UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO______
COMMISSION FILE NUMBER 0-11871
AMERICAN EXPLORATION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 74-2086890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1331 LAMAR, SUITE 900
HOUSTON, TEXAS 77010
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 756-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.05 par value American Stock Exchange
Depositary Shares, each American Stock Exchange
representing a 1/200 interest
in a share of $450 Cumulative
Convertible Preferred Stock,
Series C, par value $1.00 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Company was $133,318,410 based on the closing price on March 15, 1996 as
reported on the American Stock Exchange. As of March 15, 1996, there were
outstanding 11,812,483 shares of the Company's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to the 1996
Annual Meeting of Stockholders of the Company, which will be filed within 120
days of December 31, 1995, are incorporated by reference into Part III of this
Report.
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TABLE OF CONTENTS
Page
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PART I
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Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 8
Item 3. Legal Proceedings...................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.................................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 14
Item 6. Selected Financial Data................................................................ 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................... 16
Item 8. Financial Statements and Supplementary Data............................................ 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................ 23
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 24
Item 11. Executive Compensation................................................................. 24
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 24
Item 13. Certain Relationships and Related Transactions......................................... 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 25
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PART I
ITEM 1. BUSINESS
GENERAL
American Exploration Company ("American" or the "Company") is an
independent company engaged in the exploration, development and production of
oil and natural gas. American's oil and gas operations are conducted in the
United States with exploration and development activities concentrated onshore
in the Gulf Coast region of Texas and Louisiana and offshore in the Gulf of
Mexico.
American's proved reserves at December 31, 1995 totaled 31.5 million
barrels of oil equivalent ("MMBOE"), 67% of which was natural gas based on a
conversion factor of six thousand cubic feet ("Mcf") of gas per barrel ("Bbl")
of oil. Approximately 18% of total proved reserves are undeveloped. At year-end
1995, American held interests in 762 net oil and gas wells and approximately
210,000 net developed acres. Approximately 55% of the Company's total proved
reserves are located in its ten largest fields, of which eight are operated by
American. Overall, American operates fields which represent 64% of total proved
reserves. American also holds undeveloped leasehold or mineral interests in the
United States totaling approximately 193,000 net acres.
American was incorporated in Delaware in 1980. From inception through
1991, American was principally engaged in the acquisition and management of oil
and gas properties, both for its own account and in partnership with
institutional and individual investors. During this period, American completed
over thirty acquisitions on behalf of the Company and its partners. This period
culminated with the acquisition in 1990 and 1991 of Hershey Oil Corporation
("Hershey") and Conquest Exploration Company ("Conquest"), respectively, for a
combination of common stock and cash. In 1994 and 1995, American completed the
acquisition of oil and gas reserves held by institutional investors in programs
formed in the 1980's for $40.1 million cash and the issuance of 4.6 million
shares of American's common stock. In July 1995, American accepted an
unsolicited offer to purchase its interest in the Sawyer Field in West Texas,
the Company's largest property, for $64.0 million. Proceeds from the sale
enabled American to repay bank debt and reduce debt as a percentage of
capitalization to 30% at year-end 1995 from 53% at year-end 1994.
In addition to oil and natural gas operations conducted on its own
behalf, American, through a subsidiary, manages oil and gas property interests
held through the New York Life Oil & Gas Producing Properties Programs (the
"NYLOG Programs"), a series of publicly registered partnerships. American's
subsidiary, together with a subsidiary of New York Life Insurance Company ("New
York Life"), serve as co-general partners of the NYLOG Programs. The co-general
partners of the NYLOG Programs have decided to dissolve and liquidate those
programs and will solicit the consents of the limited partners to dissolve, wind
up, liquidate and terminate those programs. For information concerning certain
recent events affecting the Company, reference is made to "Recent Events" set
forth in Management's Discussion and Analysis of Financial Condition and Results
of Operations in Item 7.
American's executive offices are located at 1331 Lamar, Suite 900,
Houston, Texas 77010, telephone 713-756-6000. At March 1, 1996, American had 173
full-time employees.
BUSINESS STRATEGY
American's objective is to build long-term shareholder value through
effective cost management and value-added growth in the areas of production,
reserves, cash flow and earnings. Historically, American has focused on
acquisitions and the management of oil and gas properties for partners. Since
1992, American has shifted its emphasis to exploration, development and
acquisition activity conducted on its own behalf. Further, American has
concentrated the majority of its capital expenditures and new project activity
in the Gulf Coast and offshore Gulf of Mexico areas. American's strategy is to
aggressively manage its existing property base to maximize cash flow and to
focus on high potential exploration and development projects in core areas,
selective acquisitions and the application of advanced technology, most notably
three-dimensional seismic ("3-D seismic") data and horizontal drilling.
In selecting which exploration, development and acquisition
opportunities to pursue, American weighs various economic and operating
parameters including capital availability, expected net present value added per
dollar invested,
1
reserve and production growth, and per share cash flow and earnings. American
began to place an increased emphasis on exploration activity in 1995. Overall,
American seeks to manage exploration risk by developing a portfolio of low,
medium and high risk exploration projects balanced with lower risk development
projects and acquisitions. However, there can be no assurances regarding the
success of any wells drilled particularly with regard to exploratory wells.
American maintains a full-time staff of geologists, geophysicists,
production and reservoir engineers, and landmen to conduct its oil and gas
operations. The Company is fully equipped with computer workstations for 3-D
seismic interpretation and geological mapping. For the most part, the Company
places an emphasis on developing projects internally and acquiring additional
interests in properties which American operates in order to control the nature
and timing of exploration and development activity. Where appropriate, either to
manage risk or increase net return on investment, American seeks to bring in
industry partners to share in land, seismic and exploration costs.
Another important element of American's oil and gas strategy is to
concentrate new projects in a limited number of geographic areas where the
Company has competitive strengths, specifically, offshore in the Gulf of Mexico,
the Wilcox Trend of South Texas, and the Smackover Trend of Arkansas and
Louisiana. In each of these areas, American's strengths include existing
operations which provide operating economies of scale, proprietary geological
knowledge, and experience in the application of technologies such as horizontal
drilling and 3-D seismic data.
A description of American's principal areas of activity follows:
GULF OF MEXICO. American has operated in the Gulf of Mexico since 1987
when the Company acquired working interests in Matagorda Block 629 offshore in
the Texas State Waters. Subsequent acquisitions in 1991 established positions in
the Brazos, Vermilion and High Island areas. Over the past two years and
concurrent with the increased availability of 3-D seismic data, American has
expanded its exploration and development activities in the Gulf of Mexico.
American now holds interests in 28 blocks in the Gulf of Mexico totaling 85,000
gross (33,000 net) acres and approximately 1,000 square miles of 3-D seismic
data located on or in proximity to such blocks. In addition, American holds
exploration rights in five blocks totaling 20,000 gross (6,000 net) acres.
American's strategy in the Gulf of Mexico is to concentrate its
exploration and development activities in areas where the Company can use
two-dimensional seismic ("2-D seismic") data to identify exploration and
development prospects, establish a significant leasehold position and initiate
or acquire 3-D seismic data to delineate drilling locations. Following this
strategy, American has developed large area-wide projects in the Texas State
Waters and West Cameron areas and has acquired interests in several other areas
where the Company plans to conduct exploration and development activity and
pursue opportunities to expand its position.
In the Texas State Waters area, American now holds interests in 28,000
gross (14,000 net) acres, including the Brazos Blocks 440 and 446. In 1995, the
Company participated in a 400 square-mile 3-D seismic survey covering the Texas
State Waters area. Using this data, which is now being interpreted by American,
the Company plans to drill prospects in and around existing Miocene fields and
to drill higher-risk prospects in the deeper Lower Miocene formation. American's
working interests in this project range from 46% to 75%.
In the West Cameron area, as of December 31, 1995, American holds
leases or has exploration rights on eight blocks totaling 35,000 gross (13,000
net) acres including the West Cameron Block 408 which was drilled and placed on
production in 1995. In December 1995, the Company participated in a 219
square-mile (28 block) 3-D seismic survey. This data is now being interpreted by
American. Under an exploration agreement with Enron Oil and Gas Company
("Enron"), Enron has the option to participate in exploration prospects
developed by the Company. During 1995,the Company formed a drilling joint
venture with Dominion Reserves, Inc. ("Dominion") and plans to conduct
exploratory drilling in 1996. American's net working interests in the West
Cameron project range from 33% to 67%.
As part of the Company's strategy to establish an operating position in
additional prospect areas of the Gulf of Mexico, American intends to pursue
selective acquisitions of producing and undeveloped leases. In March 1996,
American participated in a joint acquisition of proved reserves and undeveloped
acreage in five offshore blocks for approximately $56.0 million. American's 25%
net share of the acquisition totaled $14.0 million, and Dominion participated
for a 75% interest. Net to American, this acquisition adds estimated proved
reserves of 2.5 MMBOE, of which 27% is undeveloped. As of March 15, 1996,
production from the acquired properties net to American's interest was
approximately 5.6 MMcf of gas and 700 Bbls of oil per day. American will operate
three of these blocks: High Island 45, East Cameron 129 and
2
South Marsh Island 133, which together represent 97% of the proved reserves
acquired. Development drilling on East Cameron Block 129 and the installation of
production facilities at South Marsh Island Block 133 are planned in 1996.
Other noteworthy areas of activity in the Gulf include High Island Block
13-L, where American is currently installing production facilities and expects
to initiate production in April 1996. American is the operator and holds a 75%
working interest in this block. American is currently evaluating potential
exploratory wells on South Pelto Block 1 and Vermilion Block 348 and may
participate in additional offshore activity as opportunities are identified.
SOUTH TEXAS. American has been active in South Texas for several years
and holds interests in a number of producing properties and undeveloped acreage
as well as extensive 2-D seismic data. American's strategy in South Texas is
similar to its offshore strategy in that the Company seeks to use its
proprietary geological knowledge to identify exploration and development
opportunities and, where appropriate, to initiate or acquire 3-D seismic data to
delineate drilling locations.
An example of this strategy is American's acquisition of interests in
the West McAllen Field in late 1993. Following that acquisition, American
entered into a joint venture with Fina Oil and Chemical and initiated a
redevelopment program using 3-D seismic data to identify undrained fault blocks.
During 1994 and 1995, American drilled four wells in the field with a 100%
success rate and added gross proved reserves of 10.4 Bcf (5.2 Bcf net).
Additional development activity is planned in 1996, including the drilling of a
sidetrack extension from an existing well.
Building on the Company's results at West McAllen, American has
expanded its focus into the Wilcox Trend, a gas producing area characterized by
sub-surface faulting and geological complexity. In 1994, American acquired an
interest in the Provident City Field and participated in a Wilcox discovery and
several Yegua wells. This activity led American to initiate an area-wide mapping
and lease acquisition effort in Lavaca and Jackson Counties where the Company
now controls over 50,000 gross (24,000 net) acres. In December 1995, American
formed an exploration joint venture with Louis Dreyfus Natural Gas Corp. and
Seisgen, Inc. to conduct a 148 square-mile proprietary 3-D seismic survey. The
survey commenced in the first quarter of 1996 and is expected to be completed in
mid-1996. In the meantime, American plans to drill several wells targeting
seismic amplitude prospects identified by 2-D seismic data.
SMACKOVER TREND. The Smackover Trend extends over a broad area of East
Texas, Arkansas, Louisiana and Mississippi and contains many large, mature oil
fields. American's activities in this trend date to 1989, when the Company
acquired its interest in the Midway Field, a large waterflood unit which has
produced approximately 80 million barrels of oil since 1942. Through the use of
horizontal drilling, American has been able to add to and more efficiently
recover remaining oil reserves and reduce operating costs per unit of
production.
American's strategy in the Smackover Trend is to capitalize on the
horizontal drilling expertise it has developed at Midway by applying this
technology to other Smackover fields. The initial acquisition was completed in
1995 with the purchase of a controlling interest in the Buckner Field for $2.4
million, or under $1.75 per proved BOE. Buckner, which is located approximately
ten miles southwest of Midway and is geologically similar, has produced in
excess of 12 million barrels of oil from the Smackover Trend but was never
unitized or waterflooded. American has initiated steps to unitize the Buckner
Field and to initiate a horizontal drilling and waterflood project in 1996.
Concurrent with this project, American plans to identify and pursue additional
Smackover acquisitions.
FOREIGN AND DOMESTIC OPERATIONS
The Company's only industry segment is oil and gas exploration and
production. Since mid-1993, all of the Company's operations have been conducted
in the United States. Certain information concerning the Company's operations by
geographic area is set forth in Note 16 to the Consolidated Financial Statements
in Item 8, which information is incorporated herein by reference.
OIL AND GAS MARKETING AND COMPETITION
The natural gas produced from the Company's properties is generally sold
at the wellhead under contracts which provide for market-sensitive pricing. The
price of natural gas is influenced by many factors including the state of the
economy, weather and competition from other fuels, including oil and coal. The
Company's revenues, cash flows and the value of its gas reserves are all
affected by the level of gas prices.
3
The crude oil and condensate produced from the Company's properties are
generally sold to other companies at field prices posted by the principal
purchasers of crude oil in the areas where such properties are located. As is
customary in the industry, this production is generally sold pursuant to
short-term contracts.
In the year ended December 31, 1995, sales to Enron Corp. and certain
subsidiaries of KN Energy, Inc. accounted for approximately 19% and 10%,
respectively, of the Company's oil and gas revenues. Because of the availability
of other customers, management does not believe that the loss of any single
customer would adversely affect the Company's operations.
The oil and gas industry is highly competitive. Major oil and gas
companies, independent producers, drilling and production purchase programs and
individual producers and operators are active competitors for desirable oil and
gas properties. Many competitors have financial resources, staffs and facilities
substantially larger than those of the Company. The availability of a ready
market for the oil and gas production of the Company depends in part on the cost
and availability of alternative fuels, the level of consumer demand, the extent
of other domestic production of oil and gas, the extent of imports of foreign
oil and gas, the cost of and proximity to pipelines and other transportation
facilities, regulations by state and federal authorities and the cost of
complying with applicable environmental regulations.
REGULATION
The following discussion of the regulation of the oil and gas industry
is necessarily brief and is not intended to constitute a complete discussion of
the various statutes, rules, regulations or governmental orders to which
operations of the Company may be subject.
FEDERAL REGULATION OF NATURAL GAS. The sale and transportation of
natural gas in interstate commerce are regulated under various federal laws
including, but not limited to, the Natural Gas Act of 1938 ("NGA") and the
Natural Gas Policy Act of 1978 ("NGPA"), both of which are administered by the
Federal Energy Regulatory Commission ("FERC"). Under these acts, producers and
marketers have historically been required to obtain from the FERC certificates
to make so-called "first sales" and abandonment authority to discontinue such
sales. Additionally, first sales have been subject to maximum lawful price
regulation. However, the NGPA provided for phased-in price deregulation of most
new gas production and, as a result of the enactment of the Natural Gas Wellhead
Decontrol Act of 1989, the remaining regulations imposed by the NGA and the NGPA
with respect to first sales, including price controls and certificate and
abandonment authority regulations, were terminated on January 1, 1993. FERC
jurisdiction over transportation and over sales other than first sales has not
been affected.
Commencing in the mid-1980's, the FERC promulgated several orders
designed to make gas markets more competitive by, among other things, inducing
or requiring interstate natural gas pipeline companies to provide transportation
services on an open and nondiscriminatory basis. These orders have had a
profound influence upon natural gas markets in the United States and have, among
other things, fostered the development of a large spot market for gas.
In April 1992, the FERC issued the latest in this series of orders,
Order No. 636. Order No. 636 further restructured the sales and transportation
services provided by interstate pipeline companies. The FERC considered these
changes necessary to improve the competitive structure between interstate
pipelines and other gas merchants, including producers, and to create a
regulatory framework that would put gas sellers into more direct contractual
relations with gas buyers than had historically been the case. Order No. 636 was
implemented on a pipeline-by-pipeline basis through negotiated settlements in
individual pipeline service restructuring proceedings, designed specifically to
"unbundle" those services (e.g., transportation, sales and storage) provided by
many interstate pipelines. As a result, in many instances, interstate pipelines
are no longer wholesalers of natural gas, but instead, provide only natural gas
storage and transportation services. In response to numerous requests that the
FERC grant a rehearing of Order No. 636, the FERC issued Order Nos. 636-A and
636-B, which largely confirmed Order No. 636. Numerous petitions seeking
judicial review of these orders have been consolidated in the United States
Court of Appeals for the District of Columbia Circuit as UNITED DISTRIBUTION
COMPANIES ET AL. V. FEDERAL ENERGY REGULATORY COMMISSION. Oral arguments were
heard in February 1996, but no ruling has been issued in the matter.
Order No. 636 does not regulate gas producers such as the Company. To
date, management of the Company believes Order No. 636 has not had any
significant impact on the Company as a producer or on the Company's gas
4
marketing efforts. Due to the pending judicial review of Order No. 636,
it is not possible to predict what effect, if any, the final rule resulting from
these orders will have on the Company.
REGULATION OF DRILLING AND PRODUCTION. Exploration and production
operations of the Company are subject to various types of regulation at the
federal, state and local levels. Such regulation includes requiring drilling
permits, requiring the maintenance of bonds in order to drill or operate wells,
and regulating the location of wells, the method of drilling and casing wells,
the surface use and restoration of properties upon which wells are drilled and
the plugging and abandoning of wells. The operations of the Company are also
subject to various conservation regulations, including regulation of the size of
drilling and spacing units or proration units, the density of wells that may be
drilled and the unitization or pooling of oil and gas properties. In this
regard, some states, including states in which the Company operates, allow the
forced pooling or integration of lands and leases. In addition, state
conservation laws establish maximum rates of production from oil and gas wells,
generally prohibit the venting or flaring of gas and impose certain requirements
regarding the ratability of production. The effect of these regulations is to
limit the amount of crude oil and natural gas the Company can produce from its
wells and the number of wells or the locations at which the Company can drill.
FUTURE LEGISLATION AND REGULATION. The Company's business is and will
continue to be affected from time to time in varying degrees by political
developments and federal, state and local laws and regulations. The Company is
not able to predict the terms of any future legislation or regulations that
might ultimately be enacted or the effects of any such legislation or
regulations on the Company.
ROYALTY MATTERS
By a letter in May 1993 directed to thousands of producers holding
interests in federal leases, the United States Department of the Interior (the
"Department") announced its interpretation of certain administrative regulations
to require the payment of royalties on natural gas contract settlements to
resolve, among other things, take-or-pay and minimum take claims by producers
against pipelines and other buyers. The Department's letter set forth various
theories of liability, all founded on the Department's interpretation of the
term "gross proceeds" as used in federal leases and pertinent federal
regulations. In an effort to ascertain the amount of such potential royalties,
the Department sent a letter to producers in 1993 requiring producers to provide
data on natural gas contract settlements where gas produced from federal or
Indian leases was involved in the settlement. The Company received a copy of
this information demand letter and responded appropriately in May 1994. To date,
the Company has not received any orders to pay additional royalties based on the
information supplied to the Department.
In response to the Department's action, various industry associations,
including the Independent Petroleum Association of America, and others filed
suit seeking an injunction to prevent the collection of royalties on natural gas
contract settlement amounts under the Department's theories. The suit, which is
styled INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA, ET AL. VS. BRUCE BABBITT,
SECRETARY OF THE INTERIOR, ET AL., is currently on appeal in the United States
Court of Appeals for the District of Columbia Circuit from a district court
ruling in favor of the government. Oral arguments are currently set for April
16, 1996. Because of the pending lawsuit and because of, among other things, the
complex nature of the calculations necessary to determine potential additional
royalty liability under the Department's theories, it is impossible to predict
what, if any, additional or different royalty obligation the Department may
assert with respect to the Company's prior natural gas contract settlements. The
Company cannot therefore predict what effect, if any, the Department's claims
will have on the Company. Furthermore, certain of the Company's natural gas
contract settlements provide for the buyer to reimburse the Company for any
excess or additional payments to royalty owners required as a result of the
Company's receipt of the settlement amounts.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to a number of federal, state
and local laws and regulations governing the discharge of materials into the
environment or otherwise relating to the protection of the environment. These
environmental provisions may, among other things, impose liabilities for the
cost of pollution clean-up resulting from drilling operations, prohibit drilling
on certain lands and impose restrictions on the injection of liquids into
underground water sources that may, in turn, contaminate groundwater.
5
The Company has conducted a review of its operations with particular
attention to environmental compliance. The Company believes it has acted as a
prudent operator and is in substantial compliance with environmental laws and
regulations. The Company has and will continue to incur costs in its efforts to
comply with these environmental standards. Although the costs incurred by
American to date solely to comply with environmental laws and regulations have
not had a material adverse effect upon capital expenditures, earnings or the
competitive position of the Company, the trend toward stricter environmental
laws and regulations is expected to have an increasingly significant impact on
the conduct of American's business. The cost of expenditures to comply with
evolving regulations and the related future impact on American's business cannot
be predicted at this time because of the uncertainties regarding future
environmental standards, advances in technology, the timing for expending funds
and the availability of insurance and third-party indemnification. However,
American believes that the evolving environmental standards do not affect the
Company in a materially different manner from other similarly situated companies
in the oil and gas industry.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to all of the risks normally
incident to the exploration for and the development and production of oil and
gas including blowouts, cratering, uncontrollable flows of oil, gas or well
fluids, fires, pollution and other environmental risks. These hazards could
result in substantial losses to the Company due to injury or loss of life,
severe damage to or destruction of property and equipment, pollution and other
environmental damage and suspension of operations. Although the Company is not
fully insured against certain of these risks, it maintains insurance coverage
considered to be customary in the industry.
PROGRAM LIABILITY
The Company and certain of its subsidiaries act as general partner of a
number of limited partnerships. In such capacity, the Company and such
subsidiaries are generally liable for the obligations of the partnerships to the
extent that partnership assets are insufficient to discharge liabilities.
Several of the investment programs formed by the Company or its subsidiaries
require certain levels of insurance to cover operating and other risks inherent
in the production of oil and gas. Under the terms of these programs, the Company
would be liable for any costs or damages incurred by a program resulting from
the Company's failure to carry the required insurance. The Company believes that
its insurance coverage is sufficient as required by the program agreements.
6
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information regarding the executive officers
of the Company. All executive officers are elected for a term of one year and
serve until their successors are elected and have qualified.
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NAME OFFICE AGE
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Mark Andrews Chairman of the Board and 45
Chief Executive Officer
John M. Hogan Senior Vice President and Chief Financial Officer 51
Harold M. Korell Senior Vice President - Operations 51
Cindy L. Gerow Vice President and Controller 31
Harry C. Harper Vice President - Land 57
Robert R. McBride, Jr. Vice President - Production Operations 40
Steven L. Mueller Vice President - Exploitation 43
T. Frank Murphy Vice President - Corporate Finance and Secretary 41
Elliott Pew Vice President - Exploration 41
</TABLE>
MARK ANDREWS, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER,
founded the Company in 1980. Mr. Andrews is also a director of IVAX Corporation.
JOHN M. HOGAN, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, who
had previously served as Senior Vice President - Finance of the Company during
1985 and 1986, rejoined the Company in August 1992. From 1987 until 1992, Mr.
Hogan owned an accounting firm that provided tax, accounting, and management
services.
HAROLD M. KORELL, SENIOR VICE PRESIDENT - OPERATIONS, joined the Company
in June 1992. He was Executive Vice President of McCormick Resources, a private
independent oil and gas company, from 1989 until 1992. From 1973 to 1989, Mr.
Korell was with Tenneco Oil Company where he served in various positions and
eventually as Vice President and Manager of Production.
CINDY L. GEROW, VICE PRESIDENT AND CONTROLLER, joined the Company in
October 1990. She served in a number of managerial positions with responsibility
for various accounting and finance functions. She was appointed Controller of
the Company in April 1994 and was appointed to her current position in August
1995.
HARRY C. HARPER, VICE PRESIDENT - LAND, joined the Company in 1990 when
American acquired Hershey Oil Corporation. He had been Senior Vice President,
Secretary and General Counsel of Hershey since 1973.
ROBERT R. MCBRIDE, JR., VICE PRESIDENT - PRODUCTION OPERATIONS, joined
the Company in August 1992. From 1988 to 1992, he served in various capacities
with British Gas plc, most recently as Exploitation Manager.
STEVEN L. MUELLER, VICE PRESIDENT - EXPLOITATION, joined the Company in
November 1992. From 1988 to 1992, he was Exploration Manager - South Louisiana
Division at FINA, Inc.
T. FRANK MURPHY, VICE PRESIDENT - CORPORATE FINANCE AND SECRETARY,
joined the Company in 1989. He served in a variety of financial positions until
December 1991 when he was appointed Vice President - Investor Relations. He was
appointed Vice President - Corporate Finance in March 1993 and was appointed
Secretary in October 1993.
7
ELLIOTT PEW, VICE PRESIDENT - EXPLORATION, joined the Company in October
1992 as a senior geophysicist. He was appointed Vice President - Exploration in
July 1993. From 1989 to 1992, he was employed by FINA, Inc. as a division
geologist and then as Exploration Manager - South Texas Division.
ITEM 2. PROPERTIES
MAJOR PROPERTIES
Set forth below is information concerning each of the Company's seven
largest fields, which have been ranked based on the discounted present value of
the estimated pre-tax future net cash flows from the proved reserves for each
field relative to the total of $145.7 million of such cash flows for the Company
at December 31, 1995.
<TABLE>
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As Of December 31, 1995
------------------------------------------------------------------------
Percent Of Percent Of
Proved Reserves Reserves Percent Of Present Value
------------------- ------------------- Estimated Of Estimated
Oil Gas Future Net Future Net
(MBbls) (MMcf) Oil Gas Cash Flows Cash Flows
-------- --------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bowdoin Field......................... - 15,672 - % 12.4% 23.4% 14.8%
Bradshaw Field........................ - 36,110 - 28.7 10.3 10.5
Henderson Canyon Area................. 71 13,789 0.7 10.9 7.0 7.1
AWP Field............................. 616 3,789 5.9 3.0 3.2 3.9
Midway Field.......................... 1,086 - 10.4 - 2.9 3.9
Buckner Field......................... 1,461 - 14.0 - 3.4 3.1
Brazos Complex........................ 3 6,059 - 4.8 1.6 2.6
Other fields.......................... 7,227 50,595 69.0 40.2 48.2 54.1
-------- --------- -------- -------- ------------- ------------
Total.............................. 10,464 126,014 100.0% 100.0% 100.0% 100.0%
======== ========= ======== ======== ============= ==============
</TABLE>
DESCRIPTION OF FIELDS
BOWDOIN FIELD. The Bowdoin Field is located in northern Montana in
Phillips and Valley Counties. The structure was discovered in 1913 by using
surface geology. Gas is trapped in over 400 feet of closure in sandstones at
depths less than 1,500 feet. American owns an average net working interest of
17% in the field, which includes more than 500 active wells. The present
producing reserve to production ratio is greater than thirteen years, and
another 245 proved undeveloped locations have been identified to be drilled.
Gas produced from the Bowdoin Field is sold under a life of lease
contract to KN Gas Supply Services, Inc., a subsidiary of KN Energy, Inc.
Pursuant to a 1992 settlement agreement, KN Energy prepaid the Company
approximately $2.0 million which was used to repay a long-term production
payment that burdened the field. American realized an average price of $3.59 per
Mcf for gas produced from this field during 1995. In February 1995, the Company
was served with a lawsuit requesting a reduction of the contract price to market
levels. See Note 14 to the Consolidated Financial Statements in Item 8.
BRADSHAW FIELD. The Bradshaw Field encompasses 250 square miles and lies
ten miles northwest of the Hugoton Field in Hamilton County, Kansas. This field
produces from a stratigraphic trap along the western pinchout of the Winfield,
Fort Riley and Towanda sands of the Chase Group. American operates 141 active
wells with an average net working interest of 87%.
In late 1995, American and the gas gathering company, a subsidiary of
KN Energy Inc., installed additional compression at Bradshaw to reduce the
average pressure at the compressors from approximately 110 pounds per square
inch ("PSI") to 45 PSI. Average production has already increased nearly 40% from
the mid-December 1995 approximate rate of 7.9 MMcf per day. In addition, eight
proved undeveloped locations have been identified.
8
HENDERSON CANYON AREA. The Henderson Canyon Area includes the Henderson
Canyon Field and the Angus Strawn Field in Crockett County, Texas. American is
the operator of the 73 active wells and has a 34% average working interest. Most
of the production is from a single stratigraphically trapped sand body that has
a maximum sand thickness of 160 feet. A total of twelve proved undeveloped
locations have been identified for future drilling.
AWP FIELD. The AWP Field in McMullen County, Texas was discovered in
1981 and produces from the Olmos sand at approximately 9,700 feet. Over 400
wells have been drilled in the field, and American operates 136 wells with an
average net working interest of 51%. Two development gas locations remain to be
drilled.
MIDWAY FIELD. The Midway Field was discovered in 1942 and produces from
an east-west trending Smackover closure in Lafayette County, Arkansas. The
original oil column was approximately 180 feet thick, and over 80 million
barrels have been produced to date. American became the operator of the field in
1989, and has drilled a number of horizontal wells along the crest of the
structure, both to drain remaining reserves and to optimize the long established
waterflood. In 1995, the Company re-entered a total of nine wells and drilled
horizontal sidetracks to continue this development. Production, net to
American's interest, has increased from approximately 400 Bbls per day prior to
drilling the sidetracks to nearly 600 Bbls per day in December 1995. The Company
owns a 63.5% average net working interest in 67 oil wells.
BUCKNER FIELD. The Buckner Field is located approximately ten miles
southwest of American's Midway Field in Lafayette and Columbia Counties,
Arkansas. During 1995, the Company acquired operations in 23 wells which produce
oil from both the Smackover and Travis Peak formations at depths of less than
7,500 feet. While not as large as Midway, the field's important producing
characteristics are similar to Midway, and a total of seven proved undeveloped
locations have been identified. The Company is actively working on establishing
the Smackover unit and plans to begin the secondary recovery project when final
unit approval is received. American has an average net working interest of
99.8%. Production for December 1995 averaged approximately 270 Bbls per day.
BRAZOS COMPLEX. The Brazos Complex consists of Brazos Blocks 440L and
446L in the state waters of Matagorda County, Texas. Production is from a series
of Lower Miocene sands trapped in numerous complex fault blocks. The Company
operates the 15 producing wells with an average net working interest of 50%.
In 1995, American drilled two wells in Brazos 440L and participated in
a 50 block 3-D seismic survey. The 3-D seismic data is expected to help
delineate and identify exploratory prospects and to evaluate the deeper
potential for the area.
TITLE TO PROPERTIES
The Company's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other
burdens, including other mineral encumbrances and restrictions. The Company does
not believe that any of these burdens materially interfere with the use of such
properties in the operation of its business. In addition, substantially all of
the properties in which the Company or its subsidiaries own a direct interest
are subject to mortgages granted to secure credit facilities.
A thorough examination of title has been performed with respect to
substantially all of the Company's producing properties, and the Company
believes that it generally holds satisfactory title to such properties. As is
customary in the oil and gas industry, little or no investigation of title is
made at the time of acquisition of undeveloped properties (other than a
preliminary review of local mineral records). Investigations of title are
generally made before commencement of drilling operations and, in most cases,
include the receipt of a title opinion of local counsel.
RESERVES
The tables below set forth certain information concerning the proved oil
and gas reserves owned by the Company at December 31, 1995. The information
contained in the tables is based upon estimates of the proved oil and gas
reserves of the Company and the rates of production therefrom. The estimated
future net cash flows before income taxes from proved reserves were estimated on
the basis of year-end prices, except in those instances where fixed and
determinable gas price escalations are covered by contracts. The prices used
averaged $17.02 per Bbl of oil and $1.90 per Mcf of gas at December 31, 1995.
9
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and
future net cash flows. The quantities of oil and gas that are ultimately
recovered, production and operating costs, the amount and timing of future
development expenditures and future oil and gas sales prices may all differ from
those assumed in these estimates. Reserve assessment is a subjective process of
estimating recovery from underground accumulations of oil and gas that cannot be
measured precisely, and estimates of other persons might differ from the data
presented herein. Accordingly, reserve estimates may differ significantly from
the quantities of oil and gas that are ultimately recovered. Moreover, the
discounted present value shown below should not be construed as the current
market value of the estimated oil and gas reserves attributable to the Company's
properties. A market value determination would take into account additional
factors including, but not limited to, the recovery of reserves not presently
classified as proved, anticipated future changes in prices and costs and a
discount factor more representative of the time value of money and the risks
inherent in reserve estimates.
Although the Company prepares an annual estimate of proved oil and gas
reserves, no estimate of total proved net oil and gas reserves of the Company
has been filed with or included in reports to any federal authority or agency,
other than estimates previously filed with the Securities and Exchange
Commission. The Company is not aware of any major discovery or the occurrence of
any other favorable or adverse event since December 31, 1995 that would cause
material changes in the quantities of proved reserves owned by the Company as of
such date. The information in this section should be read in conjunction with
the Consolidated Financial Statements of the Company, including the Notes
thereto, set forth in Item 8.
The Company's estimated proved oil and gas reserves at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
OIL GAS
RESERVES RESERVES
(MBBLS) (MMCF)
<S> <C> <C>
Proved developed........................... 9,474 98,590
Proved undeveloped......................... 990 27,424
---------- ----------
Total proved ............................ 10,464 126,014
========== ==========
</TABLE>
The Company's estimated future net cash flows from proved and proved
developed oil and gas reserves at December 31, 1995, and the discounted present
value of such cash flows (before income taxes) are as follows (in thousands):
<TABLE>
<CAPTION>
PROVED
PROVED DEVELOPED
<S> <C> <C>
1996 (a)................................... $ 35,453 $ 36,850
1997 (a)................................... 25,962 27,720
1998....................................... 24,341 21,506
Remainder.................................. 159,658 114,855
---------- ----------
Total future net cash flows.............. $ 245,414 $ 200,931
========== ==========
Present value before income
taxes (discounted at 10%) ............... $ 145,711 $ 127,894
========== ==========
</TABLE>
(a) For 1996 and 1997, estimated pre-tax future net cash flows from proved
reserves are projected to be lower than estimated pre-tax future net
cash flows from proved developed reserves due to capital expenditures
associated with proved undeveloped reserves during 1996 and 1997 of
approximately $3.5 million and $6.3 million, respectively, which are
primarily for new development wells.
10
DRILLING
The following table sets forth the results of drilling activity by the
Company for the last three years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1995 1994 1993
--------- --------- -----------------------------------------------
(a) OTHER
U.S. CANADA FOREIGN TOTAL
(b) (b)
DEVELOPMENT WELLS
Gross:
<S> <C> <C> <C> <C> <C> <C>
Productive....................... 40 89 77 3 - 80
Dry Holes........................ 7 6 5 3 - 8
--------- --------- --------- -------- -------- ---------
Total......................... 47 95 82 6 - 88
========= ========= ========= ======== ======== =========
Net:
Productive....................... 17.22 31.52 10.17 1.44 - 11.61
Dry Holes........................ 2.18 1.48 0.42 1.75 - 2.17
--------- --------- --------- -------- -------- ---------
Total......................... 19.40 33.00 10.59 3.19 - 13.78
========= ========= ========= ======== ======== =========
EXPLORATORY WELLS
Gross:
Productive....................... - 3 2 - - 2
Dry Holes........................ 3 3 4 - 2 6
--------- --------- --------- -------- -------- ---------
Total......................... 3 6 6 - 2 8
--------- --------- --------- -------- -------- ---------
Net:
Productive....................... - 0.14 0.28 - - 0.28
Dry Holes........................ 1.93 1.11 1.02 - 0.70 1.72
--------- --------- --------- -------- -------- ---------
Total......................... 1.93 1.25 1.30 - 0.70 2.00
========= ========= ========= ======== ======== =========
</TABLE>
(a) Development wells drilled during 1995 include nine (5.99 net) productive
wells and two (1.33 net) dry holes drilled in the Sawyer Field prior to
the sale of that field in July 1995. As of December 31, 1995, the Company
was also drilling six (.69 net) development wells and one (.20 net)
exploratory well.
(b) The Company sold its Canadian properties in mid-1993 and sold its other
international interests during 1994.
11
PRODUCTION
The following table summarizes the average prices received with respect
to oil and gas produced and sold from, the net volumes of oil and gas produced
and sold from and certain additional information relating to, all properties in
which the Company held an interest during the last three years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993
--------- --------- ------------------------------------
U.S. CANADA TOTAL
(a)
AVERAGE SALES PRICE:
<S> <C> <C> <C> <C> <C>
Gas ($/Mcf).................................... $ 1.74 $ 1.90 $ 2.13 $ 1.23 $ 1.92
Oil ($/Bbl).................................... 16.83 15.39 16.20 12.79 16.01
BOE ($/BOE).................................... 12.30 12.67 14.05 7.94 12.99
PRODUCTION DATA:
Gas (MMcf)..................................... 24,450 16,241 11,794 3,542 15,336
Oil (MBbls).................................... 1,680 1,241 1,189 72 1,261
MBOE........................................... 5,755 3,948 3,155 662 3,817
AVERAGE COST ($/BOE) DATA:
Production and operating costs (b)............. $ 4.26 $ 5.40 $ 4.47 $ 2.89 $ 4.19
Production and severance taxes................. 0.57 0.72 0.77 0.06 0.64
Depreciation, depletion and amortization....... 5.34 7.50 6.89 2.85 6.19
</TABLE>
(a) The Company sold its Canadian properties in mid-1993.
(b) The amounts for 1993 reflect reclassifications of the Company's share of
producing overhead well costs from general and administrative expense to
production and operating costs in order to conform with current
classifications.
PRODUCTIVE WELLS
The following table sets forth information regarding the number of
productive wells in which the Company held a working interest at December 31,
1995. Productive wells are either producing wells or wells capable of production
although currently shut-in. One or more completions in the same well bore are
counted as one well.
<TABLE>
<CAPTION>
GROSS NET
United States:
<S> <C> <C>
Oil.................................... 2,591 395
Gas.................................... 2,018 367
---------- ----------
Total............................... 4,609 762
========== ==========
</TABLE>
12
ACREAGE
The following table sets forth the approximate developed and undeveloped
acreage in which the Company held a leasehold, mineral or other interest at
December 31, 1995.
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned by the
Company. A net acre is deemed to exist when the sum of the Company's fractional
ownership interests in gross acres equals one. The number of net acres is the
sum of the fractional interests owned in gross acres. Included in the following
table are 313,629 gross (16,662 net) developed mineral acres and 792,276 gross
(90,300 net) undeveloped mineral acres, all located in the United States. A
mineral acre is an acre in which the Company has a perpetual interest, as
contrasted to a leased acre in which the Company's interest is typically limited
to the life of production or otherwise limited in time.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
------------------------ --------------------------
GROSS NET GROSS NET
United States:
<S> <C> <C> <C> <C>
Arkansas....................... 12,509 4,068 26,130 3,257
Kansas......................... 158,647 68,310 24,778 6,935
Louisiana...................... 15,098 2,164 1,648 175
Mississippi.................... 27,092 6,668 178,148 45,586
Montana........................ 255,037 33,343 150,187 50,379
New Mexico..................... 16,365 3,015 9,279 2,335
North Dakota................... 19,809 1,911 7,367 973
Oklahoma....................... 164,596 22,833 112,470 12,666
Texas.......................... 339,692 42,951 422,460 34,944
Utah........................... 5,002 1,818 21,160 6,123
Wyoming........................ 10,331 2,629 13,846 2,175
Eleven other states............ 18,891 6,569 55,878 8,012
Gulf of Mexico................. 51,410 13,426 33,925 19,357
----------- ----------- ----------- ------------
Total United States............... 1,094,479 209,705 1,057,276 192,917
----------- ----------- ----------- ------------
International:
Canada (a)..................... 22,240 112 149,055 658
New Zealand (a)................ - - 725,992 32,307
----------- ----------- ----------- ------------
Total International............... 22,240 112 875,047 32,965
----------- ----------- ----------- ------------
Total............................. 1,116,719 209,817 1,932,323 225,882
=========== =========== =========== ============
</TABLE>
(a) Acreage relates to overriding royalty interests.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings of the Company is set forth in
Notes 14 and 18 to the Consolidated Financial Statements in Item 8, which
information is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the American Stock Exchange under
the symbol "AX". At March 15, 1996, the Company had 4,795 stockholders of
record.
The following table sets forth the high and low sales prices for the
Company's common stock for the quarters indicated. Prices stated below have been
retroactively restated to reflect the one-for-ten reverse split of the Company's
common stock effected during the second quarter of 1995.
<TABLE>
<CAPTION>
PRICE RANGE OF COMMON STOCK
HIGH LOW
YEAR ENDED DECEMBER 31, 1995
<S> <C> <C>
First Quarter................................. $ 10 $ 8 3/4
Second Quarter................................ 10 7/8 8 1/8
Third Quarter................................. 12 1/8 10 3/8
Fourth Quarter................................ 11 7/8 9 5/8
YEAR ENDED DECEMBER 31, 1994
First Quarter................................. $ 18 3/4 $ 13 3/4
Second Quarter................................ 15 11 1/4
Third Quarter................................. 15 11 7/8
Fourth Quarter................................ 13 3/4 8 3/4
</TABLE>
The Company has not paid any dividends on its common stock and does not
expect to pay dividends on its common stock for the foreseeable future. Payment
of dividends on the Company's common stock is also currently prohibited by the
terms of various agreements relating to outstanding indebtedness of the Company.
14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company
as of and for each of the years in the five-year period ended December 31, 1995.
The financial data was derived from the consolidated financial statements of the
Company and should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated
Financial Statements and related Notes thereto included in Item 7 and Item 8,
respectively.
American has made several significant acquisitions and dispositions of
oil and gas properties during the periods presented in the table below. American
sold approximately 40% of its interest in the Henderson Canyon Field in March
1993, sold its Canadian assets in mid-1993 and sold its interest in the Sawyer
Field in July 1995. The Company purchased investors' interests in the APPL
Programs in 1994 and early 1995.
Net income (loss) per common share for prior periods has been
retroactively restated to reflect the one-for-ten reverse split of the Company's
common stock effected in June 1995.
<TABLE>
<CAPTION>
(In thousands, except for per share amounts) 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Oil and gas sales................................... $ 70,768 $ 50,033 $ 49,589 $ 58,560 $ 71,499
Total revenues...................................... 81,934 51,359 58,158 60,008 70,041
Income (loss) from operations....................... 6,813 (51,433) (12,018) (59,679) (13,338)
Income (loss) before extraordinary item............. 1,477 (60,235) (19,186) (68,899) (24,257)
Net income (loss)................................... 3,933 (54,816) (19,186) (65,799) (24,257)
Net income (loss) to common stock................... 2,133 (56,616) (19,261) (65,799) (24,371)
Net income (loss) per common share:
Primary and fully diluted:
Loss before extraordinary item.................. $ (.03) $ (7.70) $ (2.77) $ (10.73) $ (4.50)
Net income (loss)............................... .18 (7.02) (2.77) (10.25) (4.50)
Cash dividends declared per common share............ - - - - -
SUMMARY OF CASH FLOW DATA:
Net cash provided by operating activities........... $ 33,305 $ 7,747 $ 24,717 $ 14,237 $ 21,505
Total capital expenditures.......................... 44,215 49,889 24,167 22,516 63,636
Proceeds from oil and gas property sales............ 63,488 2,638 35,666 2,881 23,641
Bank debt borrowings (repayments), net.............. (23,000) 21,500 (47,500) (20,000) 32,000
Issuance of debt and equity......................... - 2,100 21,348 38,096 25,148
SUMMARY OF BALANCE SHEET DATA:
Current assets...................................... $ 23,411 $ 26,127 $ 22,229 $ 51,179 $ 35,025
Property, plant and equipment, net.................. 150,417 195,405 160,885 201,915 298,896
Total assets........................................ 176,030 223,894 185,598 256,820 336,803
Current liabilities................................. 35,102 30,229 32,352 48,457 62,091
Long-term obligations and convertible redeemable
preferred stock, excluding current obligations... 40,000 100,710 62,848 115,256 135,226
Total stockholders' equity.......................... 94,480 87,710 86,406 85,160 127,433
</TABLE>
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company for the periods presented. See Item 2 in Part I for the detail of
production and prices for U.S. and Canadian operations during 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
----------- ----------- ----------
AVERAGE SALES PRICE:
<S> <C> <C> <C>
Gas ($/Mcf)......................................... $ 1.74 $ 1.90 $ 1.92
Oil ($/Bbl)......................................... 16.83 15.39 16.01
BOE ($/BOE)......................................... 12.30 12.67 12.99
PRODUCTION DATA:
Gas (MMcf).......................................... 24,450 16,241 15,336
Oil (MBbls)......................................... 1,680 1,241 1,261
MBOE................................................ 5,755 3,948 3,817
AVERAGE COST ($/BOE) DATA:
Production and operating costs...................... $ 4.26 $ 5.40 $ 4.19
Production and severance taxes...................... 0.57 0.72 0.64
Depreciation, depletion and amortization............ 5.34 7.50 6.19
</TABLE>
1995 COMPARED TO 1994
REVENUES. Oil and gas sales totaled $70.8 million in 1995 or 41% higher
than 1994 sales of $50.0 million. The increase in 1995 sales revenues primarily
reflects higher production volumes which resulted from the acquisition of
investors' interests in the APPL Programs (the "APPL Consolidation"), a series
of institutional programs which American managed and in which the Company
typically held a 10% - 13% interest. Through the APPL Consolidation, the Company
acquired 22.9 MMBOE and 2.3 MMBOE of proved oil and gas reserves in late 1994
and early 1995, respectively. The APPL Consolidation, together with successful
development activity at the Midway and West McAllen fields and the West Cameron
Block 408, resulted in a net production increase of 1.8 MMBOE in 1995 compared
to 1994. The higher production levels achieved through the APPL Consolidation
were partially offset by the loss of production due to the sale of the Sawyer
Field in July 1995. The Company's total oil and gas production increased to 5.8
MMBOE in 1995 from 3.9 MMBOE in 1994, contributing $22.3 million to oil and gas
sales.
Oil and gas sales reflect the impact of lower gas prices offset by
higher oil prices received in 1995. The Company realized an average price of
$16.83 per barrel in 1995 compared to $15.39 in 1994, which resulted in a $2.4
million addition to sales revenues. The Company's average gas price realization
declined to $1.74 per Mcf in 1995, or 8% below the prior year average. The
decline in the average gas price negatively impacted sales revenues by $3.9
million.
In July 1995, the Company sold its interest in the Sawyer Field to
Louis Dreyfus Natural Gas Corp. for a purchase price of $64.0 million. American
recorded a gain on the sale of the Sawyer Field of approximately $10.6 million
in 1995. Sales of various other fields in 1995 resulted in a net loss of
approximately $400,000. In 1994, the Company recognized a $1.1 million gain on
the divestiture of minor properties.
Other revenues totaled $936,000 and $216,000 in 1995 and 1994,
respectively. In 1995, the Company recorded gas settlement income of $895,000,
primarily consisting of the proceeds from certain litigation regarding the terms
of a gas purchase contract. American also recognized approximately $480,000 of
gas balancing income during 1995, primarily relating to cash balancing
settlements receivable on various wells which were plugged and abandoned during
1995. During December 1995, the Company accrued $700,000 as a reduction of other
revenues due to the loss of correlation between actual cash prices and the
prices under the swap agreements at the Henry Hub market reference price. Other
revenues recorded in 1994 primarily included gas balancing income.
16
COSTS AND EXPENSES. Production and operating costs increased to $24.5
million in 1995 from $21.3 million in 1994. The increase in 1995 costs was
mainly attributable to higher production levels resulting from the APPL
Consolidation, although that increase was mitigated by a reduction in
environmental expenses in 1995. During 1994, the Company incurred $2.4 million
of site remediation costs in connection with various environmental proceedings.
On a unit cost basis, production and operating costs per BOE decreased to $4.26
per BOE in 1995 from $5.40 per BOE in 1994 reflecting continued operating
efficiencies achieved following the completion of the APPL Consolidation.
Depreciation, depletion and amortization ("DD&A") totaled $30.7 million
in 1995 or 4% over 1994 DD&A of $29.6 million. The Company's DD&A per BOE rate
has decreased substantially this year; consequently, American's DD&A expense has
not increased proportionately with the 46% production increase in 1995. DD&A per
BOE decreased to $5.34 per BOE in 1995 from $7.50 per BOE in 1994. The lower
DD&A rate reflects the effect of the acquisition of interests through the APPL
Consolidation and the impact of a $25.0 million impairment charge recorded in
the fourth quarter of 1994, which reduced the cost basis of certain oil and gas
properties.
General and administrative expense ("G&A") declined to $7.5 million in
1995 from $10.0 million a year earlier. The reduction in G&A resulted primarily
from staff reductions in the first half of 1994 and a $2.0 million severance
charge recorded in late 1994 in connection with the elimination of certain
partnerships managed by American. These decreases have been partially offset by
the loss of management and technical fee reimbursements previously received from
the APPL Programs. The Company's continuing focus on controlling administrative
costs has resulted in a 49% reduction in G&A per unit of production, which
averaged $1.30 per BOE in 1995 compared to $2.54 per BOE in 1994.
Taxes other than income taxes were relatively constant, totaling $5.8
million in 1995 and $5.7 million in 1994. The Company's production tax rate in
1995 has been reduced due to the receipt of certain severance tax refunds
related to an outside operated property.
Exploration expense totaled $4.8 million and $2.6 million in 1995 and
1994, respectively. American recognized $4.1 million of dry hole expense on
three wells in 1995, including two offshore wells, compared to $1.5 million of
expense related to three unsuccessful wells drilled in 1994.
The Company recorded $1.8 million of impairment expense in 1995 compared
to a $33.6 million charge in 1994. The 1995 impairment relates primarily to the
fourth quarter write-off of an unproved offshore property. As discussed below
under the caption "1994 Compared to 1993", the Company recorded a $25.0 million
impairment charge in 1994 related to a change in accounting policy and a $6.4
million charge to write off American's remaining leasehold interest in Tunisia.
Interest expense of $5.5 million in 1995 was 17% below 1994 expense of
$6.6 million primarily due to the repayment of $62.5 million of bank debt using
the proceeds of the Sawyer Field sale in July 1995. In addition, American has
extinguished certain nonrecourse debt associated with the APPL Programs totaling
$6.6 million and $13.6 million in 1995 and 1994, respectively. Other expense of
$2.6 million in 1994 included $2.1 million of fees paid by American in
connection with a new bank credit agreement and the bridge facility.
EXTRAORDINARY ITEM. American recorded extraordinary gains of $2.5
million in 1995 and $5.4 million in 1994 related to the elimination of
nonrecourse debt in conjunction with the APPL Consolidation. The gain represents
the difference between the outstanding note balances and the actual purchase
price of the notes.
NET INCOME (LOSS). American reported net income of $3.9 million, or
$0.18 per share, in 1995 and a net loss of $54.8 million, or $7.02 per share, in
1994. Nonrecurring transactions reflected in 1995 net income include a $10.2
million gain on property sales, primarily the Sawyer Field, a $2.5 million
extraordinary gain on the extinguishment of debt and $895,000 of gas settlement
income, partially negated by a $1.8 million impairment charge and a $700,000
loss related to certain natural gas hedges. In contrast, 1994 results included
the negative impact of a $33.6 million impairment charge partially offset by a
$5.4 million extraordinary gain and a $1.1 million gain on property sales.
Excluding the effect of these nonrecurring transactions in both years, the
Company would have recorded net losses of $7.2 million and $27.7 million in 1995
and 1994, respectively. The improvement in operating results primarily reflects
a $17.5 million increase in net operating revenues, which resulted from higher
production levels and reduced unit operating costs following the APPL
Consolidation. In addition, reductions in G&A and interest expense in 1995 more
than offset higher DD&A and exploration expense recorded in that year.
17
1994 COMPARED TO 1993
REVENUES. Oil and gas sales in 1994 totaled $50.0 million compared to
$49.6 million in 1993. The Company's 1994 sales reflect higher domestic oil and
gas production offset in part by the impact of declining prices and the sales of
the Company's Canadian oil and gas properties in mid-1993. Comparing American's
total production for the two years, the combined effect of a 6% increase in gas
production and a 2% decline in oil production was a net increase to sales of
$1.4 million. Excluding the 1993 Canadian production, which totaled 662 MBOE,
the Company's oil and gas production increased by 793 MBOE as a result of the
drilling of new development wells, workovers and recompletions of existing wells
in the first half of the year and the acquisition of investors' interests in the
APPL Programs primarily during the second half of 1994. For 1994, American's
average realized gas price and oil price were down 1% and 4%, respectively, from
1993, decreasing sales by $1.0 million. The Company's realized prices include
the impact of certain hedging arrangements relating to a portion of its gas and
oil production during 1994. As a result of these hedges, gas sales increased by
$1.6 million and oil revenues were reduced by $44,000.
The Company recognized a gain on sales of oil and gas properties of $1.1
million in 1994 compared to a loss on property sales of $6.9 million in 1993. In
mid-1993, the sale of the Company's Canadian assets resulted in losses totaling
$5.8 million, including $1.8 million for the elimination of the accumulated
foreign currency translation adjustment. The gain for 1994 and the remaining
loss for 1993 resulted from the divestiture of minor properties.
The Company recorded gas settlement income of $15.6 million in 1993,
which included amounts received in connection with the settlement of certain
litigation regarding the terms of a gas purchase contract and for the
renegotiation of American's contract to sell gas from the Thomasville Field.
These amounts are reflected as other revenues on the accompanying statements of
operations.
COSTS AND EXPENSES. Production and operating expenses increased 33% to
$21.3 million in 1994. American's operating costs were increased by $3.8 million
during the second half of 1994 due to the acquisition of interests pursuant to
the APPL Consolidation. In addition, American recorded site remediation costs of
$2.4 million in 1994. On a BOE basis, operating costs increased 29% to $5.40 in
1994 compared to $4.19 in 1993. These increases reflected higher U.S. operating
costs which more than offset the decreases associated with the sales of the
Company's Canadian properties in mid-1993. Higher domestic operating expenses
were related to workovers at the Brazos Blocks and the Sawyer Field totaling
$1.1 million.
DD&A expense totaled $29.6 million in 1994, with the 25% increase from
the prior year attributable to an increase in the Company's DD&A per BOE rate
and higher gas production. Downward reserve revisions at year-end 1993,
including reserve revisions related to low oil prices at year-end 1993, resulted
in a DD&A per BOE rate of $7.50 in 1994 compared to $6.19 in 1993. The higher
1994 rate is also due to the fact that the Canadian properties sold in mid-1993
had a lower depletion rate than the average rate for the Company's other
properties.
G&A expense totaled $10.0 million in 1994, or 35% above 1993 expense of
$7.4 million. The higher G&A expense for 1994 primarily related to the loss of
management and technical fee reimbursements as a result of the APPL
Consolidation with no significant reductions in G&A expense in 1994. As a result
of planned reductions related to the elimination of certain partnerships managed
by American, the Company recorded a $2.0 million severance charge in 1994. These
increases were partially offset by a decrease in salaries and benefits
associated with the reductions in American's work staff in early 1994 and the
elimination of Canadian G&A expense.
Taxes other than income increased by $1.1 million in 1994 compared to
1993, due primarily to higher production taxes related to increased domestic oil
and gas sales and higher ad valorem taxes related to an increase in the
Company's oil and gas property base due to the APPL Consolidation.
Exploration expense decreased 66% to $2.6 million in 1994. The decrease
in exploration expense reflected steps taken by American to eliminate its
international exploration commitments and to emphasize domestic development and
exploitation projects in 1994.
The Company recorded impairment charges totaling $33.6 million in 1994
and $11.0 million in 1993. Effective December 31, 1994, the Company changed its
accounting policy related to impairment of proved oil and gas properties to a
policy that is consistent with the provisions of the Financial Accounting
Standards Board ("FASB") exposure draft,
18
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". A final statement was subsequently issued by the FASB in March
1995. Previously, the Company's impairment policy was to recognize an impairment
of proved oil and gas property costs if, on a company-wide basis, those costs
exceeded the undiscounted after-tax future net cash flows from proved reserves.
Under the Company's new policy, if the book value of an individual proved field
is greater than its undiscounted future net cash flow from proved reserves, then
an impairment is recognized for the difference between the net book value and
the fair value. Management's initiative to change its policy was prompted by the
considerable volatility of oil and gas prices during the past several years, the
resulting economic losses of proved reserves and corresponding increases in the
Company's DD&A rate. This change in accounting policy resulted in a $25.0
million noncash impairment charge for 1994 against the book value of certain of
American's proved oil and gas properties.
Impairment expense for 1994 also included a $6.4 million noncash charge
for the write-off of the Company's remaining leasehold interest in Tunisia.
American sold its interest in exchange for the purchaser assuming its remaining
Tunisian commitment. The remaining impairment expense for 1994 primarily
represented the write-off of several domestic prospects on which the Company did
not plan to conduct any further exploratory activity. The impairment charge for
1993 included $10.2 million associated with the write-offs of the Company's
leasehold interest in Oman and a portion of the leasehold interest in Tunisia.
Interest expense decreased 3% in 1994 to $6.6 million due primarily to a
lower average bank debt balance during 1994 and the elimination of $14.1 million
of debt in connection with the Canadian asset sales in mid-1993, offset in part
by a decrease in capitalized interest. Capitalized interest decreased to $1.5
million in 1994 from $2.3 million in 1993 due to a reduction in the unproved
property base for interest capitalization. Other expense of $2.6 million in 1994
included $2.1 million of fees paid by American in connection with a new bank
credit agreement and the bridge facility extended to the Company by New York
Life for the APPL Consolidation.
EXTRAORDINARY ITEM. As part of the APPL Consolidation, American recorded
a $5.4 million extraordinary gain in 1994 resulting from the elimination of
nonrecourse debt in conjunction with the repurchases of notes issued by, and net
profits interests in, the APPL Debt Programs.
NET LOSS. American reported a net loss of $54.8 million, or $7.02 per
share, in 1994 compared to a net loss of $19.2 million, or $2.77 per share, in
1993. The higher net loss for 1994 was primarily due to the impact of the
impairment of proved properties, an increase in operating costs and expenses on
a per unit of production basis and the gas settlement income received in 1993,
offset in part by lower exploration expense and the extraordinary gain in 1994
as well as the loss on the sales of the Company's Canadian assets recognized in
1993.
CAPITAL RESOURCES AND LIQUIDITY
American's principal sources of capital are net cash provided by
operating activities and proceeds from financing activities. During the last
three years, the Company has also generated substantial cash flows from the sale
of oil and gas properties, most notably the 1995 sale of the Sawyer Field, as
discussed below. American's primary capital requirement is to fund the Company's
development and exploration programs. American also has financial obligations
related to the Company's preferred stock and senior subordinated notes.
Net cash provided by operating activities increased to $33.3 million in
1995, as compared to the 1994 amount of $7.7 million. The improvement in cash
flow reflects the impact of the APPL Consolidation and successful development
activity, which together have resulted in a 46% increase in production in 1995
compared to 1994. In addition, the Company's operating margins have been boosted
as unit costs for production, G&A and interest expense have all been reduced in
1995. Operating cash flow in 1995 also reflects a $5.8 million positive working
capital adjustment which reflects an increase in accounts payable due to the
timing of certain payments. Net cash provided by operating activities totaled
$24.7 million in 1993 which included $15.6 million of gas settlement income
received in that year.
In December 1994, the Company entered into a new long-term revolving
bank credit agreement which replaced the bank credit agreement previously in
effect. As of December 31, 1995, the borrowing base, or amount available, under
the new bank credit facility was $40.0 million. The reduction in the borrowing
base from $65.0 million at year-end 1994 reflects the decrease in the aggregate
value of the Company's oil and gas properties due to the sale of the Sawyer
Field. The borrowing base is scheduled to be redetermined semi-annually every
March and September. Management expects that
19
the borrowing base will be increased to give effect to the acquisition of
certain interests in the Gulf of Mexico in March 1996. See "Recent Events" for a
discussion of the acquisition.
The bank credit agreement and the 11% senior subordinated notes require
the Company to comply with certain covenants including, but not limited to,
restrictions on indebtedness, investments, payment of dividends and lease
commitments. Cash dividends are prohibited on the Company's common stock, and
preferred dividends are limited to the lesser of 10% of the preferred stock
offering proceeds or $7.5 million in any one year. These agreements also include
net worth covenants which were amended effective July 1994 in conjunction with
the issuance of American common stock related to the APPL Consolidation. At
December 31, 1995, the Company's calculated net worth requirement was $64.6
million and the Company's stockholders' equity was $94.5 million. In addition,
these agreements contain cross-default provisions.
American began the year 1995 with outstanding bank borrowings of $28.0
million and a $31.1 million note payable to New York Life under a bridge credit
facility utilized to finance a portion of the APPL Consolidation. In February
1995, the Company used excess bank borrowing capacity to refinance the bridge
facility. Bank debt borrowings totaled $62.5 million at the end of the second
quarter of 1995. Upon the sale of the Sawyer Field in July 1995, the Company
repaid all outstanding bank debt using the proceeds of the sale. At December 31,
1995, American's debt outstanding under the bank credit facility totaled $5.0
million. In addition to the reduction in bank debt, the Company eliminated $6.6
million and $13.6 million of nonrecourse debt in 1995 and 1994, respectively, in
connection with the APPL Consolidation. The Company's debt to total
capitalization ratio has been reduced to 30% at year-end 1995 from 53% at the
end of 1994.
Proceeds from the sale of oil and gas properties, net of post-closing
adjustments, totaled $63.5 million, $2.6 million and $35.7 million in 1995, 1994
and 1993, respectively. Property sales in 1995 primarily included the Sawyer
Field, as discussed below, as well as other minor properties. Divestitures in
1994 were comprised of non-strategic, low-value properties while the most
significant 1993 sales included the sale of the Company's Canadian assets and
the conveyance of a 40% interest in the Henderson Canyon Field to certain
investment programs managed by the Company.
In July 1995, the Company sold its interest in the Sawyer Field to Louis
Dreyfus Natural Gas Corp. for a purchase price of $64.0 million. As of December
31, 1994, American's interest in the Sawyer Field had represented approximately
27% of the Company's total proved reserves, and the present value of the future
net cash flows, discounted at 10%, related to American's interest in the field
totaled approximately $29.7 million. Although the sale of this field has reduced
operating cash flow by approximately $700,000 per month during the last five
months of 1995, the reduction in the Company's bank debt using the proceeds of
the sale has resulted in monthly savings of approximately $400,000 of interest
costs. The significant reduction of the Company's bank debt as a result of the
Sawyer sale places American in a strengthened financial position.
Development and exploration expenditures totaled $27.5 million in 1995
compared to $20.9 million and $18.7 million in 1994 and 1993, respectively.
Significant projects in 1995 included drilling in the Gulf of Mexico in the
Vermilion, West Cameron and Brazos blocks. The Company also conducted
development activity in several fields including the Midway Field in Arkansas,
the West McAllen Field in South Texas and the Bradshaw Field in Kansas. The
Company drilled three unsuccessful exploratory wells in 1995, of which two were
offshore in the Gulf of Mexico.
Capital expenditures for the acquisition of oil and gas properties
totaled $16.0 million, $28.4 million and $4.3 million in 1995, 1994 and 1993,
respectively. Acquisition expenditures in 1995 included $9.0 million related to
the APPL Consolidation, $2.4 million for certain interests in the Buckner Field
in Arkansas, and the purchase of several offshore blocks in the Gulf of Mexico.
Acquisitions in 1994 primarily related to the APPL Consolidation.
The Company has budgeted $25.0 - $35.0 million for development and
exploration projects in 1996 with at least 15 wells planned. Identified drilling
sites include the Wilcox Project in South Texas, the Smackover Trend Project in
southwestern Arkansas and the Texas State Waters and West Cameron areas of the
Gulf of Mexico. The Company plans to utilize 3-D seismic technology in all of
these projects except for the Smackover project which will rely on horizontal
drilling. There can be no assurances regarding the success of any wells drilled
particularly with regard to exploratory wells. Under the principles of
successful efforts accounting, the costs incurred for the drilling of
unsuccessful exploratory wells are recorded as exploration expense which would
negatively impact net income.
20
At December 31, 1995, the Company's capital commitments for 1996 totaled
$4.2 million, including $2.4 million for operating lease obligations and $1.8
million for preferred dividends. American is scheduled to begin the repayment of
principal under the bank credit facility over ten quarterly installments
commencing in September 1997. Also, annual principal payments of $5.6 million on
the 11% senior subordinated notes will begin in December 1997.
American's ratio of current assets to current liabilities was 0.67:1 at
the end of 1995 compared to 0.86:1 at year-end 1994. The Company has
historically operated with a working capital deficit primarily due to timing
differences between the receipt of reimbursements from other working interest
owners in the properties operated by American and the payment of expenses with
respect to such properties.
The Company intends to fund its planned capital expenditures,
commitments and working capital requirements through cash flows from operations
and borrowings under its bank credit facility. However, if there are changes in
oil and gas prices, which correspondingly affect cash flows and bank borrowings,
American has the discretion and ability to adjust its capital budget. Other
potential sources of capital for the Company include property sales, financings
through the placement of notes or the sale of equity. Management believes that
the Company will have sufficient capital resources and liquidity to fund its
capital expenditures and meet its financial obligations as they come due.
RECENT EVENTS
NYLOG LITIGATION AND PROPOSED LIQUIDATION. The Company and its
subsidiary, American Exploration Production Company (together, the "American
Parties"), along with New York Life and several of its subsidiaries, have been
named as defendants in a class action complaint filed in the United States
District Court for the Southern District of Florida on March 18, 1996, styled
SHEA ET AL. V. NEW YORK LIFE INSURANCE CO., ET AL. (Civil Action No. 96-0746)
alleging generally that the defendants engaged in fraudulent activities in
connection with the marketing and sale of interests in various limited
partnerships, including the NYLOG Programs, and the subsequent operation of such
partnerships, breached implied covenants and fiduciary duties owed to investors
and violated various federal securities and state laws and rules. The plaintiffs
purport to represent a class of all persons who purchased or otherwise assumed
rights and title to interests in the partnerships that were created, sponsored,
marketed, sold, operated or managed by the defendants from January 1, 1985
through March 18, 1996. The plaintiffs have asked for compensatory damages for
their lost original investment, plus interest, costs (including attorneys'
fees), punitive damages, disgorgement of any earnings, compensation and benefits
received by the defendants as a result of the alleged actions and other
unspecified relief to which plaintiffs may be entitled. The lawsuit was preceded
by two similar but separate lawsuits filed by the plaintiffs in the District
Courts in Harris County, Texas on January 11, 1996.
The defendants expressly deny any wrongdoing alleged in the complaints
and do not concede any liability or wrongdoing in connection with any of the
facts or claims that have been alleged against them in the lawsuits described
above, including any liability or wrongdoing in connection with the sale of the
units of limited partner interest in the partnerships. Nevertheless, to reduce
the burden of protracted litigation, the defendants have entered into a
Stipulation of Settlement (the "Settlement Agreement") with the plaintiffs
because, in their opinion, the settlement would (i) provide substantial benefits
to the limited partners in a manner consistent with New York Life's prior
determination to wind up the NYLOG Programs through orderly liquidation because
the continuation of the business no longer served the intended objectives of
either the limited partners or the defendants and to offer the limited partners
an enhancement to the liquidating distribution they would otherwise receive,
(ii) provide an opportunity to wind up the partnerships on a schedule favorable
to the limited partners and to resolve the issues raised by the lawsuits and
(iii) reduce the burdens and uncertainties associated with protracted litigation
of the claims underlying the lawsuits.
If the Settlement Agreement is approved by the Florida court and becomes
final, a limited partner of a limited partnership who participates in the
settlement will receive from an affiliate of New York Life a cash payment that,
together with prior distributions to such settling limited partner from such
limited partnership, will result in the settling limited partner having received
in the aggregate an amount at least equal to his total investment in such
partnership. If the proposed settlement becomes final, the defendants and
various other related parties will be released and discharged from any and all
claims a limited partner may have against the defendants in connection with the
partnerships. The American Parties will not be liable for any payment of
advances or refunds to the NYLOG investors.
21
On March 19, 1996, the Florida federal district court issued a hearing
order and certified the class for settlement purposes only and directed the
defendants to cause a class notice to be mailed to potential class members. The
Settlement Agreement is not yet final, is subject to a number of conditions and
may be terminated in certain circumstances.
New York Life and certain of its subsidiaries and American Exploration
Production Company ("AEPCO") have also been named as defendants in a lawsuit
relating to the NYLOG Programs styled BILLY H. MANCIL AND MARY M. MANCIL V. NEW
YORK LIFE INSURANCE COMPANY, ET AL., Civil Action No. CV-95-2595 GR, Circuit
Court of Montgomery County, Alabama (the "Mancil Litigation"). The complaint in
the Mancil Litigation alleges various causes of action arising out of
Mancil's purchase of interests in certain NYLOG Programs including, among
other things, fraud, reckless and negligent misrepresentations, and negligence
in hiring, training and/or supervising a sales agent involved in the sale of the
NYLOG interests. Plaintiffs seek an unspecified amount of compensatory and
punitive damages and costs.
The American Parties and NYLIFE Inc. ("NYLIFE"), a subsidiary of New
York Life, have entered into an indemnity agreement (the "Indemnity Agreement")
pursuant to which NYLIFE has agreed to indemnify the American Parties from and
against any and all judgments or settlements entered or reached in the NYLOG
litigation described above, or any subsequent lawsuits by investors in the NYLOG
Programs based on claims and factual allegations substantially similar to those
contained in the original complaints filed in state district court in Texas
(collectively with the Mancil Litigation, the "NYLOG Litigation"). Pursuant to
the Indemnity Agreement, NYLIFE has assumed control of the joint defense of the
NYLOG Litigation at NYLIFE's expense including, but not limited to, any
settlement discussions or settlements. Additionally, pursuant to the Indemnity
Agreement, the American Parties have agreed that if a settlement of the NYLOG
Litigation occurs and in connection therewith the assets of the NYLOG Programs
are sold in liquidation of the partnerships, the American Parties will be
allocated 5% (which represents AEPCO's initial capital contribution percentage)
of revenues and net proceeds from the sale of properties effective from and
after February 1, 1996. Based upon the terms of the Indemnity Agreement, the
Company does not believe that the NYLOG Litigation will have a material adverse
impact on its financial position or results of operations.
As of December 31, 1995, American's net share of the NYLOG Programs'
oil and gas reserves totaled approximately 1.2 MMBOE, or 3.8% of the Company's
total proved reserves, and American's share of 1995 cash flows from the NYLOG
properties totaled approximately $1.1 million. If the NYLOG liquidation is
approved, approximately $2.6 million of annual cost reimbursements to American
will be eliminated; however, the liquidation process will streamline American's
property base and enable the Company to reduce overhead and interest expense. If
the NYLOG Programs are dissolved and liquidated as contemplated by the
Settlement Agreement, the NYLOG properties will be divested and American will
receive its share of the sales proceeds. The impact on American of such
liquidation will depend in part upon the amounts realized upon the sales of the
NYLOG properties.
ACQUISITION OF INTERESTS IN THE GULF OF MEXICO. On March 15, 1996, the
Company and Dominion Reserves, Inc. acquired interests in five offshore blocks
in the Gulf of Mexico from a private company for a purchase price of
approximately $56.0 million. American's 25% share of the acquisition was funded
through $14.0 million in borrowings under the Company's bank credit facility.
The acquired properties will add estimated proved reserves totaling 11.3 Bcf of
natural gas and 600 MBbls of crude oil and liquids, net to American's interest.
American's share of current daily production from the acquired properties is
approximately 5.6 MMcf of gas and 700 Bbls of crude oil per day. Management
believes that in addition to the positive impact on reserve value, production
and cash flow, this acquisition fits well with American's strategy of
establishing a position in areas of the Gulf of Mexico. Subsequent to the
acquisition, the Company entered into a fixed price contract on approximately
4,000 MMbtu of gas per day for two years commencing April 1, 1996 at an average
price of $2.00 per MMbtu.
ENVIRONMENTAL MATTERS
The Company is subject to an increasing number of federal, state and
local laws and regulations governing the discharge of materials into the
environment or otherwise relating to the protection of the environment. The
Company has conducted a review of its operations with particular attention to
environmental compliance. The Company believes it has acted as a prudent
operator and is in substantial compliance with environmental laws and
regulations. These environmental provisions are expected to have an increasingly
significant impact on the conduct of American's business. The Company has
recorded site remediation costs of $541,000 and $2.4 million in 1995 and 1994,
respectively. The site remediation costs incurred in 1994 primarily related to
certain lawsuits. Prior to 1994, the Company's cost to comply with environmental
provisions was not material. American cannot predict what impact environmental
laws and regulations will
22
have on its future performance. However, the Company believes that such laws do
not affect American in a materially different manner from other similarly
situated companies in the oil and gas industry.
As discussed in Note 14 to the Consolidated Financial Statements in
Item 8, during 1995, the Company was a defendant in five lawsuits alleging the
presence of naturally occurring radioactive materials ("NORM") and other
hazardous substances as a result of oil and gas operations conducted on
properties operated or owned by the Company and its predecessors in title or as
a result of NORM contaminated pipe delivered to a pipe cleaning facility, of
which the Company contributed a minor amount of pipe. Three of the lawsuits have
been dismissed. American has remediated several of these properties and believes
these remediation efforts will significantly reduce the basis for the
plaintiffs' damage claims. Although the Company cannot predict the outcome of
these proceedings, management does not expect the outcome of the two remaining
cases to have a material adverse impact on American's financial position or
results of operations.
CHANGING OIL AND GAS PRICES
The Company's revenues and cash flows are affected by changes in oil and
gas prices. Moreover, the Company's bank borrowing capacity is largely dependent
upon oil and gas prices. Oil and gas prices are subject to substantial seasonal,
political and other fluctuations that the Company is unable to control or
accurately predict.
During 1995, American's average realized gas price fluctuated to a high
of $2.12 per Mcf in December from a low of $1.59 per Mcf in February. Gas prices
have increased subsequent to year-end to a price of $2.17 per MMbtu in January
1996 and have subsequently decreased to a price of $1.99 per MMbtu in March
1996. Prices are quoted prices for the respective months for Houston Ship
Channel deliveries. The Company's average realized oil price ranged from $16.13
to $17.95 per Bbl during 1995. To mitigate the impact of oil and gas price
fluctuations, the Company has several commodity price swap agreements in place
under varying terms and contract periods throughout 1996. Reference is made to
Note 13 to the Consolidated Financial Statements in Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in a separate section
of this Report on Form 10-K. See the accompanying "Index of Financial
Statements" at Page F-1. Such information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors
The information set forth under the caption "Election of Directors" in
the Company's Proxy Statement for its 1996 Annual Meeting of Stockholders (the
"Proxy Statement"), which is to be filed with the Securities and Exchange
Commission (the "Commission") within 120 days of December 31, 1995 pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Act"), is incorporated herein by reference.
(b) Executive Officers
Information concerning executive officers is set forth in Item 1 of
Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in
the Company's Proxy Statement, which is to be filed with the Commission within
120 days of December 31, 1995 pursuant to Regulation 14A under the Act, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Principal Security
Holders" and "Security Ownership of Management" in the Company's Proxy
Statement, which is to be filed with the Commission within 120 days of December
31, 1995 pursuant to Regulation 14A under the Act, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Company's Proxy Statement, which is to be filed
with the Commission within 120 days of December 31, 1995 pursuant to Regulation
14A under the Act, is incorporated herein by reference.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
See the accompanying "Index of Financial Statements" at Page
F-1.
3. Exhibits
See the accompanying "Index of Exhibits" at Page X-1.
(b) The registrant filed no reports on Form 8-K during the fourth
quarter of 1995.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 29th day of
March, 1996.
AMERICAN EXPLORATION COMPANY
(Registrant)
By: /s/ MARK ANDREWS
Mark Andrews
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 29th day of March, 1996.
SIGNATURE TITLE
/s/ MARK ANDREWS Chairman of the Board
Mark Andrews and Chief Executive Officer
(Principal Executive Officer)
/s/ JOHN M. HOGAN Senior Vice President
John M. Hogan and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ HARRY W. COLMERY, JR. Director
Harry W. Colmery, Jr.
/s/ IRVIN K. CULPEPPER, JR. Director
Irvin K. Culpepper, Jr.
/s/ WALTER J. P. CURLEY Director
Walter J. P. Curley
/s/ PHILLIP FROST, M.D. Director
Phillip Frost, M.D.
26
/s/ PETER G. GERRY Director
Peter G. Gerry
/s/ H. PHIPPS HOFFSTOT, III Director
H. Phipps Hoffstot, III
/s/ JOHN H. MOORE Director
John H. Moore
/s/ PETER P. NITZE Director
Peter P. Nitze
27
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
Financial Statements:
<S> <C>
Report of Independent Public Accountants............................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994......................................... F-3
Consolidated Statements of Operations for the Three Years in the Period Ended
December 31, 1995................................................................................. F-4
Consolidated Statements of Cash Flows for the Three Years in the Period Ended
December 31, 1995................................................................................. F-5
Consolidated Statements of Stockholders' Equity for the Three Years in the
Period Ended December 31, 1995.................................................................... F-6
Notes to Consolidated Financial Statements........................................................... F-7
Supplemental Information on Oil and Gas Producing Activities......................................... F-30
</TABLE>
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American Exploration Company:
We have audited the accompanying consolidated balance sheets of American
Exploration Company (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Exploration Company and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As explained in Note 1 to the consolidated financial statements, in
1994, the Company changed its method of accounting for impairments of proved oil
and gas properties.
ARTHUR ANDERSEN LLP
Houston, Texas
March 22, 1996
F-2
CONSOLIDATED BALANCE SHEETS
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
---- ----
ASSETS
Current assets:
<S> <C> <C>
Cash and temporary cash investments ............................................ $ 7,496 $ 9,973
Accounts receivable............................................................. 14,520 10,652
Receivables from partnerships................................................... 429 4,488
Other current assets............................................................ 966 1,014
------------ ------------
Total current assets......................................................... 23,411 26,127
------------ ------------
Property, plant and equipment:
Oil and gas properties, based on successful efforts accounting.................. 292,027 343,453
Other property and equipment.................................................... 13,036 12,530
------------ ------------
305,063 355,983
Less: Accumulated depreciation, depletion and amortization.................... 154,646 160,578
------------ ------------
Property, plant and equipment, net........................................... 150,417 195,405
------------ ------------
Other assets....................................................................... 2,202 2,362
------------ ------------
Total assets................................................................. $ 176,030 $ 223,894
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 18,149 $ 14,391
Accrued liabilities............................................................. 16,953 15,838
------------ ------------
Total current liabilities.................................................... 35,102 30,229
------------ ------------
Long-term debt..................................................................... 40,000 69,582
------------ ------------
Note payable to related party...................................................... - 31,128
------------ ------------
Other liabilities.................................................................. 6,448 5,245
------------ ------------
Commitments and contingencies (Note 14)............................................
Stockholders' equity:
Convertible preferred stock, $1.00 par value;
authorized: 100,000 shares (1995 and 1994);
issued and outstanding: 4,000 shares (1995 and 1994)........................ 4 4
Common stock, $.05 par value;
authorized: 50,000,000 shares (1995 and 1994);
issued: 11,812,483 shares (1995) and 11,477,500 shares (1994);
outstanding: 11,812,483 shares (1995) and 11,468,313 shares (1994)........... 591 574
Additional paid-in capital...................................................... 276,713 272,817
Accumulated deficit............................................................. (182,543) (184,676)
Treasury stock, at cost; 9,187 shares (1994).................................... - (342)
Unearned compensation........................................................... (219) (525)
Notes receivable from officers.................................................. (66) (142)
------------ ------------
Total stockholders' equity................................................... 94,480 87,710
------------ ------------
Total liabilities and stockholders' equity................................... $ 176,030 $ 223,894
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
----------- ------------ ------------
REVENUES:
<S> <C> <C> <C>
Oil and gas sales................................................ $ 70,768 $ 50,033 $ 49,589
Gain (loss) on sales of oil and gas properties................... 10,230 1,110 (6,894)
Other revenues, net.............................................. 936 216 15,463
----------- ------------ ------------
Total revenues................................................ 81,934 51,359 58,158
----------- ------------ ------------
COSTS AND EXPENSES:
Production and operating......................................... 24,515 21,302 15,998
Depreciation, depletion and amortization......................... 30,726 29,616 23,635
General and administrative....................................... 7,472 10,035 7,413
Taxes other than income.......................................... 5,760 5,710 4,601
Exploration...................................................... 4,826 2,559 7,554
Impairment....................................................... 1,822 33,570 10,975
----------- ------------ ------------
Total costs and expenses...................................... 75,121 102,792 70,176
----------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS....................................... 6,813 (51,433) (12,018)
----------- ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense.................................................. (5,481) (6,638) (6,847)
Other income (expense), net....................................... 24 (2,619) 184
----------- ------------ ------------
Total other expense........................................... (5,457) (9,257) (6,663)
----------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM........................................... 1,356 (60,690) (18,681)
Income tax benefit (provision)...................................... 121 455 (505)
----------- ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............................. 1,477 (60,235) (19,186)
Extraordinary gain on extinguishment of debt........................ 2,456 5,419 -
----------- ------------ ------------
NET INCOME (LOSS)................................................... 3,933 (54,816) (19,186)
Preferred stock dividends........................................... (1,800) (1,800) (75)
----------- ------------ ------------
NET INCOME (LOSS) TO COMMON STOCK................................... $ 2,133 $ (56,616) $ (19,261)
=========== ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Primary and fully diluted:
Loss before extraordinary item................................ $ (.03) $ (7.70) $ (2.77)
Extraordinary item............................................ .21 .68 -
----------- ------------ ------------
NET INCOME (LOSS) PER COMMON SHARE......................... $ .18 $ (7.02) $ (2.77)
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $ 3,933 $ (54,816) $ (19,186)
Adjustments to arrive at net cash provided by
operating activities:
Depreciation, depletion and amortization...................... 30,726 29,616 23,635
Loss (gain) on sales of oil and gas properties................ (10,230) (1,110) 6,894
Exploration expense........................................... 4,760 1,888 4,720
Impairment expense............................................ 1,822 33,570 10,975
Extraordinary gain............................................ (2,456) (5,419) -
Other, net.................................................... 759 2,909 (150)
Changes in operating working capital:
Accounts receivable........................................... (574) (2,899) 411
Other current assets.......................................... (144) (320) 920
Accounts payable and accrued liabilities...................... 5,760 1,874 (1,939)
Other operating ................................................. (1,051) 2,454 (1,563)
----------- ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 33,305 7,747 24,717
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of oil and gas properties............................ (15,972) (28,387) (4,273)
Development and exploration expenditures......................... (27,480) (20,944) (18,675)
Other capital expenditures....................................... (763) (558) (1,219)
Sales of oil and gas properties.................................. 63,488 2,638 35,666
Other investing.................................................. 2,308 (3,683) (2,488)
----------- ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES........ 21,581 (50,934) 9,011
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank debt borrowings............................................. 50,500 23,000 12,500
Bank debt repayments............................................. (73,500) (1,500) (60,000)
Borrowings under bridge credit facility.......................... - 32,078 -
Repayments under bridge credit facility.......................... (31,128) (950) -
Repayments of other debt......................................... (1,141) (8,622) (4,001)
Issuance of equity securities.................................... - 2,100 21,348
Preferred stock dividends........................................ (1,800) (1,800) (75)
Debt and equity issuance costs and other......................... (294) (3,382) (2,161)
----------- ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........ (57,363) 40,924 (32,389)
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS....................................... (2,477) (2,263) 1,339
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR............ 9,973 12,236 10,897
----------- ------------ ------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR.................. $ 7,496 $ 9,973 $ 12,236
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT
----------- --------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992....................... $ - $ 348 $ 195,674 $ (108,799)
Sale of convertible preferred stock........... 4 - 19,996 -
Sale of common stock.......................... - 5 1,435 -
Stock issuance costs.......................... - - (1,508) -
Dividends on preferred stock ($18.75 per share) - - - (75)
Unearned compensation on restricted
common stock............................... - - - -
Amortization of unearned compensation......... - - - -
Issuance of notes receivable from officers.... - - - -
Sale of Canadian companies.................... - - - -
Translation adjustment........................ - - - -
Net loss...................................... - - - (19,186)
----------- --------- ---------- -------------
BALANCE, DECEMBER 31, 1993....................... 4 353 215,597 (128,060)
Issuance of shares in APPL Consolidation...... - 213 56,017 -
Sale of common stock.......................... - 8 2,092 -
Stock issuance costs.......................... - - (889) -
Dividends on preferred stock ($450.00 per share) - - - (1,800)
Amortization of unearned compensation......... - - - -
Repayments of notes receivable from officers.. - - - -
Net loss...................................... - - - (54,816)
----------- --------- ---------- -------------
BALANCE, DECEMBER 31, 1994....................... 4 574 272,817 (184,676)
Issuance of shares in APPL Consolidation...... - 17 4,309 -
Reverse stock split costs..................... - - (71) -
Cancellation of treasury shares............... - - (342) -
Dividends on preferred stock ($450.00 per share) - - - (1,800)
Amortization of unearned compensation......... - - - -
Repayments of notes receivable from officers.. - - - -
Net income.................................... - - - 3,933
----------- --------- ---------- -------------
BALANCE, DECEMBER 31, 1995....................... $ 4 $ 591 $ 276,713 $ (182,543)
=========== ========= ========== =============
<CAPTION>
FOREIGN NOTES
CURRENCY RECEIVABLE
TRANSLATION TREASURY UNEARNED FROM
ADJUSTMENT STOCK COMPENSATION OFFICERS
----------- -------- -------------- ----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992....................... $ (1,721) $ (342) $ - $ -
Sale of convertible preferred stock........... - - - -
Sale of common stock.......................... - - - -
Stock issuance costs.......................... - - - -
Dividends on preferred stock ($18.75 per share) - - - -
Unearned compensation on restricted
common stock............................... - - (1,007) -
Amortization of unearned compensation......... - - 91 -
Issuance of notes receivable from officers.... - - - (230)
Sale of Canadian companies.................... 1,754 - - -
Translation adjustment........................ (33) - - -
Net loss...................................... - - - -
----------- -------- -------------- ----------
BALANCE, DECEMBER 31, 1993....................... - (342) (916) (230)
Issuance of shares in APPL Consolidation...... - - - -
Sale of common stock.......................... - - - -
Stock issuance costs.......................... - - - -
Dividends on preferred stock ($450.00 per share) - - - -
Amortization of unearned compensation......... - - 391 -
Repayments of notes receivable from officers.. - - - 88
Net loss...................................... - - - -
----------- -------- -------------- ----------
BALANCE, DECEMBER 31, 1994....................... - (342) (525) (142)
Issuance of shares in APPL Consolidation...... - - - -
Reverse stock split costs..................... - - - -
Cancellation of treasury shares............... - 342 - -
Dividends on preferred stock ($450.00 per share) - - - -
Amortization of unearned compensation......... - - 306 -
Repayments of notes receivable from officers.. - - - 76
Net income.................................... - - - -
----------- -------- -------------- ----------
BALANCE, DECEMBER 31, 1995....................... $ - $ - $ (219) $ (66)
=========== ======== ============== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of American Exploration Company and its majority-owned subsidiaries
(collectively referred to as "American" or the "Company"). American is an
independent company engaged in exploration, development and production of oil
and natural gas. American's oil and gas operations are conducted in the United
States with exploration and development activities concentrated onshore in the
Gulf Coast region of Texas and Louisiana and offshore in the Gulf of Mexico. In
addition to conducting oil and gas operating activities on its own behalf, the
Company manages certain producing oil and gas properties through various limited
partnerships.
The Company's investments in associated oil and gas programs are
accounted for using the proportionate consolidation method, whereby the
Company's proportionate share of each program's assets, liabilities, revenues
and expenses is included in the appropriate accounts in the consolidated
financial statements. All significant intercompany balances and transactions
have been eliminated in consolidation. Certain amounts in prior years'
consolidated financial statements have been reclassified to conform with current
classifications.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The effect of exchange
rate changes on cash was not significant during 1993, the last year during which
the Company conducted foreign operations.
PROPERTY, PLANT AND EQUIPMENT
The Company accounts for its oil and gas exploration and production
activities using the successful efforts method of accounting. Under this method,
acquisition costs for proved and unproved properties are capitalized when
incurred. Exploration costs, including geological and geophysical costs and
costs of carrying and retaining unproved properties, are charged to expense as
incurred. The costs of drilling exploratory wells are capitalized pending
determination of whether each well has resulted in the discovery of proved
reserves. If proved reserves are not discovered, such drilling costs are charged
to expense. Costs incurred to drill and equip development wells, including
unsuccessful development wells, are capitalized. Internal costs related to the
acquisition, development and exploration of oil and gas properties are expensed
as incurred. Interest is capitalized on qualifying assets, primarily unproved
and unevaluated properties.
Depletion of the cost of producing oil and gas properties is computed on
the unit-of-production method. The Company also accrues for platform abandonment
costs related to its offshore platform facilities on the unit-of-production
method. The Company anticipates total abandonment costs to be approximately $8.5
million. As of December 31, 1995, the Company had accrued $6.1 million, which is
included in accumulated depreciation, depletion and amortization ("DD&A").
Unproved properties are assessed periodically, and any impairment in value is
recognized currently as impairment expense. In 1995, the Company recorded a $1.8
million impairment of an unproved property on which no further exploration is
planned.
Effective March 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". Under the
F-7
provisions of the new statement, if the net book value of an individual proved
oil or gas field is greater than its undiscounted future net cash flow from
proved reserves, then an impairment is recognized for the difference between the
net book value and the fair value. The fair value used to calculate the
impairment for an individual field is equal to the present value of its future
net cash flows. In 1994, American recorded a noncash impairment charge of $25.0
million when the Company changed its impairment policy to one consistent with
that required by SFAS No. 121. Previously, the Company's impairment policy was
to recognize an impairment of proved oil and gas property costs if, on a
company-wide basis, those costs exceeded the undiscounted after-tax future net
cash flows from proved reserves.
Property, plant and equipment other than oil and gas properties are
depreciated by the straight-line method at rates based on the estimated useful
lives of the assets. Repairs and maintenance are charged to expense as incurred;
renewals and betterments are capitalized.
INVESTMENT PROGRAMS
The Company manages various investment programs which were formed to
acquire interests in producing oil and gas properties. The Company charges each
investment program fees for reimbursement of expenses incurred in managing the
program's operations and certain fees for services provided by technical
employees of the Company. Such fees are recorded as reductions to general and
administrative expense. (See Notes 11 and 18.)
FINANCIAL INSTRUMENTS
The Company periodically enters into commodity price swap agreements in
order to hedge against volatility in oil and gas prices. Gains or losses on
these transactions are reported as a component of oil and gas sales in the
period during which the related production occurs. (See Note 13.)
GAS BALANCING
The Company utilizes the sales method of accounting for natural gas
revenues whereby revenues are recognized based on the amount of gas sold to
purchasers. The amount of gas sold may differ from the amount to which the
Company is entitled based on its working interests in the properties. At
December 31, 1995 and 1994, the Company had recorded a liability of $3.6 million
and $3.7 million, respectively, for properties having insufficient reserves from
which to recover the gas imbalance.
FOREIGN CURRENCY TRANSLATION
The results of operations attributable to the Company's Canadian
operations, which were sold in mid-1993, were measured using the local currency
as the functional currency. The adjustments resulting from the translation of
the assets and liabilities and income statement accounts of the Canadian
operations were accumulated in the foreign currency translation adjustment
component of stockholders' equity. In conjunction with the sales of the
Company's Canadian operations, the Company wrote off the foreign currency
translation adjustment balance of approximately $1.8 million to loss on sales of
oil and gas properties. (See Note 4.) The U.S. dollar was the functional
currency for the Company's other foreign operations. Foreign currency
transaction gains and losses were recognized currently in other income and were
not material for 1993. The Company had no foreign operational activity during
1994 or 1995.
INCOME TAXES
The income tax provision (benefit) reflects income taxes currently
payable and income taxes deferred due to temporary differences between the
financial statement and tax bases of assets and liabilities. Deferred tax assets
and liabilities are determined using enacted tax rates in effect for the year in
which the temporary differences are expected to reverse. The adoption of SFAS
No. 109, "Accounting for Income Taxes", effective January 1, 1993, did not have
a material impact on the Company's financial position or results of operations.
(See Note 12.)
F-8
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share has been computed by dividing net
income or loss, after reductions for certain preferred stock dividends, by the
weighted average number of common shares and common share equivalents
outstanding during each year. Common share equivalents include the average
shares issuable upon assumed exercise of stock options and warrants which would
have a dilutive effect in the respective periods. Any assumed exercises of stock
options or warrants were antidilutive for all three years presented. In
addition, any assumed conversion of convertible preferred stock was antidilutive
for 1995 and 1994. The weighted average shares used in the primary earnings per
share calculations were 11,811,500 in 1995, 8,060,800 in 1994 and 6,961,600 in
1993. Weighted average shares for prior periods have been retroactively restated
to reflect the one-for-ten reverse split of the Company's common stock. (See
Note 2.)
(2) REVERSE STOCK SPLIT
In June 1995, American's stockholders approved an amendment to the
Company's Restated Certificate of Incorporation which effected a one-for-ten
reverse split of its common stock (the "Reverse Stock Split") and also reduced
the number of authorized shares of common stock from 200,000,000 to 50,000,000.
As a result of the Reverse Stock Split, the number of outstanding shares of
common stock was reduced to approximately 11.8 million shares outstanding from
approximately 118.1 million shares outstanding immediately prior to the Reverse
Stock Split. In addition, approximately $5.3 million was reclassified on the
consolidated balance sheet from common stock to additional paid-in capital. The
remaining shares of treasury stock held by American prior to the Reverse Stock
Split were cancelled. The stockholders' equity accounts on the accompanying
balance sheets have been restated to give retroactive recognition to the Reverse
Stock Split for all periods presented. In addition, all references to number of
shares of common stock and per share amounts have been restated throughout this
report.
(3) APPL CONSOLIDATION
During the period 1983-1990, American obtained long-term funding for
many of its oil and gas property acquisitions through a series of investment
programs formed primarily with institutional investors ("APPL Programs"). As of
December 31, 1993, institutional investors had committed $507.7 million to these
programs, while the Company had committed $54.7 million. The APPL Programs
consisted primarily of limited partnerships ("APPL Partnerships") in which the
Company acted as general partner and the institutions invested as limited
partners. To meet the needs of tax-exempt investors, the Company also formed
programs structured as secured debt financings ("APPL Debt Programs") and
programs which invested in net profits interests.
During 1994 and 1995, the Company purchased limited partners' interests
in the APPL Partnerships and net profits interests and debt interests in the
APPL Debt Programs (the "APPL Consolidation"). The consideration paid for the
acquisition of the APPL interests in 1994 was a combination of $31.1 million in
cash and 4.3 million shares of the Company's common stock. In connection with
the transaction, $13.6 million in nonrecourse debt was eliminated, resulting in
an extraordinary gain totaling $5.4 million. In 1995, the Company repurchased
the remaining investors' interests in the APPL Programs for a combination of
$2.3 million in cash and the issuance of 346,000 shares of the Company's common
stock, thereby eliminating the remaining $6.6 million of nonrecourse debt
outstanding at year-end 1994. The elimination of the APPL debt in 1995 resulted
in an extraordinary gain of $2.5 million. No income tax expense has been
recognized on the extraordinary gains.
In May 1995, New York Life Insurance Company ("New York Life")
transferred certain of its limited partner's interests not acquired in the APPL
Consolidation to ANCON Partnership Ltd. ("ANCON"). The Company acquired a 20%
interest in these properties for approximately $6.7 million in cash. (See Note
11.)
The Company financed the cash portion of the APPL Consolidation
primarily through a $40.0 million nonrecourse secured credit facility ("bridge
facility") extended by New York Life. In February 1995, the Company refinanced
the amount outstanding on the bridge facility using excess borrowing capacity
under its bank credit facility. (See Note 7.)
F-9
(4) DIVESTITURES
The Company received cash proceeds, net of post-closing adjustments, of
$63.5 million, $2.6 million and $35.7 million from the sales of oil and gas
properties in 1995, 1994 and 1993, respectively, resulting in gains of $10.2
million in 1995 and $1.1 million in 1994 and a loss of $6.9 million in 1993.
Property sales in 1995 related primarily to the sale of the Sawyer Field and
sales in 1994 related to the divestiture of low-value properties. The 1993 sales
related primarily to the Company's divestiture of its Canadian operations and
the sale of a partial interest in the Henderson Canyon Field.
In July 1995, the Company sold its interest in the Sawyer Field to
Louis Dreyfus Natural Gas Corp. for a purchase price of $64.0 million. As part
of the sale, the Company also sold its interest in the field that was acquired
through the APPL Consolidation in early 1995. (See Note 3.) American's share of
the net proceeds from the sale was applied to eliminate $62.5 million of the
Company's outstanding bank debt. The Company recorded a gain on the sale of the
Sawyer Field of approximately $10.6 million in 1995. Sales of various other
fields in 1995 resulted in a net loss of approximately $400,000.
In March 1993, American sold approximately 40% of its interest in the
Henderson Canyon Field to several of the Company's investment programs for
proceeds of approximately $8.7 million. In June and July 1993, the Company sold
its Canadian foothill properties (while retaining a 4% overriding royalty
interest in these properties) and also sold its 90% equity interest in Canadian
Conquest Exploration, Inc. and its wholly owned subsidiary, Conquest Ventures
Canada, Inc., for aggregate proceeds of $26.1 million. The Company recognized
losses totaling $4.0 million on the sales of the Canadian assets. In conjunction
with the sales of the Canadian subsidiaries, the Company also recognized a $1.8
million loss related to the elimination of the foreign currency translation
adjustment balance which was previously recorded as a component of stockholders'
equity. The remaining $1.1 million loss on sales of oil and gas properties for
1993 related to the sale of minor properties sold at auction in July 1993.
(5) PRO FORMA INFORMATION (UNAUDITED)
The following pro forma summary of consolidated results of operations
for the years ended December 31, 1995 and 1994 gives effect to the sale of the
Sawyer Field and the APPL Consolidation as if these transactions had occurred as
of January 1, 1994. The pro forma data also reflects the impact of the 1995
sales of interests in several other fields for proceeds of approximately $2.5
million. The pro forma data does not reflect the nonrecurring gain of
approximately $10.6 million on the sale of the Sawyer Field.
F-10
As a result of the APPL Consolidation in 1994 and 1995, American
acquired significant additional interests in the Sawyer Field, increasing its
working interest ownership from approximately 12.5% at the beginning of 1994 to
approximately 65% at the date of the sale. Therefore, the pro forma data
reflects the sale of the 65% interest in the Sawyer Field, after giving effect
to the APPL Consolidation.
<TABLE>
<CAPTION>
(In thousands except per share amounts) YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Pro forma revenues................................................................. $ 62,090 $ 63,234
Pro forma loss before extraordinary item........................................... (8,672) (53,480)
Pro forma net loss to common stock................................................. (10,472) (44,688)
Pro forma net loss per common share:
Primary and fully diluted:
Loss before extraordinary item............................................... $ (0.89) $ (4.71)
Net loss..................................................................... (0.89) (3.81)
Weighted average shares outstanding:
Primary and fully diluted...................................................... 11,811 11,726
</TABLE>
The pro forma amounts do not purport to be indicative of the results of
operations of American that may be reported in the future or that would have
been reported had these transactions occurred as of January 1, 1994.
(6) NYLOG PROGRAMS
From 1985 until early 1992, subsidiaries of the Company and New York
Life formed a series of publicly registered limited partnerships, the New York
Life Oil & Gas Producing Properties Programs ("NYLOG Programs"). The NYLOG
Programs invest in the acquisition and further development of producing oil and
gas properties acquired by the Company. A total of $229.1 million has been
invested by the limited partners in these programs since inception. (See Note
11.)
New York Life and the Company, in their capacity as co-general partners,
each pay 5% of property acquisition costs of the NYLOG Programs, and each
receives 7.5% of net revenues until payout. Payout occurs when the limited
partners receive distributions equal to their initial investment. After payout,
the Company's and New York Life's interests in capital costs and net revenues
each increase to 12.5%. As of December 31, 1995, two of the NYLOG Programs had
reached payout. For the other NYLOG Programs, it is difficult to predict when or
if payout will occur due to the uncertainty of future energy prices, oil and gas
production, and operating and administrative costs.
Reference is made to Note 18 for a discussion of certain litigation
against the co-general partners and the proposed liquidation of the NYLOG
Programs.
F-11
(7) DEBT
The following table details the components of the Company's debt (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1994
---- ----
<S> <C> <C>
Bank credit agreement................................... $ 5,000 $ 28,000
11% senior subordinated notes........................... 35,000 35,000
Note payable to related party........................... - 31,128
APPL Debt promissory notes.............................. - 6,582
------------ -----------
Total long-term debt................................. $ 40,000 $ 100,710
============ ===========
</TABLE>
BANK DEBT
In December 1994, the Company entered into a new long-term revolving
bank credit agreement which replaced the bank credit agreement previously in
effect. The borrowing base, or amount available, under the new bank credit
facility is currently $40.0 million. The reduction of the borrowing base from
$65.0 million at year-end 1994 reflects the decrease in the value of the
Company's oil and gas properties due to the sale of the Sawyer Field.
Outstanding borrowings of $5.0 million under the facility at December 31, 1995
were classified as long-term debt. The Company also had $1.2 million in letters
of credit outstanding at December 31, 1995 which are collateralized by the
Company's borrowing base. The borrowing base under this facility is scheduled to
be redetermined semiannually every March and September. Management expects that
the borrowing base will be increased to give effect to the acquisition of
certain interests in the Gulf of Mexico in March 1996. (See Note 18.)
The borrowings under this facility during 1995 were used to refinance
the $31.1 million balance outstanding under the bridge facility and to fund
capital projects. In July 1995, American repaid $62.5 million of outstanding
bank debt using proceeds from the sale of the Company's interest in
the Sawyer Field.
Borrowings under this facility are secured by substantially all of the
assets of the Company. At the option of the Company, borrowings bear interest at
(i) LIBOR plus 1.50% or 1.75% or (ii) the higher of (a) the prime rate plus
0.50% or 0.75% or (b) the federal funds rate plus 1.00% or 1.25%. If the total
amounts outstanding are less than or equal to 60% of the borrowing base, the
lower margins are added to the respective interest rates and vice versa. The
weighted average interest on the Company's bank debt outstanding at December 31,
1995 was 8.2%. During 1995, the Company paid, on a quarterly basis, a 0.50%
annual commitment fee on the difference between the aggregate commitment of
$90.0 million and the daily average amount outstanding under this facility,
including letters of credit. In January 1996, the Company renegotiated the
annual commitment fee to be 0.50% of the difference between the availability
limit of $40.0 million and the average amount outstanding, including letters of
credit. Principal on the remaining long-term portion of the facility is
scheduled to be repaid over ten quarterly installments commencing September 30,
1997. Interest is payable quarterly or upon maturity of the borrowing, if
shorter, in the case of Eurodollar loans and monthly in the case of prime rate
or federal funds rate loans.
11% SENIOR SUBORDINATED NOTES
In December 1991, the Company privately placed $35.0 million in senior
subordinated notes and immediately exercisable detachable warrants with three
institutional investors. The notes bear interest at 11% payable semiannually
every June and December. The Company is required to begin repaying principal
with annual installments of $5.6 million in December 1997. The final principal
payment of $12.6 million is payable in December 2001. The warrants grant the
holders the right to purchase approximately 1.2 million shares, as adjusted for
issuances of stock and warrants subsequent to 1991, of the Company's common
stock at an exercise price of $22.37 per share, subject to adjustment. In
addition, each holder of the warrants has the option to tender the notes in lieu
of cash as consideration for the exercise price.
F-12
NOTE PAYABLE TO RELATED PARTY
In April 1994, New York Life extended to the Company a $40.0 million
bridge facility to provide bridge financing for the APPL Consolidation. In
February 1995, the Company used excess borrowing capacity under the bank credit
facility to refinance the $31.1 million balance outstanding under the bridge
facility.
APPL DEBT PROMISSORY NOTES
During 1987 and 1988, wholly owned subsidiaries of the Company financed
90% of the cost of certain property acquisitions by selling promissory notes and
production payments to the investors in the APPL Debt Programs. The Company
eliminated $6.6 million of the APPL debt in 1995 and $13.6 million of the APPL
debt in 1994. The elimination of the APPL debt through the APPL Consolidation
resulted in an extraordinary gain on extinguishment of debt of $2.5 million in
1995 and $5.4 million in 1994. No income tax expense has been recognized on the
extraordinary gains. (See Note 3.)
FEES RELATED TO DEBT INSTRUMENTS
The Company incurs fees related to existing and new credit facilities
which are reported as other expense. During 1995, 1994 and 1993, these fees
totaled $951,000, $2.3 million and $739,000, respectively. Fees paid in 1994
included $2.1 million incurred in connection with the new bank credit agreement
and the bridge facility.
DEBT COVENANTS
The bank credit agreement and the 11% senior subordinated notes require
the Company to comply with certain covenants including, but not limited to,
restrictions on indebtedness, investments, payment of dividends and lease
commitments. Cash dividends are prohibited on the Company's common stock, and
preferred dividends are limited to the lesser of 10% of the preferred stock
offering proceeds or $7.5 million in any one year. These agreements also include
net worth covenants which were amended effective July 1994 in conjunction with
the issuance of American common stock related to the APPL Consolidation. At
December 31, 1995, the Company's calculated net worth requirement was $64.6
million and the Company's stockholders' equity was $94.5 million. In addition,
these agreements contain cross-default provisions.
ANNUAL MATURITIES
Based on the amounts outstanding at December 31, 1995, the aggregate
maturities of debt for the next five years are as follows: 1996 - $-0-; 1997 -
$6.6 million; 1998 - $7.6 million; 1999 - $7.6 million and 2000 - $5.6 million.
(8) PREFERRED STOCK
The Company has authorized 100,000 shares of preferred stock, par value
$1.00 per share. The Board of Directors has authority to divide such preferred
stock into one or more series and has authority to fix and determine the
relative rights and preferences of each such series. At December 31, 1995,
American had 4,000 shares of convertible preferred stock outstanding and an
additional 85,000 shares of preferred stock reserved under the Company's
Stockholder Rights Plan.
CONVERTIBLE PREFERRED STOCK
In December 1993, the Company privately placed 800,000 depositary
shares, each representing a 1/200 interest in a share of $450 Cumulative
Convertible Preferred Stock, Series C (the "Convertible Preferred Stock"). The
Convertible Preferred Stock has a stated value of $5,000 per share, with
dividends payable quarterly at the annual rate of $450 per share. The
Convertible Preferred Stock is convertible at any time at the option of the
holders into shares of the Company's common stock at a conversion price of
$15.00 per share, subject to adjustment in certain circumstances. Beginning
December 31, 1997, the Convertible Preferred Stock will be redeemable at the
option of the Company, in whole or in part, at any time. The initial redemption
price is $5,270 per share, declining ratably on December 31 of each year to a
redemption price of $5,000 per share on and after December 31, 2003, plus
accrued and unpaid dividends.
F-13
The Convertible Preferred Stock has a special conversion right that
becomes effective upon the occurrence of certain types of significant
transactions affecting ownership or control of the Company. If the special
conversion right becomes effective, the then-prevailing conversion price would
be reduced to the market value of the common stock, not to be reduced below a
minimum conversion price of $11.25 per share of common stock.
STOCKHOLDER RIGHTS PLAN
In September 1993, the Board of Directors of the Company declared a
distribution of one right ("Right") for each outstanding share of common stock
to stockholders of record at the close of business on October 8, 1993 and for
each share of common stock issued by the Company thereafter and prior to the
"Distribution Date", as defined. Each Right entitles the registered holder to
purchase one one-thousandth of a share (a "Unit") of Series B Preferred Stock at
a price of $7.50 per Unit, subject to adjustment.
The Rights are exercisable only upon the occurrence of certain
triggering events, including the acquisition by a person or group of 15% or more
of the Company's outstanding common stock, other than those persons that
acquired common stock through the APPL Consolidation. If a triggering event
occurs, holders of each Right would be entitled to receive, upon exercise, the
Units of Series B Preferred Stock (or stock of the acquiring entity, as the case
may be) having a value equal to two times the exercise price of the Right. Such
Rights do not extend to any holder whose action triggered the Right.
The Rights may be redeemed in whole by American at $0.10 per Right any
time until the tenth business day following public announcement that a person or
group, other than those persons that acquired common stock through the APPL
Consolidation, has acquired, obtained the right to acquire or otherwise obtained
beneficial ownership of 15% or more of the Company's outstanding common stock.
(9) COMMON STOCK
The Company has authorized 50,000,000 shares of common stock, of which
11,812,483 shares were issued and outstanding at December 31, 1995. A schedule
of the changes in the Company's common stock is provided below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Outstanding shares at beginning of year......................... 11,468,313 7,051,350 6,941,723
Issuance of shares in APPL Consolidation (see Note 3)........... 346,094 4,266,963 -
Issuance of shares in private offering.......................... - 150,000 -
Issuance of shares to key officers.............................. - - 109,588
Other issuances (retirements)................................... (1,924) - 39
------------- ------------- --------------
Outstanding shares at end of year............................ 11,812,483 11,468,313 7,051,350
============= ============= ==============
</TABLE>
At the Company's annual meeting held in June 1995, American obtained
stockholder approval to effect the Reverse Stock Split and to decrease the
number of authorized shares of common stock from 200,000,000 shares to
50,000,000 shares. (See Note 2.)
At December 31, 1995, the Company had outstanding two series of warrants
to purchase common stock. The first series of warrants, issued in conjunction
with the private placement of 11% senior subordinated notes in 1991, expires in
2001 (the "2001 Warrants"). At year-end 1995, the 2001 Warrants were exercisable
at a price of $22.37 per share and are callable by the Company beginning in
December 1996, but only in the event that the Company's common stock has traded
at a specified price above the exercise price for a specified period.
The second series of warrants, which expire in 1999, was issued to an
institutional investor in conjunction with the 1992 recapitalization of a
Canadian subsidiary (the "1999 Warrants"). At year-end 1995, the 1999 Warrants
were exercisable at a price of $22.95 per share and are callable by the Company
at the current exercise price per warrant, but
F-14
only in the event that the Company's common stock has traded at a specified
price above the current exercise price for a specified period.
Both the 2001 Warrants and the 1999 Warrants contain provisions which
would adjust the exercise price and number of warrants under certain
circumstances, most of which have a dilutive effect on equity.
Shares of common stock reserved for future issuance as of December 31,
1995 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Exercise of stock options.................................................... 1,384,443
Exercise of 2001 Warrants.................................................... 1,166,740
Exercise of 1999 Warrants.................................................... 313,726
Conversion of Convertible Preferred Stock.................................... 1,333,333
Special conversion rights of Convertible Preferred Stock..................... 444,444
--------------
Total shares reserved..................................................... 4,642,686
==============
</TABLE>
(10) EMPLOYEE BENEFIT PLANS
STOCK COMPENSATION PLANS
The American Exploration Company Stock Compensation Plan established in
1983 (the "1983 Plan") provides for the issuance of up to 500,000 shares of the
Company's common stock. The 1983 Plan also authorizes the issuance of stock
appreciation rights in conjunction with stock options and the granting of
restricted common stock and performance shares. In 1993, the executive officers
of the Company purchased 79,725 shares of restricted common stock for $.50 per
share. The difference between the aggregate fair market value of the restricted
shares purchased and the purchase price was considered unearned compensation at
the time of grant, and compensation is being earned ratably over the vesting
period at 33 1/3% per year commencing with the first anniversary of grant. In
1995 and 1994, $306,000 and $391,000 of restricted stock compensation expense
was recognized. During the three-year reporting period, no other restricted
common stock was issued nor were any stock appreciation rights or performance
shares granted under the 1983 Plan.
In November 1994, the Board of Directors adopted the 1994 American
Exploration Company Stock Compensation Plan (the "1994 Plan"), which was
approved by American's stockholders in June 1995. Under the 1994 Plan, 900,000
shares of the Company's common stock are available for the granting of stock
options, restricted common stock and performance shares. In addition,
performance units may be awarded and stock appreciation rights may be issued in
conjunction with the stock options.
The exercise price, term and other conditions applicable to each option
granted under the 1983 Plan and the 1994 Plan are determined at the time of the
grant of each option and may vary with each option granted. No option may be
granted at a price less than the stock's fair market value on the date of grant.
The purchase price of the shares as to which an option is exercised is payable
in cash, the Company's common stock or a combination of cash and stock.
In conjunction with the acquisition of Hershey Oil Corporation
("Hershey") in 1990, the Company assumed the obligation for the stock options
outstanding under the Hershey plans at the acquisition date. At December 31,
1995, there were 37,295 options outstanding under the amended and restated
Hershey plans.
F-15
Detailed information on stock option transactions is provided below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993
------------- ------------- -----------
<S> <C> <C> <C>
Options outstanding at beginning of year........................ 289,653 374,258 562,458
Options granted................................................. 593,321 - 1,020
Options terminated.............................................. (99,108) (84,605) (189,200)
Options exercised............................................... (20) - (20)
------------- ------------- --------------
Options outstanding at end of year.............................. 783,846 289,653 374,258
============= ============= ==============
Options exercisable at end of year.............................. 361,633 242,466 271,190
============= ============= ==============
Option price range:
Options granted.............................................. $ 8.75-15.00 $ - $ 12.50-14.38
Options terminated........................................... 12.50-47.50 18.13-50.00 18.13-50.00
Options exercised............................................ 8.75 - 12.50-14.38
Options outstanding at end of year........................... 11.87-40.00 13.13-47.50 13.13-50.00
</TABLE>
PHANTOM STOCK PLAN
In September 1993, the Board of Directors of the Company adopted the
Phantom Stock Plan. The purpose of the Phantom Stock Plan is to provide a
further means of motivating and retaining key employees of the Company by
providing rewards for past performance and incentives for future service. These
rewards had previously included restricted units and option units; however, in
1995, all participants exercised their right to convert outstanding option units
to stock options under the 1994 Plan.
In 1993, the executive officers of the Company purchased 29,863 shares of
common stock, purchased 79,725 shares of restricted common stock under the 1983
Plan and were awarded 159,450 option units under the Phantom Stock Plan. The
remaining key employees were granted 650 restricted units and 1,300 option units
in 1995, 5,650 restricted units and 11,300 option units in 1994, and 33,791
restricted units and 67,581 option units in 1993. In each case, the price for
the option units equaled the fair market value of the Company's common stock on
the date of the awards. The grant price for the restricted units to the
remaining key employees was below market value.
The restricted units awarded vest at 33 1/3% per year commencing with the
first anniversary of grant. Upon vesting, a participant receives a cash payment
for the difference between the grant price for the restricted units and the
then-market value of the common stock. Such cash payments totaled $44,000 and
$24,000 for 1995 and 1994, respectively. Under the Phantom Stock Plan,
participants do not receive shares of the Company's common stock. The Company
recognizes compensation expense ratably over the vesting period of the
restricted units for the difference between the grant price and the then-market
value of the common stock. Such expense totaled $59,000, $22,000 and $25,000 in
1995, 1994 and 1993, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The employee stock ownership plan was a noncontributory plan to acquire
shares of the Company's common stock for the benefit of all employees. At the
discretion of the Compensation Committee of the Board of Directors, there have
been no Company contributions to the plan since 1992. In September 1994, the
Board of Directors voted to terminate the plan. A favorable ruling on the plan's
termination was received from the Internal Revenue Service in November 1995, and
distributions to the plan's participants were made in February 1996.
F-16
(11) RELATED-PARTY TRANSACTIONS
NOTES RECEIVABLE FROM OFFICERS
At December 31, 1995, the Company held $66,000 of notes receivable from
executive officers of the Company. The Company provided loans to the executive
officers to purchase a portion of the common stock issued in September 1993 in
conjunction with the Phantom Stock Plan. The notes bear interest at 3.9% and are
payable in equal installments through October 1996.
NEW YORK LIFE
As of December 31, 1995, New York Life was the second largest
stockholder of the Company, owning approximately 9.6% of its voting stock. Since
1983, New York Life had been a substantial investor in each of the Company's
APPL Programs, providing 35% of the amount committed by co-investors. New York
Life made no investments in the APPL Programs during the past three years. In
conjunction with the APPL Consolidation, New York Life sold certain of its APPL
Program interests to the Company and transferred its remaining interests to
ANCON. (See Note 3.)
During the period 1985-1992, the Company and a subsidiary of New York
Life, as co-general partners, formed the NYLOG Programs, which were sold to the
public by New York Life agents and independent broker-dealers. New York Life
contributed $29,000, $74,000 and $1.3 million for development and acquisition
activity by the NYLOG Programs for the years ended December 31, 1995, 1994 and
1993, respectively. (See Notes 6 and 18.)
In December 1993, American and a subsidiary of New York Life established
ANCON, a new partnership formed to consolidate New York Life's other oil and gas
holdings. New York Life contributed net assets to the partnership totaling $56.7
million in 1995, consisting primarily of its remaining APPL Program interests,
and $9.6 million in 1993. American acquired a 20% interest in these net assets
for cash consideration of $6.7 million in 1995 and $1.5 million in 1993. No
properties were contributed to the partnership in 1994. Capital contributions by
New York Life to ANCON for development activity totaled $813,000 in 1994. No
capital contributions were made for development activity in 1995.
In April 1994, New York Life extended to the Company a $40.0 million
bridge facility. (See Note 7.) American paid interest, commitment and financing
fees on this facility totaling $1.6 million in 1994. At December 31, 1994, the
Company had $31.1 million outstanding under this facility. In February 1995, the
Company refinanced this amount using excess borrowing capacity under its bank
credit facility.
INVESTMENT PROGRAMS
The Company is the operator of certain properties owned by the NYLOG
Programs, ANCON and joint ventures and, accordingly, charges technical fees to
these entities and third party joint interest owners. The Company is also
reimbursed for costs incurred in managing the operations of the NYLOG Programs
and ANCON. Administrative and technical fees charged by the Company to the
investment programs and ANCON totaled $3.9 million, $7.6 million and $8.2
million for 1995, 1994 and 1993, respectively. These fees also include amounts
related to the APPL Programs which were consolidated into American's operations
during 1994 and early 1995.
OTHER TRANSACTIONS
Legal fees incurred for services by a law firm in which a partner was a
director of the Company until June 1995 totaled $285,000, $377,000 and $243,000
in 1995, 1994 and 1993, respectively.
F-17
(12) INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109. The prior
year's financial statements were not adjusted to reflect the new accounting
method, and the cumulative effect related to the adoption of SFAS No. 109 had no
material effect on the Company's financial position or results of operations.
SFAS No. 109 requires the use of an asset and liability approach under which
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
The Company reported income before income taxes and extraordinary items
totaling $1.4 million in 1995, which related entirely to domestic operations.
The Company's income tax provision (benefit) for the years ended December 31,
1995, 1994 and 1993 is detailed below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal............................................. $ 58 $ - $ 150
State............................................... (18) 39 476
---------- ----------- ----------
40 39 626
----------- ---------- -----------
Deferred:
Federal............................................. - - -
State............................................... (161) (494) (121)
---------- ----------- ----------
(161) (494) (121)
----------- ---------- ------------
Total............................................ $ (121) $ (455) $ 505
========== =========== ==========
</TABLE>
The difference between the provision (benefit) for income taxes and the
amount which would be determined by applying the statutory federal income tax
rate to income (loss) before income taxes and extraordinary items for the years
ended December 31, 1995, 1994 and 1993 is analyzed below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
---------- ----------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes
and extraordinary item.............................. $ 1,356 $ (60,690) $ (18,674)
========== =========== ==========
Income tax provision (benefit)
at the statutory rate............................... $ 475 $ (21,242) $ (6,536)
Change in valuation allowance.......................... (75) 22,203 (1,133)
Federal alternative minimum tax........................ 58 - 150
State income tax....................................... (18) 39 476
Other.................................................. (561) (1,455) 7,548
---------- ----------- ----------
Income tax provision (benefit)................... $ (121) $ (455) $ 505
========== =========== ==========
</TABLE>
F-18
<PAGE>
The Company's deferred income tax liability at December 31, 1995 and
1994 is comprised of the tax benefit (cost) associated with the following items
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
----------- ----------
Deferred tax asset:
<S> <C> <C>
Net operating loss carryforwards..................................... $ 95,869 $ 95,732
State income tax..................................................... 2,790 3,203
Investment tax credit carryforwards.................................. 1,873 1,873
Minimum tax carryforwards............................................ 559 479
----------- ----------
Gross deferred tax asset.......................................... 101,091 101,287
Valuation allowance..................................................... (93,146) (93,221)
----------- ----------
7,945 8,066
----------- ----------
Deferred tax liability:
Acquisition, exploration and development costs....................... (7,945) (8,066)
State income tax..................................................... (175) (336)
----------- ----------
Gross deferred tax liability...................................... (8,120) (8,402)
----------- ----------
Net deferred tax liability.............................................. $ (175) $ (336)
=========== ==========
</TABLE>
As of December 31, 1995, the Company had cumulative net operating loss
carryforwards ("NOL's") for federal income tax purposes of approximately $274.0
million. Unless utilized, approximately 42% of this amount will expire in the
next five years. Included in the total NOL's are approximately $71.5 million
which arose through an acquisition completed in 1987, and $143.7 million which
arose through the acquisition of Conquest Exploration Company in 1991. These
acquired NOL's may be used to offset the respective subsidiaries' taxable income
subject to individual annual and cumulative limits. In addition to the
individual limitations, changes in the Company's ownership have resulted in an
overall limitation on the amount of benefit to be realized from the NOL's in the
amount of approximately $13.7 million annually. Any unused portion of the
benefit is carried forward. For 1995, the cumulative limit for utilization of
available NOL's is $76.3 million. The Company's $2.8 million state tax deferred
asset is primarily the result of separate company NOL's in individual states.
The Company also has investment tax credit carryforwards of approximately $1.9
million, which expire in the amount of approximately $11,000 annually through
1998 and will be fully expired by 2001. The Company has an alternative minimum
tax credit carryforward of approximately $559,000 which does not expire and is
available to offset regular income taxes in future years, but only to the extent
that regular income taxes exceed the alternative minimum tax in such years.
The deferred tax asset valuation allowance of $93.1 million reflects the
amounts for which utilization of the asset is not assured due to the expiration
of NOL's and the effects of future drilling costs.
F-19
(13) FINANCIAL INSTRUMENTS
DERIVATIVES
The Company's derivative financial instruments are used solely to manage
the risk associated with fluctuations in oil and gas prices. The following table
details the commodity price swap agreements in effect at December 31, 1995:
<TABLE>
<CAPTION>
AVERAGE
PRODUCT CONTRACT PERIOD DAILY PRODUCTION FIXED PRICE MARKET PRICE REFERENCE
- -------- ------------------------------------------- --------------------- ------------- -----------------------
<S> <C> <C> <C> <C>
Gas January 1996 - April 1996 10,000 MMbtu $ 1.84 Houston Ship Channel
Gas January 1996 - April 1996 5,000 MMbtu 1.88 Henry Hub
Gas January 1996 - May 1996 20,000 MMbtu 1.85 Houston Ship Channel
Gas January 1996 - May 1996 10,000 MMbtu 1.88 Henry Hub
Oil January 1996 - June 1996 2,000 barrels $ 17.50 NYMEX WTI
Oil January 1996 - December 1996 1,000 barrels 17.00 NYMEX WTI
</TABLE>
With regard to the production hedged under the commodity price swap agreements,
if the market price is above the fixed price, the Company will pay to the
counterparty the difference between the fixed price and the market price; and if
the market price is below the fixed price, the Company will receive that
difference from the counterparty. The Company is exposed to credit loss in the
event of nonperformance by the other party to the swap agreements. However, the
Company anticipates that the counterparty will be able to fully satisfy its
obligation under the agreements.
During January 1996, the Company eliminated the effect of certain of
its Henry Hub gas price swap agreements by entering into offsetting positions
covering 10,000 MMbtu per day for the period from February 1996 to May 1996.
Subsequent to December 31, 1995, the Company entered into several
additional commodity price swap agreements:
<TABLE>
<CAPTION>
AVERAGE
PRODUCT CONTRACT PERIOD DAILY PRODUCTION FIXED PRICE MARKET PRICE REFERENCE
- -------- ------------------------------------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C>
Gas June 1996 - May 1997 20,000 MMbtu $ 1.86 Houston Ship Channel
Gas June 1996 - May 1997 2,000 MMbtu 2.13 Henry Hub
Oil April 1996 - March 1997 400 barrels $ 18.22 NYMEX WTI
Oil July 1996 - December 1996 2,000 barrels 17.80 NYMEX WTI
</TABLE>
Additionally, the Company purchased put options for 2,000 MMbtu per day
of gas with an average floor price of $1.90 per MMbtu (based on the Tennesee Gas
Pipeline Co., Louisiana and Offshore reference price) for the period from April
1996 through April 1997.
F-20
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying values and estimated fair
values of the Company's financial instruments at December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
<S> <C> <C>
Long-term debt (a)...................................... $ (40,000) $ (40,000)
Commodity price swap agreements (b)..................... (700) (2,600)
</TABLE>
(a) Fair value equals carrying value for the Company's long-term
debt.
(b) The carrying value represents a liability recorded in December
1995 to recognize the loss of correlation between actual cash
prices and the prices under the swap agreements at the Henry
Hub market reference price. The fair value of the swap
agreements represents the estimated amount the Company would
pay to terminate all of the agreements at December 31, 1995,
based on the closing prices for NYMEX futures contracts on the
last trading date in December. Management believes that the
Company's risk of loss on the price swap agreements due to
inflated market reference prices in 1996 will be mitigated by
the receipt of actual cash prices in excess of the fixed price
under the swap agreements.
The carrying amounts of cash and cash equivalents, trade receivables and
trade payables approximate fair value because of the short maturity of these
instruments.
(14) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has operating leases, primarily for office space, which
expire over the next six years. These operating leases frequently include
renewal options at the then-fair rental value and require that the Company pay a
pro rata share of executory costs (including taxes, maintenance and utility
expenses) incurred by the landlord. Future minimum payments under all
noncancelable operating lease obligations, including an estimated pro rata share
of operating expenses, as of December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996..................................................................... $ 2,396
1997..................................................................... 2,371
1998..................................................................... 2,740
1999..................................................................... 2,737
2000..................................................................... 2,737
Thereafter............................................................... 1,762
----------
Total minimum lease payments.......................................... $ 14,743
==========
</TABLE>
The Company had no minimum rentals under noncancelable subleases as of
December 31, 1995. Rent expense totaled $2.7 million, $3.9 million and $4.6
million in 1995, 1994 and 1993, respectively, which includes the Company's share
of executory costs associated with its office leases. Sublease rentals received
during the past three years were not material.
PARTNERSHIP COMMITMENTS
The Company and certain of its subsidiaries act as general partner of a
number of limited partnerships. In such capacity, the Company and such
subsidiaries are generally liable for the obligations of the partnerships to the
extent that partnership assets are insufficient to discharge liabilities.
Several of the investment programs formed by the Company or its subsidiaries
require certain levels of insurance to cover operating and other risks inherent
in the production of oil and gas. Under the terms of these programs, the Company
would be liable for any costs or damages incurred by a program
F-21
resulting from the Company's failure to carry the required insurance. The
Company believes its insurance coverage is sufficient as required by the program
agreements.
At December 31, 1995, the Company had remaining capital commitments to
the NYLOG Programs of $59,000. Under the terms of the NYLOG Programs'
partnership agreements, the Company is also obligated to repurchase certain
units of limited partner interests in the NYLOG Programs. These annual
repurchase commitments are based on formulas contained in the underlying
partnership agreements and totaled approximately $250,000 as of December 31,
1995. Reference is made to Note 18 for a discussion of the proposed liquidation
of the NYLOG Programs. If the proposed liquidation of the NYLOG Programs is
approved, the Company would no longer be obligated to repurchase the NYLOG units
of limited partner interests.
In addition, the Company has a commitment to purchase a 1% interest in
any properties transferred to ANCON by New York Life.
CONCENTRATION OF RISKS
American's revenues are derived principally from uncollateralized sales
of the Company's oil and gas production to customers in the oil and gas
industry. Market prices for oil and gas may fluctuate; accordingly, decreases in
market prices could adversely affect American's net operating revenues and cash
flows from operating activities. In addition, the concentration of credit risk
in a single industry affects the Company's overall exposure to credit risk
because customers may be similarly affected by changes in economic and other
conditions. The Company has not experienced significant credit losses on such
receivables.
In the year ended December 31, 1995, sales to Enron Corp. and certain
subsidiaries of KN Energy, Inc. accounted for approximately 19% and 10%,
respectively, of the Company's oil and gas revenues. Because of the availability
of other customers, management does not believe that the loss of any single
customer would adversely affect the Company's operations.
LEGAL PROCEEDINGS
In addition to certain legal proceedings arising in the ordinary course
of its oil and gas business, the Company is involved in the following matters.
BOWDOIN FIELD, PHILLIPS AND VALLEY COUNTIES, MONTANA. In February 1995,
two Company affiliates were served with a lawsuit filed by KN Gas Supply
Services, Inc. ("KNGSS") in Federal District Court in Denver, Colorado,
requesting declaratory judgment that KNGSS had the right to reduce the contract
price for gas produced from the Bowdoin Field to market levels from October 1,
1993 forward. KNGSS also requested declaratory judgment that it has a right to
relief from the contract price due to regulatory changes, which it alleges
renders the contract commercially impracticable, and that Federal Energy
Regulatory Commission Order No. 636 is a condition subsequent which excuses
performance under the contract. KNGSS alleges that it has overpaid the Company's
affiliates and seeks a refund of approximately $2.8 million for the period
through September 1995. Although the Company cannot predict the outcome of this
proceeding, American will vigorously defend its interests in this case and does
not expect the outcome of the case to have a material adverse impact on its
financial position or results of operations.
In April 1995, the Company's affiliates filed counterclaims against
KNGSS in the lawsuit described above alleging that KNGSS failed to take and pay
for certain minimum volumes of gas, failed to pay for certain volumes of gas
taken, failed to schedule nominations and recorded improper deductions for fuel
and other losses. The Company has dismissed all of its counterclaims, except for
the claim alleging the improper deductions, for a payment from KNGSS of
approximately $2.2 million and KNGSS dismissing its commercial impracticability
and condition subsequent claims. American's share of the cash settlement totaled
$1.7 million and is primarily reflected as oil and gas revenues in the
accompanying 1995 statement of operations.
SAWYER FIELD - SUTTON COUNTY, TEXAS. The Company and an affiliated
partnership are defendants in a property damage lawsuit filed in December 1994
in the 112th Judicial District Court in Sutton County, Texas styled CLAIRE J.
POWERS, ET AL. VS. DON R. GILLER, ET AL. Four related personal injury suits are
also pending against the Company and the affiliated partnership. These suits are
styled as JANE GILLER, ET AL. VS. ENRON CORP., ET AL. in the 113th Judicial
District
F-22
Court in Harris County, Texas; JANE GILLER, ET AL. VS. FISHER CONTROLS
INTERNATIONAL, INC., ET AL. in the 200th Judicial District Court in Travis
County, Texas; and LYNN COOPER, ET AL. VS. ENRON CORP., ET AL. and DONNA LYNN
PRETZER VS. ENRON CORP., ET AL., both in the United States District Court for
the Eastern District of Texas, Marshall Division. All of these lawsuits are
related to a fire in December 1994 at a cabin owned by a landowner in the Sawyer
Field. As a result of the fire, two hunters died and a third hunter suffered
serious burns.
Pursuant to an arrangement made by the previous operator of the field,
the landowner supplied the cabin with natural gas from a nearby well as to which
the Company subsequently became the operator. The Company is alleged to have
been negligent or grossly negligent in failing to properly supply gas to the
cabin. The Company has denied that it was negligent or grossly negligent and
will vigorously defend its interests.
By agreement dated February 20, 1996 and entered into the record on
March 5, 1996, the Sutton County landowners and all non-injured hunters settled
out of court. All remaining parties have agreed to litigate the case in the
Travis County suit and dismiss all other suits. Since the plaintiffs have not
specified the amount of damages being sought against the Company, it is not
possible to quantify what liabilities, if any, the Company might incur.
PUBLIC PARTNERSHIP LITIGATION. In February 1995, the Company and
American Exploration Production Company, a subsidiary of the Company ("AEPCO"),
were served with a lawsuit instituted in October 1994 styled RICHARD RILEY AND
FRANCES RILEY V. LEROY WOLF, NEW YORK LIFE INSURANCE COMPANY, NYLIFE EQUITY,
INC., NYLIFE REALTY INCOME PARTNERS I, L.P., NEW YORK LIFE OIL AND GAS PRODUCING
PROPERTIES II-E, L.P., LINCLAY INVESTMENT PROPERTIES, INC., AMERICAN EXPLORATION
PRODUCTION COMPANY, JOHN DOES (1-10) AND A.B.C. CORP. (1-10), Civil Action No.
94-5827 (HAA) in the United States District Court, District of New Jersey. The
plaintiffs alleged various causes of action, including inefficient and wasteful
management of partnership assets relating to their investment in real estate and
oil and gas limited partnerships. AEPCO acts as a co-general partner in the oil
and gas limited partnership. The plaintiffs sought a rescission of their
investments, compensatory and punitive damages, and other relief. This case was
dismissed with prejudice as to all defendants in December 1995. The Company did
not bear any costs in the settlement of this litigation.
See Note 18 for a discussion of certain litigation filed against the
co-general partners of the NYLOG Programs in 1996 and the proposed liquidation
of the NYLOG Programs.
CEMENT I UNIT - CADDO COUNTY, OKLAHOMA. In 1991, an administrative
hearing was held by the Oklahoma Corporation Commission ("OCC") to establish the
cause of the saltwater contamination of the municipal water supply of the city
of Cyril, Oklahoma and to formulate a plan of abatement of the pollution.
Parties to the hearing included the current and former operators of the Cement I
Unit as well as the Company. The Company owns an 18.56% interest in the Cement I
Unit and controls an additional 6.42% interest through investment programs. In
August 1992, the administrative law judge granted the Company's motion to
dismiss on the grounds that the Company had not violated any statute, rule or
regulation of the OCC and that the evidence did not establish that the Company
caused any contamination of the aquifer. The ruling was subsequently affirmed by
the OCC in December 1992.
In April 1995, the Court of Appeals issued a ruling affirming the
Company's dismissal from the proceeding. In rendering its April 1995 judgment,
the Court stated, however, that any claims which an operator wishes to make
against any non-operator (which could include the Company) pursuant to the plan
of unitization, for the non-operator's proportionate share of any costs incurred
pursuant to any remediation ultimately ordered, must be brought in District
Court in a new proceeding. To date, no such claims have been brought against the
Company.
In September 1995, the Supreme Court of Oklahoma granted a Writ of
Certiorari to review the case. However, in December 1995, the court reversed its
ruling and denied the petitions for certiorari. The dismissal of the Company
from this action is now final.
NORM RELATED PROCEEDINGS
The Company and certain subsidiaries, among other operators, have been
named as defendants in two lawsuits in Mississippi and three lawsuits in
Louisiana alleging various causes of action due to the alleged presence of
naturally occurring radioactive materials ("NORM") and other hazardous
substances. The plaintiffs allege that the NORM contamination is a result of oil
and gas operations conducted on properties operated or owned by the Company, its
F-23
subsidiaries and their predecessors in title, or NORM contaminated pipe
delivered to a pipe cleaning facility by the Company or its subsidiaries.
The Company has conducted a review of its operations with particular
attention to environmental compliance. The Company believes it has acted as a
prudent operator and is in compliance in all material respects with
environmental regulations. As part of the Company's continuing operations, the
Company has recorded site remediation costs of $541,000 and $2.4 million in 1995
and 1994, respectively. The Company anticipates it will incur additional costs
from time to time related to the continued assessment, testing, disposal, site
restoration and other activities in connection with the Company's environmental
proceedings. The Company will continue to vigorously contest liability under the
pending proceedings and seek to apportion any resulting liability under such
proceedings among the Company, its predecessor operators and other working
interest owners.
A brief summary of each of the lawsuits is presented below.
BAY SPRINGS FIELD - JASPER COUNTY, MISSISSIPPI. In May 1994, the Company
was served with a lawsuit filed by private landowners against the Company and
other defendants in the Circuit Court of Jasper County, Mississippi, First
Judicial District, based on the presence of NORM on the plaintiffs' property.
The plaintiffs allege that the NORM contamination is a result of oil and gas
operations conducted on properties operated by the Company and its predecessors
in title and on properties in which the Company does not own an interest. The
Company removed the lawsuit to federal court and obtained a ruling from the
court that allowed remediation of the property operated by the Company. The
lawsuit has since been remanded back to the Circuit Court of Jasper County.
The Company successfully obtained an order severing the claims against
it from claims against properties in which the Company does not own an interest.
The amount of damages sought against the Company is not known at this time since
the plaintiffs have failed to quantify such damages.
The Company has completed a NORM remediation program on the property
and the site has been restored. The Company believes that the completion of the
remediation effort has significantly reduced any basis for the plaintiffs'
damage claims and, although the Company cannot predict the outcome of the
proceedings, American does not expect the outcome of the case to have a material
adverse impact on its financial position or results of operations.
DIAMOND FIELD - WAYNE COUNTY, MISSISSIPPI. The Company and a subsidiary were
served in May 1994 with a lawsuit in the Circuit Court of Wayne County,
Mississippi based on the presence of NORM and other hazardous materials arising
from oil and gas activities on certain tracts in the Diamond Field. Injunctive
relief and monetary and punitive damages are sought; however, the plaintiffs do
not specify the amount of damages being sought. In November 1994, the court
denied a motion by the plaintiffs to enjoin the Company from remediating the
property without approval by the plaintiffs and issued a ruling that allowed the
Company to remediate the property without interference. The Company completed
remediation in February 1995. In January 1996, the plaintiffs dropped all
allegations of personal injury from their claims. The Company believes that the
completion of the remediation effort has significantly reduced any basis for the
plaintiffs' damage claims and, although the Company cannot predict the outcome
of the proceedings, American does not expect the outcome of the case to have a
material adverse impact on its financial position or results of operations.
FORDOCHE FIELD - POINT COUPEE PARISH, LOUISIANA. In August 1994, a
Company subsidiary and affiliate were served with a lawsuit in the 18th Judicial
District Court, Point Coupee Parish, Louisiana. The plaintiffs alleged they
represented a class of plaintiffs damaged by oil and gas activities, including
damages caused by NORM, elevated levels of chlorides and other hazardous oil
field wastes and substances in the Fordoche Field and other fields operated by a
third party near Lottie, Louisiana. The class certification was never approved
by the court. The plaintiffs sought unspecified compensation for actual and
exemplary damages. The Company owns a minority interest and does not operate
this property. In January 1996, the case was dismissed with prejudice against
the Company and its affiliate at no cost to the Company.
51 OIL CORP. FACILITY. A Company subsidiary was served with two
lawsuits relating to the 51 Oil Corp. Facility near Lafayette, Louisiana. In 51
OIL CORP. V. ADOBE RESOURCES CORP., ET AL., Civil Action No. 93-08548, filed in
Civil District Court in Orleans Parish, Louisiana, the plaintiff alleged that
the Company's subsidiary, among 65 other defendants, supplied pipe contaminated
with NORM to the plaintiff. The plaintiff alleged that the defendants failed to
warn the plaintiff of this condition, among other allegations, and sought
contribution by the defendants for the cost of remediation of its
F-24
property as well as other damages. The plaintiff's records indicate that the
Company's subsidiary supplied about one-half of one percent of the pipe to the
facility. The lawsuit was settled for $25,000 as to the Company's subsidiary in
March 1995 and was dismissed with prejudice on April 12, 1995.
In DANNY BROUSSARD, ET AL. V. ADOBE RESOURCES CORP., ET AL., Civil
Action No. 94-8019, filed in July 1994 in Civil District Court in Orleans
Parish, Louisiana, the plaintiffs, an employee of 51 Oil Corp. and his family,
alleged that a Company subsidiary delivered pipe contaminated with NORM to 51
Oil Corp. and that such actions caused the plaintiff to suffer various personal
injuries. The plaintiffs sought compensatory and punitive damages for both
medical expenses and other damages; however, the plaintiffs did not specify the
amount of damages being sought. The lawsuit was settled for $3,000 against the
Company's subsidiary, and the case was dismissed with prejudice on February 5,
1996.
(15) CASH FLOW INFORMATION
Supplemental cash flow information is presented below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
---- ---- ----
CASH PAYMENTS:
<S> <C> <C> <C>
Interest, net of amounts capitalized (a)......................... $ 5,638 $ 6,528 $ 6,931
Income taxes..................................................... 40 39 567
NONCASH INVESTING AND FINANCING ACTIVITIES:
APPL Consolidation:
Acquisition of oil and gas properties......................... $ 1,198 $ 52,222 $ -
Other assets ................................................. - 2,287 -
Liabilities assumed........................................... - 535 -
Debt retired.................................................. 4,680 1,612 -
American common stock issued.................................. (4,326) (56,230) -
Gain on extinguishment of debt................................ (1,552) (426) -
Issuance of common stock to officers............................. $ - $ - $ 1,237 (b)
</TABLE>
(a) The Company capitalized interest totaling $1.5 million in both 1995 and
1994 and $2.3 million in 1993, based on the Company's weighted average
bank borrowing rate for the period.
(b) Amount consists of notes receivable from officers totaling
approximately $230,000 and unearned compensation of approximately $1.0
million, which are both recorded as reductions of stockholders' equity.
F-25
(16) INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
The Company's only industry segment is oil and gas exploration and
production. Information regarding the Company's operations by geographic area
for the last three years is presented below (in thousands):
<TABLE>
<CAPTION>
UNITED OTHER
STATES(A) CANADA(B) FOREIGN(C) CONSOLIDATED
YEAR ENDED DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................. $ 70,768 $ - $ - $ 70,768
Income from operations.......................... 6,813 - - 6,813
Identifiable assets............................. 176,030 - - 176,030
YEAR ENDED DECEMBER 31, 1994
Sales to unaffiliated customers................. $ 50,033 $ - $ - $ 50,033
Loss from operations............................ (44,727) - (6,706) (51,433)
Identifiable assets............................. 223,894 - - 223,894
YEAR ENDED DECEMBER 31, 1993
Sales to unaffiliated customers................. $ 44,334 $ 5,255 $ - $ 49,589
Income (loss) from operations................... 844 822 (13,684) (12,018)
Identifiable assets............................. 178,642 - 6,956 185,598
</TABLE>
(a) In 1994, the Company reported an impairment charge of $25.0 million related
to a change in accounting policy for impairment of proved oil and gas
properties. (See Note 1.)
(b) The Company sold all of its Canadian assets in mid-1993.
(c) Net losses related to the Company's leasehold interests in Oman and Tunisia
primarily reflect the write-off of these assets, which were sold in 1994.
F-26
(17) QUARTERLY RESULTS - (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except for per share data) FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
YEAR ENDED DECEMBER 31, 1995 (a)
<S> <C> <C> <C> <C>
Oil and gas sales..................................... $ 17,832 $ 20,327 $ 16,890 $ 15,719
Total revenues........................................ 18,837 20,725 25,839 16,533
Income (loss) from operations......................... 1,308 2,897 7,263 (4,655)
Income (loss) before extraordinary item............... (495) 990 6,015 (5,033)
Net income (loss)..................................... 1,961 990 6,015 (5,033)
Net income (loss) per common share:
Income (loss) before extraordinary item............... $ (.08) $ .05 $ .47 $ (.46)
Extraordinary gain on extinguishment of debt.......... .21 - - -
---------- ---------- ---------- -------
Net income (loss) per common share................. $ .13 $ .05 $ .47 $ (.46)
========== ========== ========== ===========
YEAR ENDED DECEMBER 31, 1994 (b)
Oil and gas sales..................................... $ 9,366 $ 11,145 $ 13,355 $ 16,167
Total revenues........................................ 9,433 11,442 13,831 16,653
Loss from operations.................................. (11,329) (2,413) (4,035) (33,656)
Loss before extraordinary item........................ (12,809) (4,273) (5,608) (37,545)
Net loss.............................................. (12,809) (2,231) (2,657) (37,119)
Net loss per common share:
Loss before extraordinary item........................ $ (1.88) $ (.67) $ (.78) $ (3.68)
Extraordinary gain on extinguishment of debt.......... - .29 .38 .04
---------- ---------- ---------- -----------
Net loss per common share........................... $ (1.88) $ (.38) $ (.40) $ (3.64)
============= ========== ========== ===========
</TABLE>
(a) In the first quarter of 1995, the Company recorded an extraordinary gain
of $2.5 million resulting from the elimination of debt through the APPL
Consolidation. In the third quarter of 1995, the Company recorded a gain
on the sale of the Sawyer Field of approximately $10.6 million, offset in
part by recognition of $2.8 million of dry hole expense on two wells. In
the fourth quarter of 1995, the Company recorded an impairment charge of
$1.8 million related to impairment of an unproved property and recorded
additional dry hole expense of $1.3 million primarily related to one
offshore well.
(b) In the first quarter of 1994, the Company recorded impairment expense of
$6.4 million for the write-off of American's remaining leasehold interest
in Tunisia. During the fourth quarter, the Company reported an impairment
charge of $25.0 million related to the change in accounting policy for
impairment of proved oil and gas properties. Also in the fourth quarter,
the Company recorded additional impairment expense of $1.4 million
associated with several properties on which no further exploratory work is
planned and a $2.0 million severance charge as a result of the APPL
Consolidation. In the second, third and fourth quarters of 1994, the
Company recorded extraordinary gains of $2.0 million, $3.0 million and
$426,000, respectively, which resulted from the elimination of nonrecourse
debt through the APPL Consolidation.
Quarterly earnings per common share are based on the weighted average
number of shares outstanding during the quarter, and the sum of the quarters may
not equal annual earnings per common share. Earnings per common share have been
retroactively restated to reflect the one-for-ten reverse split of the Company's
common stock. (See Note 2.)
F-27
(18) SUBSEQUENT EVENTS
NYLOG LITIGATION AND PROPOSED LIQUIDATION
The Company and its subsidiary, American Exploration Production Company
(together, the "American Parties"), along with New York Life and several of its
subsidiaries, have been named as defendants in a class action complaint filed in
the United States District Court for the Southern District of Florida on March
18, 1996, styled SHEA ET AL. V. NEW YORK LIFE INSURANCE CO., ET AL. (Civil
Action No. 96-0746) alleging generally that the defendants engaged in fraudulent
activities in connection with the marketing and sale of interests in various
limited partnerships, including the NYLOG Programs, and the subsequent operation
of such partnerships, breached implied covenants and fiduciary duties owed to
investors and violated various federal securities and state laws and rules. The
plaintiffs purport to represent a class of all persons who purchased or
otherwise assumed rights and title to interests in the partnerships that were
created, sponsored, marketed, sold, operated or managed by the defendants from
January 1, 1985 through March 18, 1996. The plaintiffs have asked for
compensatory damages for their lost original investment, plus interest, costs
(including attorneys' fees), punitive damages, disgorgement of any earnings,
compensation and benefits received by the defendants as a result of the alleged
actions and other unspecified relief to which plaintiffs may be entitled. The
lawsuit was preceded by two similar but separate lawsuits filed by the
plaintiffs in the District Courts in Harris County, Texas on January 11, 1996.
The defendants expressly deny any wrongdoing alleged in the complaints
and do not concede any liability or wrongdoing in connection with any of the
facts or claims that have been alleged against them in the lawsuits described
above, including any liability or wrongdoing in connection with the sale of the
units of limited partner interest in the partnerships. Nevertheless, to reduce
the burden of protracted litigation, the defendants have entered into a
Stipulation of Settlement (the "Settlement Agreement") with the plaintiffs
because, in their opinion, the settlement would (i) provide substantial benefits
to the limited partners in a manner consistent with New York Life's prior
determination to wind up the NYLOG Programs through orderly liquidation because
the continuation of the business no longer served the intended objectives of
either the limited partners or the defendants and to offer the limited partners
an enhancement to the liquidating distribution they would otherwise receive,
(ii) provide an opportunity to wind up the partnerships on a schedule favorable
to the limited partners and to resolve the issues raised by the lawsuits and
(iii) reduce the burdens and uncertainties associated with protracted litigation
of the claims underlying the lawsuits.
If the Settlement Agreement is approved by the Florida court and becomes
final, a limited partner of a limited partnership who participates in the
settlement will receive from an affiliate of New York Life a cash payment that,
together with prior distributions to such settling limited partner from such
limited partnership, will result in the settling limited partner having received
in the aggregate an amount at least equal to his total investment in such
partnership. If the proposed settlement becomes final, the defendants and
various other related parties will be released and discharged from any and all
claims a limited partner may have against the defendants in connection with the
partnerships. The American Parties will not be liable for any payment of
advances or refunds to the NYLOG investors.
On March 19, 1996, the Florida federal district court issued a hearing
order and certified the class for settlement purposes only and directed the
defendants to cause a class notice to be mailed to potential class members. The
Settlement Agreement is not yet final, is subject to a number of conditions and
may be terminated in certain circumstances.
New York Life and certain of its subsidiaries and AEPCO have also been
named as defendants in a lawsuit relating to the NYLOG Programs styled BILLY H.
MANCIL AND MARY M. MANCIL V. NEW YORK LIFE INSURANCE COMPANY, ET AL., Civil
Action No. CV-95-2595 GR, Circuit Court of Montgomery County, Alabama (the
"Mancil Litigation"). The complaint in the Mancil Litigation alleges various
causes of action arising out of Mancil's purchase of interests in certain NYLOG
Programs including, among other things, fraud, reckless and negligent
misrepresentations, and negligence in hiring, training and/or supervising a
sales agent involved in the sale of the NYLOG interests. Plaintiffs seek an
unspecified amount of compensatory and punitive damages and costs.
The American Parties and NYLIFE Inc. ("NYLIFE"), a subsidiary of New York
Life, have entered into an indemnity agreement (the "Indemnity Agreement")
pursuant to which NYLIFE has agreed to indemnify the American Parties from and
against any and all judgments or settlements entered or reached in the NYLOG
litigation described above, or any subsequent lawsuits by investors in the NYLOG
Programs based on claims and factual allegations substantially similar to those
contained in the original complaints filed in state district court in Texas
(collectively with the Mancil Litigation, the "NYLOG Litigation"). Pursuant to
the Indemnity Agreement, NYLIFE has assumed control of the joint
F-28
defense of the NYLOG Litigation at NYLIFE's expense including, but not limited
to, any settlement discussions or settlements. Additionally, pursuant to the
Indemnity Agreement, the American Parties have agreed that if a settlement of
the NYLOG Litigation occurs and in connection therewith the assets of the NYLOG
Programs are sold in liquidation of the partnerships, the American Parties will
be allocated 5% (which represents AEPCO's initial capital contribution
percentage) of revenues and net proceeds from the sale of properties effective
from and after February 1, 1996. Based upon the terms of the Indemnity
Agreement, the Company does not believe that the NYLOG Litigation will have a
material adverse impact on its financial position or results of operations.
ACQUISITION OF INTERESTS IN THE GULF OF MEXICO
On March 15, 1996, the Company and Dominion Reserves, Inc. acquired
interests in five offshore blocks in the Gulf of Mexico from a private company
for a purchase price of approximately $56.0 million. American's 25% share of the
acquisition was funded through $14.0 million in borrowings under the Company's
bank credit facility.
F-29
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CAPITALIZED COSTS
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31,
---------------------------
1995 1994
---------- -----------
<S> <C> <C>
Proved properties..................................................................... $ 265,953 $ 319,048
Unproved oil and gas interests........................................................ 26,074 24,405
---------- -----------
Total capitalized costs............................................................ 292,027 343,453
Less: Accumulated depreciation, depletion and amortization....................... 146,188 153,509
---------- -----------
Net capitalized costs.............................................................. $ 145,839 $ 189,944
========== ===========
</TABLE>
COSTS INCURRED IN OIL AND GAS ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
<TABLE>
<CAPTION>
(In thousands)
UNITED
STATES FOREIGN TOTAL
---------- ---------- -----------
YEAR ENDED DECEMBER 31, 1995
Property acquisition costs:
<S> <C> <C> <C>
Proved............................................................. $ 14,491 $ - $ 14,491
Unproved........................................................... 2,642 - 2,642
Exploration costs..................................................... 2,449 - 2,449
Development costs..................................................... 23,089 - 23,089
Capitalized interest.................................................. 1,468 - 1,468
---------- ---------- -----------
Total costs incurred............................................... $ 44,139 $ - $ 44,139
========== ========== ===========
YEAR ENDED DECEMBER 31, 1994
Proved property acquisition costs..................................... $ 81,385 $ - $ 81,385
Exploration costs..................................................... 2,583 - 2,583
Development costs..................................................... 15,804 - 15,804
Capitalized interest.................................................. 1,496 - 1,496
---------- ---------- -----------
Total costs incurred............................................ $ 101,268 $ - $ 101,268
========== ========== ===========
YEAR ENDED DECEMBER 31, 1993
Proved property acquisition costs..................................... $ 4,596 $ 1,011 $ 5,607
Exploration costs..................................................... 6,103 5,006 11,109
Development costs..................................................... 8,786 686 9,472
Capitalized interest.................................................. 1,390 956 2,346
---------- ---------- -----------
Total costs incurred............................................ $ 20,875 $ 7,659 $ 28,534
========== ========== ===========
</TABLE>
F-30
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - (CONTINUED)
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
(In Thousands)
UNITED
STATES FOREIGN TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenues.............................................................. $ 70,768 $ - $ 70,768
Production and operating costs........................................ 24,515 - 24,515
Exploration expense................................................... 4,826 - 4,826
Depreciation, depletion and amortization.............................. 29,100 - 29,100
Impairment expense.................................................... 1,822 - 1,822
Taxes other than income............................................... 4,928 - 4,928
Income tax benefit.................................................... (121) - (121)
---------- ---------- -----------
Results of operations for producing activities..................... $ 5,698 $ - $ 5,698
========== ========== ===========
YEAR ENDED DECEMBER 31, 1994
Revenues.............................................................. $ 50,033 $ - $ 50,033
Production and operating costs........................................ 21,302 - 21,302
Exploration expense................................................... 2,569 (10) 2,559
Depreciation, depletion and amortization.............................. 28,062 - 28,062
Impairment expense.................................................... 27,127 6,443 33,570
Taxes other than income............................................... 4,630 - 4,630
Income tax benefit.................................................... (455) - (455)
---------- ---------- -----------
Results of operations for producing activities..................... $ (33,202) $ (6,433) $ (39,635)
========== ========== ===========
YEAR ENDED DECEMBER 31, 1993
Revenues.............................................................. $ 44,334 $ 5,255 $ 49,589
Production and operating costs........................................ 14,088 1,910 15,998
Exploration expense................................................... 4,219 3,335 7,554
Depreciation, depletion and amortization.............................. 20,192 1,861 22,053
Impairment expense.................................................... 773 10,202 10,975
Taxes other than income............................................... 3,687 42 3,729
Income tax expense.................................................... 505 - 505
---------- ---------- -----------
Results of operations for producing activities..................... $ 870 $ (12,095) $ (11,225)
========== ========== ===========
</TABLE>
OIL AND GAS RESERVE INFORMATION - (UNAUDITED)
The following information summarizes the policies used by the Company in
preparing the accompanying oil and gas reserve disclosures, standardized measure
of discounted future net cash flows relating to proved oil and gas reserves and
the reconciliation of such standardized measure from period to period.
Proved reserves are estimated quantities of crude oil and natural gas
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can
reasonably be expected to be recovered through existing wells with existing
equipment and operating methods.
F-31
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - (CONTINUED)
The standardized measure of discounted future net cash flows from
production of proved reserves was developed by first estimating the quantities
of proved reserves and the future periods during which they are expected to be
produced based on year-end economic conditions. The estimated future cash flows
from proved reserves were then determined based on year-end prices, except in
those instances where fixed and determinable price escalations are included in
existing contracts. The effects of derivative transactions did not materially
impact oil and gas prices as of December 31, 1995. Finally, future cash flows
were reduced by estimated production costs, costs to develop and produce the
proved reserves, and certain abandonment costs, all based on year-end economic
conditions and the estimated effect of future income taxes based on the current
tax law.
The standardized measure of discounted future net cash flows does not
purport to present, nor should it be interpreted to present, the fair value of
the Company's oil and gas reserves. An estimate of fair value would also take
into account, among other things, the recovery of reserves not presently
classified as proved, anticipated future changes in prices and costs and a
discount factor more representative of the time value of money and the risks
inherent in reserve estimates.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES - (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands) YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Future cash inflows.................................................. $ 454,508 $ 502,989 $ 326,768
Future production and development costs.............................. (209,094) (258,711) (147,481)
----------- ------------ ------------
Future net cash flows before income taxes............................ 245,414 244,278 179,287
Future income taxes.................................................. (2,892) (2,109) (4,528)
----------- ------------ ------------
Future net cash flows after income taxes............................. 242,522 242,169 174,759
Discount at 10% annual rate.......................................... (98,628) (101,463) (71,489)
----------- ------------ ------------
Standardized measure of discounted future net cash flows............. $ 143,894 $ 140,706 $ 103,270
=========== ============ ============
</TABLE>
F-32
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - (CONTINUED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS - (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands) YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year........................................... $ 140,706 $ 103,270 $ 180,812
Sales and transfers of oil and gas produced, net of
production costs.................................................. (41,325) (24,101) (31,818)
Net changes in prices and production costs........................... 9,959 (67,753) (19,870)
Extensions, discoveries and improved recoveries, net of future
production and development costs.................................. 22,867 3,822 12,780
Purchases of minerals in place....................................... 15,162 115,379 7,203
Sales of minerals in place........................................... (33,672) (451) (48,521)
Changes in estimated future development costs........................ 3,222 4,997 (5,325)
Development costs incurred during the year........................... 11,592 11,518 7,931
Revisions of previous quantity estimates............................. 3,857 (7,826) (15,967)
Accretion of discount................................................ 14,230 10,476 18,269
Net change in future income taxes.................................... (444) 117 386
Changes in production rates (timing) and other....................... (2,260) (8,742) (2,610)
----------- ------------ ------------
Balance, end of year................................................. $ 143,894 $ 140,706 $ 103,270
=========== ============ ============
</TABLE>
F-33
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - (CONTINUED)
RESERVE QUANTITY INFORMATION - (UNAUDITED)
<TABLE>
<CAPTION>
UNITED STATES CANADA TOTAL
-------------------- ------------------- ---------------------
OIL GAS OIL GAS OIL GAS
(MBBLS) (MMCF) (MBBLS) (MMCF) (MBBLS) (MMCF)
--------- -------- ------- ------- --------- --------
PROVED RESERVES
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992........... 8,031 123,373 1,392 120,713 9,423 244,086
Purchases of minerals in place...... 107 10,029 51 7,182 158 17,211
Extensions, discoveries and other
additions........................ 326 10,157 - 544 326 10,701
Revisions of previous estimates..... (1,127) (13,642) - - (1,127) (13,642)
Sales of minerals in place.......... (253) (13,400) (1,371) (124,897) (1,624) (138,297)
Production.......................... (1,189) (11,794) (72) (3,542) (1,261) (15,336)
--------- --------- --------- --------- -------- ---------
Balance at December 31, 1993........... 5,895 104,723 - - 5,895 104,723
Purchases of minerals in place...... 5,153 108,075 - - 5,153 108,075
Extensions, discoveries and other
additions........................ 128 12,825 - - 128 12,825
Revisions of previous estimates..... (197) (22,467) - - (197) (22,467)
Sales of minerals in place.......... (78) (235) - - (78) (235)
Production.......................... (1,241) (16,241) - - (1,241) (16,241)
--------- --------- --------- --------- -------- ---------
Balance at December 31, 1994........... 9,660 186,680 - - 9,660 186,680
Purchases of minerals in place...... 1,225 18,846 - - 1,225 18,846
Extensions, discoveries and other
additions........................ 1,435 17,318 - - 1,435 17,318
Revisions of previous estimates..... 616 1,270 - - 616 1,270
Sales of minerals in place.......... (792) (73,650) - - (792) (73,650)
Production.......................... (1,680) (24,450) - - (1,680) (24,450)
--------- --------- --------- --------- -------- ---------
Balance at December 31, 1995........... 10,464 126,014 - - 10,464 126,014
========= ========= ========= ========= ======== =========
PROVED DEVELOPED RESERVES
Balance at December 31, 1993........... 5,018 71,623 - - 5,018 71,623
========= ========= ========= ========= ======== =========
Balance at December 31, 1994........... 8,697 127,838 - - 8,697 127,838
========= ========= ========= ========= ======== =========
Balance at December 31, 1995........... 9,474 98,590 - - 9,474 98,590
========= ========= ========= ========= ======== =========
</TABLE>
F-34
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
American Exploration Company Stock Compensation Plan, effective
December 9, 1988 (Form S-8, September 21, 1989, Registration No. 31-31202,
Exhibit 4(c)).
American Exploration Company Amended and Restated 1978 Hershey Oil
Corporation Non-Qualified Equity Participation Plan (Form S-4, August 8, 1990,
Registration No. 33-36268, Exhibit 10(ccc)).
American Exploration Company Amended and Restated 1983 Stock Option
Plan of Hershey Oil Corporation (Form S-4, August 8, 1990, Registration No.
33-36268, Exhibit 10(ddd)).
American Exploration Company Amended and Restated 1988 Stock Option
Plan of Hershey Oil Corporation (Form S-4, August 8, 1990, Registration No.
33-36268, Exhibit 10(eee)).
American Exploration Company Exploration Group Investment Plan (Form
10-K, December 31, 1991, Exhibit 10(sss)).
Employee Stock Ownership Trust of American Exploration Company, as
Amended and Restated, effective January 1, 1991 (Form 10-Q, June 30, 1992,
Exhibit 10(b)).
Phantom Stock Plan of American Exploration Company, effective September
21, 1993 (Form 10-Q, September 30, 1993, Exhibit 10(b)).
American Exploration Stock Compensation Plan, effective June 13, 1995
(Proxy Statement, May 10, 1995, Appendix A).
Employee Stock Ownership Plan of American Exploration Company, as
Amended and Restated, effective November 30, 1995.
Employment Agreement between American Exploration Company and Mark
Andrews, effective November 30, 1995.
Severance Agreements between American Exploration Company and the
executive officers of American Exploration Company, effective November 30, 1995.
X-1
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
3(a) - Restated Certificate of Incorporation of American Exploration
Company, as supplemented by Certificate of Amendment to Restated
Certificate of Incorporation of American Exploration Company,
effective June 13, 1995.
3(b) - Amended and Restated Bylaws of American Exploration Company.
*4(a) - Rights Agreement, dated as of September 28, 1993, between
American Exploration Company and Society National Bank (Form 8-K,
September 28, 1993, Exhibit 4), as supplemented by Amendment to
Rights Agreement, dated as of August 3, 1994, between American
Exploration Company and Society National Bank (Form 8-K, August
31, 1994, Exhibit 4).
*4(b) - Certificate of Designation of the $450 Cumulative Convertible
Preferred Stock, Series C, dated December 14, 1993 (Form S-3, January
4, 1994, Registration No. 33-51795, Exhibit 4.3), as supplemented by
Certificate of Correction to the Certificate of Designation of the
$450 Cumulative Convertible Preferred Stock, Series C, dated December
29, 1993 (Form S-3, January 4, 1994, Registration No. 33-51795,
Exhibit 4.4).
*4(c) - Deposit Agreement, dated as of December 10, 1993, by and among
American Exploration Company, Harris Trust and Savings Bank and
the holders from time to time of Depositary Receipts (Form S-3,
January 4, 1994, Registration No. 33-51795, Exhibit 4.5).
*4(d) - Purchase Agreement, dated as of December 10, 1993, by and among
American Exploration Company and each of the purchasers referred
to therein (Form S-3, January 4, 1994, Registration No. 33-51795,
Exhibit 4.6).
*4(e) - Registration Rights Agreement, dated as of December 17, 1993, by
and among American Exploration Company and each of the purchasers
referred to therein (Form S-3, January 4, 1994, Registration No.
33-51795, Exhibit 4.7).
*4(f) - Form of Stock Certificate representing shares of Convertible
Preferred Stock (Form 8-A, March 23, 1994, Exhibit 8).
*4(g) - Form of Depositary Receipt representing Depositary Shares (Form
8-A, March 23, 1994, Exhibit 9).
*10(a) - Agreement, dated August 11, 1983, by and between American
Exploration Company, Phillip Frost and the other parties signatory
thereto, to which is attached the related Form of Agreement of
Limited Partnership of South States Development, Ltd. (Form S-14,
October 18, 1983, Registration No. 2-87234, Exhibit 10(a)).
*10(b) - Forms of New York Life Oil & Gas Production Partnership Agreements
(Amendment No. 4 to Form S-2, January 21, 1988, Registration No.
33-18512, Exhibit 10(gg)).
*10(c) - American Exploration Company Stock Compensation Plan, effective
December 9, 1988 (Form S-8, September 21, 1989, Registration No.
31-31202, Exhibit 4(c)).
X-2
INDEX OF EXHIBITS - (CONTINUED)
*10(d) - American Exploration Company Amended and Restated 1978 Hershey Oil
Corporation Non-Qualified Equity Participation Plan (Form S-4, August
8, 1990, Registration No. 33-36268, Exhibit 10(ccc)).
*10(e) - American Exploration Company Amended and Restated 1983 Stock Option
Plan of Hershey Oil Corporation (Form S-4, August 8, 1990,
Registration No. 33-36268, Exhibit 10(ddd)).
*10(f) - American Exploration Company Amended and Restated 1988 Stock Option
Plan of Hershey Oil Corporation (Form S-4, August 8, 1990,
Registration No. 33-36268, Exhibit 10(eee)).
*10(g) - Stock Purchase Agreement by and among American Exploration Company and
The Dyson-Kissner-Moran Corporation, dated October 21, 1990 (Form
8-K, October 25, 1990, Exhibit 28(a)).
*10(h) - Office Lease, dated December 12, 1990, between JMB/Houston
Center Partners Limited Partnership and American Exploration
Company (Form S-4, January 9, 1991, Registration No. 33-38546,
Exhibit 10(kkk)).
*10(i) - Master Exchange Agreement, dated as of February 1, 1991, between
American Exploration Company and Morgan Guaranty Trust Company of
New York (Form 10-Q, March 31, 1991, Exhibit 10(a)).
*10(j) - Note Purchase Agreement, dated as of December 27, 1991, re:
$35,000,000 11% Senior Subordinated Notes due December 30, 2001
(Form 8-K, January 10, 1992, Exhibit 10(a)), as supplemented by the
Amendment to Note Purchase Agreement, dated as of February 16, 1993,
by and among American Exploration Company (the "Company") and the
parties named therein (Form 8-K, February 16, 1993, Exhibit 10(a)),
as supplemented by letter agreement, dated March 22, 1993, by and
among the Company and the parties named therein (Form 10-K, December
31, 1992, Exhibit 10(zz)), as supplemented by Second Amendment to Note
Purchase Agreement, dated as of September 30, 1993, by and among the
Company and the parties named therein (Form 10-Q, September 30, 1993,
Exhibit 10(c)), as supplemented by Third Amendment to Note Purchase
Agreement, dated as of March 18, 1994, by and among the Company and
the parties named therein (Form 10-K, December 31, 1993, Exhibit
10(tt)), as supplemented by Fourth Amendment to Note Purchase
Agreement, dated as of April 28, 1994, by and among the Company and
the parties named therein (Form 10-Q, March 31, 1994, Exhibit 10(c)),
as supplemented by Fifth Amendment to Note Purchase Agreement, dated
as of July 26, 1994, by and among the Company and the parties named
therein (Form 10-Q, September 30, 1994, Exhibit 10(c)).
*10(k) - Warrant Purchase Agreement and Form of Warrants, dated as of
December 27, 1991 (Form 8-K, January 10, 1992, Exhibit 10(b)), as
supplemented by Amendment No. 1 to Warrant Purchase Agreement,
dated as of February 16, 1993, by and among American Exploration
Company and the parties named therein (Form 8-K, February 16,
1993, Exhibit 10(b)).
*10(l) - American Exploration Company Exploration Group Investment Plan (Form
10-K, December 31, 1991, Exhibit 10(sss)).
*10(m) - Employee Stock Ownership Trust of American Exploration Company, as
Amended and Restated Effective January 1, 1991 (Form 10-Q, June 30,
1992, Exhibit 10 (b)).
X-3
INDEX OF EXHIBITS - (CONTINUED)
*10(n) - Stock Purchase Agreement, dated as of September 3, 1992, between
American Exploration Company and The Prudential Insurance Company
of America (Form 8-K, September 3, 1992, Exhibit 10(a)).
*10(o) - Stock Purchase Warrant, dated as of September 3, 1992, between
American Exploration Company and The Prudential Insurance Company
of America (Form 8-K, September 3, 1992, Exhibit 10(b)).
*10(p) - Registration Rights Agreement, dated as of September 3, 1992,
between American Exploration Company and The Prudential Insurance
Company of America (Form 8-K, September 3, 1992, Exhibit 10(c)).
*10(q) - Sale of Securities Offer dated June 4, 1993 (Form 8-K, June 14, 1993,
Exhibit 10(a)).
*10(r) - Purchase and Sale Agreement, dated as of March 31, 1993, by and
among Conquest Exploration Company and New York Life Oil & Gas
Operating Production Partnership III-F, New York Life Oil & Gas
Operating Production Partnership III-G and New York Life Oil & Gas
Operating Production Partnership III-H (Form 8-K, June 14, 1993,
Exhibit 10(b)).
*10(s) - Stock Purchase Agreement, dated July 8, 1993, by and between
Equitable Resources Energy Company and American Exploration
Company (Form 8-K, July 7, 1993, Exhibit 10(a)).
*10(t) - Purchase and Sale Agreement by and between Conquest Exploration
Company and Canadian Conquest Exploration, Inc. with respect to
Conquest Ventures Canada, Inc. (Form 8-K, July 7, 1993, Exhibit
10(b)).
*10(u) - Phantom Stock Plan of American Exploration Company, effective
September 21, 1993 (Form 10-Q, September 30, 1993, Exhibit 10(b)).
*10(v) - Agreement of Limited Partnership of Ancon Partnership Ltd.,
dated December 10, 1993, by and between American Exploration
Company and NYLIFE Resources, Inc. (Form 10-K, December 31, 1993,
Exhibit 10(rr)).
*10(w) - Letter Agreement, dated as of April 1, 1994, re: $40,000,000
Secured Credit Facility between American Exploration Company and
New York Life Insurance Company (Form 10-Q, March 31, 1994,
Exhibit 10(b)).
*10(x) - Amended and Restated Credit Agreement, dated as of December 21,
1994, among American Exploration Company, the banks listed herein
and Morgan Guaranty Trust Company of New York, as agent, and Bank
of Montreal, as co-agent (Form 10-K, December 31, 1994, Exhibit
10(pp)).
*10(y) - Amendment No. 1 to Amended and Restated Credit Agreement, dated
as of February 16, 1995, among American Exploration Company, the
banks listed herein and Morgan Guaranty Trust Company of New York,
as agent, and Bank of Montreal, as co-agent (Form 10-K, December
31, 1994, Exhibit 10(qq)).
*10(z) - American Exploration Stock Compensation Plan, effective June 13,
1995 (Proxy Statement, May 10, 1995, Appendix A).
X-4
INDEX OF EXHIBITS - (CONTINUED)
*10(aa) - Purchase and Sale Agreement, dated June 12, 1995, by and among
American Exploration Company and the partnerships identified on
the signature pages hereof, collectively as Sellers, and Louis
Dreyfus Natural Gas Corp., as Purchaser (Form 10-Q, June 30, 1995,
Exhibit 10(a)).
10(bb) - Amendment No. 2 to Amended and Restated Credit Agreement, dated as of
May 2, 1995, among American Exploration Company, the banks listed
herein and Morgan Guaranty Trust Company of New York, as agent, and
Bank of Montreal, as co-agent.
10(cc) - Employee Stock Ownership Plan of American Exploration Company, as
Amended and Restated, effective November 30, 1995.
10(dd) - Employment Agreement between American Exploration Company and
Mark Andrews, effective November 30, 1995.
10(ee) - Severance Agreements between American Exploration Company and
the executive officers of American Exploration Company, effective
November 30, 1995.
10(ff) - Amendment No. 3 to Amended and Restated Credit Agreement, dated as of
January 19, 1996, among American Exploration Company, the banks listed
herein and Morgan Guaranty Trust Company of New York, as agent, and
Bank of Montreal, as co-agent.
12 - Statements Re Computations of Ratios.
*18 - Letter from Arthur Andersen LLP, dated March 30, 1995, re: Change in
American Exploration Company's Accounting Policy Related to
Recognizing Impairment of Proved Oil and Gas Properties.(Form 10-K, December 31,
1994, Exhibit 18).
21 - Subsidiaries of American Exploration Company.
23 - Consent of Independent Public Accountants.
27 - Financial Data Schedule.
</TABLE>
- ----------------------
* Incorporated herein by reference.
Note: Copies of Exhibits may be obtained for 30 cents per page, prepaid,
by writing to the Investor Relations Department.
X-5
EXHIBIT 3(a)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN EXPLORATION COMPANY
Pursuant to Section 242 of the General Corporation Law
of the State of Delaware
-----------------------------
AMERICAN EXPLORATION COMPANY, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), pursuant
to the provisions of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY as follows:
FIRST: The name of the Corporation is American Exploration
Company.
SECOND: The Restated Certificate of Incorporation of the
Corporation is hereby amended by deleting the first paragraph of Article Fourth
thereof and substituting therefor the following:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 50,100,000 shares, of
which 100,000 shares, par value $1.00 per share, shall be a class designated
"Preferred Stock" and 50,000,000 shares, par value $.05 per share, shall be a
class designated "Common Stock." Each outstanding share of Common Stock as of
the Effective Date (as hereinafter defined) shall be converted into and
reconstituted as one-tenth of a share of Common Stock. No fractional shares
shall be issued upon such conversion and reconstitution, and the number of
shares of Common Stock to be issued shall be rounded down to the nearest whole
share. If a fractional interest in a share of Common Stock would, except for the
provisions of the preceding sentence, be deliverable upon such conversion and
reconstitution, the Corporation shall pay an amount in cash equal to the fair
market value of such fractional interest, as determined by the Corporation's
Board of Directors, to each holder of shares of Common Stock to whom such
fractional interest would have been deliverable. As used in this Article FOURTH,
"Effective Date" shall mean the date on which the Certificate of Amendment to
the Restated Certificate of Incorporation of the Corporation is filed with the
Secretary of State of the State of Delaware to affect the inclusion of this
paragraph."
THIRD: That the amendment to the Restated Certificate of
Incorporation set forth in this Certificate of Amendment has been duly adopted
in accordance with Section 242 of the General Corporation Law of the State of
Delaware by affirmative vote of a majority of the members of the Board of
Directors of the Corporation and by the affirmative vote of holders entitled to
cast a majority of the votes entitled to be cast by the outstanding shares of
the Corporation's Common Stock and the outstanding shares of the Corporation's
$450 Cumulative Convertible Preferred Stock, Series C, voting as a single class,
and the affirmative vote of a majority of the votes entitled to be cast by the
holders of outstanding shares of the Corporation's Common Stock, voting
separately as a class.
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be hereunto affixed and this Certificate of Amendment to be executed by
John M. Hogan, its Senior Vice President, and by T. Frank Murphy, its Secretary,
on behalf of the Corporation as of June 13, 1995.
AMERICAN EXPLORATION COMPANY
By: /s/ JOHN M. HOGAN
John M. Hogan
Senior Vice President
ATTEST:
/s/ T. FRANK MURPHY
T. Frank Murphy
Secretary
[Corporate Seal]
<PAGE>
EXHIBIT 3(a)
------------
(continued)
RESTATED CERTIFICATE OF INCORPORATION
OF
AMERICAN EXPLORATION COMPANY(1)
AMERICAN EXPLORATION COMPANY, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
1. The name of the Corporation is American Exploration
Company. The date of filing of its original Certificate of Incorporation with
the Secretary of State of the State of Delaware was January 21, 1980.
2. This Restated Certificate of Incorporation only restates
and integrates and does not further amend the provisions of the Certificate of
Incorporation of the Corporation as heretofore amended or supplemented, and
there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further amendments or changes
to read as herein set forth in full:
- ------------
(1) Gives effect to Certificate of Amendment of Restated Certificate of
Incorporation dated June 13, 1995.
FIRST: The name of the Corporation is:
AMERICAN EXPLORATION COMPANY
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street in the City of
Wilmington, County of New Castle, 19801, and the name of its registered agent at
that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 50,100,000 shares, of
which 100,000 shares, par value $1.00 per share, shall be a class designated
"Preferred Stock" and 50,000,000 shares, par value $.05 per share, shall be a
class designated "Common Stock." Each outstanding share of Common Stock as of
the Effective Date (as hereinafter defined) shall be converted into and
reconstituted as one-tenth of a share of Common Stock. No fractional shares
shall be issued upon such conversion and reconstitution, and the number of
shares of Common Stock to be issued shall be rounded down to the nearest whole
share. If a fractional interest in a share of Common Stock would, except for the
provisions of the preceding sentence, be deliverable upon such conversion and
reconstitution, the Corporation shall pay an amount in cash equal to the fair
market value of such fractional interest, as determined by the Corporation's
Board of Directors, to each holder of shares of Common Stock to
3
whom such fractional interest would have been deliverable. As used in this
Article FOURTH, "Effective Date" shall mean the date on which the Certificate of
Amendment to the Restated Certificate of Incorporation of the Corporation is
filed with the Secretary of State of the State of Delaware to affect the
inclusion of this paragraph.(2)
(1) Shares of Preferred Stock may be issued from time to time
in one or more series, each such series to have distinctive serial designations
as shall hereafter be determined in the resolution or resolutions providing for
the issue of such Preferred Stock from time to time adopted by the Board of
Directors pursuant to authority so to do which is hereby vested in the Board of
Directors.
(2) Each series of Preferred Stock
(a) May have such number of shares;
(b) May have such voting powers, full or limited, or may
be without voting powers;
(c) May be subject to redemption at such time or times
and at such prices;
(d) May be entitled to receive dividends (which may be
cumulative or noncumulative) at such rate or rates, on such
conditions, from such date or dates, and at such times, and
payable in preference to, or in such relation to, the
dividends payable on any other class or classes or series of
stock;
- ------------
(2) This paragraph is restated to reflect an amendment to the Restated
Certificate of Incorporation effective June 13, 1995.
4
(e) May have such rights upon the dissolution of, or
upon any distribution of the assets of, the Corporation;
(f) May be made convertible into, or exchangeable for,
shares of any other class or classes (except a class having
prior or superior rights and preferences as to dividends or
distribution of assets upon liquidation) or of any other
series of the same or any other class or classes of stock of
the Corporation at such price or prices or at such rates of
exchange, and with such adjustments;
(g) May be entitled to the benefit of a sinking fund or
purchase fund to be applied to the purchase or redemption of
shares of such series in such amount or amounts;
(h) May be entitled to the benefit of conditions and
restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issue of any
additional stock (including additional shares of such series
or of any other series) and upon the payment of dividends or
the making of other distributions on, and the purchase,
redemption or other acquisition by the Corporation or any
subsidiary of any outstanding stock of the Corporation; and
(i) May have such other relative, participating,
optional or other special rights and qualifications,
limitations or restrictions thereof; all as shall be stated in
the resolution or resolutions providing for the issue of such
Preferred Stock. Except where otherwise set forth in the
resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of Preferred Stock, the
number of shares comprising such series may be increased or
decreased
5
(but not below the number of shares then outstanding) from
time to time by like action of the Board of Directors.
(3) Except as otherwise provided in any resolution or
resolutions of the Board of Directors providing for the issuance of any
particular series of Preferred Stock, shares of any series of Preferred Stock
which have been redeemed (whether through the operation of a sinking fund or
otherwise) or purchased by the Corporation, or which, if convertible or
exchangeable have been converted into or exchanged for shares of stock of any
other class or classes shall have the status of authorized and unissued shares
of Preferred Stock and may be reissued as a part of the series of which they
were originally a part or may be reclassified and reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors or as part of any other series of Preferred Stock, all
subject to the conditions or restrictions on issuance set forth in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of any series of Preferred Stock and to any filing required by law.
(4) Except as otherwise specifically required by law or as
specifically provided in any resolution or resolutions of the Board of Directors
providing for the issuance of Preferred Stock, the exclusive voting power of the
Corporation shall be vested in the Common Stock of the Corporation. Each share
of Common Stock shall entitle the holder thereof to one vote at all meetings of
the stockholders of the Corporation.
6
FIFTH: For the management of the business and for the conduct
of the affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation and of its directors and
stockholders, it is further provided:
(a) In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of
Directors is expressly authorized and empowered to make,
alter, amend, or repeal the By-laws of the Corporation in any
manner not inconsistent with the laws of the State of Delaware
or the Certificate of Incorporation of the Corporation,
subject to the power of the stockholders having voting power
to alter, amend, or repeal the By-laws of the Corporation made
by the Board of Directors.
(b) In addition to the powers and authorities herein or
by statute expressly conferred upon it, the Board of Directors
may exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the laws of the State of
Delaware, and of the Certificate of Incorporation and By-laws
of the Corporation.
SIXTH: No director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, provided that this provision shall not limit the
liability of a Director (a) for any breach of the Director's duty of loyalty to
the Corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of
7
the Delaware Corporation Law, or (d) for any transaction from
which the Director derived an improper personal benefit. This Article does not
limit the liability of a Director for any act or omission occurring prior to the
date when this Article becomes effective.
SEVENTH: Meetings of the stockholders may be held within or
without the State of Delaware, as the By-laws of the Corporation may provide.
The books and records of the Corporation may be kept outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-laws of the Corporation. The elections of
directors need not be by written ballot unless the By-laws of the Corporation
shall so provide.
EIGHTH: The Corporation shall have the right, subject to any
express provisions or restrictions contained in the Certificate of Incorporation
or By-laws of the Corporation, from time to time to amend the Certificate of
Incorporation of the Corporation or any provision thereof in any manner now or
hereafter provided by law, and all rights and powers at any time conferred upon
the directors or stockholders by the Certificate of Incorporation of the
Corporation or any amendment thereof are subject to such right of the
Corporation.
NINTH: The number of directors of the Corporation shall be
specified in the By-laws of the Corporation.
4. This Restated Certificate of Incorporation was duly adopted
by the Board of Directors in accordance with Section 245 of the General
Corporation Law of the State of Delaware.
8
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed by Mark Andrews, its Chairman of the
Board, and attested by Russell P. Pennoyer, its Secretary, this 28th day of
February, 1992.
By __________________________________
Mark Andrews
Chairman of the Board
ATTEST:
By _________________________________
Russell P. Pennoyer
Secretary
EXHIBIT 3(b)
BYLAWS
OF
AMERICAN EXPLORATION COMPANY
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of American
Exploration Company (hereinafter called the "Corporation") in the State of
Delaware shall be in the city of Wilmington, County of New Castle, and the
resident agent in charge thereof shall be The Corporation Trust Company.
SECTION 2. OTHER OFFICES. The Corporation may have an office
or offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (hereinafter called the "Board") may from
time to time determine or as shall be necessary or appropriate for the conduct
of the business of the Corporation.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 1. PLACE OF MEETING. Meetings of the stockholders
shall be held at such place or places, within or without the State of Delaware,
as may from time to time be fixed by the Board, or as shall be specified or
fixed in the respective notices or waivers of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meeting of the
stockholders of the Corporation for the election of directors and for the
transaction of such other business as may come before the meeting shall be held
on such day each year, and at such time on that date, as shall be set by the
Board at least four weeks prior to such date.
SECTION 3. SPECIAL MEETINGS. Subject to the rights of the
holders of any series of preferred stock of the Corporation then outstanding,
special meetings of the stockholders for any purpose or purposes may be called
only by the Board pursuant to a resolution approved by a majority of the
2
total number of directors or by any person or committee expressly so authorized
by the Board pursuant to a resolution approved by a majority of the total number
of directors.
SECTION 4. (a) NOTICE OF MEETINGS IN GENERAL. Written notice,
stating the place, date and time of any annual or special meeting of the
stockholders, and the nature of the business to be considered, shall be given by
the Corporation at the direction of the Board to each stockholder entitled to
vote thereat at his address as it appears on the records of the Corporation, not
less than ten nor more than sixty days before the date of the meeting.
(b) BUSINESS AT ANNUAL MEETINGS; NOTICE. (1) Nominations of
persons for election to the Board and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders (A)
pursuant to the Corporation's notice of meeting delivered pursuant to Section
4(a) of this Article II, (B) by or at the direction of the Chairman or the Board
or (C) by any stockholder of the Corporation who is entitled to vote at the
meeting, who complied with the notice procedures set forth in clause (2) of this
Section 4(b) and who was a stockholder of record at the time such notice is
delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of Section
4(b)(1) of this Article II, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than sixty days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; PROVIDED, HOWEVER, that in the event that the date of the annual
meeting is advanced by more than thirty days, or delayed by more than sixty
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the sixtieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Each stockholder's
notice shall set forth (i) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to
3
being named in the proxy statement as a nominee and to serving as a director if
elected; (ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducing such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the nomination or proposal is made and (iii) as
to the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (A) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (B) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(c) BUSINESS AT SPECIAL MEETINGS; NOTICE. (1) The proposal of
business to be considered by the stockholders other than nominations of persons
for election to the Board may be made at a special meeting of stockholders (A)
pursuant to the Corporation's notice of meeting delivered pursuant to Section
4(a) of this Article II and (B) by or at the direction of the Chairman or the
Board.
(2) Nominations of persons for election to the Board may be
made at a special meeting of stockholders (A) pursuant to the Corporation's
notice of meeting delivered pursuant to Section 4(a) of this Article II, (B) by
or at the direction of the Chairman or the Board or (C) by any stockholder of
the Corporation who is entitled to vote at the meeting, who complied with the
notice procedures set forth in clause (3) of this Section 4(c) and who was a
stockholder of record at the time such notice is delivered to the Secretary of
the Corporation.
(3) Nominations by stockholders of persons for election to the
Board may be made at a special meeting of stockholders if the stockholder's
notice as required by Section 4(b)(2) of this Article II shall be delivered to
the Secretary at the principal executive offices of the Corporation not earlier
than the ninetieth day prior to such special meeting and not later than the
close of business on the later of the sixtieth day prior to such special meeting
or the tenth day following the day on which public announcement is first made of
the date of the special meeting and the nominees proposed by the Board to be
elected at such meeting.
(d) GENERAL. (1) Only persons who are nominated in accordance
with the procedures set forth in this Bylaw shall be eligible to serve as
director and only such business shall be conducted at a meeting of stockholders
as shall have
4
been brought before the meeting in accordance with the procedures
set forth in this Bylaw. Except as otherwise provided by law, the Certificate
of Incorporation or these Bylaws, the Chairman of the Board shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Bylaw and, if any proposed nomination or business is not in compliance
with this Bylaw, to declare that such defective nomination or proposed business
shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 5. FIXING RECORD DATE. The Board of Directors may fix,
in advance, a date as the record date for the purpose of determining
stockholders entitled to notice of, or to vote at, any meeting of stockholders,
or stockholders entitled to receive payment of any dividend or the allotment of
any rights, or in order to make a determination of stockholders for any other
proper purpose. Such date, in any case, shall be not more than sixty days, and
in case of a meeting of stockholders, not less than ten days, prior to the date
on which the particular action requiring such determination of stockholders is
to be taken. If no such record date shall have been fixed, then the close of
business on the day before the date of such meeting shall be the date for
determining the stockholders entitled to notice of, and to vote at, such
meeting.
SECTION 6. LIST OF STOCKHOLDERS. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of the stock
ledger, either directly or through a transfer agent appointed by the Board, to
prepare and make, at least ten days before each meeting of stockholders, a
complete list of the stockholders entitled to vote thereat, arranged in
alphabetical order. Such list shall be open to the examination of any
stockholder at the place where
5
said meeting is to be held for said ten days, and shall be produced and kept at
the time and place of the meeting during the whole time thereof, subject to the
inspection of any stockholder who may be present. The original or a duplicate
stock ledger shall be the only evidence as to who are the stockholders entitled
to examine such list or the books of the Corporation or to vote in person or by
proxy at such meeting.
SECTION 7. QUORUM. The holders of record of a majority of the
issued and outstanding stock of the Corporation entitled to vote at such
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of business, except where otherwise provided by law. In the absence
of a quorum, any officer entitled to preside at, or act as Secretary of, such
meeting, shall have the power to adjourn the meeting from time to time until a
quorum shall be constituted. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted that might have been transacted
at the meeting as originally called.
SECTION 8. VOTING AT MEETINGS. Any holder of shares of the
Corporation entitled to vote shall be entitled to one, or such other number
provided in the Corporation's Certificate of Incorporation or a designation
filed thereunder, vote for each such share, either in person or by proxy
executed in writing by him or by his duly authorized attorney in fact. No proxy
shall be valid after eleven months from the date of its execution unless
otherwise provided in the proxy. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and unless otherwise made irrevocable by law.
Shares of its own capital stock belonging to the Corporation shall not be voted
upon directly and indirectly. At all meetings of the stockholders at which a
quorum is present, all matters, except those for which the manner of deciding
upon is otherwise provided by law, shall be decided by a majority of the votes
cast by the holders of the stock present in person or by proxy and entitled to
vote thereat. Unless demanded by a stockholder of the Corporation's present in
person or by proxy at any meeting of the stockholders and entitled to vote
thereat, or unless so directed by the Chairman of the meeting, the vote thereat
on any question need not be by ballot.
SECTION 9. WRITTEN CONSENTS. Any action permitted or required
by the General Corporation Law of the State of Delaware to be taken by the
stockholders of the Corporation, including any action to be taken at an annual
meeting of stockholders and the election of directors, may be taken without a
meeting of stockholders, without prior notice
6
and without a vote, by a unanimous written consent of stockholders of the
Corporation setting forth the action so taken, or by such a less than unanimous
written consent of stockholders of the Corporation as is permitted by Delaware
law.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The property, business, and affairs
of the Corporation shall be managed by the Board.
SECTION 2. NUMBER AND TERM OF OFFICE. The number of directors
that shall constitute the entire Board of Directors of the Company shall be
fixed from time to time by resolution of the Board of Directors of the Company.
Directors need not be stockholders. Each director shall hold office until the
annual meeting of the stockholders next following his election and until his
successor shall have been elected and shall qualify, or until his earlier death,
resignation or removal.
SECTION 3. QUORUM AND MANNER OF ACTING. A majority of the
directors fixed by these Bylaws, as from time to time amended, shall constitute
a quorum for the transaction of business. Except as otherwise required by
statute, by the Certificate of Incorporation, or by these Bylaws, the act of a
majority of the directors present at any such meeting at which a quorum is
present shall be the act of the Board. In the absence of a quorum, a majority of
the directors present may adjourn the meeting from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. A director
may be present at and participate in any meeting of the Board in any manner
permitted by the General Corporation Law of the State of Delaware.
SECTION 4. PLACE OF MEETINGS, ETC. The Board may hold its
meetings, have one or more offices, and keep the books and records of the
Corporation, at such place or places within or without the State of Delaware, as
the Board may from time to time determine.
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board may
be held without notice at such time and place, whether within or without the
State of Delaware, as shall from time to time be determined by the Board.
SECTION 6. SPECIAL MEETINGS; NOTICE. Special meetings of the
Board shall be called by the Secretary at the
7
request in writing of the Chairman of the Board, the President, or by any two of
the directors. Notice of each such meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, at least two days
before the day on which the meeting is to be held, or shall be sent to him at
such place by telegraph, cable, radio, or wireless, or be delivered personally
or by telephone, not later than one day before the day on which such meeting is
to be held. Each such notice shall state the time and place of the meeting but
need not state, except where otherwise specifically required by these Bylaws,
the purposes thereof. Notice of any meeting of the Board need not be given to
any director, however, if he executes a waiver in writing or by telegram, cable,
radio, or wireless, whether before or after such meeting is held, or if he shall
be present at such meeting.
SECTION 7. RESIGNATION. Any director of the Corporation may
resign at any time by giving written notice to the Chairman of the Board, the
President, or the Secretary of the Corporation. The resignation of any director
shall take effect upon receipt of notice thereof or at such later time as shall
be specified in such notice; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 8. REMOVAL. Any director may be removed at any time,
either with or without cause, by the affirmative vote of the holders of record
of a majority of the issued and outstanding stock of the Corporation, entitled
to vote thereon, given at a special meeting of the stockholders called for that
purpose; and the vacancy in the Board caused by any such removal may be filled
by the stockholders at such meeting, or, if the stockholders shall fail to fill
such vacancy, by the Board.
SECTION 9. VACANCIES. Any vacancy in the Board caused by
death, resignation, disqualification, removal, an increase in the number of
directors, or any other cause, may be filled by a majority of the remaining
directors (though less than a quorum) or by the stockholders of the Corporation
at the next annual meeting or any special meeting called for such purpose, and
each director so chosen shall hold office until the next annual election and
until his successor shall be duly elected and shall qualify, or until his death,
resignation, or removal.
SECTION 10. COMPENSATION OF DIRECTORS. The directors shall be
entitled to be reimbursed for any reasonable expenses paid by them on account of
attendance at any regular or special meeting of the Board, and the Board may
provide
8
that the Corporation may pay each director such compensation for his
services as is fixed by resolution of the Board. Nothing herein contained shall
be construed to preclude any director from serving the Corporation or any
subsidiary thereof in any other capacity and receiving compensation therefor.
SECTION 11. EXECUTIVE COMMITTEE AND OTHER COMMITTEES. The
Board may, by resolution passed by a majority of the whole Board, designate an
Executive Committee to consist of not less than three members of the Board,
including the Chairman of the Board and the President. One half of the directors
serving as members of the Executive Committee shall constitute a quorum of the
Executive Committee; provided, however, that if the number of members of the
Executive Committee shall be three, any two of the directors serving as members
of the Executive Committee shall constitute a quorum of the Executive Committee.
A majority of the whole Board or, if the Board shall fail to act, a majority of
the members of the Executive Committee, shall elect a Chairman of the Executive
Committee from among the members of the Executive Committee. The Chairman of the
Executive Committee shall preside at meetings of the Executive Committee and the
Secretary of the Corporation, or such other person as the Executive Committee
shall from time to time determine, shall act as Secretary of the Executive
Committee. Vacancies in the Executive Committee shall be filled by action of a
majority of the whole Board. During the intervals between the meetings of the
Board, the Executive Committee shall have, and may exercise, all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it. All action by the Executive Committee shall be
reported to the Board at its meeting next succeeding such action and shall be
subject to revision or alteration by the Board; provided, however, that no
rights of third parties shall be affected by any such revision or alteration.
The Executive Committee shall fix its own rules of procedure, and shall meet at
such times and at such place or places as may be provided by such rules, or by
resolution of the Executive Committee or of the Board. At every meeting of the
Executive Committee the affirmative vote of a majority of the members present
shall be necessary for the adoption by it of any resolution. Each member of the
Executive Committee shall be paid such a fee, if any, as shall be fixed by the
Board for each meeting of the Executive Committee that he shall attend, and in
addition such transportation and other expenses actually incurred by him going
to the meeting and returning therefrom as the Board or Executive Committee shall
approve. The Board may from time to time, by resolution passed by a majority of
the whole Board,
9
create such other committee or committees of directors, officers, employees, or
other persons designated by it for the purpose of advising the Board, the
Executive Committee, and the officers and employees of the Corporation in all
such matters as the Board shall deem advisable, and with such functions and
duties as the Board shall by resolution prescribe. A majority of all the members
of any such committee may determine its action and fix the time and place of its
meetings, unless the Board shall otherwise provide. The Board shall have power
to change the members of any committee at any time, to fill vacancies, and to
discharge any such committee, either with or without cause, at any time.
SECTION 12. WRITTEN CONSENT. Any action permitted or required
by the General Corporation Law of the State of Delaware to be taken by any
meeting of the Board, or of any committee thereof, may be taken without a
meeting, without prior notice and without a vote, 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 the proceedings of the Board or
committee.
ARTICLE IV
INDEMNIFICATION
SECTION 1. INDEMNIFICATION GENERALLY. Subject to the
provisions of SECTION 3 of this Article IV, the Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he 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, or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expense (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal
10
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
SECTION 2. INDEMNIFICATION FOR EXPENSES ONLY. Subject to the
provisions of SECTION 3 of this Article IV, the Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he 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, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with such action or suit, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interest of the Corporation and except that no indemnification shall be made in
respect to any claim, issue, or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
SECTION 3. DETERMINATION. Any indemnification under SECTIONS 1
and 2 of this Article IV (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in the
circumstances because he had met the applicable standard of conduct set forth in
said SECTIONS 1 and 2. Such determination shall be made (a) by the Board, by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit, or proceeding, or (b) if such quorum is not obtainable, or, even
if obtainable and a quorum of disinterested directors so directs, by independent
legal counsel (who may be counsel to the Corporation) in a written opinion, or
(c) by the stockholders.
SECTION 4. SUCCESSFUL SUIT. If a director, officer, employee,
or agent of the Corporation has been successful on the merits or otherwise as a
party to any action, suit, or proceeding, referred to in SECTIONS 1 and 2 of
this Article IV, or with respect to any claim, issue or matter therein (to the
extent that a portion of his expenses can be reasonably allocated thereto), he
shall be indemnified
11
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
SECTION 5. ADVANCE PAYMENT. Expenses incurred in connection with a civil,
criminal, administrative, or investigative action, suit, or proceeding, or
threat thereof, shall be paid by the Corporation in advance of the final
disposition of such action, suit, or proceeding upon receipt of an undertaking
by or on behalf of the director, officer, employee, or agent to repay such
amount, unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article IV.
SECTION 6. INSURANCE. By action of the Board, notwithstanding
any interest of the directors in the action, to the full extent permitted by
applicable law, the Corporation may purchase and maintain insurance on behalf of
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, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, 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 this Article IV or of Section 145 of the
General Corporation Law of the State of Delaware.
SECTION 7. DEFINITIONS. For purposes of this Article IV,
reference to the "Corporation" shall include, in addition to the Corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger that, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees, and agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee,
or agent or another corporation, partnership, joint venture, or other
enterprise, shall stand in the same position under the provisions of this
Article IV with respect to the resulting or surviving corporation if its
separate existence had continued. For purposes of this Article IV, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the requests of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
12
officers, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article IV.
SECTION 8. OTHER RIGHTS. The indemnification provided pursuant
to the provisions of this Article IV shall not be deemed exclusive of any other
rights that those seeking indemnification may be entitled to under any other
Bylaw, agreement, contract of insurance, statute, vote of stockholders, or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent of the Corporation, or has ceased to be a director,
officer, employee, or agent of another corporation, partnership, joint venture,
or other enterprise wherein such person was serving at the request of the
Corporation, and shall inure to the benefit of the heirs, executors and
administrators of such person.
SECTION 9. AMENDMENT OF REPEAL. Any repeal or modification of
the foregoing provisions of this Article IV shall not adversely affect any right
or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
ARTICLE V
OFFICERS
SECTION 1. NUMBER. The principal officers of the Corporation
shall be a Chairman of the Board, a President, an Executive Vice President, one
or more Senior Vice Presidents and one or more Vice Presidents (the number
thereof to be determined by the Board), a Treasurer, a Secretary, and such other
officers as may be appointed in accordance with the provisions of SECTION 3 of
this Article V. Any two or more offices, except those of President and
Secretary, may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The principal officers
of the Corporation shall be chosen annually by the Board at the first meeting
thereof held after each annual meeting of stockholders for the election of
directors. Each such officer shall hold office until his successor shall have
been duly chosen and shall qualify, until
13
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3. SUBORDINATE OFFICERS, ETC. In addition to the
principal officers enumerated in SECTION 1 of this Article V, the Corporation
may have such other officers, agents and employees as the Board may deem
necessary, including one or more Assistant Secretaries and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as the Bylaws, the Board or the President may from time
to time provide. The Board may delegate to any principal officer the power to
appoint and to remove any such subordinate officers, agents or employees.
SECTION 4. REMOVAL. Any officer may be removed, either with or
without cause, at any time, by resolution adopted by the Board at any regular
meeting of the Board or at any special meeting of the Board called for such
purpose at which a quorum is present.
SECTION 5. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board or to the Chairman of the Board, the
President, or the Secretary. Any such resignation shall take effect upon receipt
of such notice or at any later time specified therein; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 6. VACANCIES. A vacancy in any office because of
death, resignation, removal, or any other cause whatever, shall be filled for
the unexpired portion of the term in the manner prescribed in SECTIONS 2 and 3
of this Article V for election or appointment to such office for such term.
SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall be chosen from the current members of the Board, and shall have general
supervision and direction of the business and affairs of the Corporation,
subject to the control of the Board. He shall, if present, preside at meetings
of the Board and, if present, and in the absence of the Chairman of the
Executive Committee, preside at meetings of the Executive Committee. He shall be
the Chief Executive Officer of the Corporation and shall perform such other
duties as the Board may from time to time determine. Except as otherwise
provided by resolution of the Board, he shall be ex-officio a member of all
committees of the Board.
14
SECTION 8. PRESIDENT. The President shall have general
supervision of the affairs of the Corporation, subject to the direction of the
Chairman of the Board or the Board. He shall be chosen from the current members
of the Board and shall, if present and in the absence of the Chairman of the
Board, preside at meetings of the Board, and, if present, and in the absence of
the Chairman of the Executive Committee and the Chairman of the Board, preside
at meetings of the Executive Committee. He shall perform such other duties as
shall be determined by the Chairman of the Board or as the Board may from time
to time determine. Except as otherwise provided by resolution of the Board, he
shall be ex-officio a member of all committees of the Board.
SECTION 9. EXECUTIVE VICE PRESIDENT. The Executive Vice
President shall perform all such duties and services as shall be assigned to, or
required of, him, from time to time, by the Board or the President,
respectively, and unless his authority be expressly limited by the Board or the
President, shall during the absence of the President, act in the place of the
President and perform his duties and, when so acting, shall have all the powers
of, and be subject to all the restrictions placed upon, the President. The
performance of any act or the execution of any instrument by the Executive Vice
President in any instance in which such performance or execution would
customarily have been accomplished by the President shall constitute conclusive
evidence of the absence of the President. The Executive Vice President, when
authorized by the Board, may enter into a contract or execute or deliver any
instrument, in the name, and on behalf, of the Corporation, except in cases
where the authority to enter into such contract or execute such instrument, as
the case may be, shall otherwise be expressly delegated or otherwise limited.
SECTION 10. SENIOR VICE PRESIDENT. Each Senior Vice President
shall perform such duties and services as shall be assigned to, or required of,
him, from time to time, by the Board, the President or if the authority to so
assign is delegated to the Executive Vice President by the President, the
Executive Vice President, and unless his authority be expressly limited by the
Board, the President or the Executive Vice President, shall act, in order of
their appointment or election, during the absence of the President or the
Executive Vice President, in the place of the President or the Executive Vice
President and perform their respective duties and when so acting, shall have all
of the powers of, and be subject to all of the restrictions placed upon, the
President or the Executive Vice President. The performance of any act or the
execution of any instrument by a Senior Vice President in any instance in which
such performance or
15
execution would customarily have been accomplished by the
President or the Executive Vice President shall constitute conclusive evidence
of the absence of the President and the Executive Vice President. Each Senior
Vice President, when authorized by the Board, may enter into a contract or
execute or deliver any instrument, in the name and one behalf of the
Corporation, except in cases where the authority to enter into such contract or
execute such instrument, as the case may be, shall otherwise be expressly
delegated or otherwise limited.
SECTION 11. VICE PRESIDENTS. Each Vice President shall perform
such duties as may be assigned to him by the President or the Board. Any Vice
President may sign, with any other proper officer of the Corporation thereunto
authorized, certificates for stock of the Corporation, and when authorized,
certificates for stock of the Corporation, and when authorized by the Board may
enter into any contract or execute and deliver any instrument, in the name and
on behalf of the Corporation, except in cases in which the authority to enter
into such contract or execute and deliver such instrument, as the case may be,
shall be otherwise expressly delegated or otherwise limited.
SECTION 12. TREASURER. The Treasurer shall have charge and
custody of, and be responsible for, all funds and securities of the Corporation,
and shall deposit all such funds in the name of the Corporation in such banks or
other depositaries as shall be authorized by the Board. He shall receive, and
give receipt for, moneys due and payable to the Corporation from any source
whatsoever; may sign, with any other proper officer of the Corporation; and in
general, shall perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the President,
the Chairman of the Board or the Board. The Treasurer shall give such bond, if
any, for the faithful discharge of his duties as the Board may require.
SECTION 13. ASSISTANT TREASURER. Each Assistant Treasurer, if
one or more are appointed, shall be vested with all the powers and authorized to
perform all the duties of the Treasurer in his absence or disability. The
performance of any act or the execution of any instrument by an Assistant
Treasurer in any instance in which such performance or execution would
customarily have been accomplished by the Treasurer shall constitute conclusive
evidence of the absence or disability of the Treasurer. Each Assistant Treasurer
shall perform such other duties as may be prescribed from time to time by the
Board, the President or the Treasurer.
16
SECTION 14. SECRETARY. The Secretary, if present, shall act as
secretary at all meetings of the Board and of the stockholders and shall keep
the minutes thereof in a book or books to be provided for that purpose; shall
see that all notices required to be given by the Corporation are duly given and
served; shall be custodian of the seal of the Corporation and shall affix the
seal or cause it to be affixed to all certificates of stock of the Corporation
and to all documents the execution of which on behalf of the Corporation and to
all documents the execution of which on behalf of the Corporation under its seal
shall be duly authorized in accordance with the provisions of these Bylaws;
shall have charge of the stock records of the Corporation; shall see that all
reports, statements, and other documents required by law are properly kept and
filed; may sign, with any other proper officer of the Corporation thereunto
authorized, certificates for stock of the Corporation; and, in general, shall
perform all the duties incident to the office of Secretary and such other duties
as from time to time may be assigned to him by the President or the Board.
SECTION 15. ASSISTANT SECRETARY. Each Assistant Secretary if
one or more are appointed, shall be vested with all the powers and authorized to
perform all the duties of the Secretary in his absence or disability. The
performance of any act or the execution of any instrument by an Assistant
Secretary in any instance in which such performance or execution would
customarily have been accomplished by the Secretary shall constitute conclusive
evidence of the absence or disability of the Secretary. Each Assistant Secretary
shall perform such other duties as may be prescribed from time to time by the
Board, the President or the Secretary.
SECTION 16. COMPENSATION. The officers of the Corporation,
including officers who are directors, shall receive compensation determined from
time to time by the Board or in such manner as the Board shall direct.
SECTION 17. DUTIES OF OFFICERS MAY BE DELEGATED. In addition
to the delegations provided above, in case of the absence of any officer of the
Corporation, or for any other reason that the Board or the President may deem
sufficient, the Board or the President may delegate, for the time being, the
powers or duties, or any of them, of an officer to any other officer.
17
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATE FOR STOCK. Every owner of stock of the Corporation
shall be entitled to a certificate or certificates, to be in such form as the
Board shall prescribe, certifying the number and class of shares of the capital
stock of the Corporation owned by him. The certificates for the respective
classes of such stock shall be numbered in the order in which they shall be
issued and shall be signed in the name of the Corporation by (i) the Chairman of
the Board, the President or any Vice President and (ii) the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation and its seal shall be affixed thereto; provided, however, that,
where such certificate assigned by a transfer agent or an assistant transfer
agent or by a transfer clerk acting on behalf of the Corporation and a
registrar, if the Board shall by resolution so authorize, the signature of such
Chairman of the Board, President, Vice President, Treasurer, Secretary,
Assistant Treasurer, or Assistant Secretary and the seal of the Corporation may
be facsimile. In case any officer or officers of the Corporation who shall have
signed, or whose facsimile signature or signature shall have been used on, any
such certificate or certificates shall cease to be such officer or officers,
whether by reason of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been affixed
thereto, had not ceased to be such officer or officers. A record shall be kept
by the Secretary, transfer agent, or by any other officer, employee or agent
designated by the Board of the name of the person, firm, or corporation owning
the stock represented by such certificates, the number and class of shares
represented by such certificates, respectively, and the respective dates
thereof, and in case of cancellation, the respective dates of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer shall
be cancelled, and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
cancelled, except in cases provided for in SECTION 4 of this Article VI.
SECTION 2. TRANSFER OF STOCK. Transfers of shares of the
capital stock of the Corporation shall be made only on the books of the
Corporation by the registered holder thereof, or by his attorney thereunto
authorized by power of
18
attorney duly executed and filed with the Secretary of the Corporation, or with
a transfer clerk or a transfer agent appointed as in SECTION 3 of this Article
VI provided, and on surrender of the certificate or certificates for such shares
properly endorsed and the payment of all taxes thereon. The person in whose name
shares of stock stand on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation; provided, however, that
whenever any transfer of shares shall be made for collateral security, and not
absolutely, such fact, if known to the Secretary of the Corporation, shall be so
expressed in the entry of transfer.
SECTION 3. REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with the Certificate of
Incorporation or these Bylaws, concerning the issue, transfer, and registration
of certificates for shares of the stock of the Corporation. It may appoint, or
authorize any principal officer or officers to appoint, one or more transfer
clerks or one or more transfer agents and one or more registrars, and may
require all certificates of stock to bear the signature or signatures of any of
them.
SECTION 4. LOST, DESTROYED, OR MUTILATED CERTIFICATES. In case
of loss, destruction, or mutilation of any certificates of stock, another
certificate or certificates may be issued in place thereof upon proof of such
loss, destruction, or mutilation and upon the giving of a bond of indemnity to
the Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper so to do.
SECTION 5. REGISTERED STOCKHOLDERS. The Corporation shall be
entitled to treat the holder of any share or shares of stock as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, save as expressly
provided by the laws of Delaware.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 1. CORPORATE SEAL. The Board shall provide a corporate
seal, which shall be in the form of a circle and shall bear the name of the
Corporation and words
19
and figures showing that it was incorporated in the State of Delaware in the
year 1980.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation
shall end at the close of business on the 31st day of December in each year.
ARTICLE VIII
AMENDMENTS
Subject to the provisions of Article IV, SECTION 9, all Bylaws
of the Corporation shall be subject to alteration or repeal, and new Bylaws may
be made, either by the affirmative votes of the holders of record of a majority
of the issued and outstanding stock of the Corporation, entitled to vote in
respect thereof, given at any annual or special meeting, or by the affirmative
votes of a majority of the whole Board given at any regular or special meeting
of the Board, provided that notice of the proposal so to alter or repeal or to
make such Bylaws be including the notice of such meeting of the stockholders or
the Board, as the case may be. Bylaws, whether made or altered by the
stockholders or by the Board, shall be subject to alteration or repeal by the
stockholders as in this Article VIII above provided.
<PAGE>
EXHIBIT 10(bb)
EXECUTION COPY
AMENDMENT NO. 2 TO AMENDED
AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of May 2, 1995 among AMERICAN EXPLORATION COMPANY
(the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks"),
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"), and BANK OF
MONTREAL, as Co-Agent (the "Co-Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Agent and the Co-Agent have
heretofore entered into an Amended and Restated Credit Agreement dated as of
December 21, 1994, as amended by Amendment No. 1 dated as of February 16, 1995
(as so amended, the "Agreement"); and
WHEREAS, the parties hereto desire to amend certain provisions of the
Agreement in the manner set forth below.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. AMENDMENT OF SECTION 1.01 OF THE AGREEMENT. (A) The
following defined terms in Section 1.01 are redefined as follows:
"Level I Status" exists at any date (a) on which the sum of (i) the
aggregate outstanding amount of the Loans and (ii) the aggregate Letter of
Credit Liabilities is less than $65,000,000 or (b) on or after the date (if
any) that the Borrower refinances the
<PAGE>
Subordinated Debt on terms and conditions satisfactory to the Required
Banks and in any event requiring no amortization prior to eight years
after May 2, 1995.
"Level II Status" exists at any date on which the sum of (i) the
aggregate outstanding amount of the Loans and (ii) the aggregate Letter of
Credit Liabilities is less than $70,000,000 and Level I Status does not
exist.
(B) The following defined term is hereby added to Section 1.01:
"Level III Status" exists at any date on which the sum of (i) the
aggregate outstanding amount of the Loans and (ii) the aggregate Letter of
Credit Liabilities is greater than or equal to $70,000,000.
SECTION 3. AMENDMENT OF SECTION 2.05 OF THE AGREEMENT. (A) In
Section 2.05(a) of the Agreement, the first sentence is amended to read as
follows:
(a) Each Domestic Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made
until it becomes due, as follows:
(1) for any day on which Level I Status exists, at a rate per
annum equal to the lesser of (x) the Highest Lawful Rate applicable to
the Bank making such Loan and (y) the sum of 3/4% plus the Base Rate
for such day;
(2) for any day on which Level II Status exists, at a rate per
annum equal to the lesser of (x) the Highest Lawful Rate applicable to
the Bank making such Loan and (y) the sum of 1% plus the Base Rate for
such day; and
(3) for any day on which Level III Status exists, at a rate per
annum equal to the lesser of (x) the Highest Lawful Rate applicable to
the Bank making such Loan and (y) the sum of 1 1/4% plus the Base Rate
for such day.
(B) In Section 2.05(b), the defined term "Margin" is redefined as
follows:
"Margin" means (i) for any day on which Level I Status exists, 1 3/4%
or (ii) for any day on which
2
<PAGE>
Level II Status exists, 2% or (iii) for any day on which Level III
Status exists, 2 1/4%.
SECTION 4. AMENDMENT OF SECTION 2.06(b) OF THE AGREEMENT. In Section
2.06(b) of the Agreement, the first sentence is amended to read as follows:
(b) The Company shall pay to the Agent a letter of credit fee, as
follows:
(1) for any day on which Level I Status exists, at the rate of
1 3/4% per annum on the aggregate amount available for drawing under
any Letter of Credit from time to time, such fee to be payable for the
account of the Banks ratably in proportion to their participation
therein;
(2) for any day on which Level II Status exists, at the rate of
2% per annum on the aggregate amount available for drawing under any
Letter of Credit from time to time, such fee to be payable for the
account of the Banks ratably in proportion to their participation
therein; and
(3) for any day on which Level III Status exists, at the rate of
2 1/4% per annum on the aggregate amount available for drawing under
any Letter of Credit from time to time, such fee to be payable for the
account of the Banks ratably in proportion to their participation
therein.
SECTION 5. AMENDMENT OF SECTION 2.14 OF THE AGREEMENT. The first
sentence of Section 2.14 is hereby deleted and replaced with the following:
SECTION 2.14. BORROWING BASE. On May 2, 1995, the amount of the
Borrowing Base shall be $75,000,000; this amount shall be reduced to
$71,000,000 on September 30, 1995 and further reduced to $66,000,000 on
December 31, 1995; PROVIDED, that the foregoing amounts are subject, in
each case, to redetermination in accordance with the further provisions of
this Section.
SECTION 6. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS; EFFECTIVENESS. This Amendment may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if
3
<PAGE>
the signatures thereto and hereto were upon the same instrument. This
Amendment shall become effective when the Agent shall have received duly
executed counterparts hereof signed by the Borrower, each of the Banks and
the Co-Agent (or, in the case of any party as to which an executed
counterpart shall not have been received, the Agent shall have received
telegraphic, telex or other written confirmation from such party of execution
of a counterpart hereof by such party).
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
AMERICAN EXPLORATION COMPANY
By /s/ JOHN M. HOGAN
Title: Sr. Vice President & CFO
1331 Lamar, Suite 900
Houston, Texas 77010
Telecopy number: (713) 756-6007
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By John Kowalczuk
----------------------------------
Title: VICE PRESIDENT
BANK OF MONTREAL, as a Bank and
as a Co-Agent
By Robert Roberts
----------------------------------
Title: Director, U.S. Corporate Banking
BANQUE PARIBAS
By Mark M. Green
----------------------------------
Title: VICE PRESIDENT
By Barton D. Schouest
----------------------------------
Title: GROUP VICE PRESIDENT
5
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ John Kowalczuk
Title: VICE PRESIDENT
60 Wall Street
New York, New York 10260-0060
Telex number: 177615
Telecopy number: (212) 837-5335
6
<PAGE>
EXHIBIT 10(cc)
AMENDMENT TO THE
EMPLOYEE STOCK OWNERSHIP PLAN
OF
AMERICAN EXPLORATION COMPANY
The Employee Stock Ownership Plan of American Exploration Company
(the "Plan") is hereby amended, effective as of January 1, 1991, in the
following particulars:
1. Section 2.31 of the Plan is amended to read in its entirety
as follows:
"2.31 "Shares" means the common stock issued by the Company
or any successor corporation thereto. To the extent the
Board of Directors so resolves, or if the Board of Directors
has not so resolved, and stock described in the first
sentence is not Qualifying Employer Securities, then
"Shares" shall also mean any stock that constitutes
Qualifying Employer Securities."
2. Article II of the Plan is amended by adding at the end
thereof the following new Section 2.42:
"2.42 "Qualifying Employer Securities"
means
(a) Common stock issued by the Company or by an
Affiliate which is readily tradable on an
established securities market. If there is no
such common stock, the term Qualifying Employer
Securities means common stock issued by the
Company or by an Affiliate having a combination of
voting power and dividend rights equal to or in
excess of that class of common stock of the
Company or Affiliate having the greatest voting
power and that class of common stock of the
Company or Affiliate having the greatest dividend
rights.
(b) Noncallable preferred stock shall be treated as
Qualifying Employer Securities if such stock is
convertible at any time into stock which meets the
requirements of subparagraph (a) and if such
conversion is at a conversion price which (as of
the date of the acquisition by the Plan) is
reasonable. For purposes of the preceding
sentence, preferred stock shall be treated as
noncallable if after the call there will be a
reasonable opportunity for a conversion which
meets the requirements of the preceding sentence."
3. Section 7.2 of the Plan shall be amended to read in its
entirety as follows:
"7.2 FORFEITURES. (a) The nonvested portion of a
Participant's Account shall be deemed to be a Forfeiture
upon the last day of the Plan Year in which the Participant
incurs his fifth consecutive Break in Service. Where a
Participant who incurs less than five consecutive Breaks in
Service subsequently completes a Year of Service, his
Account shall be distributed upon his subsequent
<PAGE>
Termination of Service in accordance with subparagraph
(b) hereof (without regard to the prior Termination of
Service). If a Participant or former Participant has had
five consecutive Breaks in Service, there shall be no
reinstatement of any amounts forfeited by him pursuant to
this Section 7.2. All forfeitures shall occur in
conformity with the ordering rules of Section
54.4975-11(d)(4) of the Treasury Regulations.
(b) In the event a Participant who has received a
distribution of his Vested Interest and who has not incurred
a Forfeiture (as described in subparagraph (a) hereof)
subsequently completes a Year of Service, his Vested
Interest upon his subsequent Termination of Service shall be
determined as follows:
(1) The number of Shares previously distributed to him
(or with respect to which a distribution to him
was made) shall be deemed added back to his
Account.
(2) The applicable vesting percentage under Section
7.1 shall be applied to such number of Shares.
(3) The resulting number of Shares shall be reduced by
the number of Shares of (or represented by) the
Participant's previous distribution.
(4) The net reduced amount shall constitute the
Participant's Vested Interest in his Account."
4. The second paragraph of Section 15.4 of the Plan is
amended to read in its entirety as follows:
"All nonvested Account balances that have not been
forfeited pursuant to the terms of Section 7.2 hereof
as of the date of the termination of the Plan shall be
fully vested and nonforfeitable as of the date of such
termination."
This AMENDMENT is hereby approved and adopted this 30th day
of November, 1995.
American Exploration Company
By: /s/ JOHN M. HOGAN
Name: John M. Hogan
Title: Senior Vice President and
Chief Financial Officer
2
EXHIBIT 10(dd)
CONFIDENTIAL AND LEGALLY PRIVILEGED
EMPLOYMENT AGREEMENT
BETWEEN
AMERICAN EXPLORATION COMPANY
AND
MARK ANDREWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. TERM AND DUTIES . . . . . . . . . . . . . . . . . . . . . . . . -2-
Section 1.1 TERM.. . . . . . . . . . . . . . . . . . . . . . . . . . -2-
Section 1.2 DUTIES.. . . . . . . . . . . . . . . . . . . . . . . . . -3-
ARTICLE II. COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Section 2.1 BASIC COMPENSATION . . . . . . . . . . . . . . . . . . . -4-
Section 2.2 ANNUAL BONUS.. . . . . . . . . . . . . . . . . . . . . . -5-
Section 2.3 RIGHTS UNDER STOCK COMPENSATION
PLANS NOW IN EFFECT . . . . . . . . . . . . . . . . . . -6-
Section 2.4 INCENTIVE, SAVINGS AND RETIREMENT PLANS. . . . . . . . . -6-
Section 2.5 WELFARE BENEFIT PLANS. . . . . . . . . . . . . . . . . . -6-
Section 2.6 EXPENSES.. . . . . . . . . . . . . . . . . . . . . . . . -7-
Section 2.7 FRINGE BENEFITS. . . . . . . . . . . . . . . . . . . . . -7-
Section 2.8 OFFICE AND SUPPORT STAFF.. . . . . . . . . . . . . . . . -7-
Section 2.9 VACATION.. . . . . . . . . . . . . . . . . . . . . . . . -7-
Section 2.10 TOTAL COMPENSATION.. . . . . . . . . . . . . . . . . . . -8-
ARTICLE III. TERMINATION OF EMPLOYMENT . . . . . . . . . . . . . . . . . . . -8-
Section 3.1 EVENTS OF TERMINATION. . . . . . . . . . . . . . . . . . -8-
Section 3.2 TERMINATION PROCEDURES AND CERTAIN DEFINITIONS . . . . . -13-
Section 3.3 OBLIGATIONS OF THE CORPORATION ON TERMINATION. . . . . . -15-
ARTICLE IV. PURPOSE; NONCOMPETITION . . . . . . . . . . . . . . . . . . . . -21-
Section 4.1 PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . -21-
Section 4.2 CONFIDENTIAL INFORMATION.. . . . . . . . . . . . . . . . -21-
Section 4.3 NONCOMPETITION.. . . . . . . . . . . . . . . . . . . . . -22-
Section 4.4 OIL AND GAS INTEREST OWNERSHIP.. . . . . . . . . . . . . -22-
Section 4.5 CORPORATE OPPORTUNITY. . . . . . . . . . . . . . . . . . -23-
ARTICLE V. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . -24-
Section 5.1 ENFORCEABILITY . . . . . . . . . . . . . . . . . . . . . -24-
Section 5.2 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . -24-
Section 5.3 RESIGNATION AS BOARD AND COMMITTEE MEMBER. . . . . . . . -24-
Section 5.4 NO OFFSET; ENFORCEMENT OF AGREEMENT. . . . . . . . . . . -25-
Section 5.5 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS. . . . . . . . . -26-
Section 5.6 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . -27-
</TABLE>
(i)
<TABLE>
<S> <C> <C>
Section 5.7 NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . -27-
Section 5.8 POST-TERMINATION CONSULTING AND NONCOMPETITION . . . . . -27-
Section 5.9 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . -28-
Section 5.10 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . -28-
Section 5.11 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . -28-
</TABLE>
(ii)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, effective as of the 30th day of November,
1995, by and between AMERICAN EXPLORATION COMPANY, a Delaware corporation having
its principal place of business at 1331 Lamar, Suite 900, Houston, Texas 77010
(the "Corporation") and MARK ANDREWS, an individual residing at 2909 Inwood,
Houston, Texas 77019 (the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive has been employed by the Corporation
continuously since March 1, 1980;
WHEREAS, the Compensation Committee (the "Compensation Committee") of
the Corporation's Board of Directors (the "Board") has determined that it is in
the best interests of the Corporation and its shareholders to continue to employ
the Executive and the Executive desires to continue to be employed by the
Corporation;
WHEREAS, certain terms and conditions of the Executive's employment by
the Corporation are set forth in a letter agreement, dated as of September 1,
1994, as amended and supplemented to date (the "Severance Agreement");
WHEREAS, the parties desire to provide for a comprehensive employment
agreement pursuant to which the terms and conditions of the Executive's
employment would be set forth; and
WHEREAS, the terms of this Agreement were duly approved and authorized
for and on behalf of the Corporation by the Board at a meeting held on September
7, 1995, at which meeting a quorum was present and voted, were subsequently duly
approved by the Compensation Committee at a meeting held on September 14, 1995,
at which meeting a quorum was present and
voted and were subsequently duly approved and authorized for and on behalf of
the Corporation at a meeting of the Board held on November 30, 1995, at which
meeting a quorum was present and voted;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree, effective upon the Effective Date (as defined in
Section 1.1), to substitute the provisions of this Agreement for the provisions
of the Severance Agreement and other employment agreements or arrangements
between the Corporation and the Executive in effect on the date hereof, except
as otherwise expressly provided herein:
ARTICLE I. TERM AND DUTIES
SECTION 1.1 TERM. The Corporation hereby agrees to employ the
Executive as Chairman of the Board of Directors and Chief Executive Officer
of the Corporation and each of the Corporation's subsidiaries and the
Executive hereby agrees to serve in such capacity, upon the terms and
conditions herein contained. The initial term of this Agreement is for a
period (the "Initial Term") commencing as of the date first above written
(the "Effective Date") and continuing until December 31, 2000. Thereafter,
this Agreement shall be renewed automatically for one additional year on each
December 31 (the Initial Term, as so extended, the "Active Employment
Period") unless (i) the Board gives written notice to the Executive at least
three months prior to any such renewal date or (ii) this Agreement otherwise
has been terminated in accordance with its provisions.
-2-
SECTION 1.2 DUTIES. As Chairman of the Board of Directors and Chief
Executive Officer of the Corporation and its subsidiaries, the Executive
shall have and perform those duties on behalf of the Corporation which are
required by its By-Laws and the directives of the Board or committees thereof
and which are reasonable and customary for an individual holding such offices
to perform, such duties to include, without limitation, all of the following:
(a) Being responsible for establishing, subject to approval by the
Board, overall corporate strategy and planning;
(b) Developing the basic objectives, policies, and operating plans of
the business and submitting them to the Board for approval;
(c) Implementing business plans and policies adopted by the Board
through his personal efforts and through his delegation of the performance of
duties to subordinate employees of the Corporation and its subsidiaries and to
other persons or companies;
(d) Interpreting organizational policies and supervising the
administration thereof by subordinates and reviewing and approving proposed
internal policies of subordinate units;
(e) Supervising and directing the Corporation's relationships with,
and representing the Corporation with, its major shareholders, investors, joint
venture partners, bankers, investment bankers, members of the petroleum industry
and other members of the financial and investment banking industry;
(f) Determining and presenting operating and capital expenditure
budgets for review and approval by the Board;
-3-
(g) Planning and directing all investigations and negotiations
pertaining to mergers, joint ventures, the acquisition of businesses, or the
sale of major assets;
(h) Analyzing operating results of the Corporation and its principal
components relative to established objectives and determining appropriate steps
to be taken to correct unsatisfactory conditions;
(i) Determining, subject to approval by the Board, the Corporation's
financial structure and reviewing projections of working capital requirements,
including negotiating and otherwise arranging for any outside financing;
(j) Prescribing specific limitations of the authority of all other
executives regarding policies, contractual commitments, expenditures, and
personnel actions;
(k) Reviewing and approving the appointment, employment, transfer or
termination of all other executives; and
(l) Resolving any conflicts arising between operating groups, staff
units and other operating areas.
The duties of the Executive may be changed from time-to-time by the mutual
consent of the Executive and the Corporation without terminating this Agreement
and, in such event, the employment of the Executive shall continue under this
Agreement as so modified.
ARTICLE II. COMPENSATION
SECTION 2.1 BASIC COMPENSATION
(a) During the Active Employment Period, the Corporation shall
continue to pay to the Executive an annual base salary (which shall accrue
proportionately from day to day) of
-4-
$310,000 payable in equal semi-monthly installments on the same dates the
other officers of the Corporation are paid. The Executive's base annual
salary payable pursuant to this Section 2.1 (including any increases thereof
pursuant to Section 2.1(b)) is hereinafter referred to as the Executive's
"Basic Compensation."
(b) The Corporation and the Executive acknowledge that the
Compensation Committee shall, from time to time, but no less frequently than
annually, review the Executive's Basic Compensation and may increase (but in no
event decrease) such compensation by such amounts as the Compensation Committee
deems proper. The criteria which the Compensation Committee may take into
consideration in providing for any such increases are the basic compensation
payable to the individuals holding like offices of comparable oil and gas
companies, the Executive's ability and performance, the success achieved by the
Corporation, the total economic return to the Corporation's shareholders,
increases in the cost of living, and such other criteria as the Compensation
Committee may deem relevant.
SECTION 2.2 ANNUAL BONUS. In addition to Basic Compensation, the
Executive shall participate in each bonus program adopted by the Compensation
Committee or the Corporation, if any, to the fullest extent provided
generally at any time after the Effective Date to other executives of the
Corporation and shall be awarded, with respect to each fiscal year ending
during the Active Employment Period, the annual bonus (the "Annual Bonus") in
cash and other applicable consideration applicable to the Executive under the
bonus plan in effect for the then current year. Each such Annual Bonus shall
be paid within a reasonable time after the end of the fiscal year for which
the Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
SECTION 2.3 RIGHTS UNDER STOCK COMPENSATION
PLANS NOW IN EFFECT
(a) STOCK OPTIONS. All stock options heretofore granted to the
Executive under the American Exploration Company Stock Compensation Plan and the
1994 American Exploration Company Stock Compensation Plan, or any successor
plans thereto, or any other stock compensation or employee benefit plan of the
Corporation (collectively, all such plans are herein referred to as the "Stock
Compensation Plans") as of the Effective Date of this Agreement shall continue
in effect, vesting as therein or otherwise herein provided, and the Executive
shall have the right to exercise any vested stock option, whenever granted,
until it expires by its terms under the applicable option agreement, regardless
of whether the Executive is employed by the Corporation at the time of such
exercise.
(b) RESTRICTED STOCK. All shares of Restricted Common Stock granted
to the Executive under the Stock Compensation Plans as of the Effective Date
shall continue to vest as provided in the grants thereof or as otherwise
provided herein.
SECTION 2.4 INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Active
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other executives of the Corporation.
SECTION 2.5 WELFARE BENEFIT PLANS. During the Active Employment Period,
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Corporation
(including, without limitation, medical, prescription, dental,
-6-
disability, salary continuance, employee life (including continuation
throughout the Active Employment Period of the $2.5 million life insurance
policy currently maintained on the Executive's life for the benefit of his
family), group life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other executives of the
Corporation.
SECTION 2.6 EXPENSES. During the Active Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Corporation as in effect generally
with respect to other executives of the Corporation.
SECTION 2.7 FRINGE BENEFITS. During the Active Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Corporation as in
effect generally with respect to other executives of the Corporation.
SECTION 2.8 OFFICE AND SUPPORT STAFF. During the Active Employment
Period, the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive secretarial and other
assistance, at least equal to the most favorable of the foregoing as provided at
the Effective Date with respect to any executive of the Corporation.
SECTION 2.9 VACATION. During the Active Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and
-7-
practices of the Corporation as in effect generally with respect to other
executives of the Corporation.
SECTION 2.10 TOTAL COMPENSATION. The Executive's "Total Compensation"
means the total of (i) Basic Compensation, including amounts the Executive has
electively deferred under an arrangement qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"), to any cafeteria plan
under Section 125 of the Code or otherwise, plus (ii) an amount equal to the
aggregate cash amounts paid to the Executive in respect of bonuses over the
three most recent fiscal years of the Corporation divided by three.
ARTICLE III. TERMINATION OF EMPLOYMENT
SECTION 3.1 EVENTS OF TERMINATION
(a) DEATH. The Executives's employment shall terminate automatically
upon the Executive's death.
(b) DISABILITY. If the Corporation determines in good faith that the
Disability of the Executive has occurred during the Active Employment Period
(pursuant to the definition of Disability set forth below), it may give the
Executive written notice in accordance with Section 5.7 of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Corporation shall terminate effective on the
30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the thirty (30) days after such receipt,
the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Corporation on a
full-time basis
-8-
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Corporation or its insurers and acceptable to the Executive
or the Executive's legal representative.
(c) WITHOUT CAUSE. Notwithstanding any other provision hereunder,
the Corporation shall have the right to terminate the Executive's employment
hereunder without "Cause" (as defined in Section 3.1(d)) at any time during the
Active Employment Period for any reason in the sole discretion of the
Corporation upon not less than ninety (90) days' prior written notice to the
Executive.
(d) CAUSE. The Corporation may terminate the Executive's employment
during the Active Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) The willful and continued failure of the Executive to
perform substantially the Executive's duties with the Corporation (other than
any such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the Executive
by the Board, which demand shall specifically identify the manner in which the
Board believes that the Executive has not substantially performed the
Executive's duties, or
(ii) The willful engaging by the Executive in illegal conduct or
gross misconduct in connection with the performance of his duties hereunder
which is materially injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive
-9-
in bad faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Corporation. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of any senior officer of the Corporation or
based upon the advice of counsel for the Corporation shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith
and in the best interests of the Corporation. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before
the Board), finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i) or (ii)
above and specifying the particulars thereof in detail.
(e) GOOD REASON. The Executive may terminate his employment during
the Active Employment Period for Good Reason at any time upon thirty (30) days'
notice to the Corporation. For purposes of this Agreement, "Good Reason" shall
mean the occurrence, without the Executive's express written consent, of any one
or more of the following events:
(i) A change in the Executive's duties described in Section 1.2,
or except for the election of John F. Bookout as Chairman of the Board, a change
in the titles or offices described in Section 1.2, or any removal of the
Executive from, or any failure to re-elect the Executive to, any of such
positions, except with the Executive's written consent.
-10-
(ii) A reduction in the Executive's Basic Compensation or the
failure by the Corporation to increase such compensation each year by an amount
which at least equals, on a percentage basis, the mean average percentage
increase in base salary for all senior officers of the Corporation (other than
the Executive) during such year or the failure by the Corporation to continue to
provide prompt payment (or reimbursement to the Executive) of all reasonable
expenses incurred by the Executive in connection with the Executive's
professional and business activities;
(iii) A failure by the Corporation to waive any and all
restrictions that might exist on the exercise of any stock options or with
respect to any awards of restricted stock held by the Executive under the Stock
Compensation Plans as of the date of a Change of Control (as defined below);
(iv) The Corporation requiring the Executive to be based anywhere
other than Houston, Texas ("Office"), except for travel on business to an extent
reasonably required in the performance of the Executive's duties hereunder or,
in the event the Executive consents to any relocation of his Office, the failure
by the Corporation to pay (or reimburse the Executive for) all reasonable moving
expenses (including all costs, fees and transfer taxes incurred in selling his
principal residence) incurred by the Executive relating to a change of the
Executive's principal residence in connection with such relocation and to
indemnify the Executive against, and reimburse him for, any loss (defined as the
difference between the actual sales price of such residence and the higher of
(a) the Executive's aggregate investment in such residence or (b) the fair
market value of such residence as determined, at the Corporation's expense, by
an independent real estate appraiser designated by the Executive (and reasonably
satisfactory to the
-11-
Corporation)), together with an amount equal to the federal, state and local
taxes payable by the Executive in respect of all of the amounts payable to
the Executive as contemplated under this paragraph;
(v) The failure by the Corporation to include the Executive as a
participant in any benefit or compensation plan or arrangement generally
available to executives of the Corporation or the failure by the Corporation to
provide the Executive with the number of paid vacation days, holidays and
personal days to which the Executive is entitled in accordance with the
Corporation's normal leave policy;
(vi) The failure of the Corporation to obtain the assumption of
this Agreement, without limitation or reduction, by any successor to the
Corporation;
(vii) Any purported termination of the Executive's employment
by the Corporation which is not effected pursuant to the express terms of this
Agreement, including the Notice of Termination requirements of Section 3.2(a);
(viii) The failure of the Corporation to maintain for the
benefit and use by the Executive of an office and support staff as contemplated
by Section 2.8;
(ix) The failure of the Corporation to pay or reimburse the
Executive for any expenses incurred by the Executive as provided in this
Agreement; or
(x) The filing of a voluntary or involuntary petition of
bankruptcy by or against the Corporation or the insolvency of the Corporation.
For purposes of this Section 3.1(e), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
-12-
(f) RETIREMENT. The Executive may terminate his employment by
reasons of "Retirement" at the end of the fiscal year of the Corporation in
which the Executive attains the age of 65 or such later date as the Board shall
set with the consent of the Executive (the "Retirement Effective Date").
(g) VOLUNTARY TERMINATION. The Executive shall have the right at any
time after the Effective Date to voluntarily terminate his employment by the
Corporation (a "Voluntary Termination") for any reason in the sole discretion of
the Executive by not less than thirty (30) days' prior written notice to the
Corporation; provided however, a termination without Cause, by reason of Death,
Disability or Retirement, or Good Reason shall not be treated for any purpose
hereunder as a Voluntary Termination.
SECTION 3.2 TERMINATION PROCEDURES AND CERTAIN DEFINITIONS
(a) NOTICE OF TERMINATION. Any termination by the Corporation for
Cause, without Cause, by reason of Disability or by the Executive for Good
Reason or in a Voluntary Termination or Retirement, shall be communicated by
Notice of Termination to the other party hereto given in accordance with
Section 5.7 of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated and (iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date. The failure
by the Executive or the Corporation to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right
-13-
of the Executive or the Corporation, respectively, hereunder or preclude the
Executive or the Corporation, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Corporation's rights
hereunder. The Executive's continued employment with the Corporation after a
Notice of Termination is provided shall not constitute consent to, or a
waiver of any rights with respect to, any circumstance constituting Good
Reason hereunder.
(b) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Corporation for Cause, the date of
receipt of the Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by the Corporation
other than for Cause or Disability, the Date of Termination shall be the date
not less than ninety (90) days after the date on which the Corporation notifies
the Executive of such termination, (iii) if the Executive terminates his
employment for Good Reason or in a Voluntary Termination, the Date of
Termination shall be the date, not less than thirty (30) days after the date on
which the Executive notifies the Corporation of such termination and (iv) if the
Executive's employment is terminated by reason of death, Disability or
Retirement, the Date of Termination shall be the date of death of the Executive,
the Disability Effective Date or the Retirement Effective Date, as the case may
be. In the case of a Voluntary Termination, the Corporation shall have the
option, exercisable by written notice to the Executive within ten (10) days
after the Executive's Notice of Termination is provided to the Corporation, to
designate any date prior to the expiration of the aforesaid notice as the date
on which the Executive shall cease to be an officer of the Corporation, and the
effective date of termination hereunder shall be any earlier date so designated
by the Corporation.
-14-
(c) CHANGE OF CONTROL. A "Change of Control" shall have occurred if:
(i) twenty percent (20%) or more of the outstanding common stock
of the Corporation has been acquired by any person (as defined by Section
3(a)(9) of the Securities Exchange Act of 1934) other than directly from the
Corporation;
(ii) there has been a merger or equivalent combination involving
the Corporation after which 49% or more of the voting stock of the surviving
corporation is held by persons other than former shareholders of the
Corporation; or
(iii) twenty percent (20%) or more of the members of the Board
elected by shareholders are persons who were not nominated in the then most
recent proxy statement of the Corporation.
SECTION 3.3 OBLIGATIONS OF THE CORPORATION ON TERMINATION
(a) TERMINATION UPON DEATH OR DISABILITY, WITHOUT
CAUSE OR FOR GOOD REASON.
If the Executive's employment is terminated upon his death or
Disability, without Cause or for Good Reason:
(i) IN GENERAL.
The Corporation shall immediately pay the Executive in cash the
amount of Basic Compensation previously earned but not yet paid.
(ii) SEVERANCE BENEFITS.
(1) All stock options and awards of restricted common stock
of the Executive under the Stock Compensation Plans, which have not already
vested, shall immediately vest and all performance shares and other awards under
the Stock Compensation
-15-
Plans and other compensatory plans, programs or arrangements, if any, shall
vest and be paid in full, computed on the assumption that 100% (or, if
greater, the maximum percentage) of the targeted level of Corporation's or
the Executive's performance has been met, using the Date of Termination as
the valuation date;
(2) Except as otherwise determined by the Executive, the
period during which any stock options granted to the Executive under the Stock
Compensation Plans may be exercised shall be extended for an additional six
months following the end of the exercise period otherwise applicable to such
options;
(3) The Executive shall continue to participate in all the
Executive welfare benefit plans, including health and medical plans, for six
months after termination and shall be entitled to (a) reimbursement of COBRA
payments to maintain medical and dental insurance up to 18 additional months for
said coverage and (b) the use of one or more executive out-placement services,
designated by the Executive and paid for by the Corporation; and
(4) The Corporation shall pay the Executive in a lump sum a
"Severance Benefit" in cash equal to three (3) times the Executive's Total
Compensation as of the time of such termination. Such payment shall be made
within thirty (30) days following said termination. In the event of the
Executive's death, any amounts payable under this Agreement shall be paid to the
beneficiary (or beneficiaries) designated by the Executive and in such amounts
or proportions as the Executive shall so designate. If no beneficiary is
designated by the Executive or if none shall survive the Executive, then any
amounts payable under this Agreement
-16-
shall be paid to the Executive's surviving spouse, if any, or, if no such
surviving spouse exists, to the Executive's estate.
(iii) DISABILITY.
(1) If, following a Disability termination, the Executive
becomes entitled to and receives disability benefits under any disability
payment plan sponsored and maintained by the Corporation, the amount otherwise
payable by the Corporation to the Executive pursuant to Section 3.3(a) shall be
reduced, on a dollar-for-dollar basis, but not below zero, by the amount of any
such disability benefits received by him, but only to the extent such benefits
are attributable to payments made by the Corporation.
(2) The Executive shall have the right in his sole
discretion after the Disability Effective Date to engage in regular employment
(whether as an employee of another entity or as a self-employed person) and
shall have no obligation to perform further services for the Corporation.
(b) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE
In case of a Voluntary Termination or a termination for Cause,
the Executive shall be entitled to his Basic Compensation accrued to the Date of
Termination and any benefits or awards vested prior to such date, including,
without limitation, his right to exercise any vested stock options. Except as
otherwise provided in this Agreement or under any employee benefit plan
maintained by the Corporation, the Corporation shall have no further obligations
to the Executive.
-17-
(c) RETIREMENT.
(i) Upon the Retirement of the Executive, the Executive shall
receive the payments set forth in Sections 3.3(a)(i), 3.3(a)(ii)(1), (2) and
(3). In addition, the Executive shall receive all retirement benefits he is
eligible to receive under the Corporation's employee benefit plans, subject to
the terms and conditions of such plans.
(ii) The Executive shall have the right in his sole discretion
after his Retirement to engage in regular employment (whether as an employee of
another entity or as a self-employed person) and shall have no obligation to
perform further services for the Corporation.
(d) ADJUSTMENTS FOR CERTAIN PAYMENTS. For purposes of this
Section, (i) "Payment" shall mean any payment or distribution in the nature of
compensation to or for the benefit of the Executive, whether paid or payable
pursuant to this Agreement or otherwise; (ii) Agreement Payment shall mean a
Payment paid or payable pursuant to this Agreement (disregarding this Section);
(iii) Net After Tax Receipt shall mean the Present Value of a Payment net of all
federal, state and local taxes imposed on the Executive with respect thereto,
including the tax imposed under Section 4999 of the Code, determined by applying
the highest applicable marginal rates which apply to the Executive's taxable
income; (iv) "Present Value" shall mean such value determined in accordance with
Section 280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the largest
aggregate amount of Agreement Payments which (a) is less than the sum of all
Agreement Payments and (b) results in aggregate Net After Tax Receipts which are
equal to or greater than the Net After Tax Receipts which would result if the
aggregate Agreement Payments were made.
-18-
Anything in this Agreement to the contrary notwithstanding, in the
event a certified public accounting firm designated by the Executive (the
"Accounting Firm") shall determine that receipt of all Payments would subject
the Executive to tax under Section 4999 of the Code, it shall determine whether
some amount of Agreement Payments would meet the definition of a "Reduced
Amount." If said firm determines that there is a Reduced Amount, the aggregate
Agreement Payments shall be reduced to such Reduced Amount. The aggregate
amount by which the Agreement Payments are reduced to arrive at the Reduced
Amount shall be referred to as the "Foregone Amount."
If the Accounting Firm determines that aggregate Agreement Payments
should be reduced to the Reduced Amount, the Corporation shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof,
and the Executive may then elect, in his sole discretion, which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount), and shall advise the Corporation in writing of his election
within ten days of his receipt of notice. If no such election is made by the
Executive within such ten-day period, the Corporation may elect which of such
Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. All
determinations made by the Accounting Firm under this Section shall be binding
upon the Corporation and the Executive and shall be made within thirty (30) days
of a termination of employment of the Executive. As promptly as practicable
following such determination, the Corporation shall pay to, or distribute for
the benefit of, the Executive such Agreement Payments as are then due to the
Executive under
-19-
this Agreement and shall promptly pay to or distribute for the benefit of the
Executive in the future such Agreement Payments as become due to the
Executive under this Agreement.
While it is the intention of the Corporation and the Executive to
reduce the amounts payable or distributable to the Executive hereunder only if
the aggregate Net After Tax Receipts to the Executive would thereby be
increased, as a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
which should not have been so paid or distributed ("Overpayment") or that
additional amounts which will have not been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Accounting Firm, based either upon the assertion of a deficiency by the
Internal Revenue Service against the Corporation or the Executive which the
Accounting Firm believes has a high probability of success or otherwise,
determines that an Overpayment has been made, any such overpayment paid or
distributed by the Corporation to or for the benefit of the Executive shall be
treated for all purposes as a loan to the Executive which the Executive shall
repay to the Corporation together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code; provided, however, that no such
loan shall be deemed to have been made and no amount shall be payable by the
Executive to the Corporation if and to the extent such deemed loan and payment
would not either reduce the amount on which the Executive is subject to tax
under Section 1 and Section 4999 of the Code or generate a refund of such taxes.
In the event that the Accounting
-20-
Firm determines that an Underpayment has occurred, any such underpayment
shall be promptly paid by the Corporation to or for the benefit of the
Executive together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code.
Notwithstanding the foregoing, at the election of the Executive, the
Reduced Amount shall be the largest amount of Agreement Payments which may be
made without causing any Payment to be subject to tax under Section 4999 of the
Code.
ARTICLE IV. PURPOSE; NONCOMPETITION
SECTION 4.1 PURPOSE. The Corporation recognizes that the Executive is a
key executive of the Corporation and is expected to be a factor in the growth
and success of the Corporation. The Corporation also recognizes that the
continued success of the Corporation depends, to a significant degree, upon the
effective performance of the Executive's duties as set forth in this Agreement.
Therefore, one of the primary purposes of this Agreement is to provide for the
long-term financial security of the Executive and his family so that he will be
better able to direct his undivided attention to the successful performance of
his duties on behalf of the Corporation.
SECTION 4.2 CONFIDENTIAL INFORMATION. In the Executive's position of
responsibility with the Corporation he has access to, and familiarity with, all
of the business methods and confidential information of the Corporation and its
affiliates, including, but not limited to, its exploration and development
techniques and information, its service and organizational techniques, its
expansion projects, its personnel training and development techniques, its
petroleum exploitation, exploration and development techniques, and its
petroleum exploration
-21-
and development information. Therefore, in order to protect the business and
good will of the Corporation, the Executive shall be bound by the following
provisions for the periods prescribed below.
SECTION 4.3 NONCOMPETITION. Except with respect to the exploration for,
and the production and marketing of, oil and gas which shall be controlled by
Section 4.4, during the Active Employment Period, the Executive shall not,
without the prior written consent of the Corporation, directly or indirectly
engage in, or assist or have an active interest in (whether as proprietor,
partner, investor, shareholder, officer, director or any type of principal
whatsoever; provided that ownership of not more than 2% of the outstanding stock
of a corporation traded on a national securities exchange or quoted on NASDAQ
shall not of itself be viewed as assisting or having an active interest), or be
employed by, or act as an agent for, advisor or consultant to, any person, firm,
partnership, association, corporation or business organization, entity or
enterprise that is, or is about to become, directly or indirectly engaged in any
business that competes substantially with, or is substantially similar to, any
business or proposed business of the Corporation or any subsidiary or affiliate
of the Corporation, provided that the restrictions set forth in this Section 4.3
shall not apply to any geographical area in which the Corporation or a
subsidiary or affiliate of the Corporation has not conducted any business, or
has not had any business in the planning or development stage, within one year
prior to the date of the Executive's activities otherwise referred to in this
Section 4.3.
SECTION 4.4 OIL AND GAS INTEREST OWNERSHIP. For the same time periods
and with respect to the same capacities as set forth in Section 4.3, except as
required by the Corporation, the Executive shall not in any manner (whether
through employment by another corporation or
-22-
otherwise) participate in, or own directly or indirectly any interest
(whether working, royalty, overriding royalty or other) in, any oil and gas
lease or prospect or any partnership or other entity engaged in oil and gas
exploration or production unless such proposed participation or interest
shall first have been approved in writing by a committee duly appointed for
such purpose by the Board in accordance with guidelines to be established by
the Board or such committee or shall have been acquired by the Executive
prior to the Effective Date, provided that in no event shall any proposed
participation or interest require time commitment by the Executive during his
active employment other than that involved in making the investment decision
relating thereto and in obtaining the Corporation's approval thereof.
SECTION 4.5 CORPORATE OPPORTUNITY. Except as to such actions within
the ordinary course of the Executive's employment by the Corporation which
the Executive in good faith believes to be in the best interests of the
Corporation, the Executive shall not at any time during his Active Employment
Period, without the prior written consent of the Corporation: (i) request or
advise any supplier, or other person, firm, partnership, association,
corporation or business organization, entity or enterprise having business
dealings with the Corporation or any subsidiary or affiliate of the
Corporation to withdraw, curtail or cancel such business dealings; or (ii)
disclose to any competitor or potential competitor of the Corporation or any
subsidiary or affiliate of the Corporation any trade secret, know-how or
knowledge relating to costs, products, equipment, merchandising and marketing
methods, oil and gas exploration and/or production, business plans, or
research results used by, or useful to, the Corporation or any subsidiary or
affiliate of the Corporation; or (iii) induce or attempt to influence any
executive of the Corporation or any
-23-
subsidiary or affiliate of the Corporation to terminate, or in any way
violate the terms of, his or her employment.
ARTICLE V. MISCELLANEOUS
SECTION 5.1 ENFORCEABILITY.
If the scope of any provision of this Agreement is too broad to permit
enforcement of such provision to its fullest extent, then such provision shall
be enforced to the maximum extent permitted by applicable law, and, if
necessary, the scope of any such provision may be judicially modified (to the
extent necessary in any proceeding brought to enforce such provision) and
thereafter fully enforced.
SECTION 5.2 REMEDIES
The parties acknowledge that the remedy at law for any breach of any
of a party's obligations hereunder would be inadequate and consent to the
granting of temporary and permanent injunctive relief in any proceeding brought
to enforce any of such provisions without the necessity of proof of actual
damages; provided, however, that the foregoing shall not be construed to limit
any other right or remedy available to the Corporation or the Executive at law
or in equity, and all such rights and remedies shall be cumulative to the extent
permitted by applicable law, and the exercise of any one or more of such rights
or remedies shall be without prejudice to the exercise of any other such right
or remedy.
SECTION 5.3 RESIGNATION AS BOARD AND COMMITTEE MEMBER
Unless otherwise requested by the Board, upon the termination of his
employment for any reason, the Executive hereby agrees that he shall
simultaneously submit his resignation as
-24-
a member of the Board, Boards of Directors of the Company's subsidiaries and
the NYLOG Investment Committee in writing on or before the date he ceases to
be an Executive of the Corporation. If the Executive fails or neglects to
submit such resignations in writing, the Corporation shall be permitted to
deem the Executive to have submitted his written resignation as such member
effective on the same date that the Executive ceases to be an executive of
the Corporation. If the Executive continues to serve as a member of the
Board at the request of the Board after his termination of employment, the
Executive shall be entitled to all benefits provided to other Board members
who are not employees of the Corporation.
SECTION 5.4 NO OFFSET; ENFORCEMENT OF AGREEMENT
The Corporation's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Corporation may have against the Executive or others, except
as provided in Section 3.3(a)(iii). In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Corporation agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expenses which the Executive
may reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Corporation, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable federal
-25-
rate provided for in Section 7872(f)(2) of the Code and amounts sufficient to
reimburse the Executive for all tax liabilities due in respect of such
payments of legal fees and expenses; provided however, if an action brought
by the Executive, or if the Executive's defense of an action brought by the
Corporation, is finally determined to be without merit by a court of
competent jurisdiction, the Executive shall refund amounts paid by the
Corporation for legal fees, taxes and interest pursuant to this Section 5.4.
SECTION 5.5 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS
(a) This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) Except as is otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon the Corporation, its
successors and assigns, and upon the Executive, his spouse, heirs, executors and
administrators, provided, however, that the obligations of the Executive
hereunder shall not be delegated.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
-26-
SECTION 5.6 WAIVER
Failure of either party hereto to insist upon strict compliance by the
other party with any term, covenant or condition hereof shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment or failure to insist upon strict compliance of any right or power
hereunder at any one time or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
SECTION 5.7 NOTICE
Any notice required or desired to be given pursuant to this Agreement
shall be sufficient if in writing sent by registered or certified mail to the
addresses hereinafter set forth above or to such other address as any party
hereto may designate in writing, transmitted by hand delivery or by registered
or certified mail to the other; provided, the failure by the Executive to
observe the notice provisions hereof shall not in any way limit, reduce or
effect the Executive's rights and benefits hereunder.
SECTION 5.8 POST-TERMINATION CONSULTING AND NONCOMPETITION
If the Executive receives a Reduced Amount pursuant to Section 3.3(b),
the Corporation shall, for a period of up to 3 years following his termination
of employment (i) retain the Executive as a consultant and (ii) cause the
Executive to be bound by the provisions of Article IV concerning noncompetition,
amended appropriately to take into account the fact the Executive is no longer
an employee of the Corporation. The Executive, as a consultant, shall consult
on such matters and under such terms and conditions as shall be mutually agreed
upon by the Corporation and the Executive. The Executive shall be paid for such
agreement not to compete and consulting services at an annual rate equal to his
Total Compensation, provided, however, the
-27-
Corporation shall be under no obligation to retain the Executive as a
consultant, and, except as expressly agreed by the Executive, the Executive
shall have no obligation not to compete and to consult, for a period of time
greater than that time necessary for the Executive to earn and receive
consulting and noncompetition payments equal to the Foregone Amount.
SECTION 5.9 APPLICABLE LAW
This Agreement shall be governed by the laws of the State of Texas.
SECTION 5.10 TAXES
The Corporation may deduct from all amounts paid under this Agreement
all federal, state, local and other taxes required by law to be withheld with
respect to such payments.
SECTION 5.11 ENTIRE AGREEMENT
The parties hereto agree that this Agreement (together with, to the
extent benefits or rights are otherwise affected by this Agreement, any employee
benefit plan maintained or sponsored by the Corporation) contains the entire
understanding and agreement between them and supersedes all previous agreements
and arrangements, if any, relating to the employment of the Executive. This
Agreement shall not be amended, modified or supplemented in any respect except
by an agreement in writing signed by the Executive and the Corporation.
IN WITNESS WHEREOF, the Corporation and the Executive have duly
executed this Agreement as of the day and the year first above written.
Attest: AMERICAN EXPLORATION COMPANY
By:
- ----------------------------- -------------------------------
Name: John M. Hogan
Title: Senior Vice President and
Chief Financial Officer
-28-
Witness: EXECUTIVE
- ----------------------------- ----------------------------------
Mark Andrews
-29-
EXHIBIT 10(ee)
CONFIDENTIAL AND LEGALLY PRIVILEGED
SEVERANCE AGREEMENT
BETWEEN
AMERICAN EXPLORATION COMPANY
AND
T. FRANK MURPHY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. TERMINATION OF EMPLOYMENT . . . . . . . . . . . . . . . . . . . -2-
Section 1.1 EVENTS OF TERMINATION. . . . . . . . . . . . . . . . . . -2-
Section 1.2 CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . -7-
Section 1.3 OBLIGATIONS OF THE CORPORATION ON TERMINATION. . . . . . -8-
ARTICLE II. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . -14-
Section 2.1 ENFORCEABILITY.. . . . . . . . . . . . . . . . . . . . . -14-
Section 2.2 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . -14-
Section 2.3 NO OFFSET; ENFORCEMENT OF AGREEMENT. . . . . . . . . . . -15-
Section 2.4 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS. . . . . . . . . -16-
Section 2.5 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . -16-
Section 2.6 NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . -17-
Section 2.7 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . -17-
Section 2.8 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . -17-
Section 2.9 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . -17-
Section 2.10 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
</TABLE>
(i)
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT, effective as of the 30th day of November,
1995 (the "Effective Date"), by and between AMERICAN EXPLORATION COMPANY, a
Delaware corporation having its principal place of business at 1331 Lamar, Suite
900, Houston, Texas 77010 (the "Corporation") and T. Frank Murphy, an
individual residing at 301 Maple Valley, Houston, Texas 77056 (the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive has been employed by the Corporation
continuously since July 1, 1989;
WHEREAS, the Executive currently is a Vice President of the
Corporation;
WHEREAS, certain terms and conditions of the Executive's rights upon
termination of employment by the Corporation are set forth in a letter
agreement, dated as of September 1, 1994, as amended and supplemented to date
(the "Severance Agreement");
WHEREAS, the parties desire to provide for a comprehensive agreement
pursuant to which the terms and conditions of the parties' obligations and
duties upon the termination of the Executive's employment would be set forth;
and
WHEREAS, the terms of this Agreement were duly approved and authorized
for and on behalf of the Corporation by the Board of Directors of the
Corporation (the "Board") at a meeting held on September 7, 1995, at which
meeting a quorum was present and voted, were subsequently duly approved by the
Compensation Committee of the Board at a meeting held on September 14, 1995, at
which meeting a quorum was present and voted and were subsequently
duly approved and authorized for and on behalf of the Corporation at a
meeting of the Board held on November 30, 1995, at which meeting a quorum was
present and voted;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree, effective upon the Effective Date, to substitute the
provisions of this Agreement for the provisions of the Severance Agreement;
ARTICLE I. TERMINATION OF EMPLOYMENT
SECTION 1.1 EVENTS OF TERMINATION
(a) DEATH. The Executive's employment shall terminate automatically
upon the Executive's death.
(b) DISABILITY. If the Corporation determines in good faith that the
Executive is unable to perform the Executive's duties because of a Disability
(as defined below) that has occurred while the Executive is employed by the
Corporation, it may give the Executive written notice in accordance with
Section 2.6 of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Corporation
shall terminate effective on the 30th day after receipt of such notice by the
Executive, provided that, within thirty (30) days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from the Executive's duties with the Corporation as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Corporation or its insurers and
acceptable to the Executive or the Executive's legal representative.
-2-
(c) WITHOUT CAUSE. Notwithstanding any other provision hereunder,
the Corporation shall have the right to terminate the Executive's employment
hereunder without "Cause" (as defined in Section 1.1(d)) at any time for any
reason in the sole discretion of the Corporation upon not less than thirty (30)
days' prior written notice to the Executive.
(d) CAUSE. The Corporation may terminate the Executive's employment
for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) The willful and continued failure of the Executive to
perform substantially the Executive's duties with the Corporation (other than
any such failure resulting from incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to the
Executive, which demand shall specifically identify the manner in which the
Corporation believes that the Executive has not substantially performed the
Executive's duties, or
(ii) The willful engaging by the Executive in illegal conduct or
gross misconduct in connection with the performance of his duties hereunder
which is materially injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Corporation.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of any senior officer of the
Corporation or based upon the advice of counsel for the Corporation shall be
conclusively
-3-
presumed to be done, or omitted to be done, by the Executive in good faith
and in the best interests of the Corporation.
(e) GOOD REASON. The Executive may terminate his employment by the
Corporation for Good Reason at any time within two (2) years after a Change of
Control (as hereinafter defined). For purposes of this Agreement, "Good Reason"
shall mean the occurrence, without the Executive's express written consent, of
any one or more of the following events:
(i) The assignment to the Executive of any duties inconsistent
with the Executive's positions, duties, responsibilities and status with the
Corporation as of the time immediately prior to the Change of Control or a
change in the Executive's reporting responsibilities, titles or offices in
effect as of the time immediately prior to the Change of Control or any removal
of the Executive from or any failure to re-elect the Executive to any of such
positions, except with the Executive's written consent.
(ii) A reduction in the Executive's Basic Compensation or the
failure by the Corporation to increase such compensation each year by an amount
which at least equals, on a percentage basis, the mean average percentage
increase in base salary for all officers of the Corporation (other than the
Executive) during such year or the failure by the Corporation to continue to
provide prompt payment (or reimbursement to the Executive) of all reasonable
expenses incurred by the Executive in connection with the Executive's
professional and business activities;
(iii) A failure by the Corporation to waive any and all
restrictions that might exist on the exercise of any stock options or with
respect to any awards of restricted stock
-4-
or other benefits held by the Executive under the Stock Compensation Plans
(as defined below) as of the date of a Change of Control;
(iv) The Corporation requiring the Executive to be based anywhere
other than Houston, Texas ("Office"), except for travel on business to an extent
reasonably required in the performance of the Executive's duties hereunder or,
in the event the Executive consents to any relocation of his Office, the failure
by the Corporation to pay (or reimburse the Executive for) all reasonable moving
expenses (including all costs, fees and transfer taxes incurred in selling his
principal residence) incurred by the Executive relating to a change of the
Executive's principal residence in connection with such relocation and to
indemnify the Executive against, and reimburse him for, any loss (defined as the
difference between the actual sales price of such residence and the higher of
(a) the Executive's aggregate investment in such residence or (b) the fair
market value of such residence as determined, at the Corporation's expense, by
an independent real estate appraiser designated by the Executive (and reasonably
satisfactory to the Corporation)), together with an amount equal to the federal,
state and local taxes payable by the Executive in respect of all of the amounts
payable to the Executive as contemplated under this paragraph.
(v) The failure by the Corporation to include the Executive as a
participant in any benefit or compensation plan or arrangement generally
available to executives of comparable level or the failure by the Corporation to
provide the Executive with the number of paid vacation days, holidays and
personal days to which the Executive is entitled in accordance with the
Corporation's normal leave policy in effect as of the time immediately prior to
the Change of Control;
-5-
(vi) The failure of the Corporation to obtain the assumption of
this Agreement, without limitation or reduction, by any successor to the
Corporation;
(vii) The failure of the Corporation to maintain for the
benefit and use by the Executive of an office and support staff as of the time
immediately prior to the Change of Control, except with consent of the
Executive;
(viii) The failure of the Corporation to pay or reimburse the
Executive for any expenses incurred by the Executive as provided by the
Corporation's reimbursement of business expense policy in effect as of the time
immediately prior to the Change of Control; or
(ix) The filing of a voluntary or involuntary petition of
bankruptcy by or against the Corporation or the insolvency of the Corporation.
For purposes of this Section 1.1(e), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(f) RETIREMENT The Executive may terminate his employment by reason
of "Retirement" at the end of the fiscal year of the Corporation in which the
Executive attains the age of 65 or such later date as the Board shall set with
the consent of the Executive.
(g) VOLUNTARY TERMINATION. The Executive shall have the right at any
time to voluntarily terminate his employment by the Corporation (a "Voluntary
Termination") for any reason in the sole discretion of the Executive by not less
than thirty (30) days' prior written notice to the Corporation; provided
however, a termination without Cause, by reason of Death, Disability or
Retirement, or Good Reason shall not be treated for any purpose hereunder as a
Voluntary Termination.
-6-
SECTION 1.2 CERTAIN DEFINITIONS
(a) CHANGE OF CONTROL. A "Change of Control" shall have occurred if:
(i) twenty percent (20%) or more of the outstanding common stock
of the Corporation has been acquired by any person (as defined by Section
3(a)(9) of the Securities Exchange Act of 1934) other than directly from the
Corporation;
(ii) there has been a merger or equivalent combination involving
the Corporation after which 49% or more of the voting stock of the surviving
corporation is held by persons other than former shareholders of the
Corporation; or
(iii) twenty percent (20%) or more of the members of the Board
elected by shareholders are persons who were not nominated in the then most
recent annual meeting proxy statement of the Corporation, except as a condition
of, or a contractual obligation assumed in connection with, the hiring by the
Corporation, or the election as a director of the Corporation, of John F.
Bookout.
(b) BASIC COMPENSATION, TARGET BONUS AND TOTAL COMPENSATION.
(i) "Basic Compensation" means the Executive's annual base
salary, as adjusted from time to time, including amounts the Executive has
electively deferred under an arrangement qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"), to any cafeteria plan
under Section 125 of the Code or otherwise. Basic Compensation does not include
bonuses, grants under the American Exploration Company Stock Compensation Plan
and the 1994 American Exploration Company Stock Compensation Plan, or any
successor plans thereto, or any other stock compensation or employee benefit
plan of the Corporation (collectively, all such plans are herein referred to as
the "Stock Compensation
-7-
Plans"), the value of amounts payable under the Corporation's incentive,
savings and retirement plans or welfare benefit plans or the value of any
fringe benefits or perquisites the Executive may receive.
(ii) "Target Bonus" means an amount equal to the aggregate cash
amount paid to the Executive in respect of bonuses over the three most recent
fiscal years of the Corporation divided by three.
(iii) "Total Compensation" means the total of the Executive's
Basic Compensation plus Target Bonus.
SECTION 1.3 OBLIGATIONS OF THE CORPORATION ON TERMINATION
(a) TERMINATION UPON DEATH OR DISABILITY, WITHOUT
CAUSE OR FOR GOOD REASON.
If the Executive's employment is terminated upon his death or
Disability, without Cause or for Good Reason:
(i) IN GENERAL.
The Corporation shall immediately pay the Executive in cash
the amount of Basic Compensation previously earned but not yet paid.
(ii) SEVERANCE BENEFITS
(1) All of the Executive's stock options, awards of
restricted common stock and other awards under the Stock Compensation Plans,
which have not already vested, shall immediately vest and all performance shares
and other awards under the Stock Compensation Plans and other compensatory
plans, programs or arrangements, if any, shall vest
-8-
and be paid in full, computed on the assumption that 100% (or, if greater,
the maximum percentage) of the targeted level of the Corporation's or the
Executive's performance has been met, using the Executive's date of
termination as the valuation date;
(2) Except as otherwise determined by the Executive, the
period during which any stock options granted to the Executive under the Stock
Compensation Plans may be exercised shall be extended for an additional six
months following the end of the exercise period otherwise applicable to such
options; and
(3) The Executive shall continue to participate in all
executive welfare benefit plans, including health and medical plans, for six
months after termination and shall be entitled to (a) reimbursement of COBRA
payments to maintain medical and dental insurance up to 18 additional months for
said coverage and (b) the use of one or more executive out-placement services,
designated by the Executive and paid for by the Corporation.
(4) If the Executive's employment is terminated prior to a
Change of Control or more than two years after the last Change of Control, the
Corporation shall pay the Executive in a lump sum a "Severance Benefit" in cash
equal to one (1) times the Executive's Total Compensation as of the time of such
termination. If the Executive's employment is terminated during the period
ending two years after the last Change of Control, the Corporation shall pay the
Executive in a lump sum a Severance Benefit in cash equal to two (2) times the
Executive's Total Compensation. Such payment shall be made within thirty (30)
days following said termination. In the event of the Executive's death, any
amounts payable under this Agreement shall be paid to the beneficiary (or
beneficiaries) designated by the Executive and in such amounts or proportions as
the Executive shall so designate. If no beneficiary is designated
-9-
by the Executive or if none shall survive the Executive, then any amounts
payable under this Agreement shall be paid to the Executive's surviving
spouse, if any, or, if no such surviving spouse exists, to the Executive's
estate.
(iii) DISABILITY.
(1) If, following a termination on account of Disability,
the Executive becomes entitled to and receives disability benefits under any
disability payment plan sponsored and maintained by the Corporation, the amount
otherwise payable by the Corporation to the Executive pursuant to Section 1.3(a)
shall be reduced, on a dollar-for-dollar basis, but not below zero, by the
amount of any such disability benefits received by him, but only to the extent
such benefits are attributable to payments made by the Corporation.
(2) The Executive shall have the right in his sole
discretion after a termination on account of Disability to engage in regular
employment (whether as an employee of another entity or as a self-employed
person) and shall have no obligation to perform further services for the
Corporation.
(b) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE
In case of a Voluntary Termination or a termination for Cause,
the Executive shall be entitled to (i) his Basic Compensation accrued to the
date of termination and (ii) any benefits or awards vested prior to such date,
including, without limitation, his right to exercise any vested stock options.
Except as otherwise provided in this Agreement or under any employee benefit
plan maintained by the Corporation, the Corporation shall have no further
obligations to the Executive.
-10-
(c) RETIREMENT.
(i) Upon the Retirement of the Executive, the Executive shall
receive all of the payments and benefits set forth in Sections 1.3(a)(i) and
1.3(a)(ii)(1), (2) and (3). In addition, the Executive shall receive all
retirement benefits he is eligible to receive under the Corporation's employee
benefit plans, subject to the terms and conditions of such plans.
(ii) The Executive shall have the right in his sole discretion
after his Retirement to engage in regular employment (whether as an employee of
another entity or as a self-employed person) and shall have no obligation to
perform further services for the Corporation.
(d) ADJUSTMENTS FOR CERTAIN PAYMENTS. For purposes of this
Section, (i) "Payment" shall mean any payment or distribution in the nature of
compensation to or for the benefit of the Executive, whether paid or payable
pursuant to this Agreement or otherwise; (ii) Agreement Payment shall mean a
Payment paid or payable pursuant to this Agreement (disregarding this Section);
(iii) Net After Tax Receipt shall mean the Present Value of a Payment net of all
federal, state and local taxes imposed on the Executive with respect thereto,
including the tax imposed under Section 4999 of the Code, determined by applying
the highest applicable marginal rates which apply to the Executive's taxable
income; (iv) "Present Value" shall mean such value determined in accordance with
Section 280G(d)(4) of the Code; and (v) "Reduced Amount" shall mean the largest
aggregate amount of Agreement Payments which (a) is less than the sum of all
Agreement Payments and (b) results in aggregate Net After Tax Receipts which are
equal to or greater than the Net After Tax Receipts which would result if the
aggregate Agreement Payments were made.
-11-
Anything in this Agreement to the contrary notwithstanding, in the
event a certified public accounting firm designated by the Executive (the
"Accounting Firm") shall determine that receipt of all Payments would subject
the Executive to tax under Section 4999 of the Code, it shall determine whether
some amount of Agreement Payments would meet the definition of a "Reduced
Amount." If said firm determines that there is a Reduced Amount, the aggregate
Agreement Payments shall be reduced to such Reduced Amount.
If the Accounting Firm determines that aggregate Agreement Payments
should be reduced to the Reduced Amount, the Corporation shall promptly give the
Executive notice to that effect and a copy of the detailed calculation thereof,
and the Executive may then elect, in his sole discretion, which and how much of
the Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount), and shall advise the Corporation in writing of his election
within ten days of his receipt of notice. If no such election is made by the
Executive within such ten-day period, the Corporation may elect which of such
Agreement Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Agreement Payments equals the
Reduced Amount) and shall notify the Executive promptly of such election. All
determinations made by the Accounting Firm under this Section shall be binding
upon the Corporation and the Executive and shall be made within 30 days of a
termination of employment of the Executive. As promptly as practicable
following such determination, the Corporation shall pay to, or distribute for
the benefit of, the Executive such Agreement Payments as are then due to the
Executive under this Agreement and shall promptly pay to or distribute for the
benefit of the Executive in the future such Agreement Payments as become due to
the Executive under this Agreement.
-12-
While it is the intention of the Corporation and the Executive to
reduce the amounts payable or distributable to the Executive hereunder only if
the aggregate Net After Tax Receipts to the Executive would thereby be
increased, as a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that amounts will have been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
which should not have been so paid or distributed ("Overpayment") or that
additional amounts which will have not been paid or distributed by the
Corporation to or for the benefit of the Executive pursuant to this Agreement
could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. In the event
that the Accounting Firm, based either upon the assertion of a deficiency by the
Internal Revenue Service against the Corporation or the Executive which the
Accounting Firm believes has a high probability of success or otherwise,
determines that an Overpayment has been made, any such overpayment paid or
distributed by the Corporation to or for the benefit of the Executive shall be
treated for all purposes as a loan to the Executive which the Executive shall
repay to the Corporation together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code; provided, however, that no such
loan shall be deemed to have been made and no amount shall be payable by the
Executive to the Corporation if and to the extent such deemed loan and payment
would not either reduce the amount on which the Executive is subject to tax
under Section 1 and Section 4999 of the Code or generate a refund of such taxes.
In the event that the Accounting Firm determines that an Underpayment has
occurred, any such underpayment shall be promptly
-13-
paid by the Corporation to or for the benefit of the Executive together with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code.
(e) SALE OF RESIDENCE; RELOCATION EXPENSES. If the Executive sells
his current residence and moves away from Houston, Texas following (i) the
termination of the Executive's employment by the Corporation Without Cause or
(ii) the Executive's termination of his employment within two years after a
Change of Control (either for Good Reason or in a Voluntary Termination), then,
the Corporation will pay the Executive $25,000 for relocation costs and will
reimburse the Executive for half of the loss, if any, the Executive realizes as
a result of the sale of his current residence. For this purpose, loss shall
equal the amount, if any, by which the cost of the Executive's current residence
(including capital improvements) exceeds the net proceeds realized by the
Executive from the sale of such residence.
ARTICLE II. MISCELLANEOUS
SECTION 2.1 ENFORCEABILITY
If the scope of any restriction set forth above is too broad to permit
enforcement of such restriction to its full extent, then such restriction shall
be enforced to the maximum extent permitted by applicable law, and, if
necessary, the scope of any such restriction may be judicially modified (to the
extent necessary in any proceeding brought to enforce such restriction) and
thereafter fully enforced.
SECTION 2.2 REMEDIES
The parties acknowledge that the remedy at law for any breach of any
of a party's obligations hereunder would be inadequate and consent to the
granting of temporary and permanent injunctive relief in any proceeding brought
to enforce any of such provisions without
-14-
the necessity of proof of actual damages; provided, however, that the
foregoing shall not be construed to limit any other right or remedy available
to the Corporation or the Executive at law or in equity, and all such rights
and remedies shall be cumulative to the extent permitted by applicable law,
and the exercise of any one or more of such rights or remedies shall be
without prejudice to the exercise of any other such right or remedy.
SECTION 2.3 NO OFFSET; ENFORCEMENT OF AGREEMENT
The Corporation's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Corporation may have against the Executive or
others, except as provided in Section 1.3(a)(iii). In no event shall the
Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment. The Corporation agrees to pay as
incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Corporation, the Executive or
others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of
any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable federal rate provided for in Section
7872(f)(2) of the Code and amounts sufficient to reimburse the Executive for
all tax liabilities due in respect of such payments of legal fees and
expenses, provided however, if an action brought by the Executive, or if the
Executive's defense of an action
-15-
brought by the Corporation, is finally determined to be without merit by a
court of competent jurisdiction, the Executive shall refund amounts paid by
the Corporation for legal fees, taxes and interest pursuant to this
Section 2.3.
SECTION 2.4 ASSIGNMENT BY THE EXECUTIVE; SUCCESSORS
(a) This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) Except as is otherwise herein expressly provided, this Agreement
shall inure to the benefit of and be binding upon the Corporation, its
successors and assigns, and upon the Executive, his spouse, heirs, executors and
administrators, provided, however, that the obligations of the Executive
hereunder shall not be delegated.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, "Corporation" shall mean
Corporation as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
SECTION 2.5 WAIVER
Failure of either party hereto to insist upon strict compliance by the
other party with any term, covenant or condition hereof shall not be deemed a
waiver of such term, covenant
-16-
or condition, nor shall any waiver or relinquishment or failure to insist
upon strict compliance of any right or power hereunder at any one time or
more times be deemed a waiver or relinquishment of such right or power at any
other time or times.
SECTION 2.6 NOTICE
Any notice required or desired to be given pursuant to this Agreement
shall be sufficient if in writing sent by registered or certified mail to the
addresses hereinafter set forth above or to such other address as any party
hereto may designate in writing, transmitted by hand delivery or by registered
or certified mail to the other.
SECTION 2.7 APPLICABLE LAW
This Agreement shall be governed by the laws of the State of Texas.
SECTION 2.8 TAXES
The Corporation may deduct from all amounts paid under this Agreement
all federal, state, local and other taxes required by law to be withheld with
respect to such payments.
SECTION 2.9 ENTIRE AGREEMENT
The parties hereto agree that this Agreement (together with, to the
extent benefits or rights are otherwise affected by this Agreement, any employee
benefit plan maintained or sponsored by the Corporation) contains the entire
understanding and agreement between them and supersedes all previous agreements
and arrangements, if any, relating to the employment of the Executive. This
Agreement shall not be amended, modified or supplemented in any respect except
by an agreement in writing signed by the Executive and the Corporation.
-17-
SECTION 2.10 TERM
This Agreement shall remain in full force and effect as long as the
Executive is employed by the Corporation. Notwithstanding the foregoing, the
terms of this Agreement may be changed by the Corporation with the consent of
the Executive. In addition, the Executive may enforce the terms of this
Agreement following the termination of the Executive's employment.
IN WITNESS WHEREOF, the Corporation and the Executive have duly
executed this Agreement as of the day and the year first above written.
Attest: AMERICAN EXPLORATION COMPANY
______________________ By:___________________________________
Name: Mark Andrews
Title: Chairman of the Board
Witness: EXECUTIVE
______________________ ______________________________________
Name: T. Frank Murphy
-18-
<PAGE>
AMERICAN EXPLORATION COMPANY
LIST OF SEVERANCE AGREEMENTS NOT PROVIDED
Severance agreements with seven executive officers, which are substantially
identical in all material respects to the "Severance Agreement between American
Exploration Company and T. Frank Murphy", were not provided. The following is a
schedule of these agreements and the details in which said documents differ from
the aforementioned.
A. SEVERANCE AGREEMENT BETWEEN AMERICAN EXPLORATION COMPANY AND HAROLD M. KORELL
PAGE 1, PARAGRAPH 1 - replace "T. Frank Murphy, an individual residing at 301
Maple Valley, Houston, Texas 77056 (the "Executive")" with "Harold M. Korell,
an individual residing at 11114 Wickway Drive, Houston, Texas 77024 (the
"Executive")".
PAGE 1, PARAGRAPH 2 - replace "the Executive has been employed by the
Corporation continuously since July 1, 1989" with "the Executive has been
employed by the Corporation continuously since June 1, 1992".
PAGE 1, PARAGRAPH 3 - replace "the Executive currently is a Vice President of
the Corporation" with "the Executive currently is the Senior Vice
President/Operations of the Corporation".
SECTION 1.3(a)(ii)(4) - replace "If the Executive's employment is terminated
prior to a Change of Control or more than two years after the last Change of
Control, the Corporation shall pay the Executive in a lump sum a "Severance
Benefit" in cash equal to one (1) times the Executive's Total Compensation as
of the time of such termination. If the Executive's employment is terminated
during the period ending two years after the last Change of Control, the
Corporation shall pay the Executive in a lump sum a Severance Benefit in cash
equal to two (2) times the Executive's Total Compensation" with "If the
Executive's employment is terminated prior to a Change of Control or more
than two years after the last Change of Control, the Corporation shall pay
the Executive in a lump sum a "Severance Benefit" in cash equal to two (2)
times the Executive's Total Compensation as of the time of such termination.
If the Executive's employment is terminated during the period ending two
years after the last Change of Control, the Corporation shall pay the
Executive in a lump sum a "Severance Benefit" in cash equal to three (3)
times the Executive's Total Compensation".
SECTION 1.3(e) - delete.
B. SEVERANCE AGREEMENT BETWEEN AMERICAN EXPLORATION COMPANY AND JOHN M. HOGAN
PAGE 1, PARAGRAPH 1 - replace "T. Frank Murphy, an individual residing at 301
Maple Valley, Houston, Texas 77056 (the "Executive")" with "John M. Hogan, an
individual residing at 1 Silktassel, The Woodlands, Texas, 77380 (the
"Executive")".
PAGE 1, PARAGRAPH 2 - replace "the Executive has been employed by the
Corporation continuously since July 1, 1989" with "the Executive has been
employed by the Corporation continuously since August 13, 1992".
PAGE 1, PARAGRAPH 3 - replace "the Executive currently is a Vice President
of the Corporation" with "the Executive currently is the Senior Vice
President and Chief Financial Officer of the Corporation".
SECTION 1.3(a)(ii)(4) - replace "If the Executive's employment is terminated
prior to a Change of Control or more than two years after the last Change of
Control, the Corporation shall pay the Executive in a lump sum a "Severance
Benefit" in cash equal to one (1) times the Executive's Total Compensation as
of the time of such termination. If the Executive's employment is terminated
during the period ending two years after the last Change of Control, the
Corporation shall pay the Executive in a lump sum a Severance Benefit in cash
equal to two (2) times the Executive's Total Compensation" with "If the
Executive's employment is terminated prior to a Change of Control or more
than two years after the last Change of Control, the Corporation shall pay
the Executive in a lump sum a "Severance Benefit" in cash equal to two (2)
times the Executive's Total Compensation as of the time of such termination.
If the Executive's employment is terminated during the period ending two
years after the last Change of Control, the Corporation shall pay the
Executive in a lump sum a "Severance Benefit" in cash equal to three (3)
times the Executive's Total Compensation".
SECTION 1.3(e) - delete.
C. SEVERANCE AGREEMENT BETWEEN AMERICAN EXPLORATION COMPANY AND
CINDY LYNN GEROW
PAGE 1, PARAGRAPH 1 - replace "T. Frank Murphy, an individual residing at
301 Maple Valley, Houston, Texas 77056 (the "Executive")" with "Cindy Lynn
Gerow, an individual residing at 10909 Long Shadow Lane, Houston, Texas
77024 (the "Executive")".
PAGE 1, PARAGRAPH 2 - replace "the Executive has been employed by the
Corporation continuously since July 1, 1989" with "the Executive has been
employed by the Corporation continuously since October 23, 1990".
SECTION 1.3(e) - delete.
D. SEVERANCE AGREEMENT BETWEEN AMERICAN EXPLORATION COMPANY AND
HARRY C. HARPER
PAGE 1, PARAGRAPH 1 - replace "T. Frank Murphy, an individual residing at
301 Maple Valley, Houston, Texas 77056 (the "Executive")" with "Harry C.
Harper, an individual residing at 2005 Park, Houston, Texas 77019 (the
"Executive")".
PAGE 1, PARAGRAPH 2 - replace "the Executive has been employed by the
Corporation continuously since July 1, 1989" with "the Executive has been
employed by the Corporation continuously since February 1, 1973".
SECTION 1.3(e) - delete.
E. SEVERANCE AGREEMENT BETWEEN AMERICAN EXPLORATION COMPANY AND
ROBERT R. MCBRIDE, JR.
PAGE 1, PARAGRAPH 1 - replace "T. Frank Murphy, an individual residing at 301
Maple Valley, Houston, Texas 77056 (the "Executive")" with "Robert R.
McBride, Jr., an individual residing at 543 Westminster Drive, Houston, Texas
77024 (the "Executive")".
PAGE 1, PARAGRAPH 2 - replace "the Executive has been employed by the
Corporation continuously since July 1, 1989" with "the Executive has been
employed by the Corporation continuously since August 24, 1992".
SECTION 1.3(e) - delete.
F. SEVERANCE AGREEMENT BETWEEN AMERICAN EXPLORATION COMPANY AND
STEVEN L. MUELLER
PAGE 1, PARAGRAPH 1 - replace "T. Frank Murphy, an individual residing at
301 Maple Valley, Houston, Texas 77056 ("the Executive")" with "Steven L.
Mueller, an individual residing at 18006 Moss Point, Spring, Texas 77379
(the "Executive")".
PAGE 1, PARAGRAPH 2 - replace "the Executive has been employed by the
Corporation continuously since July 1, 1989" with "the Executive has been
employed by the Corporation continuously since November 10, 1992".
SECTION 1.3(e) - delete.
G. SEVERANCE AGREEMENT BETWEEN AMERICAN EXPLORATION COMPANY AND
ELLIOTT PEW
PAGE 1, PARAGRAPH 1 - replace "T. Frank Murphy, an individual residing at
301 Maple Valley, Houston, Texas 77056 (the "Executive")" with "Elliott
Pew, an individual residing at 4 Wellington Lane, Conroe, Texas 77304 (the
"Executive")".
PAGE 1, PARAGRAPH 2 - replace "the Executive has been employed by the
Corporation continuously since July 1, 1989" with "the Executive has been
employed by the Corporation continuously since October 13, 1992".
SECTION 1.3(e) - delete.
EXHIBIT 10(ff)
EXECUTION COPY
AMENDMENT NO. 3 TO AMENDED
AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of January 19, 1996 among AMERICAN EXPLORATION
COMPANY (the "Borrower"), the BANKS listed on the signature pages hereof (the
"Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"),
and BANK OF MONTREAL, as Co-Agent (the "Co-Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Agent and the Co-Agent have
heretofore entered into an Amended and Restated Credit Agreement dated as of
December 21, 1994, as amended by Amendment No. 1 dated as of February 16,
1995 and Amendment No. 2 dated as of May 2, 1995 (as so amended, the
"Agreement"); and
WHEREAS, the parties hereto desire to amend certain provisions of the
Agreement in the manner set forth below.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. AMENDMENT OF SECTION 1.01 OF THE AGREEMENT. (A) The
following defined terms in Section 1.01 are redefined as follows:
"Level I Status" exists at any date on which the sum of (i) the
aggregate outstanding amount of the Loans and (ii) the aggregate Letter of
Credit Liabilities is less than 60% of the Borrowing Base.
"Level II Status" exists at any date on which Level I Status does not
exist.
"Termination Date" means the Quarterly Date falling in June 1997.
(B) The following defined term is hereby added to Section 1.01:
"Availability Limit" means at any date an amount equal to the lesser
of (i) the aggregate amount of the Commitments at such date and (ii)
$40,000,000. The Availability Limit may be increased only by an amendment
in accordance with Section 9.05, which the Banks may agree to or not agree
to in their sole discretion.
(C) The definition of "Level III Status" in Section 1.01 is deleted.
SECTION 3. AMENDMENT OF SECTION 2.04 OF THE AGREEMENT. The reference
in Section 2.04 to "one-twelfth (1/12th)" is changed to "one-tenth (1/10th)".
SECTION 4. AMENDMENT OF SECTION 2.05 OF THE AGREEMENT. (A) In Section
2.05(a) of the Agreement, the first sentence is amended to read as follows:
(a) Each Domestic Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made
until it becomes due, as follows:
(1) for any day on which Level I Status exists, at a rate per
annum equal to the lesser of (x) the Highest Lawful Rate applicable to
the Bank making such Loan and (y) the sum of 1/2% plus the Base Rate
for such day; and
(2) for any day on which Level II Status exists, at a rate per
annum equal to the lesser of (x) the Highest Lawful Rate applicable to
the Bank making such Loan and (y) the sum of 3/4% plus the Base Rate
for such day.
(B) In Section 2.05(b), the defined term "Margin" is redefined as
follows:
"Margin" means (i) for any day on which Level I Status exists, 1 1/2%
or (ii) for any day on which Level II Status exists, 1 3/4%.
2
SECTION 5. AMENDMENT OF SECTION 2.06 OF THE AGREEMENT.
(A) In Section 2.06(a) of the Agreement, the phrase "the aggregate
amount of the Commitments" is changed to "the Availability Limit".
(B) In Section 2.06(b) of the Agreement, the first sentence is amended
to read as follows:
(b) The Company shall pay to the Agent a letter of credit fee, as
follows:
(1) for any day on which Level I Status exists, at the rate of
1 1/2% per annum on the aggregate amount available for drawing under
any Letter of Credit from time to time, such fee to be payable for the
account of the Banks ratably in proportion to their participation
therein; and
(2) for any day on which Level II Status exists, at the rate of
1 3/4% per annum on the aggregate amount available for drawing under
any Letter of Credit from time to time, such fee to be payable for the
account of the Banks ratably in proportion to their participation
therein.
SECTION 6. AMENDMENT OF SECTION 3.04(b) OF THE AGREEMENT. In Section
3.04(b) of the Agreement, the phrase "the aggregate amount of the
Commitments" is changed to "the Availability Limit".
SECTION 7. AMENDMENT OF SECTION 5.11 OF THE AGREEMENT. Section 5.11 of
the Agreement is amended by the addition of the following clause (vii):
"and (vii) repurchase shares of its common stock in lots of less than
100 shares for an aggregate repurchase price not to exceed $3,000,000."
SECTION 8. AMENDMENT OF SECTION 9.05 OF THE AGREEMENT. Section 9.05 of
the Agreement is hereby amended by the addition of the following clause (v)
to the PROVISO thereto:
or (v) change the definition of Availability Limit or the provisions
of Section 3.04(b).
SECTION 9. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
3
SECTION 10. COUNTERPARTS; EFFECTIVENESS. This Amendment may be signed
in any number of counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective as of January 1, 1996 when
the Agent shall have received duly executed counterparts hereof signed by the
Borrower, each of the Banks and the Co-Agent (or, in the case of any party as
to which an executed counterpart shall not have been received, the Agent
shall have received telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party).
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
AMERICAN EXPLORATION COMPANY
By /s/ T. Frank Murphy
Title: Vice President -
Corporate Finance
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ John Kowalczuk
Title: VICE PRESIDENT
BANK OF MONTREAL, as a Bank and
as a Co-Agent
By /s/ Robert Roberts
Title: Director, U.S.
Corporate Banking
BANQUE PARIBAS
By /s/ Mark M. Green
Title: VICE PRESIDENT
By /s/ Barton D. Schouest
Title: Group Vice President
5
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ John Kowalczuk
Title: VICE PRESIDENT
6
EXHIBIT 12
AMERICAN EXPLORATION COMPANY
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(In thousands, except for ratio amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
--------- --------- ---------- ---------- -------
EARNINGS:
<S> <C> <C> <C> <C> <C>
(+) Pretax income from continuing
operations $ 1,356 $ (60,690) $ (18,681) $ (68,791) $ (24,006)
(+) Interest expense (b) 5,481 6,638 6,847 9,485 13,609
(+) Amortization of debt expense 951 2,343 739 1,292 -
(+) Rent representative of interest factor 901 1,284 1,533 1,726 1,697
--------- --------- ---------- ---------- ----------
8,689 (50,425) (9,562) (56,288) (8,700)
--------- --------- ---------- ---------- ----------
FIXED CHARGES:
(+) Interest expensed or capitalized (b) 6,949 8,134 9,193 12,786 17,081
(+) Amortization of debt expense 951 2,343 739 1,292 -
(+) Rent representative of interest factor 901 1,284 1,533 1,726 1,697
--------- --------- ---------- ---------- ----------
8,801 11,761 11,465 15,804 18,778
--------- --------- ---------- ---------- ----------
PREFERRED STOCK DIVIDEND
REQUIREMENTS (a) 1,800 1,800 75 - 65
--------- --------- ---------- ---------- ----------
COVERAGE DEFICIENCY $ (1,912) $ (63,986) $ (21,102) $ (72,092) $ (27,543)
========= ========= ========== ========== ==========
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS 0.82 (3.72) (0.83) (3.56) (0.46)
========= ========= ========== ========== ==========
</TABLE>
- ------------
(a) There was no preferred stock outstanding during 1992.
(b) Financing costs are included in interest expense in 1991.
EXHIBIT 21
PRINCIPAL SUBSIDIARIES OF AMERICAN EXPLORATION COMPANY
STATE OR OTHER
JURISDICTION
COMPANY OF INCORPORATION
------- ----------------
Austral Oil Company Incorporated Delaware
Conquest Exploration Company Delaware
Conquest Texas, Inc. Delaware
3300 Corp. Nevada
All of the Company's other subsidiaries are omitted because together
they would not constitute a significant subsidiary as defined by the Securities
and Exchange Commission.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Form S-2 Registration Statement (File No. 33-18512), Form S-8
Registration Statement (File No. 33-36634), Form S-8 Registration Statement
(File No. 33-36953), Form S-8 Registration Statement (File No. 33-36955), Form
S-8 Registration Statement (File No. 33-36956), Form S-3 Registration Statement
(File No. 33-46558), Form S-3 Registration Statement (File No. 33-51795) and
Form S-3 Registration Statement (File No. 33-54561).
ARTHUR ANDERSEN LLP
Houston, Texas
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,496
<SECURITIES> 0
<RECEIVABLES> 14,949
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,411
<PP&E> 305,063
<DEPRECIATION> 154,646
<TOTAL-ASSETS> 176,030
<CURRENT-LIABILITIES> 35,102
<BONDS> 40,000
0
4
<COMMON> 591
<OTHER-SE> 93,885
<TOTAL-LIABILITY-AND-EQUITY> 176,030
<SALES> 70,768
<TOTAL-REVENUES> 81,934
<CGS> 0
<TOTAL-COSTS> 75,121
<OTHER-EXPENSES> (24)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,481
<INCOME-PRETAX> 1,356
<INCOME-TAX> (121)
<INCOME-CONTINUING> 1,477
<DISCONTINUED> 0
<EXTRAORDINARY> 2,456
<CHANGES> 0
<NET-INCOME> 3,933
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
