<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
---------- ----------
Commission File Number 1-12480
LOUIS DREYFUS NATURAL GAS CORP.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1098614
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14000 QUAIL SPRINGS PARKWAY, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73134
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (405) 749-1300
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO .
----- -----
40,109,758 shares of common stock, $.01 par value, issued and outstanding at
May 14, 1998.
<PAGE>
<PAGE> 2
LOUIS DREYFUS NATURAL GAS CORP.
Table of Contents
PART I. FINANCIAL INFORMATION Page
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Consolidated Balance Sheets:
December 31, 1997 and March 31, 1998 . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations:
Three months ended March 31, 1997 and 1998. . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows:
Three months ended March 31, 1997 and 1998. . . . . . . . . . . . . . 6
Condensed Notes to Consolidated Financial Statements. . . . . . . . . . 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 12
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . 23
<PAGE>
<PAGE> 3
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
A S S E T S
December 31, March 31,
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . $ 5,538 $ 5,543
Receivables:
Oil and gas sales . . . . . . . . . . . . . . . . 46,192 37,705
Costs reimbursable by insurance . . . . . . . . . 22,406 21,349
Joint interest and other. . . . . . . . . . . 14,311 15,944
Deposits . . . . . . . . . . . . . . . . . . . . . 4,467 3,002
Inventory and other. . . . . . . . . . . . . . . . 9,883 7,665
----------- -----------
Total current assets. . . . . . . . . . . . . . . 102,797 91,208
----------- -----------
PROPERTY AND EQUIPMENT, at cost, based on
successful efforts accounting . . . . . . . . . . 1,404,784 1,458,794
Less accumulated depreciation, depletion
and amortization . . . . . . . . . . . . . . . . (305,769) (337,078)
----------- -----------
1,099,015 1,121,716
----------- -----------
OTHER ASSETS, net. . . . . . . . . . . . . . . . . 9,142 8,896
=========== ===========
$ 1,210,954 $ 1,221,820
=========== ===========
</TABLE>
<PAGE> 4
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
December 31, March 31,
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . $ 61,197 $ 43,230
Accrued liabilities. . . . . . . . . . . . . . . . 22,258 23,662
Revenues payable . . . . . . . . . . . . . . . . . 16,111 14,232
----------- -----------
Total current liabilities . . . . . . . . . . . . 99,566 81,124
----------- -----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . 563,344 597,911
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenue . . . . . . . . . . . . . . . . . 17,387 16,951
Deferred gains from price-risk
management activities . . . . . . . . . . . . . . 23,453 23,231
Deferred income taxes. . . . . . . . . . . . . . . 21,896 20,369
Other. . . . . . . . . . . . . . . . . . . . . . . 16,104 14,850
----------- -----------
78,840 75,401
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01; 10 million
shares authorized; no shares outstanding. . . . . -- --
Common stock, par value $.01; 100 million
shares authorized; issued and outstanding,
40,088,258 and 40,104,008 shares, respectively . . 401 401
Additional paid-in capital . . . . . . . . . . . . 418,751 418,974
Retained earnings. . . . . . . . . . . . . . . . . 50,052 48,009
----------- -----------
469,204 467,384
----------- -----------
$ 1,210,954 $ 1,221,820
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
REVENUES
Oil and gas sales . . . . . . . . . . . . . . . . . . . $ 51,766 $ 67,914
Other income. . . . . . . . . . . . . . . . . . . . . . 9,296 1,682
-------- --------
61,062 69,596
-------- --------
EXPENSES
Operating costs . . . . . . . . . . . . . . . . . . . . 11,290 17,021
General and administrative. . . . . . . . . . . . . . . 3,992 6,203
Exploration costs . . . . . . . . . . . . . . . . . . . 2,165 7,580
Depreciation, depletion and amortization. . . . . . . . 15,753 32,041
Interest. . . . . . . . . . . . . . . . . . . . . . . . 6,269 10,046
-------- --------
39,469 72,891
-------- --------
Income (loss) before income taxes . . . . . . . . . . . 21,593 (3,295)
Income taxes. . . . . . . . . . . . . . . . . . . . . . 7,558 (1,252)
-------- --------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . $ 14,035 $ (2,043)
======== ========
Net income (loss) per share - basic and diluted . . . . $ .50 $ (.05)
======== ========
Weighted average diluted common shares outstanding. . . 27,880 40,099
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
LOUIS DREYFUS NATURAL GAS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1998
-------- --------
<S> <C> <S>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,035 $ (2,043)
Items not affecting cash flows:
Depreciation, depletion and amortization . . . . . . . . . . . . . . . 15,753 32,041
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 6,975 (1,527)
Exploration costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,165 7,580
Gain on sale of property . . . . . . . . . . . . . . . . . . . . . . . (8,572) (63)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 157
Net change in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . 8,884 7,911
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,167 1,465
Inventory and other. . . . . . . . . . . . . . . . . . . . . . . . . . (558) 2,218
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,526) (17,967)
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 1,444 1,404
Revenues payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,774 (1,879)
-------- --------
29,600 29,297
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Exploration and development expenditures. . . . . . . . . . . . . . . . (27,770) (58,622)
Acquisition of oil and gas properties . . . . . . . . . . . . . . . . . (6,996) (3,551)
Additions to other property and equipment . . . . . . . . . . . . . . . (171) (721)
Proceeds from sale of property and equipment. . . . . . . . . . . . . . 26,388 88
Change in other assets. . . . . . . . . . . . . . . . . . . . . . . . . (61) (173)
-------- --------
(8,610) (62,979)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings . . . . . . . . . . . . . . . . . . . . . 61,075 155,075
Repayments of bank borrowings . . . . . . . . . . . . . . . . . . . . . (75,575) (120,575)
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . 10 223
Change in deferred revenue. . . . . . . . . . . . . . . . . . . . . . . (395) (436)
Change in gains from price-risk management activities . . . . . . . . . (921) (222)
Change in other long-term liabilities . . . . . . . . . . . . . . . . . (2,832) (378)
-------- --------
(18,638) 33,687
-------- --------
Change in cash and cash equivalents . . . . . . . . . . . . . . . . . . 2,352 5
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . 7,749 5,538
-------- --------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . $ 10,101 $ 5,543
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid, net of capitalized interest. . . . . . . . . . . . . . . $ 3,636 $ 4,393
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
-------- --------
$ 3,636 $ 4,393
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
LOUIS DREYFUS NATURAL GAS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1998
NOTE 1 -- ACCOUNTING PRINCIPLES AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q as prescribed by the
Securities and Exchange Commission. All material adjustments, consisting of
only normal and recurring adjustments, which, in the opinion of Management,
were necessary for a fair presentation of the results for the interim periods
have been reflected. The results of operations for the three-month period
ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year. Certain reclassifications have been made to the
prior year statements to conform with the current year presentation.
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 for an expanded discussion of the Company's financial
disclosures and accounting policies.
NOTE 2 -- EARNINGS PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"), which changes the method
used to compute earnings per share and requires the restatement of all prior
periods to conform with the new calculation method. The calculation of basic
earnings per share for the three months ended March 31, 1997 pursuant to SFAS
128 did not result in a revision to the amount previously reported. Weighted
average common shares outstanding used in the calculation of basic earnings
per share for the three months ended March 31, 1997 and 1998 (in thousands)
were 27,801 and 40,099, respectively. Weighted average diluted common shares
outstanding for the first quarter of 1997 includes the effect of dilutive
stock options. Reference is made to the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 for a description of potentially dilutive securities
of the Company.
NOTE 3 -- COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") on January 1, 1998, which is
effective for fiscal years beginning after December 15, 1997. The provisions
of SFAS 130 require the Company to classify items of other comprehensive
income in the financial statements and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial position.
Also, reclassification of financial statements for all prior periods is
required for comparative purposes. For the three-month periods ended March
31, 1997 and 1998, the provisions of SFAS 130 were immaterial.
<PAGE> 8
LOUIS DREYFUS NATURAL GAS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 1998
NOTE 4 -- ACQUISITION OF AMERICAN EXPLORATION COMPANY
In October 1997, the Company acquired 100% of the outstanding common stock
of American Exploration Company ("American"), a Houston-based, publicly-held
independent energy company with exploration and development activities
focused primarily in South Texas, the Texas State Waters, the Cotton Valley
Reef Trend in East Texas and the Smackover Trend in Arkansas (the "American
Acquisition"). The acquisition consideration paid consisted of approximately
11.3 million shares of LDNG Common Stock valued at $17.15 per share and $47.2
million of cash. In addition, LDNG assumed $116 million of American long-term
debt, $20 million liquidation value of American preferred stock, and warrants
and options valued at $10.3 million. The acquisition consisted of 217 Bcfe of
proved reserves, approximately 3,500 producing wells, 1.0 million gross acres
of developed leasehold, 2.0 million gross acres of undeveloped leasehold and
other assets and liabilities. The purchase method was used to account for
this acquisition.
NOTE 5 -- CONTINGENCIES
Litigation. On December 22, 1995, the United States District Court for the
Western District of Oklahoma entered a $10.8 million judgment in favor of the
Company against Midcon Offshore, Inc. ("Midcon") in connection with
non-performance by Midcon under an agreement to purchase a certain offshore
oil and gas property. In January 1996, Midcon delivered a $10.8 million
promissory note to the Company secured by first and second liens on assets of
Midcon, payable in full on or before December 15, 1996 in settlement of
disputes in connection with this litigation. On December 16, 1996, Midcon
filed for protection from its creditors under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court, Southern District of
Texas, Corpus Christi Division. On January 27, 1997, Midcon filed an action
in the bankruptcy court alleging that Midcon's action in connection with the
settlement constituted fraudulent transfers or avoidable preferences and
seeking a return of amounts paid under the note and also seeking a release of
the liens securing the payment obligation under the note. The complaint filed
in the action also alleged certain affirmative claims against the Company
including injury to reputation and loss of business opportunity. The
complaint also seeks subordination of the Company's claim. The court denied
the Company's motion to dismiss the complaint. The Company considers the
allegations in the complaint to be without merit and will vigorously defend
against this action. Collection of unpaid interest and principal on the
Midcon note is uncertain and no amounts have been recorded with respect
thereto in the accompanying financial statements as of March 31, 1998. The
Company will recognize income as any payments are received.
In February 1995, a lawsuit was filed in the United States District Court in
Denver, Colorado, by KN Gas Supply Services, Inc. ("KNGSS"), requesting
declaratory judgment that KNGSS had the right to reduce the contract price for
gas produced from the Bowdoin Field, a property obtained in the American
<PAGE> 9
LOUIS DREYFUS NATURAL GAS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 1998
Acquisition, to market levels from October 1, 1993 forward. KNGSS alleges
that it has overpaid American and seeks a refund of approximately $7.7 million
for the period through September 1996. KNGSS has not updated its refund claim
through the present date. A motion for summary judgment was filed by American
in July 1996 and was argued before the court in February 1997. The Company
assumed responsibility for this lawsuit in connection with the American
Acquisition. In February 1998, the court ruled in favor of the Company's
motion. KNGSS subsequently filed an appeal which has not been heard.
Although the Company cannot predict the ultimate outcome of this proceeding,
it will continue to 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.
American was a defendant in various other legal proceedings for which the
Company also assumed responsibility in the American Acquisition. The largest
of such legal claims was for an alleged underpayment of royalty of $3.2
million plus interest. In addition, American had received preliminary and
final royalty underpayment determinations from the Minerals Management Service
aggregating approximately $2.8 million plus interest in connection with
certain gas contract settlements made in prior years. The Company is a
defendant in additional pending legal proceedings which are routine and
incidental to its business. While the ultimate results of all these
proceedings and determinations cannot be predicted with certainty, the Company
will vigorously defend its interests and does not believe that the outcome of
these matters will have a material adverse effect on the Company.
Insurance Recovery. On April 1, 1997, a blowout and fire occurred during
the drilling of a horizontal development well at East Cameron Block 328
located in federal waters offshore Louisiana (later acquired by the Company in
the American Acquisition). The upper structure of the platform was severely
damaged, requiring its dismantlement. The Company completed the construction
of the new production deck and restored production from the platform in April
of 1998. The platform is currently producing 2,100 barrels and 7.7 MMcf per
day net to the Company's interest.
The Company carries various types of insurance relating to the blowout and
as of March 31, 1998, had recognized a liability of approximately $2.1 million
for certain estimated costs that may not be recoverable through insurance. At
this stage of the Company's insurance claim, it is not possible to quantify
what other amounts, if any, will not be recoverable from insurance or legally
responsible third parties. If the Company is unable to recover a significant
portion of its costs from insurance or other third parties, the additional
costs to be incurred could result in the recognition of an impairment charge.
The MMS, which has jurisdiction over operations in federal waters, is required
by regulation to investigate this type of incident and to make a public
report. To date, the MMS has not issued any report regarding the blowout.
As of March 31, 1998, costs incurred for the recovery effort at East Cameron
Block 328 totaled approximately $44.4 million, $23.1 million of which has been
<PAGE> 10
LOUIS DREYFUS NATURAL GAS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 1998
reimbursed by insurance companies. The balance of $21.3 million is reflected
as a receivable in the accompanying consolidated balance sheet.
Fixed-Price Contracts. Two fixed-price contracts which hedge an aggregate
93 Bcf of natural gas as of March 31, 1998 are with independent power
producers ("IPPs") which sell electrical power under firm fixed-price
contracts to Niagara Mohawk Corporation ("NIMO"), a New York state utility.
As of March 31, 1998, the net present value of the differential between the
fixed prices provided by these contracts and forward market prices, as
adjusted for estimated basis and discounted at 10%, was approximately $124
million. This premium in the fixed prices is not reflected in the Company's
financial statements until realized. For the years ended December 31, 1995,
1996 and 1997, these contracts contributed $9.6 million, $.9 million and $1.8
million, respectively, to natural gas sales. The ability of these IPPs to
perform their obligations to the Company is dependent on the continued
performance by NIMO of its power purchase obligations to the counterparties.
NIMO has taken aggressive regulatory, judicial and contractual actions in
recent years seeking to curtail power purchase obligations, including its
obligations to the IPPs that are counterparties to the Company's fixed-price
contracts described above, and has further stated that its future financial
prospects are dependent on its ability to resolve these obligations, along
with other matters.
In July 1997, NIMO entered into a Master Restructuring Agreement (the "MRA")
with 16 IPPs, including the Company's counterparties. Pursuant to the MRA,
the power purchase agreements between NIMO and the IPPs would be terminated,
restated or amended, in exchange for an aggregate of $3.6 billion in cash, $50
million in notes or cash, 46 million shares of NIMO common stock and certain
fixed-price swap contracts. The allocation of the consideration among the
IPPs has not been disclosed. The closing of the MRA is conditioned upon,
among other things, NIMO and the IPPs negotiating their individual restated
and amended contracts, the receipt of all regulatory approvals, the IPPs
entering into new third party arrangements which will enable each IPP to
restructure its projects on a reasonably satisfactory economic basis, NIMO
having completed all necessary financing arrangements and NIMO and the IPPs
having received all necessary approvals from their respective boards of
directors, shareholders and partners.
In connection with the MRA, the Company agreed to terminate one of the
fixed-price contracts which supplies 4 Bcf of natural gas annually to one of
the IPPs. The gas price provided in the contract is currently $2.89 per MMBtu
and escalates to $6.64 per MMBtu by the end of the contract's term in 2006.
The termination agreement is subject to the IPP's participation in the closing
of the MRA with NIMO. The terms of the termination agreement are subject to a
confidentiality agreement but the termination will result in the monetization
of the contract and will not have a material adverse effect on the operating
results of the Company.
NIMO announced that as of May 7, the date by which each of the IPPs had to
<PAGE> 11
LOUIS DREYFUS NATURAL GAS CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 1998
either satisfy or waive third-party conditions, only one of the IPPs had
withdrawn from the MRA and announced that the closing date of the MRA is June
30, subject to certain conditions, including the successful financing of the
MRA and NIMO common stockholder approval of the issuance of common stock to
the IPPs. The Company sells 6 Bcf of natural gas annually to the IPP which
withdrew from the MRA. Accordingly, the Company will continue to deliver
natural gas pursuant to the terms of the gas supply contract which expires in
2007.
At this time, the Company cannot predict whether the conditions precedent to
the closing of the MRA will ultimately be satisfied. Any proceeds received by
the Company in consideration for termination of a fixed-price contract would
be used to repay indebtedness outstanding under the bank credit facility and
would be reflected under current accounting rules in the Company's balance
sheet as a deferred hedging gain to be amortized into oil and gas revenues
over the original life of the underlying contract. Cancellation of a contract
would subject a greater portion of the Company's gas production to market
prices, which in a low gas price environment could adversely affect the
carrying value of the Company's oil and gas properties and could otherwise
have an adverse effect on the Company if the consideration received for
cancellation was less than the contract fair value.
<PAGE> 12
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
General. The Company's business strategy is to generate strong and
consistent growth in reserves, production, operating cash flows and earnings
through a balanced program of exploration and development drilling and
strategic acquisitions of oil and gas properties. Over the five-year period
ended December 31, 1997, this strategy has resulted in a 220% increase in
proved reserves to 1.2 Tcfe. In addition, production levels have increased
194% to 84 Bcfe and cash flows from operating activities have increased 483%
to $129.8 million. Excluding a one-time impairment charge recognized in
connection with the American Acquisition, the Company also realized record
results of operations for 1997.
The majority of the Company's growth has come from proved reserve
acquisitions geographically concentrated in its core areas: the Sonora area
of West Texas; the Mid-Continent area of Oklahoma, Kansas and the Panhandle of
Texas; the Western area of West Texas and Southeast New Mexico; the Gulf Coast
area of South Texas; the Offshore area in the Gulf of Mexico; and the Arklatex
area of East Texas, Southwest Arkansas and Northern Louisiana (collectively
"Core Areas"), where the Company has significant expertise and where the
Company benefits from operational synergies. During this five-year period,
the Company made proved reserve acquisitions aggregating 853 Bcfe, purchased
for a total consideration of $729.3 million, or $.86 per Mcfe. Of particular
significance was the American Acquisition which was completed in October 1997.
See related discussion under Note 4 of the Condensed Notes to Consolidated
Financial Statements, "Merger with American Exploration Company", appearing
elsewhere in this document.
The Company's drilling program over this five-year period resulted in the
drilling of 1,159 gross (721 net wells), with an overall drilling success rate
of 94%, adding 362 Bcfe of reserves (including revisions of previous
estimates) to its proved reserve base. The year ended December 31, 1997
marked the fourth consecutive year that the Company replaced its production by
both its acquisition and drilling programs. Total finding and development
costs (total costs incurred to acquire, explore and develop oil and gas
properties divided by the increase in proved reserves through acquisitions of
proved properties, extensions and discoveries, and revisions of previous
estimates) over this five-year period averaged $1.03 per Mcfe. The Company
has increasingly emphasized exploration as an integral component of its
business strategy and in connection therewith, has incurred substantial
up-front costs, including significant acreage positions, seismic costs and
other geological and geophysical costs. During 1997, the Company invested
$128 million in connection with exploration activities, including $98 million
allocated to the unproved acreage position obtained in the American
Acquisition. This significant commitment has had the impact of increasing
finding costs in the near term, but is expected to result in future reserve
additions at more favorable rates.
The Company has a portfolio of fixed-price contracts comprised of long-term
physical delivery contracts, energy swaps, collars, futures contracts, basis
<PAGE> 13
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
swaps and option agreements (collectively "Fixed-Price Contracts"). As of
March 31, 1998, the Company's Fixed-Price Contracts hedged 303 Bcfe of future
production at escalating fixed prices, representing 25% of its estimated
proved reserves. These fixed prices are presently significantly higher than
the forward market prices for natural gas. Over the past few years,
competition in Fixed-Price Contracts has increased, opportunities for
attractive Fixed-Price Contracts have diminished and spot prices for natural
gas are higher than nearby forward market prices. In response to these
changes, a progressively smaller share of the Company's production and reserve
growth has been hedged due to a reluctance to sell into the prevailing forward
market where prices trend down or are essentially flat over the next several
years. More recent hedging activity has been for shorter periods of time,
generally less than 12 months, when market conditions have been viewed as
favorable. The Company may decide to hedge a greater or smaller share of
production in the future depending upon market conditions, capital investment
considerations and other factors. See "Fixed-Price Contracts".
Forward-Looking Statements. All statements in this document concerning the
Company other than purely historical information (collectively
"Forward-Looking Statements") reflect the current expectations of management
and are based on the Company's historical operating trends, its proved reserve
and Fixed-Price Contract positions and other information currently available
to management. Such Forward-Looking Statements include, among others,
statements regarding the Company's future drilling plans and objectives and
related exploration and development budgets and number and location of planned
wells, and statements regarding the quality of the Company's properties and
potential reserve and production levels. These statements assume, among other
things, that no significant changes will occur in the operating environment
for the Company's oil and gas properties and that there will be no material
acquisitions or divestitures except as disclosed herein. The Company cautions
that the Forward-Looking Statements are subject to all the risks and
uncertainties incident to the acquisition, development and marketing of and
exploration for oil and gas reserves. These risks include, but are not
limited to, commodity price risks, counterparty risks, drilling risks,
reserves, operations or production risks. Certain of these risks are
described herein and in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997. Moreover, the Company may make material acquisitions
and modify its Fixed-Price Contract positions by entering into new contracts
or terminating existing contracts or entering into financing transactions.
None of these can be predicted with certainty and, accordingly, are not taken
into consideration in the Forward-Looking Statements made herein. For all of
the foregoing reasons, actual results may vary materially from the
Forward-Looking Statements and there is no assurance that the assumptions used
are necessarily the most likely. The Company disclaims any obligation or
undertaking to release publicly any updates regarding any changes in the
Company's expectations with regard to the subject matter of any
Forward-Looking Statements or any changes in events, conditions or
circumstances on which any Forward-Looking Statements are based.
<PAGE> 14
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Certain Definitions. As used herein, the abbreviations listed below are
defined as follows:
Bbl. 42 U.S. gallons, the basic unit for measuring crude oil and natural
gas condensate.
Bcf. Volume of one billion cubic feet.
Bcfe. Bcf equivalent, determined using the ratio of one Bbl of oil or
condensate to six Mcf of natural gas.
BBtu. Billion Btus.
Btu. British thermal unit, which is the quantity of heat required to raise
the temperature of a one-pound mass of water from 58.5 to 59.5
degrees Fahrenheit.
MBbls. Volume of one thousand barrels.
Mcf. Volume of one thousand cubic feet, the basic unit for measuring
natural gas.
Mcfe. Mcf equivalent, determined using the ratio of one Bbl of oil or
condensate to six Mcf of natural gas.
MMBbls. Volume of one million barrels.
MMBtu. Million Btus.
MMcf. Volume of one million cubic feet.
MMcfe. MMcf equivalent, determined using the ratio of one Bbl of oil or
condensate to six Mcf of natural gas.
TBtu. Trillion Btus.
<PAGE> 15
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Selected Operating Data. The following table provides certain operating
data relating to the Company's operations.
<TABLE>
<CAPTION>
SELECTED OPERATING DATA
Three Months Ended
March 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Oil and Gas Sales: (M$)
Wellhead oil sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,517 $ 11,485
Effect of Fixed-Price Contracts (1) . . . . . . . . . . . . . . . . . . . (109) 496
-------- --------
Total oil sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,408 $ 11,981
======== ========
Wellhead natural gas sales. . . . . . . . . . . . . . . . . . . . . . . . $ 46,596 $ 52,335
Effect of Fixed-Price Contracts (1) . . . . . . . . . . . . . . . . . . . (4,238) 3,598
-------- --------
Total natural gas sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,358 $ 55,933
======== ========
PRODUCTION:
Oil production (MBbls). . . . . . . . . . . . . . . . . . . . . . . . . . 423 825
Natural gas production (MMcf) . . . . . . . . . . . . . . . . . . . . . . 15,476 24,954
Net equivalent production (MMcfe) . . . . . . . . . . . . . . . . . . . . 18,012 29,903
Oil production hedged by Fixed-Price Contracts (MBbls). . . . . . . . . . 180 79
Gas production hedged by Fixed-Price Contracts (BBtu) . . . . . . . . . . 8,809 11,330
AVERAGE SALES PRICE:
Oil (per Bbl):
Wellhead price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22.52 $ 13.93
Effect of Fixed-Price Contracts (1) . . . . . . . . . . . . . . . . . . (.26) .60
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22.26 $ 14.53
======== ========
Average fixed price received under Fixed-Price Contracts. . . . . . . . $ 22.32 $ 22.20
Net effective realization (2) . . . . . . . . . . . . . . . . . . . . . 99% 92%
Natural gas (per Mcf):
Wellhead price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.01 $ 2.10
Effect of Fixed-Price Contracts (1) . . . . . . . . . . . . . . . . . . (.27) .14
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.74 $ 2.24
======== ========
Average fixed price received under Fixed-Price Contracts. . . . . . . . $ 2.50 $ 2.62
Net effective realization (2) . . . . . . . . . . . . . . . . . . . . . 102% 92%
Equivalent price (per Mcfe) . . . . . . . . . . . . . . . . . . . . . . . $ 2.87 $ 2.27
EXPENSES: (per Mcfe)
Operating costs:
Lease operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .47 $ .45
Production taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 .12
General and administrative. . . . . . . . . . . . . . . . . . . . . . . . .22 .21
Depreciation, depletion and amortization - oil and gas. . . . . . . . . . .81 1.03
(1) - Represents the hedging results from the Company's Fixed-Price Contracts. See
"Fixed-Price Contracts."
(2) - Represents the net effective price realized for the Company's hedged production (after
consideration for basis results and amortization of deferred hedging gains and losses) as
a percentage of the fixed prices in the Company's Fixed-Price Contracts. See
"Fixed-Price Contracts."
</TABLE>
<PAGE> 16
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1997
Net Income (Loss) and Cash Flows from Operating Activities. For the quarter
ended March 31, 1998, the Company realized a net loss of $2.0 million, or
$0.05 per share, on total revenue of $69.6 million. This compares with net
income of $14.0 million, or $.50 per share, on total revenue of $61.1 million
for the first quarter of 1997. Cash flows from operating activities (before
working capital changes) for the first quarter of 1998 were $36.1 million
compared to $30.4 million reported for the first quarter of 1997, an increase
of 19%. The decrease in first quarter 1998 earnings was primarily the result
of lower oil and gas prices, a higher depletion rate per Mcfe and higher
geological and geophysical expenditures made during the first quarter of 1998.
In addition, net income for the first quarter of 1997 included a $5.5 million
after-tax gain on the sale of a West Texas waterflood property. The increase
in cash flows provided by operating activities (before working capital
changes) was primarily driven by significant production growth as described
below. Cash flows provided by operating activities after consideration of the
net change in working capital decreased to $29.3 million from the $29.6
million reported for the first quarter of 1997, primarily due to a decrease in
accounts payable.
Production. The Company produced 29.9 Bcfe for the first quarter of 1998
compared to 18.0 Bcfe for the prior-year first quarter, an increase of 66%.
Gas production increased to 25.0 Bcf compared to 15.5 Bcf for the first
quarter of 1997, an increase of 61%. Oil production for the first quarter of
1998 increased 95% to 825 MBbls compared to 423 MBbls for the prior-year first
quarter. These increases are primarily attributable to the American
Acquisition and the results of the Company's exploration and development
drilling activities.
Oil and Gas Prices. On a natural gas equivalent basis, the Company received
an average price of $2.27 per Mcfe for the quarter ended March 31, 1998, a
decrease of 21% from the $2.87 received for the first quarter of 1997. The
Company's gas production yielded an average price of $2.24 per Mcf, a decrease
of 18% compared to $2.74 per Mcf for the prior-year first quarter. The
Company's average gas price for the 1998 first quarter was enhanced $.14 per
Mcf as a result of the Company's hedging activities. The average gas price
for the first quarter of 1997 was reduced $.27 as a result of the Fixed-Price
Contracts in effect for that period. The average oil price for the first
quarter of 1998 was $14.53 per Bbl compared to $22.26 per Bbl for the
prior-year first quarter. The 1998 first quarter average oil price was
enhanced $.60 per Bbl as a result of the Company's hedging activities.
Fixed-Price contracts in effect during the first quarter of 1997 decreased the
average oil price by $.26 per Bbl.
The combination of higher gas production and lower gas prices increased gas
sales to $55.9 million for the first quarter of 1998 compared to $42.4 million
for the first quarter of 1997. The net effect of higher oil production and
lower oil prices increased oil sales to $12.0 million compared to $9.4 million
<PAGE> 17
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
reported for the prior-year quarter. The aggregate impact of the Company's
oil and gas hedging activities was to increase oil and gas sales by $4.1
million for the quarter ended March 31, 1998 and to decrease oil and gas sales
by $4.3 million for the quarter ended March 31, 1997. See "Fixed-Price
Contracts."
Other Income. Other income for the first quarter of 1998 was $1.7 million
compared to $9.3 million for the first quarter of 1997. The 1997 amount
included a net gain of $8.5 million realized upon the sale of a non-core West
Texas waterflood property.
Operating Costs. Operating costs for the first quarter of 1998 were
comprised of $13.4 million of lease operating expenses and $3.6 million of
production taxes. This compares to $8.4 million of lease operating expenses
and $2.9 million of production taxes for the first quarter of 1997. These
increases are principally attributable to producing properties acquired and
wells drilled during the previous twelve months. Lease operating expenses on
a natural gas equivalent unit of production basis improved to $.45 per Mcfe
compared to $.47 for the three months ended March 31, 1997.
General and Administrative Expense. General and administrative expense
("G&A") for the first quarter of 1998 was $6.2 million, an increase of 55%
from the prior-year first quarter amount of $4.0 million. This increase is
primarily attributable to increases in personnel and related costs as a result
of the American Acquisition. On a natural gas equivalent unit of production
basis, G&A decreased 5% to $.21 per Mcfe for the 1998 first quarter compared
to $.22 for the first quarter of 1997.
Exploration Costs. Exploration costs, comprised of geological and
geophysical costs, exploratory dry holes and leasehold impairment costs, were
$7.6 million for the quarter ended March 31, 1998, compared to $2.2 million
for the first quarter of 1997. The 1998 amount consists of $4.1 million of
seismic acquisition and other geological and geophysical costs and $3.5
million of dry hole costs. The 1997 amount consists of $.7 million of seismic
acquisition costs, $1.0 million of dry hole costs and $.5 million of leasehold
costs.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization ("DD&A") for the first quarter of 1998 was $32.0 million compared
to $15.8 million for the prior-year first quarter. This increase in DD&A is
attributable to higher production levels and an increase in the oil and gas
DD&A rate. The oil and gas DD&A rate per equivalent unit of production was
$1.03 for the 1998 first quarter compared to $.81 for the first quarter of
1997. This increase was due primarily to the American Acquisition purchase
price allocated to proved reserves using the purchase method of accounting.
Interest Expense. Interest expense for the first quarter of 1998 was $10.0
million compared to $6.3 million for the first quarter of 1997. This increase
is primarily attributable to a higher level of outstanding indebtedness for
<PAGE> 18
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
the 1998 first quarter as a result of the American Acquisition. On a natural
gas equivalent unit of production basis, interest costs improved to $.34 per
Mcfe compared to $.35 per Mcfe for the first quarter of 1997. The net impact
of interest rate swaps in effect for the first quarter of 1998 and 1997 was
not material. See "Capital Resources and Liquidity -- Credit Facility."
Income Taxes. For the first quarter of 1998, the Company recorded a tax
benefit of $1.3 million on a pre-tax loss of $3.3 million, an effective rate
of 38%. This compares to an income tax provision of $7.6 million provided on
pre-tax income of $21.6 million, an effective rate of 35%, for the first
quarter of 1997. The effective rate for the first quarter of 1997 was lower
than the statutory rate primarily due to the availability of Section 29
credits.
CAPITAL RESOURCES AND LIQUIDITY
Cash Flows. The Company's business of acquiring, exploring and developing
oil and gas properties is capital intensive. The Company's ability to grow
its reserve base is contingent, in part, upon its ability to generate cash
flows from operating activities and to access outside sources of capital to
fund its investing activities. For the quarters ended March 31, 1997 and
1998, the Company expended $34.8 million and $61.1 million, respectively, in
oil and gas property acquisition, exploration and development activities,
representing substantially all of the cash flows invested by the Company
during the three-month periods. See "Commitments and Capital Expenditures."
Cash flows from operating activities before changes in working capital for the
quarters ended March 31, 1997 and 1998 were $30.4 million and $36.1 million,
representing 87% and 59%, respectively, of the oil and gas property
investments made for each quarter. Substantially all of the cash flows from
operating activities are generated from oil and gas sales which are highly
dependent upon oil and gas prices. Significant decreases in the market prices
of oil or gas could result in lower cash flows from operating activities,
which could, in turn, impact the amount of capital invested by the Company.
See "Fixed-Price Contracts."
The Company received net proceeds of $26.2 million in connection with the
January 1997 sale of a non-core West Texas waterflood property. The proceeds
were applied initially to outstanding indebtedness. As a result, cash flows
from financing activities for the first quarter of 1997 reflected a net
application of cash of $18.6 million, compared to a $33.7 source of cash for
the first quarter of 1998. Historically, the Company has relied upon
availability under various revolving bank credit facilities and proceeds from
the issuance of senior and subordinated notes to fund its investing
activities.
The Company's EBITDAX increased from $45.8 million in the first quarter of
1997 to $46.4 million in the first quarter of 1998. EBITDAX is defined herein
as income (loss) before interest, income taxes, DD&A, impairments and
exploration costs. Increases in EBITDAX have occurred primarily as a result
of increases in the Company's oil and gas sales. LNDG believes that EBITDAX
<PAGE> 19
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
is a financial measure commonly used in the oil and gas industry as an
indicator of a company's ability to service and incur debt. However, EBITDAX
should not be considered in isolation or as a substitute for net income, cash
flows provided by operating activities or other data prepared in accordance
with generally accepted accounting principles, or as a measure of a company's
profitability or liquidity. EBITDAX measures as presented may not be
comparable to other similarly titled measures of other companies.
Credit Facility. In October 1997, in connection with the American
Acquisition, the Company replaced its $300 million borrowing base credit
facility with a new $550 million revolving credit facility (the "Credit
Facility"). Upon the issuance of senior notes in December 1997, the Company
reduced the aggregate commitment under the Credit Facility to $450 million
(the "Commitment"). The Credit Facility allows the Company to draw on the
full $450 million credit line without restrictions tied to periodic
revaluations of its oil and gas reserves provided the Company continues to
maintain an investment grade credit rating from either Standard & Poor's
Ratings Service or Moody's Investors Service. A borrowing base can be
required only upon the vote by a majority in interest of the lenders after the
loss of an investment grade credit rating. Letters of credit are limited to
$75 million of such availability. No principal payments are required under
the Credit Facility prior to termination on October 14, 2002. The Company has
relied upon the Credit Facility and the predecessor bank facility to provide
funds for acquisitions and to provide letters of credit to meet the Company's
margin requirements under Fixed-Price Contracts. As of March 31, 1998, the
Company had $300.0 million of principal and $5.0 million of letters of credit
outstanding under the Credit Facility.
The Company has the option of borrowing at a LIBOR-based interest rate or
the Base Rate (approximating the prime rate). The LIBOR interest rate margin
and the facility fee payable under the Credit Facility are subject to a
sliding scale based on the Company's senior debt credit rating. At March 31,
1998, the applicable interest rate was LIBOR plus 30 basis points. The Credit
Facility also requires the payment of a facility fee equal to 15 basis points
of the Commitment. At March 31, 1998, the effective interest rate for
borrowings under the Credit Facility was 6.2%, including the effect of
interest rate swaps. See the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 for an expanded discussion of the Company's interest rate
swaps. The Credit Facility contains various affirmative and restrictive
covenants which, among other things, limit total indebtedness to $700 million
($625 million of senior indebtedness) and require the Company to meet certain
financial tests. Borrowings under the Credit Facility are unsecured.
6 7/8% Senior Notes due 2007. In December 1997, the Company issued $200
million principal amount, $198.8 million net of discount, of 6 7/8% Senior
Notes due 2007. Interest is payable semi-annually on June 1 and December 1.
The associated indenture agreement contains restrictive covenants which place
limitations on the amount of liens and the Company's ability to enter into
<PAGE> 20
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
sale and leaseback transactions.
9 1/4% Subordinated Notes due 2004. In June 1994, the Company issued $100
million principal amount, $98.5 million net of discount, of 9 1/4% Senior
Subordinated Notes due 2004 (the "Subordinated Notes"). Interest is payable
semi-annually on June 15 and December 15. The associated indenture agreement
contains certain restrictive covenants which limit, among other things, the
prepayment of the Subordinated Notes, the incurrence of additional
indebtedness, the payment of dividends and the disposition of assets.
Other. The Company has certain other unsecured lines of credit available
to it which aggregated $42.8 million as of March 31, 1998. Such short-term
lines of credit are primarily used to meet margining requirements under
Fixed-Price Contracts and for working capital purposes. As of March 31, 1998,
the Company had $15.3 million of letters of credit outstanding under such
credit lines. Repayment of indebtedness thereunder is expected to be made
through Credit Facility availability.
The Company believes that the borrowing capacity available under the Credit
Facility, combined with the Company's internal cash flows, will be adequate to
finance the capital expenditure program planned for the balance of 1998, and
to meet the Company's margin requirements under its Fixed-Price Contracts.
See "Commitments and Capital Expenditures" and "Fixed-Price Contracts --
Margining." At March 31, 1998, the Company had working capital of $10.1
million and a current ratio of 1.1 to 1. Total long-term debt outstanding at
March 31, 1998 was $597.9 million. The Company's long-term debt as a
percentage of its total capitalization was 56%.
COMMITMENTS AND CAPITAL EXPENDITURES
The Company's primary business strategy is to increase oil and gas
production and reserves through acquisition, development and exploration
activities. For the quarter ended March 31, 1998, the Company expended $61.1
million in connection with this strategy, including $42.7 million for
development activities, $15.9 million for exploration activities, the majority
of which was leasehold and seismic costs, and $2.5 million for proved reserve
acquisitions. This expenditure level resulted in the drilling of 86
development wells and 14 exploratory wells. Of these wells, 76 development
wells and 9 exploratory wells were successfully completed as producers, for a
completion success rate of 88% and 64%, respectively (an overall success rate
of 85%). For the balance of 1998, the Company currently plans to spend
approximately $141 million in connection with its drilling program focused
principally in its Core Areas. Such planned expenditure levels include
approximately $62 million of additional exploratory drilling, leasehold and
seismic costs. Actual levels of development and exploration expenditures may
vary due to many factors, including drilling results, new drilling
opportunities, oil and natural gas prices and acquisition opportunities. For
the year, the Company plans to drill approximately 400 wells, including 340
development wells and 60 exploratory wells.
<PAGE> 21
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The Company continues to actively search for attractive proved reserve
acquisitions but is not able to predict the timing or amount of capital
expenditure which may be employed in acquisitions during 1998 and is not
currently obligated to make any material acquisitions.
FIXED-PRICE CONTRACTS
Description of Contracts. The Company has entered into Fixed-Price
Contracts to reduce its exposure to unfavorable changes in oil and gas prices
which are subject to significant and often volatile fluctuation. The
Company's Fixed-Price Contracts are comprised of long-term physical delivery
contracts, energy swaps, collars, futures contracts, basis swaps and option
agreements. These contracts allow the Company to predict with greater
certainty the effective oil and gas prices to be received for its hedged
production and benefit the Company when market prices are less than the fixed
prices provided in its Fixed-Price Contracts. However, the Company will not
benefit from market prices that are higher than the fixed prices in such
contracts for its hedged production. For the years ended December 31, 1995,
1996 and 1997, Fixed-Price Contracts hedged 84%, 51%, and 60% of the Company's
natural gas production not otherwise subject to fixed prices and 86%, 67% and
33% of its oil production, respectively. For the quarter ended March 31,
1998, Fixed-Price Contracts hedged 45% of the Company's natural gas production
and 10% of its oil production. As of March 31, 1998, Fixed-Price Contracts
are in place to hedge 303 Bcf of the Company's estimated future production
from proved gas reserves and none of its future oil production. See Note 5 of
the Condensed Notes to Consolidated Financial Statements, "Contingencies --
Fixed-Price Contracts," appearing elsewhere in this document.
Subsequent to December 31, 1997, the Company entered into five additional
fixed-price collars of 1.2 TBtu each which hedge an aggregate of 6.1 TBtu of
natural gas from June through September 1998. The collars contain floor
prices ranging from $2.10 MMBtu to $2.68 MMBtu and ceiling prices ranging from
$2.41 MMBtu to $2.99 MMBtu. For an expanded discussion of the Company's
Fixed-Price Contracts, see the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
OUTLOOK FOR FISCAL 1998
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Outlook for Fiscal Year 1998" included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997 for an expanded discussion of 1998 estimates. Subject to the
uncertainties identified in "Forward-Looking Statements," no material
modifications to previously disclosed estimates are deemed necessary.
YEAR 2000 COMPLIANCE
The Company has been addressing the computer issues surrounding the ability
to appropriately account for periods and dates after December 31, 1999, both
in its offices and field locations. Many of the software applications
<PAGE> 22
LOUIS DREYFUS NATURAL GAS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
utilized by the Company are presently year 2000 compliant and the remaining
applications used internally are expected to be compliant by year end 1998.
The estimated cost of such compliance in the aggregate is not expected to be
material. The Company has additionally formed a task force to identify
situations where the Company may be exposed to year 2000 compliance by third
parties and to monitor the progress, to the extent information can be
obtained, of third parties as deemed appropriate. No assurance can be given,
however, that all material issues will have been identified, or that all third
parties will be compliant by the year 2000.
<PAGE> 23
LOUIS DREYFUS NATURAL GAS CORP.
PART II. OTHER INFORMATION
Item 1 -- None
Item 2 -- Recent Sales of Unregistered Securities
In April 1998, the Company transferred a total of 55,000 shares
of its common stock to the trustee of a rabbi trust created by the
Company for the benefit of four senior executive officers of the
Company in exchange for an agreement on the part of such officers to
terminate their participation in another executive compensation plan
maintained by an affiliate of the Company. The shares were
transferred on the basis that no "sale" of the shares were involved
or, alternatively, in reliance on the private placement exemption
from registration under Section 4 (2) of the Securities Act of 1933.
Item 3 -- None
Item 4 -- None
Item 5 -- None
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 -- Form of Change in Control Agreements between Registrant and
Messrs. Mark E. Monroe, Jeffrey A. Bonney, Richard E. Bross,
Ronnie K. Irani and Kevin R. White.
10.2 -- Louis Dreyfus Natural Gas Corp. Deferred Stock Trust Agreement
dated April 14, 1998.
10.3 -- Deferred Stock Award Agreement dated March 31, 1998 between
Registrant and Mark E. Monroe.
10.4 -- Deferred Stock Award Agreement dated March 31, 1998 between
Registrant and Richard E. Bross.
10.5 -- Deferred Stock Award Agreement dated March 31, 1998 between
Registrant and Ronnie K. Irani.
10.6 -- Deferred Stock Award Agreement dated March 31, 1998 between
Registrant and Kevin R. White.
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K:
A Form 8-K dated February 3, 1998 disclosing under Item 7 the financial
results of the Company for the three months and the year ended December
31, 1997.
A Form 8-K dated February 6, 1998 disclosing under Item 5 the following
information:
(1) The financial results of American Exploration Company for the three
months and nine months ended September 30, 1996 and 1997 and the
financial position of American Exploration Company as of December 31,
1996 and September 30, 1997.
<PAGE> 24
LOUIS DREYFUS NATURAL GAS CORP.
PART II. OTHER INFORMATION (continued)
(2) Pro forma financial results of the Company for the nine months ended
September 30, 1997 and the pro forma financial position of the
Company as of September 30, 1997, giving effect to the acquisition of
American Exploration Company.
<PAGE>
<PAGE> 25
LOUIS DREYFUS NATURAL GAS CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOUIS DREYFUS NATURAL GAS CORP.
---------------------------------------
(Registrant)
Date: May 14, 1998 /s/ Jeffrey A. Bonney
---------------------------------------
Jeffrey A. Bonney
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet at March 31, 1998 and the unaudited
consolidated statement of income for the three months ended March 31, 1998 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,543
<SECURITIES> 0
<RECEIVABLES> 76,117
<ALLOWANCES> (1,119)
<INVENTORY> 7,665
<CURRENT-ASSETS> 91,208
<PP&E> 1,458,794
<DEPRECIATION> (337,078)
<TOTAL-ASSETS> 1,221,820
<CURRENT-LIABILITIES> 81,124
<BONDS> 597,911
0
0
<COMMON> 401
<OTHER-SE> 466,983
<TOTAL-LIABILITY-AND-EQUITY> 1,221,820
<SALES> 67,914
<TOTAL-REVENUES> 69,596
<CGS> 17,021
<TOTAL-COSTS> 72,891
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,046
<INCOME-PRETAX> (3,295)
<INCOME-TAX> (1,252)
<INCOME-CONTINUING> (2,043)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,043)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
EXHIBIT 10.1
<PAGE> 1
FORM OF CHANGE OF CONTROL AGREEMENT
<PAGE> 2
CHANGE OF CONTROL AGREEMENT
This change of control agreement ("Agreement") is entered into effective
as of January 1, 1998, by and between Louis Dreyfus Natural Gas Corp. ("LDNG")
and ("Executive").
---------
WHEREAS, LDNG desires to retain certain key employee personnel and,
accordingly, the Board of Directors of LDNG has approved LDNG entering into a
change of control agreement with Executive in order to encourage Executive's
continued service to LDNG;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, LDNG and Executive agree as follows:
1. DEFINITIONS.
(a) "Change in Duties" shall mean the occurrence, within two years after
the date upon which a Change of Control occurs, of any one or more
of the following:
(i) a reduction in Executive's annual salary from the level in
effect immediately prior to the Change of Control;
(ii) failure of LDNG or its successor to provide Executive with an
annual bonus, incentive compensation or other employee benefits
(including but not limited to medical, dental, life insurance,
accidental, death and long-term disability plans) that are
materially consistent with such annual bonuses, incentive
compensation or other employee benefits provided by LDNG or its
successor to executives with comparable duties;
(iii) a significant adverse alteration in the nature or status of
Executive's duties, title, responsibilities, or the conditions
of Executive's employment from those in effect immediately
prior to such Change in Control; or
(iv) a change in the location of Executive's principal place of
employment by LDNG or its successor by more than 50 miles from
the location where Executive was principally employed
immediately prior to the date on which a Change of Control
occurs.
(b) "Change of Control" shall mean the occurrence after the effective
date of this Agreement of:
(i) An acquisition (other than directly from LDNG) of any voting
securities of LDNG (the "Voting Securities") by any "Person"
(as the term person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934 (the "Exchange
<PAGE> 3
Act")) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of fifty percent (50%) or more of the
combined voting power of LDNG's then outstanding Voting
Securities;
(ii) The individuals who, as of the effective date of this
Agreement, are members of the Board of Directors of LDNG (the
"Incumbent Board"), cease for any reason to constitute at least
two-thirds of the members of the Board of Directors of LDNG
(the "Board"); provided, however, that if the election, or
nomination for election by LDNG's common stockholders, of any
new director was approved by a vote of at least two-thirds of
the Incumbent Board, such new director shall, for purposes of
this Agreement, be considered as a member of the Incumbent
Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "election contest" (as described in Rule 14A-11
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(iii) Approval by stockholders of LDNG of:
(A) A merger, consolidation or reorganization involving LDNG,
unless:
(1) the stockholders of LDNG, immediately before such
merger, consolidation or reorganization, own directly
or indirectly immediately following such merger,
consolidation or reorganization, at least sixty
percent (60%) of the combined voting power of the
outstanding voting securities of the corporation
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their
ownership of the Voting Securities immediately before
such merger, consolidation or reorganization,
(2) the individuals who were members of the Incumbent
Board immediately prior to the execution of the
agreement providing for such merger, consolidation or
reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving
Corporation, and
(3) no person other than (a) LDNG, any subsidiary, any
employee benefit plan (or any trust forming a part
thereof) maintained by LDNG, the Surviving
Corporation, or any subsidiary, (b) S.A. Louis
<PAGE> 4
Dreyfus et Cie ("SALD") or a corporation or other
entity that is directly or indirectly more than 50%
owned by SALD, or (c) any Person who, immediately
prior to such merger, consolidation or reorganization
had Beneficial Ownership of fifty percent (50%) or
more of the then outstanding Voting Securities, has
Beneficial Ownership of fifty percent (50%) or more
of the combined voting power of the Surviving
Corporation's then outstanding voting
securities;
(B) A complete liquidation or dissolution of LDNG; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of LDNG to any Person
(other than a transfer to a subsidiary).
Notwithstanding the foregoing, a Change of Control shall not be
deemed to occur:
(i) Solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted percent of
the outstanding Voting Securities as a result of the
acquisition of Voting Securities by LDNG which, by
reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially
Owned by the Subject Person, provided that if a Change of
Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting
Securities by LDNG, and after such share acquisition by
LDNG, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities
Beneficially Owned by the Subject Person, then a Change of
Control shall occur or
(ii) By reason of any acquisition of Voting Securities by a
corporation or entity that is directly or indirectly at
least 50% owned by SALD.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Compensation" shall mean the sum of:
(i) Executive's annual salary immediately prior to the date on
which a Change of Control occurs; and
(ii) an annual average bonus computed by dividing the total
cash bonuses received by Executive during the three years
immediately prior to the date on which a Change of
Control occurs by three or, in the event Executive has
been employed by LDNG for less than three years prior to
<PAGE> 5
the date on which a Change of Control occurs, the annual
average bonus shall be computed by dividing the total cash
bonuses received by Executive during the period of
employment immediately prior to the date on which a Change
of Control occurs (the "Period") by the number, carried to
two decimal places, determined by dividing the number of
days in the Period by 365.
(e) "Involuntary Termination" shall mean any termination of Executive's
employment with LDNG or its successor other than (i) Termination for
Cause, (ii) termination as a result of death or disability under
circumstances entitling Executive to benefits under LDNG's long-term
disability plan, (iii) Retirement, or (iv) resignation by Executive
except resignation on or before the date which is ninety days after
the date upon which Executive receives notice of a Change in Duties.
(f) "Retirement" shall mean Executive's resignation on or after the date
Executive reaches age sixty-five.
(g) "Severance Amount" shall mean an amount equal to two times
Executive's Compensation.
(h) "Termination for Cause" shall mean an Executive's termination of
employment with LDNG or its successor because of:
(i) the continued failure by the Executive to devote reasonable
time and effort to the performance of Executive's duties after
written demand for improved performance has been delivered to
the Executive by LDNG which specifically identifies how
Executive has not devoted reasonable time and effort to the
performance of Executive's duties; or
(ii) the willful engaging by Executive in misconduct which is
materially injurious to LDNG, monetarily or otherwise.
2. SEVERANCE BENEFITS. If Executive's employment by LDNG or its successor
is subject to an Involuntary Termination which occurs within two years
after the date upon which a Change of Control occurs, then Executive
shall be entitled to receive, as additional compensation for services
rendered to LDNG or its successor, a lump sum cash payment in an amount
equal to Executive's Severance Amount. The severance benefits payable
under this Paragraph shall be paid to Executive on or before the fifth
day after the last day of Executive's employment with LDNG or its
successor. Any severance benefits paid pursuant to this Paragraph will
be deemed to be a severance payment and not compensation for purposes
of determining benefits under LDNG's qualified plans and shall be
subject to any required tax withholding.
3. PARACHUTE PAYMENT PROVISIONS. If the severance benefits provided for
in Paragraph 2, together with any other payments which Executive has
the right to receive from LDNG or its successor, would constitute a
"parachute payment" (as defined in Section 280G(b)(2) of the Code),
Executive may elect to have the severance benefits provided hereunder
<PAGE> 6
reduced (but not below zero) so that the present value of such total
amounts received by Executive from LDNG or its successor will be one
dollar ($1.00) less than three times Executive's base amount (as
defined in Section 280G of the Code) and so that no portion of such
amounts received by Executive shall be subject to the excise tax
imposed by Section 4999 of the Code.
4. TERM. Within ninety days after January 1, 2000, and within ninety days
after each successive two-year period of time thereafter that this
Agreement is in effect, LDNG shall have the right to review this
Agreement, and in its sole discretion either continue and extend this
Agreement, terminate this Agreement, and/or offer Executive a different
agreement. LDNG will notify Executive of such action within said ninety
day period. This Agreement shall remain in effect until so terminated
and/or modified by LDNG. Failure of LDNG to take any action within said
ninety day period shall be considered as an extension of this Agreement
for an additional two-year period of time. If a Change of Control
occurs while this Agreement is in effect, then this Agreement shall
not be subject to termination or modification and shall remain in force
for a period of two years after such Change of Control, and if within
said two years the contingency factors occur which would entitle
Executive to the benefits as provided herein, this Agreement shall
remain in effect in accordance with its terms.
5. GENERAL.
(a) SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of LDNG and any successor of LDNG, by merger or otherwise.
This Agreement shall also be binding upon and inure to the benefit
of the Executive and Executive's estate. If Executive shall die
prior to full payment of amounts due pursuant to this Agreement,
such amounts shall be payable pursuant to the terms of this
Agreement to Executive's estate.
(b) SEVERABILITY. Any provision in this Agreement which is prohibited
or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating or
affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
(c) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Oklahoma.
(d) RELEASE. As a condition to the receipt of any benefit under
Paragraph 2 hereof, Executive shall first execute a release, in
the form established by LDNG, releasing LDNG, its shareholders,
officers, directors, employees and agents from any and all claims
and from any and all causes of action of any kind or character,
including but not limited to all claims or causes of action
arising out of Executive's employment with LDNG or the termination
<PAGE> 7
of such employment.
(e) UNFUNDED OBLIGATION. The obligation to pay amounts under this
Agreement is an unfunded obligation of LDNG and no such obligation
shall create a trust or be deemed to be secured by any pledge or
encumbrance on any property of LDNG.
(f) NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be deemed
to constitute a contract of employment, nor shall any provision
hereof effect (i) the right of LDNG to discharge Executive at will
or (ii) the terms and conditions of any other agreement between
LDNG and Executive except as provided herein. No severance
compensation shall be payable hereunder as a result of any
termination of employment before a Change of Control.
(g) NONALIENATION. No benefit payable hereunder may be assigned,
pledged or mortgaged and shall not be subject to legal process or
attachment for claims of creditors of Executive except to the
extent required by applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day of March, 1998.
-----
"EXECUTIVE"
-------------------------------------
"LDNG"
LOUIS DREYFUS NATURAL GAS CORP.
-------------------------------------
EXHIBIT 10.2
<PAGE> 1
LOUIS DREYFUS NATURAL GAS CORP.
DEFERRED STOCK TRUST AGREEMENT
This Trust Agreement ("Trust Agreement") is made effective this 14th day
of April, 1998 by and between Louis Dreyfus Natural Gas Corp. ("Company") and
Bank of Oklahoma, N.A. ("Trustee");
WHEREAS, the Company has awarded 55,000 shares ("Shares") of common stock
as deferred stock awards ("Awards") which are intended to be a nonqualified
deferred compensation plan as described in Section 201(2) of the Employee
Retirement Income Security Act of 1974 as amended, ("ERISA").
WHEREAS, Company has incurred or expects to incur liability under the
terms of such Awards with respect to the individuals participating in such
Award or their beneficiaries ("Participant");
WHEREAS, Company desires to establish a trust ("Trust") and contribute to
the Trust the Shares to be held therein, subject to the claims of Company's
creditors in the event of Company's Insolvency, as herein defined, until paid
to Participants in such manner and at such times as specified in the Awards;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Award as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of ERISA;
NOW THEREFORE, the parties do hereby establish the terms of the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
ARTICLE I
ESTABLISHMENT OF TRUST
1.1 Deposits. The Trust is hereby established and the Company has
deposited or will deposit the Shares to be held, administered and disposed of
by Trustee as provided in this Trust Agreement. The Participants and the
number of Shares to be allocated to the account of each Participant are as
follows:
<PAGE> 2
NAME NUMBER OF SHARES
---- ----------------
Mark E. Monroe 20,000
Richard E. Bross 15,000
Ronnie K. Irani 15,000
Kevin R. White 5,000
------
Total 55,000
======
1.2 Irrevocable Trust. The Trust hereby established shall be
irrevocable.
1.3 Grantor Trust. The Trust is intended to be a grantor trust, of which
Company is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended
("Code"), and shall be construed accordingly.
1.4 Claims Against Trust. The principal of the Trust and any earnings
thereon shall be held separate and apart from other funds of Company and shall
be used exclusively for the uses and purposes of Participants and general
creditors as herein set forth. Participants shall have no preferred claim on,
or any beneficial ownership interest in, any assets of the Trust except for
the voting rights as described below. Any rights created under the Plan and
this Trust Agreement shall be mere unsecured contractual rights of
Participants against Company. Any assets held by the Trust shall be subject
to the claims of Company's general creditors under federal and state law in
the event of Insolvency, as defined in Section 3.1.
1.5 Additional Deposits. Company shall make additional deposits in trust
with Trustee as required by the Awards to be held, administered and disposed
of by Trustee as provided in this Trust Agreement. In the event that any cash
or property dividend is paid with respect to the Shares or in the event of any
subdivision or consolidation of the shares of stock of the Company or other
capital adjustment or the payment of a stock dividend or other increase or
decrease in the number of shares of Company stock outstanding effected without
receipt of consideration by the Company, the Company shall cause to be
deposited in the Trust the cash, property or securities that would be
otherwise payable with respect to any of the Shares that remain in the Trust
as if such Shares were fully entitled to participate in any such distribution.
1.6 Sale or Conversion of Shares. In the event the Shares are sold or
converted into the securities of another company ("Proceeds") in the manner
permitted by this Trust Agreement and the Shares or Proceeds are not
immediately distributed to Participants, such Proceeds shall be held by the
Trustee and invested in accordance with the provisions hereof and the Oklahoma
Uniform Prudent Investor Act until otherwise distributed at the direction of
the Company.
ARTICLE II
PAYMENTS TO PLAN PARTICIPANTS AND BENEFICIARIES
<PAGE> 3
2.1 Delivery of Shares. Certificates for Shares duly endorsed and ready
for transfer, together with any additional property or Proceeds previously
deposited with the Trustee as provided in Sections 1.5 and 1.6, shall be
delivered by the Trustee (i) to an individual Participant ("Terminating
Participant") after such Participant's termination of employment with the
Company for any reason other than a "termination for cause" at such time as
the Company authorizes delivery, which shall in any event be no more than one
year following termination of employment or (ii) to all Participants
immediately after a "Change in Control" of the Company. A Terminating
Participant shall forfeit his right to receive delivery of the Shares, other
property or Proceeds if during the one year period following his termination
of employment, he directly or indirectly solicits or induces any other
employee of the Company or its subsidiaries to terminate his or her employment
with the Company. The Company shall promptly direct the Trustee to make any
payments that are payable hereunder. The Trustee may rely on the accuracy of
these directions. The Trustee shall make provision for the reporting and
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the delivery of the Shares and any additional
property to a Participant and shall pay amounts withheld to the appropriate
taxing authorities or determine that such amounts have been withheld and paid
by the Company.
2.2 Termination for Cause. For purposes of this Trust Agreement, the
term "termination for cause" shall mean any discharge for violation of the
policies and procedures of the Company or for other job performance or conduct
which is detrimental to the best interest of the Company, as determined by the
Company in its sole discretion.
2.3 Change in Control. For purposes of this Trust Agreement the term
"Change in Control" of the Company shall mean the occurrence after the date
hereof:
(i) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d) or
14(d) of the Exchange Act) immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of fifty percent (50%) or more of the combined
voting power of the Company's then outstanding Voting Securities;
(ii) The individuals who, as of the date hereof, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the members of the Board; provided, however, that
if the election, or nomination for election by the Company's common
stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes
of this Plan, be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result
of either an actual or threatened 'election contest' (as described in
Rule 14A-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board (a "Proxy Contest") including by reason of
<PAGE> 4
any agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(iii) Approval by stockholders of the Company of:
(A) A merger, consolidation or reorganization involving the
Company, unless
(1) the stockholders of the Company, immediately before
such merger, consolidation or reorganization, own, directly or
indirectly immediately following such merger, consolidation or
reorganization, at least sixty percent (60%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the
same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization,
(2) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, and
(3) no Person, other than (a) the Company, any
Subsidiary, any employee benefit plan (or any trust forming a
part thereof) maintained by the Company, the Surviving
Corporation, or any Subsidiary, (b) S.A. Louis Dreyfus et Cie
("SALD") or a corporation or other entity that is directly or
indirectly more than 50% owned by SALD, or (c) any Person who,
immediately prior to such merger, consolidation or
reorganization had Beneficial Ownership of fifty percent (50%)
or more of the then outstanding Voting Securities, has
Beneficial Ownership of fifty percent (50%) or more of the
combined voting power of the Surviving Corporation's then
outstanding voting securities;
(B) A complete liquidation or dissolution of the Company; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than
a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur:
(i) Solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding
Voting Securities as a result of the acquisition of Voting Securities by
the Company which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares Beneficially
Owned by the Subject Person, provided that if a Change in Control would
occur (but for the operation of this sentence) as a result of the
<PAGE> 5
acquisition of Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the percentage
of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur or
(ii) By reason of any acquisition of Voting Securities by a
corporation or entity that is directly or indirectly more than 50% owned
by SALD
ARTICLE III
TRUSTEE'S RESPONSIBILITY UPON COMPANY'S INSOLVENCY
3.1 Cessation of Payment. Trustee shall cease payment of benefits to
Participants if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (a) Company is unable to
pay its debts as they become due, or (b) Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
3.2 Assets Subject to Claims. At all times during the continuance of
this Trust, the principal and income of the Trust shall be subject to claims
of general creditors of Company under federal and state law set forth below.
3.2.1 Notice of Insolvency. The Board of Directors and the Chief
Executive Officer of Company shall have the duty to inform Trustee in
writing of Company's Insolvency. If a person claiming to be a creditor
of Company alleges in writing to Trustee that Company has become
Insolvent, Trustee shall determine whether Company is Insolvent and,
pending such determination, Trustee shall discontinue payment of benefits
to Participants.
3.2.2 Duty of Inquiry. Unless Trustee has actual knowledge of
Company's Insolvency, or has received notice from Company or a person
claiming to be a creditor alleging that Company is Insolvent, Trustee
shall have no duty to inquire whether Company is Insolvent. Trustee may
in all events rely on such evidence concerning Company's solvency as may
be furnished to Trustee and that provides Trustee with a reasonable basis
for making a determination concerning Company's solvency.
3.2.3 Discontinuance of Benefits. If at any time Trustee has
determined that Company is Insolvent, Trustee shall discontinue payments
to Participants and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in
any way diminish any rights of Participants to pursue their rights as
general creditors of Company with respect to benefits due under the
Awards or otherwise.
3.2.4 Resumption of Benefits. Trustee shall resume the payment of
benefits to Participants in accordance with Article II of this Trust
<PAGE> 6
Agreement only after Trustee has determined that Company is not Insolvent
or is no longer Insolvent.
3.3 Continuation of Payments. Provided that there are sufficient assets,
if Trustee discontinues the payment of benefits from the Trust pursuant to
Section 3.2 hereof and subsequently resumes such payments, the first payment
following such discontinuance shall include the aggregate amount of all
payments due to Participants under the terms of the Awards for the period of
such discontinuance, less the aggregate amount of any payments made to
Participants by Company in lieu of the payments provided for hereunder during
any such period of discontinuance.
ARTICLE IV
INVESTMENT AUTHORITY
4.1 Reversion of Assets. Except as provided in Article III hereof,
Company shall have no right or power to direct Trustee to return to Company or
to divert to others any of the Trust assets before all payment of benefits
have been made to Participants pursuant to the terms of the Awards; provided,
however, the Company may direct the Trustee to return the Trust assets held in
the account of a Participant to the Company in the event such Participant's
employment is terminated for cause.
4.2 Securities and Voting Rights. The Trustee shall hold the Shares and
any additional property or Proceeds deposited with respect thereto as provided
in Sections 1.5 or 1.6. The Trustee shall not sell the Shares or any other
securities of the Company deposited hereunder and shall have no liability to
the Company or Participants with respect to any decline in value of the Shares
or other securities of the Company. Subject to the foregoing, all rights
associated with the Shares and any other assets of the Trust shall be
exercised by Trustee or the person designated by Trustee, and shall in no
event be exercisable by or vest with Participants; provided, however, that
each Participant shall be entitled to direct the Trustee (i) as to how the
Shares allocated to him shall be voted and the Trustee shall not vote the
Shares in the absence of specific instructions from such Participant; and (ii)
whether to sell or not sell the Shares allocated to him if a tender offer or
exchange offer is made for the common stock of the Company, and, in the
absence of such direction, the Trustee shall not be required to take any
action with respect to such offer and shall not be liable to the Participant
for any inaction.
4.3 Cash and Income Accumulation. Any cash dividends paid with respect
to the Shares shall be invested by the Trustee in money market funds or
similar short term interest bearing investments. During the term of this
Trust, all income received by the Trust, net of expenses and taxes, shall be
accumulated and reinvested.
4.4 Mutual Funds. The Trustee, at its own discretion where the Trustee
has discretion with respect to investments under this Trust Agreement or
<PAGE> 7
applicable law or upon the direction of any person authorized to direct
investments under this Trust Agreement, including but not limited to, an
investment manager, employer, Participant or advisory committee, may invest in
the securities of any open-end or closed-end investment management trust or
company registered under the Investment Company Act of 1940, as amended from
time to time, to the maximum extent permitted by the laws of the State of
Oklahoma and ERISA. Such securities include but are not limited to securities
for which the Trustee or any of its subsidiaries or affiliated companies
serves as an investment advisor, sponsor, distributor, custodian, transfer
agent, administrator, registrar, or otherwise.
4.5 Accounting. Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to
be made, and shall provide a written account thereof to the Company or any
Participant upon request. All accounts, books and records relating to the
Trust shall be kept open to inspection and audit at all reasonable times by
the Company and Participants insofar as such records relate to such
Participant's account.
4.6 Participant Accounts. The Trustee shall maintain separate accounts
for the benefit of each Participant which shall be credited with the Shares
allocated to each such Participant and any additional property deposited and
the earnings attributable thereto.
ARTICLE V
RESPONSIBILITY OF TRUSTEE
5.1 Fiduciary Standard. Trustee shall act with the care, skill, prudence
and diligence under the circumstances then prevailing that a prudent person
acting in like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims, provided,
however, that Trustee shall incur no liability to any person for any action
taken pursuant to a direction, request or approval given by Company or a
Participant which is contemplated by, and in conformity with, the terms of the
Awards or this Trust and is given in writing by Company or Participant. In
the event of a dispute between Company and a Participant, Trustee may apply to
a court of competent jurisdiction to resolve the dispute.
5.2 Indemnification. If Trustee undertakes or defends any litigation
arising in connection with this Trust, Company agrees to indemnify Trustee
against Trustee's costs, expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating thereto and to be liable
for such payments.
5.3 Consultation. Trustee may consult with legal counsel (who may also
be counsel for Company generally) with respect to any of its duties or
obligations hereunder.
5.4 Hiring of Professionals. Trustee may hire agents, accountants,
actuaries, investment advisors, financial consultants or other professionals
to assist it in performing any of its duties or obligations hereunder.
<PAGE> 8
5.5 Powers. Trustee shall have, without exclusion, all powers conferred
on Trustees by applicable law, unless expressly provided otherwise herein.
5.6 Tax Returns. Trustee shall not be responsible for tax return
preparation or filing, nor any reporting to any governmental agency of income
earned, but not distributed.
5.7 Other Business. Notwithstanding any powers granted to Trustee
pursuant to this Trust Agreement or applicable law, Trustee shall not have any
power that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of Section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Code.
5.8 Fees and Expenses. Company shall pay all administrative and
Trustee's fees and expenses.
ARTICLE VI
RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
6.1 Resignation. Trustee may resign at any time by written notice to
Company, which shall be effective 30 days after receipt of such notice unless
Company and Trustee agree otherwise.
6.2 Removal. Trustee may be removed by Company on 30 days notice or upon
shorter notice accepted by Trustee.
6.3 Appointment of Successor by Company. If Trustee resigns or is
removed in accordance with Section 6.1 or 6.2 hereof, Company may appoint a
successor trustee to replace Trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by Company or the successor
Trustee to evidence the transfer.
6.4 Court Appointed Trustee. If Trustee resigns or is removed, a
successor shall be appointed, in accordance with Sections 6.3 hereof, by the
effective date of resignation or removal. If no such appointment has been
made, Trustee may apply to a court of competent jurisdiction for appointment
of a successor or for instructions. All expenses of Trustee in connection
with the proceeding shall be allowed as administrative expenses of the Trust.
6.5 Indemnification of Successor Trustee. The successor Trustee need not
examine the records and acts of any prior Trustee and may retain or dispose of
existing Trust assets. The successor Trustee shall not be responsible for and
Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes
successor Trustee.
ARTICLE VII
AMENDMENT OR TERMINATION
<PAGE> 9
7.1 Amendment. This Trust Agreement may be amended by a written
instrument executed by Trustee and Company. Notwithstanding the foregoing, no
such amendment shall conflict with the terms of the Awards or shall make the
Trust revocable.
7.2 Termination. The Trust shall not terminate until the date on which
Participants are no longer entitled to benefits pursuant to the terms of any
Award. Upon termination of the Trust any assets remaining in the Trust shall
be returned to Company.
7.3 Termination with Approval of Participants. Upon written approval any
Participant entitled to payment of benefits pursuant to the terms of an Award,
Company may terminate this Trust as to such Participant prior to the time all
benefit payments under the Award have been made. All assets in the Trust held
for the benefit of such Participant at termination shall be returned to
Company.
ARTICLE VIII
MISCELLANEOUS
8.1 Severability. Any provision of this Trust Agreement prohibited by
law shall be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
8.2 Assignment of Benefits. Benefits payable to Participants under this
Trust Agreement may not be anticipated, assigned, either at law or in equity,
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process, except in the event of the
death of a Participant pursuant to the laws of descent and distribution or to
the Participant's designated beneficiary.
8.3 Governing Law. This Trust Agreement shall be governed by and
construed in accordance with the laws of Oklahoma.
8.4 No Relief of Company Obligation. The terms of this Trust Agreement
shall not be construed to relieve the Company from any obligation to
Participants under the Awards except to the extent the Company's
obligations are satisfied by delivery of the Shares and any other property as
provided herein.
TRUSTEE
BANK OF OKLAHOMA, N.A.
By:
--------------------------------
Authorized Officer
<PAGE> 10
COMPANY
LOUIS DREYFUS NATURAL GAS CORP.
By:
--------------------------------
Authorized Officer
EXHIBIT 10.3
<PAGE> 1
March 31, 1998
Mark E. Monroe
1909 SunValley Lane
Edmond OK 73034
Re: Deferred Stock Award
Dear Mark:
The terms of this letter when accepted by you will confirm the terms
and conditions of the deferred stock award ("Award") covering 20,000
("Shares") of common stock of Louis Dreyfus Natural Gas Corp.
("Company") being made to you in substitution of all of your existing
rights to your Stock Equivalent Rights under the Louis Dreyfus Deferred
Compensation Stock Equivalent Plan ("Parent Plan").
The Company agrees that the Shares shall be delivered to you (i)
upon your termination of employment with the Company for any reason
other than a "termination for cause" at such time as the Company may
determine but in any event within one year thereafter unless forfeited
as provided below; or (ii) immediately following the occurrence of a
"Change in Control." For purposes of this Award "termination for cause"
and "Change in Control" shall have the same meanings as defined in the
Company's Stock Option Plan as in effect on the date hereof. You will
forfeit your right to receive any undelivered Shares if within a period
of one year following your termination of employment, you directly or
indirectly solicit or induce any other employee of the Company or its
subsidiaries to terminate his or her employment with the Company.
Pending such delivery, the Company will cause certificates for the
Shares to be issued to Bank of Oklahoma, N.A., as trustee ("Trustee")
of the Louis Dreyfus Natural Gas Corp Deferred Stock Award Trust which
shall be a "Rabbi Trust" as contemplated by the Internal Revenue Code
of 1986, as amended ("Code") with provisions that (i) permit you to
direct the Trustee how to vote the Shares so that you will have the
sole voting rights with respect thereto; (ii) provide that any dividend
paid with respect to the Shares shall be held by the Trustee and
invested in an interest bearing account to be paid to you at the same
time as the Shares are delivered; and (iii) the Shares shall
participate in the subdivision or consolidation of shares of stock of
the Company or other capital adjustment or the payment of a stock
dividend or other increase or decrease in such shares effected without
receipt of consideration by the Company. In the event that additional
shares or other securities are issuable pursuant to any of the
foregoing events, the certificates for the additional shares or other
securities will be delivered to the Trustee pending ultimate delivery
to you in accordance with the terms of this Award.
<PAGE> 2
You agree to pay to the Company any amounts necessary (or make
arrangements satisfactory to the Company for such payments) to satisfy
any and all obligations of the Company to withhold federal or state
income or other taxes resulting from the inclusion in your wages and
gross income of any amounts incident to the delivery of the Shares to
you on termination of employment. If you and the Company agree, such
payment may be made by your surrendering a portion of the Shares having
a market value on the date of your termination of employment equal to
the amount of the payment due.
Nothing contained in this Award shall confer any right upon you
concerning continuation of employment with the Company or interfere in
any way with the right of Company to terminate your employment at any
time. Nothing in this Award shall be construed to prevent the Company
from taking any corporate action which is deemed by the Company to be
appropriate or in its best interest, whether or not such action will
have an adverse effect on you or this Award.
Your interests in this Award, the beneficial interest in the trust
or in the Shares may not be assigned either voluntarily or
involuntarily or by operation or law unless and until the Shares are
delivered to you, except in the event of your death pursuant to the
laws of descent and distribution or to your designated beneficiary.
By your acceptance of this Award, you hereby waive any and all
rights you now have with respect to your participation in the Parent
Plan (including your interest in the Stock Equivalent Right previously
awarded to you) which participation and awards shall be terminated and
of no further force and effect and you hereby release any claims you
may have against the Company, Louis Dreyfus Holding Company, Inc. and
Louis Dreyfus Energy Corp. or any of their affiliates or the Committee
which administers the Parent Plan with respect thereto. Your waiver
and release under this paragraph shall be for the benefit of, and be
enforceable by, each of them.
This Award shall constitute an unfunded promise by the Company to
deliver the Shares to you upon termination of employment as provided
above and you shall have no rights with respect to the Shares except
for the right to vote as provided above. Accordingly, no transfer of
the Shares shall occur for purposes of the Code until such delivery of
the Shares occurs.
This Agreement shall be subject to approval of the shareholders of
the Company if required by the rules of the New York Stock Exchange.
Please indicate your agreement to the foregoing by signing below and
returning a copy of this letter to me.
Very truly yours,
Simon B. Rich
<PAGE> 3
Chairman
Accepted and agreed to this 31st day of March, 1998.
-----------------------------
Mark E. Monroe
Acknowledged and approved this day of , 1998.
--- -----------
Louis Dreyfus Holding Company Inc.
By:
----------------------------
EXHIBIT 10.4
<PAGE> 1
March 31, 1998
Mr. Richard E. Bross
1924 S. Coltrane
Edmond, OK 73013
Re: Deferred Stock Award
Dear Richard:
The terms of this letter when accepted by you will confirm the terms
and conditions of the deferred stock award ("Award") covering 15,000
("Shares") of common stock of Louis Dreyfus Natural Gas Corp.
("Company") being made to you in substitution of all of your existing
rights to your Stock Equivalent Rights under the Louis Dreyfus Deferred
Compensation Stock Equivalent Plan ("Parent Plan").
The Company agrees that the Shares shall be delivered to you (i)
upon your termination of employment with the Company for any reason
other than a "termination for cause" at such time as the Company may
determine but in any event within one year thereafter unless forfeited
as provided below; or (ii) immediately following the occurrence of a
"Change in Control." For purposes of this Award "termination for cause"
and "Change in Control" shall have the same meanings as defined in the
Company's Stock Option Plan as in effect on the date hereof. You will
forfeit your right to receive any undelivered Shares if within a period
of one year following your termination of employment, you directly or
indirectly solicit or induce any other employee of the Company or its
subsidiaries to terminate his or her employment with the Company.
Pending such delivery, the Company will cause certificates for the
Shares to be issued to Bank of Oklahoma, N.A., as trustee ("Trustee")
of the Louis Dreyfus Natural Gas Corp Deferred Stock Award Trust which
shall be a "Rabbi Trust" as contemplated by the Internal Revenue Code
of 1986, as amended ("Code") with provisions that (i) permit you to
direct the Trustee how to vote the Shares so that you will have the
sole voting rights with respect thereto; (ii) provide that any dividend
paid with respect to the Shares shall be held by the Trustee and
invested in an interest bearing account to be paid to you at the same
time as the Shares are delivered; and (iii) the Shares shall
participate in the subdivision or consolidation of shares of stock of
the Company or other capital adjustment or the payment of a stock
dividend or other increase or decrease in such shares effected without
receipt of consideration by the Company. In the event that additional
shares or other securities are issuable pursuant to any of the
foregoing events, the certificates for the additional shares or other
securities will be delivered to the Trustee pending ultimate delivery
to you in accordance with the terms of this Award.
<PAGE> 2
You agree to pay to the Company any amounts necessary (or make
arrangements satisfactory to the Company for such payments) to satisfy
any and all obligations of the Company to withhold federal or state
income or other taxes resulting from the inclusion in your wages and
gross income of any amounts incident to the delivery of the Shares to
you on termination of employment. If you and the Company agree, such
payment may be made by your surrendering a portion of the Shares having
a market value on the date of your termination of employment equal to
the amount of the payment due.
Nothing contained in this Award shall confer any right upon you
concerning continuation of employment with the Company or interfere in
any way with the right of Company to terminate your employment at any
time. Nothing in this Award shall be construed to prevent the Company
from taking any corporate action which is deemed by the Company to be
appropriate or in its best interest, whether or not such action will
have an adverse effect on you or this Award.
Your interests in this Award, the beneficial interest in the trust
or in the Shares may not be assigned either voluntarily or
involuntarily or by operation or law unless and until the Shares are
delivered to you, except in the event of your death pursuant to the
laws of descent and distribution or to your designated beneficiary.
By your acceptance of this Award, you hereby waive any and all
rights you now have with respect to your participation in the Parent
Plan (including your interest in the Stock Equivalent Right previously
awarded to you) which participation and awards shall be terminated and
of no further force and effect and you hereby release any claims you
may have against the Company, Louis Dreyfus Holding Company, Inc. and
Louis Dreyfus Energy Corp. or any of their affiliates or the Committee
which administers the Parent Plan with respect thereto. Your waiver
and release under this paragraph shall be for the benefit of, and be
enforceable by, each of them.
This Award shall constitute an unfunded promise by the Company to
deliver the Shares to you upon termination of employment as provided
above and you shall have no rights with respect to the Shares except
for the right to vote as provided above. Accordingly, no transfer of
the Shares shall occur for purposes of the Code until such delivery of
the Shares occurs.
This Agreement shall be subject to approval of the shareholders of
the Company if required by the rules of the New York Stock Exchange.
Please indicate your agreement to the foregoing by signing below and
returning a copy of this letter to me.
Very truly yours,
Simon B. Rich
<PAGE> 3
Chairman
Accepted and agreed to this 31st day of March, 1998.
----------------------------
Richard E. Bross
Acknowledged and approved this day of , 1998.
--- -----------
Louis Dreyfus Holding Company Inc.
By:
----------------------------
EXHIBIT 10.5
<PAGE> 1
March 31, 1998
Mr. Ronnie K. Irani
3909 Timberline
Edmond OK 73013
Re: Deferred Stock Award
Dear Ronnie:
The terms of this letter when accepted by you will confirm the terms
and conditions of the deferred stock award ("Award") covering 15,000
("Shares") of common stock of Louis Dreyfus Natural Gas Corp.
("Company") being made to you in substitution of all of your existing
rights to your Stock Equivalent Rights under the Louis Dreyfus Deferred
Compensation Stock Equivalent Plan ("Parent Plan").
The Company agrees that the Shares shall be delivered to you (i)
upon your termination of employment with the Company for any reason
other than a "termination for cause" at such time as the Company may
determine but in any event within one year thereafter unless forfeited
as provided below; or (ii) immediately following the occurrence of a
"Change in Control." For purposes of this Award "termination for cause"
and "Change in Control" shall have the same meanings as defined in the
Company's Stock Option Plan as in effect on the date hereof. You will
forfeit your right to receive any undelivered Shares if within a period
of one year following your termination of employment, you directly or
indirectly solicit or induce any other employee of the Company or its
subsidiaries to terminate his or her employment with the Company.
Pending such delivery, the Company will cause certificates for the
Shares to be issued to Bank of Oklahoma, N.A., as trustee ("Trustee")
of the Louis Dreyfus Natural Gas Corp Deferred Stock Award Trust which
shall be a "Rabbi Trust" as contemplated by the Internal Revenue Code
of 1986, as amended ("Code") with provisions that (i) permit you to
direct the Trustee how to vote the Shares so that you will have the
sole voting rights with respect thereto; (ii) provide that any dividend
paid with respect to the Shares shall be held by the Trustee and
invested in an interest bearing account to be paid to you at the same
time as the Shares are delivered; and (iii) the Shares shall
participate in the subdivision or consolidation of shares of stock of
the Company or other capital adjustment or the payment of a stock
dividend or other increase or decrease in such shares effected without
receipt of consideration by the Company. In the event that additional
shares or other securities are issuable pursuant to any of the
foregoing events, the certificates for the additional shares or other
securities will be delivered to the Trustee pending ultimate delivery
to you in accordance with the terms of this Award.
<PAGE> 2
You agree to pay to the Company any amounts necessary (or make
arrangements satisfactory to the Company for such payments) to satisfy
any and all obligations of the Company to withhold federal or state
income or other taxes resulting from the inclusion in your wages and
gross income of any amounts incident to the delivery of the Shares to
you on termination of employment. If you and the Company agree, such
payment may be made by your surrendering a portion of the Shares having
a market value on the date of your termination of employment equal to
the amount of the payment due.
Nothing contained in this Award shall confer any right upon you
concerning continuation of employment with the Company or interfere in
any way with the right of Company to terminate your employment at any
time. Nothing in this Award shall be construed to prevent the Company
from taking any corporate action which is deemed by the Company to be
appropriate or in its best interest, whether or not such action will
have an adverse effect on you or this Award.
Your interests in this Award, the beneficial interest in the trust
or in the Shares may not be assigned either voluntarily or
involuntarily or by operation or law unless and until the Shares are
delivered to you, except in the event of your death pursuant to the
laws of descent and distribution or to your designated beneficiary.
By your acceptance of this Award, you hereby waive any and all
rights you now have with respect to your participation in the Parent
Plan (including your interest in the Stock Equivalent Right previously
awarded to you) which participation and awards shall be terminated and
of no further force and effect and you hereby release any claims you
may have against the Company, Louis Dreyfus Holding Company, Inc. and
Louis Dreyfus Energy Corp. or any of their affiliates or the Committee
which administers the Parent Plan with respect thereto. Your waiver
and release under this paragraph shall be for the benefit of, and be
enforceable by, each of them.
This Award shall constitute an unfunded promise by the Company to
deliver the Shares to you upon termination of employment as provided
above and you shall have no rights with respect to the Shares except
for the right to vote as provided above. Accordingly, no transfer of
the Shares shall occur for purposes of the Code until such delivery of
the Shares occurs.
This Agreement shall be subject to approval of the shareholders of
the Company if required by the rules of the New York Stock Exchange.
Please indicate your agreement to the foregoing by signing below and
returning a copy of this letter to me.
Very truly yours,
Simon B. Rich
<PAGE> 3
Chairman
Accepted and agreed to this 31st day of March, 1998.
----------------------------
Ronnie K. Irani
Acknowledged and approved this day of , 1998.
--- -----------
Louis Dreyfus Holding Company Inc.
By:
----------------------------
EXHIBIT 10.6
<PAGE> 1
March 31, 1998
Kevin R. White
9900 Hidden Hollow Lane
Edmond OK 73151
Re: Deferred Stock Award
Dear Kevin:
The terms of this letter when accepted by you will confirm the terms
and conditions of the deferred stock award ("Award") covering 5,000
("Shares") of common stock of Louis Dreyfus Natural Gas Corp.
("Company") being made to you in substitution of all of your existing
rights to your Stock Equivalent Rights under the Louis Dreyfus Deferred
Compensation Stock Equivalent Plan ("Parent Plan").
The Company agrees that the Shares shall be delivered to you (i)
upon your termination of employment with the Company for any reason
other than a "termination for cause" at such time as the Company may
determine but in any event within one year thereafter unless forfeited
as provided below; or (ii) immediately following the occurrence of a
"Change in Control." For purposes of this Award "termination for cause"
and "Change in Control" shall have the same meanings as defined in the
Company's Stock Option Plan as in effect on the date hereof. You will
forfeit your right to receive any undelivered Shares if within a period
of one year following your termination of employment, you directly or
indirectly solicit or induce any other employee of the Company or its
subsidiaries to terminate his or her employment with the Company.
Pending such delivery, the Company will cause certificates for the
Shares to be issued to Bank of Oklahoma, N.A., as trustee ("Trustee")
of the Louis Dreyfus Natural Gas Corp Deferred Stock Award Trust which
shall be a "Rabbi Trust" as contemplated by the Internal Revenue Code
of 1986, as amended ("Code") with provisions that (i) permit you to
direct the Trustee how to vote the Shares so that you will have the
sole voting rights with respect thereto; (ii) provide that any dividend
paid with respect to the Shares shall be held by the Trustee and
invested in an interest bearing account to be paid to you at the same
time as the Shares are delivered; and (iii) the Shares shall
participate in the subdivision or consolidation of shares of stock of
the Company or other capital adjustment or the payment of a stock
dividend or other increase or decrease in such shares effected without
receipt of consideration by the Company. In the event that additional
shares or other securities are issuable pursuant to any of the
foregoing events, the certificates for the additional shares or other
securities will be delivered to the Trustee pending ultimate delivery
to you in accordance with the terms of this Award.
<PAGE> 2
You agree to pay to the Company any amounts necessary (or make
arrangements satisfactory to the Company for such payments) to satisfy
any and all obligations of the Company to withhold federal or state
income or other taxes resulting from the inclusion in your wages and
gross income of any amounts incident to the delivery of the Shares to
you on termination of employment. If you and the Company agree, such
payment may be made by your surrendering a portion of the Shares having
a market value on the date of your termination of employment equal to
the amount of the payment due.
Nothing contained in this Award shall confer any right upon you
concerning continuation of employment with the Company or interfere in
any way with the right of Company to terminate your employment at any
time. Nothing in this Award shall be construed to prevent the Company
from taking any corporate action which is deemed by the Company to be
appropriate or in its best interest, whether or not such action will
have an adverse effect on you or this Award.
Your interests in this Award, the beneficial interest in the trust
or in the Shares may not be assigned either voluntarily or
involuntarily or by operation or law unless and until the Shares are
delivered to you, except in the event of your death pursuant to the
laws of descent and distribution or to your designated beneficiary.
By your acceptance of this Award, you hereby waive any and all
rights you now have with respect to your participation in the Parent
Plan (including your interest in the Stock Equivalent Right previously
awarded to you) which participation and awards shall be terminated and
of no further force and effect and you hereby release any claims you
may have against the Company, Louis Dreyfus Holding Company, Inc. and
Louis Dreyfus Energy Corp. or any of their affiliates or the Committee
which administers the Parent Plan with respect thereto. Your waiver
and release under this paragraph shall be for the benefit of, and be
enforceable by, each of them.
This Award shall constitute an unfunded promise by the Company
to deliver the Shares to you upon termination of employment as provided
above and you shall have no rights with respect to the Shares except
for the right to vote as provided above. Accordingly, no transfer of
the Shares shall occur for purposes of the Code until such delivery of
the Shares occurs.
This Agreement shall be subject to approval of the shareholders
of the Company if required by the rules of the New York Stock Exchange.
Please indicate your agreement to the foregoing by signing below
and returning a copy of this letter to me.
Very truly yours,
Simon B. Rich
<PAGE> 3
Chairman
Accepted and agreed to this 31st day of March, 1998.
----------------------------
Kevin R. White
Acknowledged and approved this day of , 1998.
--- -----------
Louis Dreyfus Holding Company Inc.
By:
----------------------------
