
operations, activities and status of FSC and its Subsidiaries and any other
information required to be shown therein.
(c) All Taxes shown to be due and payable by FSC and any of its
Subsidiaries on all such Tax Returns have been timely paid, or withheld and
remitted to the appropriate Taxing Authorities.
(d) Except as set forth on Schedule 5.14, all applicable statutes of
limitations for the assessment of material Taxes against FSC and any of its
Subsidiaries have expired. No deficiency payment of any Taxes for any period
has been asserted by any Taxing Authority which remains unsettled at the date
hereof except for deficiencies which would not have a Material Adverse Effect
on FSC.
(e) Except for Tax Returns required to be filed with respect to the
1997 taxable year, neither FSC nor any of its Subsidiaries has requested any
extension of time within which to file any Tax Return which has not yet been
filed.
(f) There are no material Liens upon any property or assets of FSC or
any of its Subsidiaries for Taxes, except for Tax liens in respect of Taxes
not yet due or which are being contested in good faith and by appropriate
proceedings (and for the payment of which adequate reserves have been
provided) and reflected in the FSC SEC Documents.
(g) Except as set forth on Schedule 5.14, there is no claim, audit,
action, suit, proceeding or investigation now pending or threatened against or
with respect to FSC or any of its Subsidiaries in respect of any Taxes.
(h) Except as set forth on Schedule 5.14, neither FSC nor any of its
Subsidiaries has any contractual obligations under any tax sharing agreement
or similar agreement or tax indemnity agreement with any corporation which is
not a member of the affiliated group of corporations of which FSC is the
common parent.
(i) There are no requests for rulings or determinations in respect of
any Tax pending between FSC or any of its Subsidiaries and any Taxing
Authorities.
(j) Neither FSC nor any of its Subsidiaries own any interest in real
property in the State of New York or in any other jurisdiction in which a Tax
is imposed on the transfer of a controlling interest in an entity that owns
any interest in real property.
Section 5.15. Fairness Opinion. The FSC Special Committee has received
the opinion of Lehman to the effect that, as of the date thereof, the FSC
Conversion Ratio is fair to the holders of FSC Common Stock from a financial
point of view.
Section 5.16. Takeover Statutes; Charter Provisions; Rights Plan. The
Board of Directors of FSC has approved this Agreement, the FSC Merger and the
other transactions contemplated hereby and has taken such action as is
necessary to (i) satisfy any applicable restrictions on business combinations
contained in Section 203 of the Delaware General Corporation Law and Article
VIII of the certificate of incorporation of FSC and (ii) eliminate the
applicability of FSC's Stockholder Protection Rights Agreement to this
Agreement, the Mergers and the other transactions contemplated hereby. No
other state takeover statutes are applicable to the Mergers or the other
transactions contemplated hereby.
Section 5.17. Finders' Fees. Except for Lehman, which has been
retained by the FSC Special Committee and whose fees will be paid by FSC,
there is no investment banker, broker, finder or other intermediary who might
be entitled to any fee or commission from FSC or any of its affiliates (other
than MOXY) upon consummation of the transactions contemplated by this
Agreement.
Section 5.18. Contracts. All material contracts of FSC and its
Subsidiaries that are required to be described in the FSC SEC Documents or to
be filed as exhibits thereto have been described or filed as required.
Neither FSC nor any of its Subsidiaries nor, to the knowledge of FSC, any
other party is in breach of or default under any such contracts which are
currently in effect, except for such breaches and defaults that would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on FSC. Except as set forth in the FSC SEC Documents, neither
FSC nor any of its Subsidiaries is a party to or bound by any noncompetition
agreement or any other agreement or obligation which purports to limit in any
material respect the manner in which, or the localities in which, FSC or any
such Subsidiary is entitled to conduct all or any material portion of the
business of FSC and its Subsidiaries taken as a whole.
Section 5.19. Transactions with Affiliates. Except to the extent
disclosed in the FSC SEC Documents filed prior to the date of this Agreement
and except for the transactions contemplated hereby, from December 22, 1997
through the date of this Agreement, there have been no transactions,
agreements, arrangements or understandings between FSC or its Subsidiaries, on
the one hand, and FSC's Affiliates (other than wholly owned Subsidiaries of
FSC) or other Persons, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.
ARTICLE 6
Covenants
The parties further agree as follows:
Section 6.01. Conduct of Business. Each of MOXY and FSC covenants and
agrees that, from the date hereof until the Effective Time or the date, if
any, on which this Agreement is earlier terminated pursuant to Section 8.01
(the "Termination Date"), except as expressly provided otherwise in this
Agreement, or as reasonably necessary for MOXY or FSC, respectively, to
fulfill its obligations hereunder, each of MOXY and FSC and their respective
Subsidiaries shall conduct their business in the ordinary course consistent
with past practice and shall use their reasonable best efforts to preserve
intact their business organizations and relationships with customers,
suppliers, creditors and business partners and shall use their reasonable best
efforts to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, MOXY and FSC,
except as set forth on Schedule 6.01:
(a) shall, and shall cause their respective Subsidiaries to, conduct
their respective operations in their ordinary and usual course of business in
substantially the same manner as heretofore conducted;
(b) shall use their reasonable best efforts, and cause each of their
respective Subsidiaries to use its reasonable best efforts, to preserve intact
their respective business organizations and goodwill in all material respects,
keep available the services of their respective officers and employees as a
group (subject to changes in the ordinary course), and maintain satisfactory
relationships with suppliers, distributors, customers and others having
business relationships with them;
(c) shall confer on a regular and frequent basis with one or more
representatives of one another to report on material operational developments
and the general status of ongoing operations, subject to the limitations
contained in Section 6.02;
(d) shall notify one another of any emergency or other material change
in the normal course of their or their Subsidiaries' respective businesses or
in the operation of their or their Subsidiaries' respective properties and of
any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated) if such emergency, change,
complaint, investigation or hearing would reasonably be expected to have a
Material Adverse Effect on MOXY or FSC, as the case may be;
(e) except as expressly permitted by this Agreement, shall not, and
shall not permit any of their respective Subsidiaries which is not wholly
owned to, declare or pay any dividends on or make any distribution with
respect to their outstanding shares of capital stock;
(f) except in the ordinary course of business, and as disclosed in
Schedule 6.01, shall not (i) grant or permit any of its Subsidiaries to grant
any severance or termination pay to, or enter into any employment, termination
or severance arrangement with, its officers, employees or directors, (ii)
amend in any material respect any employment, termination or severance
arrangement with any directors, officers or employees (it being understood
that any increase in or acceleration of benefits under any such agreement or
arrangement shall be deemed material); (iii) establish, adopt, enter into, or
amend or take action to accelerate or enhance any rights or benefits under,
(A) any plan providing for options, stock, performance awards or other forms
of incentive or deferred compensation or (B) any collective bargaining, bonus,
profit sharing, thrift, compensation, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any of its
directors, officers or employees; or (iv) increase the compensation or
benefits of any other employees or pay any benefit not required by any plan or
arrangement as in effect on March 31, 1998;
(g) shall not, and shall not permit any of their respective
Subsidiaries to, authorize, propose or announce an intention to authorize,
propose, or enter into an agreement with respect to, any merger, consolidation
or business combination (other than the Mergers and any partnership or joint
venture arrangements entered into in the ordinary course of business
consistent with past practice), any acquisition or disposition of a material
amount of assets or securities not in the ordinary course of business, or any
release or relinquishment of any material contract rights not in the ordinary
course of business;
(h) shall not propose or adopt any amendments to their respective
certificates of incorporation or by-laws;
(i) shall not, and shall not permit any of their respective
Subsidiaries to, issue any shares of capital stock, except upon exercise of
rights or options outstanding on the date hereof or issued in the ordinary
course of business after the date hereof pursuant to existing employee
incentive and benefit plans, programs or arrangements, or effect any stock
split not previously announced or otherwise change its capitalization as it
existed on March 31, 1998 (except as contemplated herein);
(j) shall not, and shall not permit any of their respective
Subsidiaries to, grant, confer or award any options, warrants, conversion
rights or other rights to acquire any shares of its capital stock, except
grants of options pursuant to employee incentive and benefit plans, programs
or arrangements in existence on the date hereof in the ordinary course of
business and consistent with past granting practices and policies;
(k) shall not, and shall not permit any of their respective
Subsidiaries to, except in the ordinary course of business pursuant to
existing employee incentive and benefit plans, programs or arrangements in
existence on the date hereof, purchase or redeem any shares of their capital
stock; provided that nothing in this Agreement shall restrict MOXY or FSC from
repurchasing MOXY Common Stock or FSC Common Stock, respectively, in
accordance with previously announced repurchase programs;
(l) shall not, and shall not permit any of their respective
Subsidiaries to, incur, assume or guarantee any indebtedness for borrowed
money from any third party, other than pursuant to existing credit facilities
or otherwise in the ordinary course of business consistent with past practices;
(m) shall not, and shall not permit any of their respective
Subsidiaries to, amend any term of any of their outstanding securities;
(n) shall not, and shall not permit any of their respective
Subsidiaries to, create or assume any Lien on any material asset other than in
the ordinary course of business consistent with past practices;
(o) shall not, and shall not permit any of their respective
Subsidiaries to, make any loan, advance or capital contribution to or
investment in any Person other than (i) loans, advances or capital
contributions to or investments in their respective wholly owned Subsidiaries,
(ii) investments in securities consistent with past practices or (iii) other
loans, advances, capital contributions or investments in an aggregate amount
for each of MOXY and FSC not exceeding $50.0 million since March 31, 1998;
(p) shall not, and shall not permit any of their respective
Subsidiaries to, enter into any transaction, commitment, contract or agreement
relating to such Person's assets or businesses (including, without limitation,
the acquisition or disposition of any assets) or relinquish any contract,
license or other right that individually or in the aggregate would reasonably
be expected to have a Material Adverse Effect on MOXY or FSC, as the case may
be, other than in the ordinary course of business consistent with past
practices and transactions, commitments, contracts or agreements contemplated
by this Agreement;
(q) shall not, and shall not permit any of their respective
Subsidiaries to, change any of their respective methods of accounting or
accounting principles or practices, except for any such change required by
reason of a concurrent change in generally accepted accounting principles;
(r) shall not, and shall not permit any of their respective
Subsidiaries to, enter into any contract limiting the right of MOXY or FSC, as
the case may be, or any of their respective Subsidiaries at any time on or
after the date of this Agreement, or Parent or any of its Subsidiaries at or
after the Effective Time, to engage or compete with any Person in any
business, except such contracts as would not be material to MOXY or FSC, as
the case may be, and its Subsidiaries, taken as a whole; and
(s) shall not, and shall not permit any of their respective
Subsidiaries to, agree, in writing or otherwise, to take any of the actions
described in this Section 6.01 or any action that would make any
representation or warranty in Articles 4 or 5 hereof, as the case may be,
untrue or incorrect.
Section 6.02. Investigation. Each of MOXY and FSC shall afford the
other and each other's officers, employees, accountants, counsel and other
authorized representatives reasonable access during normal business hours,
throughout the period prior to the earlier of the Effective Time or the
Termination Date, to its and its Subsidiaries' plants, properties, personnel,
contracts, books and records (including without limitation its tax returns)
and every report, schedule or other document filed or received by it pursuant
to the requirements of federal or state securities laws, and each shall use
its reasonable best efforts to cause its representatives to furnish promptly
to the other such additional financial and operating data and other information
relating to its and its Subsidiaries' respective businesses and properties as
the other or its duly authorized representatives may from time to time
reasonably request; provided, that nothing herein shall require either MOXY or
FSC or any of their respective Subsidiaries to disclose any information to the
other that would cause significant competitive harm to the disclosing party
or its Subsidiaries if the transactions contemplated by this Agreement are not
consummated; and provided further, that no investigation pursuant to this
section shall affect any representation or warranty given by MOXY to FSC or by
FSC to MOXY, hereunder. The parties hereby agree that each of them will treat
any such information in accordance with the Confidentiality Agreement dated as
of June 4, 1998 (the "Confidentiality Agreement"). Notwithstanding any
provision of this Agreement to the contrary, no party shall be obligated to
make any disclosure in violation of applicable laws or regulations.
Section 6.03. Special Meetings; Proxy Material. In connection with the
Special Meetings, each of MOXY and FSC will (a) promptly prepare and file with
the SEC as soon as is reasonably practicable a registration statement on Form
S-4 under the Securities Act (the "Registration Statement"), which shall
contain the Joint Proxy Statement, with respect to the matters to be voted on
at the Special Meetings and the Parent Common Stock issuable in the Mergers,
and use its reasonable best efforts to have the Joint Proxy Statement cleared
by the SEC staff under the Exchange Act and the Registration Statement
declared effective by the SEC under the Securities Act, (b) thereafter mail to
its stockholders as promptly as practicable the Joint Proxy Statement and all
other proxy materials for the Special Meetings, (c) use its reasonable best
efforts to obtain the necessary approvals by its stockholders of this Agreement
and the transactions contemplated hereby and (d) otherwise comply with all
legal requirements applicable to such meeting.
Section 6.04. Cooperation. MOXY and FSC shall together, or pursuant to
an allocation of responsibility to be agreed upon among them:
(a) as soon as is reasonably practicable take all such action as may
be required under state Blue Sky or securities laws in connection with the
transactions contemplated by this Agreement;
(b) promptly prepare and file with the NYSE or Nasdaq National Market
(as shall be agreed upon) listing applications covering the shares of Parent
Common Stock issuable in the Mergers and use their reasonable best efforts to
obtain, prior to the Effective Time, approval for the listing of such Parent
Common Stock, subject only to official notice of issuance;
(c) cooperate with each other and use their reasonable best efforts to
(i) receive all necessary and appropriate consents of third parties to the
transactions contemplated hereunder, (ii) satisfy all requirements prescribed
by law for, and all conditions set forth in this Agreement to, the
consummation of the Mergers, and (iii) effect the Mergers in accordance with
this Agreement at the earliest practicable date; and
(d) cooperate with one another to lift any injunctions or remove any
other impediments to the consummation of the transactions contemplated herein.
Subject to the limitations contained in Section 6.02, each of MOXY and
FSC shall furnish to the other and to the other's counsel all such information
as may be required in order to effect the foregoing actions.
Section 6.05. Affiliates. Each of MOXY and FSC (each of which is
referred to in this Section 6.05 as a "Subject Entity") shall, prior to the
Effective Time, deliver to the other a list, reviewed by its counsel, setting
forth the names and addresses of all Persons who are, in its opinion, at the
time of the Special Meeting of the Subject Entity, "affiliates" of the Subject
Entity for purposes of Rule 145 under the Securities Act. Each Subject Entity
shall furnish to the other such information and documents as the other may
reasonably request for the purpose of reviewing such list. Each Subject
Entity shall use its reasonable best efforts to cause each Person who is
identified as an "affiliate" in the list so furnished by it to execute a
written agreement on or prior to the Effective Time, in a form satisfactory to
the other (an "Affiliate Agreement"), that such person will not offer, sell or
otherwise dispose of any of the shares of Parent Common Stock issued to such
Person in the Mergers in violation of the Securities Act or the rules and
regulations promulgated by the SEC thereunder.
Section 6.06. Insurance Extension. MOXY and FSC shall cooperate to
extend, renew or otherwise continue any existing insurance coverage (or to
provide new insurance coverage) on and after the Effective Time with respect
to claims arising from acts or omissions that occurred on or before the
Effective Time.
Section 6.07. Filings; Other Action. Subject to the terms and
conditions herein provided, MOXY and FSC shall (a) promptly make their
respective filings and thereafter make any other required submissions under
the HSR Act, (b) use their respective reasonable best efforts to cooperate
with one another in (i) determining whether any filings are required to be
made with, or consents, permits, authorizations or approvals are required to
be obtained from, any third party, the United States government or any
agencies, departments or instrumentalities thereof or governmental or
regulatory authorities of the several states and foreign jurisdictions in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) timely making
all such filings and timely seeking all such consents, permits, authorizations
or approvals, and (c) use reasonable best efforts to take, or cause to be
taken, all other actions and do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective the
transactions contemplated hereby, including, without limitation, taking all
such further action as reasonably may be necessary to resolve such objections,
if any, as the Federal Trade Commission, the Antitrust Division of the
Department of Justice, state antitrust enforcement authorities or competition
authorities of any other nation or other jurisdiction or any other Person may
assert under relevant antitrust or competition laws with respect to the
transactions contemplated hereby.
Section 6.08. Further Assurances. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers or directors of each of MOXY
and FSC shall take all such necessary action. At and after the Effective
Time, the officers of Parent (in its capacity as sole member of each of MOXY
Surviving LLC and FSC Surviving LLC), will be authorized to execute and
deliver, in the name and on behalf of MOXY, MOXY Merger Sub, FSC and FSC
Merger Sub, any deeds, bills of sale, assignments or assurances and to take
and do, in the name and on behalf of such entities, any other actions and
things to vest, perfect or confirm of record or otherwise in MOXY Surviving
LLC or FSC Surviving LLC any and all right, title and interest in, to and
under any of the rights, properties or assets of MOXY or FSC acquired or to be
acquired by MOXY Surviving LLC or FSC Surviving LLC as a result of, or in
connection with, the Mergers.
Section 6.09. Takeover Statutes. If any state takeover statute shall
become applicable to the transactions contemplated hereby, each of MOXY and
FSC and the members of their respective Boards of Directors shall grant such
approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby.
Section 6.10. No Solicitation. (a) From the date hereof until the
earlier to occur of (i) the termination hereof or (ii) the Effective Time,
MOXY will not, and will cause its Subsidiaries and its Subsidiaries' officers,
directors, employees, investment bankers, consultants and other agents and its
Affiliates not to, directly or indirectly, take any action to solicit,
initiate, encourage or facilitate the making of any Third Party Acquisition
Proposal or any inquiry with respect thereto, or engage in discussions or
negotiations with any Person with respect thereto, or disclose any non-public
information relating to it or any of its Subsidiaries or afford access to its
or any of its Subsidiaries' properties, books or records to any Person that
has made or is considering making any Third Party Acquisition Proposal;
provided that nothing contained in this Section 6.10(a) shall prevent MOXY
from furnishing non-public information to, or entering into discussions or
negotiations with, any Person in connection with an unsolicited bona fide Third
Party Acquisition Proposal received from such Person so long as prior to
furnishing non-public information to, or entering into discussions or
negotiations with, such Person, (i) the Board of Directors of MOXY (and/or its
Special Committee), by a majority vote determines in its good faith judgment
that it is necessary to do so to comply with its fiduciary duty to stockholders
under applicable law, as advised by such Board's or Special Committee's legal
counsel, and (ii) MOXY receives from such Person an executed confidentiality
agreement with terms no less favorable to MOXY than those contained in the
Confidentiality Agreement. Nothing contained in this Agreement shall prevent
the Board of Directors of MOXY (and/or its Special Committee), from complying
with Rule 14e-2 under the Exchange Act with regard to a Third Party
Acquisition Proposal; provided that the Board of Directors of MOXY (and/or its
Special Committee), shall not recommend that the stockholders of MOXY tender
their shares in connection with a tender offer except to the extent that such
Board or Special Committee determines by majority vote in its good faith
judgment that such a recommendation is required to comply with the fiduciary
duties of such Board of Directors (and/or such Special Committee) to
stockholders under applicable law, as advised by such Board's or Special
Committee's legal counsel. MOXY will promptly (and in no event later than 24
hours after receipt of any Third Party Acquisition Proposal) notify (which
notice shall be provided orally and in writing and shall identify the Person
making such Third Party Acquisition Proposal and set forth the material terms
thereof) FSC after receipt of any Third Party Acquisition Proposal, indication
that any Person is considering making a Third Party Acquisition Proposal or
any request for nonpublic information relating to MOXY or any of its
Subsidiaries or for access to the properties, books or records of MOXY or any
of its Subsidiaries by any Person that may be considering making, or has made,
a Third Party Acquisition Proposal. MOXY will keep FSC fully informed of the
status and material terms of any such Third Party Acquisition Proposal or
request. In furtherance and not in limitation of the foregoing, MOXY shall
give FSC at least 24 hours' advance notice of any information to be supplied
to any Person making such Third Party Acquisition Proposal. MOXY will, and
will cause its Subsidiaries and the officers, directors, employees and other
agents of it and its Subsidiaries and its Affiliates to, immediately cease and
cause to be terminated all discussions and negotiations, if any, that have
taken place prior to the date hereof with any parties with respect to any
Third Party Acquisition Proposal.
(b) From the date hereof until the earlier to occur of (i) the
termination hereof or (ii) the Effective Time, FSC will not, and will cause
its Subsidiaries and its Subsidiaries' officers, directors, employees,
investment bankers, consultants and other agents and its Affiliates not to,
directly or indirectly, take any action to solicit, initiate, encourage or
facilitate the making of any Third Party Acquisition Proposal or any inquiry
with respect thereto, or engage in discussions or negotiations with any Person
with respect thereto, or disclose any non-public information relating to it or
any of its Subsidiaries or afford access to its or any of its Subsidiaries'
properties, books or records to any Person that has made or is considering
making any Third Party Acquisition Proposal; provided that nothing contained
in this Section 6.10(b) shall prevent FSC from furnishing non-public
information to, or entering into discussions or negotiations with, any Person
in connection with an unsolicited bona fide Third Party Acquisition Proposal
received from such Person so long as prior to furnishing non-public
information to, or entering into discussions or negotiations with, such
Person, (i) the Board of Directors of FSC (and/or its Special Committee), by a
majority vote determines in its good faith judgment that it is necessary to do
so to comply with its fiduciary duty to stockholders under applicable law, as
advised by such Board's or Special Committee's legal counsel, and (ii) FSC
receives from such Person an executed confidentiality agreement with terms no
less favorable to FSC than those contained in the Confidentiality Agreement.
Nothing contained in this Agreement shall prevent the Board of Directors of
FSC (and/or its Special Committee), from complying with Rule 14e-2 under the
Exchange Act with regard to a Third Party Acquisition Proposal; provided that
the Board of Directors of FSC (and/or its Special Committee), shall not
recommend that the stockholders of FSC tender their shares in connection with
a tender offer except to the extent that such Board or Special Committee
determines by majority vote in its good faith judgment that such a
recommendation is required to comply with the fiduciary duties of such Board
of Directors (and/or such Special Committee) to stockholders under applicable
law, as advised by such Board's or Special Committee's legal counsel. FSC
will promptly (and in no event later than 24 hours after receipt of any Third
Party Acquisition Proposal) notify (which notice shall be provided orally and
in writing and shall identify the Person making such Third Party Acquisition
Proposal and set forth the material terms thereof) MOXY after receipt of any
Third Party Acquisition Proposal, indication that any Person is considering
making a Third Party Acquisition Proposal or any request for nonpublic
information relating to FSC or any of its Subsidiaries or for access to the
properties, books or records of FSC or any of its Subsidiaries by any Person
that may be considering making, or has made, a Third Party Acquisition
Proposal. FSC will keep MOXY fully informed of the status and material terms of
any such Third Party Acquisition Proposal or request. In furtherance and not
in limitation of the foregoing, FSC shall give MOXY at least 24 hours' advance
notice of any information to be supplied to any Person making such Third Party
Acquisition Proposal. FSC will, and will cause its Subsidiaries and the
officers, directors, employees and other agents of it and its Subsidiaries and
its Affiliates to, immediately cease and cause to be terminated all discussions
and negotiations, if any, that have taken place prior to the date hereof with
any parties with respect to any Third Party Acquisition Proposal.
(c) For purposes of this Agreement, "Third Party Acquisition Proposal"
means any offer or proposal for, or any indication of interest in, a merger,
share exchange, reorganization, recapitalization action or other business
combination involving MOXY or FSC or any of their respective Subsidiaries or
the acquisition of any equity interest in, or a substantial portion of the
assets of, MOXY or FSC, respectively, or any of their respective Subsidiaries,
other than the transactions contemplated by this Agreement and other than an
offer for a bona fide de minimis equity interest, or for an amount of assets
not material to MOXY or FSC, as appropriate, and its respective Subsidiaries
taken as a whole, that MOXY or FSC, as appropriate, has no reason to believe
would lead to a change of control of MOXY or FSC, as appropriate (or to the
acquisition of a substantial portion of the assets of MOXY or FSC, as
appropriate, and its respective Subsidiaries).
Section 6.11. Public Announcements. MOXY and FSC will consult with each
other before issuing any press release relating to this Agreement or the
transactions contemplated herein and shall not issue any such press release
prior to such consultation except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange.
Section 6.12. Indemnification and Insurance. (a) All rights to
indemnification and exculpation existing in favor of a director, officer,
employee or agent (an "Indemnified Person") of MOXY or FSC or any of their
respective Subsidiaries (including, without limitation, any indemnification
rights to which such persons are entitled because they are serving as a
director, officer, agent or employee of another entity at the request of MOXY
or FSC or any of their respective Subsidiaries), as provided in MOXY's or
FSC's certificate of incorporation or by-laws as in effect on the date of this
Agreement and relating to actions or events up to the Effective Time
(including without limitation the Mergers and the other transactions
contemplated by this Agreement) shall survive the Mergers and shall continue
in full force and effect, without any amendment thereto; provided, however,
that any determination required to be made with respect to whether an
Indemnified Person's conduct complies with the standards set forth under
Delaware Law, MOXY's or FSC's certificate of incorporation or by-laws or any
such agreement, as the case may be, shall be made by independent legal counsel
selected by such Indemnified Person and reasonably acceptable to Parent; and
provided further, that nothing in this Section 6.12 shall impair any rights or
obligations of any current or former director or officer of MOXY or FSC. For
a period of six years after the Effective Time, Parent shall cause to be
maintained in effect (i) the current provisions regarding indemnification of
officers and directors contained in the certificate of incorporation and
by-laws of MOXY and FSC, and (ii) if available, the current policies of
directors' and officers' liability insurance and fiduciary liability insurance
maintained by MOXY and FSC (provided, that Parent may substitute therefor
policies containing at least the same coverage amounts and containing terms
and conditions that are, in the aggregate, no less advantageous to the
insureds) with respect to claims arising from acts or omissions which occurred
on or before the Effective Time; provided, that Parent shall not be obligated
to pay aggregate annual premiums for such insurance during such six-year
period in excess of 200% of the per annum rate of the aggregate premium
currently paid by MOXY and FSC and their respective Subsidiaries for such
insurance on the date of this Agreement, it being understood that Parent shall
nevertheless be obligated to provide such coverage that shall then be
available at an annual premium equal to 200% of such rate. Parent agrees to
pay all expenses (including fees and expenses of counsel) that may be incurred
by any Indemnified Party in successfully enforcing the indemnity or other
obligations under this Section 6.12. The rights under this Section 6.12 are
in addition to rights that an Indemnified Party may have under the certificate
of incorporation, by-laws, or other similar organizational documents of MOXY
or FSC or any of their respective Subsidiaries or Delaware Law. The rights
under this Section 6.12 shall survive consummation of the Mergers and are
expressly intended to benefit each Indemnified Party.
(b) Parent agrees that at all times after the Effective Time, it shall
indemnify each Person who is now, or has been at any time prior to the date
hereof, a director or officer of MOXY or FSC or any of their respective
Subsidiaries, their successors and assigns (individually an "Indemnified
Party" and collectively the "Indemnified Parties"), to the fullest extent
permitted by law, with respect to any claim, liability, loss, damage,
judgment, fine, penalty, amount paid in settlement or compromise, cost or
expense (including reasonable fees and expenses of legal counsel), whenever
asserted or claimed, based in whole or in part on, or arising in whole or in
part out of this Agreement, the Mergers, the other transactions contemplated
hereby, or any other facts or circumstances occurring at or prior to the
Effective Time whether commenced, asserted or claimed before or after the
Effective Time, including liability arising under the Securities Act, the
Exchange Act or state law and including any liability for which an
Indemnified Party is entitled to indemnification from MOXY or FSC. In the
event of any claim, liability, loss, damage, judgment, fine, penalty, amount
paid in settlement or compromise, cost or expense described in the preceding
sentence, Parent shall pay the reasonable fees and expenses of counsel
selected by the Indemnified Parties promptly after statements are received and
otherwise advance to such Indemnified Party upon request reimbursement of
documented expenses reasonably incurred.
Section 6.13. Accountants' "Comfort" Letters. Each of MOXY and FSC
shall use its reasonable best efforts to cause to be delivered to the other a
letter from its independent accountants, dated a date within two business days
before the date of the Registration Statement, in form and substance
reasonably satisfactory to the recipient and customary in scope and substance
for comfort letters delivered by independent accountants in connection with
registration statements on Form S-4 under the Securities Act.
Section 6.14. Additional Reports. Each of MOXY and FSC shall furnish to
the other copies of any reports of the type referred to in Sections 4.06 and
5.06 that it files with the SEC on or after the date hereof, and each
represents and warrants that as of the respective dates thereof, such reports
filed by it will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Any unaudited consolidated interim financial statements
included in such reports (including any related notes and schedules) will
present fairly the financial position of MOXY or FSC, as the case may be, and
its consolidated Subsidiaries, as of the dates thereof and the results of
operations and changes in financial position or other information included
therein for the periods covered thereby (subject, in the case of unaudited
interim period statements to normal year-end adjustments), in each case in
accordance with past practices and GAAP consistently applied during the
periods involved (except as otherwise disclosed in the notes thereto).
Section 6.15. No Purchase. Except for the transactions contemplated by
this Agreement, without the prior written consent of the other, from the date
hereof until the Effective Time, neither MOXY nor FSC shall, directly or
indirectly, (a) acquire, offer to acquire or agree to acquire, by purchase or
otherwise, any securities or direct or indirect rights to acquire any
securities of the other or the other's Subsidiaries, or any of their
respective assets, operations or divisions; or (b) except as contemplated by
this Agreement, make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are used in the rules of the SEC) to vote, or seek to
advise or influence any Person with respect to the voting of, any voting
securities of the other or the other's Subsidiaries. Each party shall
promptly advise the other of any inquiry or proposal made to it with respect
to any of the foregoing. Notwithstanding clauses (a) and (b) of this Section
6.15, MOXY and FSC may make any proposals or communications to each other that
do not require public disclosure.
Section 6.16. Notice of Certain Events. (a) Each of MOXY and FSC shall
promptly notify each other of:
(i) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with
the transactions contemplated by this Agreement; and
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement.
(b) MOXY shall promptly notify FSC of any actions, suits, claims,
investigations or proceedings commenced or, to the best of its knowledge
threatened against, relating to or involving or otherwise affecting MOXY or
any of its Subsidiaries that, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 4.09 or that
relate to the consummation of the transactions contemplated by this Agreement.
(c) FSC shall promptly notify MOXY of any actions, suits, claims,
investigations or proceedings commenced or, to the best of its knowledge
threatened against, relating to or involving or otherwise affecting FSC or any
of its Subsidiaries that, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 5.09 or that relate
to the consummation of the transactions contemplated by this Agreement.
Section 6.17. Certain Litigation. Neither MOXY nor FSC shall settle
any litigation commenced after the date hereof against MOXY, FSC or any of
their respective directors by any stockholder of MOXY or FSC, respectively,
relating to the Mergers or this Agreement without the prior written consent of
the other party, which consent shall not be unreasonably withheld.
ARTICLE 7
Conditions to the Mergers
Section 7.01. Conditions to Both Mergers. The respective obligations
of MOXY and FSC to effect the MOXY Merger and the FSC Merger shall be subject
to the simultaneous completion by the other of the Merger to which the other
is a party and to the following additional conditions:
(a) Stockholder Approvals. The MOXY stockholders shall have duly
adopted and approved this Agreement and the MOXY Merger, and the FSC
stockholders shall have duly adopted and approved this Agreement and the FSC
Merger.
(b) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act and
shall be effective at the Effective Time. No stop order suspending the
effectiveness of the Registration Statement shall have been issued by the SEC
and no proceedings for that purpose shall have been initiated, or to the
knowledge of MOXY or FSC, threatened by the SEC. All necessary state
securities authorizations (including such filings, authorizations, orders and
approvals, if any, as may be required by state takeover laws) shall have been
received and shall be in full force and effect.
(c) Stock Listing. The shares of Parent Common Stock issuable in the
Mergers shall have been approved for listing on either the NYSE or Nasdaq
National Market, subject only to official notice of issuance.
(d) HSR and Other Approvals. The waiting period (and any extension
thereof) applicable to the consummation of the Mergers under the HSR Act shall
have expired or been terminated and all authorizations, consents, orders,
declarations or approvals of, or filings with, or terminations or expirations
of waiting periods imposed by, any governmental entity, shall have been made
or shall have occurred.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order, judgment or decree shall
have been issued or rendered (and remain in effect) by any court of competent
jurisdiction to restrain or prohibit the consummation of the Mergers or any of
the other transactions described in this Agreement; provided, however, that
each of the parties shall have used its reasonable best efforts to prevent the
entry of any such injunction or other order, judgment or decree and to appeal
as promptly as possible any such injunction or other order, judgment or decree
that may be entered.
(f) Litigation. There shall not have been instituted or be pending,
or threatened, any suit, action or proceeding by any governmental entity as a
result of this Agreement or any of the transactions contemplated hereby that
could reasonably be expected, in the good faith opinion of MOXY or FSC, to
have a Material Adverse Effect on MOXY or FSC.
Section 7.02. Additional Conditions to the MOXY Merger. The obligation
of MOXY to effect the MOXY Merger shall be subject to the fulfillment at or
prior to the Effective Time of the following additional conditions:
(a) Performance of Obligations; Representations and Warranties. FSC
shall have performed in all material respects each of its agreements contained
in this Agreement required to be performed at or prior to the Effective Time,
each of the representations and warranties of FSC contained in this Agreement
that is qualified by materiality shall be true and correct at and as of the
Effective Time as if made at and as of the Effective Time and each of such
representations and warranties that is not so qualified shall be true and
correct in all material respects at and as of the Effective Time as if made at
and as of the Effective Time, in each case except as contemplated or permitted
by this Agreement; and MOXY shall have received a certificate signed on behalf
of FSC by its Chief Executive Officer to such effect.
(b) Tax Opinion. MOXY shall have received an opinion of Jones,
Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. in form and substance
reasonably satisfactory to MOXY, dated the Effective Time, substantially to
the effect that, on the basis of facts, representations and assumptions set
forth in such opinion that are consistent with the state of facts existing as
of the Effective Time, for federal income tax purposes:
(i) The MOXY Merger will constitute a "reorganization" within
the meaning of Section 368(a) of the Code, and MOXY and Parent each will
be a party to the reorganization;
(ii) No gain or loss will be recognized by MOXY or Parent as a
result of the Mergers; and
(iii) No gain or loss will be recognized by stockholders of MOXY
who are United States persons (within the meaning of the Code) to the
extent that they exchange MOXY Common Stock solely for shares of Parent
Common Stock pursuant to the MOXY Merger.
Such opinion shall also address the tax basis and holding period of the shares
of Parent Common Stock received by MOXY stockholders in exchange for MOXY
Common Stock pursuant to the MOXY Merger, and the treatment of the receipt of
cash in lieu of a fractional share of Parent Common Stock. In rendering such
opinion, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. may
receive and rely upon representations contained in (A) a certificate of MOXY
substantially in the form attached as Schedule 7.02A, and (B) a certificate of
Parent substantially in the form attached as Schedule 7.02B.
(c) No Material Adverse Effect. Since the date of this Agreement,
there shall have been no event that has resulted or could reasonably be
expected to result in a Material Adverse Effect on FSC; and MOXY shall have
received a certificate signed on behalf of FSC by its Chief Executive Officer
to such effect.
Section 7.03. Additional Conditions to the FSC Merger. The obligation
of FSC to effect the FSC Merger shall be subject to the fulfillment at or
prior to the Effective Time of the following additional conditions:
(a) Performance of Obligations; Representations and Warranties. MOXY
shall have performed in all material respects each of its agreements contained
in this Agreement required to be performed at or prior to the Effective Time,
each of the representations and warranties of MOXY contained in this Agreement
that is qualified by materiality shall be true and correct at and as of the
Effective Time as if made at and as of the Effective Time and each of such
representations and warranties that is not so qualified shall be true and
correct in all material respects at and as of the Effective Time as if made at
and as of the Effective Time, in each case except as contemplated or permitted
by this Agreement; and FSC shall have received a certificate signed on behalf
of MOXY by its Chief Executive Officer to such effect.
(b) Tax Opinion. FSC shall have received an opinion of Miller &
Chevalier, Chartered in form and substance reasonably satisfactory to FSC,
dated the Effective Time, substantially to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion that are
consistent with the state of facts existing as of the Effective Time, for
federal income tax purposes:
(i) The FSC Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and FSC and Parent each will be a
party to the reorganization;
(ii) No gain or loss will be recognized by FSC or Parent as a
result of the Merger; and
(iii) No gain or loss will be recognized by stockholders of FSC
who are United States persons (within the meaning of the Code) to the
extent that they exchange FSC Common Stock solely for shares of Parent
Common Stock pursuant to the FSC Merger.
Such opinion shall also address the tax basis and holding period of the shares
of Parent Common Stock received by FSC stockholders in exchange for FSC Common
Stock pursuant to the FSC Merger, and the treatment of the receipt of cash in
lieu of a fractional share of Parent Common Stock. In rendering such opinion,
Miller & Chevalier, Chartered may receive and rely upon representations
contained in (A) a certificate of FSC substantially in the form attached as
Schedule 7.03A, and (B) a certificate of Parent substantially in the form
attached as Schedule 7.03B.
(c) No Material Adverse Effect. Since the date of this Agreement,
there shall have been no event that has resulted or would reasonably be
expected to result in a Material Adverse Effect on MOXY; and FSC shall have
received a certificate signed on behalf of MOXY by its Chief Executive Officer
to such effect.
ARTICLE 8
Termination, Waiver and Amendment
Section 8.01. Termination or Abandonment. This Agreement may be
terminated, and the Mergers and other transactions contemplated by this
Agreement may be abandoned at any time prior to the Effective Time,
notwithstanding any approval of this Agreement and the Mergers by the
respective stockholders of MOXY and FSC:
(a) by the mutual written consent of MOXY and FSC;
(b) by either MOXY or FSC if the Effective Time shall not have
occurred on or before December 31, 1998; provided, that the party seeking to
terminate this Agreement pursuant to this Section 8.01(b) shall not have
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the failure to consummate
the Mergers on or before such date;
(c) by either MOXY or FSC if a United States federal or state court of
competent jurisdiction or a United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated by this Agreement on
substantially the terms contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and non-appealable; provided,
that the party seeking to terminate this Agreement pursuant to this Section
8.01(c) shall have used its reasonable best efforts to remove such restraint,
injunction or prohibition;
(d) by either MOXY or FSC if (i) the approval of the stockholders of
MOXY contemplated by this Agreement shall not have been obtained at a meeting
of stockholders duly convened therefor or at any adjournment thereof or (ii)
the approval of the stockholders of FSC contemplated by this Agreement shall
not have been obtained at a meeting of stockholders duly convened therefor or
at any adjournment thereof;
(e) by MOXY if prior to the FSC Special Meeting, the Special Committee
or Board of Directors of FSC shall have withdrawn or modified, or resolved to
withdraw or modify, in a manner adverse to MOXY its approval or recommendation
of this Agreement;
(f) by FSC if prior to the MOXY Special Meeting, the Special Committee
or Board of Directors of MOXY shall have withdrawn or modified, or resolved to
withdraw or modify, in a manner adverse to FSC its approval or recommendation
of this Agreement;
(g) by either MOXY or FSC if there has been a breach by the other of
any representation, warranty or covenant contained in this Agreement, which
breach (i) would have a Material Adverse Effect on the party committing such
breach and (ii) cannot be, or has not been, cured within 15 days after
written notice thereof has been given to the party committing such breach,
provided that the right to effect such cure shall not extend beyond the date
set forth in subparagraph (b) above.
In the event of a termination of this Agreement pursuant to this Section
8.01, there shall be no other liability under this Agreement on the part of
either party to the other party, except that (i) the agreements contained in
Article 9 and in the Confidentiality Agreement shall survive the termination
hereof and (ii) no such termination shall relieve either party of any
liability or damages arising out of a breach of this Agreement by such party.
Section 8.02. Amendment. At any time before or after approval of this
Agreement by the respective stockholders of MOXY and FSC and prior to the
Effective Time, any provision of this Agreement may be amended if, and only
if, such amendment is in writing and signed by MOXY and FSC; provided,
however, that following approval of this Agreement by the stockholders of MOXY
or FSC there shall be no amendment to the provisions hereof with respect to
the MOXY Conversion Ratio or FSC Conversion Ratio nor any amendment not
permitted under applicable law, without further approval by the stockholders
of MOXY and FSC.
Section 8.03. Extension of Time, Waiver, Etc. At any time prior to the
Effective Time, either MOXY or FSC may:
(a) extend the time for the performance of any of the obligations or
acts of the other;
(b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered pursuant hereto;
or
(c) waive compliance with any of the agreements or conditions of the
other party contained herein.
Notwithstanding the foregoing, no failure or delay by MOXY or FSC in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE 9
Miscellaneous
Section 9.01. No Survival of Representations and Warranties. None of
the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Mergers,
except for the agreements set forth in Article 1, the Affiliate Agreements to
be delivered pursuant to Section 6.05, the provisions of Sections 6.06, 6.08
and 6.12 and this Article 9.
Section 9.02. Expenses.
(a) Except as provided in this Section 9.02, whether or not the
Mergers are consummated, all costs and expenses incurred in connection with
this Agreement, and the transactions contemplated hereby shall be paid by the
party incurring such expenses, except that the filing fee in connection with
any HSR Act filing, the commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, and the expenses incurred in connection with the printing and mailing
of the Joint Proxy Statement, filing the Registration Statement with the SEC
and any expenses incurred by Parent relating to the issuance, registration and
listing of the Parent Common Stock and the qualification thereof under state
blue sky or securities laws, shall be shared equally by MOXY and FSC.
(b) If this Agreement shall be terminated by FSC pursuant to Section
8.01(f) or 8.01(g), MOXY shall reimburse FSC for all out-of-pocket expenses
incurred by FSC in connection with this Agreement, the Mergers and all related
transactions. Such payment shall be made by wire transfer of immediately
available funds promptly, but in no event later than two business days, after
receipt by MOXY of a written notice given by FSC setting forth the amount of
such expenses.
(c) If this Agreement shall be terminated by MOXY pursuant to Section
8.01(e) or 8.01(g), FSC shall reimburse MOXY for all out-of-pocket expenses
incurred by MOXY in connection with this Agreement, the Mergers and all
related transactions. Such payment shall be made by wire transfer of
immediately available funds promptly, but in no event later than two business
days, after receipt by FSC of a written notice given by MOXY setting forth the
amount of such expenses.
Section 9.03. Counterparts; Effectiveness. This Agreement may be
executed in counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered (by telecopy or otherwise) to the other
parties.
Section 9.04. Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Delaware without regard to the principles of conflicts of laws thereof. Each
party hereto irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of Delaware or any United
States district court located in the State of Delaware for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such
litigation in such courts and agrees not to plead or claim in any such court
that such litigation brought therein has been brought in an inconvenient forum.
Section 9.05. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF ANY OF THEM IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
Section 9.06. Notices. All notices hereunder must be in writing and
will be deemed to have been duly given upon receipt of hand delivery;
certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:
To MOXY:
McMoRan Oil & Gas Co.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Richard C. Adkerson
Telecopy: 504-582-4290
With copies to:
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.
201 St. Charles Avenue
New Orleans, Louisiana 70170
Attention: L. R. McMillan, II
Telecopy: 504-582-8012
To FSC:
Freeport-McMoRan Sulphur Inc.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Robert M. Wohleber
Telecopy: 504-582-1611
With copies to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: David W. Ferguson
Telecopy: 212-450-4800
To Parent, MOXY Merger Sub or
FSC Merger Sub:
McMoRan Exploration Co.
MOXY LLC
Brimstone LLC
c/o McMoRan Exploration Co.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Chief Executive Officer
Telecopy: (504) 582-4290
Section 9.07. Assignment; Binding Effect. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
Section 9.08. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
Section 9.09. Entire Agreement; Benefits. This Agreement (i) along
with the Confidentiality Agreement constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof and
thereof; and (ii) except for the provisions of Section 6.12, is not intended
to and shall not confer upon any Person other than the parties hereto any
rights or remedies hereunder.
Section 9.10. Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
McMoRan Exploration Co.
By: /s/ Richard C. Adkerson
---------------------------------------
Richard C. Adkerson
President and Chief Executive Officer
McMoRan Oil & Gas Co.
By: /s/ Richard C. Adkerson
---------------------------------------
Richard C. Adkerson
Co-Chairman and Chief Executive Officer
Freeport-McMoRan Sulphur Inc.
By: /s/ Robert M. Wohleber
---------------------------------------
Robert M. Wohleber
President and Chief Executive Officer
MOXY LLC
By: McMoRan Exploration Co.,
its sole member
By: /s/ Richard C. Adkerson
---------------------------------------
Richard C. Adkerson
President and Chief Executive Officer
Brimstone LLC
By: McMoRan Exploration Co.,
its sole member
By: /s/ Richard C. Adkerson
---------------------------------------
Richard C. Adkerson
President and Chief Executive Officer
Annex B
[Letterhead of Bear Stearns]
July 31, 1998
Special Committee of Independent Directors
McMoRan Oil & Gas Co.
1615 Poydras Street
New Orleans, LA 70112
Dear Sirs:
We understand that McMoRan Oil & Gas Co. ("MOXY"),
Freeport-McMoRan Sulphur Inc. ("Sulphur"), McMoRan Exploration Co.
("Exploration Co."), MOXY LLC and Brimstone LLC will enter into an Agreement
and Plan of Mergers (the "Merger Agreement"), pursuant to which MOXY and
Sulphur will be merged (the "Mergers") into MOXY LLC and Brimstone LLC,
respectively, each of which is a wholly-owned subsidiary of Exploration Co.
Upon the terms and subject to the conditions set forth in the Merger Agreement,
at the Effective Time (as defined in the Merger Agreement) of the Mergers, each
issued and outstanding share of common stock of MOXY shall be converted into
0.200 (the "Exchange Ratio") shares of common stock of Exploration Co. and each
issued and outstanding share of common stock of Sulphur shall be converted into
0.625 shares of Exploration Co.
You have asked us to render our opinion as to whether the
Exchange Ratio is fair to the stockholders of MOXY from a financial point of
view.
In the course of our analyses for rendering this opinion, we
have:
1. reviewed the Merger Agreement;
2. reviewed MOXY's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1995 through 1997,
and its Quarterly Report on Form 10-Q for the period ended March 31, 1998 and
reviewed Sulphur's Annual Report to Shareholders and Annual Report on form 10-K
for the fiscal year ended December 31, 1997, and its Quarterly Report on Form
10-Q for the period ended March 31, 1998 and other such public information with
respect to MOXY and Sulphur as we deemed relevant;
3. reviewed certain operating and financial information,
including projections, provided to us by management relating to MOXY's and
Sulphur's business and prospects;
4. met with members of MOXY's and Sulphur's senior management
to discuss its operations, historical financial statements and future
prospects;
5. reviewed the historical prices and trading volumes of the
common shares of MOXY and Sulphur;
6. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally comparable to MOXY and
Sulphur;
7. reviewed the estimates of oil and natural gas reserves of
MOXY and Sulphur as of December 31, 1997 as prepared by Ryder Scott Company;
and
8. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed,
without independent verification, the accuracy and completeness of the
financial and other projections provided to us by MOXY and Sulphur. With
respect to MOXY's and Sulphur's projected financial results and potential
synergies that could be achieved upon consummation of the Mergers, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of MOXY and
Sulphur as to the expected future performance of MOXY and Sulphur,
respectively. We have not assumed any responsibility for the independent
verification of any such information or of the projections provided to us and
we have further relied upon the assurances of the senior managements of MOXY
and Sulphur that they are unaware of any facts that would make the information
or projections provided to us incomplete or misleading. In arriving at our
opinion, we have not performed or obtained any independent appraisal of the
assets or liabilities of MOXY and Sulphur, nor have we been furnished with any
such appraisals. Our opinion is necessarily based on economic, market and
other conditions, and the information made available to us, as of the date
hereof. We have assumed that the Mergers will qualify as a tax-free
"reorganization" within the meaning of Section 368 (a) of the Code.
We do not express any opinion as to the price or range of
prices at which shares of stock of Exploration Co. may trade subsequent to the
consummation of the Mergers. In addition, upon advice of MOXY and its legal
advisors, we have assumed that the outstanding litigation relating to MOXY's
exploration program will not have a material adverse impact upon MOXY or
Exploration Co.
We have acted as financial advisor to the Special Committee of
Independent Directors of MOXY in connection with the Mergers and will receive
a fee for such services, payment of a significant portion of which is
contingent upon the consummation of the Transaction.
In the ordinary course of business, Bear Stearns may actively
trade the equity securities of MOXY and Sulphur for its own account and for
the account of its customers and, accordingly, may at any time hold a long or
short position in such securities.
It is understood that this letter is intended solely for the
benefit and use of the Special Committee of Independent Directors and the
Board of Directors of MOXY and does not constitute a recommendation to the
Board of Directors or any holders of MOXY common stock as to how to vote in
connection with the Mergers. This opinion does not address MOXY's underlying
business decision to pursue the Mergers. This letter is not to be used for
any other purpose, or reproduced, disseminated, quoted or referred to at any
time, in whole or in part, in any manner for any purpose without our prior
consent; provided, however, that this letter may be included in its entirety
in any joint proxy statement/prospectus to be distributed to the holders of
MOXY common stock in connection with the Mergers.
Based on and subject to the foregoing, it is our opinion that
the Exchange Ratio is fair to the stockholders of MOXY from a financial point
of view as of the date hereof.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Brooks J. Klimley
-----------------------
Brooks J. Klimley
Senior Managing Director
Annex C
[Letterhead of Lehman]
August 1, 1998
Special Committee of the Board of Directors
Freeport-McMoRan Sulphur Inc.
1615 Poydras Street
New Orleans, LA 70112
Members of the Special Committee:
We understand that Freeport-McMoRan Sulphur Inc., a Delaware
corporation ("FSC"), McMoRan Oil & Gas Co., a Delaware corporation ("MOXY"),
McMoRan Exploration Co., a Delaware corporation ("Parent"), and MOXY LLC and
Brimstone LLC, each a Delaware limited liability company and a direct wholly
owned subsidiary of Parent ("MLLC" and "Brimstone", respectively) are
considering entering into an Agreement and Plan of Mergers (the "Agreement")
pursuant to which FSC will merge with and into Brimstone and MOXY will merge
with and into MLLC (the "Mergers"). Pursuant to the Agreement, each
outstanding share of FSC Common Stock will be converted into the right to
receive 0.625 shares of Parent Common Stock (the "FSC Exchange Ratio") and
each outstanding share of MOXY Common Stock will be converted into the right
to receive 0.2 shares of Parent Common Stock.
Immediately upon completion of the Mergers, FSC's stockholders
will own approximately 41.5% of the issued and outstanding Parent Common Stock
and MOXY's stockholders will own approximately 58.5% of the issued and
outstanding Parent Common Stock.
You have requested that we render our opinion with respect to
the fairness, from a financial point of view, to the holders of FSC Common
Stock of the FSC Exchange Ratio. We have not been requested to opine as to,
and our opinion does not in any manner address, FSC's underlying business
decision to proceed with or effect the Mergers.
In arriving at our opinion, we reviewed and analyzed: (1) a
draft dated July 30, 1998 of the Agreement and the specific terms of the
Mergers; (2) such publicly available information concerning FSC and MOXY that
we believe to be relevant to our analysis, including, without limitation, each
of the reports and proxy statements filed by FSC and MOXY with the Securities
and Exchange Commission since December 23, 1997; (3) financial and operating
information with respect to the respective businesses, operations and
prospects of FSC and MOXY furnished to us by FSC and MOXY, respectively,
including financial projections based on the respective business plans of FSC
and MOXY, and, in particular, (A) certain estimates of proved and non-proved
reserves, as well as the reports of independent reserve engineers and company
engineers, (B) projected annual production of such reserves, and (C) the
amount and timing of expenditures on exploration and development programs; (4)
the potential pro forma impact of the Mergers on FSC and MOXY, including the
cost savings and other synergies expected by managements of FSC and MOXY to
result from the Mergers; (5) a trading history of FSC's Common Stock from
December 23, 1997 to the present and a comparison of that trading history with
those of other companies we deemed relevant; (6) a trading history of MOXY's
Common Stock from December 23, 1997 to the present and a comparison of that
trading history with those of other companies we deemed relevant; (7) a
comparison of the historical financial results and present financial condition
of FSC with those of other companies that we deemed relevant; (8) a comparison
of the historical financial results and present financial condition of MOXY
with those of other companies we deemed relevant; (9) a comparison of the
financial terms of the Mergers with the financial terms of certain other
transactions that we deemed relevant and (10) the relative contributions of
FSC and MOXY, on a pro forma basis, to the historical and projected cash flow
of the Parent. In addition, we have (i) had discussions with the senior
managements of FSC and MOXY concerning their respective businesses, operations,
assets, financial condition and prospects and the cost savings and strategic
benefits expected by the managements of FSC and MOXY to result from a
combination of the businesses of FSC and MOXY, (ii) had discussions with the
independent auditors and reserve engineers of MOXY, and (iii) undertaken such
other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of managements of FSC
and MOXY that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections of FSC and MOXY, upon advice of FSC and MOXY, we have assumed that
such projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the managements of FSC and
MOXY, respectively, as to the future financial performance of FSC and MOXY and
that each of FSC and MOXY will perform substantially in accordance with such
projections. In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of FSX or MOXY and have not made
or obtained any evaluations or appraisals of the assets or liabilities of FSC
or MOXY. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to
the purchase of all or a part of FSC's business. Upon advice of FSC and its
legal and accounting advisors, we have assumed that the Mergers will qualify
as a reorganization within the meaning of Section 368 (a) of the Internal
Revenue Code of 1986, as amended, and therefore as a tax-free transaction to
the stockholders of FSC. In addition, upon advice of FSC and its legal
advisors, we have assumed that the outstanding litigation relating to MOXY's
exploration program will not have a material adverse impact upon MOXY or
Parent. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion
as of the date hereof that, from a financial point of view, the FSC Exchange
Ratio is fair to the holders of FSC Common Stock.
We have acted as financial advisor to the Special Committee of
the Board of Directors of FSC in connection with the Mergers and will receive
a fee for our services, a substantial portion of which is contingent upon the
consummation of the Mergers. In addition, FSC has agreed to indemnify us for
certain liabilities that may arise out of the rendering of this opinion. We
also have performed various other investment banking services for affiliates
of FSC and MOXY in the past and have received customary fees for such
services. In the ordinary course of our business, we actively trade in the
equity securities of FSC and MOXY for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position
in such securities.
This opinion is for the use and benefit of the Board of
Directors of FSC and is rendered to the Special Committee of the Board of
Directors in connection with its consideration of the Mergers. This opinion
is not intended to be and does not constitute a recommendation to any
stockholder of FSC as to how such stockholder should vote with respect to the
Mergers.
Very truly yours,
LEHMAN BROTHERS
By: /s/ H.E. McGee III
--------------------------
H.E. McGee III
Managing Director
ANNEX D
McMoRan EXPLORATION CO.
1998 STOCK OPTION PLAN
SECTION 1
Purpose. The purpose of the McMoRan Exploration Co. 1998 Stock Option
Plan (the "Plan") is to motivate and reward key employees, consultants and
advisers by giving them a proprietary interest in the Company's continued
success.
SECTION 2
Definitions. As used in the Plan, the following terms shall have the
meanings set forth below:
"Award" shall mean any Option, Stock Appreciation Right, Limited Right
or Other Stock-Based Award.
"Award Agreement" shall mean any notice of grant, written agreement,
contract or other instrument or document evidencing any Award, which may, but
need not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean, until otherwise determined by the Board, the
Corporate Personnel Committee of the Board.
"Company" shall mean McMoRan Exploration Co.
"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive the benefits
due the Participant under the Plan in the event of the Participant's death.
In the absence of an effective designation by the Participant, Designated
Beneficiary shall mean the Participant's estate.
"Eligible Individual" shall mean (i) any person providing services as
an officer of the Company or a Subsidiary, whether or not employed by such
entity, including any such person who is also a director of the Company, (ii)
any employee of the Company or a Subsidiary, including any director who is also
an employee of the Company or a Subsidiary, (iii) any officer or employee of an
entity with which the Company has contracted to receive executive, management or
legal services who provides services to the Company or a Subsidiary through such
arrangement, (iv) any consultant or adviser to the Company, a Subsidiary or to
an entity described in clause (iii) hereof who provides services to the Company
or a Subsidiary through such arrangement and (v) any person who has agreed in
writing to become a person described in clauses (i), (ii), (iii) or (iv) within
not more than 30 days following the date of grant of such person's first Award
under the Plan.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Incentive Stock Option" shall mean an option granted under Section 6
of the Plan that is intended to meet the requirements of Section 422 of the Code
or any successor provision thereto.
"Limited Right" shall mean any right granted under Section 8 of the
Plan.
"Nonqualified Stock Option" shall mean an option granted under Section
6 of the Plan that is not intended to be an Incentive Stock Option.
"Offer" shall mean any tender offer, exchange offer or series of
purchases or other acquisitions, or any combination of those transactions, as a
result of which any person, or any two or more persons acting as a group, and
all affiliates of such person or persons, shall beneficially own more than 40%
of all classes and series of the Company's stock outstanding, taken as a whole,
that has voting rights with respect to the election of directors of the Company
(not including any series of preferred stock of the Company that has the right
to elect directors only upon the failure of the Company to pay dividends).
"Offer Price" shall mean the highest price per Share paid in any Offer
that is in effect at any time during the period beginning on the ninetieth day
prior to the date on which a Limited Right is exercised and ending on and
including the date of exercise of such Limited Right. Any securities or property
that comprise all or a portion of the consideration paid for Shares in the Offer
shall be valued in determining the Offer Price at the higher of (i) the
valuation placed on such securities or property by the person or persons making
such Offer, or (ii) the valuation, if any, placed on such securities or property
by the Committee or the Board.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
"Other Stock-Based Award" shall mean any right or award granted under
Section 9 of the Plan.
"Participant" shall mean any Eligible Individual granted an Award under
the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
"SAR" shall mean any Stock Appreciation Right.
"SEC" shall mean the Securities and Exchange Commission, including the
staff thereof, or any successor thereto.
"Section 162(m)" shall mean Section 162(m) of the Code and all
regulations promulgated thereunder as in effect from time to time.
"Shares" shall mean the shares of Common Stock, par value $0.01 per
share, of the Company and such other securities of the Company or a Subsidiary
as the Committee may from time to time designate.
"Stock Appreciation Right" shall mean any right granted under Section 7
of the Plan.
"Subsidiary" shall mean (i) any corporation or other entity in which
the Company possesses directly or indirectly equity interests representing at
least 50% of the total ordinary voting power or at least 50% of the total value
of all classes of equity interests of such corporation or other entity and (ii)
any other entity in which the Company has a direct or indirect economic interest
that is designated as a Subsidiary by the Committee.
SECTION 3
(a) Administration. The Plan shall be administered by the Committee.
Subject to the terms of the Plan and applicable law, and in addition to other
express powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to an Eligible
Individual; (iii) determine the number of Shares to be covered by, or with
respect to which payments, rights or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, whole Shares, other whole securities, other
Awards, other property or other cash amounts payable by the Company upon the
exercise of that or other Awards, or canceled, forfeited or suspended and the
method or methods by which Awards may be settled, exercised, canceled, forfeited
or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property, and
other amounts payable by the Company with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (ix) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon all Persons, including the Company, any
Subsidiary, any Participant, any holder or beneficiary of any Award, any
stockholder of the Company and any Eligible Individual.
(b) Delegation. Subject to the terms of the Plan and applicable law,
the Committee may delegate to one or more officers of the Company the authority,
subject to such terms and limitations as the Committee shall determine, to grant
Awards to, or to cancel, modify or waive rights with respect to, or to alter,
discontinue, suspend, or terminate Awards held by, Eligible Individuals who are
not officers or directors of the Company for purposes of Section 16 of the
Exchange Act, or any successor section thereto, or who are otherwise not subject
to such Section.
SECTION 4
Eligibility. Any Eligible Individual shall be eligible to be granted an
Award.
SECTION 5
(a) Shares Available for Awards. Subject to adjustment as provided in
Section 5(b):
(i) Calculation of Number of Shares Available.
(A) The number of Shares with respect to which Awards
payable in Shares may be granted under the Plan shall be 775,000. Awards that by
their terms may be settled only in cash shall not be counted against the maximum
number of Shares provided herein.
(B) Grants of Stock Appreciation Rights, Limited
Rights and Other Stock-Based Awards not granted in tandem with Options and
payable only in cash may relate to no more than 775,000 Shares.
(C) To the extent any Shares covered by an Award are
not issued because the Award is forfeited or cancelled or the Award is settled
in cash, such Shares shall again be available for grant pursuant to new Awards
under the Plan.
(ii) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist of authorized and unissued Shares or
of treasury Shares, including Shares held by the Company or a Subsidiary and
Shares acquired in the open market or otherwise obtained by the Company or a
Subsidiary.
(iii) Individual Limit. Any provision of the Plan to the
contrary notwithstanding, no individual may receive in any year Awards under the
Plan, whether payable in cash or Shares, that relate to more than 230,000
Shares.
(b) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, Subsidiary
securities, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the Committee may,
in its sole discretion and in such manner as it may deem equitable, adjust any
or all of (i) the number and type of Shares (or other securities or property)
with respect to which Awards may be granted, (ii) the number and type of Shares
(or other securities or property) subject to outstanding Awards, and (iii) the
grant or exercise price with respect to any Award and, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding Award and, if
deemed appropriate, adjust outstanding Awards to provide the rights contemplated
by Section 9(b) hereof; provided, in each case, that with respect to Awards of
Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422(b)(1) of the
Code or any successor provision thereto and, with respect to all Awards under
the Plan, no such adjustment shall be authorized to the extent that such
authority would be inconsistent with the requirements for full deductibility
under Section 162(m); and provided further, that the number of Shares subject to
any Award denominated in Shares shall always be a whole number.
SECTION 6
(a) Stock Options. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Eligible Individuals to
whom Options shall be granted, the number of Shares to be covered by each
Option, the option price therefor and the conditions and limitations applicable
to the exercise of the Option. The Committee shall have the authority to grant
Incentive Stock Options, Nonqualified Stock Options or both. In the case of
Incentive Stock Options, the terms and conditions of such grants shall be
subject to and comply with such rules as may be required by Section 422 of the
Code, as from time to time amended, and any implementing regulations. Except in
the case of an Option granted in assumption of or substitution for an
outstanding award of a company acquired by the Company or with which the Company
combines, the exercise price of any Option granted under this Plan shall not be
less than 100% of the fair market value of the underlying Shares on the date of
grant.
(b) Exercise. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter, provided,
however, that in no event may any Option granted hereunder be exercisable after
the expiration of 10 years after the date of such grant. The Committee may
impose such conditions with respect to the exercise of Options, including
without limitation, any condition relating to the application of Federal or
state securities laws, as it may deem necessary or advisable.
(c) Payment. No Shares shall be delivered pursuant to any exercise of
an Option until payment in full of the option price therefor is received by the
Company. Such payment may be made in cash, or its equivalent, or, if and to the
extent permitted by the Committee, by applying cash amounts payable by the
Company upon the exercise of such Option or other Awards by the holder thereof
or by exchanging whole Shares owned by such holder (which are not the subject of
any pledge or other security interest), or by a combination of the foregoing,
provided that the combined value of all cash, cash equivalents, cash amounts so
payable by the Company upon exercises of Awards and the fair market value of any
such whole Shares so tendered to the Company, valued (in accordance with
procedures established by the Committee) as of the effective date of such
exercise, is at least equal to such option price.
SECTION 7
(a) Stock Appreciation Rights. Subject to the provisions of the Plan,
the Committee shall have sole and complete authority to determine the Eligible
Individuals to whom Stock Appreciation Rights shall be granted, the number of
Shares to be covered by each Award of Stock Appreciation Rights, the grant price
thereof and the conditions and limitations applicable to the exercise thereof.
Stock Appreciation Rights may be granted in tandem with another Award, in
addition to another Award, or freestanding and unrelated to any other Award.
Stock Appreciation Rights granted in tandem with or in addition to an Option or
other Award may be granted either at the same time as the Option or other Award
or at a later time. Stock Appreciation Rights shall not be exercisable after the
expiration of 10 years after the date of grant. Except in the case of a Stock
Appreciation Right granted in assumption of or substitution for an outstanding
award of a company acquired by the Company or with which the Company combines,
the grant price of any Stock Appreciation Right granted under this Plan shall
not be less than 100% of the fair market value of the Shares covered by such
Stock Appreciation Right on the date of grant or, in the case of a Stock
Appreciation Right granted in tandem with a then outstanding Option or other
Award, on the date of grant of such related Option or Award.
(b) A Stock Appreciation Right shall entitle the holder thereof to
receive upon exercise, for each Share to which the SAR relates, an amount equal
to the excess, if any, of the fair market value of a Share on the date of
exercise of the Stock Appreciation Right over the grant price. Any Stock
Appreciation Right shall be settled in cash, unless the Committee shall
determine at the time of grant of a Stock Appreciation Right that it shall or
may be settled in cash, Shares or a combination of cash and Shares.
SECTION 8
(a) Limited Rights. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Eligible
Individuals to whom Limited Rights shall be granted, the number of Shares to be
covered by each Award of Limited Rights, the grant price thereof and the
conditions and limitations applicable to the exercise thereof. Limited Rights
may be granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to any Award. Limited Rights granted in tandem with
or in addition to an Award may be granted either at the same time as the Award
or at a later time. Limited Rights shall not be exercisable after the expiration
of 10 years after the date of grant and shall only be exercisable during a
period determined at the time of grant by the Committee beginning not earlier
than one day and ending not more than ninety days after the expiration date of
an Offer. Except in the case of a Limited Right granted in assumption of or
substitution for an outstanding award of a company acquired by the Company or
with which the Company combines, the grant price of any Limited Right granted
under this Plan shall not be less than 100% of the fair market value of the
Shares covered by such Limited Right on the date of grant or, in the case of a
Limited Right granted in tandem with a then outstanding Option or other Award,
on the date of grant of such related Option or Award.
(b) A Limited Right shall entitle the holder thereof to receive upon
exercise, for each Share to which the Limited Right relates, an amount equal to
the excess, if any, of the Offer Price on the date of exercise of the Limited
Right over the grant price. Any Limited Right shall be settled in cash, unless
the Committee shall determine at the time of grant of a Limited Right that it
shall or may be settled in cash, Shares or a combination of cash and Shares.
SECTION 9
(a) Other Stock-Based Awards. The Committee is hereby authorized to
grant to Eligible Individuals an "Other Stock-Based Award", which shall consist
of an Award, the value of which is based in whole or in part on the value of
Shares, that is not an instrument or Award specified in Sections 6 through 8 of
this Plan. Other Stock-Based Awards may be awards of Shares or may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without limitation,
securities convertible or exchangeable into or exercisable for Shares), as
deemed by the Committee consistent with the purposes of the Plan. The Committee
shall determine the terms and conditions of any such Other Stock-Based Award and
may provide that such awards would be payable in whole or in part in cash.
Except in the case of an Other Stock-Based Award granted in assumption of or in
substitution for an outstanding award of a company acquired by the Company or
with which the Company combines, the price at which securities may be purchased
pursuant to any Other Stock-Based Award granted under this Plan, or the
provision, if any, of any such Award that is analogous to the purchase or
exercise price, shall not be less than 100% of the fair market value of the
securities to which such Award relates on the date of grant.
(b) Dividend Equivalents. In the sole and complete discretion of the
Committee, an Award, whether made as an Other Stock-Based Award under this
Section 9 or as an Award granted pursuant to Sections 6 through 8 hereof, may
provide the holder thereof with dividends or dividend equivalents, payable in
cash, Shares, Subsidiary securities, other securities or other property on a
current or deferred basis.
SECTION 10
(a) Amendments to the Plan. The Board may amend, suspend or terminate
the Plan or any portion thereof at any time, provided that no amendment shall be
made without stockholder approval if such approval is necessary to comply with
any tax or regulatory requirement, including for these purposes any approval
necessary to qualify Awards as "performance based" compensation under Section
162(m) or any successor provision if such qualification is deemed necessary or
advisable by the Committee. Notwithstanding anything to the contrary contained
herein, the Committee may amend the Plan in such manner as may be necessary for
the Plan to conform with local rules and regulations in any jurisdiction outside
the United States.
(b) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 5(b) hereof) affecting the Company, or the financial
statements of the Company or any Subsidiary, or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan.
(c) Cancellation. Any provision of this Plan or any Award Agreement to
the contrary notwithstanding, the Committee may cause any Award granted
hereunder to be canceled in consideration of a cash payment or alternative Award
made to the holder of such canceled Award equal in value to such canceled Award.
The determinations of value under this subparagraph shall be made by the
Committee in its sole discretion.
SECTION 11
(a) Award Agreements. Each Award hereunder shall be evidenced by a
writing delivered to the Participant that shall specify the terms and conditions
thereof and any rules applicable thereto, including but not limited to the
effect on such Award of the death, retirement or other termination of employment
of the Participant and the effect thereon, if any, of a change in control of the
Company.
(b) Withholding. (i) A Participant may be required to pay to the
Company, and the Company shall have the right to deduct from all amounts paid to
a Participant (whether under the Plan or otherwise), any taxes required by law
to be paid or withheld in respect of Awards hereunder to such Participant. The
Committee may provide for additional cash payments to holders of Awards to
defray or offset any tax arising from the grant, vesting, exercise or payment of
any Award.
(ii) At any time that a Participant is required to pay to the
Company an amount required to be withheld under the applicable tax laws in
connection with the issuance of shares of Common Stock under the Plan, the
Participant may, if permitted by the Committee, satisfy this obligation in whole
or in part by electing (the "Election") to have the Company withhold from the
issuance shares of Common Stock having a value equal to the amount required to
be withheld. The value of the shares withheld shall be based on the fair market
value of the Common Stock on the date that the amount of tax to be withheld
shall be determined in accordance with applicable tax laws (the "Tax Date").
(iii) Each Election must be made prior to the Tax Date. The
Committee may suspend or terminate the right to make Elections at any time.
(iv) A Participant may also satisfy his or her total tax
liability related to the Award by delivering Shares owned by the Participant.
The value of the Shares delivered shall be based on the fair market value of the
Shares on the Tax Date.
(c) Transferability. No Awards granted hereunder may be transferred,
pledged, assigned or otherwise encumbered by a Participant except: (i) by will;
(ii) by the laws of descent and distribution; (iii) pursuant to a domestic
relations order, as defined in the Code, if permitted by the Committee and so
provided in the Award Agreement or an amendment thereto; or (iv) if permitted by
the Committee and so provided in the Award Agreement or an amendment thereto,
Options and Limited Rights granted in tandem therewith may be transferred or
assigned (a) to Immediate Family Members, (b) to a partnership in which
Immediate Family Members, or entities in which Immediate Family Members are the
owners, members or beneficiaries, as appropriate, are the partners, (c) to a
limited liability company in which Immediate Family Members, or entities in
which Immediate Family Members are the owners, members or beneficiaries, as
appropriate, are the members, or (d) to a trust for the benefit of Immediate
Family Members; provided, however, that no more than a de minimus beneficial
interest in a partnership, limited liability company or trust described in (b),
(c) or (d) above may be owned by a person who is not an Immediate Family Member
or by an entity that is not beneficially owned solely by Immediate Family
Members. "Immediate Family Members" shall be defined as the spouse and natural
or adopted children or grandchildren of the Participant and their spouses. To
the extent that an Incentive Stock Option is permitted to be transferred during
the lifetime of the Participant, it shall be treated thereafter as a
Nonqualified Stock Option. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of Awards, or levy of attachment or similar
process upon Awards not specifically permitted herein, shall be null and void
and without effect. The designation of a Designated Beneficiary shall not be a
violation of this Section 11(c).
(d) Share Certificates. All certificates for Shares or other securities
delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the Plan or the rules, regulations, and other requirements
of the SEC, any stock exchange upon which such Shares or other securities are
then listed, and any applicable federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(e) No Limit on Other Compensation Arrangements. Nothing contained in
the Plan shall prevent the Company from adopting or continuing in effect other
compensation arrangements, which may, but need not, provide for the grant of
options, stock appreciation rights and other types of Awards provided for
hereunder (subject to stockholder approval of any such arrangement if approval
is required), and such arrangements may be either generally applicable or
applicable only in specific cases.
(f) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of or
as a consultant or adviser to the Company or any Subsidiary or in the employ of
or as a consultant or adviser to any other entity providing services to the
Company. The Company or any Subsidiary or any such entity may at any time
dismiss a Participant from employment, or terminate any arrangement pursuant to
which the Participant provides services to the Company or a Subsidiary, free
from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement. No Eligible Individual or other
person shall have any claim to be granted any Award, and there is no obligation
for uniformity of treatment of Eligible Individuals, Participants or holders or
beneficiaries of Awards.
(g) Governing Law. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware.
(h) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.
(i) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company pursuant to an Award, such right shall be no greater than the right
of any unsecured general creditor of the Company.
(j) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities or other property shall be paid or transferred in
lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(k) Headings. Headings are given to the subsections of the Plan solely
as a convenience to facilitate reference. Such headings shall not be deemed in
any way material or relevant to the construction or interpretation of the Plan
or any provision thereof.
SECTION 12
Term of the Plan. Subject to Section 10(a), the Plan shall remain in
effect until all Awards permitted to be granted under the Plan have either been
satisfied, expired or cancelled under the terms of the Plan and any restrictions
imposed on Shares in connection with their issuance under the Plan have lapsed.
PART II
Information Not Required in the Prospectus
Item 20. Indemnification of Directors and Officers
Section 145 of the DGCL provides that a corporation may indemnify its
directors, officers, employees, and agents, and may purchase and maintain
liability insurance on behalf of directors, officers, employees, and agents.
In accordance with the DGCL, the McMoRan Certificate of Incorporation
(the "McMoRan Charter") contains provisions eliminating the personal liability
of the directors to McMoRan and its stockholders for monetary damages for
breaches of their fiduciary duties as directors to the fullest extent permitted
by Delaware law. By virtue of these provisions, under current Delaware law, a
director of McMoRan will not be personally liable for monetary damages for a
breach of his or her fiduciary duty except for liability for (a) a breach of his
or her duty of loyalty to McMoRan or its stockholders, (b) acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (c) dividends or stock repurchases or redemptions that are unlawful under
Delaware law and (d) any transaction from which he or she receives an improper
personal benefit. In addition, the McMoRan Charter provides that if Delaware law
is amended to authorize the further elimination or limitation of the liability
of a director, then the liability of the directors shall be eliminated or
limited to the fullest extent permitted by Delaware law, as amended. These
provisions pertain only to breaches of duty by directors as directors and not in
any other corporate capacity, such as officers, and limit liability only for
breaches of fiduciary duties under Delaware corporate law and not for violations
of other laws such as the federal securities laws. McMoRan's By-laws require
McMoRan to indemnify its officers and directors against expenses and costs,
judgments, settlements and fines incurred in the defense of any claim, including
any claim brought by or in the right of McMoRan, to which they were made parties
by reason of being or having been officers or directors.
Section 6.12 of the Merger Agreement provides that all rights to
indemnification and exculpation existing in favor of a director, officer,
employee or agent of MOXY or FSC, or any of their respective subsidiaries
(including persons serving as director, officer, employee or agent of another
entity at the request of MOXY, FSC, or any of their respective subsidiaries)
provided in MOXY's or FSC's charter or bylaws, as of the date of the Merger
Agreement and relating to actions or events up to the Effective Time, shall
survive the mergers and remain in full force and effect; provided, however, that
any determination required to be made as to whether a director's, officer's,
employee's or agent's behavior complies with standards set forth under Delaware
Law, MOXY's or FSC's charter or bylaws, or any such agreement shall be made
independent legal counsel selected by the director, officer, employee or agent
and reasonably acceptable to McMoRan, and, provided further, that nothing in the
provisions regarding indemnification of the Merger Agreement shall impair any
rights or obligations of any current or former director or officer of MOXY or
FSC. The Merger Agreement provides that for six years after the Effective Date,
McMoRan shall maintain (i) the provisions of the MOXY and FSC charters and
bylaws regarding indemnification of officers and directors in effect at the time
of the Merger Agreement, and (ii) officers' and directors' liability insurance
and fiduciary liability insurance for actions or events prior to the Effective
Date as in effect prior to the Effective Date, or a policy no less favorable to
those insured; provided, that McMoRan is not obligated to pay aggregate annual
premiums for such insurance in excess of 200 percent of the annual rate paid at
the time of the Merger Agreement, but shall, if the annual premiums of such
insurance coverage exceed such amount, obtain a policy with the greatest
coverage available for a cost not exceeding such amount. McMoRan is also
required by the Merger Agreement to pay all expenses that may be incurred by any
director, officer, employee or agent in successfully enforcing the obligations
under the indemnity section of the Merger Agreement.
Item 21. Material to be Filed as Exhibits
2.1 Agreement and Plan of Mergers dated as of August 1, 1998
(Included as Annex A).
3.1* Form of Certificate of Incorporation of McMoRan.
3.2* Form of By-laws of McMoRan.
4.1* Form of Certificate of McMoRan Common Stock.
4.2* Form of Rights Agreement.
5.1** Form of Opinion of Jones, Walker, Waechter, Poitevent, Carrere
& Denegre, LLP, counsel to McMoRan.
8.1** Form of Opinion of Jones, Walker, Waechter, Poitevent, Carrere
& Denegre, LLP, counsel to MOXY.
8.2** Form of Opinion of Miller & Chevalier, Chartered, counsel to
FSC.
10.1* McMoRan Adjusted Stock Award Plan.
10.2* McMoRan 1998 Stock Option Plan for Non-Employee Directors.
10.3 McMoRan 1998 Stock Option Plan (Included as Annex D).
10.4 Master Agreement dated July 14, 1997 between MOXY and
Freeport-McMoRan Resource Partners, Limited Partnership, now
named Phosphate Resource Partners Limited Partnership ("PLP")
(Incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed by MOXY dated July 14, 1997 (the
"MOXY July 14, 1997 8-K")).
10.5 Purchase and Sale Agreement dated July 11, 1997 by and among
PLP, MCNIC Oil & Gas Properties, Inc., MCN Investment
Corporation and MOXY (Incorporated by reference to Exhibit
10.4 of the MOXY July 14, 1997 8-K).
10.6 Agreement for Purchase and Sale dated as of August 1, 1997
between FM Properties Operating Co. and MOXY (Incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
filed by MOXY dated as of September 2, 1997).
10.7 Participation Agreement between MOXY and PLP dated as of April
1, 1997 (Incorporated by reference to Exhibit 10.4 to MOXY's
Annual Report on Form 10-K for the fiscal year ended December
31, 1997 (the "MOXY 1997 10-K")).
10.8 Amendment to Participation Agreement between MOXY and PLP
dated as of December 15, 1997 (Incorporated by reference to
Exhibit 10.5 to the MOXY 1997 10-K).
10.9 Participation Agreement between MOXY and Gerald J. Ford dated
as of December 15, 1997 (Incorporated by reference to Exhibit
10.6 to the MOXY 1997 10-K).
10.10 Amended and Restated Services Agreement, dated as of December
23, 1997, between FM Services Company and MOXY (Incorporated
by reference to Exhibit 10.7 to the MOXY 1997 10-K).
10.11 Exploration Agreement dated as of June 13, 1995, between MOXY
and Phillips Petroleum Company (Incorporated by reference to
Exhibit 10.1 to MOXY's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1995).
10.12 Exploration Agreement effective July 1, 1996, between MOXY and
PLP (Incorporated by reference to Exhibit 10.1 to MOXY's
Quarterly Report on Form 10-Q for the quarter ending June 30,
1996).
10.13 MOXY Adjusted Stock Award Plan, as amended (Incorporated by
reference to Exhibit 10.10 to the MOXY 1997 10-K).
10.14 MOXY 1994 Stock Option Plan, as amended (Incorporated by
reference to Exhibit 10.11 to the MOXY 1997 10-K).
10.15 MOXY 1994 Stock Option Plan for Non-Employee Directors, as
amended (Incorporated by reference to Exhibit 10.12 to the
MOXY 1997 10-K).
10.16 MOXY Performance Incentive Awards Program, as amended
(Incorporated by reference to Exhibit 10.5 to MOXY's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
10.17 Financial Counseling and Tax Return Preparation and
Certification Program of MOXY (Incorporated by reference to
Exhibit 10.6 to MOXY's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.18 Employee Benefits Agreement by and between Freeport-McMoRan
Inc. ("FTX") and FSC. (Incorporated by reference to Exhibit
10.1 to FSC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (the "FSC 1997 10-K")).
10.19 Asset Sale Agreement for Main Pass Block 299 between
Freeport-McMoRan Resource Partners, Limited Partnership
("FRP") and Chevron USA, Inc. dated as of May 2, 1990.
(Incorporated by reference to Exhibit 10.2 to FSC's
Registration Statement on Form S-1 (Registration No.
333-40375) filed with the SEC on November 17, 1997 (the "FSC
S-1")).
10.20 Main Pass 299 Sulphur and Salt Lease, effective May 1, 1988.
(Incorporated by reference to Exhibit 10.3 to the FSC S-1).
10.21 Joint Operating Agreement by and between FRP, IMC-Fertilizer,
Inc. and Felmont Oil Corporation, dated as of June 5, 1990.
(Incorporated by reference to Exhibit 10.4 to the FSC S-1).
10.22 Joint Operating Agreement by and between FRP, IMC-Fertilizer,
Inc. and Felmont Oil Corporation, dated as of May 1, 1988.
(Incorporated by reference to Exhibit 10.5 to the FSC S-1).
10.23 Agreement to Coordinate Operating Agreements by and between
FRP, IMC-Fertilizer and Felmont Oil Corporation, dated as of
May 1, 1988. (Incorporated by reference to Exhibit 10.6 to the
FSC S-1).
10.24 Asset Purchase Agreement between FRP and Pennzoil Company
dated as of October 22, 1994 (the "Asset Purchase Agreement").
(Incorporated by reference to Exhibit 10.7 to the FSC S-1).
10.25 Amendment No. 1 to the Asset Purchase Agreement dated as of
January 3, 1995. (Incorporated by reference to Exhibit 10.8 to
the FSC S-1).
10.26 Agreement for Sulphur Supply, as amended, dated as of July 1,
1993 among FRP, IMC Fertilizer and IMC-Agrico Company (the
"Sulphur Supply Agreement"). (Incorporated by reference to
Exhibit 10.9 to the FSC S-1)
10.27 Side letter with IGL regarding the Sulphur Supply Agreement.
(Incorporated by reference to Exhibit 10.10 to the FSC S-1).
10.28 Processing and Marketing Agreement between the FSC (a division
of FRP) and Felmont Oil Corporation dated as of June 19, 1990
(the "Processing Agreement"). (Incorporated by reference to
Exhibit 10.11 to the FSC S-1).
10.29 Amendment Number 1 to the Processing Agreement. (Incorporated
by reference to Exhibit 10.12 to the FSC S-1).
10.30 Amendment Number 2 to the Processing Agreement. (Incorporated
by reference to Exhibit 10.13 to the FSC S-1).
10.31 Services Agreement dated as of December 23, 1997 between FSC
and FMS. (Incorporated by reference to Exhibit 10.14 to the
FSC 1997 10-K).
10.32 Credit Agreement dated as of December 12, 1997 among FSC, as
borrower, the financial institutions party thereto, the Chase
Manhattan Bank, as administrative agent and documentary agent,
and Hibernia National Bank, as co-agent. (Incorporated by
reference to Exhibit 10.15 to the FSC 1997 10-K).
10.33 FSC 1997 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit 10.14 to the FSC S-1).
10.34 FSC Adjusted Stock Award Plan. (Incorporated by reference to
Exhibit 10.15 to the FSC S-1).
10.35 FSC 1997 Stock Option Plan. (Incorporated by reference to
Exhibit 10.16 to the FSC S-1).
10.36 Letter Agreement dated December 22, 1997 between FMS and Rene
L. Latiolais. (Incorporated by reference to Exhibit 10.19 to
the FSC 1997 10-K).
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Arthur Andersen LLP.
23.3* Consent of Ryder Scott.
23.4* Consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, LLP, counsel to McMoRan.
23.5 Consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, LLP, counsel to MOXY. (Included in Exhibit 23.4)
23.6* Consent of Miller & Chevalier, Chartered, counsel to FSC.
23.7* Consent of Bear Stearns.
23.8* Consent of Lehman Brothers.
23.9** Consent of James R. Moffett.
23.10** Consent of Rene L. Latiolais.
23.11** Consent of J. Terrell Brown.
23.12** Consent of Thomas D. Clark.
23.13** Consent of Robert A. Day.
23.14** Consent of Gerald J. Ford.
23.15** Consent of B.M. Rankin, Jr.
23.16* Consent of Arthur Andersen LLP.
24.1** Power of Attorney.
99.1** Form of Proxy Card for MOXY.
99.2** Form of Proxy Card for FSC.
- ------------------------------------
* Filed herewith.
** Previously filed.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) That prior to the reoffering of the securities
registered hereunder through use of a prospectus
which is part of this Registration Statement, by any
person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for
by the applicable registration form with respect to
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to
paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to
the Registration Statement and will not be used
until such amendment is effective, and that, for
purposes of determining any liability under the
Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement
relating to the securities offered therein, and the
offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers, and controlling persons of the
Registrant or otherwise, the Registrant has been
advised that in the opinion of the Securities and
Exchange Commission such indemnification is against
public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other
than the payment by the Registrant of expenses
incurred or paid by a director, officer or
controlling person of the Registrant in the
successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities
being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the companies being merged involved therein, that was not the subject
of and included in the registration statement when it became
effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in New
Orleans, Louisiana, on October 6, 1998.
MCMORAN EXPLORATION CO.
(Registrant)
By: /s/ Richard C. Adkerson
-----------------------------------------
Name: Richard C. Adkerson
Title: President, Chief Executive
Officer, and Vice Chairman of
the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the date above indicated.
Name Title
/s/ Richard C. Adkerson
- -----------------------------------------
Richard C. Adkerson President, Chief Executive
Officer and Vice Chairman of the
Board of Directors
/s/ Robert M. Wohleber
- -----------------------------------------
Robert M. Wohleber Executive Vice President and Chief
Financial Officer
McMoRan Exploration Company Exhibit Index
Exhibit
No. Description Page
--- ----------- ----
2.1 Agreement and Plan of Mergers dated as of August 1, 1998
(Included as Annex A).
3.1* Form of Certificate of Incorporation of McMoRan.
3.2* Form of By-laws of McMoRan.
4.1* Form of Certificate of McMoRan Common Stock.
4.2* Form of Rights Agreement.
5.1** Form of Opinion of Jones, Walker, Waechter, Poitevent, Carrere
& Denegre, LLP, counsel to McMoRan.
8.1** Form of Opinion of Jones, Walker, Waechter, Poitevent, Carrere
& Denegre, LLP, counsel to MOXY.
8.2** Form of Opinion of Miller & Chevalier, Chartered, counsel to
FSC.
10.1* McMoRan Adjusted Stock Award Plan.
10.2* McMoRan 1998 Stock Option Plan for Non-Employee Directors.
10.3 McMoRan 1998 Stock Option Plan (Included as Annex D).
10.4 Master Agreement dated July 14, 1997 between MOXY and
Freeport-McMoRan Resource Partners, Limited Partnership, now
named Phosphate Resource Partners Limited Partnership ("PLP")
(Incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed by MOXY dated July 14, 1997 (the
"MOXY July 14, 1997 8-K")).
10.5 Purchase and Sale Agreement dated July 11, 1997 by and among
PLP, MCNIC Oil & Gas Properties, Inc., MCN Investment
Corporation and MOXY (Incorporated by reference to Exhibit
10.4 of the MOXY July 14, 1997 8-K).
10.6 Agreement for Purchase and Sale dated as of August 1, 1997
between FM Properties Operating Co. and MOXY (Incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
filed by MOXY dated as of September 2, 1997).
10.7 Participation Agreement between MOXY and PLP dated as of April
1, 1997 (Incorporated by reference to Exhibit 10.4 to MOXY's
Annual Report on Form 10-K for the fiscal year ended December
31, 1997 (the "MOXY 1997 10-K")).
10.8 Amendment to Participation Agreement between MOXY and PLP
dated as of December 15, 1997 (Incorporated by reference to
Exhibit 10.5 to the MOXY 1997 10-K).
10.9 Participation Agreement between MOXY and Gerald J. Ford dated
as of December 15, 1997 (Incorporated by reference to Exhibit
10.6 to the MOXY 1997 10-K).
10.10 Amended and Restated Services Agreement, dated as of December
23, 1997, between FM Services Company and MOXY (Incorporated
by reference to Exhibit 10.7 to the MOXY 1997 10-K).
10.11 Exploration Agreement dated as of June 13, 1995, between MOXY
and Phillips Petroleum Company (Incorporated by reference to
Exhibit 10.1 to MOXY's Quarterly Report on Form 10-Q for the
quarter ending June 30, 1995).
10.12 Exploration Agreement effective July 1, 1996, between MOXY and
PLP (Incorporated by reference to Exhibit 10.1 to MOXY's
Quarterly Report on Form 10-Q for the quarter ending June 30,
1996).
10.13 MOXY Adjusted Stock Award Plan, as amended (Incorporated by
reference to Exhibit 10.10 to the MOXY 1997 10-K).
10.14 MOXY 1994 Stock Option Plan, as amended (Incorporated by
reference to Exhibit 10.11 to the MOXY 1997 10-K).
10.15 MOXY 1994 Stock Option Plan for Non-Employee Directors, as
amended (Incorporated by reference to Exhibit 10.12 to the
MOXY 1997 10-K).
10.16 MOXY Performance Incentive Awards Program, as amended
(Incorporated by reference to Exhibit 10.5 to MOXY's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
10.17 Financial Counseling and Tax Return Preparation and
Certification Program of MOXY ( Incorporated by reference to
Exhibit 10.6 to MOXY's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.18 Employee Benefits Agreement by and between Freeport-McMoRan
Inc. ("FTX") and FSC. (Incorporated by reference to Exhibit
10.1 to FSC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (the "FSC 1997 10-K")).
10.19 Asset Sale Agreement for Main Pass Block 299 between
Freeport-McMoRan Resource Partners, Limited Partnership
("FRP") and Chevron USA, Inc. dated as of May 2, 1990.
(Incorporated by reference to Exhibit 10.2 to FSC's
Registration Statement on Form S-1 (Registration No.
333-40375) filed with the SEC on November 17, 1997 (the "FSC
S-1")).
10.20 Main Pass 299 Sulphur and Salt Lease, effective May 1, 1988.
(Incorporated by reference to Exhibit 10.3 to the FSC S-1).
10.21 Joint Operating Agreement by and between FRP, IMC-Fertilizer,
Inc. and Felmont Oil Corporation, dated as of June 5, 1990.
(Incorporated by reference to Exhibit 10.4 to the FSC S-1).
10.22 Joint Operating Agreement by and between FRP, IMC-Fertilizer,
Inc. and Felmont Oil Corporation, dated as of May 1, 1988.
(Incorporated by reference to Exhibit 10.5 to the FSC S-1).
10.23 Agreement to Coordinate Operating Agreements by and between
FRP, IMC-Fertilizer and Felmont Oil Corporation, dated as of
May 1, 1988. (Incorporated by reference to Exhibit 10.6 to the
FSC S-1).
10.24 Asset Purchase Agreement between FRP and Pennzoil Company
dated as of October 22, 1994 (the "Asset Purchase Agreement").
(Incorporated by reference to Exhibit 10.7 to the FSC S-1).
10.25 Amendment No. 1 to the Asset Purchase Agreement dated as of
January 3, 1995. (Incorporated by reference to Exhibit 10.8 to
the FSC S-1).
10.26 Agreement for Sulphur Supply, as amended, dated as of July 1,
1993 among FRP, IMC Fertilizer and IMC-Agrico Company (the
"Sulphur Supply Agreement"). (Incorporated by reference to
Exhibit 10.9 to the FSC S-1).
10.27 Side letter with IGL regarding the Sulphur Supply Agreement.
(Incorporated by reference to Exhibit 10.10 to the FSC S-1).
10.28 Processing and Marketing Agreement between the FSC (a division
of FRP) and Felmont Oil Corporation dated as of June 19, 1990
(the "Processing Agreement"). (Incorporated by reference to
Exhibit 10.11 to the FSC S-1).
10.29 Amendment Number 1 to the Processing Agreement. (Incorporated
by reference to Exhibit 10.12 to the FSC S-1).
10.30 Amendment Number 2 to the Processing Agreement. (Incorporated
by reference to Exhibit 10.13 to the FSC S-1).
10.31 Services Agreement dated as of December 23, 1997 between FSC
and FMS. (Incorporated by reference to Exhibit 10.14 to the
FSC 1997 10-K).
10.32 Credit Agreement dated as of December 12, 1997 among FSC, as
borrower, the financial institutions party thereto, the Chase
Manhattan Bank, as administrative agent and documentary agent,
and Hibernia National Bank, as co-agent. (Incorporated by
reference to Exhibit 10.15 to the FSC 1997 10-K).
10.33 FSC 1997 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit 10.14 to the FSC S-1).
10.34 FSC Adjusted Stock Award Plan. (Incorporated by reference to
Exhibit 10.15 to the FSC S-1).
10.35 FSC 1997 Stock Option Plan. (Incorporated by reference to
Exhibit 10.16 to the FSC S-1).
10.36 Letter Agreement dated December 22, 1997 between FMS and Rene
L. Latiolais. (Incorporated by reference to Exhibit 10.19 to
the FSC 1997 10-K).
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of Arthur Andersen LLP.
23.3* Consent of Ryder Scott.
23.4* Consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, LLP, counsel to McMoRan.
23.5 Consent of Jones, Walker, Waechter, Poitevent, Carrere &
Denegre, LLP, counsel to MOXY. (Included in Exhibit 23.4)
23.6* Consent of Miller & Chevalier, Chartered, counsel to FSC.
23.7* Consent of Bear Stearns.
23.8* Consent of Lehman Brothers.
23.9** Consent of James R. Moffett.
23.10** Consent of Rene L. Latiolais.
23.11** Consent of J. Terrell Brown.
23.12** Consent of Thomas D. Clark.
23.13** Consent of Robert A. Day.
23.14** Consent of Gerald J. Ford.
23.15** Consent of B.M. Rankin, Jr.
23.16* Consent of Arthur Andersen LLP.
24.1** Power of Attorney).
99.1** Form of Proxy Card for MOXY.
99.2** Form of Proxy Card for FSC.
- ------------------------------------
* Filed herewith.
** Previously filed.
EXHIBIT 3.1
Form of
Certificate of Incorporation
of
McMoRan Exploration Co.
ARTICLE I
Name
The name of this corporation is McMoRan Exploration Co. (the
"Corporation").
ARTICLE II
Registered Office and Registered Agent
The address of the Corporation's registered office in the State of
Delaware and its registered agent at such address is:
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
County of New Castle
ARTICLE III
Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law (the "DGCL") .
ARTICLE IV
Capital
1. Authorized Stock. The Corporation shall be authorized to issue an
aggregate of 200,000,000 shares of capital stock, of which 150,000,000 shares
shall be Common Stock, $.01 par value per share (the "Common Stock"), and
50,000,000 shares shall be Preferred Stock, $.01 par value per share (the
"Preferred Stock").
2. Preferred Stock. Preferred Stock may be issued from time to time in
one or more series. All shares of any one series of Preferred Stock shall be
identical except as to the dates of issue and the dates from which dividends on
shares of the series issued on different dates will cumulate if cumulative.
(a) Authority is hereby expressly granted to the Board of
Directors to authorize the issuance of one or more series of Preferred
Stock, and to fix by Certificate of Designation providing for the
issuance of each such series the voting powers, designations,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions of such series,
to the full extent now or hereafter permitted by law, including without
limitation the following:
(1) the number of shares of such series, which may
subsequently be increased, except as otherwise provided by the
resolution or resolutions of the Board of Directors providing
for the issuance of such series, or decreased, to a number not
less than the number of shares of such series then
outstanding, by resolution or resolutions of the Board of
Directors, and the distinctive designation thereof;
(2) the dividend rights of such series, the
preferences, if any, over any other class or series of stock,
or of any other class or series of stock over such series, as
to dividends, the extent, if any, to which shares of such
series will be entitled to participate in dividends with
shares of any other series or class of stock, whether
dividends on shares of such series will be fully, partially or
conditionally cumulative, or a combination thereof, and any
limitations, restrictions or conditions on the payment of such
dividends;
(3) the rights of such series, and the preferences,
if any, over any other class or series of stock, or of any
other class or series of stock over such series, in the event
of any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation and the extent, if any, to which
shares of any such series will be entitled to participate in
such event with any other series or class of stock;
(4) the time or times during which, the price or
prices at which, and the terms and conditions on which, the
shares of such series may be redeemed;
(5) the terms of any purchase, retirement or sinking
funds that may be provided for the shares of such series; and
(6) the terms and conditions, if any, upon which the
shares of such series will be convertible into or exchangeable
for shares of any other series, class or classes, or any other
securities.
(b) The shares of Preferred Stock shall have no voting power
or voting rights with respect to any matter whatsoever, except as may
be required otherwise by law or as may be provided otherwise in the
Certificate of Designation creating the series of Preferred Stock of
which such shares are a part.
(c) No holders of any series of Preferred Stock will be
entitled to receive any dividends thereon other than those specifically
provided for by the Certificate of Designation providing for the
issuance of such series of Preferred Stock, nor will any accumulated
dividends on Preferred Stock bear any interest.
(d) In the event of any liquidation, dissolution or winding-up
of the Corporation, whether voluntary or involuntary, the holders of
Preferred Stock of each series will be entitled to receive only such
amount or amounts as will have been fixed by the Certificate of
Designation for the issuance of such series.
ARTICLE V
Stockholder Action
Action shall be taken by the stockholders only at an annual or special
meeting of stockholders and may not be effected by any written consent of such
holders.
ARTICLE VI
Board of Directors
1. Powers. All of the powers of the Corporation are hereby conferred
upon the Board of Directors of the Corporation, insofar as such powers may be
lawfully vested by this Certificate of Incorporation in the Board of Directors.
In furtherance and not in limitation of those powers, the Board of Directors
shall have the power to make, adopt, alter, amend and repeal from time to time
the Corporation's By-laws, subject to the provisions of Article IX, section 2.
2. Number of Directors. Subject to the restriction that the number of
directors shall not be less than the number required by the DGCL, the number of
directors may be fixed from time to time pursuant to the Corporation's By-laws;
provided, however, that the number of directors shall not be reduced so as to
shorten the term of any director at the time in office.
3. Classification. The members of the Board of Directors, other than
those who may be elected by the holders of any one or more series of Preferred
Stock voting separately, shall be classified, with respect to the term during
which they shall hold office, into three classes, designated Class I, II and
III, as nearly equal in number as possible. Any increase or decrease in the
number of directors shall be apportioned by the Board of Directors so that all
classes of directors shall be as nearly equal in number as possible. At each
annual meeting of stockholders, directors chosen to succeed those whose terms
then expire shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors are duly elected and qualified.
4. Vacancies. Subject to any requirements of law and the rights of any
one or more series of Preferred Stock, and except as provided in Article VI,
section 6, any vacancy on the Board of Directors (including any vacancy
resulting from an increase in the authorized number of directors or from a
failure of the stockholders to elect the full number of authorized directors)
may, notwithstanding any resulting absence of a quorum of directors, be filled
only by the Board of Directors, acting by vote of both (a) a majority of the
directors then in office and (b) a majority of all the Continuing Directors,
voting as a separate group, and any director so appointed shall serve until the
next stockholders' meeting held for the election of directors of the class to
which such director shall have been appointed and until his successor is duly
elected and qualified.
5. Removal. Subject to Article VI, section 6, and notwithstanding any
other provisions of this Certificate of Incorporation or the Corporation's
By-laws, any director or the entire Board of Directors may be removed at any
time, but only for cause involving fraud or a violation of the duty of loyalty
as determined by a final judgment of a court of competent jurisdiction, and only
by the affirmative vote of holders of not less than 80% of the Voting Stock,
voting together as a single class, at a stockholders' meeting called for such
purpose. At the same meeting in which the stockholders remove one or more
directors, the stockholders may elect one or more successors for the unexpired
term or terms of the director or directors removed. Except as set forth in this
Article VI, section 5, directors shall not be subject to removal.
6. Directors Elected by Preferred Stockholders. Notwithstanding
anything in this Certificate of Incorporation to the contrary, whenever the
holders of any one or more series of Preferred Stock shall have the right,
voting separately as a class, to elect one or more directors of the Corporation,
the provisions of the Certificate of Designations fixing the rights and
preferences of such Preferred Stock shall govern with respect to the nomination,
election, term, removal, vacancies or other related matters with respect to such
directors.
ARTICLE VII
Certain Business Combinations
1. Supermajority Vote. In addition to any affirmative vote required by
law or this Certificate of Incorporation (notwithstanding the fact that a lesser
percentage may be specified by law or this Certificate of Incorporation) and
except as otherwise expressly provided in Article VII, section 2:
(a) any merger, consolidation or share exchange of the
Corporation or any Subsidiary with an Interested Stockholder or with
any other corporation, whether or not itself an Interested Stockholder,
which is, or after such merger, consolidation or share exchange would
be, an Affiliate or Associate of an Interested Stockholder;
(b) any sale, lease, transfer, exchange, mortgage, pledge,
loan, advance or other similar disposition (in one or more series of
transactions), with or for the direct or indirect benefit of any
Interested Stockholder or any Affiliate or Associate thereof, of any
assets of the Corporation or any Subsidiary having, measured at the
time the transaction or transactions are approved by the Board of
Directors, an aggregate book value or Market Value as of the end of the
Corporation's most recently ended fiscal quarter of 5% or more of the
lesser of (i) the total Market Value of the outstanding stock of the
Corporation or (ii) the Corporation's net worth as of the end of its
most recently ended fiscal quarter;
(c) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation or any Subsidiary;
(d) the issuance or transfer by the Corporation or any
Subsidiary, in one transaction or in a series of transactions in any
twelve-month period, of any Equity Securities of the Corporation or any
Subsidiary that have an aggregate Market Value of $1 million or more to
any Interested Stockholder or any Affiliate or Associate thereof,
except pursuant to the exercise of warrants or rights to purchase
securities offered pro rata to all holders of the Corporation's Voting
Stock or by any other method affording substantially proportionate
treatment to the holders of Voting Stock;
(e) any reclassification or recapitalization of securities of
the Corporation, including any reverse stock split, any merger,
consolidation or share exchange of the Corporation with any Subsidiary,
or any other transaction (whether or not involving an Interested
Stockholder) that has the effect, directly or indirectly, in one
transaction or a series of transactions, of increasing by 5% or more
the voting power (regardless of when exercisable) or the proportionate
amount of the outstanding shares of any class or series of Equity
Securities of the Corporation or any Subsidiary directly or indirectly
Beneficially Owned by any Interested Stockholder or any Affiliate or
Associate thereof;
(f) any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation or any Subsidiary to an Interested
Stockholder or any Affiliate or Associate thereof, except
proportionately as a stockholder; or
(g) any agreement, contract or other arrangement providing
directly or indirectl for any of the foregoing;
shall require (i) the approval by a majority of both the directors then in
office and a majority of the Continuing Directors, voting as a separate group,
and (ii) the affirmative vote of both (A) holders of not less than 80% of the
Voting Stock, voting together as a single class, and (B) holders of not less
than 75% of the Voting Stock (other than Voting Stock Beneficially Owned by the
Interested Stockholder who is, or whose Affiliate or Associate is, a party to
the proposed Business Combination) voting as a separate class. In addition, a
proxy or information statement describing the proposed Business Combination and
complying with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder shall be mailed to all stockholders of the
Corporation at least 30 days prior to the consummation of such Business
Combination (regardless of whether such proxy or information statement is
required pursuant to such act).
2. Exceptions to Supermajority Vote Requirements. If all conditions
specified in either of paragraphs (a) or (b) below are met, the provisions of
Article VII, section 1, shall not be applicable to any Business Combination, and
such Business Combination shall require only such vote, if any, as may be
required by any other provisions of this Certificate of Incorporation or the
Corporation's By-laws, as well as such vote, if any, of the holders of any class
or series of stock of the Corporation as may be required by law, and shall
further require only the delivery of such proxy or information statements, if
any, as may be required by law:
(a) The Business Combination shall have been approved prior to
the time such Interested Stockholder became an Interested Stockholder
by a majority of the directors then in office and a majority of the
Continuing Directors, voting as a separate group; or
(b) All of the following five conditions have been met:
(1) The aggregate amount of the cash and the Market
Value as of the Valuation Date of consideration other than
cash to be received per share by holders of Common Stock in
such Business Combination is at least equal to the highest of
the following:
(A) the highest per share price, including
any brokerage commissions, transfer taxes and
soliciting dealer's fees, paid by the Interested
Stockholder for any shares of Common Stock acquired
by it within the two-year period immediately prior to
the Announcement Date or in the transaction in which
it became an Interested Stockholder, whichever is
higher;
(B) the Market Value per share of Common
Stock on the Announcement Date or on the
Determination Date, whichever is higher; or
(C) the price per share equal to the Market
Value per share of Common Stock determined pursuant
to clause (B) immediately preceding, multiplied by a
fraction, the numerator of which is the highest per
share price, including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by
the Interested Stockholder for any shares of Common
Stock acquired by it within the two-year period
immediately prior to the Announcement Date, and the
denominator of which is the Market Value per share of
Common Stock on the first date in such two-year
period on which the Interested Stockholder acquired
any shares of Common Stock.
(2) The aggregate amount of the cash and the Market
Value as of the Valuation Date of consideration other than
cash to be received per share by holders of shares of any
class or series of outstanding stock other than Common Stock
is at least equal to the highest of the following, whether or
not the Interested Stockholder has previously acquired any
shares of any such class or series of stock:
(A) the highest per share price, including
any brokerage commissions, transfer taxes and
soliciting dealers' fees, paid by the Interested
Stockholder for any shares of such class or series of
stock acquired by it within the two-year period
immediately prior to the Announcement Date or in the
transaction in which it became an Interested
Stockholder, whichever is higher;
(B) the highest preferential amount per
share to which the holders of shares of such class or
series of stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
(C) the Market Value per share of such class
or series of stock on the Announcement Date or on the
Determination Date, whichever is higher; or
(D) the price per share equal to the Market
Value per share of such class or series of stock,
determined pursuant to clause (C) immediately
preceding, multiplied by a fraction, the numerator of
which is the highest per share price, including any
brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder for
any shares of any such class or series of Voting
Stock acquired by it within the two-year period
immediately prior to the Announcement Date, and the
denominator of which is the Market Value per share of
the same class or series of voting stock on the first
day in such two-year period on which the Interested
Stockholder acquired any shares or the same class or
series of Voting Stock.
(3) The holders of any class or series of the
Corporation's outstanding stock shall receive the
consideration in cash or in the same form as the Interested
Stockholder has previously paid for shares of the same class
or series of stock. If the Interested Stockholder has paid for
shares of any class of stock with varying forms of
consideration, the form of consideration for such class of
stock shall be either in cash or the form used to acquire the
largest number of shares of such class or series of stock
previously acquired by it. In making any price calculation
under paragraph (b) of Article VII, section 2, appropriate
adjustments shall be made to reflect any reclassification or
stock split (including any reverse stock split), stock
dividend, recapitalization, reorganization or any similar
transaction which has the effect or increasing or reducing the
number of outstanding shares of stock.
(4) After the Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination:
(A) there shall have been no failure to
declare and pay at the regular date therefor any full
periodic dividends, whether or not cumulative, on any
outstanding Preferred Stock of the Corporation or
other Capital Stock entitled to a preference over the
Common Stock as to dividends or upon liquidation;
(B) there shall have been no reduction in
the annual rate of dividends paid on the Common
Stock, except as necessary to reflect any subdivision
of the Common Stock, and no failure to increase the
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or other similar
transaction which has the effect of reducing the
number of outstanding shares of Common Stock; and
(C) the Interested Stockholder did not
become the Beneficial Owner of any additional shares
of stock of the Corporation except as part of the
transaction that resulted in such Interested
Stockholder becoming an Interested Stockholder or by
virtue of proportionate stock splits or stock
dividends.
The provisions of clauses (A) and (B) immediately preceding
shall not apply if no Interested Stockholder or any Affiliate
or Associate thereof voted as a director of the Corporation in
favor of foregoing or reducing dividends in the manner
specified in such clauses and the Interested Stockholder,
within ten days after any such act or failure to act that
resulted in such loss or diminution of dividends, notifies the
Board of Directors of the Corporation in writing that the
Interested Stockholder disapproves thereof and requests in
good faith that the Board of Directors rectify such act or
failure to act.
(5) After the Interested Stockholder has become an
Interested Stockholder, the Interested Stockholder shall not
have received the benefit, directly or indirectly, except
proportionately as a stockholder, of any loans, advances,
guarantees, pledges or other financial assistance provided by
the Corporation or any Subsidiary, whether in anticipation of
or in connection with such Business Combination or otherwise.
3. Determinations. For the purpose of this Article VII, so long as
Continuing Directors constitute at least a majority of the entire Board of
Directors, the Board of Directors shall have the power to make a good faith
determination, on the basis of information known to them, of: (a) the number of
shares of Capital Stock of which any person or entity is the Beneficial Owner,
(b) whether any person or entity is an Interested Stockholder or an Affiliate or
Associate thereof, (c) whether any person or entity has an agreement,
arrangement or understanding with another as to the matters referred to in the
definition of Beneficial Owner herein, (d) whether any transaction constitutes a
Business Combination (including the power to determine in good faith the book
value or market value of the assets of the Corporation or any Subsidiary) or is
a transaction with or for the benefit of an Interested Stockholder, (e) whether
any of the events referred to in paragraph (b)(4) of Article VII, section 2,
have occurred, and (f) such other matters with respect to which a determination
is required under this Article VII. All such good faith determinations by the
Board of Directors shall be conclusive and binding on the Corporation and its
stockholders for all purposes of this Article VII.
ARTICLE VIII
Limitation of Liability and Indemnification
1. Limitation of Liability. No director shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except (a) for breach of the director's duty of
loyalty to the Corporation or its stockholders, (b) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(c) pursuant to Section 174 of the DGCL, or (d) for any transaction from which
such director derived an improper personal benefit.
2. Authorization of Further Actions. The Board of Directors may (a)
cause the Corporation to enter into contracts with directors providing for the
limitation of liability set forth in this Article VIII to the fullest extent
permitted by law, (b) adopt By-laws or resolutions, or cause the Corporation to
enter into contracts, providing for indemnification of directors and officers of
the Corporation and other persons (including without limitation directors and
officers of the Corporation's direct and indirect subsidiaries) to the fullest
extent permitted by law, and (c) cause the Corporation to exercise the powers
set forth in Section 145(g) of the DGCL, notwithstanding that some or all of the
members of the Board of Directors acting with respect to the foregoing may be
parties to such contracts or beneficiaries thereof.
3. Subsidiaries. The Board of Directors may cause the Corporation to
approve for its direct and indirect subsidiaries limitation of liability and
indemnification provisions comparable to the foregoing.
4. Amendments. Any amendment or repeal of this Article VIII shall not
adversely affect any elimination or limitation of liability of a director of the
Corporation under this Article VIII with respect to any action or inaction
occurring prior to the time of such amendment or repeal. No amendment or repeal
of any Bylaw or resolution relating to indemnification shall adversely affect
any person's entitlement to indemnification whose claim thereto results from
conduct occurring prior to the date of such amendment or repeal.
ARTICLE IX
Amendments
1. Amendments to Certificate of Incorporation. Articles V, VI, VII,
VIII and IX of this Certificate of Incorporation shall not be amended in any
manner (whether by modification or repeal of an existing Article or Articles or
by addition of a new Article or Articles), except upon resolutions adopted by
the affirmative vote of holders of not less than 80% of the Voting Stock, voting
together as a single class; provided, however, that if such resolutions shall
first be adopted by both a majority of the directors then in office and a
majority of the Continuing Directors, voting as a separate group, then such
resolutions shall be deemed adopted by the stockholders upon the affirmative
vote of holders of not less than a majority of the Voting Stock, voting as a
single class.
2. Amendments to By-laws. The Corporation's By-laws may be altered,
amended or repealed, or new By-laws may be adopted by:
(a) the stockholders, but only upon the affirmative vote of
holders of not less than 80% of the Voting Stock, voting together as a
single class; or
(b) the Board of Directors, but only upon the affirmative vote
of both (i) a majority of the directors then in office and (ii) a
majority of the Continuing Directors, voting as a separate group.
ARTICLE X
Definitions
For purposes of this Certificate of Incorporation:
(a) "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations promulgated under the Exchange Act (the term "registrant"
in such Rule 12b-2 meaning in this case the Corporation); provided,
however, that in no event shall the Corporation, any of its
Subsidiaries, any Employee Benefit Plan or any of the other persons or
entities exempted from the definition of Interested Stockholder in this
Article IX, section 3, be deemed to be an Affiliate or Associate of any
Interested Stockholder.
(b) "Announcement Date" means the first general public
announcement of the proposal or intention to make a proposal to
consummate a Business Combination or its first communication generally
to stockholders of the Corporation, whichever is earlier.
(c) A person shall be deemed to be the "Beneficial Owner" of
and be deemed to "Beneficially Own" any shares of capital stock
(regardless whether owned of record):
(1) which such person or any of its Affiliates or
Associates, directly or indirectly, owns beneficially; or
(2) which such person or any of its Affiliates or
Associates has (A) the right to acquire (whether exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding or upon the exercise
of conversion rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement,
arrangement or understanding; or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of voting capital stock of the
Corporation or any Subsidiaries.
(d) "Business Combination" means any transaction referred to
in any one or more of the clauses (a) through (g) of Article VII,
section 1.
(e) "Capital Stock" means any Common Stock, Preferred Stock or
other shares of capital stock of the Corporation.
(f) "Continuing Director" means (i) any member of the Board of
Directors who is not an Interested Stockholder or an Affiliate or
Associate thereof, and who was a director of the Corporation prior to
the time the Interested Stockholder became an Interested Stockholder,
and (ii) any other member of the Board of Directors who is not an
Interested Stockholder or an Affiliate or Associate thereof, and was
nominated or recommended for election, or elected, by a majority of the
Continuing Directors at a meeting at which a quorum consisting of a
majority of the Continuing Directors was present, provided that, in the
absence of an Interested Stockholder, any reference to "Continuing
Directors" shall mean all the directors then in office.
(g) "Determination Date" means the date on which an Interested
Stockholder first became an Interested Stockholder.
(h) "Employee Benefit Plan" means any option, bonus, profit
sharing, employee stock ownership, dividend reinvestment, savings or
similar plan of the Corporation or any Subsidiary, or any trust related
thereto.
(i) "Equity Security" means (1) any stock or similar security,
certificate of interest, or participation in any profit-sharing
agreement, voting trust certificate, or certificate of deposit for the
foregoing, (2) any security convertible, with or without consideration,
into an equity security, or any warrant or other security carrying any
right to subscribe to or purchase an equity security, or (3) any put,
call, straddle or other option, right or privilege to acquire an equity
security from, or to sell an equity security to, another without being
bound to do so.
(j) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(k) "Interested Stockholder" means any person (other than the
Corporation, any Subsidiary, any Employee Benefit Plan, any fiduciary
with respect to an Employee Benefit Plan acting in such capacity, any
person owning Capital Stock as of the date of filing this Certificate
of Incorporation, or any Affiliate or Associate of any of the
foregoing) who (1) is the Beneficial Owner, directly or indirectly, of
shares of Capital Stock (including two or more classes or series voting
together as a single class) representing 15% or more of the Voting
Stock or (2) is an Affiliate or Associate of the Corporation and at any
time within the two-year period immediately prior to the date in
question was the Beneficial Owner, directly or indirectly, of shares of
Capital Stock (including two or more classes or series voting together
as a single class) representing 15% or more of the Voting Stock. For
the purpose of determining whether a person is an Interested
Stockholder, the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned by the person through
application of paragraph (c) of Article IX, section 3 but shall not
include any other shares of Voting Stock that may be issuable pursuant
to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(l) "Market Value" means:
(1) in the case of stock, the highest closing sale
price during the 30 calendar day period immediately preceding
the date in question of a share of such stock on the New York
Stock Exchange, or, if such stock is not listed on the New
York Stock Exchange, then on any national securities exchange
on which the Common Stock is listed, or if not listed on a
national securities exchange, as quoted on the National
Association of Securities Dealers, Inc. Automated Quotations
System's National Market System ("the Nasdaq National
Market"), or if not quoted on the Nasdaq National Market, the
highest closing sales price during the 30 calendar day period
immediately preceding the date in question, the closing bid
quotation with respect to a share of such stock during the 30
calendar day period preceding the date in question as quoted
by Nasdaq or another generally recognized reporting system, or
if no such quotation is available, the fair market value on
the date in question of a share of such stock as determined by
a majority of the Continuing Directors at a meeting of the
Board of Directors at which a quorum consisting of at least a
majority of the then Continuing Directors is present; and
(2) in the case of property other than cash or stock,
the fair market value or such property on the date in question
as determined by a majority of the Continuing Directors at a
meeting of the Board of Directors at which a quorum consisting
of at least a majority of the then Continuing Directors is
present.
(m) A "person" means any individual, firm, corporation or
other entity, or a group of persons acting or agreeing to act together
in the manner set forth in Rule 13d-5 under the Exchange Act.
(n) "Subsidiary" means any corporation, partnership or other
entity of which the Corporation, directly or indirectly, owns voting
stock or similar interests having a majority of the votes entitled to
be cast.
(o) "Valuation Date" means:
(1) for a Business Combination voted upon by
stockholders, the later of the day prior to the date of the
stockholders' vote or the date 20 business days prior to the
consummation of the Business Combination; and
(2) for a Business Combination not voted upon by
stockholders, the date of the consummation of the Business
Combination.
(p) "Voting Stock" means the outstanding shares of Capital
Stock entitled to vote generally in an election of directors.
-----------------
EXHIBIT 3.2
McMoRan Exploration Co.
Bylaws
SECTION 1
Offices
1.1 Registered Office. The registered office of McMoRan Exploration Co.
(the "Corporation") shall be in the City of Wilmington, County of New Castle,
State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Corporation's Board
of Directors may from time to time determine or the business of the Corporation
may require.
SECTION 2
Meetings of Stockholders
2.1 Annual Meetings. Annual meetings of stockholders shall be held for
the election of directors at such date, time and place either within or without
the State of Delaware as shall be designated by the Board of Directors.
2.2 Special Meetings. Subject to any rights of the holders of shares of
Preferred Stock to call special meetings of stockholders, special meetings of
the stockholders for any purpose or purposes may be called only by the Chairman
or either Co-Chairman of the Board, any Vice Chairman of the Board or the
President and Chief Executive Officer or upon a vote of the majority of the
Board of Directors, at such date, time and place either within or without the
State of Delaware as shall be stated in the notice of the meeting.
2.3 Notice of Stockholder Nominations and Stockholder Business. (a) At
any meeting of stockholders, only such business shall be conducted as is
properly before the meeting. No business shall be deemed to have been properly
brought before a special meeting of stockholders unless (i) the matter is
submitted by the person or persons calling the special meeting and (ii) the
matter is contained in the notice of the meeting. Except as otherwise provided
in the Certificate of Incorporation or required by applicable law, nominations
for the election of directors at a meeting at which directors are to be elected
or other matters to be properly brought before any annual meeting of
stockholders must be (1) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, including
matters covered by Rule 14a-8 of the Securities and Exchange Commission, (2)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or (3) otherwise properly brought before the meeting by any
stockholder who complies with the procedures set forth below.
(b) A notice of the intent of a stockholder to make a director
nomination or to bring any other matter before the annual meeting of
stockholders shall be made in writing and received by the Secretary not less
than 60 days nor more than 90 days prior to the meeting; provided, however, that
in the event that less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the tenth
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. Every such notice by a stockholder
shall set forth:
(i) the name, age, business address and residential
address of (A) the stockholder who intends to make a nomination or
bring up any other matter, and (B) any person acting in concert with
such stockholder;
(ii) the class and number of shares of Voting Stock
of which the stockholder is the Beneficial Owner and the dates on which
such person acquired his or her Voting Stock;
(iii) a representation that the stockholder intends
to appear in person at the meeting to make the nomination or bring up
the matter specified in the notice;
(iv) with respect to notice of an intent to make a
nomination, a description of all agreements, arrangements or
understandings among the stockholder, any person acting in concert with
the stockholder, each proposed nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(v) with respect to notice of an intent to make a
nomination, (A) the name, age, business address and residential address
of each person proposed for nomination, (B) the principal occupation or
employment of such person, (C) the class and number of shares of
capital stock of the Corporation of which such person is the beneficial
owner, and (D) any other information relating to such person that would
be required to be disclosed in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had such nominee
been nominated by the Board of Directors; and
(vi) with respect to notice of an intent to bring up
any other matter, a complete and accurate description of the matter not
to exceed 500 words, the reasons for conducting such business at the
meeting, and any material interest of the stockholder in the matter.
(c) The Secretary may require any stockholder submitting a
notice of an intent to make a director nomination or bring up other business to
furnish such documentary information as may be reasonably required by the
Corporation to determine that such stockholder is the Beneficial Owner of any
class or series of outstanding Voting Stock entitled to be voted on the proposed
business.
(d) Notice of an intent to make a director nomination shall be
accompanied by the written consent of each nominee to serve as a director of the
Corporation if so elected and an affidavit of each such nominee certifying that
he or she meets the qualifications necessary to serve as a director of the
Corporation. The Corporation may require any proposed nominee to furnish such
other information as may be reasonably required by the Corporation to determine
the eligibility and qualifications of such person to serve as a director.
(e) Notwithstanding anything in these Bylaws to the contrary,
no business shall be conducted at a meeting of stockholders except in accordance
with the procedures set forth in this section. The chairman of a meeting of
stockholders shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance with
the provisions of these Bylaws, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
(f) Notwithstanding compliance with all of the procedures set
forth above in this section, no proposal shall be deemed to be properly brought
before a meeting of stockholders if, in the judgment of the Board of Directors,
it is not a proper subject for action by stockholders under Delaware Law.
(g) Notwithstanding the foregoing provisions of this section,
a stockholder seeking to have a proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended (including, without limitation, Rule
14a-8 or its successor provision).
2.4 Notice of Meeting. Whenever stockholders are required or permitted
to take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and time of the meeting, and in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise provided by law, the written notice of any meeting shall be given to
each stockholder entitled to vote at such meeting not less than 10 nor more than
60 days before the date of the meeting. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid, directed
to the stockholder at such stockholder's address as it appears on the records of
the Corporation.
2.5 Stockholder List. The Secretary shall prepare and make available,
at least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, with respect to each matter considered and voted
upon at any stockholders' meeting, the holders of a majority of the outstanding
shares of Capital Stock entitled to vote thereon, present in person or
represented by proxy, shall constitute a quorum. If, however, a quorum shall not
be present or represented at any meeting of the stockholders (or with respect to
any matter to be considered and voted upon thereat), the holders of Capital
Stock entitled to vote thereat (or with respect to any such matter), present in
person or represented by proxy, shall have the power to adjourn the meeting (or
the vote upon such matter, without prejudice to the right of the stockholders to
vote upon any matter as to which a quorum does exist) from time to time, without
notice other than announcement at the meeting, until a quorum shall be presented
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted that might have been transacted at
the meeting as originally notified.
2.7 Vote Required. When a quorum is present with respect to any matter
considered at any meeting of stockholders, the vote of the holders of a majority
of the Voting Stock shall decide such matter, unless the matter is one upon
which by express provision of law, the Certificate of Incorporation or these
Bylaws, a different vote is required, in which case such express provision shall
govern and control the decision of such matter.
2.8 Voting Rights of Stockholders. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
Voting Stock held of record by such holder. If the Certificate of Incorporation
provides for more or less than one vote for any share of Voting Stock on any
matter, every reference in these Bylaws to a majority or other proportion of
Voting Stock shall refer to such majority or other proportion of the total votes
accorded such shares of stock.
2.9 Proxies. (a) Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for such stockholder
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
(b) Execution of a proxy may be accomplished by a stockholder
or his or her authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such writing by any
reasonable means including, without limitation, by facsimile signature. A
stockholder may authorize another person or persons to act for him as proxy by
transmitting or authorizing the transmission of a telegram, cablegram, or other
means of electronic transmission to the person who will be the holder of the
proxy or to a proxy solicitation firm, proxy support service organization or
like agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram, cablegram or other
means of electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the stockholder. If it is
determined that such telegrams, cablegrams or other electronic transmissions are
valid, the inspectors shall specify the information upon which they relied.
(c) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
(d) A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy that is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary.
2.10 No Written Consent. Unless otherwise provided in the Certificate
of Incorporation, any action required or permitted to be taken by the
stockholders must be effected at a duly called annual or special meeting of
stockholders, and may not be effected by any written consent of such holders.
2.11 Treasury Stock. Shares of Capital Stock held in the treasury of
the Corporation shall not be deemed to be outstanding shares for the purpose of
voting or determining the presence of a quorum or the total number of shares
entitled to vote on any matter.
2.12 Presiding Officer. All meetings of stockholders shall be presided
over by the Chairman or either Co-Chairman of the Board, a Vice Chairman of the
Board, the President and Chief Executive Officer, or in his absence, by a
chairman designated by the Board of Directors. The Secretary shall act as
secretary of the meeting, or in the absence of the Secretary by an Assistant
Secretary, or in their absence the chairman of the meeting may appoint any
person to act as secretary of the meeting. The order of business at each meeting
of stockholders shall be determined by the chairman of such meeting.
2.13 Inspectors. Prior to a meeting of stockholders, the Corporation
shall appoint one or more inspectors to act at the meeting and make a written
report thereof. Each inspector shall take and sign an oath faithfully to execute
the duties of with strict impartiality and according to the best of his or her
ability. The inspectors shall (i) ascertain the number of shares outstanding and
the voting power of each, (ii) determine the shares represented at a meeting and
the validity of the proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots, and (vi) perform such other functions as the
presiding officer of the meeting shall determine. The inspectors may appoint or
retain other persons or entities to assist them in the performance of their
duties.
2.14 Adjournments. Any annual or special meeting of stockholders may be
adjourned by the presiding officer from time to time to reconvene at the same or
some other place, and notice need not be given of any such adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
SECTION 3
Directors
3.1 Powers. The business and affairs of the Corporation shall be
managed under the direction of a Board of Directors (the "Board"), except as
otherwise provided by law or by the Certificate of Incorporation.
3.2 Number. Subject to the restriction that the number of directors
shall not be less than the number required by Delaware Law, and subject further
to the creation or lapse of directorships upon the occurrence of events
specified in the Certificate of Incorporation, the number of directors shall be
fixed, from time to time, by a resolution adopted by a majority of the
Continuing Directors. Until otherwise fixed by the directors, the number of
directors constituting the entire Board shall be one. The Secretary shall have
the power to certify at any time as to the number of directors authorized and as
to the class to which each director has been elected or assigned.
3.3 Classification of Board. The members of the Board, other than those
who may be elected by holders of any one or more series of Preferred Stock
voting separately, shall be classified, with respect to the time during which
they hold office, into three classes, designated Class I, II and III, as nearly
equal in number as possible. The initial directors in Class I shall be elected
for a term expiring at the annual meeting of stockholders to be held in 1999,
the initial directors in Class II shall be elected for a term expiring at the
annual meeting of stockholders to be held in 2000 and the initial directors in
Class III shall be elected for a term expiring at the annual meeting of
stockholders to be held in 2001.
3.4 Resignation. Any director may resign at any time upon written
notice to the Board, the Chairman or either Co-Chairman of the Board, any Vice
Chairman of the Board or the President and Chief Executive Officer. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective. Any such notice to the Board shall be addressed to it in
care of the Secretary.
3.5 Nominations. Only persons who are nominated in accordance with the
procedures set forth in Section 2.3 shall be eligible for election as directors.
Notwithstanding any provision of these Bylaws to the contrary, the provisions of
Section 2.3 shall not apply to the election of any directors which the holders
of any class or series of Preferred Stock, voting separately as a class, may be
entitled to elect.
3.6 Election of Directors. Unless otherwise provided in the Certificate
of Incorporation, at each meeting of the stockholders for the election of
directors at which a quorum is present, directors shall be elected by a
plurality of the votes cast with respect to shares of Voting Stock present in
person or represented by proxy at the meeting.
3.7 Compensation. Unless otherwise restricted by the Certificate of
Incorporation or of these Bylaws, the Board shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board. The directors may be paid a stated
salary as director or a fixed sum for attendance at each meeting of the Board or
committee. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 4
Meetings of Directors
4.1 Meetings. The Board may hold meetings, both regular and special,
either within or without the State of Delaware.
4.2 Regular Meetings. Regular meetings of the Board may be held without
notice at such time and at such place as shall from time to time be determined
by the Board.
4.3 Special Meetings. Special meetings of the Board may be called by
the Chairman or either Co-Chairman of the Board, any Vice Chairman of the Board,
or the President and Chief Executive Officer on at least 24 hours' notice to
each director, either personally or by mail, telephone or telegram. Special
meetings shall be called by the Chairman or either Co-Chairman of the Board, any
Vice Chairman of the Board, the President and Chief Executive Officer or
Secretary in like manner and on like notice on the written request of any
director. Any notice to call a special meeting pursuant to this section may be
executed by the Secretary acting on behalf of the person calling the meeting.
Except as may be otherwise specifically provided by statute, by the Certificate
of Incorporation or by these Bylaws, the purpose or purposes of any such special
meeting need not be stated in such notice.
4.4 Quorum. At all meetings of the Board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board, except as may be otherwise specifically provided
by law or by the Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
4.5 Action at Meeting. If a quorum is present when any meeting of the
Board is convened, the directors may continue to do business, taking action by
vote of a majority of a quorum as fixed in Section 4.4, until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum
or the refusal of any director present to vote.
4.6 Action by Consent. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
4.7 Meetings by Telephone. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board or any
committee thereof may participate in a meeting of the Board or any committee, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
4.8 Presiding Officer. The Chairman or either Co-Chairman of the Board
or any Vice Chairman of the Board shall preside at all meetings of the Board or,
in their absence, a chairman appointed by the Board. The Secretary or in the
absence of the Secretary, an Assistant Secretary, shall act as secretary of each
meeting, but in the absence of the Secretary and an Assistant Secretary, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 5
Committees of the Board
5.1 Designation of Committees. The Board may, by resolution passed by a
majority of the Continuing Directors, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member.
5.2 Authority of Committees. Any committee designated by the Board
shall have those powers and authority of the Board in the management of the
business and affairs of the Corporation provided in the resolution of the Board
designating such committee, provided that no such committee shall have the power
or authority to (a) approve, adopt or recommend to the stockholders any action
or matter expressly required by Delaware Law to be submitted to stockholders for
approval, or (b) alter, amend or repeal the Bylaws of the Corporation or adopt
any new Bylaws of the Corporation.
5.3 Minutes. Each committee shall keep regular minutes of its meetings
and report the same to the Board when required.
SECTION 6
Notices
6.1 Form of Notice. Unless provided otherwise by law, the Certificate
of Incorporation or these Bylaws, any notice that is required to be given to
stockholders shall be given in writing, by mail, addressed to such stockholder,
at his address as it appears on the records of the Corporation, or in default of
such address, to such stockholder at the General Post Office in the City of
Wilmington, Delaware, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may be given in like manner or may be given by
telephone, facsimile transmission, telex, telegraph or cable or by sending the
same by national commercial courier service for next-day delivery.
6.2 Waiver. Whenever any notice is required to be given under law, the
Certificate of Incorporation or these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent thereto. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
SECTION 7
Officers
7.1 General. The officers of the Corporation shall be chosen by the
Board at its first meeting after each annual meeting of stockholders and shall
be a President and Chief Executive Officer, a Secretary and a Treasurer. The
Board may also choose a Chairman or Co-Chairmen of the Board, and one or more
Vice Chairmen of the Board from among the directors and may choose a Chief
Financial Officer, General Counsel, a Controller and one or more Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents, Assistant Vice Presidents,
Assistant Secretaries and Assistant Treasurers. Any number of offices may be
held by the same person, unless the Certificate of Incorporation or the Bylaws
otherwise provide.
7.2 Other Officers. The Board may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
7.3 Compensation. The salaries of all officers of the Corporation shall
be fixed by the Board or in such manner as the Board may prescribe.
7.4 Term. The officers of the Corporation shall hold office until their
successors are chosen and qualify except that any officer elected or appointed
by the Board may be removed at any time by the Chairman or either Co-Chairman of
the Board, any Vice Chairman of the Board, the President and Chief Executive
Officer, or by the affirmative vote of a majority of the Continuing Directors.
Any vacancy occurring in any office of the Corporation may be filled by the
Board.
7.5 Resignation. Any officer may resign at any time by giving written
notice of his resignation to the Board of Directors, the Chairman or either
Co-Chairman of the Board, any Vice Chairman of the Board or the President and
Chief Executive Officer. Any such resignation shall take effect upon receipt
thereof by the Board, the Chairman or either Co-Chairman of the Board, any Vice
Chairman of the Board or the President and Chief Executive Officer, as the case
may be, or at such later date as may be specified therein. Any such notice to
the Board shall be addressed to it in care of the Secretary.
7.6 Chairman/Co-Chairmen of the Board. The Chairman or Co-Chairmen of
the Board shall preside at meetings of the stockholders and of the Board of
Directors. Subject to the supervision and direction of the Board of Directors,
the Chairman or the Co-Chairmen of the Board shall be responsible for managing
the affairs of the corporation. He or they shall have supervision and direction
of all the other officers of the corporation and shall have the powers and
duties usually and customarily associated with the office of Chairman or
Co-Chairmen of the Board.
7.7 Vice Chairman of the Board. Any Vice Chairman of the Board shall
have such powers and duties as may be delegated to them by the Board of
Directors or the Chairman or either Co-Chairman of the Board. A Vice Chairman of
the Board shall, in the absence of the Chairman or the Co-Chairmen of the Board,
preside at meetings of the stockholders and of the Board of Directors.
7.8 President and Chief Executive Officer. The President and Chief
Executive Officer shall have the powers and duties usually and customarily
associated with the office of President and Chief Executive Officer and shall,
in case of the absence of the Chairman or Co-Chairmen of the Board or a Vice
Chairman of the Board, preside at meetings of the stockholders and of the Board
of Directors. He shall have such other powers and duties as may be delegated to
him by the Board of Directors or the Chairman or either Co-Chairman of the
Board.
7.9 Executive Vice Presidents, Senior Vice Presidents, Chief Financial
Officer, Vice Presidents and Assistant Vice Presidents. The Executive Vice
Presidents, the Senior Vice Presidents, Chief Financial Officer, the Vice
Presidents and the Assistant Vice Presidents shall have such powers and duties
as may be delegated to them by the Board of Directors, the Chairman or either
Co-Chairman of the Board, or the President and Chief Executive Officer.
7.10 General Counsel. The General Counsel shall have the powers and
duties usually and customarily associated with the position of General Counsel.
He shall have such other powers and duties as may be delegated to him by the
Board of Directors, the Chairman or either Co-Chairman of the Board or the
President and Chief Executive Officer.
7.11 Secretary. The Secretary shall attend all meetings of the Board of
Directors and of the stockholders, and shall record the minutes of all
proceedings in a book to be kept for that purpose. He shall perform like duties
of the committees of the Board when required. The Secretary shall give, or cause
to be given, notice of meetings of the stockholders, of the Board of Directors
and of the committees of the Board. He shall keep in safe custody the seal of
the corporation, and when authorized by the Chairman or either Co-Chairman of
the Board, any Vice Chairman of the Board, the President and Chief Executive
Officer, an Executive Vice President, a Senior Vice President or a Vice
President, shall affix the same to any instrument requiring it, and when so
affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. He shall have such other powers and duties as may be
delegated to him by the Board of Directors, the Chairman or either Co-Chairman
of the Board or the President and Chief Executive Officer.
7.12 Assistant Secretaries. The Assistant Secretaries shall, in case of
the absence of the Secretary, perform the duties and exercise the powers of the
Secretary, and shall have such other powers and duties as may be delegated to
them by the Board of Directors, the Chairman or either Co-Chairman of the Board
or the President and Chief Executive Officer.
7.13 Treasurer. The Treasurer shall have the custody of the corporate
funds and securities, and shall deposit or cause to be deposited under his
direction all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors or pursuant to authority granted by it. He shall render to the
President and Chief Executive Officer and the Board whenever they may require it
an account of all his transactions as Treasurer and of the financial condition
of the corporation. He shall have such other powers and duties as may be
delegated to him by the Board of Directors, the Chairman or either Co-Chairman
of the Board or the President and Chief Executive Officer.
7.14 Assistant Treasurers. The Assistant Treasurers shall, in case of
the absence of the Treasurer, perform the duties and exercise the powers of the
Treasurer, and shall have such other powers and duties as may be delegated to
them by the Board of Directors, the Chairman or either Co-Chairman of the Board
or the President and Chief Executive Officer.
7.15 Controller. The Controller shall maintain adequate records of all
assets, liabilities and transactions of the corporation, and shall see that
adequate audits thereof are currently and regularly made. He shall disburse the
funds of the corporation in payment of the just obligations of the corporation,
or as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements. He shall have such other powers and duties as may be delegated to
him by the Board of Directors, the Chairman or either Co-Chairman of the Board
or the President and Chief Executive Officer.
SECTION 8
Stock
8.1 Certificated or Uncertificated. The shares of the Corporation shall
be uncertificated or shall be represented by certificates signed in the name of
the Corporation by the Chairman or either Co-Chairman of the Board, a Vice
Chairman of the Board, the President and Chief Executive Officer, an Executive
Vice President, a Senior Vice President or a Vice President and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Corporation. Upon the face or back of each stock certificate issued to
represent any partly paid shares, or upon the books and records of the
Corporation in the case of uncertificated partly paid shares, shall be set forth
the total amount of the consideration to be paid therefor and the amount paid
thereon shall be stated.
8.2 Summary of Rights. The powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series of each class of stock, and of each series of any class, and the
qualifications, limitations or restrictions of such preferences and rights shall
be set forth in full or summarized on the face or back of the certificate that
the Corporation shall issue to represent such class or series of stock; provided
that, except as otherwise provided in Section 202 of Delaware Law, or in any act
amending, supplementing or substituted for such section, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and rights.
8.3 Notice to Holders of Uncertificated Stock. Within a reasonable time
after the issuance or transfer of uncertificated stock, the Corporation shall
send, or cause to be sent, to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Delaware Law or a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and rights.
8.4 Facsimile Signatures. Any of or all the signatures on a certificate
may be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
8.5 Lost Certificates. The Board may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the Board may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
8.6 Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be canceled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the Corporation.
8.7 Registered Stockholders. Except as otherwise provided by law, the
Corporation, and its directors, officers and agents, may recognize and treat a
person registered on its records as the owner of shares, as the owner in fact
thereof for all purposes, and as the person exclusively entitled to have and to
exercise all rights and privileges incident to the ownership of such shares, and
rights under this section shall not be affected by any actual or constructive
notice that the Corporation, or any of its directors, officers or agents, may
have to the contrary.
SECTION 9
Indemnification
9.1 Indemnity. (a) Except with respect to an action or Claim (other
than as authorized in Section 9.2) commenced by an Indemnitee against the
Corporation or by an Indemnitee as a derivative action by or in the right of the
Corporation that has not been authorized by the Board, the Corporation shall
indemnify, defend and hold harmless any Indemnitee against Expenses reasonably
incurred or suffered in connection with any Claim against Indemnitee, whether
the basis of such Claim is alleged action or inaction in an official capacity as
Indemnitee or in any other capacity while serving as an Indemnitee (including
appearances as a witness or in connection with giving testimony or evidence),
if:
(i) the Indemnitee is successful in his defense of the Claim
on the merits or otherwise, or
(ii) the Indemnitee has been found by the Determining Body to
have met the Standard of Conduct (as determined in accordance with the
procedures set forth in this Section 9.1), provided that no
indemnification shall be made in respect of any Claim by or in the
right of the Corporation as to which Indemnitee shall have been
adjudicated in a final judgment to be liable to the Corporation,
unless, and only to the extent that the court in which such Claim was
brought shall determine upon application that, despite such
adjudication of liability but in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for
such Expenses which the court shall deem proper.
(b) For purposes of this Section 9, the "Standard of Conduct"
is met when conduct by an Indemnitee with respect to which a Claim is asserted
was conduct performed in good faith which he reasonably believed to be in, or
not opposed to, the best interest of the Corporation, and, in the case of a
Claim which is a criminal action or proceeding, conduct that the Indemnitee had
no reasonable cause to believe was unlawful. The termination of any Claim by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not meet the Standard of Conduct.
(c) Promptly upon becoming aware of the existence of any Claim
as to which Indemnitee may be indemnified hereunder, Indemnitee shall notify the
President and Chief Executive Officer of the Corporation, but the failure to
promptly notify the President and Chief Executive Officer shall not relieve the
Corporation from any obligation under this Section 9. Upon receipt of such
request, the President and Chief Executive Officer shall promptly advise the
members of the Board of the request and that the establishment of a Determining
Body with respect to Indemnitee's request for indemnification as to the Claim
will be presented at the next regularly scheduled meeting of the Board. If a
meeting of the Board is not regularly scheduled within 120 calendar days of the
date the President and Chief Executive Officer receives notice of the Claim, the
President and Chief Executive Officer shall cause a special meeting of the Board
of Directors to be called within such period in accordance with the provisions
of the Bylaws. After the Determining Body has been established, the Determining
Body shall inform the Indemnitee of the constitution of the Determining Body and
Indemnitee shall provide the Determining Body with all facts relevant to the
Claim known to such Indemnitee, and deliver to the Determining Body all
documents relevant to the Claim in Indemnitee's possession. Before the 60th day
after its receipt from the Indemnitee of such information (the "Determination
Date"), together with such additional information as the Determining Body may
reasonably request of Indemnitee prior to such date (the receipt of which shall
not begin a new 60-day period) the Determining Body shall determine whether or
not Indemnitee has met the Standard of Conduct and shall advise Indemnitee of
its determination. If Indemnitee shall have supplied the Determining Body with
all relevant information, including all additional information reasonably
requested by the Determining Body, any failure of the Determining Body to make a
determination by or on the Determination Date as to whether the Standard of
Conduct was met shall be deemed to be a determination that the Standard of
Conduct was met by Indemnitee.
(d) If at any time during the 60-day period ending on the
Determination Date, Indemnitee becomes aware of any relevant facts not
theretofore provided by him to the Determining Body, Indemnitee shall inform the
Determining Body of such facts, unless the Determining Body has obtained such
facts from another source. The provision of such facts to the Determining Body
shall not begin a new 60 day period.
(e) The Determining Body shall have no power to revoke a
determination that Indemnitee met the Standard of Conduct unless Indemnitee (i)
submits to the Determining Body at any time during the 60 days prior to the
Determination Date fraudulent information, (ii) fails to comply with the
provisions of Section 9.1(d), or (iii) intentionally fails to submit information
or documents relevant to the Claim reasonably requested by the Determining Body
prior to the Determination Date.
(f) In the case of any Claim not involving any threatened or
pending criminal proceeding:
(i) if prior to the Determination Date the Determining Body
has affirmatively made a determination that Indemnitee met the Standard
of Conduct (not including a determination deemed to have been made by
inaction), the Corporation may, in its sole discretion, after notice to
Indemnitee, assume all responsibility for the defense of the Claim with
counsel satisfactory to Indemnitee (who shall not, except with the
written consent of Indemnitee, be counsel to the Corporation), and, in
any event, the Corporation and the Indemnitee each shall keep the other
informed as to the progress of the defense of the Claim, including
prompt disclosure of any proposals for settlement; provided that if the
Corporation is a party to the Claim and Indemnitee reasonably
determines that there is any conflict between the positions of the
Corporation and Indemnitee, with respect to the Claim or otherwise,
then Indemnitee shall be entitled to conduct his defense with counsel
of his choice at the Corporation's expense in accordance with the terms
and conditions of this Section 9; and provided further that Indemnitee
shall in any event be entitled at his expense to employ counsel chosen
by him to participate in the defense of the Claim; and
(ii) The Corporation shall not be obligated to indemnify
Indemnitee for any amount paid in a settlement that the Corporation has
not approved. The Corporation shall fairly consider any proposals by
Indemnitee for settlement of the Claim. If the Corporation proposes a
settlement of the Claim and such settlement is acceptable to the person
asserting the Claim, or the Corporation believes a settlement proposed
by the person asserting the Claim should be accepted, it shall inform
Indemnitee of the terms of such proposed settlement and shall fix a
reasonable date by which Indemnitee shall respond. If Indemnitee agrees
to such terms, he shall execute such documents as shall be necessary to
make final the settlement. If Indemnitee does not agree with such
terms, Indemnitee may proceed with the defense of the Claim in any
manner he chooses, provided that if Indemnitee is not successful on the
merits or otherwise, the Corporation's obligation to indemnify such
Indemnitee as to any Expenses incurred following his disagreement shall
be limited to the lesser of (A) the total Expenses incurred by
Indemnitee following his decision not to agree to such proposed
settlement or (B) the amount that the Corporation would have paid
pursuant to the terms of the proposed settlement.
(g) In the case of any Claim involving a proposed, threatened
or pending criminal proceeding, Indemnitee shall be entitled to conduct the
defense of the Claim with counsel of his choice and to make all decisions with
respect thereto; provided, that the Corporation shall not be obliged to
indemnify Indemnitee for any amount paid in settlement of such a Claim unless
the Corporation has approved such settlement.
(h) After notifying the Corporation of the existence of a
Claim in accordance with Section 9.1(c), Indemnitee may from time to time
request the Corporation to pay the Expenses (other than judgments, fines,
penalties or amounts paid in settlement) that he incurs in pursuing a defense of
the Claim prior to the time that the Determining Body determines whether the
Standard of Conduct has been met. The Disbursing Officer shall pay to Indemnitee
the amount requested (regardless of Indemnitee's ability to repay such amount)
upon receipt of an undertaking by or on behalf of Indemnitee to repay such
amount along with any other amounts advanced or paid after the Determination
Date in accordance with the provisions of this Section 9.1, if (i) the
Determining Body determines prior to the Determination Date that Indemnitee did
not meet the Standard of Conduct or (ii) Indemnitee is prohibited from being
indemnified by the Corporation by virtue of the provisions of Delaware Law.
(i) After it has been determined that the Standard of Conduct
has been met, for so long as and to the extent that the Corporation is required
to indemnify Indemnitee under this Section 9, the provisions of Section 9.1(h)
shall continue to apply with respect to Expenses incurred after such time except
that (i) no undertaking shall be required of Indemnitee and (ii) the Disbursing
Officer shall pay to Indemnitee the amount of any fines, penalties or judgments
against him that have become final and for which he is entitled to
indemnification hereunder, and any amount of indemnification ordered to be paid
to him by a court.
(j) Any determination by the Corporation with respect to
settlement of a Claim shall be made by the Determining Body.
(k) All determinations and judgments made by the Determining
Body hereunder shall be made in good faith.
(l) The Corporation and Indemnitee shall keep confidential to
the extent permitted by law and their fiduciary obligations all facts and
determinations provided pursuant to or arising out of the operation of this
Section 9 and the Corporation and Indemnitee shall instruct its or his agents
and employees to do likewise.
9.2 Enforcement. (a) The rights provided by this Section 9 shall be
enforceable by Indemnitee in any court of competent jurisdiction.
(b) If Indemnitee seeks a judicial adjudication of his rights
under this Section 9 Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
Expenses actually and reasonably incurred by him in connection with such
proceeding but only if he prevails therein. If it shall be determined that
Indemnitee is entitled to receive part but not all of the relief sought, then
the Indemnitee shall be entitled to be reimbursed for all Expenses incurred by
him in connection with such judicial adjudication if the amount to which he is
determined to be entitled exceeds 50% of the amount of his claim. Otherwise, the
Expenses incurred by Indemnitee in connection with such judicial adjudication
shall be appropriately prorated.
(c) In any judicial proceeding described in this Section 9.2,
the Corporation shall bear the burden of proving that Indemnitee is not entitled
to the relief sought, even if the Determining Body prior to the Determination
Date determined that Indemnitee failed to meet the Standard of Conduct. If prior
to the Determination Date the Determining Body failed to make a determination
that Indemnitee did not meet the Standard of Conduct, it shall not be a defense
to such suit that Indemnitee did not meet the Standard of Conduct.
9.3 Reformation. If any provision of this Section 9 is determined by a
court having jurisdiction over the matter to violate or conflict with applicable
law, the court shall be empowered to modify or reform such provision so that, as
modified or reformed, such provision provides the maximum indemnification
permitted by Delaware Law, and such provision, as so modified or reformed, and
the balance of this Section 9 shall be applied in accordance with their terms.
Without limiting the generality of the foregoing, if any portion of this Section
9 shall be invalidated on any ground, the Corporation shall nevertheless
indemnify an Indemnitee to the full extent permitted by any applicable portion
of this Section 9 that shall not have been invalidated and to the full extent
per mitted by law with respect to that portion that has been invalidated.
9.4 Successors and Assigns. This Section 9 shall be binding upon the
Corporation, its successors and assigns, and shall inure to the benefit of the
Indemnitee's heirs, administrators, executors, personal representatives and
assigns and to the benefit of the Corporation, its successors and assigns.
9.5 Amendments. No amendment to or modification of this Section 9 or
any portion hereof shall limit any Indemnitee's entitlement to indemnification
in accordance with the provisions hereof with respect to any acts or omissions
of Indemnitee which occur or accrue prior to such amendment or modification.
9.6 Contribution. If the indemnity provided for in this Section 9 is
for any reason unavailable or insufficient to hold harmless an Indemnitee with
respect to any Expenses, the Corporation shall make a contribution to the
Indemnitee for such liabilities to which the Indemnitee may be subject in such
proportion as is appropriate to reflect the intent of this Section 9.
9.7 Reliance. Each person who is serving as an Indemnitee shall be
deemed to be doing so in reliance upon the indemnification provided for in this
Section 9. The rights of an Indemnitee hereunder shall be contract rights and
shall vest in the Indemnitee upon the occurrence of the event, or the first
event in a chain of events, giving rise to such Claim; provided that the
adoption of the Bylaws shall not affect any right or obligation of the
Corporation or of any Indemnitee which existed prior to such adoption.
9.8 Nonexclusivity. (a) The rights conferred herein on any person shall
(i) be severable, (ii) not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, certificate of incorporation,
contract or other agreement, authorization of stockholders or disinterested
directors or otherwise, and (iii) continue as to an Indemnitee who has ceased to
serve on behalf of the Corporation in respect of all claims arising out of
action (or inaction) occurring prior to such time.
(b) It is the intent of the Corporation to indemnify and hold
harmless Indemnitee to the fullest extent permitted by Delaware Law, as such law
exists or may be amended after the date the Bylaws are adopted, but, in the case
of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than Delaware Law permitted
prior to the amendment, notwithstanding any provision in Section 9 to the
contrary.
9.9 Insurance. The Corporation may procure or maintain insurance or
other similar arrangement on behalf of any Indemnitee or any person who is or
was an employee or agent of the Corporation, or is serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against or
incurred by him in his capacity as such, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of Delaware Law. Without limiting the power
of the Corporation to procure or maintain any other kind of insurance or similar
arrangement, the Corporation may create a trust fund or other form of
self-insurance arrangement for the benefit of any Indemnitee or such other
person to the fullest extent authorized by Delaware Law.
SECTION 10
General Provisions
10.1 Fixing Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect to any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix in advance a record date
which shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action. Only stockholders of
record on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting and any adjournment thereof, or entitled to receive payment of such
dividend or other distribution or allotment of rights, or entitled to exercise
such rights in respect of such change, conversion or exchange, as the case may
be, notwithstanding any transfer of stock on the books of the corporation after
any such record date fixed as aforesaid. Except as otherwise provided in the
Bylaws, a determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting,
provided, however, that the Board may fix a new record date for the adjourned
meeting.
10.2 Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
10.3 Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board may from time to time designate or pursuant to authority
granted by the Board.
10.4 Fiscal Year. The fiscal year of the Corporation shall end on
December 31 of each year.
10.5 Seal. The corporate seal of the Corporation shall have inscribed
thereon the name of the corporation and the year (1998) and jurisdiction
(Delaware) of its creation. Such seal may be used by causing it or a facsimile
thereof to be impressed, affixed, printed or otherwise reproduced. The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
SECTION 11
Definitions
The following terms, for all purposes of the Bylaws, shall have the
following meaning:
"Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as
amended (the term "registrant" in such Rule 12b-2 meaning in this case
the Corporation); provided, however, that in no event shall the
Corporation, any of its Subsidiaries, any employee benefit plan or any
of the other persons or entities exempted from the definition of
Interested Stockholder as provided in the Certificate of Incorporation
be deemed to be an Affiliate or Associate of any Interested
Stockholder.
A person shall be deemed to be the "Beneficial Owner" of any
shares of Capital Stock (regardless whether owned of record):
(1) Which that person or any of its
Affiliates or Associates, directly or indirectly,
owns beneficially;
(2) Which such person or any of its
Affiliates or Associates has (A) the right to acquire
(whether exercisable immediately or only after the
passage of time) pursuant to any agreement,
arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or
understanding; or
(3) Which are beneficially owned, directly
or indirectly, by any other person with which such
person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of
any shares of voting capital stock of the Corporation
or any Subsidiaries.
"Capital Stock" means any Common Stock, Preferred Stock or
other shares of capital stock of the Corporation.
"Certificate of Incorporation" shall mean the certificate of
incorporation of the Corporation, as it may be amended from time to
time.
"Claim" shall mean any threatened, pending or completed claim,
action, suit or proceeding, including appeals, whether civil, criminal,
administrative or investigative and whether made judicially or
extra-judicially, including any action by or in the right of the
Corporation, or any separate issue or matter therein, as the context
requires.
"Common Stock" shall mean the common stock of the Corporation,
as provided for in the Certificate of Incorporation.
"Continuing Director" shall have the meaning ascribed to it in
the Certificate of Incorporation.
"Delaware Law" shall mean the General Corporation Law of the
State of Delaware.
"Determining Body" shall mean (i) those members of the Board
of Directors who do not have a direct or indirect interest the Claim
for which indemnification is being sought ("Impartial Directors"), if
there are at least two Impartial Directors, (ii) a committee of at
least two Impartial Directors appointed by the Board or a duly
authorized committee thereof (regardless of whether the directors
voting on such appointment are Impartial Directors) and composed of
Impartial Directors or (iii) if there are fewer than two Impartial
Directors or if the Board or a duly authorized committee thereof so
directs (regardless whether the members thereof are Impartial
Directors), independent legal counsel, which may be the regular outside
counsel of the Corporation, as determined by the Impartial Directors
or, if no such directors exist, the full Board.
"Disbursing Officer" shall mean the President and Chief
Financial Officer of the Corporation or, if the President and Chief
Financial Officer has a direct or indirect interest in the Claim for
which indemnification is being sought, any officer who does not have
such an interest and who is designated by the President and Chief
Executive Officer to be the Disbursing Officer with respect to
indemnification requests related to the Claim, which designation shall
be made promptly after receipt of the initial request for
indemnification with respect to such Claim.
"Expenses" shall mean any expenses or costs, including,
without limitation, attorney's fees, judgments, punitive or exemplary
damages, fines, excise taxes or amounts paid in settlement.
"Indemnitee" shall mean any person who is or was a director,
officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, trust
or other enterprise (including, without limitation, employee benefit
plans of the Corporation).
"Preferred Stock" shall mean the preferred stock of the
Corporation, as provided for in the Certificate of Incorporation.
"Subsidiary" means any corporation, partnership or other
entity of which the Corporation, directly or indirectly, owns voting
stock or similar interests having a majority of the votes entitled to
be cast.
"Voting Stock" means the outstanding shares of Capital Stock
entitled to vote generally in an election of directors.
SECTION 12
Amendments
The Corporation's Bylaws may be altered, amended, or repealed or new
Bylaws may be adopted by:
(a) the stockholders, but only upon the affirmative vote of
holders of not less than 80% of the Voting Stock, voting together as a
single class; or
(b) the Board, but only upon the affirmative vote of both (i)
a majority of the directors then in office and (ii) a majority of the
Continuing Directors, voting as a separate group.
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
[VIGNETTE]
NUMBER SHARES
MMR
Incorporated under the laws CUSIP____________
of the State of Delaware See Reverse for Certain Definitions
McMoRan EXPLORATION CO.
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES, OF THE PAR VALUE OF ONE CENT ($0.1) PER
SHARE, OF THE COMMON STOCK OF McMoRan Exploration Co., transferable on the books
of the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. This certificate and the
shares represented hereby are issued and shall be held subject to all the
provisions of the Certificate of Incorporation, as amended, copies of which are
on file with the Transfer Agent, to all of which the holder by acceptance hereof
assents. This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the seal of the Corporation and the signatures of its duly authorized
officers.
Dated [SEAL OF MCMORAN EXPLORATION CO.]
COUNTERSIGNED AND REGISTERED:
MELLON SECURITIES TRUST COMPANY
Transfer Agent /s/ James R. Moffett
and Registrar ------------------------------
Co-Chairman of the Board
By: /s/ Michael C. Kilanowski, Jr.
Authorized Signature --------------------------------
Secretary
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts
of survivorship and not as to Minors Act _________
tenants in common State)
Additional abbreviation may also be used though not in the above list.
For value received, _______________ hereby sell, assign and transfer unto
- -----------------------------
Please insert social security or other
identifying number of assignee
- -------------------------------
- -------------------------------
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ______________________ Attorney to transfer
the said stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated ____________________
- ------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed:
- ------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
ANY APPROVED SIGNATURE GUARANTEED MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad - 15.
This certificate also evidences certain Rights as set forth in a Rights
Agreement between McMoRan Exploration Co. and Mellon Securities Trust Company,
as Rights Agent dated as of October __, 1998 and as amended from time to time
(the "Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices of
the Corporation. The Corporation will mail to the holder of this certificate a
copy of the Rights Agreement without charge promptly after receipt of a written
request therefor. Under certain circumstances, as set forth in the Rights
Agreement, such Rights may be evidenced by separate certificates and no longer
be evidenced by this certificate, may be redeemed or exchanged or may expire. As
set forth in the Rights Agreement, Rights issued to, or held by, any Person who
is, was or becomes an Acquiring Person or an Affiliate or Associate thereof (as
such terms are defined in the Rights Agreement), whether currently held by or on
behalf of such Person or by any subsequent holder, may be null and void.
EXHIBIT 4.2
RIGHTS AGREEMENT
dated as of
October [__], 1998
between
MCMORAN EXPLORATION CO.
and
[AGENT],
as Rights Agent
TABLE OF CONTENTS
----------------------
PAGE
SECTION 1. Definitions.......................................................1
SECTION 2. Appointment of Rights Agent.......................................5
SECTION 3. Issue of Right Certificates.......................................6
SECTION 4. Form of Right Certificates........................................7
SECTION 5. Countersignature and Registration.................................8
SECTION 6. Transfer and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates.................8
SECTION 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.....9
SECTION 8. Cancellation and Destruction of Right Certificates...............11
SECTION 9. Reservation and Availability of Capital Stock....................11
SECTION 10. Preferred Stock Record Date......................................12
SECTION 11. Adjustment of Purchase Price, Number and Kind of Shares
or Number of Rights.........................................13
SECTION 12. Certificate of Adjusted Purchase Price or Number of Shares.......21
SECTION 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power...............................................22
SECTION 14. Fractional Rights and Fractional Shares..........................24
SECTION 15. Rights of Action.................................................26
SECTION 16. Agreement of Right Holders.......................................26
SECTION 17. Right Certificate Holder Not Deemed a Stockholder................27
SECTION 18. Concerning the Rights Agent......................................27
SECTION 19. Merger or Consolidation or Change of Name of Rights
Agents......................................................28
SECTION 20. Duties of Rights Agent...........................................28
SECTION 21. Change of Rights Agent...........................................31
SECTION 22. Issuance of New Right Certificates...............................32
SECTION 23. Redemption.......................................................32
SECTION 24. Exchange.........................................................33
SECTION 25. Notice of Proposed Actions.......................................34
SECTION 26. Notices..........................................................35
SECTION 27. Supplements and Amendments.......................................35
SECTION 28. Successors.......................................................35
SECTION 29. Determinations and Actions by the Board, etc.....................36
SECTION 30. Benefits of this Agreement.......................................36
SECTION 31. Severability.....................................................36
SECTION 32. Governing Law....................................................36
SECTION 33. Counterparts.....................................................36
SECTION 34. Descriptive Headings.............................................37
Exhibit A - Form of Certificate of Designation of Preferred Stock
Exhibit B - Form of Right Certificate
Exhibit C - Summary Description of the Stockholder Rights Plan
RIGHTS AGREEMENT
AGREEMENT dated as of October [__], 1998 between McMoRan Exploration
Co., a Delaware corporation (the "Company), and [_____________], as Rights Agent
(the "Rights Agent"),
W I T N E S S E T H
WHEREAS, on October [__], 1998 the Board of Directors of the Company
authorized and declared a dividend of one preferred stock purchase right (a
"Right") for each share of Common Stock (as hereinafter defined) outstanding at
the close of business on November [__], 1998 (the "Record Date") and has
authorized the issuance, upon the terms and subject to the conditions
hereinafter set forth, of one Right (subject to adjustment) in respect of each
share of Common Stock issued after the Record Date, each Right representing the
right to purchase, upon the terms and subject to the conditions hereinafter set
forth, one one-hundredth (subject to adjustment) of a share of Preferred Stock
(as hereinafter defined);
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. The following terms, as used herein, have the
following meanings:
"Acquiring Person" means any Person who, together with all Affiliates
and Associates of such Person, shall be the Beneficial Owner of the Threshold
Percentage or more of the shares of Common Stock then outstanding, but shall not
include an Exempt Person; provided, however, that (a) if the Board determines in
good faith that a Person who would otherwise be an "Acquiring Person" became the
Beneficial Owner of a number of shares of Common Stock such that the Person
would otherwise qualify as an "Acquiring Person" inadvertently (including,
without limitation, because (i) such Person was unaware that it beneficially
owned a percentage of Common Stock that would otherwise cause such Person to be
an "Acquiring Person" or (ii) such Person was aware of the extent of its
Beneficial Ownership of Common Stock but had no actual knowledge of the
consequences of such Beneficial Ownership under this Agreement) and without any
intention of changing or influencing control of the Company, then such Person
shall not be deemed to be or to have become an "Acquiring Person" for any
purposes of this Agreement unless and until such Person shall have failed to
divest itself, as soon as practicable (as determined, in good faith, by the
Board of Directors of the Company), of Beneficial Ownership of a sufficient
number of shares of Common Stock so that such Person would no longer otherwise
qualify as an "Acquiring Person"; and (b) no Person shall become an "Acquiring
Person" as the result of any acquisition of shares of Common Stock by the
Company which, by reducing the number of shares of Common Stock outstanding,
increases the proportionate number of shares of Common Stock beneficially owned
by such Person to the Threshold Percentage or more of the shares of Common Stock
then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of the Threshold Percentage or more of the shares of Common
Stock then outstanding by reason of such share acquisition by the Company and
shall thereafter become the Beneficial Owner of any additional shares of Common
Stock (other than pursuant to a dividend or distribution paid or made by the
Company on the outstanding Common Stock or pursuant to a split or subdivision of
the outstanding Common Stock), then such Person shall be deemed to be an
"Acquiring Person" unless upon becoming the Beneficial Owner of such additional
shares of Common Stock such Person does not beneficially own the Threshold
Percentage or more of the shares of Common Stock then outstanding.
"Affiliate" and "Associate" have the respective meanings ascribed to
such terms in Rule 12b-2 under the Exchange Act as in effect on the date hereof.
A Person shall be deemed the "Beneficial Owner" of, and shall be deemed
to have "Beneficial Ownership" of and to "beneficially own", any securities:
(a) which such Person or any of its Affiliates or Associates,
directly or indirectly, beneficially owns (as determined pursuant to
Rule 13d-3 under the Exchange Act as in effect on the date hereof);
(b) which such Person or any of its Affiliates or Associates,
directly or indirectly, has
(i) the right to acquire (whether such right is exercisable
immediately or only upon the occurrence of certain events or
the passage of time or both) pursuant to any agreement,
arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights,
warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own", (A) securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person
or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase, (B) securities
which such Person has a right to acquire upon the exercise of
Rights at any time prior to the time that any Person becomes
an Acquiring Person or (C) securities issuable upon the
exercise of Rights from and after the time that any Person
becomes an Acquiring Person if such Rights were acquired by
such Person or any of such Person's Affiliates or Associates
prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof ("Original Rights") or pursuant to Section
11(i) or Section 11(p) with respect to an adjustment to
Original Rights; or
(ii) the right to vote (whether such right is exercisable
immediately or only upon the occurrence of certain events or
the passage of time or both) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or
otherwise; provided that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own", any security
under this clause (ii) as a result of an agreement,
arrangement or understanding to vote such security if such
agreement, arrangement or understanding (A) arises solely from
a revocable proxy or consent given in response to a public
proxy or consent solicitation made pursuant to the applicable
rules and regulations under the Exchange Act and (B) is not
also then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(c) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) and with respect
to which such Person or any of its Affiliates or Associates has any
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy or
consent as described in subparagraph (b)(ii) immediately above) or
disposing of any such securities;
provided, however, that no Person who is an officer, director or employee of an
Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned", including, without limitation, in a fiduciary capacity, by an Exempt
Person or by any other such officer, director or employee of an Exempt Person.
"Board" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Close of business" on any given date means 5:00 P.M., New York City
time, on such date; provided that if such date is not a Business Day "close of
business" means 5:00 P.M., New York City time, on the next succeeding Business
Day.
"Common Stock" means the Common Stock, par value $0.01 per share, of
the Company, except that, when used with reference to any Person other than the
Company, "Common Stock" means the capital stock of such Person with the greatest
voting power, or the equity securities or other equity interest having power to
control or direct the management, of such Person.
"Distribution Date" means the earlier of (a) the close of business on
the tenth day after the Stock Acquisition Date and (b) the close of business on
the tenth Business Day (or such later day as may be designated prior to the
occurrence of a Section 11(a)(ii) Event by action of the Board) after the date
of the commencement of a tender or exchange offer by any Person if, upon
consummation thereof, such Person would be an Acquiring Person; provided,
however, that if either of such dates occurs after the date of this Agreement
and on or prior to the Record Date, then the Distribution Date shall be the
Record Date.
"Exempt Person" shall mean the Company or any Subsidiary of the
Company, in each case including, without limitation, in its fiduciary capacity,
or any employee benefit plan of the Company or of any Subsidiary of the Company,
or any entity or trustee holding Common Stock for or pursuant to the terms of
any such plan or for the purpose of funding any such plan or funding other
employee benefits for employees of the Company or of any Subsidiary of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" means the earlier of (a) the Final Expiration Date
and (b) the time at which all Rights are redeemed as provided in Section 23 or
exchanged as provided in Section 24.
"Final Expiration Date" means the close of business on November [__],
2008.
"Person" means an individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization.
"Preferred Stock" means the Series A Participating Cumulative Preferred
Stock, par value $[0.01] per share, of the Company, having the terms set forth
in the form of certificate of designation attached hereto as Exhibit A.
"Purchase Price" means the price (subject to adjustment as provided
herein) at which a holder of a Right may purchase one one-hundredth of a share
of Preferred Stock (subject to adjustment as provided herein) upon exercise of a
Right, which price shall initially be $[_______].
"Section 11(a)(ii) Event" means any event described in the first clause
of Section 11(a)(ii).
"Section 13 Event" means any event described in clauses (x), (y) or (z)
of Section 13(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Acquisition Date" means the date of the first public
announcement (including the filing of a report on Schedule 13D under the
Exchange Act (or any comparable or successor report)) by the Company or an
Acquiring Person indicating that an Acquiring Person has become such.
"Subsidiary" of any Person means any other Person of which securities
or other ownership interests having ordinary voting power, in the absence of
contingencies, to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by
such first Person.
["Threshold Percentage" means (i)[___%] with respect to [specify
persons to be excepted] [and its Affiliates and Associates] and (ii) 15% with
respect to any other Person and its Affiliates and Associates.]
"Trading Day" means a day on which the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Common Stock are
not listed or admitted to trading on any national securities exchange, a
Business Day.
"Triggering Event" means any Section 11(a)(ii) Event or any Section 13
Event.
SECTION 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable. If the Company appoints
one or more Co-Rights Agents, the respective duties of the Rights Agent and any
Co-Rights Agents shall be as the Company shall determine.
SECTION 3. Issue of Right Certificates. (a) Prior to the Distribution
Date, (i) the Rights will be evidenced (subject to the penultimate sentence of
this Section 3(a)) by the certificates for the Common Stock and not by separate
Right Certificates (as hereinafter defined) and the registered holders of the
Common Stock shall be deemed to be the registered holders of the associated
Rights, and (ii) the Rights will be transferable only in connection with the
transfer of the underlying shares of Common Stock. As soon as practicable after
the Record Date, the Company will send a copy of the Summary of Rights
substantially in the form of Exhibit C hereto, by first-class, postage prepaid
mail, to each record holder of the Common Stock as of the close of business on
the Record Date at the address of such holder shown on the records of the
Company. [With respect to certificates for Common Stock outstanding as of the
Record Date, prior to the Distribution Date, the Rights will be evidenced by
such certificates registered in the names of the holders thereof together with a
copy of the Summary of Rights.] Prior to the Distribution Date (or, if earlier,
the Expiration Date), the surrender for transfer of any certificate for Common
Stock outstanding on the Record Date, with or without a copy of the Summary of
Rights, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby.
(b) As soon as practicable after the Company has notified the Rights
Agent of the occurrence of the Distribution Date, the Rights Agent will send, by
first-class, insured, postage prepaid mail, to each record holder of the Common
Stock as of the close of business on the Distribution Date (other than any
Acquiring Person or any Affiliate or Associate thereof), at the address of such
holder shown on the records of the Company, one or more Right Certificates
evidencing one Right (subject to adjustment as provided herein) for each share
of Common Stock so held. If an adjustment in the number of Rights per share of
Common Stock has been made pursuant to Section 11 the Company shall, at the time
of distribution of the Right Certificates, make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a)) so that Right
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. From and after the Distribution Date,
the Rights will be evidenced solely by such Right Certificates.
(c) Rights shall be issued in respect of all shares of Common Stock
outstanding as of the Record Date or issued (on original issuance or out of
treasury) after the Record Date but prior to the earlier of the Distribution
Date and the Expiration Date. In addition, in connection with the issuance or
sale of shares of Common Stock following the Distribution Date and prior to the
Expiration Date, the Company (i) shall, with respect to shares of Common Stock
so issued or sold (x) pursuant to the exercise of stock options or under any
employee plan or arrangement or (y) upon the exercise, conversion or exchange of
other securities issued by the Company prior to the Distribution Date and (ii)
may, in any other case, if deemed necessary or appropriate by the Board, issue
Right Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided that no such Right Certificate shall be
issued if, and to the extent that, (i) the Company shall be advised by counsel
that such issuance would create a significant risk of material adverse tax
consequences to the Company or the Person to whom such Right Certificate would
be issued or (ii) appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.
(d) Certificates issued for Common Stock after the Record Date but
prior to the earlier of the Distribution Date and the Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences certain Rights as set forth in a Rights
Agreement between McMoRan Exploration Co. and [____________] dated as
of October [__], 1998 and as amended from time to time (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of the Company. The Company will mail to the holder of this
certificate a copy of the Rights Agreement without charge promptly
after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
evidenced by separate certificates and no longer be evidenced by this
certificate, may be redeemed or exchanged or may expire. As set forth
in the Rights Agreement, Rights issued to, or held by, any Person who
is, was or becomes an Acquiring Person or an Affiliate or Associate
thereof (as such terms are defined in the Rights Agreement), whether
currently held by or on behalf of such Person or by any subsequent
holder, may be null and void.
SECTION 4. Form of Right Certificates. The certificates evidencing the
Rights (and the forms of assignment, election to purchase and certificates to be
printed on the reverse thereof) (the "Right Certificates") shall be
substantially in the form of Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law, rule or regulation or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. The Right Certificates, whenever distributed, shall be dated as of the
Record Date.
SECTION 5. Countersignature and Registration. (a) The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its President or any Vice President, either manually or by facsimile
signature, and shall have affixed thereto the Company's seal or a facsimile
thereof which shall be attested by the Secretary or an Assistant Secretary of
the Company, either manually or by facsimile signature. The Right Certificates
shall be manually countersigned by the Rights Agent and shall not be valid for
any purpose unless so countersigned. In case any officer of the Company whose
manual or facsimile signature is affixed to the Right Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Right Certificates may,
nevertheless, be countersigned by the Rights Agent and issued and delivered with
the same force and effect as though the Person who signed such Right
Certificates had not ceased to be such officer of the Company. Any Right
Certificate may be signed on behalf of the Company by any Person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the place for
surrender of Right Certificates upon exercise, transfer or exchange, books for
registration and transfer of the Right Certificates. Such books shall show with
respect to each Right Certificate the name and address of the registered holder
thereof, the number of Rights indicated on the certificate and the certificate
number.
SECTION 6. Transfer and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates. (a) At any time after the
Distribution Date and prior to the Expiration Date, any Right Certificate or
Certificates may, upon the terms and subject to the conditions set forth in this
Agreement, be transferred or exchanged for another Right Certificate or
Certificates evidencing a like number of Rights as the Right Certificate or
Certificates surrendered. Any registered holder desiring to transfer or exchange
any Right Certificate or Certificates shall surrender such Right Certificate or
Certificates (with, in the case of a transfer, the form of assignment and
certificate on the reverse side thereof duly executed) to the Rights Agent at
the principal office or offices of the Rights Agent designated for such purpose.
Neither the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Right
Certificate or Certificates until the registered holder of the Rights has
complied with the requirements of Section 7(e). Upon satisfaction of the
foregoing requirements, the Rights Agent shall, subject to Sections 7(d), 14 and
24, countersign and deliver to the Person entitled thereto a Right Certificate
or Certificates as so requested. The Company may require payment of a sum
sufficient to cover any transfer tax or other governmental charge that may be
imposed in connection with any transfer or exchange of any Right Certificate or
Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will issue and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered owner in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
SECTION 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein, including
Sections 7(d), 7(e), 9(c), 11(a), 23 and 24) in whole or in part at any time
after the Distribution Date and prior to the Expiration Date upon surrender of
the Right Certificate, with the form of election to purchase and the certificate
on the reverse side thereof duly executed, to the Rights Agent at the principal
office or offices of the Rights Agent designated for such purpose, together with
payment (in lawful money of the United States of America by certified check or
bank draft payable to the order of the Company) of the aggregate Purchase Price
with respect to the Rights then to be exercised and an amount equal to any
applicable transfer tax or other governmental charge.
(b) Upon satisfaction of the requirements of Section 7(a) and subject
to Section 20(k), the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Stock (or make available, if the Rights
Agent is the transfer agent therefor) certificates for the total number of one
one-hundredths of a share of Preferred Stock to be purchased (and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests) or (B) if the Company shall have elected to deposit the shares of
Preferred Stock issuable upon exercise of the Rights with a depositary agent,
requisition from the depositary agent depositary receipts representing interests
in such number of one one-hundredths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company will direct the depositary agent to comply
with such request, (ii) requisition from the Company the amount of cash, if any,
to be paid in lieu of issuance of fractional shares in accordance with Section
14 and (iii) after receipt of such certificates or depositary receipts and cash,
if any, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate (with such certificates or receipts registered
in such name or names as may be designated by such holder). If the Company is
obligated to deliver Common Stock, other securities or assets pursuant to this
Agreement, the Company will make all arrangements necessary so that such other
securities and assets are available for delivery by the Rights Agent, if and
when appropriate.
(c) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing the number of Rights remaining unexercised shall be issued by the
Rights Agent and delivered to, or upon the order of, the registered holder of
such Right Certificate, registered in such name or names as may be designated by
such holder, subject to the provisions of Section 14.
(d) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person (or
any such Associate or Affiliate) to holders of equity interests in such
Acquiring Person (or in any such Associate or Affiliate) or to any Person with
whom the Acquiring Person (or any such Associate or Affiliate) has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(d)
shall become null and void without any further action, and no holder of such
Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company shall use all
reasonable efforts to insure that the provisions of this Section 7(d) are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates and Associates or any
transferee of any of them hereunder.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported transfer pursuant to Section 6 or exercise pursuant to this Section 7
unless such registered holder (i) shall have completed and signed the
certificate contained in the form of assignment or election to purchase, as the
case may be, set forth on the reverse side of the Right Certificate surrendered
for such transfer or exercise, as the case may be, (ii) shall not have indicated
an affirmative response to clause 1 or 2 thereof and (iii) shall have provided
such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
SECTION 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for exercise, transfer or exchange shall, if
surrendered to the Company or to any of its agents, be delivered to the Rights
Agent for cancellation or in canceled form, or, if surrendered to the Rights
Agent, shall be canceled by it, and no Right Certificates shall be issued in
lieu thereof except as expressly permitted by this Agreement. The Company shall
deliver to the Rights Agent for cancellation, and the Rights Agent shall cancel,
any other Right Certificate purchased or acquired by the Company otherwise than
upon the exercise thereof. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
SECTION 9. Reservation and Availability of Capital Stock. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available a number of shares of Preferred Stock which are authorized but not
outstanding or otherwise reserved for issuance sufficient to permit the exercise
in full of all outstanding Rights as provided in this Agreement.
(b) So long as the Preferred Stock issuable upon the exercise of
Rights may be listed on any national securities exchange, the Company shall use
its best efforts to cause, from and after such time as the Rights become
exercisable, all securities reserved for such issuance to be listed on any such
exchange upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts (i) to file, as soon as
practicable following the earliest date after the occurrence of a Section
11(a)(ii) Event as of which the consideration to be delivered by the Company
upon exercise of the Rights has been determined in accordance with Section
11(a)(iii), or as soon as is required by law following the Distribution Date, as
the case may be, a registration statement under the Securities Act with respect
to the securities issuable upon exercise of the Rights, (ii) to cause such
registration statement to become effective as soon as practicable after such
filing and (iii) to cause such registration statement to remain effective (with
a prospectus at all times meeting the requirements of the Securities Act) until
the earlier of (A) the date as of which the Rights are no longer exercisable for
such securities and (B) the Expiration Date. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the securities
or blue sky laws of the various states in connection with the exercisability of
the Rights. The Company may temporarily suspend, for a period of time not to
exceed 90 days after the date set forth in clause 9(c)(i), the exercisability of
the Rights in order to prepare and file such registration statement and permit
it to become effective. Upon any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. Notwithstanding any such provision of this
Agreement to the contrary, the Rights shall not be exercisable for securities in
any jurisdiction if the requisite qualification in such jurisdiction shall not
have been obtained, such exercise therefor shall not be permitted under
applicable law or a registration statement in respect of such securities shall
not have been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to insure that all one one-hundredths of a share of
Preferred Stock issuable upon exercise of Rights shall, at the time of delivery
of the certificates for such securities (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and other governmental
charges which may be payable in respect of the issuance or delivery of the Right
Certificates and of any certificates for Preferred Stock upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax or
other governmental charge which may be payable in respect of any transfer
involved in the issuance or delivery of any Right Certificates or of any
certificates for Preferred Stock to a Person other than the registered holder of
the applicable Right Certificate, and prior to any such transfer, issuance or
delivery any such tax or other governmental charge shall have been paid by the
holder of such Right Certificate or it shall have been established to the
Company's satisfaction that no such tax or other governmental charge is due.
SECTION 10. Preferred Stock Record Date. Each Person (other than the
Company) in whose name any certificate for Preferred Stock is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such Preferred Stock represented thereby on, and such certificate
shall be dated, the date upon which the Right Certificate evidencing such Rights
was duly surrendered and payment of the Purchase Price (and any transfer taxes
or other governmental charges) was made; provided that if the date of such
surrender and payment is a date upon which the transfer books of the Company
relating to the Preferred Stock are closed, such Person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which the applicable transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a
stockholder of the Company with respect to shares for which the Rights shall be
exercisable, including the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company except as provided herein.
SECTION 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. (a) (i) If the Company shall at any time after the date of
this Agreement (A) pay a dividend on the Preferred Stock payable in shares of
Preferred Stock, (B) subdivide the outstanding Preferred Stock into a greater
number of shares, (C) combine the outstanding Preferred Stock into a smaller
number of shares or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger involving the Company), the Purchase
Price in effect immediately prior to the record date for such dividend or the
effective date of such subdivision, combination or reclassification, and the
number and kind of shares of Preferred Stock or other capital stock issuable on
such date shall be proportionately adjusted so that each holder of a Right shall
(except as otherwise provided herein, including Section 7(d)) thereafter be
entitled to receive, upon exercise thereof at the Purchase Price in effect
immediately prior to such date, the aggregate number and kind of shares of
Preferred Stock or other capital stock, as the case may be, which, if such Right
had been exercised immediately prior to such date and at a time when the
applicable transfer books of the Company were open, such holder would have been
entitled to receive upon such exercise and by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs which requires
an adjustment under both this Section 11(a)(i) and Section 11(a)(ii), the
adjustment provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to Section 11(a)(ii).
(ii) If any Person, alone or together with its Affiliates and
Associates, shall, at any time after the date of this Agreement, become an
Acquiring Person, then each holder of a Right shall (except as otherwise
provided herein, including Section 7(d)) thereafter be entitled to receive, upon
exercise thereof at the Purchase Price in effect immediately prior to the first
occurrence of a Section 11(a)(ii) Event, in lieu of Preferred Stock, such number
of duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock of the Company (such shares being referred to herein as the
"Adjustment Shares") as shall be equal to the result obtained by dividing
(x) the product obtained by multiplying the Purchase Price in effect
immediately prior to the first occurrence of a Section 11(a)(ii) Event
by the number of one one-hundredths of a share of Preferred Stock for
which a Right was exercisable immediately prior to such first
occurrence (such product being thereafter referred to as the "Purchase
Price" for each Right) by
(y) 50% of the current market price (determined pursuant to Section
11(d)(i)) per share of Common Stock on the date of such first
occurrence;
provided, however, that the Purchase Price (as so adjusted pursuant this clause
(ii) and the number of Adjustment Shares so receivable upon exercise of a Right
shall, following the occurrence of such Section 11(a)(ii) Event, be subject to
further adjustment as appropriate in accordance with Section 11(f). From and
after the occurrence of a Section 13 Event, any Rights that theretofore have not
been exercised pursuant to this Section 11(a)(ii) shall thereafter be
exercisable only in accordance with Section 13 and not pursuant to this Section
11(a)(ii).
(iii) If the number of shares of Common Stock which are authorized by
the Company's certificate of incorporation but not outstanding or reserved for
issuance other than upon exercise of the Rights is not sufficient to permit the
exercise in full of the Rights in accordance with Section 11(a)(ii), the Company
shall, with respect to each Right, make adequate provision to substitute for the
Adjustment Shares, upon payment of the Purchase Price then in effect, (A) (to
the extent available) Common Stock and then, (B) (to the extent available) such
number of one one-hundredths of a share of Preferred Stock as are then
equivalent in value to the value of the Adjustment Shares, and then, if
necessary, (C) other equity or debt securities of the Company, cash or other
assets, a reduction in the Purchase Price or any combination of the foregoing,
having an aggregate value (based upon the advice of a nationally recognized
investment banking firm) equal to the value of the Adjustment Shares; provided
that (x) the Company may, and (y) if the Company shall not have made adequate
provision as required above to deliver value within 30 days following the first
occurrence of a Section 11(a)(ii) Event (the "Substitution Period"), then the
Company shall be obligated to deliver, upon the surrender for exercise of a
Right and without requiring payment of the Purchase Price, (1) (to the extent
available) Common Stock and then (2) (to the extent available) one-hundredths of
a share of Preferred Stock and then, if necessary, (3) other equity or debt
securities of the Company, cash or other assets or any combination of the
foregoing, having an aggregate value (based upon the advice of a nationally
recognized investment banking firm) equal to the excess of the value of the
Adjustment Shares over the Purchase Price. To the extent that the Company
determines that some action is to be taken pursuant to the preceding sentence,
the Company (X) shall provide, subject to Section 7(d), that such action shall
apply uniformly to all outstanding Rights and (Y) may suspend the exercisability
of the Rights until the expiration of the Substitution Period in order to decide
the appropriate form and value of any consideration to be delivered as referred
to in the preceding sentence. If any such suspension occurs, the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of the Common Stock shall be the current market price per share of Common
Stock (as determined pursuant to Section 11(d)) on the date of the first
occurrence of a Section 11(a)(ii) Event; any common stock equivalent shall be
deemed to have the same value as the Common Stock on such date; and the value of
other securities or assets shall be determined pursuant to Section 11(d)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within 45 calendar days after
such record date) Preferred Stock (or securities having the same rights,
privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into or exercisable for Preferred
Stock (or equivalent preferred stock) at a price per share of Preferred Stock
(or equivalent preferred stock) (in each case, taking account of any conversion
or exercise price) less than the current market price (as determined pursuant to
Section 11(d)) per share of Preferred Stock on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate price (taking account of any conversion or exercise price) of the
total number of shares of Preferred Stock (and/or equivalent preferred stock) so
to be offered would purchase at such current market price and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such
record date plus the number of additional shares of Preferred Stock (and/or
equivalent preferred stock) so to be offered. In case such subscription price
may be paid by delivery of consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as determined in good
faith by the Board, whose determination shall be described in a statement filed
with the Rights Agent and shall be conclusive for all purposes. Shares of
Preferred Stock owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed, and if such
rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger involving the Company) of
evidences of indebtedness, equity securities other than Preferred Stock, assets
(other than a regular periodic cash dividend out of the earnings or retained
earnings of the Company) or rights, options or warrants (excluding those
referred to in Section 11(b)), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the current market price (as determined pursuant to Section 11(d)) per
share of Preferred Stock on such record date, less the value (as determined
pursuant to Section 11(d)(iii)) of such evidences of indebtedness, equity
securities, assets, rights, options or warrants so to be distributed with
respect to one share of Preferred Stock and the denominator of which shall be
such current market price per share of Preferred Stock. Such adjustment shall be
made successively whenever such a record date is fixed, and if such distribution
is not so made, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder other than
computations made pursuant to Section 11(a)(iii) or 14, the "current market
price" per share of Common Stock on any date shall be deemed to be the average
of the daily closing prices per share of such Common Stock for the 30
consecutive Trading Days immediately prior to such date; for purposes of
computations made pursuant to Section 11(a)(iii), the "current market price" per
share of Common Stock on any date shall be deemed to be the average of the daily
closing prices per share of such Common Stock for the 10 consecutive Trading
Days immediately following such date; and for purposes of computations made
pursuant to Section 14, the "current market price" per share of Common Stock for
any Trading Day shall be deemed to be the closing price per share of Common
Stock for such Trading Day; provided that if the current market price per share
of the Common Stock is determined during a period following the announcement by
the issuer of such Common Stock of (A) a dividend or distribution on such Common
Stock payable in shares of such Common Stock or securities exercisable for or
convertible into shares of such Common Stock (other than the Rights), or (B) any
subdivision, combination or reclassification of such Common Stock, and prior to
the expiration of the requisite 30 Trading Day or 10 Trading Day period, as set
forth above, after the ex-dividend date for such dividend or distribution, or
the record date for such subdivision, combination or reclassification, then, and
in each such case, the "current market price" shall be properly adjusted to take
into account ex-dividend trading. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the shares of Common Stock are not listed or admitted to trading on the New
York Stock Exchange, on the principal national securities exchange on which the
shares of Common Stock are listed or admitted to trading or, if the shares of
Common Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use or, if on any such date the shares
of Common Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Common Stock selected by the Board. If on any such date no
market maker is making a market in the Common Stock, the fair value of such
shares on such date as determined in good faith by the Board (or, if at the time
of such determination there is an Acquiring Person, by a nationally recognized
investment banking firm) shall be used. If the Common Stock is not publicly held
or not so listed or traded, the "current market price" per share means the fair
value per share as determined in good faith by the Board, or, if at the time of
such determination there is an Acquiring Person, by a nationally recognized
investment banking firm, which determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "current
market price" per share of Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in Section 11(d)(i)
(other than the last sentence thereof). If the current market price per
share of Preferred Stock cannot be determined in such manner, the
"current market price" per share of Preferred Stock shall be
conclusively deemed to be an amount equal to 100 (as such number may be
appropriately adjusted for such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock occurring after
the date of this Agreement) multiplied by the current market price per
share of Common Stock (as determined pursuant to Section 11(d)(i)
(other than the last sentence thereof)). If neither the Common Stock
nor the Preferred Stock is publicly held or so listed or traded, the
"current market price" per share of the Preferred Stock shall be
determined in the same manner as set forth in the last sentence of
Section 11(d)(i). For all purposes of this Agreement, the "current
market price" of one one-hundredth of a share of Preferred Stock shall
be equal to the "current market price" of one share of Preferred Stock
divided by 100.
(iii) For the purpose of any computation hereunder, the value of
any securities or assets other than Common Stock or Preferred Stock
shall be the fair value as determined in good faith by the Board, or,
if at the time of such determination there is an Acquiring Person, by a
nationally recognized investment banking firm which determination shall
be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided that any
adjustments which by reason of this Section 11(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest cent or to
the nearest ten-thousandth of a share of Common Stock or other share or
one-millionth of a share of Preferred Stock, as the case may be.
(f) If at any time, as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a), the holder of any Right shall be entitled to
receive upon exercise of such Right any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Section 11(a), 11(b), 11(c), 11(e), 11(g), 11(h), 11(i), 11(j), 11(k) and 11(m),
and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made hereunder shall evidence the right to purchase, at the Purchase
Price then in effect, the then applicable number of one one-hundredths of a
share of Preferred Stock and other capital stock of the Company issuable from
time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Section 11(b) and 11(c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
share of Preferred Stock (calculated to the nearest one-millionth) obtained by
(i) multiplying (x) the number of one one-hundredths of a share for which a
Right was exercisable immediately prior to this adjustment by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any adjustment in
the number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one one-hundredths of a
share of Preferred Stock for which such Right was exercisable immediately prior
to such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Purchase Price) and shall be registered in the
names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price per one one-hundredth of a share and
the number of shares which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the par value, if any, of the number of one
one-hundredths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable such number of one one-hundredths of a share
of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock or other capital
stock of the Company, if any, issuable upon such exercise over and above the
number of one one-hundredths of a share of Preferred Stock or other capital
stock of the Company, if any, issuable upon such exercise on the basis of the
Purchase Price in effect prior to such adjustment; provided that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it, in its sole discretion, shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Stock, issuance
wholly for cash of any Preferred Stock at less than the current market price,
issuance wholly for cash of Preferred Stock or securities which by their terms
are convertible into or exercisable for Preferred Stock, stock dividends or
issuance of rights, options or warrants referred to in this Section 11,
hereafter made by the Company to the holders of its Preferred Stock, shall not
be taxable to such stockholders.
(n) The Company covenants and agrees that it will not at any time
after the Distribution Date (i) consolidate, merge or otherwise combine with or
(ii) sell or otherwise transfer (and/or permit any of its Subsidiaries to sell
or otherwise transfer), in one transaction or a series of related transactions,
assets or earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries, taken as a whole, to any other Person or
Persons if (x) at the time of or immediately after such consolidation, merger,
combination or sale there are any rights, warrants or other instruments or
securities outstanding or any agreements or arrangements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger, combination or sale, the stockholders of a Person
who constitutes, or would constitute, the "Principal Party" for the purposes of
Section 13 shall have received a distribution of Rights previously owned by such
Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that after the Distribution Date,
it will not, except as permitted by Sections 23, 24 and 27, take (or permit any
Subsidiary to take) any action if at the time such action is taken it is
reasonably foreseeable that such action will substantially diminish or otherwise
eliminate the benefits intended to be afforded by the Rights.
(p) Notwithstanding anything in this Agreement to the contrary, if at
any time after the date hereof and prior to the Distribution Date the Company
shall (i) pay a dividend on the outstanding shares of Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock into a
larger number of shares or (iii) combine the outstanding Common Stock into a
smaller number of shares, the number of Rights associated with each share of
Common Stock then outstanding, or issued or delivered thereafter as contemplated
by Section 3(c), shall be proportionately adjusted so that the number of Rights
thereafter associated with each share of Common Stock following any such event
shall equal the result obtained by multiplying the number of Rights associated
with each share of Common Stock immediately prior to such event by a fraction
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the denominator
of which shall be the total number of shares of Common Stock outstanding
immediately following the occurrence of such event.
SECTION 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13, the
Company shall (a) promptly prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Rights Agent and with each transfer agent for the Preferred Stock
and the Common Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate (or, if prior to the Distribution
Date, to each holder of a certificate representing shares of Common Stock) in
the manner set forth in Section 26. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained.
SECTION 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. (a) If, following the occurrence of a Section 11(a)(ii) Event,
directly or indirectly,
(x) the Company shall consolidate with, merge into, or otherwise
combine with, any other Person, and the Company shall not be the
continuing or surviving corporation of such consolidation, merger or
combination,
(y) any Person shall merge into, or otherwise combine with, the
Company, and the Company shall be the continuing or surviving
corporation of such merger or combination and, in connection with such
merger or combination, all or part of the outstanding shares of Common
Stock shall be changed into or exchanged for other stock or securities
of the Company or any other Person, cash or any other property, or
(z) the Company and/or one or more of its Subsidiaries shall sell
or otherwise transfer, in one transaction or a series of related
transactions, assets or earning power aggregating more than 50% of the
assets or earning power of the Company and its Subsidiaries, taken as a
whole, to any other Person or Persons,
then, and in each such case, proper provision shall promptly be made so that
(i) each holder of a Right shall thereafter be entitled to
receive, upon exercise thereof at the Purchase Price in effect
immediately prior to the first occurrence of a Section 11(a)(ii) Event,
such number of duly authorized, validly issued, fully paid and
nonassessable shares of freely tradeable Common Stock of the Principal
Party (as hereinafter defined), not subject to any rights of call or
first refusal, liens, encumbrances or other claims, as shall be equal
to the result obtained by dividing
(A) the product obtained by multiplying the Purchase
Price in effect immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the number of one one-hundredths of
a share of Preferred Stock for which a Right was exercisable
immediately prior to such first occurrence (such product being
thereafter referred to as the "Purchase Price" for each Right
and for all purposes of this Agreement) by
(B) 50% of the current market price (determined pursuant
to Section 11(d)(i)) per share of the Common Stock of such
Principal Party on the date of consummation of such
consolidation, merger, combination, sale or transfer;
provided, however, that the Purchase Price (as so adjusted pursuant to the
foregoing clause (i)(A)) and the number of shares of Common Stock of such
Principal Party so receivable upon exercise of a Right shall be subject to
further adjustment as appropriate in accordance with Section 11(f) to reflect
any events occurring in respect of the Common Stock of such Principal Party
after the occurrence of such consolidation, merger, sale or transfer;
(ii) the Principal Party shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, combination, sale or
transfer, all the obligations and duties of the Company pursuant to
this Agreement;
(iii) the term "Company" shall thereafter be deemed to refer to
such Principal Party, it being specifically intended that the
provisions of Section 11 shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; and
(iv) such Principal Party shall take such steps (including the
authorization and reservation of a sufficient number of shares of its
Common Stock to permit exercise of all outstanding Rights in accordance
with this Section 13(a)) in connection with the consummation of any
such transaction as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably may be,
in relation to the shares of its Common Stock thereafter deliverable
upon the exercise of the Rights.
(b) "Principal Party" means
(i) in the case of any transaction described in Section 13(a)(x)
or (y), the Person that is the issuer of any securities into which
shares of Common Stock of the Company are converted in such merger,
consolidation or combination, and if no securities are so issued, the
Person that survives or results from such merger, consolidation or
combination; and
(ii) in the case of any transaction described in Section 13(a)(z),
the Person that is the party receiving the greatest portion of the
assets or earning power transferred pursuant to such transaction or
transactions;
provided that in any such case, (A) if the Common Stock of such Person is not at
such time and has not been continuously over the preceding 12-month period
registered under Section 12 of the Exchange Act, and such Person is a direct or
indirect Subsidiary of another Person the Common Stock of which is and has been
so registered, "Principal Party" shall refer to such other Person; and (B) in
case such Person is a Subsidiary, directly or indirectly, of more than one
Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
combination, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock which are not outstanding or
otherwise reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in Section 13(a) and
13(b) and providing that, as soon as practicable after the date of any
consolidation, merger, combination, sale or transfer mentioned in Section 13(a),
the Principal Party will:
(i) prepare and file a registration statement under the Securities
Act with respect to the securities issuable upon exercise of the
Rights, and will use its best efforts to cause such registration
statement (A) to become effective as soon as practicable after such
filing and (B) to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration
Date; and
(ii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
SECTION 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights, except prior to the
Distribution Date as provided in Section 11(p), or to distribute Right
Certificates which evidence fractional Rights. In lieu of any such fractional
Rights, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the current market
price of a whole Right. For purposes of this Section 14(a), the current market
price of a whole Right shall be the closing price of a Right for the Trading Day
immediately prior to the date on which such fractional Rights would otherwise
have been issuable. The closing price of a Right for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on which the Rights are
listed or admitted to trading or, if the Rights are not listed or admitted to
trading on any national securities exchange, the last quoted price, or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board. If on any such
date no such market maker is making a market in the Rights, the current market
price of the Rights on such date shall be as determined in good faith by the
Board, or, if at the time of such determination there is an Acquiring Person, by
a nationally recognized investment banking firm.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are multiples of one one-hundredth
of a share of Preferred Stock) upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Preferred Stock (other than
fractions which are multiples of one one-hundredth of a share of Preferred
Stock). In lieu of any such fractional shares of Preferred Stock, the Company
shall pay to the registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market price of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market price of
one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)) for the Trading Day immediately prior to the date of such
exercise.
(c) Following the occurrence of any Triggering Event or upon any
exchange pursuant to Section 24, the Company shall not be required to issue
fractions of shares of Common Stock upon exercise of the Rights or to distribute
certificates which evidence fractional shares of Common Stock. In lieu of
fractional shares of Common Stock, the Company shall pay to the registered
holders of Right Certificates at the time such Rights are exercised or exchanged
as herein provided an amount in cash equal to the same fraction of the current
market price of a share of Common Stock. For purposes of this Section 14(c), the
current market price of a share of Common Stock shall be the closing price of a
share of Common Stock (as determined pursuant to Section 11(d)(i)) for the
Trading Day immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right except as permitted by this Section 14.
SECTION 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
certificates representing Common Stock); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of any certificate representing
Common Stock), without the consent of the Rights Agent or of the holder of any
other Right Certificate (or, prior to the Distribution Date, of any certificate
representing Common Stock), may, in his own behalf and for his own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, his right to exercise
the Rights evidenced by such Right Certificate in the manner provided in such
Right Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
SECTION 16. Agreement of Right Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the principal office or offices of the Rights Agent
designated for such purposes, duly endorsed or accompanied by a proper
instrument of transfer and with the appropriate forms and certificates
fully executed;
(c) subject to Sections 6 and 7, the Company and the Rights Agent
may deem and treat the Person in whose name a Right Certificate (or,
prior to the Distribution Date, a certificate representing shares of
Common Stock) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificate or the certificate representing shares
of Common Stock made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and neither the Company nor the
Rights Agent, subject to the last sentence of Section 7(d), shall be
affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to
perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute,
rule, regulation or executive order promulgated or enacted by any
governmental authority prohibiting or otherwise restraining performance
of such obligation; provided that the Company must use its best efforts
to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
SECTION 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of capital stock
which may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Right Certificate be
construed to confer upon the holder of any Right Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders (except as provided
in Section 25), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof.
SECTION 18. Concerning the Rights Agent. (a) The Company agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and disbursements and other disbursements incurred in
the execution or administration of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the administration of this Agreement or the exercise or
performance of its duties hereunder, including the costs and expenses of
defending against any claim of liability.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with the administration of this Agreement or the exercise or performance of its
duties hereunder in reliance upon any Right Certificate or certificate for
Common Stock or for other securities of the Company, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice,
instruction, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons.
SECTION 19. Merger or Consolidation or Change of Name of Rights Agents.
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust or stock transfer business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21. In
case at the time such successor Rights Agent shall succeed to the agency created
by this Agreement, any of the Right Certificates shall have been countersigned
but not delivered, any such successor Rights Agent may adopt the
countersignature of a predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
SECTION 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall
be full and complete authorization and protection to the Rights Agent
as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any "Acquiring
Person" and the determination of "current market price") be proved or
established by the Company prior to taking, suffering or omitting to
take any action hereunder, such fact or matter (unless other evidence
in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved and established by a certificate signed by the
Chairman of the Board, the President or any Vice President and by the
Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any
action taken, suffered or omitted in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Agreement or in
the Right Certificates (except its countersignature thereof) or be
required to verify the same, but all such statements and recitals are
and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except
its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for
any change in the exercisability of the Rights (including the Rights
becoming void pursuant to Section 7(d)) or any adjustment in the terms
of the Rights (including the manner, method or amount thereof) provided
for in Sections 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after
actual notice of any such adjustment); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock or Preferred
Stock to be issued pursuant to this Agreement or any Right Certificate
or as to whether any shares of Common Stock or Preferred Stock will,
when issued, be duly authorized, validly issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances
as may reasonably be required by the Rights Agent for the carrying out
or performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder
from the Chairman of the Board, the President or any Vice President or
the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not
be liable for any action taken, suffered or omitted to be taken by it
in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights
or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract
with or lend money to the Company or otherwise act as fully and freely
as though it were not the Rights Agent under this Agreement. Nothing
herein shall preclude the Rights Agent from acting in any other
capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall
not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys or agents or for any loss to the
Company or to any holders of Rights resulting from any such act,
default, neglect or misconduct, provided that reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of its rights if there shall be reasonable grounds for
believing that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the
form of assignment or form of election to purchase, as the cases may
be, has either not been completed or indicates an affirmative response
to clause 1 or 2 thereof, the Rights Agent shall not take any further
action with respect to such requested exercise or transfer without
first consulting with the Company.
SECTION 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock and Preferred Stock by registered or certified mail, and,
subsequent to the Distribution Date, to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock and Preferred Stock by registered or certified mail, and,
subsequent to the Distribution Date, to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be (a)
a corporation organized and doing business under the laws of the United States
or of any state of the United States, in good standing, having a principal
office in the State of New York, which is authorized under such laws to exercise
stock transfer or corporate trust powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an Affiliate of a corporation described in clause 21(a).
After appointment, the successor Rights Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
as Rights Agent without further act or deed; but the predecessor Rights Agent
shall deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Stock
and the Preferred Stock, and, subsequent to the Distribution Date, mail a notice
thereof in writing to the registered holders of the Right Certificates. Failure
to give any notice provided for in this Section 21, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
SECTION 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such form
as may be approved by the Board to reflect any adjustment or change in the
Purchase Price and the number or kind or class of shares of stock issuable upon
exercise of the Rights made in accordance with the provisions of this Agreement.
SECTION 23. Redemption. (a) The Board may, at its option, at any time
prior to the earlier of (i) the occurrence of a Section 11(a)(ii) Event and (ii)
the Final Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the Rights
may be made effective at such time, on such basis and with such conditions as
the Board in its sole discretion may establish. The Redemption Price shall be
payable, at the option of the Company, in cash, shares of Common Stock or such
other form of consideration as the Board shall determine.
(b) Immediately upon the action of the Board electing to redeem the
Rights (or at such later time as the Board may establish for the effectiveness
of such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and thereafter the only right of the
holders of Rights shall be to receive the Redemption Price for each Right so
held. The Company shall promptly thereafter give notice of such redemption to
the Rights Agent and the holders of the Rights in the manner set forth in
Section 26; provided that the failure to give, or any defect in, such notice
shall not affect the validity of such redemption. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made.
SECTION 24. Exchange. (a) At any time after the occurrence of a Section
11(a)(ii) Event, the Board may, at its option, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to Section 7(d)) for shares of Common Stock at an exchange
ratio of one share of Common Stock per Right, appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Board shall not be empowered to
effect such exchange at any time after an Acquiring Person, together with all
Affiliates and Associates of such Acquiring Person, becomes the Beneficial Owner
of 50% or more of the shares of Common Stock then outstanding. From and after
the occurrence of a Section 13 Event, any Rights that theretofore have not been
exchanged pursuant to this Section 24(a) shall thereafter be exercisable only in
accordance with Section 13 and may not be exchanged pursuant to this Section
24(a). The exchange of the Rights by the Board may be made effective at such
time, on such basis and with such conditions as the Board in its sole discretion
may establish.
(b) Immediately upon the effectiveness of the action of the Board
electing to exchange any Rights pursuant to Section 24(a) and without any
further action and without any notice, the right to exercise such Rights will
terminate and thereafter the only right of a holder of such Rights shall be to
receive that number of shares of Common Stock equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company shall promptly
thereafter give notice of such exchange to the Rights Agent and the holders of
the Rights to be exchanged in the manner set forth in Section 26; provided that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the shares of Common
Stock for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights (other than Rights which have become void
pursuant to Section 7(d)) held by each holder of Rights.
(c) The Company may at its option substitute, and, in the event that
there shall not be sufficient shares of Common Stock issued but not outstanding
or authorized but unissued to permit the exchange of Rights for Common Stock
ordered in accordance with Section 24(a), the Company shall substitute to the
extent of such insufficiency, for each share of Common Stock that would
otherwise be issuable upon exchange of a Right, a number of one-one hundredths
of a share of Preferred Stock such that the current market price (determined
pursuant to Section 11(d)) of such number of one-one hundredths of a share of
Preferred Stock is equal to the current market price (determined pursuant to
Section 11(d)) of one share of Common Stock as of the date of such exchange.
SECTION 25. Notice of Proposed Actions. (a) In case the Company shall
propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of Preferred Stock or to make any
other distribution to the holders of Preferred Stock (other than a regular
quarterly cash dividend out of earnings or retained earnings of the Company), or
(ii) to offer to the holders of its Preferred Stock rights or warrants to
subscribe for or to purchase any additional shares of Preferred Stock or shares
of stock of any class or any other securities, rights or options, or (iii) to
effect any reclassification of its Preferred Stock (other than a
reclassification involving only the subdivision or combination of outstanding
shares of Preferred Stock) or (iv) to effect any consolidation or merger with
any other Person, or to effect and/or to permit one or more of its Subsidiaries
to effect any sale or other transfer, in one transaction or a series of related
transactions, of assets or earning power aggregating more than 50% of the assets
or earning power of the Company and its Subsidiaries, taken as a whole, to any
other Person or Persons, or (v) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of a Right, to the extent feasible and in accordance with Section
26, a notice of such proposed action, which shall specify the record date for
the purposes of any such dividend, distribution or offering of rights or
warrants, or the date on which any such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution or winding up is to take place and the
date of participation therein by the holders of Preferred Stock, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause 25(a)(i) or 25(a)(ii) above at least 20 days prior to the
record date for determining holders of the Preferred Stock entitled to
participate in such dividend, distribution or offering, and in the case of any
such other action, at least 20 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of Preferred
Stock, whichever shall be the earlier. The failure to give notice required by
this Section or any defect therein shall not affect the legality or validity of
the action taken by the Company or the vote upon any such action.
(b) Notwithstanding anything in this Agreement to the contrary, prior
to the Distribution Date a public filing by the Company with the Securities and
Exchange Commission shall constitute sufficient notice to the holders of
securities of the Company, including the Rights, for purposes of this Agreement
and no other notice need be given to such holders.
(c) If a Triggering Event shall occur, then, in any such case, (i) the
Company shall as soon as practicable thereafter give to each holder of a Right,
in accordance with Section 26, a notice of the occurrence of such event, which
shall specify the event and the consequences of the event to holders of Rights
under Section 11(a)(ii) or 13, as the case may be, and (ii) all references in
Section 25(a) to Preferred Stock shall be deemed thereafter to refer to Common
Stock or other capital stock, as the case may be.
SECTION 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right to or on the
Company shall be sufficiently given or made if sent by first-class mail (postage
prepaid) to the address of the Company indicated on the signature page hereof or
such other address as the Company shall specify in writing to the Rights Agent.
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right to or
on the Rights Agent shall be sufficiently given or made if sent by first-class
mail (postage prepaid) to the address of the Rights Agent indicated on the
signature page hereof or such other address as the Rights Agent shall specify in
writing to the Company. Notices or demands authorized by this Agreement to be
given or made by the Company or the Rights Agent to the holder of any Right
Certificate (or, prior to the Distribution Date, to the holder of any
certificate representing shares of Common Stock) shall be sufficiently given or
made if sent by first-class mail (postage prepaid) to the address of such holder
shown on the registry books of the Company.
SECTION 27. Supplements and Amendments. For so long as the Rights are
then redeemable, the Company may, and the Rights Agent shall if the Company so
directs, supplement or amend any provision of this Agreement in any respect
without the approval of any holders of certificates representing shares of
Common Stock. At any time when the Rights are no longer redeemable, the Company
may, and the Rights Agent shall if the Company so directs, supplement or amend
this Agreement without the approval of any holders of Rights; provided, however,
that no such supplement or amendment may (a) adversely affect the interests of
the holders of Rights as such (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person), (b) cause this Agreement again to become
amendable other than in accordance with this sentence, or (c) cause the Rights
again to become redeemable. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section, the Rights Agent
shall execute such supplement or amendment.
SECTION 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 29. Determinations and Actions by the Board, etc. For all
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding shares of Common Stock of which
any Person is the Beneficial Owner, shall be made in accordance with the last
sentence of Rule 13d-3(d)(1)(i) under the Exchange Act as in effect on the date
of this Agreement. The Board shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including the right and power to (i)
interpret the provisions of this Agreement and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including a determination to redeem or exchange or not to redeem or exchange
the Rights or to amend the Agreement).
SECTION 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the certificates representing the shares of Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the certificates representing the shares of Common Stock).
SECTION 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
SECTION 32. Governing Law. This Agreement, each Right and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State[, except that the rights and
obligations of the Rights Agent shall be governed by the laws of the State of
New York].
SECTION 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute one and
the same instrument.
SECTION 34. Descriptive Headings. The captions herein are included for
convenience of reference only, do not constitute a part of this Agreement and
shall be ignored in the construction and interpretation hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
MCMORAN EXPLORATION CO.
By:
------------------------------
Name:
Title:
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Secretary
[RIGHTS AGENT]
By:
------------------------------
Name:
Title:
[Address]
Attention:
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATION
OF
SERIES B PARTICIPATING CUMULATIVE
PREFERRED STOCK
OF
MCMORAN EXPLORATION CO.
Pursuant to Section 151 of the
General Corporation Law of the
State of Delaware
We, [_______________], [Title], and [______________], [Title], of
McMoRan Exploration Co., a corporation organized and existing under the General
Corporation Law of the State of Delaware ("Delaware Law"), in accordance with
the provisions thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Corporation, the Board of Directors on
October [__], 1998, adopted the following resolution creating a series of
Preferred Stock in the amount and having the designation, voting powers,
preferences and relative, participating, optional and other special rights and
qualifications, limitations and restrictions thereof as follows:
SECTION 1. Designation and Number of Shares. The shares of such series
shall be designated as "Series B Participating Cumulative Preferred Stock" (the
"Series B Preferred Stock"), and the number of shares constituting such series
shall be [________]. Such number of shares of the Series B Preferred Stock may
be increased or decreased by resolution of the Board of Directors; provided that
no decrease shall reduce the number of shares of Series B Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
issuable upon exercise or conversion of outstanding rights, options or other
securities issued by the Corporation.
SECTION 2. Dividends and Distributions.
(a) The holders of shares of Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable on [__________], [__________], [__________] and [__________] of
each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of any share or fraction of a
share of Series B Preferred Stock, in an amount per share (rounded to
the nearest cent) equal to the greater of (i) $1.00 and (ii) subject to
the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends or other distributions
and 100 times the aggregate per share amount of all non-cash dividends
or other distributions (other than (A) a dividend payable in shares of
Common Stock, par value $0.01 per share, of the Corporation (the
"Common Stock") or (B) a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise)), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment
Date, or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series
B Preferred Stock. If the Corporation shall at any time after October
[__], 1998 (the "Rights Declaration Date") pay any dividend on Common
Stock payable in shares of Common Stock or effect a subdivision or
combination of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series B Preferred Stock were entitled immediately
prior to such event under clause 2(a)(ii) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately prior to
such event.
(b) The Corporation shall declare a dividend or distribution on
the Series B Preferred Stock as provided in paragraph 2(a) above
immediately after it declares a dividend or distribution on the Common
Stock (other than as described in clauses 2(a)(ii)(A) and 2(a)(ii)(B)
above); provided that if no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date (or, with respect to the first Quarterly Dividend Payment
Date, the period between the first issuance of any share or fraction of
a share of Series B Preferred Stock and such first Quarterly Dividend
Payment Date), a dividend of $1.00 per share on the Series B Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series B Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares
of Series B Preferred Stock, unless the date of issue of such shares is
on or before the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue and
be cumulative from the date of issue of such shares, or unless the date
of issue is a date after the record date for the determination of
holders of shares of Series B Preferred Stock entitled to receive a
quarterly dividend and on or before such Quarterly Dividend Payment
Date, in which case dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on shares of Series B Preferred
Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on
a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series B Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall not be more than 60 days prior to the date fixed for the
payment thereof.
SECTION 3. Voting Rights. In addition to any other voting rights
required by law, the holders of shares of Series B Preferred Stock shall have
the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series B Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of stockholders of the
Corporation. If the Corporation shall at any time after the Rights
Declaration Date pay any dividend on Common Stock payable in shares of
Common Stock or effect a subdivision or combination of the outstanding
shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such
case the number of votes per share to which holders of shares of Series
B Preferred Stock were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the
holders of shares of Series B Preferred Stock and the holders of shares
of Common Stock shall vote together as a single class on all matters
submitted to a vote of stockholders of the Corporation.
(c) (i) If at any time dividends on any Series B Preferred Stock
shall be in arrears in an amount equal to six quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of
a period (herein called a "default period") which shall extend until
such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend
period on all shares of Series B Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each
default period, all holders of Preferred Stock and any other series of
Preferred Stock then entitled as a class to elect directors, voting
together as a single class, irrespective of series, shall have the
right to elect two Directors.
(ii) During any default period, such voting right of the
holders of Series B Preferred Stock may be exercised initially
at a special meeting called pursuant to subparagraph 3(c)(iii)
hereof or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders; provided that
neither such voting right nor the right of the holders of any
other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be
exercised unless the holders of 10% in number of shares of
Preferred Stock outstanding shall be present in person or by
proxy. The absence of a quorum of holders of Common Stock
shall not affect the exercise by holders of Preferred Stock of
such voting right. At any meeting at which holders of
Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies,
if any, in the Board of Directors as may then exist up to two
Directors or, if such right is exercised at an annual meeting,
to elect two Directors. If the number which may be so elected
at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to
make such increase in the number of Directors as shall be
necessary to permit the election by them of the required
number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default period
and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote
of the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities ranking senior
to or pari passu with the Series B Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during
an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or
any stockholder or stockholders owning in the aggregate not
less than 10% of the total number of shares of Preferred Stock
outstanding, irrespective of series, may request, the calling
of a special meeting of holders of Preferred Stock, which
meeting shall thereupon be called by the President, a Vice
President or the Secretary of the Corporation. Notice of such
meeting and of any annual meeting at which holders of
Preferred Stock are entitled to vote pursuant to this
paragraph 3(c)(iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him at his
last address as the same appears on the books of the
Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such
order or request or in default of the calling of such meeting
within 60 days after such order or request, such meeting may
be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than 10% of the total number
of shares of Preferred Stock outstanding, irrespective of
series. Notwithstanding the provisions of this paragraph
3(c)(iii), no such special meeting shall be called during the
period within 60 days immediately preceding the date fixed for
the next annual meeting of stockholders.
(iv) In any default period, the holders of Common Stock,
and other classes of stock of the Corporation if applicable,
shall continue to be entitled to elect the whole number of
Directors until the holders of Preferred Stock shall have
exercised their right to elect two Directors voting as a
class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in
office until their successors shall have been elected by such
holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided
in paragraph 3(c)(ii) hereof) be filled by vote of a majority
of the remaining Directors theretofore elected by the holders
of the class of stock which elected the Director whose office
shall have become vacant. References in this paragraph 3(c) to
Directors elected by the holders of a particular class of
stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing
sentence.
(v) Immediately upon the expiration of a default period,
(x) the right of the holders of Preferred Stock as a class to
elect Directors shall cease, (y) the term of any Directors
elected by the holders of Preferred Stock as a class shall
terminate, and (z) the number of Directors shall be such
number as may be provided for in the certificate of
incorporation or bylaws irrespective of any increase made
pursuant to the provisions of paragraph 3(c)(ii) hereof (such
number being subject, however, to change thereafter in any
manner provided by law or in the certificate of incorporation
or bylaws). Any vacancies in the Board of Directors effected
by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining
Directors.
(d) The Certificate of Incorporation of the Corporation shall not
be amended in any manner (whether by merger or otherwise) so as to
adversely affect the powers, preferences or special rights of the
Series B Preferred Stock without the affirmative vote of the holders of
a majority of the outstanding shares of Series B Preferred Stock,
voting separately as a class.
(e) Except as otherwise provided herein, holders of Series B
Preferred Stock shall have no special voting rights, and their consent
shall not be required for taking any corporate action.
SECTION 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on outstanding
shares of Series B Preferred Stock shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series B Preferred Stock;
(ii) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Preferred Stock, except
dividends paid ratably on the Series B Preferred Stock and all
such other parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem, purchase or otherwise acquire for value any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B
Preferred Stock; provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of stock of the
Corporation ranking junior (as to dividends and upon
dissolution, liquidation or winding up) to the Series B
Preferred Stock; or
(iv) redeem, purchase or otherwise acquire for value any
shares of Series B Preferred Stock, or any shares of stock
ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of Series B Preferred Stock and
all such other parity stock upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for value any shares of
stock of the Corporation unless the Corporation could, under paragraph
4(a), purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. Reacquired Shares. Any shares of Series B Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock without designation as to series and may be reissued
as part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors as permitted by the Certificate of
Incorporation or as otherwise permitted under Delaware Law.
SECTION 6. Liquidation, Dissolution and Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received $[0.01] per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment; provided that the holders of shares of Series B
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock, or (2) to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series B
Preferred Stock, except distributions made ratably on the Series B Preferred
Stock and all such other parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. If the Corporation shall at any time after the Rights
Declaration Date pay any dividend on Common Stock payable in shares of Common
Stock or effect a subdivision or combination of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 7. Consolidation, Merger, Etc. If the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, then in any such case the shares of
Series B Preferred Stock shall at the same time be similarly exchanged for or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash or any other property, as the case may be, into which or for
which each share of Common Stock is changed or exchanged. If the Corporation
shall at any time after the Rights Declaration Date pay any dividend on Common
Stock payable in shares of Common Stock or effect a subdivision or combination
of the outstanding shares of Common Stock (by reclassification or otherwise)
into a greater or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect to the exchange
or change of shares of Series B Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
SECTION 8. No Redemption. The Series B Preferred Stock shall not be
redeemable.
SECTION 9. Rank. The Series B Preferred Stock shall rank junior (as to
dividends and upon liquidation, dissolution and winding up) to all other series
of the Corporation's preferred stock except any series that specifically
provides that such series shall rank junior to the Series B Preferred Stock.
SECTION 10. Fractional Shares. Series B Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series B Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
this [__] day of November, 1998.
--------------------------------------------
[Title]
EXHIBIT B
[FORM OF RIGHT CERTIFICATE]
No. R- _______________ Rights
NOT EXERCISABLE AFTER THE EARLIER OF NOVEMBER [__], 2008 AND THE DATE ON WHICH
THE RIGHTS EVIDENCED HEREBY ARE REDEEMED OR EXCHANGED BY THE COMPANY AS SET
FORTH IN THE RIGHTS AGREEMENT. AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
ISSUED OR TRANSFERRED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON
OR BY ANY SUBSEQUENT HOLDER, MAY BE NULL AND VOID.
RIGHT CERTIFICATE
MCMORAN EXPLORATION CO.
This Right Certificate certifies that ______________________, or
registered assigns, is the registered holder of the number of Rights set forth
above, each of which entitles the holder (upon the terms and subject to the
conditions set forth in the Rights Agreement dated as of October [__], 1998 and
as amended from time to time (the "Rights Agreement") between McMoRan
Exploration Co., a Delaware corporation (the "Company"), and [Agent] (the
"Rights Agent")) to purchase from the Company, at any time after the
Distribution Date and prior to the Expiration Date, ____ one-hundredth[s] of a
fully paid, nonassessable share of Series B Participating Cumulative Preferred
Stock (the "Preferred Stock") of the Company at a purchase price of $[____] per
one one-hundredth of a share (the "Purchase Price"), payable in lawful money of
the United States of America, upon surrender of this Right Certificate, with the
form of election to purchase and related certificate duly executed, and payment
of the Purchase Price at an office of the Rights Agent designated for such
purpose.
Terms used herein and not otherwise defined herein have the meanings
assigned to them in the Rights Agreement.
The number of Rights evidenced by this Right Certificate (and the
number and kind of shares issuable upon exercise of each Right) and the Purchase
Price set forth above are as of ________, ____, and may have been or in the
future be adjusted as a result of the occurrence of certain events, as more
fully provided in the Rights Agreement.
Upon the occurrence of a Section 11(a)(ii) Event, if the Rights
evidenced by this Right Certificate are beneficially owned by (a) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person, (b) a transferee of
an Acquiring Person (or any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (c) under certain
circumstances specified in the Rights Agreement, a transferee of an Acquiring
Person (or any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such, such Rights shall become
null and void, and no holder hereof shall have any right with respect to such
Rights from and after the occurrence of such Section 11(a)(ii) Event.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Upon surrender at the principal office or offices of the Rights Agent
designated for such purpose and subject to the terms and conditions set forth in
the Rights Agreement, any Rights Certificate or Certificates may be transferred
or exchanged for another Rights Certificate or Certificates evidencing a like
number of Rights as the Rights Certificate or Certificates surrendered.
Subject to the provisions of the Rights Agreement, the Board of
Directors of the Company may, at its option,
(a) at any time prior to the earlier of (i) the occurrence of a
Section 11(a)(ii) Event and (ii) the Final Expiration Date, redeem all
but not less than all the then outstanding Rights at a redemption price
of $.01 per Right; or
(b) at any time after any Person becomes an Acquiring Person (but
before such Person becomes the Beneficial Owner of 50% or more of the
shares of Common Stock then outstanding), exchange all or part of the
then outstanding Rights (other than Rights held by the Acquiring Person
and certain related Persons) for shares of Common Stock at an exchange
ratio of one share of Common Stock per Right. If the Rights shall be
exchanged in part, the holder of this Right Certificate shall be
entitled to receive upon surrender hereof another Right Certificate or
Certificates for the number of whole Rights not exchanged.
No fractional shares of Preferred Stock are required to be issued upon
the exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement. If this Right Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Right Certificate or
Certificates for the number of whole Rights not exercised.
No holder of this Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of capital stock
which may at any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised as provided in the
Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal by its authorized officers.
Dated as of_________________________________, 19__
MCMORAN EXPLORATION CO.
By:________________________________
Title:
Countersigned:
[AGENT],
as Rights Agent
By:_________________________
Authorized Signature
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed if the registered holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED______________________________________________________________
hereby sells, assigns and transfers unto________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________________ Attorney,
to transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.
Dated: _____________________, 19__
______________________________
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate ___are ___are not
being assigned by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it ___did ___did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: __________, 19 __ ____________________________________________
Signature
------------------
The signatures to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
------------------
FORM OF ELECTION TO PURCHASE
(To be executed if the registered holder desires to
exercise Rights represented by the Right
Certificate.)
To: [Issuer]
The undersigned hereby irrevocably elects to exercise ____________
Rights represented by this Right Certificate to purchase shares of Preferred
Stock issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such securities be issued in the name
of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance of such Rights shall
be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ________________, 19__
____________________________________________
Signature
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate ___are ___are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it ___did ___did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: ________________, 19__
____________________________________________
Signature
------------------
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
------------------
EXHIBIT C
AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED OR TRANSFERRED TO, OR HELD
BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER
CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY
BE NULL AND VOID.
SUMMARY OF RIGHTS
MCMORAN EXPLORATION CO.
STOCKHOLDER RIGHTS PLAN
Summary of Terms
Form of Security The Board has declared a dividend of one preferred
stock purchase right for each outstanding share of
the Company's Common Stock, payable to holders of
record as of the close of business on November [__],
1998 (each a "Right" and collectively, the "Rights")
Transfer Prior to the Distribution Date1, generally will be
evidenced by the certificates for and will be
transferred with the Common Stock, and the registered
holders of the Common Stock will be deemed to be the
registered holders of the Rights.
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1 Distribution Date generally means the earlier of:
(1) the 10th day after public announcement that any person or group has
become the beneficial owner of the Threshold Percentage or more of the
Company's Common Stock; and
(2) the 10th business day after the date of the commencement of a
tender or exchange offer by any person which would, if consummated,
result in such person becoming the beneficial owner of the Threshold
Percentage or more of the Company's Common Stock.
After the Distribution Date, the Rights Agent will
mail separate certificates evidencing the Rights to
each record holder of the Common Stock as of the
close of business on the Distribution Date, and
thereafter the Rights will be transferable separately
from the Common Stock.
Exercise Prior to the Distribution Date, the Rights will not
be exercisable.
After the Distribution Date, prior to the occurrence
of an event described below under "Flip-In" and
"Flip-Over", each Right will be exercisable to
purchase, for $[25.00] (the "Purchase Price"), one
one-hundredth of a share of Series B Participating
Cumulative Preferred Stock, par value $[0.01] per
share, of the Company.
Flip-In Subject to certain exceptions, if any person or group
(an "Acquiring Person") becomes the beneficial owner
of the Threshold Percentage or more of the Company's
Common Stock, then each Right (other than Rights
beneficially owned by the Acquiring Person and
certain affiliated persons) will entitle the holder
to purchase, for the Purchase Price, a number of
shares of the Company's Common Stock having a market
value of twice the Purchase Price. ["Threshold
Percentage" means (i)[30%] with respect to [Hicks
Muse] [and its Affiliates and Associates] and (ii)
15% with respect to any other Person and its
Affiliates and Associates.]
Flip-Over If, after any person has become an Acquiring Person,
(1) the Company is involved in a merger or other
business combination in which the Company is not the
surviving corporation or its Common Stock is
exchanged for other securities or assets or (2) the
Company and/or one or more of its subsidiaries sell
or otherwise transfer assets or earning power
aggregating more than 50% of the assets or earning
power of the Company and its subsidiaries, taken as a
whole, then each Right will entitle the holder to
purchase, for the Purchase Price, a number of shares
of common stock of the other party to such business
combination or sale (or in certain circumstances, an
affiliate) having a market value of twice the
Purchase Price.
Exchange At any time after any person has become an Acquiring
Person (but before any person becomes the beneficial
owner of 50% or more of the Company's Common Stock),
the Board may exchange all or part of the Rights
(other than the Rights beneficially owned by the
Acquiring Person and certain affiliated persons) for
shares of Common Stock at an exchange ratio of one
share of Common Stock per Right.
Redemption The Board may redeem all of the Rights at a price of
$0.01 per Right at any time prior to the time that
any person becomes an Acquiring Person.
Expiration The Rights will expire on November [__], 2008, unless
earlier exchanged or redeemed.
Amendments For so long as the Rights are redeemable, the Rights
Agreement may be amended in any respect.
At any time after the Rights are no longer
redeemable, the Rights Agreement may not be amended
in any respect that would adversely affect the Rights
holders (other than any Acquiring Person and certain
affiliated persons) or cause the Rights again to
become redeemable.
Voting Rights A rights holder has no rights as a stockholder
of the Company, including the right to vote and to
receive dividends.
Antidilution Provisions The Rights Agreement includes standard
antidilution provisions designed to protect the
efficacy of the Rights.
Taxes While the dividend of the Rights will not be taxable
to stockholders or to the Company, stockholders or
the Company may, depending upon the circumstances,
recognize taxable income in the event that the Rights
become exercisable as set forth above.
------------------
A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to a Registration Statement on Form 8-A. A copy of the
Rights Agreement is available free of charge from the Company. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, as amended from time to time,
the complete terms of which are hereby incorporated by reference.
------------------
EXHIBIT 10.1
McMoRan EXPLORATION CO.
ADJUSTED STOCK AWARD PLAN
SECTION 1
Purpose. The purpose of the McMoRan Exploration Co. Adjusted
Stock Award Plan (the "Plan") is to provide for the issuance and administration
of certain awards relating to common stock of the Company for the benefit
certain persons in connection with the conversion of all outstanding shares of
common stock of McMoRan Oil & Gas Co. ("MOXY") and Freeport-McMoRan Sulphur Inc.
("FSC"), affiliates of the Company, into shares of common stock of the Company
upon the mergers of MOXY and FSC into subsidiaries of the Company.
SECTION 2
Definitions. As used in the Plan, the following terms shall
have the meanings set forth below:
"Award" shall mean any Option or Limited Right granted under
this Plan.
"Award Agreement" shall mean any written agreement, contract,
notice or other instrument or document evidencing any Award, which may, but need
not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean, until otherwise determined by the
Board, the Corporate Personnel Committee of the Board.
"Company" shall mean McMoRan Exploration Co.
"Designated Beneficiary" shall mean the beneficiary designated
by the Participant, in a manner determined by the Committee, to receive the
benefits due the Participant under the Plan in the event of the Participant's
death. In the absence of an effective designation by the Participant, Designated
Beneficiary shall mean the Participant's estate.
"Effective Time" shall mean the effective time of the Mergers.
"Eligible Individual" shall mean any person who immediately
prior to the Effective Time holds a MOXY Award or an FSC Award.
"FSC Award" shall mean an option to purchase FSC common stock
granted by FSC that is outstanding and unexercised immediately prior to the
Effective Time.
"Limited Right" shall mean any right granted under Section 7
of the Plan.
"Mergers" shall mean the mergers of MOXY and FSC into
subsidiaries of the Company.
"MOXY Award" shall mean any of the MOXY Options and MOXY SIUs.
"MOXY Option" shall mean an option to purchase MOXY common
stock granted by MOXY that is outstanding and unexercised immediately prior to
the Effective Time.
"MOXY SIU" shall mean a stock incentive unit granted under the
MOXY Adjusted Stock Award Plan that is outstanding and unexercised immediately
prior to the Effective Time.
"Offer" shall mean any tender offer, exchange offer or series
of purchases or other acquisitions, or any combination of those transactions, as
a result of which any person, or any two or more persons acting as a group, and
all affiliates of such person or persons, shall own beneficially more than 40%
of the Shares outstanding (exclusive of Shares held in the Company's treasury or
by the Company's Subsidiaries).
"Offer Price" shall mean the highest price per Share paid in
any Offer that is in effect at any time during the period beginning on the
ninetieth day prior to the date on which a Limited Right is exercised and ending
on and including the date of exercise of such Limited Right. Any securities or
property that comprise all or a portion of the consideration paid for Shares in
the Offer shall be valued in determining the Offer Price at the higher of (i)
the valuation placed on such securities or property by the person or persons
making such Offer, or (ii) the valuation, if any, placed on such securities or
property by the Committee or the Board.
"Option" shall mean a nonqualified stock option granted under
Section 6 of the Plan.
"Participant" shall mean any Eligible Individual granted an
Award under the Plan.
"Person" shall mean any individual, corporation, limited
liability company, partnership, association, joint-stock company, trust,
unincorporated organization, government or political subdivision thereof or
other entity.
"SEC" shall mean the Securities and Exchange Commission,
including the staff thereof, or any successor thereto.
"Section 162(m)" shall mean Section 162(m) of the Code and all
regulations promulgated thereunder as in effect from time to time.
"Shares" shall mean the shares of common stock, par value $.01
per share, of the Company, including any attached preferred stock purchase
rights, and such other securities of the Company or a Subsidiary as the
Committee may from time to time designate.
"Subsidiary" shall mean any corporation, limited liability
company or other entity in which the Company possesses directly or indirectly
equity interests representing at least 50% of the total ordinary voting power or
at least 50% of the total value of all classes of equity interests of such
corporation, limited liability company or other entity.
SECTION 3
Administration. The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, and in addition
to other express powers and authorizations conferred on the Committee by the
Plan, the Committee shall have full power and authority to interpret and
administer the Plan and any instrument or agreement relating to, or Award made
under, the Plan; establish, amend, suspend or waive such rules and regulations
and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and make any other determination and take any other
action that the Committee deems necessary or desirable for the administration of
the Plan. The Committee shall have no discretion relating to the timing, pricing
and size of Awards granted under the Plan, which shall be determined in
accordance with the provisions of Sections 6 and 7. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon all Persons, including the Company, any
Subsidiary, any Participant, any holder or beneficiary of any Award, any
stockholder of the Company and any Eligible Individual.
SECTION 4
Eligibility. Each Eligible Individual shall be granted an
Award in accordance with the provisions of the Plan.
SECTION 5
(a) Shares Available for Awards. Subject to adjustment as
provided in Section 5(b):
(i) Calculation of Number of Shares Available. The
number of Shares with respect to which Awards may be granted under the
Plan shall be such number of Shares as results from the application of
the award formulas set forth in Sections 6 and 7. If, after the
effective date of the Plan, an Award granted under the Plan expires or
is exercised, forfeited, canceled or terminated without the delivery of
Shares, 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 expiration, exercise, forfeiture,
cancellation or termination, shall not thereafter be available for
grants or Awards under the Plan.
(ii) Sources of Shares Deliverable Under Awards. Any
Shares delivered pursuant to an Award may consist of authorized and
unissued Shares or of treasury Shares, including Shares held by the
Company or a Subsidiary and acquired in the open market or otherwise
obtained by the Company or a Subsidiary.
(iii) Individual Limit. Any provision of the Plan to
the contrary notwithstanding, no individual may receive in any year
Awards under the Plan, whether payable in cash or Shares, that relate
to more than 350,000 Shares.
(b) Adjustments. In the event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Shares,
Subsidiary securities, other securities or other property), recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase or exchange of Shares or other
securities of the Company, issuance of warrants or other rights to purchase
Shares or other securities of the Company, or other similar corporate
transaction or event affects the Shares such that an adjustment is determined by
the Committee to be appropriate to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Committee may, in its sole discretion and in such manner as it may deem
equitable, adjust any or all of (i) the number and type of Shares (or other
securities or property) with respect to which Awards may be granted, (ii) the
number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award or, if deemed appropriate, make provision for a cash payment to the holder
of an outstanding Award; provided, that the number of Shares subject to any
Award denominated in Shares shall always be a whole number.
SECTION 6
(a) Stock Options.
(i) At the Effective Time, each holder of a MOXY
Award shall receive an Option to purchase such number of Shares
(disregarding any fractional Share) as such holder would be eligible to
receive in the Mergers with respect to the number of shares of MOXY
common stock subject to such MOXY Award if such holder were the owner
of record of such MOXY shares immediately prior to the Effective Time.
Except as set forth below in this Section 6(a)(i) and in Section 6(b),
each such Option shall have the same remaining term and other terms and
conditions (whether such terms and conditions are contained in the
related MOXY Award agreement or notice or in the plan under which such
MOXY Award was made) and shall be exercisable to the same extent as the
MOXY Award from which it was derived, with such changes and
modifications as are necessary to substitute the Company for MOXY as
the issuer of the Option. Notwithstanding the foregoing, each such
Option shall become immediately exercisable in full when there shall be
a change in the composition of the Board at any time within two years
after the Effective Time such that the persons who were directors of
MOXY immediately prior to the Effective Time cease to constitute a
majority of the Board.
(ii) At the Effective Time, each holder of an FSC
Award shall receive an Option to purchase such number of Shares
(disregarding any fractional Share) as such holder would be eligible to
receive in the Mergers with respect to the number of shares of FSC
common stock subject to such FSC Award if such holder were the owner of
record of such FSC shares immediately prior to the Effective Time.
Except as set forth below in this Section 6(a)(ii) and in Section 6(b),
each such Option shall have the same remaining term and other terms and
conditions (whether such terms and conditions are contained in the
related FSC Award agreement or notice or in the plan under which such
FSC Award was made) and shall be exercisable to the same extent as the
FSC Award from which it was derived, with such changes and
modifications as are necessary to substitute the Company for FSC as the
issuer of the Option. Notwithstanding the foregoing, each such Option
shall become immediately exercisable in full when there shall be a
change in the composition of the Board at any time within two years
after the Effective Time such that the persons who were directors of
FSC immediately prior to the Effective Time cease to constitute a
majority of the Board.
(b) Exercise Price. The per Share exercise price of each
Option granted pursuant to Section 6(a)(i) shall be the per share exercise price
or grant price of the MOXY Award from which such Option was derived divided by
0.2. The per Share exercise price of each Option granted pursuant to Section
6(a)(ii) shall be the per share exercise price of the FSC Award from which such
Option was derived divided by 0.625.
(c) Payment. No Shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option price therefor is
received by the Company. Such payment may be made in cash, or its equivalent,
or, if and to the extent permitted by the Committee, by applying cash amounts
payable by the Company upon the exercise of such Option or other Awards by the
holder thereof or by exchanging whole Shares owned by such holder (which are not
the subject of any pledge or other security interest), or by a combination of
the foregoing, provided that the combined value of all cash, cash equivalents,
cash amounts so payable by the Company upon exercises of Awards and the fair
market value of any such whole Shares so tendered to the Company, valued (in
accordance with procedures established by the Committee) as of the effective
date of such exercise, is at least equal to such option price.
SECTION 7
(a) Limited Rights.
(i) Each holder of a MOXY Award shall receive, at the
same time as and in tandem with each Option granted to such holder
under Section 6(a)(i), Limited Rights equal in number to the number of
Shares subject to such Option with which such Limited Rights are in
tandem. Such Limited Rights shall have a grant price equal to the
exercise price of the Options under Section 6 with which they are in
tandem, and shall in all other respects contain the same terms and
conditions as the agreement or notice pertaining to the MOXY Award from
which they derived.
(ii) Each holder of an FSC Award shall receive, at
the same time as and in tandem with each Option granted to such holder
under Section 6(a)(ii), Limited Rights equal in number to the number of
Shares subject to such Option with which such Limited Rights are in
tandem. Such Limited Rights shall have a grant price equal to the
exercise price of the Options under Section 6 with which they are in
tandem, and shall in all other respects contain the same terms and
conditions as the agreement or notice pertaining to the FSC Award from
which they derived.
(b) A Limited Right shall entitle the holder thereof to
receive an amount equal to the excess, if any, of the Offer Price on the date of
exercise of the Limited Right over the grant price. Any Limited Right may be
settled in cash, Shares or a combination of cash and Shares, as determined by
the Committee or the Board at the time of exercise, and shall only be
exercisable during a period beginning not earlier than one day and ending not
more than ninety days after the expiration date of an Offer.
SECTION 8
(a) Amendments to the Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for these
purposes any approval necessary to qualify Awards as "performance based"
compensation under Section 162(m) or any successor provision if such
qualification is deemed necessary or desirable by the Committee. Notwithstanding
anything to the contrary contained herein, (i) the Committee may amend the Plan
in such manner as may be necessary for the Plan to conform with local rules and
regulations in any jurisdiction outside the United States and (ii) any
amendment, suspension or termination made in accordance with this Section 8(a)
that would adversely affect a holder's rights under an Award made under the Plan
may not be made without such holder's consent.
(b) Adjustment of Awards Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events (including, without limitation,
the events described in Section 5(b) hereof) affecting the Company, or the
financial statements of the Company or any Subsidiary, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.
(c) Cancellation. Any provision of this Plan or any Award
Agreement to the contrary notwithstanding, the Committee may cause any Award
granted hereunder to be canceled in consideration of a cash payment or
alternative Award made to the holder of such canceled Award equal in value to
such canceled Award. The determinations of value under this subsection shall be
made by the Committee in its sole discretion.
SECTION 9
(a) Award Agreements. Each Award hereunder shall be evidenced
by a writing delivered to the Participant that shall specify the terms and
conditions thereof and any rules applicable thereto and that shall, in
accordance with the provisions of the Plan, replicate as closely as possible the
terms, conditions and other contractual attributes of the MOXY Award or FSC
Award from which the Award is derived, as in effect immediately prior to the
Effective Time.
(b) Withholding.
(i) A Participant may be required to pay to the
Company, and the Company shall have the right to deduct from all
amounts paid to a Participant (whether under the Plan or otherwise),
any taxes required by law to be paid or withheld in respect of Awards
hereunder to such Participant.
(ii) At any time that a Participant is required to
pay to the Company an amount required to be withheld under the
applicable tax laws in connection with the issuance of Shares under the
Plan, the Participant may, if permitted by the Committee, satisfy this
obligation in whole or in part by electing (the "Election") that the
Company withhold from the issuance Shares having a value equal to the
amount required to be withheld. The value of the Shares withheld shall
be based on the fair market value of the Shares on the date that the
amount of tax to be withheld shall be determined in accordance with
applicable tax laws (the "Tax Date").
(iii) Each Election must be made prior to the Tax
Date. The Committee may suspend or terminate the right to make
Elections at any time.
(iv) A Participant may also satisfy his total tax
liability related to the Award by delivering Shares owned by the
Participant. The value of the Shares delivered shall be based on the
fair market value of the Shares on the Tax Date.
(c) Transferability. No Awards granted hereunder may be
transferred, pledged, assigned or otherwise encumbered by a Participant except:
(i) by will; (ii) by the laws of descent and distribution; (iii) pursuant to a
domestic relations order, as defined in the Code, if permitted by the Committee
and so provided in the Award Agreement or an amendment thereto; or (iv) if
permitted by the Committee and so provided in the Award Agreement or an
amendment thereto, (a) to Immediate Family Members, (b) to a partnership in
which Immediate Family Members, or entities in which Immediate Family Members
are the owners, members or beneficiaries, as appropriate, are the partners, (c)
to a limited liability company in which Immediate Family Members, or entities in
which Immediate Family Members are the owners, members or beneficiaries, as
appropriate, are the members, or (d) to a trust for the benefit of Immediate
Family Members; provided, however, that no more than a de minimus beneficial
interest in a partnership, limited liability company or trust described in (b),
(c) or (d) above may be owned by a person who is not an Immediate Family Member
or by an entity that is not beneficially owned solely by Immediate Family
Members. "Immediate Family Members" shall be defined as the spouse and natural
or adopted children or grandchildren of the Participant and their spouses. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of
Awards, or levy of attachment or similar process upon Awards not specifically
permitted herein, shall be null and void and without effect. The designation of
a Designated Beneficiary shall not be a violation of this Section 9(c).
(d) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the Plan or the rules, regulations, and
other requirements of the SEC, any stock exchange upon which such Shares or
other securities are then listed, and any applicable federal or state laws, and
the Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
(e) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company from adopting or continuing in
effect other compensation arrangements, which may, but need not, provide for the
grant of options and other types of Awards provided for hereunder (subject to
stockholder approval of any such arrangement if approval is required), and such
arrangements may be either generally applicable or applicable only in specific
cases.
(f) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be engaged or employed by or
retained in the employ of the Company or any Subsidiary. The Company or any
Subsidiary may at any time dismiss a Participant from engagement or employment,
free from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement or any agreement relating to the
engagement or employment of the Participant by the Company or any Subsidiary.
(g) Governing Law. The validity, construction, and effect of
the Plan, any rules and regulations relating to the Plan and any Award Agreement
shall be determined in accordance with the laws of the State of Delaware.
(h) Severability. If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.
(i) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company pursuant to an Award, such right shall be no greater than the right
of any unsecured general creditor of the Company.
(j) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award, and the Committee shall
determine, in accordance with the terms of the Plan, as applicable, whether
cash, other securities or other property shall be paid or transferred in lieu of
any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
(k) Headings. Headings are given to the subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 10
Effective Date of the Plan. The Plan shall be effective as of
the date of its approval by the stockholder of the Company.
SECTION 11
Term of the Plan. Subject to Section 5(b), no Award shall be
granted under the Plan except the Awards provided for in Sections 6 and 7.
Awards granted hereunder shall continue until their respective expiration dates,
and the authority of the Committee to administer, interpret, amend, alter,
adjust, suspend, discontinue, or terminate, in accordance with the provisions of
the Plan, any such Award or to waive any conditions or rights under any such
Award shall extend until the latest such date.
EXHIBIT 10.2
McMoRan EXPLORATION CO.
1998 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSE OF THE PLAN
The purpose of the 1998 Stock Option Plan for Non-Employee
Directors (the "Plan") is to align more closely the interests of the
non-employee directors of McMoRan Exploration Co. (the "Company") with that of
the Company's stockholders by providing for the automatic grant to such
directors of stock options ("Options") to purchase Shares (as hereinafter
defined), in accordance with the terms of the Plan.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following terms shall have
the meanings indicated:
Board: The Board of Directors of the Company.
Change in Control: A Change in Control shall be deemed to have
occurred if either (a) any person, or any two or more persons acting as a group,
and all affiliates of such person or persons, shall own beneficially more than
20% of the Common Stock outstanding (exclusive of shares held in the Company's
treasury or by the Company's Subsidiaries) pursuant to a tender offer, exchange
offer or series of purchases or other acquisitions, or any combination of those
transactions, or (b) there shall be a change in the composition of the Board at
any time within two years after any tender offer, exchange offer, merger,
consolidation, sale of assets or contested election, or any combination of those
transactions (a "Transaction"), so that (i) the persons who were directors of
the Company immediately before the first such Transaction cease to constitute a
majority of the Board of Directors of the corporation which shall thereafter be
in control of the companies that were parties to or otherwise involved in such
Transaction, or (ii) the number of persons who shall thereafter be directors of
such corporation shall be fewer than two-thirds of the number of directors of
the Company immediately prior to such first Transaction. A Change in Control
shall be deemed to take place upon the first to occur of the events specified in
the foregoing clauses (a) and (b).
Code: The Internal Revenue Code of 1986, as amended from time
to time.
Committee: Until otherwise determined by the Board, the
Corporate Personnel Committee of the Board.
Eligible Director: A director of the Company who is not an
officer or an employee of the Company or a Subsidiary.
Fair Market Value: The average of the per Share high and low
quoted sale prices on the date in question (or, if there is no reported sale on
such date, on the last preceding date on which any reported sale occurred) on
the principal exchange or market on which such Shares are quoted.
Option Cancellation Gain: With respect to the cancellation of
an Option pursuant to Section 4 of Article IV hereof, the excess of the Fair
Market Value as of the Option Cancellation Date (as that term is defined in
Section 4 of Article IV hereof) of all the outstanding Shares covered by such
Option, whether or not then exercisable, over the purchase price of such Shares
under such Option.
Shares: Shares of common stock, par value $0.01 per share, of
the Company (including any attached preferred stock purchase rights).
Subsidiary: Any corporation of which stock representing at
least 50% of the ordinary voting power is owned, directly or indirectly, by the
Company; and any limited liability company or other entity of which equity
securities or interests representing at least 50% of the ordinary voting power
or 50% of the total value of all classes of equity securities or interests of
such entity are owned, directly or indirectly, by the Company.
ARTICLE III
ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Board. The Board will
interpret this Plan and may from time to time adopt such rules and regulations
for carrying out the terms and provisions of this Plan as it may deem best.
Notwithstanding the foregoing, the Committee shall have the authority to make
all determinations with respect to the transferability of Options in accordance
with Article VIII hereof. All determinations by the Board or the Committee shall
be made by the affirmative vote of a majority of its respective members, but any
determination reduced to writing and signed by a majority of its respective
members shall be fully as effective as if it had been made by a majority vote at
a meeting duly called and held. Subject to any applicable provisions of the
Company's By-Laws or of this Plan, all determinations by the Board and the
Committee pursuant to the provisions of this Plan, and all related orders or
resolutions of the Board and the Committee, shall be final, conclusive and
binding on all persons, including the Company and its stockholders, employees,
directors and optionees. In the event of any conflict or inconsistency between
determinations, orders, resolutions, or other actions of the Committee and the
Board taken in connection with this Plan, the action of the Board shall control.
ARTICLE IV
STOCK SUBJECT TO THE PLAN
SECTION 1. The Shares to be issued or delivered upon exercise
of Options shall be made available, at the discretion of the Board, either from
the authorized but unissued Shares of the Company or from Shares reacquired by
the Company, including Shares purchased by the Company in the open market or
otherwise obtained.
SECTION 2. Subject to the provisions of Section 3 of this
Article IV, the aggregate number of Shares which may be purchased pursuant to
Options shall not exceed 75,000. To the extent an Option is forfeited or
canceled prior to exercise, the Shares subject to such forfeited or canceled
Option shall again be available for grant under the Plan. To the extent that
Shares are delivered to pay the exercise price of an Option, the number of
Shares so delivered shall again be available for grant under the Plan.
SECTION 3. In the event that the Board determines that any
dividend or other distribution (whether in the form of cash, Shares, Subsidiary
securities, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Board to be
appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the Board may, in
its sole discretion and in such manner as it may deem equitable, adjust any or
all of (i) the number and type of Shares (or other securities or property) with
respect to which Options may be granted, (ii) the number and type of Shares (or
other securities or property) subject to outstanding Options, and (iii) the
grant or exercise price with respect to any Option and, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding Option,
provided that the number of Shares subject to any Option shall always be a whole
number.
SECTION 4. In the event the Company is merged or consolidated
into or with another corporation in a transaction in which the Company is not
the survivor, or in the event that substantially all of the Company's assets are
sold to another entity not affiliated with the Company, any holder of an Option,
whether or not then exercisable, shall be entitled to receive (unless the
Company shall take such alternative action as may be necessary to preserve the
economic benefit of the Option for the optionee) on the effective date of any
such transaction (the "Option Cancellation Date"), in cancellation of such
Option, an amount in cash equal to the Option Cancellation Gain relating
thereto, determined as of the Option Cancellation Date.
ARTICLE V
PURCHASE PRICE OF OPTIONED SHARES
The purchase price per Share under each Option shall be 100%
of the Fair Market Value of a Share at the time such Option is granted, but in
no case shall such price be less than the par value of the Shares subject to
such Option.
ARTICLE VI
ELIGIBILITY OF RECIPIENTS
Options will be granted only to individuals who are Eligible
Directors at the time of such grant.
ARTICLE VII
GRANT OF OPTIONS
SECTION 1. Each Option shall constitute a nonqualified stock
option which is not intended to qualify under Section 422 of the Code.
SECTION 2. On June 1, 1999 and June 1 of each subsequent year
that the Plan remains in effect, each Eligible Director, as of each such date,
shall be granted an Option to purchase 1,000 Shares.
SECTION 3. Each Option shall become exercisable with respect
to one-fourth of the Shares subject thereto on each of the first, second, third
and fourth anniversaries of the date of grant and may be exercised by the holder
thereof with respect to all or any part of the Shares comprising each
installment as such holder may elect at any time after such installment becomes
exercisable but no later than the termination date of such Option; provided that
each Option shall become exercisable in full upon a Change in Control.
SECTION 4. The purchase price of Shares subject to any Option
shall be the Fair Market Value thereof on the respective date of grant.
ARTICLE VIII
TRANSFERABILITY OF OPTIONS
No Options granted hereunder may be transferred, pledged,
assigned or otherwise encumbered by an optionee except:
(a) by will;
(b) by the laws of descent and distribution; or
(c) if permitted by the Committee and so provided in the
Option or an amendment thereto, (i) pursuant to a domestic relations
order, as defined in the Code, (ii) to Immediate Family Members, (iii)
to a partnership in which Immediate Family Members, or entities in
which Immediate Family Members are the owners, members or
beneficiaries, as appropriate, are the partners, (iv) to a limited
liability company in which Immediate Family Members, or entities in
which Immediate Family Members are the owners, members or
beneficiaries, as appropriate, are the members, or (v) to a trust for
the benefit of Immediate Family Members; provided, however, that no
more than a de minimus beneficial interest in a partnership, limited
liability company or trust described in (iii), (iv) or (v) above may be
owned by a person who is not an Immediate Family Member or by an entity
that is not beneficially owned solely by Immediate Family Members.
"Immediate Family Members" shall be defined as the spouse and natural
or adopted children or grandchildren of the optionee and their spouses.
Any attempted assignment, transfer, pledge, hypothecation or other disposition
of Options, or levy of attachment or similar process upon Options not
specifically permitted herein, shall be null and void and without effect.
ARTICLE IX
EXERCISE OF OPTIONS
SECTION 1. Each Option shall terminate 10 years after the date
on which it was granted.
SECTION 2. Except in cases provided for in Article X hereof,
each Option may be exercised by the holder thereof only while the optionee to
whom such Option was granted is an Eligible Director.
SECTION 3. A person electing to exercise an Option or any
portion thereof then exercisable shall give written notice to the Company of
such election and of the number of Shares such person has elected to purchase,
and shall at the time of purchase tender the full purchase price of such Shares,
which tender shall be made in cash or cash equivalent (which may be such
person's personal check) or in Shares already owned by such person (which Shares
shall be valued for such purpose on the basis of their Fair Market Value on the
date of exercise), or in any combination thereof. The Company shall have no
obligation to deliver Shares pursuant to the exercise of any Option, in whole or
in part, until such payment in full of the purchase price of such Shares is
received by the Company. No optionee, or legal representative, legatee,
distributee, or assignee of such optionee shall be or be deemed to be a holder
of any Shares subject to such Option or entitled to any rights of a stockholder
of the Company in respect of any Shares covered by such Option distributable in
connection therewith until such Shares have been paid for in full and
certificates for such Shares have been issued or delivered by the Company.
SECTION 4. Each Option shall be subject to the requirement
that if at any time the Board shall be advised by counsel that the listing,
registration or qualification of the Shares subject to such Option upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option or the issue or
purchase of Shares thereunder, such Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free from any conditions not reasonably
acceptable to such counsel for the Board.
SECTION 5. The Company may establish appropriate procedures to
provide for payment or withholding of such income or other taxes as may be
required by law to be paid or withheld in connection with the exercise of
Options, and to ensure that the Company receives prompt advice concerning the
occurrence of any event which may create, or affect the timing or amount of, any
obligation to pay or withhold any such taxes or which may make available to the
Company any tax deduction resulting from the occurrence of such event.
ARTICLE X
TERMINATION OF SERVICE
AS AN ELIGIBLE DIRECTOR
SECTION 1. If and when an optionee shall cease to be an
Eligible Director for any reason other than death or retirement from the Board,
all of the Options granted to such optionee shall be terminated except that any
Option, to the extent then exercisable, may be exercised by the holder thereof
within three months after such optionee ceases to be an Eligible Director, but
not later than the termination date of the Option.
SECTION 2. If and when an optionee shall cease to be an
Eligible Director by reason of the optionee's retirement from the Board, all of
the Options granted to such optionee shall be terminated except that any Option,
to the extent then exercisable or exercisable within one year thereafter, may be
exercised by the holder thereof within three years after such retirement, but
not later than the termination date of the Option.
SECTION 3. Should an optionee die while serving as an Eligible
Director, all the Options granted to such optionee shall be terminated, except
that any Option to the extent exercisable by the holder thereof at the time of
such death, together with the unmatured installment (if any) of such Option
which at that time is next scheduled to become exercisable, may be exercised
within one year after the date of such death, but not later than the termination
date of the Option, by the holder thereof, the optionee's estate, or the person
designated in the optionee's last will and testament, as appropriate.
SECTION 4. Should an optionee die after ceasing to be an
Eligible Director, all of the Options granted to such optionee shall be
terminated, except that any Option, to the extent exercisable by the holder
thereof at the time of such death, may be exercised within one year after the
date of such death, but not later than the termination date of the Option, by
the holder thereof, the optionee's estate, or the person designated in the
optionee's last will and testament, as appropriate.
ARTICLE XI
AMENDMENTS TO PLAN AND OPTIONS
The Board may at any time terminate or from time to time
amend, modify or suspend this Plan; provided, however, that no such amendment or
modification shall be made without stockholder approval if such approval is
deemed necessary to comply with any regulatory requirements.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 20, 1998
included in McMoRan Oil & Gas Co.'s Form 10-K for the year ended December 31,
1997 and to all references to our Firm included in this registration statement.
/s/Arthur Andersen LLP
New Orleans, Louisiana
October 6, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 20, 1998
included in Freeport-McMoRan Sulphur Inc.'s Form 10-K for the year ended
December 31, 1997 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
New Orleans, Louisiana
October 6, 1998
EXHIBIT 23.3
[LETTERHEAD OF RYDER SCOTT COMPANY]
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
As independent petroleum engineers, we hereby consent to the use of our
name in this Amendment No. 1 to the Registration Statement on Form S-4 by
McMoRan Exploration Co. and joint proxy statement of both McMoRan Oil & Gas Co.
and Freeport-McMoRan Sulphur Inc.(FSC). We further consent to the incorporation
by reference of our estimates of reserves and present value of future net
revenues as of December 31, 1997 for both MOXY and FSC and as of June 30, 1998
for MOXY in the Amendment No. 1 to the Form S-4.
/s/Ryder Scott Company
Petroleum Engineers
----------------------
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
October 5, 1998
EXHIBIT 23.4
[JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE, L.L.P. LETTERHEAD]
October 6, 1998
McMoRan Exploration Co.
McMoRan Oil & Gas Co.
1615 Poydras Street
New Orleans, LA 70112
RE: Amendment No. 1 to Registration
Statement on Form S-4
McMoRan Exploration Co.
Ladies and Gentlemen:
We consent to the reference to us in the prospectus forming a part of
the captioned Registration Statement under the captions "The Mergers --Federal
Income Tax Consequences of the Mergers" and "Legal Matters" as counsel to
McMoRan Exploration Co. and McMoRan Oil & Gas Co. In giving this consent, we do
not admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the general rules
and regulations of the Commission.
Yours very truly,
/s/ Jones, Walker, Waechter, Poitevent,
Carrere & Denegre L.L.P.
----------------------------------------
EXHIBIT 23.6
[Miller & Chevalier, Chartered letterhead]
October 6, 1998
Freeport-McMoRan Sulphur Inc.
1615 Poydras Street
New Orleans, LA 70112
RE: Amendment No. 1 to Registration Statement on Form S-4
McMoRan Exploration Co.
Ladies and Gentlemen:
We consent to the reference to us in the prospectus forming a part of
the captioned Registration Statement under the captions "The Mergers -- Federal
Income Tax Consequences of the Mergers" and "Legal Matters" as tax counsel to
Freeport-McMoRan Sulphur Inc. In giving this consent, we do not admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the general rules and regulations of
the Commission.
Yours very truly,
Miller & Chevalier, Chartered
By: /s/ Thomas W. Mahoney, Jr.
-----------------------------
Thomas W. Mahoney, Jr.
EXHIBIT 23.7
[Letterhead of Bear Stearns]
CONSENT OF BEAR STEARNS
October 6, 1998
Attention: Mr. Steven Kern
Davis Polk & Wardwell
450 Lexington Avenue
21st Floor
New York, New York 10017
We hereby consent to the use of our opinion letter dated July 31, 1998,
to the Special Committee of McMoRan Oil and Gas Co. ("MOXY"), attached as Annex
B to McMoRan Exploration Co.'s Joint Proxy Statement/Prospectus on Form S-4
("S-4") and to the references to our firm in Amendment No. 1 to the S-4 under
the headings "Summary -- Opinion of Financial Advisors", "The Mergers --
Background of the Mergers", "The Mergers -- MOXY's Reasons for the MOXY Merger;
Recommendation of the MOXY Board of Directors", "The Mergers -- Opinion of
Financial Advisor to MOXY's Special Committee". In giving such consent, we do
not admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder and we do not
thereby admit that we are experts with respect to any part of the Amendment No.
1 to the Registration Statement under the meaning of the term "expert" as used
in the Securities Act.
BEAR, STEARNS & CO. INC.
By: /s/ Brooks J. Klimley
-----------------------
Brooks J. Klimley
EXHIBIT 23.8
[Letterhead of Lehman]
CONSENT OF LEHMAN BROTHERS INC.
We hereby consent to the use of our opinion letter dated August 1,
1998, to the Special Committee of Freeport-McMoRan Sulphur Inc. ("FSC"),
attached as Annex C toMcMoRan Exploration Co.'s Joint Proxy Statement/Prospectus
on Form S-4 ("S-4") and to the references to our firm in the Amendment No. 1 to
the S-4 under the headings "Summary -- Opinion of Financial Advisors", "The
Mergers -- Background of the Mergers", "The Mergers -- FSC's Reasons for the FSC
Merger; Recommendation of the FSC Board of Directors", "The Mergers --Opinion of
Financial Advisor to FSC's Special Committee". In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder and we do not
thereby admit that we are experts with respect to any part of the Amendment No.
1 to the Registration Statement under the meaning of the term "expert" as used
in the Securities Act.
LEHMAN BROTHERS INC.
By: /s/ Colin A. Oerton
-------------------------
Colin A. Oerton
Vice President
October 6, 1998
EXHIBIT 23.16
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated October 5, 1998 with respect to the balance sheet as of July 30, 1998 of
McMoRan Exploration Co. including in this registration statement, and to all \
references to our Firm included in this registration statement.
/s/Arthur Andersen LLP
New Orleans, Louisiana
October 6, 1998
