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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
McMoRan Oil & Gas Co.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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[MOXY LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
_______________, 1997
______________, 1997
A Special Meeting of Stockholders of McMoRan Oil & Gas Co. (the "Company")
will be held at the office of the Company, 1615 Poydras Street, New Orleans,
Louisiana, on __________, 1997, at 9:00 a.m., for the following purposes:
1. To consider and vote upon a proposal to approve an agreement (the "Standby
Purchase Agreement") between the Company and Freeport-McMoRan Resource
Partners, Limited Partnership ("FRP"), as well as the transactions
contemplated thereby, including:
(a) The Company's undertaking of a rights offering in which it will
distribute to each holder of the Company's Common Stock, par value
$.01 per share ("Common Stock"), approximately 2.0 transferable
subscription rights (the "Rights") for each share of Common Stock
held, with each Right entitling the holder thereof to purchase one
share of Common Stock for $3.50 (the "Subscription Price");
(b) FRP's commitment to purchase at the Subscription Price all shares of
Common Stock that are offered but not purchased pursuant to the
exercise of Rights (the "Standby Commitment");
(c) The Company's grant to FRP of an option (the "FRP Purchase Option") to
purchase at the Subscription Price such additional shares of Common
Stock as are necessary to provide it with up to a 30% ownership
interest in the Company after giving effect to the completion of the
Rights Offering and the purchase of shares pursuant to the Standby
Commitment and the FRP Purchase Option;
(d) The Company's purchase from FRP of the two producing oil and gas
properties developed as part of the Company's exploratory drilling
program with affiliates of MCN Energy Group Inc. (the "MOXY/MCN
Program") for $26.0 million, subject to adjustment, and the repayment
of all the indebtedness incurred by the Company under the MOXY/MCN
Program; and
(e) The establishment of an expanded, aggregate $200 million multi-year
exploration program with FRP under which FRP and the Company will fund
60% and 40%, respectively, of the exploration costs and each will have
a 50% interest in all revenues and other costs.
2. To consider and vote upon a proposal to approve amendments to the Company's
1994 Stock Option Plan for Non-Employee Directors.
3. To consider and vote upon a proposal to approve amendments to the Company's
1994 Stock Option Plan.
4. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
NONE OF THE PROPOSALS WILL BE IMPLEMENTED UNLESS PROPOSAL ONE IS APPROVED.
HOWEVER, THE IMPLEMENTATION OF PROPOSAL ONE IS NOT CONDITIONED UPON THE APPROVAL
OF PROPOSALS TWO AND THREE. ACCORDINGLY, A VOTE AGAINST PROPOSAL ONE WILL
GENERALLY HAVE THE SAME EFFECT AS A VOTE AGAINST ALL OF THE PROPOSALS, BUT A
VOTE AGAINST PROPOSALS TWO AND THREE WILL NOT AFFECT THE IMPLEMENTATION OF
PROPOSAL ONE.
The Board of Directors has fixed the close of business on _______________,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the meeting.
Your vote is important. Whether or not you plan to attend the meeting,
please complete, sign and date the enclosed proxy card and return it promptly in
the enclosed envelope. Your cooperation will be appreciated.
By Order of the Board of Directors.
Michael C. Kilanowski, Jr.
Secretary
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McMoRan OIL & GAS CO.
1615 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112
The Company's Annual Report to Stockholders for the year 1996, including
financial statements, was mailed to stockholders on or about March 26, 1997.
PROXY STATEMENT
This proxy statement is furnished in connection with a solicitation of
proxies by the Board of Directors (the "Board of Directors" or the "Board") of
McMoRan Oil & Gas Co. (the "Company" or "MOXY") for use at a Special Meeting of
Stockholders to be held on _______, 1997, and at any adjournments thereof (the
"Special Meeting").
At the Special Meeting, holders of shares of the Company's common stock,
par value $.01 per share ("Common Stock"), as of _______, 1997, will be asked to
consider and vote upon a proposal (the "Recapitalization Proposal") to approve a
Standby Purchase Agreement (the "Standby Purchase Agreement") between the
Company and Freeport-McMoRan Resource Partners, Limited Partnership ("FRP"), as
well as the transactions contemplated thereby, including:
(a) The Company's undertaking of a rights offering (the "Rights
Offering") in which it will distribute to each holder of Common Stock
approximately 2.0 transferable subscription rights (the "Rights") for
each share of Common Stock held, with each Right entitling the holder
thereof to purchase one share of Common Stock for $3.50 (the
"Subscription Price");
(b) FRP's commitment to purchase at the Subscription Price all shares of
Common Stock that are offered but not purchased pursuant to the
exercise of Rights (the "Standby Commitment");
(c) The Company's grant to FRP of an option (the "FRP Purchase Option") to
purchase at the Subscription Price such additional shares of Common
Stock as are necessary to provide it with up to a 30% ownership
interest in the Company after giving effect to the completion of the
Rights Offering and the purchase of shares pursuant to the Standby
Commitment and the FRP Purchase Option;
(d) The Company's purchase from FRP of the two oil and gas properties (the
"MCN Producing Properties") developed as part of the Company's
exploratory drilling program (the "MOXY/MCN Program") with affiliates
of MCN Energy Group Inc. ("MCN") for $26.0 million, subject to
adjustment, and the repayment of all the indebtedness incurred by MOXY
under the MOXY/MCN Program; and
(e) The establishment of an expanded, aggregate $200 million multi-year
exploration program with FRP (the "MOXY/FRP Exploration Program")
under which MOXY and FRP will fund 40% and 60%, respectively, of the
exploration costs and each will have a 50% interest in all revenues
and other costs.
The Rights Offering, together with the other transactions contemplated by
the Standby Purchase Agreement (collectively referred to herein as the
"Recapitalization Transactions"), is part of a comprehensive plan to
recapitalize the Company, restructure its current exploration and development
operations and implement a significantly expanded and more diversified multi-
year exploratory drilling program.
At the Special Meeting, holders of shares of Common Stock as of
_____________, 1997 will be asked to consider and vote upon two additional
proposals (collectively, the "Benefit Plan Proposals" and, together with the
Recapitalization Proposal, the "Proposals"): (a) a proposal to approve
amendments to the Company's 1994 Stock Option Plan for Non-Employee Directors;
and (b) a proposal to approve amendments to the 1994 Stock Option Plan.
This Proxy Statement and the enclosed form of proxy are first being mailed
to stockholders on or about ________, 1997.
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TABLE OF CONTENTS
Page
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SUMMARY.................................................................... 1
General................................................................. 1
The Special Meeting; Vote Required...................................... 1
Recommendation of the Board of Directors of MOXY........................ 1
Opinion of Independent Financial Advisor................................ 2
The Recapitalization Transactions....................................... 2
Potential Effects of the Recapitalization Transactions on
Control of MOXY........................................................ 4
Interests of Certain Persons in the Recapitalization Transactions....... 4
Consequences if the Recapitalization Proposal is not Approved........... 4
Advantages and Disadvantages of the Recapitalization Transactions....... 5
New Benefit Plan Proposals.............................................. 5
Intention of Executive Officers and Directors........................... 5
Market Price of the Common Stock........................................ 5
Summary Financial, Reserve and Operating Data........................... 6
THE SPECIAL MEETING........................................................ 8
Voting Procedure........................................................ 8
Proxy Solicitation...................................................... 9
Stockholder Proposals................................................... 9
THE RECAPITALIZATION TRANSACTIONS.......................................... 9
Background and Reasons for the Recapitalization Transactions............ 9
Recommendation of Board of Directors.................................... 10
Opinion of Independent Financial Advisor................................ 11
The Rights Offering..................................................... 14
The Standby Purchase Agreement.......................................... 15
Stockholder Agreement; Registration Rights.............................. 16
Purchase of MCN Producing Properties.................................... 17
The MOXY/FRP Exploration Program........................................ 17
Potential Effects of the Recapitalization Transactions on
Control of MOXY........................................................ 18
Interests of Certain Persons in the Recapitalization Transactions....... 20
Uses of Funds........................................................... 20
Advantages and Disadvantages of the Recapitalization Transactions....... 20
Consequences if the Recapitalization Proposal is not Approved........... 21
Absence of Appraisal Rights............................................. 21
Expenses of the Recapitalization Transactions........................... 22
PROPOSAL TO APPROVE AMENDMENTS TO THE 1994 STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS........................................... 22
Reasons for the Proposed Changes........................................ 22
Summary of the Director Plan as Proposed to be Amended.................. 22
PROPOSAL TO APPROVE AMENDMENTS TO THE 1994 STOCK OPTION PLAN............... 25
Reasons for the Proposed Changes........................................ 25
Summary of the Stock Plan as Proposed to be Amended..................... 25
Federal Income Tax Consequences......................................... 27
Awards Under the Stock Plan............................................. 28
Vote Required for Approval of the Stock Plan Amendments................. 29
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY............................ 30
CAPITALIZATION............................................................. 31
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................. 31
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 35
DESCRIPTION OF CAPITAL STOCK............................................... 36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 40
FINANCIAL STATEMENTS....................................................... 43
ANNEX I MASTER AGREEMENT
ANNEX II STANDBY PURCHASE AGREEMENT
ANNEX III STOCKHOLDER AGREEMENT
ANNEX IV PARTICIPATION AGREEMENT
ANNEX V OPINION OF DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
ANNEX VI 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS,
AS PROPOSED TO BE AMENDED
ANNEX VII 1994 STOCK OPTION PLAN, AS PROPOSED TO BE AMENDED
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SUMMARY
The following summary is not intended to be complete and is qualified in
all respects by reference to the detailed information appearing elsewhere in
this Proxy Statement and in the annexes attached hereto. Stockholders are urged
to read the entire Proxy Statement including the annexes.
GENERAL
MOXY is an independent oil and gas company engaged in the exploration,
development and production of oil and natural gas. The Company's operations are
conducted offshore in the Gulf of Mexico (the "Gulf") and onshore in the Gulf
Coast area. The Company commenced operations in May 1994 following the
distribution of all of the Company's Common Stock to the stockholders of
Freeport-McMoRan Inc. ("FTX") in order to carry on substantially all of the oil
and natural gas exploration activities previously conducted by FTX. The Company
and its predecessors have conducted exploration, development and production
operations offshore in the Gulf and onshore in the Gulf Coast and other areas
for more than 25 years, which have provided the Company an extensive geological
and geophysical database and significant technical and operational expertise.
The Company will have expended essentially all of its capital resources by
the end of 1997 and needs significant additional capital to continue its
exploration activities. If the stockholders approve the Recapitalization
Proposal, MOXY will immediately undertake the Rights Offering, which will
provide MOXY with sufficient capital to restructure its current exploration and
development operations by implementing the significantly expanded and more
diversified, $200 million multi-year MOXY/FRP Exploration Program, acquiring the
MCN Producing Properties and repay the indebtedness incurred by MOXY under the
MOXY/MCN Program. In addition, the Rights Offering will permit those
stockholders who wish to do so to maintain their proportionate equity and voting
interest in the Company, subject to the possible effects of the FRP Purchase
Option, by exercising their Rights to purchase additional shares of Common
Stock.
If the stockholders do not approve the Recapitalization Proposal, none of
the transactions described above will occur, and the Company will need to secure
alternative sources of financing to fund any future exploration and development
activities and its current operations beyond the financing available under the
MOXY/MCN Program. No assurance can be given that such financing will be
available on acceptable terms, if at all, or that the Company will remain a
viable business entity.
THE SPECIAL MEETING; VOTE REQUIRED
The Special Meeting will be held on ___________, 1997 at 9:00 a.m., at the
office of the Company, 1615 Poydras Street, New Orleans, Louisiana. Each share
of Common Stock entitles the holder thereof on the record date to one vote on
each matter submitted to a vote of the stockholders at the Special Meeting.
The Board of Directors has set ________, 1997 as the record date (the
"Record Date") for determination of stockholders entitled to receive notice of
and to vote at the Special Meeting. There were _____________ shares of Common
Stock issued and outstanding as of the Record Date.
The affirmative vote of a majority of the total votes cast with respect to
each Proposal in person or by proxy will be required to approve each of the
Proposals. Each of the Benefit Plan Proposals is subject to and contingent on
adoption of the Recapitalization Proposal. See "The Special Meeting - Voting
Procedure."
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RECOMMENDATION OF THE BOARD OF DIRECTORS OF MOXY
THE BOARD OF DIRECTORS HAS CONCLUDED THAT THE RECAPITALIZATION PROPOSAL AND
THE BENEFIT PLAN PROPOSALS ARE IN THE BEST INTERESTS OF MOXY AND ITS
STOCKHOLDERS AND RECOMMENDS THAT THE HOLDERS OF COMMON STOCK VOTE TO APPROVE
EACH PROPOSAL.
In recommending approval of the Recapitalization Transactions, the Board
considered, among other things: the Company's current liquidity and capital
resources; the Company's ability to increase its proved reserves and cash flow
by acquiring the MCN Producing Properties in which the Company already has an
interest; the need to obtain additional capital to fund the Company's
exploration activities; current exploration and development projects and future
exploration activities; the relative advantages and disadvantages of the
Recapitalization Transactions in comparison to alternative transactions that
might be available to the Company; and the opinion of its independent financial
advisor, Donaldson Lufkin & Jenrette Securities Corporation ("DLJ"), all as more
fully described herein.
OPINION OF INDEPENDENT FINANCIAL ADVISOR
MOXY has received an opinion from DLJ, its independent financial advisor,
that, as of the date of such opinion, and subject to the assumptions, factors
and limitations set forth in such opinion, the financial terms of the
Recapitalization Transactions are, in the aggregate, fair to the Company and its
stockholders from a financial point of view.
THE RECAPITALIZATION TRANSACTIONS
Rights Offering. If the stockholders approve the Recapitalization Proposal,
the Rights Offering will commence promptly after the Special Meeting and will
expire not less than 30 days thereafter, subject to extension by MOXY, with
FRP's consent, for up to an additional 30 days (as extended, the "Expiration
Date"). Pursuant to the Rights Offering, the Company will distribute to each
holder of Common Stock, as of the record date for the Rights Offering,
approximately 2.0 Rights for each share of Common Stock held, and each Right
will entitle the holder thereof to receive, upon payment of the Subscription
Price, one share of Common Stock (the "Basic Subscription Privilege"). In
addition, each Right will carry the right (the "Oversubscription Privilege") to
subscribe at the Subscription Price for additional shares of Common Stock not
subscribed for by other holders through the exercise of the Basic Subscription
Privilege (the "Excess Shares"). Only holders who exercise the Basic
Subscription in full will be entitled to exercise the Oversubscription
Privilege. If the Excess Shares are insufficient to satisfy all subscriptions
pursuant to the Oversubscription Privilege, the Excess Shares will be allocated
pro rata among those holders who exercise the Oversubscription Privilege in
proportion to the number of shares each holder subscribed to pursuant to the
Basic Subscription Privilege; provided, however, that no holder will be
allocated more shares than such holder has subscribed for pursuant to the
exercise of the Oversubscription Privilege. Once a holder has exercised the
Basic Subscription Privilege or the Oversubscription Privilege, such exercise
may not be revoked.
Once distributed and until the Expiration Date, the Rights will be freely
transferable. It is expected that the Rights will trade on the Nasdaq National
Market (the "Nasdaq") under the symbol "MOXYR" until the close of business on
the last Nasdaq trading day prior to the Expiration Date. See "The
Recapitalization Transactions - The Rights Offering."
Standby Commitment. Pursuant to, and subject to the terms and conditions
contained in, the Standby Purchase Agreement, FRP will purchase at the
Subscription Price all of the shares of Common Stock that are offered but not
purchased in the Rights Offering. FRP may also purchase Rights on the open
market and exercise such Rights prior to the Expiration Date.
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It is anticipated that MOXY will issue approximately 28.6 million shares of
Common Stock for an aggregate of approximately $100 million pursuant to the
Rights Offering and the Standby Commitment.
FRP Purchase Option. The Standby Purchase Agreement also provides FRP with
an option (the "FRP Purchase Option") to purchase at the Subscription Price such
additional shares of Common Stock as are necessary to provide it with up to a
30% ownership interest in MOXY after giving effect to the completion of the
Rights Offering and the purchase of shares pursuant to the Standby Commitment
and the FRP Purchase Option. See "The Recapitalization Transactions - The
Standby Purchase Agreement" and "Potential Effects of the Recapitalization
Transactions on Control of MOXY."
Stockholder Agreement. MOXY and FRP have also agreed to enter into an
agreement (the "Stockholder Agreement") pursuant to which (i) MOXY will
implement certain corporate governance measures designed to protect the
stockholders of MOXY other than FRP, (ii) FRP will have the ability to designate
a certain number of directors if it owns more than 10% but less than a majority
of the outstanding Common Stock and (iii) MOXY will grant certain registration
rights to FRP with respect to the shares of Common Stock that FRP may acquire
pursuant to the Standby Commitment and the FRP Purchase Option. See "The
Recapitalization Transactions - Stockholder Agreement; Registration Rights."
Purchase of the MCN Producing Properties; Repayment. In July 1997, FRP
agreed to acquire from MCN its interests in the MOXY/MCN Program, the MCN
Producing Properties and other exploratory properties acquired under the
MOXY/MCN Program for $31.0 million, as adjusted for the net revenues and
development and operating costs of such properties from April 1, 1997 until
their acquisition by FRP, and an additional amount equal to the amount loaned by
MCN to MOXY under the MOXY/MCN Program. On __________, 1997, FRP paid MCN, after
adjustments, $_______ for such assets together with $_______ for the outstanding
indebtedness.
MOXY and FRP have amended the MOXY/MCN Program to extend the program term,
include their interests in the seven offshore leases acquired by MOXY and FRP at
the Central Gulf of Mexico lease sale held in March 1997 and provide for the
conduct of mutually agreed exploration projects until the earlier of
December 31, 1997 or, if the Recapitalization Proposal is approved at the
Special Meeting, until the date of the completion of the Rights Offering. The
amendment also provided that FRP will reimburse MOXY for approximately $290,000
of overhead costs per month and will continue to advance funds to MOXY under the
MOXY/MCN Program during the remaining program term.
Upon completion of the Rights Offering and the transactions contemplated by
the Standby Purchase Agreement, MOXY will acquire the MCN Producing Properties
from FRP (the "MCN Purchase") for $26.0 million, subject to the adjustments
described above with respect to revenues and costs attributable to the MCN
Producing Properties from April 1, 1997 until their acquisition by MOXY plus
interest, calculated on the daily outstanding balance of the $26.0 million
purchase price, as adjusted, from ______, 1997 until MOXY's acquisition of the
properties at an annual rate publicly announced by The Chase Manhattan Bank from
time to time plus 2%. At the same time, MOXY will repay to FRP all amounts
advanced to MOXY under the MOXY/MCN Program. Thereafter, MOXY will retain a
100% interest in the MCN Producing Properties and MOXY and FRP will dedicate to
the MOXY/FRP Exploration Program all other oil and gas properties then subject
to the MOXY/MCN Program.
MOXY/FRP Exploration Program. Upon completion of the Rights Offering and
closing of the MCN Purchase, MOXY and FRP will terminate the amended MOXY/MCN
Program and enter into the MOXY/FRP Exploration Program. MOXY will manage the
MOXY/FRP Exploration Program, selecting all prospects and drilling
opportunities, and will serve as operator of all wells drilled by the MOXY/FRP
Exploration Program. MOXY and FRP will commit $200 million for exploration
expenses to be incurred under the MOXY/FRP Exploration Program, with exploration
expenses being shared 40% by MOXY and 60% by FRP. All revenues and other costs
will be shared equally. The MOXY/FRP Exploration Program will terminate upon
the earlier
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to occur of the commitment of $200 million for exploration expenses or June 30,
2002. See "The Recapitalization Transactions - The MOXY/FRP Exploration
Program."
POTENTIAL EFFECTS OF THE RECAPITALIZATION TRANSACTIONS ON CONTROL OF MOXY
The purchase by FRP of shares of Common Stock pursuant to the Standby
Commitment or the FRP Purchase Option could result in FRP becoming MOXY's
largest stockholder and being in a position to control or significantly
influence the business operations and policies of the Company. In particular,
if less than approximately 25% of the Rights are exercised by holders, then
pursuant to the Standby Commitment, FRP will obtain a majority of the
outstanding shares of Common Stock and will have the power to control the
election of the Company's directors and otherwise to direct the business
policies of the Company. Moreover, if a large number of shares are issued
pursuant to the exercise of Rights such that FRP does not acquire through the
Standby Commitment at least 30% of the MOXY Common Stock outstanding after
giving effect to the Rights Offering and the Standby Commitment, FRP may
purchase such number of additional shares at the Subscription Price to provide
it with a 30% ownership interest in the Company. MOXY has agreed to give FRP
the right, for as long as FRP owns at least 10% but less than a majority of the
outstanding Common Stock, to designate a number of members of the Board of
Directors proportionate to its ownership percentage of the outstanding Common
Stock. In connection with these transactions, MOXY has also amended its Rights
Agreement (the "Rights Plan") to exempt FRP from its application. See "The
Recapitalization Transactions -Potential Effects of the Recapitalization
Transactions on Control of MOXY."
The Stockholder Agreement also provides that, as long as FRP owns at least
10% of the outstanding Common Stock, MOXY will not, without the approval of a
committee composed of independent members of the Board of Directors (the
"Independent Committee"), take certain actions, including, among other things,
purchases of Common Stock, certain transactions with FRP involving aggregate
payments in excess of $5 million, "going private" transactions and mergers and
other business combinations with FRP or its affiliates. See "The
Recapitalization Transactions - The Stockholder Agreement; Registration Rights."
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION TRANSACTIONS
All of the directors who currently serve on the Company's Board of
Directors also serve on the Board of Directors of FTX, which owns a 51.6%
interest in, and serves as the administrative managing general partner of, FRP.
In addition, certain executive officers of the Company also serve as executive
officers of FRP and/or FTX. See "The Recapitalization Transactions - Interests
of Certain Persons in the Recapitalization Transactions" and "Certain
Relationships and Related Transactions."
CONSEQUENCES IF THE RECAPITALIZATION PROPOSAL IS NOT APPROVED
If the stockholders do not approve the Recapitalization Proposal, the
Recapitalization Transactions will not be completed, FRP will retain its
interest in the MOXY/MCN Program, the MOXY/FRP Exploration Program will not be
established and the expanded exploration activities contemplated thereby will
not be undertaken. FRP will have the obligation to fund, and extend credit to
MOXY to fund, any exploration and development costs that may be committed under
the amended MOXY/MCN Program and any other amounts that may be borrowed by MOXY
thereunder with respect to the properties then subject to the MOXY/MCN Program.
FRP will not be obligated to fund any other exploratory prospects.
As a result, MOXY will be forced to secure alternative sources of financing
to support its current operations and fund any future exploration and
development activities beyond the financing available under the MOXY/MCN
Program. All of the net revenues generated from MOXY's producing oil and gas
properties are dedicated to repay indebtedness incurred under the MOXY/MCN
Program. Such alternative sources could include additional equity or debt
financing, the sale of all or part of MOXY's assets or other partnership or
joint venture transactions. There can be no assurance that alternative
financing will be available on
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acceptable terms, if at all, or that the Company will be a viable business
enterprise. See "The Recapitalization Transactions - Consequences if the
Recapitalization Proposal is Not Approved."
The Company's business strategy is to create value for its stockholders
through the discovery of oil and gas reserves in its exploration and development
activities. If the Recapitalization Transactions are not approved at the
Special Meeting, MOXY will be forced to seek alternatives to the MOXY/FRP
Exploration Program. Rejection of the Recapitalization Transactions will not
prohibit the Company from entering into other exploration programs or joint
ventures, including those with FRP or any other party, and with any financial
commitment that the Company deems appropriate.
ADVANTAGES AND DISADVANTAGES OF THE RECAPITALIZATION TRANSACTIONS
The principal advantages that the Board believes will result from the
Recapitalization Transactions are (i) a substantial improvement in MOXY's
capital structure and an increase in its liquidity through the substantial
increase in its invested equity capital, (ii) the ability to continue and
substantially expand MOXY's exploration program and manage drilling risk through
participation in an increased number of drilling prospects, (iii) the increase
in proved reserves and cash flow from purchasing the MCN Producing Properties in
which MOXY currently has an interest, (iv) the ability of MOXY's current
stockholders who wish to do so to maintain or increase their proportionate
equity and voting interest in the Company, subject to the possible effects of
the FRP Purchase Option, by exercising their Rights to purchase additional
shares of Common Stock pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege, (v) the ability of stockholders who do not wish to
purchase additional shares of Common Stock to transfer and thereby receive the
market value of Rights and (vi) the ability of MOXY's current stockholders to
participate in any long term benefits received in connection with MOXY's
existing exploration activities and the MOXY/FRP Exploration Program.
The principal disadvantage of the Recapitalization Transactions that was
considered by the Board was the potential dilution of the equity interests of
existing stockholders who do not choose to exercise their Rights. The Board
also considered (i) the potential dilutive effect of the FRP Purchase Option to
current stockholders and (ii) the potential transfer of control of MOXY to FRP
as a result of the Recapitalization Transactions. See "The Recapitalization
Transactions - Advantages and Disadvantages of the Recapitalization
Transactions."
NEW BENEFIT PLAN PROPOSALS
The Board of Directors is seeking stockholder approval of amendments to two
benefit plans, which are described in more detail under "Proposal to Approve
Amendments to the 1994 Stock Option Plan for Non-Employee Directors" and
"Proposal to Approve Amendments to the 1994 Stock Option Plan." The Benefit
Plan Proposals are subject to stockholder approval as well as stockholder
approval of the Recapitalization Proposal.
INTENTION OF EXECUTIVE OFFICERS AND DIRECTORS
Each executive officer and director of MOXY who owns Common Stock has
indicated that he or she intends to vote in favor of the approval of each of the
Proposals. As of June 30, 1997, these executive officers and directors owned,
in the aggregate, 1,029,908 shares of the outstanding Common Stock (representing
7.3% of the total outstanding shares).
MARKET PRICE OF THE COMMON STOCK
The closing sale price of the Common Stock as reported by the Nasdaq
National Market on July 14, 1997 (the last trading day before the announcement
that MOXY and FRP had entered into the Standby
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Purchase Agreement) was $3 5/8 per share. On _______, 1997 (the last trading day
before the date of this Proxy Statement), the closing sale price of the Common
Stock was $____ per share.
SUMMARY FINANCIAL, RESERVE AND OPERATING DATA
SUMMARY FINANCIAL DATA
The following table sets forth a summary of selected historical financial
data for the Company for the three months ended March 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1996. The table
also sets forth unaudited pro forma financial information as of and for the
three months ended March 31, 1997 and for the year ended December 31, 1996
that gives effect to consummation of the Recapitalization Transactions. The
annual historical information is derived from the audited financial
statements of the Company and the historical information for the three-month
periods ended March 31, 1997 and 1996 is unaudited. The historical and pro
forma results of operations are not necessarily indicative of future
results. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results Of Operations"
and the Company's historical and pro forma financial statements and notes
thereto included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Three months ended March 31, Years ended December 31,
------------------------------- ----------------------------------------------
Pro forma (1) Pro forma (1)
1997 1997 1996 1996 1996 1995 1994 (2)
-------- ------- ------- ------- ------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales............... $ 5,910 $ 2,364 $ 664 $ 6,010 $ 2,434 $ 2,722 $ 174
Management fees................. 409 409 409 1,636 1,636 545 --
-------- ------- ------- ------- ------- -------- --------
Total revenues................... 6,319 2,773 1,073 7,646 4,070 3,267 174
-------- ------- ------- ------- ------- -------- --------
Costs and expenses:
Production and delivery,
including depreciation
and amortization................ 4,918 1,960 398 4,510 1,500 2,623 --
Exploration expenses............ 2,362 2,362 4,475 9,818 9,818 11,756 5,518
General and administrative
expenses....................... 711 711 653 2,635 2,635 3,687 2,338
-------- ------- ------- ------- ------- -------- --------
Total costs and expenses......... 7,991 5,033 5,526 16,963 13,953 18,066 17,856
-------- ------- ------- ------- ------- -------- --------
Operating loss................... (1,672) (2,260) (4,453) (9,317) (9,883) (14,799) (17,682)
Interest expense................. -- (360) -- -- (403) -- --
Other income, net................ 131 131 123 424 424 164 2,482
-------- ------- ------- ------- ------- -------- --------
Net loss......................... $ (1,541) $(2,489) $(4,330) $(8,893) $(9,862) $(14,635) $(15,200)
======== ======= ======= ======= ======= ======== ========
Net loss per share............... $(0.04) $(0.18) $(0.31) $(0.21) $(0.71) $(1.06) $ (1.10)
Average shares outstanding....... 42,678 14,107 13,826 42,469 13,898 13,772 13,770
BALANCE SHEET DATA (at end
of period):
Working capital.................. $ 57,745 $ (421) $ 3,722 $ 2,972 $ 8,257 $ 15,063
Oil and gas properties, net...... 44,184 18,492 9,683 18,231 9,878 17,094
Production loan, less
current portion............... -- 11,718 3 12,391 530 --
Total assets..................... 112,544 30,990 19,522 30,980 21,633 34,425
Stockholders' equity............. 101,181 5,892 13,402 8,246 17,605 32,157
</TABLE>
- ------------------------------------
(1) Adjusted to reflect consummation of the Rights Offering (assuming exercise
of all the Rights), the application of a portion of the net proceeds to
purchase of the MCN Producing Properties and repay the Company's debt under
the MOXY/MCN Program and the formation of the MOXY/FRP Exploration Program,
as if each had occurred as of January 1, 1996 in the statement of operations
data,
6
<PAGE>
and as of March 31, 1997 for the balance sheet data. No effect is given to
any exercise of the FRP Purchase Option. This information should be read in
conjunction with the unaudited pro forma financial statements of the Company
and the notes thereto included elsewher e in this Proxy Statement.
(2) Reflects the period since inception (May 1994).
SUMMARY RESERVE DATA
The following table sets forth summary information with respect to the
proved oil and gas reserves owned by the Company and those attributable to the
MCN Producing Properties (Vermilion Block 160 Field Area and Vermilion Block 410
Field) at May 31, 1997, as estimated by Ryder Scott Company, Petroleum
Engineers. For additional information relating to the oil and gas reserves of
the Company and attributable to the MCN Producing Properties, see note 7 of the
notes to the Company's audited financial statements and Note 2 of the audited
financial statements of the MCN Producing Properties included elsewhere in this
Proxy Statement.
<TABLE>
<CAPTION>
Present Value of
Oil Gas Future Net Cash Flows
------------------------- --------------------- ------------------------
MCN MCN MCN
Producing Producing Producing
MOXY Properties MOXY Properties MOXY Properties
---------- ----------- ------- ----------- ---------- -----------
(Bbls) (Mmcf) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
RESERVE DATA AS OF MAY 31,
1997:
Proved Developed 70,442 102,921 6,790 9,640 $ 10,431 $ 15,153
Proved Undeveloped 55,933 77,442 2,928 3,099 2,814 4,345
------- ------- ------- ------- --------- ---------
Total 126,375 180,363 9,718 12,739 $ 13,245 $ 19,498
======= ======= ======= ======= ========= =========
</TABLE>
SUMMARY OPERATING DATA
The following table sets forth summary information with respect to the
production of oil and gas and average sales price received by the Company for
the three months ended March 31, 1997 and 1996 and the years ended December 31,
1996 and 1995. The table also sets forth unaudited pro forma information for
the three months ended March 31, 1997 and the year ended December 31, 1996 that
gives effect to the acquisition of the MCN Producing Properties.
<TABLE>
<CAPTION>
Three months ended March 31, Years ended December 31,
-------------------------------------------------------------------------
Pro Forma Pro Forma
1997/(1)/ 1997 1996 1996/(1)/ 1996 1995
---------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Production:
Oil (Bbls) 14,000 5,600 8,400 72,500 29,000 45,000
Gas (Mcf) 1,980,000 792,000 156,000 1,577,500 631,000 1,093,000
Average sales price per unit:
Oil ($/Bbl) $ 23.43 $ 23.43 $ 20.17 $ 22.22 $ 22.22 $ 18.83
Gas ($/Mcf) $ 2.78 $ 2.78 $ 3.09 $ 2.72 $ 2.72 $ 1.63
</TABLE>
___________________________
(1) Gives effect to the acquisition of the MCN Producing Properties as if
consummated at the beginning of the periods presented and should be read in
conjunction with the unaudited pro forma financial statements of the
Company and notes thereto included elsewhere in this Proxy Statement.
7
<PAGE>
THE SPECIAL MEETING
This Proxy Statement and accompanying form of proxy have been furnished in
connection with the solicitation of proxies by MOXY's Board of Directors for use
at the Special Meeting. At the Special Meeting, holders of shares of MOXY's
Common Stock will be asked to consider and vote on the Recapitalization Proposal
and each of the Benefit Plan Proposals as described in the cover page of this
Proxy Statement.
MOXY's Board of Directors is not aware of any other matters to be presented
at the Special meeting. If however, other matters are properly brought before
the Special Meeting, the persons named in the enclosed form of proxy will have
the discretion to vote or abstain from voting according to their best judgment.
VOTING PROCEDURE
Stockholders of record at the close of business on ________________, 1997
(the "Record Date") will be entitled to vote at the Special Meeting. On the
Record Date, there were __________ shares of Common Stock outstanding.
The Company's by-laws (the "By-Laws") provide that the holders of a
majority of the shares of Common Stock issued and outstanding and entitled to
vote at the Special Meeting, present in person or represented by proxy, will
constitute a quorum at the Special Meeting. The persons appointed by the Company
to act as inspectors of election will treat shares of Common Stock represented
by a properly executed and returned proxy as present at the Special Meeting for
purposes of determining a quorum. The shares of Common Stock present at the
Special Meeting that abstain from voting or are the subject of broker non-votes
will be counted as present for purposes of determining a quorum.
The affirmative vote of a majority of the total votes cast with respect to
each Proposal in person or by proxy is required to approve each Proposal.
Except as otherwise provided by statute, the Company's Certificate of
Incorporation (the "Certificate of Incorporation" or "Certificate") or the By-
Laws, all other matters coming before the Special Meeting will be decided by the
vote of a majority of the number of shares of Common Stock present in person or
represented by proxy and entitled to vote at the Special Meeting. Each share of
Common Stock will entitle the holder to cast one vote at the Special Meeting,
and votes cast will be counted by the inspectors of election. Although broker
non-votes will be counted as present for determining the presence of a quorum at
the Special Meeting, they will not be deemed votes cast with respect to any of
the Proposals, will not count as votes for or against any of the Proposals and
will not be included in calculating the number of votes necessary for approval
of each of the Proposals.
NONE OF THE PROPOSALS WILL BE IMPLEMENTED UNLESS THE RECAPITALIZATION
PROPOSAL IS APPROVED. HOWEVER, THE IMPLEMENTATION OF THE RECAPITALIZATION
PROPOSAL IS NOT CONDITIONED UPON THE APPROVAL OF THE BENEFIT PLAN PROPOSALS.
ACCORDINGLY, A VOTE AGAINST THE RECAPITALIZATION PROPOSAL WILL GENERALLY HAVE
THE SAME EFFECT AS A VOTE AGAINST ALL OF THE PROPOSALS, BUT A VOTE AGAINST THE
BENEFIT PLAN PROPOSALS WILL NOT AFFECT THE IMPLEMENTATION OF THE
RECAPITALIZATION PROPOSAL.
Proxies in the enclosed form are solicited by the Board of Directors to
provide an opportunity to every stockholder to vote on the Proposals, whether or
not he or she attends in person. If proxies in the enclosed form are properly
executed and returned, the shares represented thereby will be voted as
specified. If no specifications are made, the proxies will be voted in favor of
the Recapitalization Proposal and each of the Benefit Plan Proposals. Any
stockholder executing a proxy may revoke that proxy or submit a revised proxy at
any time before it is voted. A stockholder may also attend the Special Meeting
in person and vote by ballot, thereby canceling any proxy previously given.
Management does not intend to bring any matters before the Special Meeting other
than the Proposals and does not know of any other matters to be brought before
the Special Meeting by others.
8
<PAGE>
PROXY SOLICITATION
The Company will pay all expenses of soliciting proxies for the Special
Meeting. In addition to solicitations by mail, arrangements have been made for
brokers and nominees to send proxy materials to their principals, and the
Company will reimburse them for their reasonable expenses in doing so. The
Company has retained Georgeson & Company Inc., Wall Street Plaza, New York, New
York, to assist with the solicitation of proxies from brokers and nominees. It
is estimated that the fees for such firm's services will be $8,000 plus its
reasonable out-of-pocket expenses. Certain employees of the Company, who will
receive no additional compensation for their services, may also solicit proxies
by telephone, telegram, telex, telecopy or personal interview.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials for the
Company's 1998 annual meeting of stockholders, stockholder proposals must be
received by the Company no later than November 25, 1997.
THE RECAPITALIZATION TRANSACTIONS
The Recapitalization Transactions contemplate recapitalizing MOXY through
a series of transactions that, if consummated, would permit MOXY to restructure
its current exploration and development operations and implement a significantly
expanded and more diversified multi-year exploratory drilling program.
If the Recapitalization Proposal is approved by MOXY's stockholders at the
Special Meeting, the Company will (i) immediately commence the Rights Offering
by distributing the Rights to its stockholders, (ii) close the Rights Offering
and the transactions contemplated by the Standby Purchase Agreement, subject to
the terms and conditions contained therein, as soon as practicable after the
Expiration Date, (iii) purchase from FRP the MCN Producing Properties and repay
all of the debt incurred under the MOXY/MCN Program and (iv) enter into the
MOXY/FRP Exploration Program. If the Recapitalization Proposal is not approved,
none of the Recapitalization Transactions will take place and MOXY will be
forced to secure alternative sources of financing to support its exploration
activities. There can be no assurance that alternative financing will be
available on acceptable terms, if at all, or that the Company will remain a
viable business enterprise. See " --Consequences if the Recapitalization
Proposal is Not Approved."
The following summaries of the Recapitalization Transactions are qualified
in their entirety by reference to, and stockholders are urged to read the
complete text of, the Master Agreement, the Standby Purchase Agreement, the
Stockholder Agreement and the Participation Agreement, which are included as
Annexes I through IV to this Proxy Statement. The consummation of each of
those agreements and the transactions contemplated thereby are contingent upon
and subject to receipt of stockholder approval of the Recapitalization Proposal
at the Special Meeting.
BACKGROUND AND REASONS FOR THE RECAPITALIZATION TRANSACTIONS
Since May 1994, when MOXY was spun-off from FTX, MOXY has pursued a
business plan of exploring for and producing oil and gas primarily in the Gulf
and Gulf Coast area. Thus far, MOXY has identified and has interests in two
producing fields in the Gulf, the Vermilion Block 160 Unit and Vermilion Block
410 field. However, by the end of 1997 MOXY will have expended essentially all
of its capital resources and requires significant additional capital to continue
its exploration activities. Moreover, MOXY's management and Board of Directors
believe that it is important for MOXY to obtain sufficient capital to enable
MOXY to participate in a broader range of exploration prospects.
MOXY's management and Board of Directors continue to believe in the
potential of MOXY's exploration and development strategy and the potential for
MOXY to develop additional attractive prospects based on the significant
quantity of geological and geophysical data that MOXY has acquired over the
years and the experience of its exploration team. Moreover, MOXY believes that
its recent and continuing
9
<PAGE>
acquisitions of 3-D seismic data will continue to improve its ability to
interpret subsurface geology and allow it to develop a larger inventory of high
quality prospects that it can pursue at offshore lease sales and through farm-in
opportunities in areas where it has a substantial geologic database and a long
history of operational experience.
In order to realize that potential, the Company has considered a number of
strategies for raising additional equity capital. It has undertaken its recent
business activities through joint venture arrangements, including arrangements
with MCN, Phillips Petroleum and FRP. See "Certain Relationships and Related
Transactions." However, MOXY has concluded that those and similar joint
ventures will not provide sufficient capital to conduct the type of expanded
exploration program that it believes is needed to take full advantage of MOXY's
geophysical data, explore a larger number of prospects and effectively manage
drilling risk.
Accordingly, in mid-1996 the Company began to consider a range of strategic
options, including an extension of the MOXY/MCN Program, other joint ventures,
equity offerings and business combinations. Those options ultimately were
rejected, however, because MOXY's management and Board of Directors concluded
that short-term or limited scope joint ventures would not provide sufficient
capital for an expanded program of the size and scope that management and the
Board believed were appropriate and did not believe that MOXY had the financial
resources to engage in strategic acquisitions. Moreover, the Board believed
that many, and perhaps most, of the Company's stockholders hold its Common Stock
as an exploration investment and would prefer to continue to hold their
investment and participate in MOXY's exploration program rather than to
liquidate their investment, especially if an infusion of additional capital
would increase the number of prospects that MOXY could pursue, thereby enhancing
its opportunities of exploration success while diversifying its exploration
risk.
The Board of Directors ultimately settled on the Rights Offering, backed up
by the Standby Commitment, as the preferred capital-raising strategy, because it
will provide the capital that MOXY needs to pursue an expanded exploration
program while permitting stockholders to continue to participate in that program
and giving stockholders the opportunity to maintain their proportionate equity
and voting interest in MOXY, subject to the possible effects of the FRP Purchase
Option, by exercising their Rights to purchase additional shares of Common
Stock. Also integral to the Board's decision to pursue the Rights Offering and
the Recapitalization Transactions were the opportunities to acquire the MCN
Producing Properties and to enter into the MOXY/FRP Exploration Program. These
transactions will give MOXY the critical mass provided by additional proved
reserves and current revenues provided by the MCN Producing Properties and a
significant source of external funding that will permit MOXY to drill a larger
number of exploratory prospects, thereby diversifying its risk, while working
with a knowledgeable partner with which MOXY has a close and longstanding
relationship.
After carefully weighing the alternatives and considering the advice of
DLJ, the Board has concluded that the Recapitalization Transactions represent
the most effective and equitable means of achieving MOXY's strategic goals and
provides the best opportunity reasonably available to enhance stockholder value.
RECOMMENDATION OF BOARD OF DIRECTORS
The Board has concluded that the Recapitalization Transactions are in the
best interests of MOXY and its stockholders. Accordingly, the Board unanimously
recommends that the holders of Common Stock vote to approve the Recapitalization
Proposal.
In recommending approval of the Recapitalization Transactions, the Board
considered, among other things: (i) the Company's current liquidity and capital
resources; (ii) the Company's ability to increase its proved reserves and cash
flow by acquiring the MCN Producing Properties in which the Company already has
an interest; (iii) the Company's need to obtain additional capital to fund
exploration activities; (iv) current exploration and development projects and
future exploration activities in which the Company may participate; (v) the
relative advantages and disadvantages of the Recapitalization Transactions in
comparison to alternative transactions that might be available; and (vi) the
opinion of DLJ described below under "Opinion of Independent Financial Advisor.
10
<PAGE>
The Board considered all of the factors listed above as a whole in reaching
its conclusion to recommend that the stockholders approve the Recapitalization
Transactions and it is impracticable to assign relative weights to the factors
considered.
THE BOARD OF DIRECTORS HAS APPROVED THE RECAPITALIZATION TRANSACTIONS AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE RECAPITALIZATION
PROPOSAL.
OPINION OF INDEPENDENT FINANCIAL ADVISOR
In its role as financial advisor to the Company, DLJ was asked by the
Company to render an Opinion to the Board of Directors of the Company as to the
fairness to the stockholders of the Company, from a financial point of view, of
the Recapitalization Transactions (as summarized below) contemplated by the
Master Agreement. Pursuant to the Master Agreement, the following transactions
are proposed to be consummated as the Recapitalization Transactions: (i) FRP
will purchase MCN's interest in the MOXY/MCN Program, the MCN Producing
Properties and other exploratory properties acquired thereunder, (ii) MOXY and
MCN will amend the MOXY/MCN Program Agreement, (iii) MOXY will conduct the
Rights Offering, (iv) FRP will provide the Standby Commitment and receive the
FRP Purchase Option and the fees provided for in the Standby Purchase Agreement,
(v) MOXY and FRP will enter into the Stockholder Agreement, (vi) MOXY will
purchase the MCN Producing Properties from FRP, and (vii) MOXY and FRP will
convey all of the exploration properties dedicated to the MOXY/MCN Program to
the MOXY/FRP Exploration Program and commence operations thereunder pursuant to
the Participation Agreement. On July 14, 1997, DLJ delivered its opinion to the
Board of Directors of the Company (a copy of which is attached as Annex V to
this Proxy Statement) that, as of the date of the DLJ Opinion, and based upon
and subject to the assumptions, limitations and qualifications set forth in such
opinion, the Recapitalization Transactions are, in the aggregate, fair to the
Company and its stockholders from a financial point of view.
THE FULL TEXT OF THE DLJ OPINION IS ATTACHED TO THIS PROXY STATEMENT AS ANNEX V.
THE DLJ OPINION SHOULD BE READ CAREFULLY IN ITS ENTIRETY FOR ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS OF THE REVIEW AND PROCEDURES FOLLOWED BY DLJ IN
CONNECTION WITH SUCH OPINION.
The Board selected DLJ as its financial advisor because it is a nationally
recognized investment banking firm that has substantial experience in the oil
and gas industry and is familiar with the Company and its business. As part of
its investment banking business, DLJ is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
The DLJ Opinion was prepared for the Company's Board of Directors and is
directed only to the fairness of the Recapitalization Transactions, in the
aggregate, to the stockholders of the Company from a financial point of view and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote at the Special Meeting. The DLJ Opinion does not
constitute an opinion as to the price at which the Common Stock may trade in
the open market at any time. No restrictions or limitations were imposed by the
Company upon DLJ with respect to the investigations made or the procedures
followed by DLJ in rendering its opinion. DLJ was not authorized to, nor did
DLJ, solicit alternative proposals to acquire the Company, although DLJ noted
that consummation of the Recapitalization Transactions could result in a change
of control of MOXY (since, based on participation level of MOXY stockholders in
the Rights Offering, FRP could acquire up to 67% of MOXY's outstanding Common
Stock through the Standby Commitment).
In arriving at its opinion, DLJ reviewed the Master Agreement and the
exhibits thereto. DLJ also reviewed financial and other information that was
publicly available or furnished to it by the Company, including information
provided during discussions with the Company's management. Included in the
information provided during discussions with the Company's management were
financial projections of the Company for the period beginning January 1, 1997
and ending December 31, 1998, prepared by the management of the Company. With
respect to such financial projections, DLJ assumed that they were
11
<PAGE>
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of MOXY's management as to MOXY's future operating and
financial performance. In addition, DLJ compared certain financial and
securities data of the Company with various other companies that DLJ deemed
relevant, reviewed the historical stock prices and trading volumes of the Common
Stock, and conducted such other financial studies, analyses and investigations
as DLJ deemed appropriate for purposes of its opinion. DLJ has not requested to,
nor did DLJ solicit the interest of any other party in acquiring the Company.
DLJ also considered the Company's immediate need for additional cash to fund its
capital, operating and growth requirements, and the limited number of
alternatives available to the Company to obtain additional debt or equity
financing.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by the Company or that was
otherwise reviewed by it. DLJ did not make any independent evaluation of the
assets or liabilities of the Company, nor did DLJ independently verify the
information reviewed by it. DLJ relied as to certain legal matters on advice of
counsel to the Company.
The DLJ Opinion was necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of the date of, the DLJ Opinion. It should be understood that, although
subsequent developments may affect its opinion, DLJ does not have any
obligations to update, revise or reaffirm the DLJ Opinion. The DLJ Opinion does
not address the relative merits of the Recapitalization Transactions or other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Recapitalization
Transactions.
DLJ, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. DLJ has performed investment banking and other services for the
Company, FRP and its affiliates in the past and has received customary
compensation for such services.
The following is a summary of certain factors considered and financial
analyses performed by DLJ in connection with the DLJ Opinion that were included
in a presentation to the Board of Directors of the Company on July 14, 1997.
Analysis of Certain Other Publicly Traded Companies. To provide
contextual data and comparative market information, DLJ compared selected
historical share price, earnings and operating and financial ratios for the
Company to the corresponding data and ratios of certain other companies whose
securities are publicly traded (collectively, the "Comparable Companies"). The
Comparable Companies were chosen because they possess general business,
operating and financial characteristics representative of companies in the
industry in which the Company operates. The Comparable Companies consisted of:
Bellwether Exploration Company, Callon Petroleum Company, Chieftain
International, Inc., Edge Petroleum Corporation, The Houston Exploration
Company, Offshore Energy Development Corporation, Stone Energy Corporation and
Meridian Resource Corporation. Such data and ratios included Enterprise Value
("Enterprise Value" is defined as the product of the stock price and total
shares outstanding ("Equity Value") plus Net Debt ("Net Debt" is defined as
total debt plus preferred stock less cash and cash equivalents)) (i) to 1996-
1998 EBITDAX ("EBITDAX" is defined as earnings before interest, taxes,
depreciation, amortization and exploration expense), (ii) per Mcf of reserves,
and (iii) as a percentage of SEC pre-tax PV-10. DLJ also examined the ratios of
share price to 1996-1998 earnings per share, 1996-1998 cash flow per share and
current book value per share. In addition, DLJ examined the ratios of total
debt to total book capitalization, total debt to reserves, and reserves to
production for the Comparable Companies and compared all such ratios with those
of the Company.
Applying a range of multiples obtained for the Comparable Companies to the
operating data of the Company, this analysis indicated a high and low range of
implied share prices for the Company of between $1.01 to $1.78. The implied
share prices exclude the impact of values which are less than zero.
12
<PAGE>
Transaction Analysis. DLJ reviewed publicly available information for 14
selected transactions involving the combination of selected Exploration and
Production companies. The 14 transactions reviewed (the "Comparative
Transactions") were: Louis Dreyfus Natural Gas Corporation/American Exploration
Company, Forcenergy Inc./Edisto Resources Corporation, Bellwether Exploration
Company/Torch Energy Advisors, Inc., Domain Energy Corporation/El Paso Natural
Gas Company, Lomak Petroleum Inc./America Cometra, Inc., Forcenergy Inc./Great
Western Resources, Inc., KCS Energy, Inc./InterCoast Oil & Gas Company, Noble
Affiliates, Inc./Energy Development Corporation, Enron Capital & Trade
Resources/Hardy Oil & Gas Plc, Hunt Petroleum Corporation/Columbia Gas
Development Corporation, Contour Production Company L.L.C./Kelley Oil & Gas
Corporation, United Meridian Corporation/General Atlantic Resources Corporation,
Burlington Resources, Inc./Maxus Energy Corporation and Cabot Oil & Gas
Corporation/Washington Energy Resources Company. The 14 transactions selected
are not intended to represent a complete list of Exploration and Production
transactions, rather they include only transactions involving combinations of
companies with operating characteristics, size or financial performance
characteristics which DLJ believed to be comparable to those of the Company.
DLJ reviewed the Enterprise Value of such transactions as a multiple of LTM
EBITDAX, SEC pre-tax PV-10 and oil and gas reserves. DLJ also reviewed the
stock price paid in such transactions as a multiple of LTM cash flow per share.
Applying a range of multiples obtained for the Comparative Transactions to
the operating data for the Company, this analysis indicated a high and low range
of implied share prices for the Company of $0.79 to $1.29. The implied per
share prices exclude the impact of values which are less than zero.
Valuation Based on Net Asset Value. DLJ performed a valuation of MOXY
based on a range of the estimated value of its assets and liabilities. DLJ
determined a range of values for the Company's reserves based on information
contained in the preliminary reserve report of Ryder Scott dated June 17, 1997
applying a range of discount rates to the cash flows generated by such reserves
under various risk weightings of proved and probable reserves. DLJ determined a
range of values for the Company's exploration acreage based on prices paid for
undeveloped acreage in recent lease sales and a discounted cash flow analysis
applying a range of discount rates and risk factors to the expected cash flow to
be generated from such prospects. In order to perform this analysis, DLJ made
certain assumptions regarding the value of the Company's oil and gas reserves,
exploration acreage and other assets. DLJ then subtracted from the value of the
Company's assets its outstanding liabilities including indebtedness. Based on
this analysis, DLJ determined a high and low range of share prices for the
Company of between $2.33 and $4.44 per share.
Stock Trading History. To provide contextual data and comparative market
data, DLJ examined the history of the trading prices for the Common Stock for
the latest twelve-month period ended June 27, 1997. DLJ also reviewed the daily
closing prices of the Common Stock and compared the closing stock prices with an
index consisting of comparable companies. This information was presented solely
to provide the Board with background information regarding the stock prices of
the Company over the period indicated. DLJ noted the high and low prices for
the Common Stock over the twelve-month period ended June 27, 1997 were $3.938
and $1.813, respectively.
Pro Forma Analysis. DLJ analyzed certain pro forma effects resulting from
the Transactions. In conducting its analysis, DLJ relied upon certain
assumptions provided by management of the Company. The analysis indicated that
the pro forma after-tax cash flow per share of the Company would be
approximately $0.16 per share, or 57%, higher on a pro forma basis in fiscal
year 1997 and $0.41 per share higher on a pro forma basis in fiscal year 1998,
than management estimates for the Company in the absence of the Transactions.
The results of the pro forma analysis are not necessarily indicative of future
operating results or financial performance.
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Each of the analyses conducted by DLJ was carried out in
order to provide a different perspective on the Transactions and add to the
total mix of information available. DLJ did not form a conclusion as to whether
any individual analysis,
13
<PAGE>
considered in isolation, supported or failed to support an opinion as to
fairness. Rather, in reaching its conclusion, DLJ considered the results of the
analyses in light of each other and ultimately reached its opinion based on the
results of all analyses taken as a whole. DLJ did not place particular reliance
or weight on any individual analysis, but instead concluded that its analyses,
taken as a whole, supported its determination. Accordingly, notwithstanding the
separate factors summarized above, DLJ believes that its analyses must be
considered as a whole and that selecting portions of its analysis and the
factors considered by it, without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinion. In performing its analysis, DLJ made numerous assumptions with respect
to industry performance, business and economic conditions and other matters. The
analyses performed by DLJ are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses.
Pursuant to the terms of an engagement letter dated April 9, 1997, the
Company has (i) paid to DLJ a retainer of $100,000 and a fee of $250,000 upon
delivery of the DLJ Opinion, and (ii) has agreed to pay to DLJ a fee of $150,000
upon closing of the Rights Offering. The Company has also agreed to reimburse
DLJ promptly for all out-of-pocket expenses (including the reasonable fees and
out-of-pocket expenses of counsel) incurred by DLJ in connection with its
engagement, and to indemnify DLJ and certain related persons against certain
liabilities in connection with its engagement, including liabilities under the
federal securities laws. The terms of the arrangement with DLJ, which DLJ and
the Company believe are customary in transactions of this nature, were
negotiated at arm's length between the Company and DLJ and the Board was aware
of such arrangement, including the fact that a significant portion of the
aggregate fee payable to DLJ is contingent upon consummation of the
Recapitalization Transactions.
In the ordinary course of business, DLJ may actively trade the securities
of the Company and FRP for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
THE RIGHTS OFFERING
MOXY intends to use the net proceeds of the Rights Offering to purchase the
MCN Producing Properties, to repay the debt incurred under the MOXY/MCN Program,
to fund a portion of the Company's estimated capital requirements under the MOXY
FRP Exploration Program and for additional working capital and general corporate
purposes. It is anticipated that MOXY will issue approximately 28.6 million
shares of Common Stock for an aggregate of approximately $100 million of Common
Stock pursuant to the Rights Offering and the Standby Commitment. If the
stockholders approve the Recapitalization Proposal, the Rights Offering will
commence as soon as possible after the Special Meeting.
Pursuant to the Rights Offering, the Company will distribute at no cost to
each holder of Common Stock for each share owned as of the record date for the
Rights Offering a number of Rights equal to the quotient (estimated to be
approximately 2.0 Rights for each share of Common Stock) obtained by dividing
the number of shares outstanding on the Record Date by the number of shares to
be issued in the Rights Offering. Each Right will entitle the holder thereof to
purchase one share of Common Stock for the Subscription Price ($3.50 in cash).
Commencement; Expiration; No Revocation. If the stockholders approve the
Recapitalization Proposal, the Rights Offering will commence promptly following
the Special Meeting and will expire at 5:00 p.m. on the Expiration Date, which
will be no less than 30 days after the Rights Offering commences. The Company
may, with FRP's consent, extend the Expiration Date and will announce any
extension thereof by not later than 9:00 a.m., New York City time, on the
business day following the previously scheduled Expiration Date; provided that
the Expiration Date in no event shall be more than 30 days after the originally
established Expiration Date. An extension of the Expiration Date will be for a
period of at least three Nasdaq trading days. After the Expiration Date,
unexercised Rights will be null and void. Once a holder of Rights has exercised
the Basic Subscription Privilege or the Oversubscription Privilege, such
exercise may not be revoked.
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Basic and Oversubscription Privileges. Each Right will entitle the holder
thereof to receive, upon payment of the Subscription Price, one share of Common
Stock. Each Right will also carry an Oversubscription Privilege right to
subscribe at the Subscription Price for additional shares of Common Stock not
subscribed for by other holders through the exercise of the Basic Subscription
Privilege. Only holders who exercise the Basic Subscription Privilege in full
will be entitled to exercise the Oversubscription Privilege. If the Excess
Shares are insufficient to satisfy all subscriptions pursuant to the
Oversubscription Privilege, the Excess Shares will be allocated pro rata among
holders who exercise their Oversubscription Privilege in proportion to the
number of shares each holder subscribed for pursuant to the Basic Subscription
Privilege; provided, however, that no holder will be allocated more shares than
such holder subscribed for pursuant to the exercise of the Oversubscription
Privilege.
Transferability. The Rights will be transferable and it is expected that
they will trade on the Nasdaq National Market under the symbol "MOXYR" until the
close of business on the last Nasdaq National Market trading day prior to the
Expiration Date.
Determination of the Subscription Price. The Subscription Price was
determined by negotiations between MOXY and FRP. The Board's objective in
establishing the Subscription Price was to approximate recent trading prices of
the Common Stock, raise the targeted proceeds and provide all of MOXY's
stockholders with a reasonable opportunity to make an additional investment in
the Company and avoid dilution of their ownership and voting percentage in the
Company, subject to the possible effects of the FRP Purchase Option.
Certain Federal Income Tax Considerations. For United States federal
income tax purposes, holders of Rights generally will not recognize taxable
income in connection with the issuance to them or exercise by them of Rights.
Rights holders may incur gain or loss upon the sale of the Rights or the shares
of the Common Stock acquired upon exercise of the Rights.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES, INCLUDING THE
RIGHTS OR ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE RIGHTS.
OFFERS AND SALES OF THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE RIGHTS WILL
ONLY BE MADE BY MEANS OF A PROSPECTUS MEETING THE REQUIREMENTS OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, ON THE TERMS AND
SUBJECT TO THE CONDITIONS SET FORTH IN SUCH PROSPECTUS, WHICH IS EXPECTED TO BE
DELIVERED TO STOCKHOLDERS IMMEDIATELY AFTER THE SPECIAL MEETING, PROVIDED THE
RECAPITALIZATION PROPOSAL IS APPROVED.
THE STANDBY PURCHASE AGREEMENT
To ensure MOXY will obtain the funds sought through the Rights Offering,
MOXY and FRP have entered into the Standby Purchase Agreement, pursuant to
which, subject to certain limited exceptions, FRP has agreed to provide a
Standby Commitment to purchase at the Subscription Price a number of shares of
Common Stock equal to the number of shares of Common Stock not purchased
pursuant to the exercise of Rights. Pursuant to the Standby Purchase Agreement,
FRP also has the option, exercisable if FRP does not acquire at least 30% of the
outstanding Common Stock pursuant to the Standby Commitment, to purchase at the
Subscription Price such additional shares of Common Stock as are necessary to
provide it with up to a 30% ownership interest in MOXY after giving effect to
the completion of the Rights Offering and the purchase of shares pursuant to the
Standby Commitment and the FRP Purchase Option. The FRP Purchase Option must be
exercised and closed simultaneously with the closing of the Standby Commitment.
MOXY has agreed to pay a standby fee (the "Standby Fee") of $6 million to FRP,
payable upon the closing of the Rights Offering, for providing the Standby
Commitment, acquiring the MCN Producing Properties for resale to MOXY and
entering the MOXY/MCN Exploration Program. MOXY will not be obligated to pay
the Standby Fee unless the Standby Purchase Agreement and the transactions
contemplated thereby are approved at the Special Meeting.
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The rights and obligations of MOXY and FRP under the Standby Purchase
Agreement are subject to certain customary conditions, including the absence of
any pending or threatened action, suit or proceeding relating to the Rights
Offering or the Standby Purchase Agreement.
If less than approximately 25% of the Rights are exercised by holders, then
FRP will acquire a majority of MOXY's outstanding Common Stock pursuant to the
Standby Commitment. If FRP exercises the FRP Purchase Option in full, FRP will
own 30% of MOXY's outstanding Common Stock. See "- Potential Effects of the
Recapitalization Transactions on Control of MOXY."
The foregoing summary of the Standby Purchase Agreement is qualified in its
entirety by reference to the complete text thereof, which is attached hereto as
Annex II.
STOCKHOLDER AGREEMENT; REGISTRATION RIGHTS
MOXY and FRP have agreed to enter into the Stockholder Agreement that
provides for (i) the implementation of certain corporate governance measures
designed to protect the stockholders of MOXY other than FRP, (ii) the ability of
FRP to elect a certain number of directors if it owns more than 10% but less
than a majority of the outstanding Common Stock and (iii) certain registration
rights with respect to the shares of Common Stock that FRP may acquire pursuant
to the Standby Commitment and the FRP Purchase Option.
Pursuant to the Stockholder Agreement, as long as FRP owns at least 10% but
less than a majority of the outstanding Common Stock of MOXY, FRP will be
entitled to nominate that number of directors equal to the nearest whole number
obtained by multiplying FRP's percentage interest in the outstanding Common
Stock by the number of directors that are to serve on the Board of Directors.
MOXY has agreed to create such number of vacancies on the Board of Directors
either by (i) an increase in the Board of Directors in accordance with the terms
of MOXY's Certificate of Incorporation and By-Laws, (ii) director resignations
or (iii) a combination thereof.
In connection with each meeting of stockholders of MOXY at which the term
of any of FRP's designees expires, the Board of Directors will nominate for
election as a director of MOXY the designee of FRP to stand for election for a
succeeding term and will vote all management proxies in favor of such designee,
except for such proxies that specifically indicate to the contrary. FRP will
have the right to designate replacements for directors designated by FRP
pursuant to this Agreement, if such director declines or is unable to serve for
any reason, at the end of such director's term, or upon such director's
resignation or removal.
FRP has informed MOXY that at the present time it does not intend to use
this provision to make any changes to the current composition of the Board,
subject to the appointment of Independent Directors as discussed below.
MOXY has also agreed to take such actions on or before January 14, 1998, as
are necessary to create at least two vacancies on the Board of Directors either
by (i) an increase in the number of directors in accordance with the Certificate
of Incorporation or By-Laws; (ii) director resignations or (iii) a combination
thereof. MOXY has agreed to designate and elect at least two directors each of
whom (a) would qualify as an independent director within the meaning given to
such term under the rules of the New York Stock Exchange and (b) is not an
"Affiliate" or "Associate" (as each such term is defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act")) of FRP, other than
solely as a result of being a director of MOXY (each an "Independent Director").
MOXY has agreed to maintain at all times a committee of the Board of Directors
comprised of all such Independent Directors (the "Independent Committee").
Until the date on which FRP ceases to own at least 10% of the outstanding
Common Stock, MOXY has agreed not to take any of the following actions without
the approval of the Independent Committee: (a) repurchase any outstanding shares
of Common Stock; (b) enter into (i) any sale, lease, transfer or other
disposition by MOXY of any of its properties or assets to, (ii) any purchase of
property or assets by MOXY from, (iii) any investment by MOXY in, (iv) any
agreement by MOXY with or for the benefit of, or (v) any other
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transaction with one or more of its affiliates that involves aggregate payments
in excess of $5 million; (c) enter into any "Rule 13e-3 transaction" within the
meaning of Rule 13e-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (d) amend, modify or grant any waiver under the Rights Plan,
the Participation Agreement or the Stockholder Agreement or (e) in connection
with any merger or business combination involving MOXY and a third party, treat
FRP and the other holders of Common Stock on other than equivalent terms.
Until the date on which FRP ceases to own, directly or indirectly, at least
10% of the outstanding Common Stock of MOXY, FRP will not, without the approval
of the Independent Committee, purchase, acquire, agree to acquire or offer to
acquire beneficial ownership of any additional shares of Common Stock (other
than through open-market purchases that do not constitute "Rule 13e-3
transactions" within the meaning of Rule 13e-3 under the Exchange Act), or enter
into, propose to enter into, solicit or support any merger or business
combination or similar transaction involving FRP or any of its affiliates and
MOXY.
Pursuant to the Stockholder Agreement, FRP will be entitled to demand
registration rights with respect to any shares of Common Stock that it owns;
provided that FRP register no less than 10% of the outstanding Common Stock
pursuant to each such registration and that MOXY not be required to effect more
than one such registration in any 12-month period nor more than three such
registrations in the aggregate. In addition, if the Company proposes to register
any Common Stock under the Securities Act in connection with a public offering,
FRP may require MOXY to include all or a portion of the shares owned by FRP at
that time. MOXY has agreed to pay all the expenses of any registration under
the Stockholder Agreement, other than underwriters' discounts and commissions,
and to indemnify FRP for certain liabilities in connection with any such
registration.
The foregoing summary of the Stockholder Agreement is qualified in its
entirety by reference to the complete text thereof, which is attached hereto as
Annex III.
PURCHASE OF MCN PRODUCING PROPERTIES
In July 1997, FRP agreed to acquire from MCN its interests in the MOXY/MCN
Program, the MCN Producing Properties and other exploratory properties acquired
under the MOXY/MCN Program for $31.0 million, as adjusted for the net revenues
and development and operating costs of such properties from April 1, 1997 until
their acquisition by FRP, and an additional amount equal to the amount loaned by
MCN to MOXY under the MOXY/MCN Program. On __________, 1997, FRP paid MCN,
after adjustments, $_______ for such assets together with $_______ for the
outstanding indebtedness.
MOXY and FRP have amended the MOXY/MCN Program to extend the program term,
include their interests in the seven offshore leases acquired by MOXY and FRP at
the Central Gulf of Mexico lease sale held in March 1997, and provide for the
conduct of mutually agreed exploration projects until the earlier of December
31, 1997 or, if the Recapitalization Proposal is approved at the Special
Meeting, until the date of the completion of the Rights Offering. The amendment
also provided that FRP will reimburse MOXY for approximately $290,000 of
overhead costs per month and will continue to advance funds to MOXY under the
MOXY/MCN Program during the remaining program term.
Upon completion of the Rights Offering, MOXY will acquire the MCN Producing
Properties from FRP for $26.0 million, subject to the adjustments described
above with respect to revenues and costs attributable to the MCN Producing
Properties from April 1, 1997 until their acquisition by MOXY plus interest,
calculated on the daily outstanding balance of $26.0 million purchase price, as
adjusted, from ___________, 1997 until MOXY's acquisition of the properties at
an annual rate publicly announced by The Chase Manhattan Bank from time to time
plus 2%. At the same time, MOXY will repay to FRP all amounts advanced to MOXY
under the MOXY/MCN Program. Thereafter, MOXY will retain a 100% interest in the
MCN Producing Properties and MOXY and FRP will dedicate to the MOXY/FRP
Exploration Program all other oil and gas properties then subject to the
MOXY/MCN Program.
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THE MOXY/FRP EXPLORATION PROGRAM
Pursuant to the Master Agreement and subject to the terms and conditions
contained therein, including the closing of the MCN Purchase and completion of
the Rights Offering, MOXY and FRP have agreed to establish the MOXY/FRP
Exploration Program. MOXY will manage the MOXY/FRP Exploration Program,
selecting all prospects and drilling opportunities, and will serve as operator
of all wells drilled by the MOXY/FRP Exploration Program. MOXY and FRP will
commit $200 million for exploration expenses to be incurred under the MOXY/FRP
Exploration Program, with exploration costs being shared 40% by MOXY and 60% by
FRP. Exploration costs consist of all costs associated with leasehold
acquisition and maintenance, geological and geophysical studies, seismic
surveys, drilling exploratory wells, overhead reimbursements, and all other
aspects of identifying prospects and drilling exploratory wells. All revenues
and all costs other than exploration costs will be shared equally by MOXY and
FRP.
MOXY and FRP will receive credits against the $200 million program
commitment for an aggregate of $8.3 million for certain exploratory costs
incurred under the MOXY/MCN Program prior to the establishment of the MOXY/MCN
Exploration Program. All exploratory prospects in the MOXY/MCN Program will be
transferred to the MOXY/FRP Exploration Program and MOXY will acquire an
additional interest in each such property to reflect the sharing of revenues and
costs under the MOXY/FRP Exploration Program. The MOXY/FRP Exploration Program
will terminate after initial exploration program expenditures of $200 million
have been committed or June 30, 2002, whichever is earlier.
Any amendment to the agreements constituting the MOXY/FRP Exploration
Program or other waiver of MOXY's rights thereunder will be required to be made
by the Independent Committee. See "- Stockholder Agreement; Registration
Rights."
The foregoing summary of the MOXY/FRP Exploration Program is qualified in
its entirety by reference to the complete text of the Participation Agreement
between MOXY and FRP, which is attached hereto as Annex IV.
POTENTIAL EFFECTS OF THE RECAPITALIZATION TRANSACTIONS ON CONTROL OF MOXY
Pursuant to, and subject to the terms and conditions of, the Standby
Purchase Agreement, FRP has agreed to purchase from MOXY all shares of Common
Stock that are offered but not purchased pursuant to the exercise of the Rights.
Accordingly, if less than approximately 25% of the Rights are exercised by the
holders, then FRP will acquire pursuant to the Standby Commitment a majority of
the outstanding Common Stock and will have the power to control MOXY's business
and affairs. If, as a result of the Standby Commitment or the FRP Purchase
Option, FRP acquires or holds more than 10% but less than a majority of the
outstanding Common Stock, pursuant to the Stockholder Agreement, it will be
entitled to designate a number of directors proportionate to its stock ownership
in MOXY and may have the power to significantly influence the Company's business
and affairs.
MOXY's Certificate of Incorporation does not provide for cumulative voting
in the election of directors. As a holder of a majority of the Common Stock, FRP
would have the ability to elect all of the directors on MOXY's Board. The Board
is empowered by the Delaware General Corporation Law ("DGCL") to direct the
management of the business of MOXY and to make numerous major decisions without
stockholder approval. Matters and decisions subject to Board control include,
among other things, the purchase and sale of assets of MOXY (other than a
disposition of all or substantially all of MOXY's assets outside of the ordinary
course of business), the issuance of additional equity or debt securities
(subject to limitations imposed by the Certificate of Incorporation and debt
agreements), the declaration of dividends in respect of MOXY's capital stock,
the election and removal of officers of MOXY, capital expenditure decisions,
strategic planning, by-law amendments, officer compensation matters, and the
recommendation for stockholder approval of certain major corporate transactions
(including mergers, certain asset sales, charter amendments and dissolutions).
If FRP acquires a majority of the outstanding Common Stock, FRP will hold
a majority of the voting power and have the right to elect all of the directors
of the Board. Under the DGCL and the Certificate of
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Incorporation and By-laws, the following matters generally require the approval
of the holders of a majority of the outstanding shares entitled to vote (subject
to any additional rights of the holders of any class or series of stock to vote
on such matters separately as a class): (i) a merger of MOXY with or into
another corporation or other entity; (ii) a sale, lease, exchange or disposition
of all or substantially all of MOXY's assets other than in the ordinary course
of business; (iii) the amendment of the Certificate of Incorporation, subject to
certain exceptions; and (iv) a dissolution of MOXY. In addition, the Independent
Committee will be required to approve certain transactions. See "-Stockholder
Agreement; Registration Rights." Subject to certain exceptions, the Nasdaq rules
also require that the following securities issuances by listed companies be
approved by at least a majority of the votes cast at a properly constituted
meeting of Stockholders: (a) the establishment of a stock option or purchase
plan or arrangement pursuant to which stock may be acquired by officers and
directors, except for warrants or rights issued generally to security holders or
broadly-based plans or arrangements including other employees; (b) the issuance
of common stock in exchange for the acquisition, directly or indirectly, of
stock or assets from a director, officer or substantial security holder of the
company who holds a 5% or greater interest in the assets or company to be
acquired; (c) the issuance of common stock or securities convertible into or
exchangeable for common stock representing more than 20% of the common stock or
voting power outstanding prior to the issuance, other than in a public offering
for cash; and (d) an issuance of securities that will result in a change of
control of the company.
Assuming that FRP will hold more than a majority of the Common Stock, the
directors elected by FRP, if they vote together, would have the ability to
control the outcome of all votes taken by the Board, subject to the approval of
the Independent Committee in certain limited instances. Under applicable law,
such directors, like all directors, will have fiduciary obligations to all of
MOXY's stockholders, not just to FRP. However, FRP's right to control the Board
could have the effect of delaying, deterring or preventing tender offers or
takeover attempts that some or a majority of MOXY's stockholders might consider
to be in their best interests, including offers or attempts that might result in
the payment of a premium over the market price for the Common Stock.
In addition, the Recapitalization Transactions will be exempt from the
application of certain anti-takeover provisions, including Section 203 of the
DGCL, the fair price provision contained in the Certificate and the Company's
Rights Plan.
Section 203 of the DGCL prevents an "interested stockholder" (defined as a
stockholder owning 15 percent or more of a corporation's voting Stock) from
engaging in a business combination with such corporation for a period of three
years from the date such stockholder became an interested stockholder unless (a)
the corporation's board of directors had earlier approved either the business
combination or the transaction by which the stockholder became an interested
stockholder, (b) upon attaining that status, the interested stockholder had
acquired at least 85 percent of the corporation's voting stock (not counting
shares owned by persons who are directors and also officers of such corporation)
or (c) the business combination is later approved by the board of directors and
authorized by a vote of two-thirds of the stockholders (not including the shares
held by the interested stockholder). The Board of Directors has approved the
Recapitalization Transactions and, therefore, FRP will not be considered an
"interested stockholder" as defined by Section 203 of the DGCL as a result of
the Recapitalization Transactions.
Article Ninth of MOXY's Certificate of Incorporation provides that certain
fundamental transactions between MOXY and a 20% stockholder require approval of
the holders of shares having 85% of the total voting power, unless (i) certain
"fair price" provisions are satisfied, (ii) the transaction involves a wholly-
owned subsidiary of the Company, or (iii) the transaction is approved by a
majority of the "Continuing Directors," which would exclude directors affiliated
with or nominated by the 20% stockholder. FRP and FTX are specifically excluded
from the application of this provision.
Pursuant to the Company's Rights Plan, any person other than Oppenheimer
Group, Inc., who becomes the beneficial owner of 15% or more of the outstanding
Common Stock of the Company shall be deemed an "Acquiring Person." If a person
becomes an Acquiring Person, each holder of a right under the Rights Plan will
thereafter have the right to receive upon exercise thereof at the then current
purchase price, Common Stock having a market value equal to two times the
purchase price. Prior to entering into the Standby Purchase Agreement, MOXY
amended the Rights Plan to exclude FRP from the Rights Plan. See
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"Description of Capital Stock - Certain Provisions of the Company's Certificate
and By-laws and Delaware Law -- Stockholder Approval of Combinations; Fair Price
Provisions" and "-- Preferred Stock Purchase Rights."
MOXY and FRP have agreed to adhere to the policies set forth in the
Stockholder Agreement at any time FRP owns more than 10% of the outstanding
Common Stock. In accordance with the Stockholder Agreement, no later than
January 14, 1998, MOXY will be required to elect and maintain an Independent
Committee of the Board of Directors consisting of at least two independent
directors appointed to MOXY's Board. See "--Stockholder Agreement;
Registration Rights."
Until the date on which FRP ceases to own at least 10% of the outstanding
Common Stock, MOXY will not take any of the following actions without the
approval of the Independent Committee: (a) repurchase any outstanding shares of
Common Stock; (b) enter into (i) any sale, lease, transfer or other disposition
by MOXY of any of its properties or assets to, (ii) any purchase of property or
assets by MOXY from, (iii) any investment by MOXY in, (iv) any agreement by MOXY
with or for the benefit of, or (v) any other transaction with one or more of its
affiliates that involves aggregate payments in excess of $5 million; (c) enter
into any "Rule 13e-3 transaction," within the meaning of Rule 13e-3 under the
Exchange Act; (d) amend, modify or grant any waiver under the Rights Plan, the
Participation Agreement or the Stockholder Agreement, or (e) in connection with
any merger or business combination involving MOXY and a third party, treat FRP
and the other holders of Common Stock on other than equivalent terms.
In addition, until the date on which FRP ceases to own, directly or
indirectly, at least 10% of the outstanding voting stock of MOXY, FRP will not,
without the approval of the Independent Committee, purchase, acquire, agree to
acquire or offer to acquire beneficial ownership of any additional shares of
Common Stock (other than through open-market purchases that do not constitute
"Rule 13e-3 transactions" within the meaning of Rule 13e-3 under the Exchange
Act), or enter into, propose to enter into, solicit or support any merger or
business combination or similar transaction involving FRP or any of its
affiliates and MOXY.
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION TRANSACTIONS
FTX currently owns a 51.6% interest in, and is the administrative managing
general partner of, FRP. All of the directors who serve on the Company's Board
of Directors also serve on the Board of Directors of FTX. In addition, James R.
Moffett, who serves as Co-Chairman of the Board of the Company also serves as
Chairman of the Board of FTX. Furthermore, Richard C. Adkerson, who serves as
Co-Chairman of the Board and Chief Executive Officer of the Company also serves
as Vice Chairman of the Board of FTX. Both Dean T. Falgoust and Craig E.
Saporito serve as Vice Presidents of both the Company and FTX, Michael C.
Kilanowski, Jr. serves as Secretary of both the Company and FTX, and William J.
Blackwell serves as Controller for the Company and FTX.
USES OF FUNDS
The net proceeds received by the Company from the sale of the shares of
Common Stock pursuant to the Rights Offering and the Standby Commitment are
estimated to be approximately $93 million, after payment of fees and expenses,
including the Standby Fee. The net proceeds, together with any proceeds from the
exercise of the FRP Purchase Option, will be used to purchase the MCN Producing
Properties, repay the indebtedness incurred by MOXY under the MOXY/MCN Program
(which bears interest at the annual base rate announced from time to time by The
Chase Manhattan Bank plus 2%), to fund a portion of MOXY's estimated capital
requirements under the MOXY/FRP Exploration Program and for additional working
capital and general corporate purposes.
ADVANTAGES AND DISADVANTAGES OF THE RECAPITALIZATION TRANSACTIONS
The principal advantages that the Board believes will result from the
Recapitalization Transactions are (i) a substantial improvement in MOXY's
capital structure and an increase in its liquidity through the substantial
increase in its invested equity capital, (ii) the ability to continue and
substantially expand MOXY's
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exploration program and manage drilling risk through participation in an
increased number of drilling prospects, (iii) the increase in proved reserves
and cash flow from the MCN Producing Properties in which MOXY currently has an
interest, (iv) the ability of MOXY's current stockholders who wish to do so to
maintain or increase their proportionate equity and voting interest in the
Company, subject to the possible effects of the FRP Purchase Option, by
exercising their Rights to purchase additional shares of Common Stock pursuant
to the Basic Subscription Privilege and the Oversubscription Privilege, (v) the
ability of stockholders who do not wish to purchase additional shares of Common
Stock to transfer and thereby receive the market value of the Rights and (vi)
the ability of MOXY's current stockholders to participate in any long-term
benefits received in connection with MOXY's existing exploration activities and
the MOXY/FRP Exploration Program.
The principal disadvantage of the Recapitalization Transactions considered
by the Board was the potential dilution of the equity interests of existing
stockholders who do not choose to exercise their Rights. The Board also
considered (i) the potential dilutive effect of the FRP Purchase Option to
current stockholders and (ii) the potential transfer of control of MOXY to FRP
as a result of the Recapitalization Transactions. While the sale of equity
securities is dilutive, the ability of MOXY's existing stockholders to
participate in the Recapitalization Transactions via the purchase of Common
Stock at the same price as that being paid by FRP mitigates such dilution.
Stockholders who do not wish to make the additional economic investment required
for such purchase may mitigate such dilution by selling their Rights in the
market.
CONSEQUENCES IF THE RECAPITALIZATION PROPOSAL IS NOT APPROVED
If the stockholders do not approve the Recapitalization Proposal, the
Recapitalization Transactions will not be completed, FRP will retain its
interest in the MOXY/MCN Program, the MOXY/FRP Exploration Program will not be
established and the expanded exploration activities contemplated thereby will
not be undertaken. FRP will have the obligation to fund, and extend credit to
MOXY to fund, any exploration and development costs that may be committed under
the amended MOXY/MCN Program and any other amounts that may be borrowed by MOXY
thereunder with respect to the properties then subject to the MOXY/MCN Program.
FRP will not be obligated to fund any other exploratory prospects.
As a result, MOXY will be forced to secure alternative sources of financing
to support its current operations beyond the financing available under the
MOXY/MCN Program and fund any future exploration and development activities.
All of the net revenues generated from MOXY's producing oil and gas properties
are dedicated to repay indebtedness incurred under the MOXY/MCN Program. Such
alternative sources could include additional equity or debt financing, the sale
of all or part of MOXY's assets or other partnership or joint venture
transactions. There can be no assurance that alternative financing will be
available on acceptable terms, if at all, or that the Company will be a viable
business enterprise. See "The Recapitalization Transactions - Consequences if
the Recapitalization Proposal is Not Approved."
The Company's business strategy is to create value for its stockholders
through the discovery of oil and gas reserves in its exploration and development
activities. If the Recapitalization Transactions are not approved at the
Special Meeting, MOXY will be forced to seek alternatives to the MOXY/FRP
Exploration Program. Rejection of the Recapitalization Transactions will not
prohibit the Company from entering into other exploration programs or joint
ventures, including those with FRP or any other party, and with any financial
commitment that the Company deems appropriate.
ABSENCE OF APPRAISAL RIGHTS
Under Delaware law and MOXY's Certificate of Incorporation, objecting
stockholders will have no appraisal, dissenters' or similar rights (i.e., the
right to seek a judicial determination of the "fair value" of the Common Stock
and to compel MOXY to purchase their shares of Common Stock for cash in that
amount) with respect to the matter presented at the Special Meeting or otherwise
with respect to the Recapitalization Transactions, nor will such rights be
voluntarily accorded to stockholders by MOXY. Therefore, if the matter submitted
for the approval of the stockholders at the Special Meeting is approved by the
requisite number of shares, such approval will bind all stockholders and
objecting stockholders will have no alternative other than selling their Common
Stock in the market.
21
<PAGE>
EXPENSES OF THE RECAPITALIZATION TRANSACTIONS
MOXY expects to incur expenses incident to the Recapitalization
Transactions of approximately $7.0 million, including the $6.0 million Standby
Fee payable to FRP.
PROPOSAL TO APPROVE AMENDMENTS TO THE
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
MOXY seeks stockholder approval of amendments ("Director Plan Amendments")
to the MOXY 1994 Stock Option Plan for Non-Employee Directors (the ''Director
Plan''). The Director Plan and the Director Plan Amendments are summarized
below. The summary is qualified in its entirety by reference to the text of the
Director Plan, as it is proposed to be amended, which is attached hereto as
Annex VI.
REASONS FOR THE PROPOSED CHANGES
In order to provide MOXY's non-employee directors with an appropriate level
of long-term incentive consistent with the increased size of MOXY that would
result upon completion of the Recapitalization Transactions, the Board proposes
the Director Plan Amendments to (i) increase the number of shares subject to the
automatic option granted each year, (ii) provide for a grant of options on July
14, 1997, and (iii) increase the number of shares subject to the Director Plan.
The Director Plan Amendments are subject to stockholder approval as well as
stockholder approval of the Recapitalization Proposal.
The Director Plan currently provides an automatic grant to each non-
employee director of an option to purchase 1,656 shares of Common Stock; the
Director Plan Amendments provide that commencing on June 1, 1998 the automatic
grant will be an option to purchase 4,968 shares of Common Stock, which will be
consistent with the increased size of MOXY's that would result upon completion
of the Recapitalization Transactions. In order to provide additional shares
subject to options currently held by directors, the amendment also provides for
a grant on July 14, 1997 of an option to purchase 13,248 shares of Common Stock.
Additionally, in order for a sufficient number of shares to be available under
the Director Plan for future option grants, the Director Plan Amendments also
increase the total number of shares in respect of which options may be granted
from 250,000 to 410,000.
SUMMARY OF THE DIRECTOR PLAN AS PROPOSED TO BE AMENDED
The purpose of the Director Plan is to align more closely the interests of
MOXY's non-employee directors with those of MOXY's stockholders by providing for
the automatic grant of stock options to such directors in accordance with the
terms of the Director Plan.
The maximum number of shares of Common Stock in respect of which options
may be granted under the Director Plan is 410,000. On July 14, 1997, the
closing sale price of a share of Common Stock as reported on the Nasdaq National
Market was $3 5/8. The shares of Common Stock to be delivered under the
Director Plan will be made available from the authorized but unissued shares of
Common Stock or from treasury shares.
Except for determinations with respect to the transferability of options,
which are made by the Corporate Personnel Committee (the "Committee") of the
Board, the Director Plan is administered by the Board; however, the Board has no
discretion to determine the timing, exercise price or amount of options granted
under the Director Plan.
All directors of the Company who are not, and within the preceding one year
have not been, employees or officers of MOXY or any of its affiliated companies
or officers or employees of an entity with which MOXY has contracted to receive
management services are ''Eligible Directors'' under the Director Plan. There
are presently eight Eligible Directors. Under the Director Plan each Eligible
Director was granted on July 14, 1997 an option to purchase 13,248 shares of
Common Stock, subject to stockholder approval of the Director Plan Amendments
and the Recapitalization Proposal at the Special Meeting, and, on June 1, 1998,
22
<PAGE>
and on June 1 of each subsequent year through and including 2003, each Eligible
Director will be granted an option to purchase 4,968 shares of Common Stock.
Options granted under the Director Plan are non-qualified options. The
exercise price of options granted under the Director Plan will be 100% of the
fair market value of the underlying shares of Common Stock on the date of grant.
Each option becomes exercisable in 25% annual increments beginning on the first
anniversary of the date of grant, and will have a term of 10 years. An option
may be exercised generally only during a ten-day trading period following the
public release by MOXY of its quarterly or annual financial statements. Upon
retirement from service as a director, a retiring director's options that were
exercisable on the date of retirement or could have become exercisable within
one year after such date will remain exercisable until the earlier of (i) the
third anniversary of the date of such retirement or (ii) the expiration date of
the option. Options become exercisable in full upon a change of control of
MOXY, as defined in the Director Plan.
The option exercise price may be paid in cash or by delivering shares of
Common Stock owned by the optionee or by a combination of cash and Common Stock.
The ability to pay the option exercise price in Common Stock would permit an
optionee to engage in a series of successive stock-for-stock exercises of an
option (sometimes referred to as "pyramiding") and thereby fully exercise an
option with little or no cash investment; however, it is the Committee's policy
to require any stock tendered in payment of the exercise price to be in
certificated form.
In the event of the payment of any dividend payable in shares of Common
Stock, or any subdivision or combination of such shares of Common Stock, the
number of shares that may be purchased under the Director Plan and the number of
shares subject to each option granted under the Director Plan will be increased
or decreased proportionately, as the case may be, and the number of shares
deliverable upon the exercise thereafter of any outstanding option (whether or
not then exercisable) will be increased or decreased proportionately, as the
case may be, without change in the aggregate exercise price. In the event MOXY
is merged or consolidated into or with another corporation in a transaction in
which MOXY is not the survivor, or in the event that substantially all of MOXY's
assets are sold to another entity not affiliated with MOXY, any holder of an
option, whether or not then exercisable, will be entitled to receive (unless
MOXY takes such alternative action as may be necessary to preserve the economic
benefit of the option for the optionee) on the effective date of any such
transaction, in cancellation of such option, an amount in cash equal to the
excess, if any, of the fair market value on the effective date of any such
transaction of the shares underlying such option over the aggregate exercise
price thereof.
No option may be transferred, pledged, assigned, or otherwise encumbered by
the holder thereof except by will or by the laws of descent and distribution or,
if permitted by the Committee, pursuant to a domestic relations order, to
immediate family members, or to entities controlled by or for the benefit of,
either exclusively or predominately, immediate family members.
The Director Plan may be amended or terminated at any time by the Board of
Directors, except that no amendment may be made without stockholder approval if
such amendment would (i) increase the maximum number of shares of Common Stock
that may be purchased pursuant to options granted either individually or on an
annual basis in the aggregate, (ii) permit the granting of any option with an
exercise price other than 100% of the fair market value of the underlying shares
of Common Stock on the date of grant, (iii) permit the exercise of an option
unless the full purchase price of the shares as to which the option is exercised
is paid at the time of exercise, (iv) extend beyond June 1, 2003 the period
during which options may be granted, (v) modify in any respect the class of
individuals who constitute Eligible Directors, or (vi) materially increase the
benefits accruing to participants thereunder.
When an optionee exercises an option, the difference between the option
price and any higher fair market value of the shares of Common Stock, generally
on the date of exercise, will be ordinary income to the optionee and generally
will be allowed as a deduction for federal income tax purposes to MOXY.
23
<PAGE>
Any gain or loss realized by an optionee on disposition of the Common Stock
acquired upon exercise of an option generally will be capital gain or loss to
such optionee, long-term or short-term depending on the holding period, and will
not result in any additional tax consequences to MOXY. The optionee's basis in
the shares of Common Stock for determining gain or loss on the disposition will
be the fair market value of such shares of Common Stock determined generally at
the time of exercise.
Except as noted below, when an optionee receives payment with respect to an
option under the Director Plan other than as described in the preceding
paragraphs, the amount of cash and the fair market value of the securities
received, net of any amount paid by the optionee, will be ordinary income to
such optionee and generally will be allowed as a deduction for federal income
tax purposes to MOXY. If the exercise price of an option is paid by the
surrender of previously owned shares, the basis of the previously owned shares
carries over to the shares received in replacement therefor. The income
recognized on exercise is added to the basis.
The following table sets forth information with respect to the benefits
under the Director Plan, as proposed to be amended, that were received on July
14, 1997, subject to stockholder approval of the Director Plan Amendments and
the Recapitalization Proposal, by (i) each of the directors who is not an
executive officer and (ii) all directors who are not executive officers as a
group.
NEW PLAN BENEFITS
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
NUMBER OF SECURITIES
NAME AND POSITION UNDERLYING OPTIONS(A)
- ----------------- ---------------------
Robert W. Bruce III, Director.......................... 13,248
Robert A. Day, Director................................ 13,248
William B. Harrison, Jr., Director..................... 13,248
Bobby L. Lackey, Director.............................. 13,248
Gabrielle K. McDonald, Director........................ 13,248
George Putnam, Director................................ 13,248
B.M. Rankin, Jr., Director............................. 13,248
J. Taylor Wharton, Director............................ 13,248
Non-Executive Officer Director Group................... 105,984
- --------------
(a) Represents grants on July 14, 1997 under the Director Plan Amendments. In
addition, beginning in 1998, annual grants of options to purchase 4,968
shares will be made to each Eligible Director under the Director Plan
Amendments.
Approval of the Director Plan Amendments requires the affirmative vote of a
majority of the shares of Common Stock present and entitled to vote at the
Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF THE
SHARES OF COMMON STOCK APPROVE THE DIRECTOR PLAN AMENDMENTS.
24
<PAGE>
PROPOSAL TO APPROVE AMENDMENTS TO THE 1994 STOCK OPTION PLAN
MOXY seeks stockholder approval of amendments ("Stock Plan Amendments") to
the MOXY 1994 Stock Option Plan (the "Stock Plan"). The Stock Plan and the
Stock Plan Amendments are summarized below. The summary is qualified in its
entirety by reference to the text of the Stock Plan, as it is proposed to be
amended, which is attached hereto as Annex VII.
REASONS FOR THE PROPOSED CHANGES
In order to provide MOXY's officers, employees and certain other persons
providing services to MOXY with an appropriate level of long-term incentive
consistent with the increased size of MOXY that would result upon completion of
the Recapitalization Transactions, on July 14, 1997, the Committee granted to
such persons options to purchase an aggregate of 1,954,000 shares of Common
Stock. These grants are subject to stockholder approval of the Stock Plan
Amendments, which the Board approved, and stockholder approval of the
Recapitalization Proposal. The Stock Plan Amendments increase the number of
shares authorized under the Stock Plan from 1,000,000 to 3,000,000 and increase
the maximum number of shares subject to grants an individual may receive in one
year from 200,000 to 600,000.
SUMMARY OF THE STOCK PLAN AS PROPOSED TO BE AMENDED
Administration
Awards under the Stock Plan are made by the Committee, which currently
consists of five members of the Board, each of whom is a "non-employee director"
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") and qualifies as an "outside director" under Section 162(m) of
the Internal Revenue Code of 1986 (the "Code"). The Committee has full power
and authority to designate participants, set the terms of awards and to make any
determinations necessary or desirable for the administration of the Stock Plan.
Eligible Participants
Officers and key employees of MOXY and its existing or future subsidiaries
and officers and employees of any entity with which MOXY has contracted to
receive management services and who provide services to MOXY under such
arrangement are eligible to participate in the Stock Plan. The Committee may
delegate to certain officers of MOXY the power to make awards to eligible
persons who are not officers or directors of MOXY for purposes of Section 16 of
the Exchange Act, subject to limitations to be established by the Committee. It
is estimated that approximately 275 persons are eligible for awards under the
Stock Plan; however, only 24 persons presently hold outstanding awards under the
Stock Plan.
Number of Shares
The maximum number of shares of Common Stock with respect to which awards
payable in shares of Common Stock may be granted under the Stock Plan is
3,000,000. No individual may receive in any year awards under the Stock Plan
that relate to more than 600,000 shares of Common Stock. Shares subject to
awards that are forfeited or canceled will again be available for award. The
shares to be delivered under the Stock Plan will be made available from the
authorized but unissued shares of Common Stock or from treasury shares.
On July 14, 1997, the closing price of a share of Common Stock on the
Nasdaq National Market was $3 5/8.
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<PAGE>
Types of Awards
Stock options, stock appreciation rights, limited rights and other stock-
based awards may be granted under the Stock Plan in the discretion of the
Committee. Options granted under the Stock Plan may be either non-qualified or
incentive stock options. Only officers and employees of MOXY or its
subsidiaries or officers or employees of entities with which MOXY has contracted
to receive management services who provide services to MOXY or its subsidiaries
through such arrangement will be eligible to receive incentive stock options.
Stock appreciation rights and limited rights may be granted in conjunction with
or unrelated to other awards and, if in conjunction with an outstanding option
or other award, may be granted at the time of such award or thereafter, at the
exercise price of such other award. The Committee has discretion to fix the
exercise price of such options, stock appreciation rights and limited rights at
a price not less than 100% of the fair market value of the underlying Common
Stock at the time of grant thereof (or at the time of grant of the related award
in the case of a stock appreciation right or limited right granted in
conjunction with an outstanding award), except that this limitation on the
Committee's discretion does not apply in the case of awards granted in
substitution for outstanding awards previously granted by an acquired company or
a company with which MOXY combines. The Committee has broad discretion as to
the terms and conditions upon which options and stock appreciation rights are
exercisable, but under no circumstances will an option, a stock appreciation
right or a limited right have a term exceeding 10 years.
No award may be transferred, pledged, assigned, or otherwise encumbered by
the holder thereof except by will; by the laws of descent and distribution; if
permitted by the Committee, pursuant to a domestic relations order; or, if
permitted by the Committee, stock options and limited rights granted in
conjunction therewith may be transferred or assigned to immediate family
members, or to entities controlled by or for the benefit of, either exclusively
or predominately, immediate family members.
The option exercise price may be paid in cash, or in the discretion of the
Committee, by exchanging Common Stock owned by the optionee or by a combination
of cash and Common Stock. The ability to pay the option exercise price in
Common Stock would permit an optionee to engage in a series of successive stock-
for-stock exercises of an option (sometimes referred to as "pyramiding") and
thereby fully exercise an option with little or no cash investment; however, it
is the Committee's policy to require any stock tendered in payment of the
exercise price to be in certificated form.
Upon the exercise of a stock appreciation right with respect to Common
Stock, a participant would be entitled to receive, for each such share subject
to the right, the excess of the fair market value of such shares on the date of
exercise over the exercise price of such right. The Committee has the authority
to determine whether the value of a stock appreciation right is paid in cash or
Common Stock or a combination thereof.
Limited rights generally are exercisable only during a period beginning not
earlier than one day and ending not later than 90 days after the expiration date
of any tender offer, exchange offer or similar transaction which results in any
person or group becoming the beneficial owner of more than 40% of the shares of
Common Stock outstanding. Upon the exercise of a limited right granted under
the Stock Plan, a participant would be entitled to receive, for each share of
Common Stock subject to such right, the excess, if any, of the highest price
paid in or in connection with such transaction over the grant price of the
limited right.
The Stock Plan also authorizes the Committee to grant to participants
awards of Common Stock and other awards that are denominated in, payable in,
valued in whole or in part by reference to, or are otherwise based on the value
of, Common Stock ("Other Stock-Based Awards"). The Committee has discretion to
determine the participants to whom Other Stock-Based Awards are to be made, the
times at which such awards are to be made, the size of such awards, the form of
payment, and all other conditions of such awards, including any restrictions,
deferral periods or performance requirements. The terms of the Other Stock-
Based Awards will be subject to such rules and regulations as the Committee
determines.
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<PAGE>
Any award under the Stock Plan may provide that the participant has the
right to receive currently or on a deferred basis dividends or dividend
equivalents or other cash or securities payments in addition to such awards, all
as the Committee determines.
Adjustments
If the Committee determines that any stock split, stock dividend or other
distribution (whether in the form of cash, securities or other property),
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares, issuance of warrants or other
rights to purchase shares, or other similar corporate event affects the Common
Stock such that an adjustment is required in order to preserve the benefits
intended under the Stock Plan, then the Committee has discretion to (i) make
equitable adjustments in (a) the number and kind of shares that may be the
subject of future awards under the Stock Plan and (b) the number and kind of
shares (or other securities or property) subject to outstanding awards and the
respective grant or exercise prices thereof and (ii) if appropriate, provide for
the payment of cash to a participant. The Committee is also authorized to make
adjustments in the terms and conditions of outstanding awards in recognition of
unusual or nonrecurring events affecting MOXY or its financial statements or
changes in applicable laws, regulations, or accounting principles whenever the
Committee determines that it is appropriate to preserve the benefits intended
under the Stock Plan.
Amendment or Termination
The Stock Plan may be amended or terminated at any time by the Board of
Directors, except that no amendment may be made without stockholder approval if
such approval is necessary to comply with any tax or regulatory requirement,
including any approval requirement that is necessary to qualify awards as
"performance-based" compensation under Section 162(m) of the Code, if deemed
advisable by the Committee.
FEDERAL INCOME TAX CONSEQUENCES
When an optionee exercises a non-qualified option, the difference between
the exercise price and any higher fair market value of the Common Stock on the
date of exercise will be ordinary income to the optionee (subject to
withholding) and will generally be allowed as a deduction at that time for
federal income tax purposes to MOXY.
Any gain or loss realized by an optionee on disposition of the Common Stock
acquired upon exercise of a non-qualified option will generally be capital gain
or loss to the optionee, long-term or short-term depending on the holding
period, and will not result in any additional federal income tax consequences to
MOXY. The optionee's basis in the Common Stock for determining gain or loss on
the disposition will be the fair market value of the Common Stock determined
generally at the time of exercise.
When an optionee exercises an incentive stock option while employed by MOXY
or a subsidiary or within three months (one year for disability) after
termination of employment by reason of retirement or death, no ordinary income
will be recognized by the optionee at that time, but the excess (if any) of the
fair market value of the Common Stock acquired upon such exercise over the
option price will be an adjustment to taxable income for purposes of the federal
alternative minimum tax applicable to individuals. If the Common Stock acquired
upon exercise of the incentive stock option is not disposed of prior to the
expiration of one year after the date of acquisition and two years after the
date of grant of the option, the excess (if any) of the sale proceeds over the
aggregate option exercise price of such Common Stock will be long-term capital
gain, but MOXY will not be entitled to any tax deduction with respect to such
gain. Generally, if the Common Stock is disposed of prior to the expiration of
such periods (a "Disqualifying Disposition"), the excess of the fair market
value of such Common Stock at the time of exercise over the aggregate option
exercise price (but not more than the gain on the disposition if the disposition
is a transaction on which a loss, if realized, would be recognized) will be
ordinary income at the time of such Disqualifying Disposition (and MOXY will
generally be entitled to a federal income tax deduction in a like amount). Any
gain realized by the optionee as the result of a Disqualifying Disposition that
exceeds the amount treated as ordinary income will be capital in nature,
27
<PAGE>
long-term or short-term depending on the holding period. If an incentive stock
option is exercised more than three months (one year for disability) after
termination of employment, the federal income tax consequences are the same as
described above for non-qualified stock options.
If the exercise price of an option is paid by the surrender of previously
owned shares, the basis of the previously owned shares carries over to the
shares received in replacement therefor. If the option is a non-qualified
option, the income recognized on exercise is added to the basis. If the option
is an incentive stock option, the optionee will recognize gain if the shares
surrendered were acquired through the exercise of an incentive stock option and
have not been held for the applicable holding period. This gain will be added
to the basis of the shares received in replacement of the previously owned
shares.
An employee who receives Common Stock subject to restrictions will normally
recognize taxable income on the date the shares become transferable or no longer
subject to substantial risk of forfeiture or on the date of their earlier
disposition. The amount of such taxable income will be equal to the amount by
which the fair market value of the shares of Common Stock on the date such
restrictions lapse (or any earlier date on which the shares are disposed of)
exceeds their purchase price, if any. An employee may elect, however, to
include in income in the year of purchase or grant the excess of the fair market
value of the shares of Common Stock (without regard to any restrictions) on the
date of purchase or grant over the purchase price. Subject to the limitations
imposed by Section 162(m) of the Code, MOXY will be entitled to a deduction for
compensation paid in the same year and in the same amount as income is realized
by the employee. Dividends currently paid to the participant will be taxable
compensation income to the participant and deductible by MOXY.
Except as noted below, when a participant receives payment with respect to
an award granted to him other than as described in the preceding paragraphs, the
amount of cash and the fair market value of any securities received, net of any
amount paid by the participant, will be ordinary income to such participant
(subject to withholding) and, subject to the limitations provided in Section
162(m) of the Code, will generally be allowed as a deduction at that time for
federal income tax purposes to MOXY.
MOXY believes that taxable compensation arising in connection with stock
options granted under the Stock Plan should be fully deductible to MOXY for
purposes of Section 162(m) of the Code. Section 162(m) of the Code may limit
the deductibility of an executive's compensation in excess of $1,000,000 per
year.
Awards under the Stock Plan that are granted, accelerated or enhanced upon
the occurrence of a change of control may give rise, in whole or in part, to
excess parachute payments within the meaning of Section 280G of the Code to the
extent that such payments, when aggregated with other payments subject to
Section 280G, exceed the limitations contained therein. Such excess parachute
payments will be nondeductible to MOXY and subject the recipient of the payments
to a 20% excise tax.
The foregoing discussion summarizes the federal income tax consequences of
the Stock Plan based on current provisions of the Code, which are subject to
change. This summary does not cover any foreign, state or local tax
consequences or participation in the Stock Plan.
AWARDS UNDER THE STOCK PLAN
The following table sets forth information with respect to the benefits
under the Stock Plan, as proposed to be amended, that were received on July 14,
1997, subject to stockholder approval of the Stock Plan Amendments and of the
Reorganization Proposal, by (i) each of the executive officers identified as a
"Named Executive Officer" in the proxy statement for the annual meeting of
stockholders held on May 8, 1997, (ii) all current executive officers as a
group, (iii) all current directors who are not executive officers as a group,
and (iv) all employees, other than executive officers, as a group.
28
<PAGE>
NEW PLAN BENEFITS
1994 STOCK OPTION PLAN
NUMBER OF SECURITIES
NAME AND POSITION UNDERLYING OPTIONS
- ----------------- --------------------
James R. Moffett, Co-Chairman of the Board............... 400,000
Richard C. Adkerson, Co-Chairman of the Board
and Chief Executive Officer............................. 400,000
C. Howard Murrish, President and Chief Operating Officer. 500,000
Glenn A. Kleinert, Senior Vice President................. 120,000
James H. Lee, Senior Vice President...................... 64,000
Executive Officer Group.................................. 1,654,000
Non-Executive Officer Director Group..................... 0
Non-Executive Officer Employee Group..................... 300,000
VOTE REQUIRED FOR APPROVAL OF THE STOCK PLAN AMENDMENTS
Approval of the Stock Plan Amendments requires the affirmative vote of a
majority of the shares of Common Stock present and entitled to vote at the
Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF THE
SHARES OF COMMON STOCK APPROVE THE STOCK PLAN AMENDMENTS.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on Nasdaq under the symbol "MOXY." The
following table sets forth, for the periods indicated, the range of high and low
closing bid prices, as reported by Nasdaq. The quotes represent "inter-dealer"
prices without adjustment or mark-ups, mark-downs or commissions and may not
represent actual transactions.
High Low
1995 --------- --------
----
First Quarter $3 1/8 $2 1/2
Second Quarter 4 1/8 2 3/8
Third Quarter 3 5/8 2 5/16
Fourth Quarter 3 7/16 2 9/16
1996
----
First Quarter $3 3/4 $2 13/16
Second Quarter 3 7/8 2 1/2
Third Quarter 2 15/16 1 3/4
Fourth Quarter 3 1/16 1 1/2
1997
----
First Quarter $3 15/16 $2 1/16
Second Quarter 3 13/16 2 5/16
Third Quarter
(through July 14, 1997) 3 5/8 3 3/8
On July 14, 1997 the last reported sales price of the Common Stock was $3
5/8. As of July 14, 1997, there were 11,554 holders of the Company's Common
Stock.
The Company has not in the past paid cash dividends on its Common Stock and
does not expect to do so in the foreseeable future. The Company currently
intends to reinvest its available cash in the identification, exploration and
development of additional oil and gas properties. The decision whether or not
to pay dividends and in what amounts is solely within the discretion of the
Company's board of directors.
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CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at March 31, 1997 and as adjusted to give effect to the Recapitalization
Transactions (assuming full exercise of all the Rights and no exercise of the
FRP Purchase Option), and the sale of the MOXY/MCN Program's West Cameron Block
503 field in April 1997. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's pro forma condensed financial statements and notes
thereto and the Company's historical financial statements and notes thereto
included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
As of March 31, 1997
---------------------------
Actual As adjusted
----------- -----------
<S> <C> <C>
(unaudited, in thousands)
Production loan, including current portion.................... $ 14,022 $ --
----------- -----------
Stockholders' equity:
Common Stock, $.01 par value per share; 150,000,000
shares authorized; 14,036,519 shares and 42,608,000
shares issued and outstanding, respectively............. 140 426
Additional paid-in capital............................... 47,938 140,652
Accumulated deficit........................................... (42,186) (39,897)
----------- -----------
Total stockholders' equity................................. 5,892 101,181
----------- -----------
Total capitalization.......................................... $ 19,914 $ 101,181
=========== ===========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
MOXY is an independent oil and gas company engaged in the exploration,
development and production of oil and natural gas. MOXY commenced operations in
May 1994 following the distribution of its common stock to the stockholders of
FTX in order to carry on substantially all of the oil and gas exploration
activities previously conducted by FTX. MOXY and its predecessors have
conducted exploration, development and production operations offshore in the
Gulf and onshore in the Gulf Coast and other areas for more than 25 years, which
have provided MOXY with an extensive geological and geophysical database, and
significant technical and operational expertise. MOXY expects to continue to
concentrate its efforts in this selected geographic area where its management
team has significant exploration experience.
MOXY's business strategy is to create value for its stockholders through
the discovery of oil and gas reserves in its exploration and development
activities. Management believes that MOXY has significant opportunities to
discover meaningful oil and gas reserves and that these opportunities can best
be achieved through the use of advanced 3-D seismic technology, applied in
conjunction with an expanded, multi-year exploration program. Moreover, MOXY
believes that its recent and continuing acquisitions of 3-D seismic data will
continue to improve its ability to interpret subsurface geology and allow it to
develop a larger inventory of high-quality prospects that it can pursue at
offshore lease sales and through farm-in opportunities in areas where it has a
substantial geologic database and a long history of operational experience.
CAPITAL RESOURCES AND LIQUIDITY
During 1995, MOXY established the MCN and Phillips joint ventures which
provided MOXY with an inflow of funds. Thus far, MOXY has interests in two
producing fields in the Gulf, the Vermilion Block 160 Unit and Vermilion Block
410 field. However, MOXY will have expended essentially all of its capital
resources by the end of 1997 and requires significant additional capital to
continue its exploration activities. Moreover,
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MOXY believes that it is important to obtain sufficient capital to enable MOXY
to participate in a broader range of exploration prospects.
In mid-1996, with the upcoming completion of the exploration portion of the
MOXY/MCN Program, management began evaluating options to obtain additional long-
term funding for its planned exploration and development activities, including
entering into one or more new long-term exploration joint ventures (MCN later
indicated that it did not wish to enter into the type of multi-year program that
MOXY desired), issuing additional equity or undertaking a business combination
with another entity. MOXY ultimately decided to undertake the Rights Offering
(discussed below), which would allow it to recapitalize, to restructure its
current exploration and development operations, and to engage in a significantly
expanded and more diversified, multi-year exploratory drilling program.
If MOXY shareholders approve the Recapitalization Proposal, net proceeds of
approximately $93 million would be raised by the Rights Offering to enable MOXY
to acquire MCN's interest in the MCN Producing Properties (recently purchased by
FRP) and to retire all MOXY debt. Furthermore, the remaining cash proceeds
would provide MOXY with the funding necessary to participate in the aggregate
$200 million multi-year MOXY/FRP Exploration Program (discussed below). MOXY
would retain a 100% interest in the MCN Producing Properties and would dedicate
all other properties which were subject to the MOXY/MCN Program to the MOXY/FRP
Exploration Program.
MOXY and FRP plan to establish, subject to completion of the Rights
Offering, the MOXY/FRP Exploration Program to explore and develop exploratory
prospects primarily in the Gulf and onshore in the Gulf Coast area where MOXY
has significant exploration experience and a substantial geological database.
MOXY would manage the MOXY/FRP Exploration Program, selecting all prospects and
drilling opportunities, and would serve as operator of all wells drilled by the
MOXY/FRP Exploration Program. MOXY and FRP would commit $200 million for
exploration expenses, with exploration expenses being shared 40% by MOXY and 60%
by FRP. All revenues and other costs would be shared equally. The MOXY/FRP
Exploration Program would include the seven leases recently purchased by MOXY
for $5.5 million at the OCS Lease Sale 166, held in March 1997 that have been
dedicated to the MOXY/MCN Program.
If the stockholders do not approve the Rights Offering, the
Recapitalization Transactions will not be completed, and FRP will retain MCN's
interest in the MOXY/MCN Program, the MCN Producing Properties and all other
exploratory properties subject to the MOXY/MCN Program. FRP will have the
obligation to fund, and extend credit to MOXY to fund, any exploration and
development costs that may be committed under the amended MOXY/MCN Program and
any other amounts that may be borrowed by MOXY thereunder. FRP will not be
obligated to fund any other exploratory prospects. As a result, MOXY will be
forced to secure alternative sources of financing to support is current
operations and fund any future exploration and development activities beyond the
financing available under the MOXY/MCN Program. All of the net revenues
generated from MOXY's producing oil and gas properties are dedicated to repay
indebtedness incurred under the MOXY/MCN Program. Such alternative sources
could include additional equity or debt financing, the sale of all of part of
MOXY's assets or other partnership or joint venture transactions. There can be
no assurance that alternative financing will be available on acceptable terms,
if at all, or that MOXY will be a viable business enterprise.
MOXY incurred $5.0 million of cash exploration and development expenditures
during the first three months of 1997, principally consisting of $1.6 million
for development at Vermilion Blocks 160 and 410, $0.4 million for lease
acquisition costs, $1.9 million in drilling and leasehold costs charged to
expense and $1.5 million of geological and geophysical costs. Exploration
expenditures would be expected to increase following the completion of the
Rights Offering and the initiation of the MOXY/FRP Exploration Program.
OPERATIONAL ACTIVITIES
MOXY's past exploration activities in the Gulf of Mexico have been
conducted primarily through the MOXY/MCN Program in which MOXY currently holds a
40% interest. In July 1997, FRP acquired MCN's interest in the program, and
upon successful completion of the Rights Offering, MOXY would purchase the MCN
Producing Properties (Vermilion Blocks 160 and 410), and MOXY and FRP would
dedicate all other oil
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and gas properties subject to the MOXY/MCN Program to the MOXY/FRP Exploration
Program. As noted earlier, if the stockholders do not approve the Rights
Offering, the Recapitalization Transactions will not be completed, and FRP will
retain its interest in the MCN Producing Properties.
Recent activities within the MOXY/MCN Program follow:
. During the fourth quarter of 1996, a development well at the Vermilion
Block 160 field discovered new reserves from eight gas sands with
approximately 215 feet of net pay. Drilling on this well was completed in
the first quarter of 1997, discovering an additional 47 feet of net pay.
During the second quarter of 1997, a second development well to develop the
newly discovered reserves encountered 244 feet of net gas pay from six
sands. A third development well is currently drilling. The MOXY/MCN
Program has a 28% interest in this field which is subject to re-
determination subsequent to final development drilling. In addition, the
interest in two of the four blocks within the Vermilion Block 160 field
unit is subject to a 30% net profits interest. Daily gross production at
the Vermilion Block 160 field currently averages approximately 10 million
cubic feet (Mmcf) of natural gas and 400 barrels of condensate. Production
from the new development wells is expected to commence during the second
half of 1997.
. In late December 1996, installation of the production platforms and
related facilities at the Vermilion Block 410 field was completed and
production began from one of the two platforms. Production began from the
second platform in February 1997. The MOXY/MCN Program has a 28% revenue
interest in this field. Daily gross production currently totals
approximately 72 Mmcf of gas.
. In April 1997, the MOXY/MCN Program sold its interest in West Cameron
Block 503 for $7.2 million ($2.9 million net to MOXY) with MOXY recognizing
a $2.3 million gain. The proceeds were used to repay borrowings from MCN.
. During 1996, gas was also discovered on West Cameron Block 616 and Grand
Isle Block 65. During 1997, new 3-D seismic data was received and mapping
began on West Cameron Blocks 616 and 617, as well as on Grand Isle Block
65. Based on the results of this new data, exploratory drilling is
scheduled for July 1997 at Grand Isle Block 65 and is being contemplated at
West Cameron Block 616 during the fourth quarter of 1997.
. During the second quarter of 1997, the MOXY/MCN Program acquired a 50%
working interest in Eugene Island Block 18/19 from Shell Offshore Inc.
(SOI) in exchange for a 50% interest in the MOXY/MCN Program's West Cameron
Block 492. SOI, as operator, is currently drilling an exploratory well on
Eugene Island Block 19.
MOXY's drilling activities in the onshore Gulf Coast region have taken
place through its 25% owned joint venture with Phillips, which covers a project
area in south Louisiana, as follows:
. In April 1997, MOXY completed drilling of an exploratory well on the North
Bay Junop prospect, the second of two high-risk, high-potential prospects
which have been drilled within the project area. The well reached total
depth but did not encounter commercial hydrocarbons in the primary
objective zones. MOXY completed the well in a shallower zone with
approximately 25 feet of net pay. The well was flow tested at a rate of
5.3 Mmcf of gas and 93 barrels of condensate per day. Because of the
complexity of salt dome geology and potentially limited reservoir size,
production performance will be required to determine the reserve volumes
associated with this completion. Plans to initiate production are
currently in progress with production expected in the fourth quarter of
1997. MOXY continues to evaluate other leads within the project area which
have been identified by 3-D seismic survey.
. MOXY completed its first exploratory well at the East Fiddler's Lake
prospect in late 1996. Although the well was unsuccessful in discovering
commercial hydrocarbons, the geological data from this well assisted
further drilling activity in the project area.
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RESULTS OF OPERATIONS
First Quarter
---------------
1994 (1) 1995 1996 1996 1997
----------- ------- ------ ------- ------
Revenues: (In millions, except per share amounts)
Oil and gas sales $ .2 $ 2.7 $ 2.4 $ .7 $ 2.4
Management fees - .6 1.7 .4 .4
---------- ------ ----- ----- -----
$ .2 $ 3.3 $ 4.1 $ 1.1 $ 2.8
========== ====== ===== ===== =====
Exploration Expenses:
Geological and geophysical $ 6.0 $ 9.8 $ 6.3 $ 1.2 $ 1.5
Exploratory drilling and 9.5 2.0 5.6 3.3 .9
leasehold costs
Reimbursement of
previously expensed costs - - (2.1) - -
---------- ------ ----- ----- -----
$ 15.5 $ 11.8 $ 9.8 $ 4.5 $ 2.4
========== ====== ===== ===== =====
Operating loss (17.7) (14.8) (9.9) (4.5) (2.3)
Net loss (15.2) (14.6) (9.9) (4.3) (2.5)
Net loss per share (1.10) (1.06) (.71) (.31) (.18)
(1) Inception (May 1994) through December 31, 1994.
MOXY's oil and gas sales began in late 1994 with the commencement of
production at the Vermilion Block 160 field. In mid-1995, the MOXY/MCN Program
was formed, resulting in a reduction to MOXY's ownership in this field (and the
start of the management fees from the MOXY/MCN Program). In December 1996,
production began from the first of two production platforms at the MOXY/MCN
Program's Vermilion Block 410 field, with production from the second platform
commencing in February 1997. As noted above, upon successful completion of the
Rights Offering, MOXY intends to purchase MCN's interest in the Vermilion Block
160 and 410 fields from FRP. See the unaudited Pro Forma Results of Operations
contained in this proxy statement.
General and administrative expenses totaled $0.7 million for the three-
month 1997 and 1996 periods, compared with $2.6 million in 1996, $3.7 million in
1995 and $2.3 million in the 1994 period. The decline from 1995 resulted from
steps taken in the third quarter of 1995 to reduce costs. These actions included
a reduction in the number of employees and in the costs of consulting
arrangements and administrative and managerial services.
As a result of anticipated future exploration expenditures, MOXY expects to
continue to report operating losses for at least the near future.
ENVIRONMENTAL
Although MOXY has no known environmental liabilities, increasing emphasis on
environmental matters could result in additional costs, which would be charged
against MOXY's operations in future periods. Present and future environmental
laws and regulations applicable to MOXY's operations could require substantial
capital expenditures or could adversely affect its operations in other ways that
cannot be accurately predicted at this time.
CAUTIONARY STATEMENT
Management's discussion and analysis contains certain forward-looking
statements. Important factors that might cause future results to differ from
these projections are described in more detail under the heading "Cautionary
Statement" in MOXY's Form 10-K for the year ended December 31, 1996.
-------------------------
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERVICES AGREEMENT
Other than those functions performed by the Company's employees or provided
under third party contracts, since January 1, 1996 a substantial portion of the
services necessary for the business and operations of the Company, including
certain executive, technical, administrative, accounting, financial, tax and
other services have been performed by FMS, a corporation 50% owned by each of
FTX and Freeport-McMoRan Copper & Gold Inc., pursuant to the Services Agreement.
Prior to 1996, substantially the same services were provided by FTX. Since
September 1995 these services have been provided for a fixed annual fee of $1.0
million, subject to annual cost of living increases beginning in the first
quarter of 1997. Prior to September 1995, the cost of such services was
provided by FTX as determined and allocated by FTX. For the year ended December
31, 1996, the Company incurred $1.0 million of expenses under its agreement with
FMS. The Services Agreement is terminable by the Company at any time upon 90
days notice.
OIL AND GAS PROPERTIES
In June 1996, FRP acquired a 25% leasehold in interest in an oil and gas
venture to explore a project area in Terrebonne Parish, Louisiana. In
connection with the acquisition of this interest, FRP reimbursed the Company
$2.1 million for certain costs previously incurred in the project area. FRP
acquired its interest on the same proportionate basis as Phillips, which owns a
50% interest and is the operator of the joint venture.
In February 1997, FRP agreed to acquire an interest in leases acquired by
the Company at the federal offshore lease sale held in March 1997. At the lease
sale, the Company was high bidder on seven offshore Gulf of Mexico tracts, with
bids totaling $5.5 million. MOXY and FRP have dedicated these leases to the
MOXY/MCN Program. Upon completion of the Rights Offering, these leases will be
dedicated to the MOXY/FRP Exploration Program.
Upon completion of the Rights Offering, MOXY and FRP will enter into an
agreement pursuant to which MOXY will market all of FRP's oil and gas
production, including production from properties included in the MOXY/FRP
Exploration Program and production from FRP's other properties, including its
interest in the Main Pass development.
During 1996, Mr. Day participated directly or indirectly through various
entities, on substantially the same basis as other parties, in exploration and
development operations on certain properties owned or operated by the Company.
Mr. Day and such entities have ownership interests in such properties ranging
generally from 12.5% to 25%. Mr. Day's and such entities' share of expenditures
for exploration and development operations during 1996 amounted to approximately
$200,000.
MCN PROPERTIES; STANDBY PURCHASE AGREEMENT
On July 14, 1997, MOXY entered into an agreement to acquire the MCN
Producing Properties from FRP concurrently with the closing of the Standby
Commitment for $26.0 million, as adjusted for net revenues and development and
operating costs attributable to the MCN Producing Properties from April 1, 1997
until MOXY's acquisition of these properties, plus interest calculated on the
daily outstanding balance of the $26.0 million purchase price, as adjusted, from
_______, 1997 until MOXY's acquisition of the properties at an annual rate
publicly announced by The Chase Manhattan Bank from time to time plus 2%. At
the same time MOXY will also repay to FRP all amounts loaned to MOXY under the
MOXY/MCN Program. See "Use of Proceeds."
Pursuant to the Standby Purchase Agreement, MOXY has agreed to pay a
Standby Fee of $6.0 million to FRP upon the closing of the Standby Commitment.
In addition, MOXY has granted to FRP the FRP Purchase Option, pursuant to which
FRP may acquire additional shares of Common Stock at the Subscription Price to
increase its ownership position in MOXY up to 30%, if it does not acquire at
least 30% of the outstanding Common Stock pursuant to the Standby Commitment.
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Following the consummation of the Rights Offering and the transactions
contemplated by the Standby Purchase Agreement, FRP may acquire a controlling
interest in MOXY or upon exercise of the FRP Purchase Option, may acquire a
sufficient ownership interest to be able to significantly influence the business
policies and affairs of the Company. If FRP acquires a majority of the
outstanding Common Stock, it will be in a position to control the election of
the Company's directors and to otherwise direct the business policies and
affairs of the Company. See "Risk Factors - Potential Change of Control of the
Company." FRP and the Company will enter into a Stockholder Agreement providing
that the Company will not, without the approval of the Independent Committee
take certain actions, including (i) repurchase any Common Stock, (ii) certain
transactions with FRP involving aggregate payments in excess of $5 million,
(iii) enter into any "Rule 13e-3 transaction" within the meaning of Rule 13e-3
under the Exchange Act, (iv) amend the term of the MOXY/FRP Exploration Program,
(v) amend, modify or grant a waiver under MOXY's Preferred Rights Agreement, the
Participation Agreement or the Stockholder Agreement and (vi) in connection with
any merger or business in combination involving MOXY and a third party, treat
FRP and the other holders of Common stock on other than equivalent terms.
Moreover, the Company intends to conduct all such transactions on an arm's
length basis. See "Description of Capital Stock - Stockholder Agreement and
Registration Rights."
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation authorizes the issuance of
50,000,000 shares of preferred stock, $.01 par value per share (the "Preferred
Stock"), and 150,000,000 shares of Common Stock. As of the date of this Proxy
Statement, there were ____________ shares of Common Stock issued and
outstanding. The following summary is qualified by reference to the Certificate
of Incorporation.
COMMON STOCK
Subject to the rights of the holders of any Preferred Stock which may be
outstanding, each holder of Common Stock on the applicable record date will be
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities.
Each holder of Common Stock is entitled to one vote for each share held
of record on the applicable record date on all matters presented to a vote of
stockholders, including the election of directors. Holders of Common Stock have
no cumulative voting rights or preemptive rights to purchase or subscribe for
any stock or other securities and there are no conversion rights with respect
to such stock. Additional shares of authorized Common Stock may be issued
without stockholder approval.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue shares of
Preferred Stock in one or more series and to fix, by resolution, the voting
powers, which may be full or limited or no voting powers, designations,
preferences and relative, participating, optional or other special rights and
the qualifications, limitations or restrictions thereof, without any further
vote or action by the stockholders. Any shares of Preferred Stock so authorized
and issued would have priority over the Common Stock with respect to dividend or
liquidation rights.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock
will be available for future issuance without shareholder approval. These
additional shares may be utilized for a variety of proper corporate purposes,
including raising additional capital.
One of the effects of the existence of unissued and unreserved Common
Stock and Preferred Stock may be to enable the Board of Directors to issue
shares to persons friendly to current management, which could render more
difficult or discourage an attempt to obtain control of the Company by means of
a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of the Company's
36
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management. Issuance of such stock might, under certain circumstances, deter the
acquisition of the Company or its securities by a person concerned about the
terms or effect of such stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND BYLAWS AND DELAWARE LAW
Classification of Directors; Removal. The Certificate provides that
subject to the rights to elect additional directors that may be granted to
holders of any class or series of Preferred Stock, the number of directors shall
be fixed from time to time as provided in the Bylaws, but may not consist of
less than three persons. The Certificate further provides that the directors,
other than those who may be elected by the holders of any class or series of
Preferred Stock, shall be classified, with respect to the time for which they
severally hold office, into three classes, designated Class I, Class II and
Class III, as nearly equal in number as possible, and that one class shall be
elected each year and serve for a three-year term.
Board Vacancies. The Certificate also provides that all vacancies on
the Company's Board of Directors, including any vacancies resulting from an
increase in the number of directors, may be filled by a majority of the
remaining directors even if that number is less than a quorum. The affirmative
vote of 85% or more of the Company's voting stock is required to amend, alter,
change or repeal the foregoing provisions. The Bylaws require notice to the
Company not less than 60 days nor more than 90 days prior to any stockholder
meeting to elect directors or make any nomination for the Board of Directors.
Stockholder Meetings. The Certificate provides that any action required
or permitted to be taken by stockholders must be effected at a duly called
annual or special meeting and may not be effected by written consent. Under the
Certificate, except as described below, stockholders are not permitted to call
special meetings of stockholders or to require the Board to call a special
meeting of stockholders and a special meeting of stockholders may be called only
by a majority of the entire Board, the Chairman of the Board or the President.
The Bylaws further require that the Board must receive notice of stockholder
proposals at least 60 days but not more than 90 days prior to any meeting of
stockholders at which such proposal is intended to be presented. The Board may
reject any such proposals that are not made in accordance with certain
procedures set forth in the Bylaws or that are not a proper subject for
stockholder action in accordance with the provisions of applicable law.
Stockholder Approval of Combinations; Fair Price Provision. The
Certificate of Incorporation provides that the approval of the holders of 85% of
the Common Stock is required to approve (a) any merger or consolidation of the
Company or any of its subsidiaries with or into any person or entity, or any
affiliate thereof, other than FTX or any of its affiliates or associates,
including FRP (an "Interested Party"), who was within the two years prior to the
relevant transaction a beneficial owner of 20% or more of the Common Stock, (b)
any merger or consolidation of an Interested Party with or into the Company or
any of its Subsidiaries, (c) any sale, lease, pledge, transfer or other
disposition of more than 10% of the fair market value of the assets of the
Company or any of its subsidiaries in one or more transactions involving an
Interested Party, (d) the adoption of any plan or proposal for liquidation or
dissolution of the Company proposed by or on behalf of any Interested Party, (e)
the issuance or transfer by the Company or any of its subsidiaries of securities
having a fair market value of $1,000,000 or more to any Interested Party or (f)
any recapitalization, reclassification, merger or consolidation of the Company
or any of its subsidiaries which would increase an Interested Party's voting
power in the Company or such subsidiary; provided that the 85% voting
requirement shall not be applicable if (i) a majority of a vote of the Company's
Continuing Directors (defined as a director, and any successor thereof, who is
not an affiliate of an Interested Party and who was a member of the Board prior
to the time the Interested Party involved in any of the foregoing transactions
became an Interested Party) has approved the transaction, (ii) the transaction
is between the Company and any of its subsidiaries or between any of its
subsidiaries or (iii) the transaction is a merger or consolidation and the
consideration to be received by the Company's stockholders is at least as high
as the highest price per share paid by the Interested Party for the Common Stock
during the prior two years.
Delaware Law. The Company is incorporated under the laws of Delaware.
Section 203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined as a stockholder owning 15% or more of a corporation's
voting stock) from engaging in a business combination with such corporation for
a period of three years from the date such stockholder became an interested
stockholder unless (a) the
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corporation's board of directors had earlier approved either the business
combination or the transaction by which the stockholder became an interested
stockholder, or (b) upon attaining that status, the interested stockholder had
acquired at least 85% of the corporation's voting stock (not counting shares
owned by persons who are directors and also officers), or (c) the business
combination is later approved by the board of directors and authorized by a vote
of two-thirds of the stockholders (not including the shares held by the
interested stockholder). Under Section 203, the restrictions described above do
not apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who become an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
Prior to entering the Standby Purchase Agreement, MOXY's board of directors
approved the proposed transaction with FRP and thereby excluded FRP from the
operation of Section 203 of the Delaware General Corporation Law.
PREFERRED STOCK PURCHASE RIGHTS
In May 1994, the Company's Board of Directors declared and paid a
dividend of one preferred stock purchase right (a "Preferred Right") for each
outstanding share of Common Stock. Each Preferred Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Participating Cumulative Preferred Stock, par value $0.01 per share (the "Series
A Preferred Stock"), at an initial purchase price of $10.00 (the "Purchase
Price"), subject to adjustment. The terms of the Preferred Rights are set forth
in the Preferred Rights Agreement between the Company and Mellon Securities
Trust Company, as Preferred Rights Agent (the "Preferred Rights Agreement").
As soon as practicable after the earlier of (i) the tenth day (or such
later date as may be designated by a majority of the Continuing Directors (as
hereinafter defined)) after the date (the "Stock Acquisition Date") of the first
public announcement that a person or group of affiliated or associated persons
other than the Company, any of its subsidiaries or any employee benefit plan of
the Company or any of its subsidiaries has acquired beneficial ownership (as
defined in the Preferred Rights Agreement) of 15% or more of the outstanding
shares of Common Stock (an "Acquiring Person") and (ii) the tenth business day
(or such later date as may be designated by a majority of the Continuing
Directors) after the date of the commencement of a tender or exchange offer by
any person if, upon consummation thereof, such person would be an Acquiring
Person (the earlier of (i) and (ii) being referred to as the "Preferred Rights
Distribution Date"), the Preferred Rights Agent will send to each record holder
of Common Stock as of the close of business on the Preferred Rights Distribution
Date, one or more Preferred Right Certificates evidencing one Preferred Right
(subject to adjustment as provided in the Preferred Rights Agreement) for each
share of Common Stock. The Preferred Rights are not exercisable until the
Preferred Rights Distribution Date and will expire at the close of business on
May 20, 2004, unless previously redeemed or exchanged by the Company as
described below.
If a person becomes an Acquiring Person, each holder of a Preferred
Right (other than Preferred Rights that are, or under certain circumstances
specified in the Preferred Rights Agreement were, beneficially owned by an
Acquiring Person (which will thereafter be void)) will thereafter have the right
to receive upon exercise thereof at the then current Purchase Price, Common
Stock having a market value equal to two times the Purchase Price.
If at any time after any person has become an Acquiring Person (i) the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation or the Common Stock is
changed or converted or (ii) 50% or more of the Company's assets or earning
power is sold, each holder of a Preferred Right will thereafter have the right
to receive, upon exercise thereof at the then current Purchase Price, common
stock of the acquiring company having a market value equal to two times the
Purchase Price.
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At any time after any person has become an Acquiring Person (but before
such person becomes the beneficial owner of 50% or more of the outstanding
shares of Common Stock), the Board of Directors of the Company may, at its
option, exchange all or part of the Preferred Rights (other than Preferred
Rights that are, or under certain circumstances were, beneficially owned by an
Acquiring Person) for shares of Common Stock at an exchange ratio of one share
of Common Stock per Preferred Right. The Preferred Rights may, at the option of
the Board of Directors, be redeemed in whole, but not in part, at a price of
$.01 per Preferred Right at any time no later than the tenth day after the Stock
Acquisition Date (or such later date as a majority of the Continuing Directors
may designate). Under certain circumstances set forth in the Preferred Rights
Agreement, the decision to redeem shall require the concurrence of a majority of
the Continuing Directors. Immediately upon the requisite action of the Board of
Directors ordering exchange or redemption of the Preferred Rights, the Preferred
Rights will terminate, and thereafter the only right of the holders of Preferred
Rights will be to receive shares of Common Stock or the redemption price, as the
case may be.
"Continuing Director" means any member of the Board of Directors who was
a member of the Board prior to the time an Acquiring Person becomes such, or any
person who is subsequently elected to the Board if such person is recommended or
approved by a majority of the Continuing Directors. Continuing Directors do not
include an Acquiring Person, or an affiliate or associate of an Acquiring
Person, or any representative of the foregoing.
The Purchase Price payable, and the number of shares of Series A
Preferred Stock or other securities or property issuable, upon exercise of the
Preferred Rights are subject to adjustment in certain circumstances. Until a
Preferred Right is exercised, the holder will, as a result thereof, have no
rights as a stockholder of the Company, including the right to vote or to
receive dividends. Stockholders may, depending upon the circumstances,
recognize taxable income in the event that the Preferred Rights become
exercisable for Series A Preferred Stock or other consideration as set forth
above. The federal income tax consequences of any event or transaction
involving the Preferred Rights other than the payment of the Preferred Rights
dividend in May, 1994, is uncertain and tax counsel expresses no opinion of the
federal income tax consequences of such events or transactions.
Prior to the Preferred Rights Distribution Date, the Preferred Rights
Agreement may, if the Company so directs, be amended by the Company and the
Preferred Rights Agent in any manner that the Company may deem necessary or
desirable without the approval of any holders of Common Stock. After the
Preferred Rights Distribution Date, the Preferred Rights Agreement may be
amended in any respect that does not adversely affect Preferred Rights holders;
provided that after a person becomes an Acquiring Person, any amendment requires
the concurrence of a majority of the Continuing Directors.
The Preferred Rights have certain anti-takeover effects. The Preferred
Rights may cause substantial dilution to a person or group that attempts to
acquire the Company without a condition to such an offer that a substantial
number of Preferred Rights be acquired or the Preferred Rights be redeemed or
otherwise not apply. The Company's ability to amend the Preferred Rights
Agreement may, depending upon the circumstances, increase or decrease the anti-
takeover effects of the Preferred Rights. The Preferred Rights do not prevent
the Board of Directors of the Company from approving any merger or other
business combination (under some circumstances, with the concurrence of the
Continuing Directors) since the Preferred Rights may be redeemed by the Board of
Directors as described above.
Prior to entering into the Standby Purchase Agreement, MOXY amended the
Preferred Rights Agreement to exclude FRP and its affiliates and associates from
the operation of the Preferred Rights Agreement.
STOCKHOLDER AGREEMENT AND REGISTRATION RIGHTS
Upon completion of the Rights Offering and the transactions contemplated
by the Standby Purchase Agreement, MOXY and FRP will enter into a Stockholder
Agreement pursuant to which MOXY (i) will implement certain corporate governance
provisions designed to protect the other stockholders of MOXY, (ii) will grant
to FRP the right to elect a certain number of directors if it owns more than 10%
but less than a
39
<PAGE>
majority of the outstanding Common Stock and (iii) will grant certain
registration rights with respect to the shares of Common Stock that are
purchased by FRP pursuant to the Standby Purchase Agreement.
Pursuant to the Stockholder Agreement MOXY will agree at all times to
have at least two Independent Directors and maintain the Independent Committee.
Until the date on which FRP ceases to beneficially own at least 10% of
the outstanding Common Stock, MOXY shall not take any of the following actions
without the approval of the Independent Committee: (a) repurchase any
outstanding shares of Common Stock; (b) enter into (i) any sale, lease, transfer
or other disposition by MOXY of any of its properties or assets to, (ii) any
purchase of property or assets by MOXY from, (iii) any investment by MOXY in,
(iv) any agreement by MOXY with or for the benefit of, or (v) any other
transaction with one or more of its affiliates, that involves aggregate payments
in excess of $5 million; (c) enter into any "Rule 13e-3 transaction" within the
meaning of Rule 13e-3 under the Exchange Act; (d) amend, modify or grant any
waiver under the Preferred Rights Agreement, the Participation Agreement or the
Stockholder Agreement; or (e) in connection with any merger or business
combination involving MOXY and a third party, treat FRP and the other
stockholders on other than equivalent terms.
Until the date on which FRP ceases to own, directly or indirectly, at
least 10% of the outstanding voting stock of MOXY, FRP shall not take either of
the following actions without the approval of the Independent Committee: (i)
purchase, acquire, agree to acquire or offer to acquire beneficial ownership of
any additional shares of Common Stock (other than through open-market purchases
that do not constitute a Rule 13e-3 transaction within the meaning of Rule 13e-3
under the Exchange Act), or (ii) enter into, propose to enter into, solicit or
support any merger or business combination or similar transaction involving FRP
and MOXY.
Pursuant to the Stockholder Agreement, FRP will be entitled to demand
registration rights with respect to any shares of Common Stock that it owns;
provided that FRP registers no less than 10% of the outstanding Common Stock
pursuant to each stock registration and that MOXY not be required to effect more
than one such registration in any 12-month period nor more than three such
registrations in the aggregate. In addition, if the Company proposes to register
any Common Stock under the Securities Act in connection with a public offering,
FRP may require MOXY to include all or a portion of the shares owned by FRP at
that time. MOXY has agreed to pay all the expenses of any registration under
the Stockholder Agreement, other than underwriters' discounts and commissions,
and to indemnify FRP for certain liabilities in connection with any such
registration.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of
the Company's Common Stock by (i) each director of the Company, (ii) each
executive officer, (iii) all directors and executive officers of the Company as
a group, and (iv) the persons known by the Company to be beneficial owners of
more than five percent of the Company's outstanding Common Stock determined in
accordance with Rule 13d-3 under the Exchange Act based on information furnished
by such persons. Unless otherwise indicated, all information is presented as of
June 30, 1997 and all shares shown are held with sole voting and investment
power.
40
<PAGE>
NUMBER OF
SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)(2)
------------------------ ----------------------
Richard C. Adkerson 123,554
John G. Amato 225,763 (3)
Robert W. Bruce III 371,388 (4)
Robert A. Day 23,403 (5)
William B. Harrison, Jr. 5,798 (6)
Glenn A. Kleinert 19,054
Bobby Lee Lackey 18,493 (7)
James H. Lee 15,000
Gabrielle K. McDonald 3,723
James R. Moffett 500,971 (8)
C. Howard Murrish 150,351 (9)
George Putnam 15,401 (10)
B.M. Rankin, Jr. 253,784 (11)
J. Taylor Wharton 8,575 (12)
All directors and executive officers
as a group (14 persons) 1,735,258 (13)
Robertson, Stephens & Company 1,892,420 (14)
Incorporated ("Robertson Stephens")
___________________
(1) With the exception of Messrs. Amato, Bruce, Moffett, Murrish and
Rankin, and Robertson Stephens, who beneficially own approximately 1.6%,
2.6%, 3.6%, 1.1%, 1.8% and 13.5% of the outstanding shares of Common Stock,
respectively, each of the persons referred to holds less than 1% of the
outstanding shares of Common Stock.
(2) Includes shares that could be acquired within sixty days after June 15,
1997, upon the exercise of options granted pursuant to the Company's stock
option plans, as follows: Mr. Adkerson, 98,554 shares; Mr. Amato, 70,264
shares; Mr. Bruce, 10,388 shares; Mr. Day, 12,893 shares; Mr. Harrison,
5,378 shares; Mr. Kleinert, 19,054 shares; Mr. Lackey, 13,728 shares; Mr.
Lee, 5,000 shares; Ms. McDonald, 3,723 shares; Mr. Moffett, 365,543 shares;
Mr. Murrish, 81,250 shares; Mr. Putnam, 13,728 shares; Mr. Rankin, 13,728
shares; Dr. Wharton, 5,378 shares; all directors and executive officers as
a group, 718,609 shares.
(3) Includes (a) 13,651 shares held in a retirement trust for the benefit
of Mr. Amato, (b) 9 shares held in a retirement trust for the benefit of
Mr. Amato's wife but as to which he disclaims beneficial ownership, (c)
7,390 shares held by Mr. Amato as custodian but as to which he disclaims
beneficial ownership and (d) 38,777 shares held for the benefit of trusts
with respect to which Mr. Amato, as a co-trustee, shares voting and
investment power but as to which he disclaims beneficial ownership.
(4) Includes 310,000 shares held by a limited partnership with respect to
which Mr. Bruce shares voting and investment power.
(5) Includes 10,000 shares held by accounts and funds managed by affiliates
of a corporation in which Mr. Day is the chief executive officer and a
stockholder with respect to which he shares voting and investment power but
as to which he disclaims beneficial ownership.
(6) Includes 120 shares owned by Mr. Harrison's wife.
(7) Includes 3,643 shares held in a retirement trust for the benefit of Mr.
Lackey.
41
<PAGE>
(8) Includes 21,464 shares held for the benefit of a trust with respect to
which Mr. Moffett and Mr. Amato, as co-trustees, have sole voting and
investment power but as to which each disclaims beneficial ownership.
(9) Includes 1,810 shares held in a retirement trust for the benefit of Mr.
Murrish, 1,110 shares held in a retirement trust for the benefit of Mr.
Murrish's wife, 1,212 shares held by Mr. Murrish as custodian for one of
his sons and 1,112 shares owned by an adult son who shares the same home as
Mr. Murrish as to which he disclaims beneficial ownership.
(10) Includes 323 shares held by a charitable trust with respect to which
Mr. Putnam, as co-trustee, shares voting and investment power but as to
which he disclaims beneficial ownership.
(11) Includes 34,836 shares with respect to which Mr. Rankin has sole
voting and investment power under a power of attorney but as to which he
disclaims beneficial ownership.
(12) Includes 1,252 shares held by Mr. Wharton's wife and 677 shares held
by Mr. Wharton as custodian for his daughters.
(13) Total represents approximately 12.4% of the outstanding shares of
Common Stock.
(14) Robertson Stephens, through its affiliates, shares voting and
investment power with respect to all shares shown, based on copies of SEC
filings provided to the Company.
42
<PAGE>
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
HISTORICAL FINANCIAL STATEMENTS OF McMoRan OIL & GAS CO.
Report of Independent Public Accountants................................ F-1
Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996 and 1995........................... F-2
Statements of Operations for the three months ended March 31, 1997
and 1996 (unaudited) and for the years ended December 31, 1996,
1995 and 1994........................................................ F-3
Statements of Cash Flow for the three months ended March 31, 1997
and 1996 (unaudited) and for the years ended December 31, 1996,
1995 and 1994........................................................ F-4
Notes to Financial Statements......................................... F-5
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) OF
McMoRan OIL & GAS CO.
Pro Forma Balance Sheet as of March 31, 1997.......................... F-10
Pro Forma Statement of Operations for the three months ended
March 31, 1997........................................................ F-11
Pro Forma Statement of Operations for the year ended
December 31, 1996.................................................... F-12
Notes to Pro Forma Financial Statements............................... F-13
MCN PRODUCING PROPERTIES
Report of Independent Public Accountants................................ F-14
Statements of Gross Oil and Gas Revenues and Direct Operating
Expenses for the three months ended March 31, 1997 (unaudited)
and for the years ended December 31, 1996 and 1995..................... F-15
43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF McMoRan OIL & GAS CO.:
We have audited the accompanying balance sheets of McMoRan Oil & Gas Co. (a
Delaware Corporation) as of December 31, 1996 and 1995 and the related
statements of operations and cash flow for the years ended December 31, 1996 and
1995 and for the period from inception through December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McMoRan Oil & Gas Co. as of
December 31, 1996 and 1995 and the results of its operations and its cash flow
for the years ended December 31, 1996 and 1995 and for the period from inception
through December 31, 1994 in conformity with generally accepted accounting
principles.
New Orleans, Louisiana, Arthur Andersen LLP
January 21, 1997
F-1
<PAGE>
MCMORAN OIL & GAS CO.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------
1997 1996 1995
---------- ----------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,073 $ 10,500 $ 10,323
Accounts receivable and other 4,425 2,249 1,432
---------- ---------- ----------
Total current assets 12,498 12,749 11,755
---------- ---------- ----------
Oil and gas properties - successful
efforts method:
Unevaluated 2,683 2,173 1,869
Proved 18,868 17,341 8,661
---------- ---------- ----------
21,551 19,514 10,530
Less accumulated depreciation and
amortization 3,059 1,283 652
---------- ---------- ----------
Net oil and gas properties 18,492 18,231 9,878
---------- ---------- ----------
Total assets $ 30,990 $ 30,980 $ 21,633
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 10,615 $ 9,411 $ 3,405
Current portion of production loan 2,304 366 93
---------- ---------- ----------
Total current liabilities 12,919 9,777 3,498
Production loan, less current portion 11,718 12,391 530
Other liabilities 461 566 -
Stockholders' equity:
Preferred stock, par value $0.01,
50,000,000 shares authorized and
unissued - - -
Common stock, par value $0.01,
150,000,000 shares authorized,
14,036,519 shares, 13,989,317 shares 140 140 138
and 13,798,784 shares issued and
outstanding
Capital in excess of par value of
common stock 47,938 47,803 47,302
Accumulated deficit (42,186) (39,697) (29,835)
---------- ---------- ----------
5,892 8,246 17,605
---------- ---------- ----------
Total liabilities and stockholders'
equity $ 30,990 $ 30,980 $ 21,633
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
MCMORAN OIL & GAS CO.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Years Ended
Ended March 31, December 31, Inception through
------------------ ------------------- December 31,
1997 1996 1996 1995 1994
-------- -------- -------- -------- -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,364 $ 664 $ 2,434 $ 2,722 $ 174
Management fees 409 409 1,636 545 -
------- ------- -------- -------- ---------
Total revenues 2,773 1,073 4,070 3,267 174
------- ------- -------- -------- ---------
Costs and expenses:
Production and delivery, including
depreciation and amortization 1,960 398 1,500 2,623 -
Exploration expenses 2,362 4,475 9,818 11,756 15,518
General and administrative expenses 711 653 2,635 3,687 2,338
------- ------- -------- -------- ---------
Total costs and expenses 5,033 5,526 13,953 18,066 17,856
------- ------- -------- -------- ---------
Operating loss (2,260) (4,453) (9,883) (14,799) (17,682)
Interest expense (360) - (403) - -
Other income, net 131 123 424 164 2,482
------- ------- -------- -------- ---------
Net loss $(2,489) $(4,330) $ (9,862) $(14,635) $ (15,200)
======= ======= ======== ======== =========
Net loss per share $(0.18 ) $ (0.31) $ (0.71) $ (1.06) $ (1.10)
======= ======= ======== ======== =========
Average shares outstanding 14,107 13,826 13,898 13,772 13,770
======= ======= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MCMORAN OIL & GAS CO.
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Years Ended Inception
March 31, December 31, through
------------------------ ----------------------- December 31,
1997 1996 1996 1995 1994
------------------------ ----------------------- ------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Cash flow from operating activities:
Net loss $ (2,489) $ (4,330) $ (9,862) $ (14,635) $ (15,200)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 1,857 177 741 1,525 -
Exploration expenses 2,362 4,475 9,818 11,756 15,518
Gain on sale of Canadian oil and gas
interests - - - - (1,691)
(Increase) decrease in working capital:
Accounts receivable and other (2,353) 416 (988) (1,347) -
Accounts payable and accrued
liabilities 1,926 2,095 6,954 1,555 340
--------- --------- ---------- ---------- ------------
Net cash provided by (used in)
operating activities 1,303 2,833 6,663 (1,146) (1,033)
--------- --------- ---------- ---------- ------------
Cash flow from investing activities:
Exploration and development expenditures (4,995) (4,002) (20,678) (20,957) (18,768)
Proceeds from joint venture arrangements - - 2,059 14,472 -
Proceeds from sale of Canadian oil and
gas interests - - - - 1,691
--------- --------- ---------- ---------- ------------
Net cash used in investing activities (4,995) (4,002) (18,619) (6,485) (17,077)
--------- --------- ---------- ---------- ------------
Cash flow from financing activities:
Proceeds from production loan 1,511 - 12,927 750 -
Payments on production loan (246) (399) (794) (127) -
Cash transferred from FTX - - - - 35,441
--------- --------- ---------- ---------- ------------
Net cash provided by (used in)
financing activities 1,265 (399) 12,133 623 35,441
--------- --------- ---------- ---------- ------------
Net increase (decrease) in cash and
cash equivalents (2,427) (1,568) 177 (7,008) 17,331
Cash and cash equivalents at beginning
of year 10,500 10,323 10,323 17,331 -
--------- --------- ---------- ---------- ------------
Cash and cash equivalents at end of
period $ 8,073 $ 8,755 $ 10,500 $ 10,323 $ 17,331
========= ========= ========== ========== ============
Interest paid $ 332 $ - $ 304 $ - $ -
========= ========= ========== ========== ============
</TABLE>
The accompanying notes, which include information in Notes 1, 3, 4 and 5
regarding noncash transactions, are an integral part of these financial
statements.
F-4
<PAGE>
1. ORGANIZATION
McMoRan Oil & Gas Co. (MOXY) was formed in 1994 as a wholly owned subsidiary of
Freeport-McMoRan Inc. (FTX). In May 1994, FTX distributed one MOXY common share
for each ten FTX common shares. The net assets transferred, at FTX's historical
cost, follow (in thousands):
<TABLE>
<S> <C><C>
Cash and cash equivalents $ 35,441
Property, plant and equipment 13,052
Current liabilities (1,138)
---------
$ 47,355
=========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. Highly liquid investments purchased with a maturity
of three months or less are considered cash equivalents.
EXPLORATION AND DEVELOPMENT COSTS. MOXY follows the successful efforts method
of accounting for its oil and gas operations. Costs of exploratory wells are
capitalized pending determination of whether the wells find proved reserves.
Costs of leases, productive exploratory wells and development activities are
also capitalized. Other exploration costs are expensed. Depreciation and
amortization is determined on a field-by-field basis using the unit-of-
production method. Gains or losses are included in earnings when properties are
sold.
In 1995, the Financial Accounting Standards Board issued Statement No. 121
(FAS 121) which requires a reduction of the carrying amount of long-lived assets
to fair value when events indicate that the carrying amount may not be
recoverable. Measurement of the impairment loss is based on the fair value of
the asset. Generally, MOXY determines fair value using valuation techniques
such as expected future cash flows. MOXY adopted FAS 121 effective January 1,
1995, and since that time has not incurred any impairment losses.
FINANCIAL INSTRUMENTS. The carrying amounts of receivables, other current
assets and accounts payable reported in the balance sheet approximate fair
value. The production loans interest rate is variable (Note 3) and thus
approximates fair value.
EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards Board
issued Statement No. 128 (FAS 128), "Earnings Per Share", which simplifies the
computation of earnings per share. FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement for all prior period earnings per share data presented. Earnings
per share calculated in accordance with FAS 128 would have been unchanged for
the periods presented.
3. EXPLORATION AGREEMENTS
In September 1995, MOXY entered into an agreement with MCN establishing a $65
million oil and gas exploration and development program in the offshore Gulf of
Mexico area. Revenues and costs are shared 40 percent by MOXY and 60 percent by
MCN. MCN is funding its 60 percent share of the expenditures and is loaning
funds for MOXY's 40 percent share at prime plus two percent. MOXY's share of
future net revenues from program properties is dedicated to repay borrowings.
MOXY is not otherwise obligated to repay these borrowings. As of December 31,
1996, MOXY had $12.8 million of borrowings outstanding from MCN, with an
additional $6.6 million of borrowings available for past expenditures.
In June 1995, MOXY and Phillips Petroleum Company (Phillips) entered into an
exploration agreement covering a project area in south Louisiana. MOXY conveyed
one-half of its interest in the area to Phillips for $3.8 million. In June
1996, MOXY sold one-half of its remaining 50 percent leasehold interest to
Freeport-McMoRan Resource Partners, Limited Partnership (FRP), an affiliate of
MOXY, for
F-5
<PAGE>
$2.1 million. This amount represented the reimbursement for certain costs
previously incurred by MOXY in connection with this project area and was
recorded as a reduction to exploration expenses. MOXY sold the interest to FRP
on the same proportionate basis as the prior Phillips sale. The project area,
with the exception of the North Bay Junop and the East Fiddlers Lake prospects
(discussed earlier), is subject to a possible 25 percent participation by a
mineral rights owner.
4. TRANSACTIONS WITH FTX AND EMPLOYEE BENEFITS
MANAGEMENT SERVICES. FTX provides certain management and administrative
services for MOXY. During 1995, MOXY restructured its management services
agreement with FTX to provide specified services for an annual fee of $1.0
million. Costs of services provided by FTX, included in general and
administrative expenses, totaled $1.0 million in 1996, $1.3 million in 1995 and
$1.2 million in the 1994 period.
MOXY's contract for geological and geophysical services with CLK Company (CLK)
was amended during 1997 to provide for an annual retainer fee of $2.4 million
($0.5 million of the annual fee paid in MOXY common stock), plus certain
expenses and an overriding royalty interest in prospects accepted by MOXY.
Costs of services provided by CLK, included in exploration expenses, totaled
$3.1 million in 1996, $3.5 million in 1995 and $3.9 million in 1994.
STOCK OPTIONS. MOXY's Stock Option Plan and Stock Option Plan for Non-Employee
Directors (the Plans) authorize MOXY to grant stock options to purchase up to
1.25 million shares of MOXY stock at no less than market value at time of grant.
Generally, stock options are exercisable in 25 percent annual increments
beginning one year from the date of grant and expire 10 years after the date of
grant. Also, in connection with the FTX distribution of MOXY shares, stock
options were granted to employees and directors of FTX. A summary of stock
options outstanding follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ---------------------------
Number of Average Number of Average
Options Option Price Options Option Price
----------- ------------ --------- --------------
<S> <C> <C> <C> <C>
Beginning of year 2,257,828 $3.92 1,829,867 $4.26
Granted 24,904 2.54 529,028 2.85
Exercised (581) 3.03 - -
Expired/forfeited (142,457) 4.33 (101,067) 4.39
---------
End of year 2,139,694 3.88 2,257,828 3.92
========= =========
</TABLE>
At December 31, 1996, options for approximately 550,000 shares were available
for new grants under the Plans. Summary information of fixed stock options
outstanding at December 31, 1996 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Option Number Option
Range of Exercise Prices of Options Life Price of Options Price
- ------------------------- ----------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$1.94 to $2.81 515,000 9 years $2.80 126,250 $2.81
$2.94 to $3.88 214,394 8 years 3.58 98,718 3.66
$4.66 to $5.50 1,410,300 7 years 4.32 1,300,305 4.67
------------ ----------
2,139,694 1,525,273
============ ==========
</TABLE>
MOXY has adopted the disclosure-only provisions of FAS 123 and continues to
apply APB Opinion No. 25 and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for MOXY's fixed stock option grants. Had compensation cost for
MOXYs' fixed stock option grants been determined based on the fair value at the
grant dates for awards under those plans consistent with FAS 123, MOXY's pro
forma net loss would have been $10.1 million ($0.73 per share) in 1996 and $14.7
million ($1.06 per share) in 1995. For the pro forma computations, the fair
values of the fixed option grants were estimated on the dates of grant using the
F-6
<PAGE>
Black-Scholes option pricing model. The weighted average fair value for fixed
stock option grants was $1.69 per option in 1996 and $2.15 per option in 1995.
The weighted average assumptions used include a risk-free interest rate of 6.6
percent in 1996 and 6.4 percent in 1995, expected volatility of 45 percent in
1996 and 60 percent in 1995 and expected lives of 10 years. The pro forma
effects on net income for 1996 and 1995 are not representative of future years
because they do not take into consideration grants made prior to 1995. No other
discounts or restrictions related to vesting or the likelihood of vesting of
fixed stock options were applied.
5. INCOME TAXES
MOXY has $26.5 million of net deferred tax assets as of December 31, 1996
resulting from temporary differences related to MOXY's and its predecessor
entities' exploration activities. MOXY has provided a valuation allowance equal
to these tax assets because of the expectation of incurring tax losses for at
least the near future.
6. COMMITMENTS AND CONTINGENCIES
COMMITMENTS. MOXY has expenditure commitments of approximately $8.7 million in
1997.
ENVIRONMENTAL. Although MOXY has no known environmental liabilities, increasing
emphasis on environmental matters could result in additional costs, which would
be charged against MOXY's operations in future periods. Present and future
environmental laws and regulations applicable to MOXY's operations could require
substantial capital expenditures or could adversely affect its operations in
other ways that cannot be accurately predicted at this time.
7. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)
The supplementary information presented below is prepared in accordance with
requirements prescribed by the Financial Accounting Standards Board.
PROVED OIL AND GAS RESERVES. Proved oil and gas reserves at December 31, 1996,
have been estimated by independent petroleum engineers in accordance with
guidelines established by the Securities and Exchange Commission (SEC). Thus,
the following reserve estimates are based upon existing economic and operating
conditions; they are only estimates and should not be construed as being exact.
MOXY's 1996 proved reserves are located in offshore United States waters. Oil,
including condensate and plant products, is stated in thousands of barrels and
natural gas is in millions of cubic feet.
<TABLE>
<CAPTION>
Oil Gas
------------- ---------------
1996 1995 1996 1995
------ ---- ------ ------
<S> <C> <C> <C> <C>
Proved reserves:
Beginning of year 94 262 8,521 9,714
Revisions of previous estimates 31 54 1,155 88
Discoveries and extensions 72 - 7,009 4,999
Production (29) (45) (631) (1,093)
Transfer to MCN - (177) - (5,187)
------ ---- ------ ------
End of year 168 94 16,054 8,521
====== ==== ====== ======
Proved developed reserves:
End of year 58 20 7,530 779
====== ==== ====== ======
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED OIL AND GAS
RESERVES.
MOXYs standardized measure of discounted future net cash flows and changes
therein relating to proved oil and gas reserves were computed using reserve
valuations based on regulations prescribed by the SEC. These regulations
provide for the use of current oil and gas prices (escalated only when known and
determinable price changes are provided by contract and law) in the projection
of future net cash flows.
F-7
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
--------- --------
(In Thousands)
<S> <C> <C>
Future cash flows $ 66,260 $ 22,397
Future costs applicable to future cash
flows:
Production costs (7,805) (3,834)
Development and abandonment costs (12,874) (7,155)
---------- ---------
Future net cash flows before income 45,581 11,408
taxes
Future income taxes - -
---------- ---------
Future net cash flows 45,581 11,408
Discount for estimated timing of net
cash flows (10% discount rate) (10,240) (3,078)
---------- ---------
$ 35,341 $ 8,330
========== =========
</TABLE>
Oil and natural gas prices have declined subsequent to December 31, 1996.
The future cash flows from proved reserves presented above do not reflect this
decline.
The reserve and cash flow information above includes amounts attributable to
MOXY's interest in West Cameron Block 503, which in March 1997 MOXY agreed to
sell for $2.9 million. Proved undeveloped reserves applicable to MOXY's interest
in this field totaled approximately 16 thousand barrels of oil and 3,300 million
cubic feet of gas with estimated discounted net cash flows of $3.4 million. MOXY
would recognize a gain of approximately $2.3 million upon completion of this
sale.
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED
OIL AND GAS RESERVES.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1996 1995
-------------------------
(In Thousands)
<S> <C> <C>
Beginning of year $ 8,330 $ 6,413
Discoveries and extensions, less 10,837 3,368
related costs
Development costs incurred during the 6,985 1,750
year
Revisions:
Changes in prices 12,894 7,815
Accretion of discount 833 641
Other changes, including revised
estimates of development costs and (2,863) (3,083)
rates of production
Revenues, less production costs (1,675) (1,589)
Transfer to MCN - (6,985)
----------- ---------
End of year $ 35,341 $ 8,330
=========== =========
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Operating Net Net Income
Income Income (Loss)
Revenues (Loss) (Loss) Per Share
---------- ----------- -------- -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
1996
1st Quarter $ 1,073 $ (4,453) $ (4,330) $(0.31)
2nd Quarter 949 418 a 525 a 0.04 a
3rd Quarter 919 (2,087) (2,148) (0.15)
4th Quarter 1,129 (3,761) (3,909) (0.28)
---------- ----------- ----------
$ 4,070 $ (9,883)b $ (9,862) (0.71)
========== =========== ==========
1995
1st Quarter $ 55 $ (4,051) $ (3,764) $(0.27)
2nd Quarter 1,351 (6,134) (6,251) (0.45)
3rd Quarter 1,029 (2,439)c (2,621)c (0.19)c
4th Quarter 832 (2,175) (1,999) (0.15)
---------- ----------- ----------
$ 3,267 $ (14,799)b $ (14,635) (1.06)
========== =========== ==========
</TABLE>
a. Includes a reduction to exploration expense of $2.1 million ($0.15 per share)
resulting from the reimbursement of previously expensed costs.
b. Foreign exploration costs totaled $0.4 million in 1996 and $0.5 million in
1995.
c. Includes $0.4 million ($0.03 per share) for personnel severance and other
costs.
9. SUBSEQUENT EVENT (UNAUDITED)
In July 1997, MOXY commenced a plan of recapitalization, subject to stockholder
approval. The plan provides for, among other things, a stock rights offering to
existing stockholders, a standby purchase commitment from FRP to purchase all
shares of common stock offered to, but not purchased by, the existing
stockholders, MOXY's purchase of MCN's interest in the MOXY/MCN Program's
producing properties and the formation of an aggregate $200 million multi-year
exploration program with FRP.
F-9
<PAGE>
MCMORAN OIL & GAS CO.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------
MCN
Producing
Properties Other
Historical (Note 1) (Note 2) Pro Forma
------------------------------------- ------------
(In Thousands)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,073 $ (37,138) $ 93,000 a $ 63,935
Accounts receivable and other 4,425 - - 4,425
---------- ---------- --------- ----------
Total current assets 12,498 (37,138) 93,000 68,360
---------- ---------- --------- ----------
Oil and gas properties - successful
efforts method:
Unevaluated 2,683 - - 2,683
Proved 18,868 26,287 (595)b 44,560
---------- ---------- --------- ----------
21,551 26,287 (595) 47,243
Less accumulated depreciation and
amortization 3,059 - - 3,059
Net oil and gas properties 18,492 26,287 (595) 44,184
---------- ---------- --------- ----------
Total assets $ 30,990 $ (10,851) $ 92,405 $ 112,544
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 10,615 $ - $ - $ 10,615
Current portion of production loan 2,304 - (2,304)b -
---------- ---------- --------- ----------
Total current liabilities 12,919 - (2,304) 10,615
Production loan, less current portion 11,718 (11,138) (580)b -
Other liabilities 461 287 - 748
Stockholders' equity:
Preferred stock, par value $0.01,
50,000,000 shares authorized and
unissued - - - -
Common stock, par value $0.01,
150,000,000 shares authorized,
14,036,519 shares (42,608,000 shares
pro forma) issued and outstanding 140 - 286 a 426
Capital in excess of par value of 47,938 - 92,714 a 140,652
common stock
Accumulated deficit (42,186) - 2,289 b (39,897)
---------- ---------- --------- ----------
5,892 - 95,289 101,181
---------- ---------- --------- ----------
Total liabilities and stockholders'
equity $ 30,990 $ (10,851) $ 92,405 $ 112,544
========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-10
<PAGE>
MCMORAN OIL & GAS CO.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------
MCN
Producing
Properties Other
Historical (Note 1) (Note 2) Pro Forma
---------------------------------- -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,364 $ 3,546 $ - $ 5,910
Management fees 409 - - c 409
---------- ---------- --------- ---------
Total revenues 2,773 3,546 - 6,319
---------- ---------- --------- ---------
Costs and expenses:
Production and delivery, including
depreciation and amortization 1,960 297 2,661 d 4,918
Exploration expenses 2,362 - - 2,362
General and administrative expenses 711 - - 711
---------- ---------- --------- ---------
Total costs and expenses 5,033 297 2,661 7,991
---------- ---------- --------- ---------
Operating loss (2,260) 3,249 (2,661) (1,672)
Interest expense (360) - 360 e -
Other income, net 131 - - f 131
---------- ---------- --------- ---------
Net loss $ (2,489) $ 3,249 $ (2,301) $ (1,541)
========== ========== ========= =========
Average shares outstanding 14,107 - 28,571 a 42,678
========== ========== ========= =========
Net loss per share $ (0.18) $ (0.04)
========== =========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-11
<PAGE>
MCMORAN OIL & GAS CO.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------
MCN
Producing
Properties Other
Historical (Note 1) (Note 2) Pro Forma
------------------------------------ -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 2,434 $ 3,576 $ - $ 6,010
Management fees 1,636 - - c 1,636
---------- -------- -------- --------
Total revenues 4,070 3,576 - 7,646
---------- -------- -------- --------
Costs and expenses:
Production and delivery, including
depreciation and amortization 1,500 413 2,597 d 4,510
Exploration expenses 9,818 - - 9,818
General and administrative expenses 2,635 - - 2,635
---------- -------- -------- --------
Total costs and expenses 13,953 413 2,597 16,963
---------- -------- -------- --------
Operating loss (9,883) 3,163 (2,597) (9,317)
Interest expense (403) - 403 e -
Other income, net 424 - - f 424
---------- -------- -------- --------
Net loss $ (9,862) $ 3,163 $ (2,194) $ (8,893)
========== ======== ======== ========
Average shares outstanding 13,898 - 28,571 a 42,469
========== ======== ======== ========
Net loss per share $ (0.71) $ (0.21)
========== ========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-12
<PAGE>
MCMORAN OIL & GAS CO.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The accompanying Pro Forma Statements of Operations have been prepared
assuming the transactions discussed below occurred on January 1, 1996, whereas
the Pro Forma Balance Sheet assumes the transactions occurred on March 31, 1997.
The pro forma financial statements are not necessarily indicative of the actual
results that would have been achieved nor are they indicative of future results.
1. ACQUISITION OF THE MCN PRODUCING PROPERTIES
In July 1997, FRP acquired MCNs interest in the MOXY/MCN Program. In
July 1997, MOXY entered into an agreement with FRP pursuant to which MOXY will
acquire the producing oil and gas properties (the MCN Producing Properties)
developed as part of the MOXY/MCN Program for $26.0 million, subject to
adjustment, and repay all indebtedness incurred by MOXY under the MOXY/MCN
Program.
The income statement information represents the historical revenues
and direct operating expenses of the MCN Producing Properties for the periods
presented.
The balance sheet information represents the acquisition of the MCN
Producing Properties at FRPs purchase price and the repayment of MOXYs debt
under the MOXY/MCN Program.
2. OTHER ADJUSTMENTS
a. MOXY intends to consummate the Rights Offering (as discussed earlier in
this document) whereby additional MOXY common stock would be issued
sufficient to raise $100 million ($93 million after offering expenses and
the FRP Standby Fee).
b. Represents the sale of MOXYs interest in the West Cameron Block 503 field
in April 1997 for $2.9 million, with a gain of $2.3 million to retained
earnings and a reduction to oil and gas properties. Proceeds from the sale
were used to reduce the amount of indebtedness to MCN.
c. Upon the initiation of the MOXY/FRP Exploration Program, MOXYs level of
general and administrative expense will change, with MOXY allocating
certain exploration and administrative expenses to FRP. Because the level
of expense and allocation is not known at this time, no pro forma
adjustment has been reflected.
d. Represents the depreciation and amortization expense calculated using the
acquisition price of the MCN Producing Properties (Note 1).
e. Represents the elimination of the historical interest expense (Note 1).
f. Upon completion of the Rights Offering and the acquisition of the MCN
Producing Properties, MOXY will have significant additional cash resources.
In accordance with SEC regulations concerning pro forma financial
statements, MOXY has not reflected any additional investment income.
However, if MOXY had invested this excess cash and earned income at MOXYs
historical rate for short-term investments, pro forma net loss would have
been $6.1 million ($0.14 per share) for 1996 and $0.8 million ($ 0.02 per
share) for the 1997 period.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
McMoRan Oil & Gas Co.:
We have audited the accompanying statements of gross oil and gas revenues
and direct operating expenses of the MCN Producing Properties (the Producing
Properties) to be acquired by McMoRan Oil & Gas Co. (see Note 1) for the year
ended December 31, 1996 and for the period from the inception of the MOXY/MCN
Program (September 19, 1995) through December 31, 1995. These statements are
the responsibility of management. Our responsibility is to express an opinion
on the statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements.
We believe our audits provide a reasonable basis for our opinion.
The accompanying statements present only the gross oil and gas revenues and
direct operating expenses (see Note 1) and are not intended to be a complete
presentation of the revenues and expenses of the Producing Properties.
In our opinion, the statements referred to above present fairly, in all
material respects, the gross oil and gas revenues and direct operating expenses
of the Producing Properties for the year ended December 31, 1996 and for the
period from the inception of the MOXY/MCN Program through December 31, 1995, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana
July 14, 1997
F-14
<PAGE>
The following statements of gross oil and gas revenues and direct operating
expenses of the MCN Producing Properties (the Producing Properties) to be
purchased by MOXY for the year ended December 31, 1996 and for the period from
the inception of the MOXY/MCN Program through December 31, 1995 have been
audited by Arthur Andersen LLP, independent public accountants, as set forth in
their accompanying report. The statements are presented to provide historical
data about the Producing Properties to be acquired and may not be indicative of
future results of operations of the Producing Properties.
Separate financial statements for the Producing Properties have never been
prepared. Depreciation, depletion and amortization has not been included
because the historical expenses incurred by the predecessor owner may not be
comparable to amounts to be incurred by MOXY in future periods. Further, it is
not possible to make a practicable or objective determination of the portion of
general or administrative expenses or other indirect expenses which were
attributable to the Producing Properties and any such allocation would not be
indicative of the level of such expense to be incurred in the future. In
addition, a provision for income taxes has not been included because the tax
position of the predecessor owner will not affect MOXY's future tax provisions.
MCN PRODUCING PROPERTIES
STATEMENTS OF GROSS OIL AND GAS REVENUES AND DIRECT OPERATING EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three
Months Inception
Ended Year Ended through
March 31, December 31, December 31,
1997 1996 1995
--------- ------------ ------------
<S> <C> <C> <C>
(Unaudited)
Oil and gas sales $3,546 $3,576 $1,458
Production and delivery 297 413 199
Revenues over direct operating expenses $3,249 $3,163 $1,259
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
NOTES TO STATEMENTS OF GROSS OIL AND GAS REVENUES
AND DIRECT OPERATING EXPENSES OF THE MCN PRODUCING PROPERTIES
1. BASIS OF PRESENTATION
In September 1995, MOXY established an exploratory drilling program with MCN
owned 40% by MOXY and 60% by MCN. On July 14, 1997, MOXY entered into an
agreement with FRP pursuant to which MOXY will acquire MCN's interest in the
producing oil and gas properties (the Producing Properties) developed as part of
MOXY's exploratory drilling program with MCN for $26.0 million.
The accompanying statements of gross oil and gas revenues and direct
expenses, which are prepared on the successful efforts basis of accounting,
relate to the interests in producing oil and gas properties described above and
may not be representative of future operations. The statements do not include
Federal and state income taxes, interest, depreciation, depletion and
amortization or general and administrative expenses because such amounts have
historically not been allocated to the Producing Properties or such amounts
would not be indicative of those expenses which would be incurred by MOXY. The
statements include gross oil and gas revenue and direct operating and production
expenses, including production and ad valorem taxes, for the entire periods
presented.
The unaudited statement of gross oil and gas revenues and direct operating
expenses for the three-month period ended March 31, 1997, in the opinion of
management, was prepared on a basis consistent with the audited statements of
gross oil and gas revenues and direct operating expenses and includes all
adjustments (which includes normal recurring adjustments) necessary to present
fairly the gross oil and gas revenues and direct operating and production
expenses for this interim period and may not be indicative of future revenues
and expenses.
2. SUPPLEMENTAL INFORMATION ON OIL AND GAS RESERVES (UNAUDITED)
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development expenditures. The following reserve data represent estimates only
and should not be construed as the current market value of the properties or the
cost that would be incurred to obtain equivalent reserves.
An analysis of the estimated changes in quantities of proved oil and natural
gas reserves of the Producing Properties for the year ended December 31, 1996
and for the period from the inception of the MOXY/MCN Program through December
31, 1995 is shown below. Oil, including condensate and plant products, is
stated in thousands of barrels and natural gas is in millions of cubic feet.
<TABLE>
<CAPTION>
Oil Gas
------------ --------------
1996 1995 1996 1995
------ ---- ------ ------
<S> <C> <C> <C> <C>
Proved reserves:
Beginning of period 141 - 12,781 -
Revisions of previous estimates 46 (16) 1,732 575
Discoveries and extensions 108 - 10,513 7,498
Production (43
Transfers - 177 - 5,187
------ ---- ------ ------
End of period 252 141 24,080 12,781
====== ==== ====== ======
Proved developed reserves:
End of period 87 30 11,295 1,168
====== ==== ====== ======
</TABLE>
F-16
<PAGE>
The estimated standardized measure of discounted future net cash flows
relating to proved reserves of the Producing Properties is shown below.
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
(In Thousands)
Future cash flows $ 99,390 $ 33,596
Future costs applicable to future cash
flows:
Production costs (11,707) (5,751)
Development and abandonment costs (19,311) (10,732)
---------- ----------
Future net cash flows before income 68,372 17,113
taxes
Future income taxes - -
---------- ----------
Future net cash flows 68,372 17,113
Discount for estimated timing of net (15,360) (4,617)
cash flows (10% discount rate) ---------- ----------
$ 53,012 $ 12,496
========== ==========
</TABLE>
Oil and natural gas prices have declined subsequent to December 31, 1996.
The future cash flows from proved reserves presented above do not reflect the
decline.
An analysis of the sources of changes in the standardized measure of
discounted future net cash flows relating to proved reserves of the Producing
Properties is shown below.
<TABLE>
<CAPTION>
Inception
Year Ended through
December 31, December 31,
1996 1995
------------ -------------
<S> <C> <C>
(In Thousands)
Beginning of period $12,496 $ -
Transfers - 6,985
Discoveries and extensions, less 16,256 5,052
related costs
Development costs incurred during the 10,477 -
period
Revisions:
Changes in prices 19,341 5,364
Accretion of discount 1,249 -
Other changes, including revised
estimates of development costs and (3,644) (3,646)
rates of production
Revenues, less production costs (3,163) (1,259)
------- -------
End of period $53,012 $12,496
======= =======
</TABLE>
F-17
<PAGE>
ANNEX I
MASTER AGREEMENT
Between
McMoRan OIL & GAS CO.
and
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
July 14, 1997
I-i
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
MCN PROPERTIES AND MOXY/MCN PROGRAM................................... 1
1.1 MCN Purchase Agreement; MOXY/MCN Program Amendment.............. 1
1.2 MCN Producing Property Purchase; Loan Repayment................. 2
1.3 Adjustments..................................................... 3
ARTICLE II
THE TRANSACTION DOCUMENTS............................................. 4
2.1 MOXY/FRP Exploration Program.................................... 4
2.2 Rights Offering................................................. 4
2.3 Standby Purchase Agreement...................................... 4
2.4 Stockholder Agreement........................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES........................................ 5
3.1 Existence and Power............................................. 5
3.2 Authorization................................................... 5
3.3 Governmental Authorization...................................... 5
3.4 Non-Contravention............................................... 6
3.5 Required Consents............................................... 6
3.6 SEC Documents................................................... 6
3.7 Information Supplied............................................ 7
3.8 MCN Purchase Agreement.......................................... 7
ARTICLE IV
ADDITIONAL AGREEMENTS................................................. 8
4.1 Preparation of the Proxy Statement and Registration Statement... 8
4.2 MOXY Stockholders' Meeting...................................... 8
4.3 Access to Information........................................... 9
4.4 Regulatory and Other Approvals.................................. 9
4.5 Certain Actions................................................. 9
4.6 Fairness Opinion Not Withdrawn.................................. 10
ARTICLE V
CLOSING CONDITIONS PRECEDENT.......................................... 10
5.1 Closing Conditions to Each Party's Obligations.................. 10
5.2 Conditions to Obligations of FRP................................ 10
5.3 Conditions to Obligations of MOXY............................... 11
I-ii
<PAGE>
ARTICLE VI
TERMINATION AND AMENDMENT............................................. 11
6.1 Termination..................................................... 12
6.2 Effect of Termination........................................... 12
6.3 Extension; Waiver............................................... 12
ARTICLE VII
DEFINITIONS........................................................... 13
ARTICLE VIII
GENERAL PROVISIONS.................................................... 15
8.1 Payment of Expenses............................................. 15
8.2 Survival of Representations, Warranties and Agreements.......... 15
8.3 Notices......................................................... 15
8.4 Interpretation.................................................. 16
8.5 Counterparts.................................................... 16
8.6 Entire Agreement; No Third Party Beneficiaries.................. 16
8.7 Governing Law................................................... 16
8.8 Assignment...................................................... 16
EXHIBIT A FORM OF PARTICIPATION AGREEMENT
EXHIBIT B FORM OF MOXY/MCN PROGRAM AMENDMENT
EXHIBIT C FORM OF STANDBY PURCHASE AGREEMENT
EXHIBIT D FORM OF STOCKHOLDER AGREEMENT
I-iii
<PAGE>
MASTER AGREEMENT
This Master Agreement dated as of July 14, 1997 (this "Agreement") is
between McMoRan Oil & Gas Co., a Delaware corporation ("MOXY"), and Freeport-
McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership
("FRP").
W I T N E S S E T H:
WHEREAS, FRP has agreed to purchase all of MCN's right, title and interest
in and to the MCN Program Assets pursuant to the MCN Purchase Agreement and
contemporaneously with the acquisition thereof to execute and deliver to MOXY
the MOXY/MCN Program Amendment;
WHEREAS, MOXY and FRP desire to form the MOXY/FRP Exploration Program and
MOXY desires to acquire from FRP the MCN Producing Properties on the terms
hereinafter set forth;
WHEREAS, FRP is unwilling to form the MOXY/FRP Exploration Program until
MOXY has the funding necessary to support its commitments thereunder and to
purchase the MCN Producing Properties;
WHEREAS, MOXY intends to raise the funds necessary to participate in the
MOXY/FRP Exploration Program and to purchase the MCN Producing Properties
through the Rights Offering, and FRP has agreed to make the Standby Commitment
to ensure that MOXY receives its desired level of funding;
WHEREAS, MOXY's ability to consummate the Rights Offering and thereby
participate in the MOXY/FRP Exploration Program and acquire the MCN Producing
Properties is subject to the approval of the Rights Offering, the Standby
Purchase Agreement and the related transactions by the MOXY Stockholders at the
MOXY Stockholders' Meeting; and
WHEREAS, terms not otherwise defined elsewhere herein have the meanings
ascribed to them in Article VII.
NOW, THEREFORE, for and in consideration of the premises, and the
respective covenants, agreements, representations and warranties contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
I-1
<PAGE>
ARTICLE I
MCN PROPERTIES AND MOXY/MCN PROGRAM
1.1 MCN Purchase Agreement; MOXY/MCN Program Amendment. On July 10, 1997,
FRP, MCN and MOXY executed and delivered the MCN Purchase Agreement pursuant to
which FRP will, subject to the terms and conditions set forth therein, acquire
all of MCN's right, title and interest in and to the MCN Program Assets as soon
as possible after the date hereof. Contemporaneously with the consummation of
the transactions contemplated by the MCN Purchase Agreement, MOXY and FRP shall
execute and deliver the MOXY/MCN Program Amendment.
1.2 MCN Producing Property Purchase; Loan Repayment.
(a) Subject to the terms and conditions of this Agreement, at the
Closing (i) FRP agrees to sell and convey to MOXY, and MOXY agrees to purchase
from FRP, all of FRP's right, title and interest in the MCN Producing Properties
effective as of the Effective Time and (ii) MOXY agrees to repay all amounts
then outstanding under the Loan, including principal and accrued but unpaid
interest thereon to but excluding the Closing Date.
(b) At the Closing, MOXY shall (i) deliver to FRP the estimated
Purchase Price described in Sections 1.2(c) and 1.2(d) below and (ii) repay all
amounts then outstanding under the Loan, including principal and accrued but
unpaid interest thereon to but excluding the Closing Date by, in each case, wire
transfer of immediately available funds to an account designated by FRP. At the
Closing, FRP shall transfer to MOXY the MCN Producing Properties in accordance
with the provisions hereof and, except as provided in this Section 1.2, on the
same terms as such properties shall have been acquired by FRP from MCN. Such
transfer shall be made pursuant to duly executed and acknowledged assignments
and such other documents as may be reasonably necessary in the opinion of
counsel to MOXY and FRP to convey the MCN Producing Properties to MOXY. FRP
shall also execute and deliver such documents as may be reasonably necessary in
the opinion of counsel to MOXY and FRP to evidence the repayment of the Loan and
to release any lien or security interest created under the MOXY/MCN Program
securing MOXY's obligations under the Loan.
(c) The purchase price payable by MOXY to FRP for the MCN Producing
Properties shall be $26.0 million, subject to adjustment as follows: (i)
increased or decreased, as the case may be, by the difference between (A) the
development costs, lease operating expense and any other amount paid by FRP (or
for which payment credit is given in the MCN Purchase Agreement) attributable to
the MCN Producing Properties during the period from the Effective Time to the
Closing Date (the "Interim Period") and (B) the amount of any proceeds received
by FRP (or for which payment credit is given in the MCN Purchase Agreement)
attributable to the MCN Producing Properties during the Interim Period, in each
case calculated in the same manner provided for in Article VIII of the MCN
Purchase Agreement solely with respect to the MCN Producing Properties, and
(ii) interest calculated on a daily basis on the net
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cash invested during the Interim Period by FRP with respect to the MCN Producing
Properties at an annual rate publicly announced by The Chase Manhattan Bank from
time to time as its base rate plus 2%. Such price, as so adjusted, is
hereinafter referred to as the "Purchase Price."
(d) Prior to the Closing, FRP and MOXY shall agree in good faith on an
estimated Purchase Price, subject to being finalized within 120 days after the
Closing Date. Within 120 days after the Closing Date, FRP and MOXY shall
attempt to agree upon a final accounting of the actual Purchase Price. If FRP
and MOXY cannot reach mutual agreement on the final Purchase Price, then the
matter shall be resolved by submittal to Price Waterhouse LLP, whose decision
shall be binding upon the parties. The costs incurred in retaining Price
Waterhouse LLP to resolve any difference in the final accounting shall be borne
equally by each of the parties. The credits agreed upon by MOXY and FRP or
resolved by Price Waterhouse LLP shall be netted and the final settlement shall
be paid in cash as directed in writing by the receiving party.
(e) After the closing of the transactions contemplated by the MCN
Purchase Agreement, MOXY shall assume and discharge all obligations and
liabilities, known and unknown, attributable to the ownership and operation of
the MCN Program Assets prior to the Effective Time and shall indemnify and hold
FRP harmless from and against any such obligations or liabilities to the extent
they have not been the subject of an adjustment to the Purchase Price.
1.3 Adjustments.
(a) Subject to the terms and conditions of this Agreement, MOXY and
FRP shall, effective immediately following the Closing, terminate the MOXY/MCN
Program and cause all of their right, title and interest in and to the leases
and other properties that are subject to the MOXY/MCN Program immediately prior
to the Closing (other than the MCN Producing Properties) to be made subject to
and included in the MOXY/FRP Exploration Program on the terms set forth in this
Section 1.3.
(b) The leases and other properties to be included in the MOXY/FRP
Exploration Program pursuant to this Section 1.3 shall be so included with
retroactive effect to the Effective Time as if such properties and leases had
been subject to the MOXY/FRP Exploration Program since the Effective Time and
the interests in each such lease or other property shall be retroactively
adjusted between FRP and MOXY to reflect the relative interests of each in the
MOXY/FRP Exploration Program. MOXY and FRP shall make appropriate
reimbursements of and adjustments to the costs incurred with respect to each
such lease and property and execute and deliver such documents as are necessary
in order to transfer an interest in each such lease or other property effective
as of the Effective Time in order to effectuate the foregoing adjustments. The
adjustments required pursuant to this Section 1.3(b) shall be netted and a final
settlement shall be paid in cash as directed by the receiving party with
interest on the weighted average outstanding balance of such amount until the
date paid at an annual rate publicly announced by The Chase Manhattan Bank from
time to time as its base rate plus 2%.
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(c) FRP and MOXY shall agree in good faith on the adjustments required
by this Section 1.3, subject to being finalized within 120 days after the
Closing Date. Within 120 days after the Closing Date, FRP and MOXY shall
attempt to agree upon a final accounting of the actual adjustments. If FRP and
MOXY cannot reach mutual agreement on the adjustments, then the matter shall be
resolved by submittal to Price Waterhouse LLP, whose decision shall be binding
upon the parties. The costs incurred in retaining Price Waterhouse LLP to
resolve any difference in the final accounting or the adjustments shall be borne
equally by each of the parties. The adjustments agreed upon by MOXY and FRP or
resolved by Price Waterhouse LLP shall be netted and a final settlement shall be
paid in cash as directed in writing by the receiving party.
(d) If, for whatever reason, the Closing does not occur and this
Agreement is terminated in accordance with its terms, then the MOXY/MCN Program
shall continue in accordance with the terms set forth in the MOXY/MCN Program
Agreement, as amended by the MOXY/MCN Program Amendment.
ARTICLE II
THE TRANSACTION DOCUMENTS
2.1 MOXY/FRP Exploration Program. Subject to the terms and conditions of
this Agreement, FRP and MOXY agree to execute and deliver the Participation
Agreement at the Closing.
2.2 Rights Offering. Subject to the terms and conditions of this
Agreement, MOXY agrees to proceed with the Rights Offering in order to fund the
purchase of the MCN Properties and to enable it to participate in the MOXY/FRP
Exploration Program.
2.3 Standby Purchase Agreement. MOXY and FRP agree to execute the Standby
Purchase Agreement simultaneously herewith in order to assure that MOXY has the
funds necessary to participate in the MOXY/FRP Exploration Program and to
purchase the MCN Properties in accordance with the terms of this Agreement. The
obligations of MOXY and FRP under the Standby Purchase Agreement are subject to
the terms and conditions therein, including approval by the MOXY Stockholders at
the MOXY Stockholders' Meeting.
2.4 Stockholder Agreement. Subject to the terms and conditions of this
Agreement, FRP and MOXY agree to execute and deliver the Stockholder Agreement
at the Closing.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other party as to itself
that:
3.1 Existence and Power. Such party is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization, and has
all powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted. Such party is duly
qualified to do business as a foreign corporation or partnership, as the case
may be, and is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities make such
qualification necessary, except for those jurisdictions where failure to be so
qualified would not, individually or in the aggregate, result in a Material
Adverse Effect.
3.2 Authorization. The execution, delivery and performance by such party
of this Agreement, the Transaction Documents to which it is a party and all
other documents, instruments and certificates executed and delivered by such
party in connection herewith or therewith, and the consummation by such party of
the transactions contemplated hereby and thereby are within such party's powers
and, except for the approval by the MOXY Stockholders contemplated herein, have
been duly authorized by all necessary action on the part of such party. MOXY
represents and warrants to FRP that its board of directors has taken all actions
necessary to ensure that none of (a) the provisions of Section 203 of the
Delaware General Corporation Law or any state takeover statute or similar
statute or regulation or (b) the provisions of Article Ninth of the Amended and
Restated Certificate of Incorporation or any other corporate documents or
agreements of MOXY in any way restricts or prohibits the consummation of the
transactions contemplated by this Agreement, including but not limited to FRP's
acquisition and ownership of Common Stock pursuant to the Standby Commitment or
the FRP Purchase Option, and to render all such provisions inapplicable to such
acquisition and ownership. MOXY has amended its shareholder rights plan to
exempt FRP and its affiliates and associates from the shareholder rights plan.
MOXY represents and warrants to FRP that the affirmative vote of MOXY
Stockholders holding a majority of the outstanding shares of Common Stock
present or represented by proxy at the MOXY Stockholders' Meeting is the only
vote of the holders of any class or series of capital stock of MOXY necessary to
approve any of the transactions contemplated hereby and by the Transaction
Documents. FRP represents and warrants to MOXY that no vote of the unit holders
of FRP is required to approve the transactions contemplated hereby and by the
Transaction Documents. This Agreement and each of the Transaction Documents have
been, or when executed and delivered in accordance with the terms hereof and
their respective terms will be, duly and validly executed and delivered by such
party and each constitutes, or when executed and delivered will constitute, a
valid and binding agreement of such party, enforceable in accordance with its
terms, except as (a) enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, moratorium or similar laws from time to time in
effect affecting creditors' rights generally and (b) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
3.3 Governmental Authorization. The execution, delivery and performance
by such party of this Agreement, the Transaction Documents to which it is a
party and all other documents,
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instruments and certificates to be executed and delivered by such party in
connection herewith or therewith, require no action by or in respect of, or
filing with, any governmental body, agency, official or authority other than
compliance with any applicable requirements of the Securities Act (and any
applicable state securities law) and the Exchange Act.
3.4 Non-Contravention. The execution, delivery and performance by such
party of this Agreement, the Transaction Documents to which it is a party and
all other documents, instruments and certificates executed or to be executed and
delivered by such party in connection herewith or therewith, do not and will
not: (i) contravene or conflict with the partnership agreement or certificate of
incorporation or bylaws of such party, as the case may be; (ii) assuming
compliance with the matters referred to in Section 3.3, contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to such party;
(iii) constitute a default under or give rise to any right of termination,
cancellation or acceleration of any right or obligation of such a party, or
cause or require the creation of any encumbrance on any asset under any
provision of any credit agreement, note, bond, mortgage, indenture, lease,
license, franchise, permit, agreement, contract or other instrument or
obligation binding upon such party or its subsidiaries, or any Person
controlling such party or by which any of such party's, subsidiary's or
controlling Person's assets is or may be bound; (iv) result in the creation or
imposition of any lien on an asset; or (v) contravene or conflict with any
collective bargaining agreement binding upon such party.
3.5 Required Consents. No consent is required under any agreement,
contract or other instrument binding upon such party or its subsidiaries as a
result of the execution, delivery and performance of this Agreement, any
Transaction Document or any other document, instrument or certificate to be
executed or delivered by such party in connection herewith or therewith or the
consummation of the transactions contemplated hereby or thereby, including
without limitation any agreement, contract or instrument requiring the consent
of lenders to such party or its subsidiaries or any Person controlling such
party, except for the approval of the MOXY Stockholders in the case of MOXY and
such other consents which will be obtained on or prior to the Closing Date or
which would not, individually or in the aggregate, result in a Material Adverse
Effect if not received by the Closing Date.
3.6 SEC Documents. Such party has made available to the other true
and complete copies of each report, schedule, registration statement and
definitive proxy statement filed with the SEC since January 1, 1995 and prior to
the date of this Agreement, which are all the documents (other than preliminary
material) that it has been required to file with the SEC since January 1, 1995.
As of their respective dates, such documents filed by such party complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder and
none contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they made, not misleading.
The financial statements of such party contained in each such document complied
as to form in all material respects with the published rules of the SEC with
respect thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in notes thereto), or in the case of unaudited statements, as
permitted
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by Rule 10-01 of Regulation S-X of the SEC and fairly present in accordance with
applicable requirements of generally accepted accounting principles (subject, in
the case of unaudited statements, to normal, recurring adjustments) the
financial position of the party as of their respective dates and the results of
operations and cash flows of the party for the periods presented therein. MOXY
represents and warrants that the Proxy Statement and the Registration Statement
will comply as to form in all material respects with the relevant provisions of
the Exchange Act or the Securities Act, as the case may be, and the rules and
regulations thereunder and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
3.7 Information Supplied. None of the information supplied or to be
supplied by such party for inclusion or incorporation by reference in the
Registration Statement will, at the time the Registration Statement becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and none of the information supplied or to
be supplied by such party and included or incorporated by reference in the Proxy
Statement will, at the date mailed to the MOXY Stockholders or at the time of
the MOXY Stockholders' Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If, at any time prior to the Closing Date any event with
respect to which either party, or with respect to any information supplied for
inclusion in the Proxy Statement or Registration Statement, shall occur that is
required to be described in an amendment of, or supplement to, the Proxy
Statement or Registration Statement, such event shall be so described and such
amendment or supplement shall be promptly filed with the SEC.
3.8 MCN Purchase Agreement. In order to induce FRP to enter into and
perform its obligations under this Agreement and the MCN Purchase Agreement,
MOXY hereby makes the following additional representations and warranties to
FRP. MOXY represents and warrants to FRP that: (a) there are no violations of
any applicable laws, rules, regulations or orders of any governmental agency
having jurisdiction over the leases and other properties subject to the MOXY/MCN
Program that affect in any material respect the value, use or operation of the
MCN Properties; (b) there are no demands, suits, actions or other proceedings
pending, or to the best of MOXY's knowledge, threatened before any court or
governmental agency against MOXY (or otherwise directly pertaining to the leases
or other properties subject to the MOXY/MCN Program) that might result in a
material impairment or loss of title to the MCN Properties or the value thereof
or that might materially hinder or impede the operation of the MCN Properties
and, to the best of MOXY's knowledge, there is no such proceeding threatened
against MCN; (c) MOXY has not alienated any of its interests in the leases and
other properties that are subject to the MOXY/MCN Program since the Effective
Time except as may be required under the MOXY/MCN Program Agreement; (d) as of
the Effective Time, MCN had committed or been committed to $36.5 million
(consisting of $20.7 million for development costs under Section 4.4 of the
MOXY/MCN Program and $15.8 million for exploration expenditures under Section
4.5 of the MOXY/MCN Program) of expenditures under the MOXY/MCN Program, of
which $35.2 million had been joint interest billed
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to MCN through June 30, 1997; (e) after the Effective Time, MCN has committed or
been committed to an additional $4.6 million for exploration expenditures under
Section 4.4 of the MOXY/MCN Program (Eugene Island 19, Grand Isle 65 and
Vermilion 159 #2 wells); (f) except for the Vermilion Block 409 A-4 well
workover, to the best of MOXY's knowledge, as of the date hereof there are no
outstanding authorizations for expenditures relating to Vermilion Blocks 389,
409 and 410 or East Cameron Block 362 relating to the drilling, deepening,
sidetracking or recompletion of any well; (g) MOXY has not created any
overriding royalty interests or other burdens on the MCN Properties other than
those permitted under the MOXY/MCN Program Agreement; (h) all royalty and other
payments due with respect to the leases and other properties subject to the
MOXY/MCN Program have been timely and properly paid in full; (i) MOXY has not
delivered (and will not deliver) the "Extension Notice" described in Section 4.8
of the MOXY/MCN Program Agreement; (j) there have been no advance, take or pay,
or other payments made to MCN by MOXY that would obligate MCN to deliver any gas
produced from or attributable to the MCN Properties after the Effective Time
without receiving full payment therefor at some time subsequent to the Effective
Time; (k) the MCN Program Assets are not subject to any preferential right to
purchase, except those contained in the Participation Agreement; (l) as of the
Effective Time, there were no gas or oil imbalances that would affect FRP's
right to receive its net revenue interest share of production from the MCN
Program Assets on and after the Effective Time; (m) the aggregate fair market
value of MOXY's assets (excluding the reserves of oil and natural gas, rights to
reserves of oil or natural gas and associated exploration or production assets
(as defined in (S) 802.3(c) promulgated under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended) does not exceed $15.0 million; and (n)
MOXY has not received a notice relating to any default, inquiry into any
possible default, or action to alter, terminate, rescind or procure a judicial
reformation of any agreement that forms a part of the MCN Properties or any
provision of any such agreement or relating to, in the case of any production
sales contract, any intent to exercise any "market-out," "FERC-out," price
renegotiation or other option available to the purchaser thereunder, to alter
pricing, delivery or other material provision thereof, or to contest or dishonor
any "take-or-pay" or other material provision thereof.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Preparation of the Proxy Statement and Registration Statement. As
promptly as practicable after the date hereof, MOXY shall file
with the SEC the Proxy Statement and Registration Statement. MOXY shall use its
best efforts to have the Registration Statement declared effective as promptly
as practicable after such filing. MOXY shall use its best efforts to cause the
Proxy Statement to be mailed to the MOXY Stockholders at the earliest
practicable date. If the Rights Offering and the Standby Purchase Agreement are
approved by the MOXY Stockholders at the MOXY Stockholders' Meeting, then MOXY
shall commence the Rights Offering as soon as practicable thereafter. MOXY
shall use its best efforts to obtain or complete all necessary state securities
laws or "blue sky" permits, approvals and registrations in connection with the
issuance of the Rights and Common Stock pursuant to the Rights Offering.
4.2 MOXY Stockholders' Meeting. MOXY shall (a) call the MOXY
Stockholders' Meeting to be held as promptly as practicable after the date
hereof for the purposes of voting upon
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the Rights Offering and the Standby Purchase Agreement, (b) through its board of
directors recommend to the MOXY Stockholders approval of such matters, (c) use
its best efforts to obtain approval and adoption of the Rights Offering and the
Standby Purchase Agreement by the MOXY Stockholders and (iv) use all reasonable
efforts to hold the MOXY Stockholders' Meeting as soon as practicable after the
date on which the Proxy Statement is mailed to the MOXY Stockholders in
accordance with the Exchange Act; provided, however, that nothing herein
obligates MOXY to take or fail to take any action, or make or fail to make any
recommendation, that would cause its board of directors to act inconsistently
with their fiduciary duties as determined by the board of directors of MOXY in
good faith and upon the advice of counsel.
4.3 Access to Information. Upon reasonable notice, MOXY and FRP shall
each afford to the officers, employees, agents and other representatives of the
other, access during normal business hours during the period prior to the
Closing Date, to all its properties, books, contracts, statements and records,
and during such period each shall furnish promptly to the other copies of all
reports, schedules, registration statements and other documents filed or
received by it during the period pursuant to the Securities Act or Exchange Act
and all other information relevant to this Agreement and the transactions
contemplated hereby concerning its business, properties and personnel as such
other party may reasonably request, including all abstracts of title, title
opinions, title files, ownership maps, lease files, assignments, division orders
and agreements pertaining to the MCN Properties insofar as the same may now be
in existence and in the possession of MOXY. Each of MOXY and FRP agrees that it
will not, and will cause its respective representatives not to, use any
information obtained pursuant to this Section 4.4 for any purpose unrelated to
the consummation of the transactions contemplated by this Agreement and the
Transaction Documents. The Confidentiality Agreement dated March 27, 1997
between MOXY and FRP (the "Confidentiality Agreement") shall remain in force and
apply to the information furnished thereunder or hereunder and any other
activities contemplated thereby.
4.4 Regulatory and Other Approvals.
(a) Each party hereto shall cooperate and use its best efforts to
promptly prepare and file all necessary documentation, to effect all necessary
applications, notices, petitions, filings and other documents, and use all
commercially reasonable efforts to obtain (and will cooperate with each other in
obtaining) any consent, acquiescence, authorization, order or approval of, or
any exemption or non-opposition by, any governmental entity required to be
obtained or made by either party in connection with this Agreement or the other
Transaction Documents or the taking of any action required thereby or by this
Agreement.
(b) Prior to the effective date of the Registration Statement, MOXY
shall have taken all action necessary to permit it to issue the Rights and the
shares of Common Stock required to be issued pursuant to the Rights Offering and
to have the Rights and such shares approved for listing on the Nasdaq National
Market.
4.5 Certain Actions.
Subject to the terms and conditions of this Agreement, each party
will use its best efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper and advisable under applicable
laws and regulations to consummate the
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transactions contemplated by this Agreement. In connection with and without
limiting the foregoing, MOXY and its Board of Directors shall use their best
efforts to (a) take all reasonable actions necessary so that no state takeover
statute or similar statute or regulation is or becomes applicable to this
Agreement or any of the transactions contemplated hereby, and (b) if any state
takeover statute or similar statute or regulation becomes applicable to any of
the foregoing, take all action necessary so that the transactions contemplated
by this Agreement and the Transaction Documents may be consummated as promptly
as practicable on the terms contemplated hereby and otherwise to minimize, to
the reasonable satisfaction of FRP, the effect of such statute or regulation on
the transactions contemplated hereby.
4.6 Fairness Opinion Not Withdrawn. It shall be a condition of MOXY's
obligation to mail the Proxy Statement and to hold the MOXY Stockholders'
Meeting that the fairness opinion of Donaldson, Lufkin & Jenrette Securities
Corporation dated the date hereof shall not have been withdrawn.
ARTICLE V
CLOSING CONDITIONS PRECEDENT
5.1 Closing Conditions to Each Party's Obligations. The respective
obligations of each party to consummate the transactions contemplated by this
Agreement and the Transaction Documents shall, in addition to the conditions
stated therein, be subject to the satisfaction on or prior to the Closing Date
of each of the following conditions, any or all of which may be waived in whole
or in part by MOXY and FRP:
(a) The transactions contemplated by the MCN Purchase Agreement shall
have been consummated.
(b) The Rights Offering and the Standby Purchase Agreement shall have
been approved and adopted by a majority of the total votes cast at the MOXY
Stockholders' Meeting.
(c) The Registration Statement shall have become effective under the
Securities Act and shall not be subject to any stop order or proceeding seeking
a stop order.
(d) The Common Stock issuable pursuant to the Rights Offering shall
have been authorized for listing on the Nasdaq National Market upon official
notice of issuance.
(e) All filings required to be made on or prior to the Closing Date
with, and all consents, approvals and authorizations required to be obtained on
or prior to the Closing Date from, any governmental entity in connection with
the execution and delivery of this Agreement and the Transaction Documents and
the consummation of the transactions contemplated hereby and thereby shall have
been made or obtained (as the case may be).
(f) There shall be no action, suit, investigation or proceeding
pending or threatened against or affecting either MOXY or FRP in any court or
before any arbitrator or governmental institution that in any manner affects or
draws into question the transactions contemplated hereby.
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(g) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction, no
order of any governmental entity having jurisdiction over either party and no
other legal restraint or prohibition shall be in effect or threatened against
either party preventing or making illegal the consummation of the transactions
contemplated by this Agreement and the Transaction Documents; provided, however,
that prior to any party invoking this condition, such party shall have fully
complied with its obligations under Section 4.4.
5.2 Conditions to Obligations of FRP. The obligation of FRP to consummate
the transactions contemplated by this Agreement and the Transaction Documents
shall, in addition to the conditions set forth in the Standby Purchase
Agreement, be subject to the satisfaction on or prior to the Closing Date of
each of the following conditions, any or all of which may be waived in whole or
in part by FRP.
(a) Each of the representations and warranties of MOXY set forth in
this Agreement and each Transaction Document shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
that such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, and FRP shall have
received a certificate to such effect signed on behalf of MOXY by an executive
officer.
(b) MOXY shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and FRP shall have received a certificate to such effect signed on behalf
of MOXY by an executive officer.
(c) The Rights Offering shall have been consummated in accordance with
its terms.
(d) MOXY shall have performed in all material respects all obligations
required to be performed by it under the Standby Purchase Agreement.
5.3 Conditions to Obligations of MOXY. The obligation of MOXY to
consummate the transactions contemplated by this Agreement and the Transaction
Documents shall be subject to the satisfaction on or prior to the Closing Date
of each of the following conditions, any or all of which may be waived in whole
or in part by MOXY.
(a) Each of the representations and warranties of FRP set forth in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and (except to the extent that such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date, and MOXY shall have received a certificate to such
effect signed on behalf of FRP by an executive officer.
(b) FRP shall have performed in all material respect all obligations
required to be performed under this Agreement at or prior to the Closing Date,
and MOXY shall have received a certificate to such effect signed on behalf of
FRP by an executive officer.
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(c) The Rights Offering shall have been consummated in accordance with
its terms.
(d) FRP shall have performed in all material respects all obligations
required to be performed by it under the Standby Purchase Agreement.
ARTICLE VI
TERMINATION AND AMENDMENT
6.1 Termination. This Agreement may be terminated and the Transactions
Documents may be abandoned at any time prior to the Closing Date, whether before
or after approval of the Rights Offering and Standby Purchase Agreement by the
MOXY Stockholders:
(a) by mutual written consent of MOXY and FRP, or by mutual action of
MOXY's Board of Directors and the Board of Directors of FRP's Administrative
Managing General Partner;
(b) by either MOXY or FRP if the transactions contemplated by the MCN
Purchase Agreement are not consummated by September 30, 1997;
(c) by either MOXY or FRP if (i) any governmental entity shall have
issued any injunction or taken any other action permanently restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement or any Transaction Document and such injunction
or other action shall have become final and nonappealable; or (ii) the MOXY
Stockholders shall not have approved the Rights Offering and the Standby
Purchase Agreement by the required vote at the MOXY Stockholders' Meeting or any
adjournment thereof;
(d) by FRP if for any reason MOXY fails to call and hold the MOXY
Stockholders' Meeting on or before October 31, 1997;
(e) by either MOXY or FRP if the Closing shall not have been
consummated by December 31, 1997; provided, however, that the right to terminate
this Agreement under this Section 6.1(c) shall not be available to any party
whose breach of any representation or warranty or failure to fulfill any
covenant or agreement under this Agreement has been the cause of or resulted in
the failure of the Closing to occur on or before such date; or
(f) by FRP if the Board of Directors of MOXY shall have withdrawn, or
modified in any manner that is adverse to FRP, its recommendation of approval of
the Rights Offering and the Standby Purchase Agreement.
6.2 Effect of Termination. In the event of termination of this Agreement
by any party hereto as provided in Section 6.1, this Agreement (other than
Section 1.2(e)) shall forthwith become null and void, and there shall be no
liability or obligation on the part of MOXY or FRP except to the extent that
such termination results from the willful breach by a party hereto of any of its
representations or warranties or any of its covenants or agreements contained in
this Agreement.
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The obligations of MOXY set forth in Section 1.2(e) shall survive any
termination of this Agreement and remain in full force and effect.
6.3 Extension; Waiver. At any time on or prior to the Closing Date, the
parties hereto may: (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto; and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE VII
DEFINITIONS
In addition to the other defined terms used in this Agreement, the
following terms have the respective meanings set forth below:
"Closing" means the closing of MOXY's purchase of the MCN Properties.
"Closing Date" means the date on which the Closing occurs, which shall
also be the date on which the transactions contemplated by the Standby Purchase
Agreement are consummated.
"Common Stock" means the common stock, $.01 par value per share, of MOXY
"Effective Time" means 7:01 a.m., Central time, on April 1, 1997.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Loan" means the principal amount and accrued but unpaid interest
outstanding at any given time under the line of credit made available to MOXY
under Section 4.3 of the MOXY/MCN Program Agreement.
"Material Adverse Effect" means with respect to any party, a material
adverse effect on the business, assets, condition (financial or otherwise), or
results of operations of such party and its subsidiaries, if any, taken as a
whole.
"MCN" means, collectively, MCNIC Oil & Gas Properties, Inc. a Michigan
corporation, and MCN Investment Corporation, a Michigan corporation.
"MCN Producing Properties" means the interest acquired by FRP pursuant to
the MCN Purchase Agreement in and to the leases covering and other property
located on or related to (a) Vermilion Blocks 143, 144, 159 and 160 (other than
the farm-in of a portion of Vermilion Block 159 pursuant to that certain letter
agreement dated November 11, 1996) and (b) Vermilion Blocks 389, 409 and 410 and
a portion of East Cameron Block 362.
"MCN Program Assets" has the meaning ascribed to it in the MCN Purchase
Agreement.
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"MCN Purchase Agreement" means that certain Purchase and Sale Agreement
dated July 10, 1997 by and between FRP and MCN.
"MOXY/FRP Exploration Program" means the exploration program provided for
in the Participation Agreement.
"MOXY/MCN Program" means the exploration program provided for in the
MOXY/MCN Program Agreement.
"MOXY/MCN Program Agreement" means the MOXY Participation & Exploration
Program Agreement dated as of July 1, 1995, as amended, by and between MOXY and
MCN and all other agreements entered into in connection with the exploration and
development activity conducted thereunder.
"MOXY/MCN Program Amendment" means the amendment to the MOXY/MCN Program
Agreement substantially in the form attached hereto as Exhibit "B."
"MOXY Stockholders" means the holders of the Common Stock entitled to
notice of and to vote at the MOXY Stockholders' Meeting.
"MOXY Stockholders' Meeting" means the special meeting of stockholders of
MOXY to be called in accordance with the terms of this Agreement to consider and
vote upon the Rights Offering and the Standby Purchase Agreement.
"Participation Agreement" means the Participation Agreement, including all
exhibits thereto, substantially in the form attached hereto as Exhibit "A."
"Person" means any person, firm, corporation, partnership, limited
liability company, trust or other association or organization of any kind.
"Proxy Statement" means the definitive proxy statement and related
solicitation material, including any amendments thereto, to be mailed to the
MOXY Stockholders in advance of the MOXY Stockholders' Meeting.
"Registration Statement" means the registration statement on Form S-3,
including any amendments thereto, to be filed by MOXY with the SEC relating to
the Rights Offering.
"Rights" means the rights to purchase additional shares of Common Stock as
described in the Registration Statement.
"Rights Offering" means the distribution to the holders of Common Stock of
the Rights as described in the Registration Statement.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
"Standby Commitment" means the commitment by FRP under the Standby Purchase
Agreement to purchase a number of shares of Common Stock equal to the number
that are offered but not subscribed for in the Rights Offering.
"Standby Purchase Agreement" means the Standby Purchase Agreement in
substantially the form attached hereto as Exhibit "C."
"Stockholder Agreement" means the Stockholder Agreement in substantially
the form attached hereto as Exhibit "D."
"Transaction Documents" means the MOXY/MCN Program Amendment, the
Participation Agreement, the Standby Purchase Agreement and the Stockholder
Agreement.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses. Each party hereto shall pay its own expenses
incident to preparing, entering into and carrying out this Agreement, the
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby except as set forth therein.
8.2 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Closing Date.
The Confidentiality Agreement shall survive the execution and delivery of this
Agreement, and the provisions of the Confidentiality Agreement shall apply to
all information and material delivered hereunder.
8.3 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally or sent by certified or
registered mail, postage prepaid, and shall be deemed to be given, dated and
received when so delivered personally or, if mailed, three business days after
the date of mailing to the following address or to such other address or
addresses as such person may subsequently designate by notice given hereunder.
If to MOXY to:
McMoRan Oil & Gas Co.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Richard C. Adkerson, Co-Chairman of the Board and
Chief Executive Officer
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If to FRP:
Freeport-McMoRan Resource Partners, Limited Partnership
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Rene L. Latiolais, President and Chief Executive Officer
8.4 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes," or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." Unless the context otherwise requires, "or" is disjunctive
but not necessarily exclusive, and words in the singular include the plural and
in the plural include the singular.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Confidentiality Agreement and any other documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereto and is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder
or thereunder.
8.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
8.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by either of the parties hereto
(whether by operation of law or otherwise) without the prior written consent of
the other party except that FRP may transfer its rights, interests or
obligations hereunder to one or more of its subsidiaries or to Freeport-McMoRan
Inc. if the transferee or assignee shall expressly assume the rights so
transferred or assigned and MOXY shall be provided with an original of such
instrument of assumption; provided that such assignment shall not release FRP
from its obligations hereunder without MOXY's prior written consent.
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IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its respective officers thereunto duly authorized, all as of the date first
written above.
McMoRan OIL & GAS CO.
By: /s/ Richard C. Adkerson
-----------------------------------
Richard C. Adkerson
Co-Chairman of the Board and
Chief Executive Officer
FREEPORT-McMoRan RESOURCE PARTNERS,
LIMITED PARTNERSHIP
By: Freeport McMoRan Inc.,
as Administrative Managing General
Partner
By: /s/ Rene L. Latiolais
-----------------------------------
Rene L. Latiolais
President and Chief Executive Officer
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All exhibits to the Master Agreement have been intentionally omitted. Any
stockholder who wishes to view any of such exhibits may request a copy from the
Company in writing at 1615 Poydras Street, New Orleans, Louisiana, 70112 or by
telephone request by calling (504) 582-4000.
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ANNEX II
July 14, 1997
Re: STANDBY PURCHASE COMMITMENT
McMoRan Oil & Gas Co.
1615 Poydras Street
New Orleans, LA 70112
Attention: Mr. Richard C. Adkerson, Co-Chairman and Chief Executive Officer
Mr. C. Howard Murrish, President and Chief Operating Officer
Gentlemen:
We understand that McMoRan Oil & Gas Co. ("MOXY") intends to distribute
to holders of record of shares of its Common Stock, par value $0.01 per share
("COMMON STOCK"), transferable subscription rights (the "RIGHTS") to subscribe
for and purchase additional shares of Common Stock as follows (the "RIGHTS
OFFERING"): The exercise price for each Right will be $3.50 per share (the
"SUBSCRIPTION PRICE"). Each holder of record of shares of Common Stock on the
record date for the distribution of Rights will receive approximately 2 Rights
for every share of Common Stock held. Each Right will represent the right to
purchase one share of Common Stock (the "BASIC SUBSCRIPTION PRIVILEGE"). Each
holder of Rights (each a "HOLDER") who elects to exercise in full the Basic
Subscription Privilege may also subscribe to purchase at the Subscription
Price additional shares of Common Stock available as a result of unexercised
Rights, if any (the "OVERSUBSCRIPTION PRIVILEGE"). 28,571,429 shares of
Common Stock will be issuable upon exercise of all of the Rights. The Rights
will be transferable and will expire 30 days after issuance or on such later
date as may be agreed between MOXY and FRP (such initial date or any such
later date, the "EXPIRATION DATE"). The Rights and the shares of Common Stock
issuable upon exercise thereof will be listed on the Nasdaq National Market
("NASDAQ").
Based on the structure of the Rights Offering described above and in
consideration of the mutual representations, warranties and agreements
contained herein, the parties hereto hereby agree as follows:
1. STANDBY COMMITMENT. Upon the terms and subject to the conditions
set forth herein, MOXY agrees to sell to FRP, and FRP agrees to purchase from
MOXY (the "STANDBY COMMITMENT"), at the Subscription Price, all the shares of
Common Stock issuable upon exercise of the Rights if and to the extent that
such shares of Common Stock are not purchased by Holders pursuant to the
exercise of the Rights, including the Oversubscription Privilege (such
unpurchased shares being referred to as the "EXCESS SHARES"). Subject to
Section 3 below,
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payment of the aggregate Subscription Price for the Excess Shares shall be made
on the third business day following the Expiration Date (the "Closing Date"),
against delivery to FRP of certificates evidencing the shares of Common Stock
purchased by it, in immediately available funds by wire transfer to an account
of MOXY designated by MOXY by notice to FRP no later than one business day prior
to the Closing Date.
2. FRP PURCHASE OPTION. (a) Promptly on or after the Expiration Date
and after all prorations and adjustments contemplated by the terms of the
Rights Offering shall have been effected (but in no event later than the date
one business day after the Expiration Date), MOXY shall deliver, or cause the
Subscription Agent (as defined in the Registration Statement) to deliver, a
written notice (the "STANDBY PURCHASE NOTICE") to FRP setting forth the
aggregate number of Rights properly exercised by Holders pursuant to the terms
of the Rights Offering; the aggregate number of Excess Shares to be purchased
by FRP pursuant to its Standby Commitment (the "STANDBY PURCHASE AMOUNT");
the aggregate Subscription Price therefor; and the calculation, including
reasonable details thereof, of the maximum number of Additional Shares, if
any, available for purchase by FRP pursuant to the FRP Purchase Option as
provided in subsection (b) below.
(b) MOXY hereby grants FRP an option (the "FRP PURCHASE OPTION") to
purchase, at the Subscription Price, up to such number of shares of Common
Stock, if any, (the "ADDITIONAL SHARES") as shall result in FRP's owning 30%
of the aggregate outstanding shares of Common Stock immediately after giving
effect to such purchase and the Standby Purchase Amount. FRP may exercise the
FRP Purchase Option, in whole or in part, within one business day after
receiving the Standby Purchase Notice, by delivering a written notice to MOXY
setting forth the number of Additional Shares it wishes to purchase pursuant
to the FRP Purchase Option. Such exercise of the FRP Purchase Option shall
not thereafter be revocable by FRP. The purchase of the Additional Shares
pursuant to the FRP Purchase Option shall take place on the Closing Date in
the same manner as the purchase of the Excess Shares pursuant to the Standby
Commitment as set forth in Section 1 above.
3. STANDBY COMMITMENT FEE. As compensation to FRP for its Standby
Commitment and its obligations under the Master Agreement (including but not
limited to its purchase of the MCN Properties as described therein), MOXY
agrees to pay to FRP on the Closing Date a standby commitment fee of
$6,000,000 (the "STANDBY COMMITMENT FEE"), irrespective of the number of
shares of Common Stock purchased by FRP hereunder. The Standby Commitment Fee
will at FRP's option (designated no more than one business day prior to the
Closing Date) be (a) credited in whole or in part against the purchase price
to be paid by FRP in connection with its purchase of the Excess Shares or the
Additional Shares, if any, or both hereunder or (b) payable in immediately
available funds by wire transfer to an account of FRP designated by FRP.
4. REPRESENTATIONS AND WARRANTIES OF MOXY. MOXY represents and
warrants to FRP as of the date hereof and as of the Closing Date (as defined
below) that:
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(a) MOXY meets the requirements for use of Form S-3 under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and will file (or,
as of the Closing Date, will have filed) with the Securities and Exchange
Commission (the "COMMISSION") a registration statement on Form S-3 to register
the Rights and the shares of Common Stock referred to in Section 1 above (such
registration statement, including the prospectus contained therein, and any
amendments or supplements thereto, the "REGISTRATION STATEMENT"). The terms
of the Rights Offering as disclosed in the Registration Statement are
substantially as set forth in the first paragraph to this letter agreement.
True and complete copies of the Registration Statement have been delivered to
FRP.
(b) At the time the Registration Statement becomes effective, (i) the
Registration Statement will comply in all material respects with the
requirements of the Securities Act and (ii) the Registration Statement,
including the documents incorporated by reference therein, will not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. At the time they were filed with the
Commission and at the time the Registration Statement becomes effective, the
documents incorporated by reference into the Registration Statement complied
and will comply in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT").
(c) The execution, delivery and performance by MOXY of this
letter agreement and the consummation of the transactions contemplated hereby,
including but not limited to the Rights Offering and the FRP Purchase Option,
(i) are within MOXY's corporate powers, (ii) have been authorized by all
necessary corporate action on the part of MOXY other than the approval of
MOXY's stockholders, and (iii) do not require any consent, approval or
authorization of, or filing, registration or qualification with, any
governmental body, agency, official, court or other authority on the part of
MOXY other than filings under federal securities or state blue sky laws. This
letter agreement constitutes a valid and binding agreement of MOXY,
enforceable against it in accordance with its terms.
(d) Since March 31, 1997, there has been no material adverse change in
the business, operations, properties, prospects or condition (financial or
otherwise) of MOXY.
(e) All the shares of Common Stock to be issued to FRP pursuant to
Section 1 or 2 above have been duly authorized and, when delivered against
payment therefor as contemplated hereby, will be validly issued, fully paid
and non-assessable, and will not be subject to any pre-emptive rights.
5. REPRESENTATIONS AND WARRANTIES OF FRP. FRP represents and
warrants to MOXY as of the date hereof and as of the Closing Date that (a) the
execution, delivery and performance by FRP of this letter agreement and the
consummation of the transactions contemplated hereby (i) are within FRP's
partnership powers, (ii) have been authorized by all necessary partnership
action on the part of FRP, and (iii) do not require any consent, approval or
authorization of, or filing, registration or qualification with, any
governmental body, agency, official, court or other
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<PAGE>
authority on the part of FRP other than filings under the federal securities or
state blue sky laws, and (b) this letter agreement constitutes a valid and
binding agreement of FRP, enforceable against it in accordance with its terms.
6. COVENANTS OF MOXY AND FRP.
(a) Each of MOXY and FRP will use its best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this letter agreement. MOXY and FRP shall cooperate with one
another in determining whether any action by or in respect of, or filing with,
any governmental body, agency, official, or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this letter agreement and in seeking any such
actions, consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such actions, consents, approvals or waivers.
(b) MOXY will not extend the Expiration Date without the prior written
consent of FRP.
(c) MOXY will promptly deliver to FRP, without charge, such number of
copies of the Registration Statement as FRP shall reasonably request.
(d) MOXY will use the proceeds from the Rights Offering and from the
issuance of the Additional Shares, if any, solely as set forth under the
heading "Use of Proceeds" in the Registration Statement.
7. CONDITIONS OF FRP'S OBLIGATIONS. The obligation of FRP to purchase
the Excess Shares pursuant to the Standby Commitment shall be subject to the
satisfaction (or waiver by FRP in its sole discretion) of the following
conditions precedent:
(a) All the conditions precedent set forth in Sections 5.1 and 5.2 of
the Master Agreement shall have been satisfied.
(b) MOXY shall have executed and delivered to FRP a Participation
Agreement in connection with the MOXY/FRP Exploration Program substantially in
the form of Exhibit A to the Master Agreement; and
(c) MOXY shall have executed and delivered to FRP a Stockholder
Agreement substantially in the form of Exhibit D to the Master Agreement.
8. INDEMNIFICATION; SURVIVAL. (a) MOXY agrees to indemnify and hold
harmless FRP, its officers, directors, agents and affiliates and each person, if
any, who controls FRP within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, from
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<PAGE>
and against any and all losses, claims, damages, liabilities and judgments
(collectively, "LOSSES") (i) arising out of any misrepresentation or breach of
warranty, covenant or agreement made or to be performed by MOXY pursuant to this
letter agreement or (ii) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or any other document, including but not limited to the
proxy statement, filed by MOXY with the Commission in connection with the
transactions contemplated hereby and by the Registration Statement
(collectively, the "SEC DOCUMENTS"), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
Losses are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to FRP furnished in
writing to MOXY by or on behalf of FRP expressly for use therein.
(b) FRP agrees to indemnify and hold harmless MOXY, its officers,
directors, agents and affiliates and each person controlling MOXY within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
to the same extent as the foregoing indemnity from MOXY to FRP, but only with
respect to (i) any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by FRP pursuant to this letter agreement or
(ii) information relating to FRP furnished in writing to MOXY by or on behalf
of FRP expressly for use in the SEC Documents.
(c) If the foregoing indemnification is unavailable to an indemnified
party in respect of any Losses, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses in such
proportion as is appropriate to reflect the relative benefits received by MOXY
on the one hand and FRP on the other hand from the Rights Offering or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of MOXY and FRP in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable
considerations. The relative benefits received by MOXY and FRP shall be
deemed to be in the same proportion as the total net proceeds from the Rights
Offering (before deducting expenses) received by MOXY shall bear to the
Standby Commitment Fee received by FRP hereunder. The relative fault of MOXY
and FRP shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state
a material fact relates to information supplied by MOXY or FRP and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. MOXY and FRP agree that it
would not be just and equitable if contribution pursuant to this subsection
were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to
herein. Notwithstanding the foregoing, FRP shall not be required to
contribute any amount in excess of an amount equal to the Standby Commitment
Fee.
(d) The respective representations, warranties, indemnities,
contribution agreements and other statements of each of the parties hereto
shall remain operative and in full force and effect,
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and will survive delivery of and payment for the Excess Shares and the
Additional Shares, if any, regardless of any investigation, or statement as to
the results thereof, made by or on behalf of MOXY or FRP, the delivery of and
payment for the Excess Shares and the Additional Shares, if any, hereunder and
the termination of this letter agreement.
9. TERMINATION. This letter agreement shall automatically terminate
if the Master Agreement is terminated in accordance with its terms.
10. NOTICES. All notices and other communications to be given
pursuant hereto shall be in writing and be effective upon receipt and may be
given by overnight courier or hand delivery and shall be given at the
addresses set forth below: (a) if notice is given to MOXY, to McMoRan Oil &
Gas Co., 1615 Poydras Street, New Orleans, LA 70112, Attention: Mr. Richard C.
Adkerson, Co-Chairman of the Board and Chief Executive Officer, and (b) if
notice is given to FRP, to Freeport-McMoRan Inc., Administrative Managing
General Partner, 1615 Poydras Street, New Orleans, LA 70112, Attention: Mr.
RenJ L. Latiolais, President and Chief Executive Officer.
This letter agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, both oral and written, between the
parties hereto with respect to the subject matter hereof.
This letter agreement shall constitute a binding agreement of the
parties hereto with respect to the subject matter hereof. The provisions of
this letter agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided that (i)
MOXY may not assign or transfer any of its rights under this letter agreement
and (ii) FRP may not assign or transfer its rights under this letter agreement
without the prior written consent of MOXY, except that FRP may transfer or
assign, in whole or from time to time in part, the right to purchase all or a
portion of the Excess Shares or the Additional Shares, if any, hereunder to
one or more of its subsidiaries or to Freeport-McMoRan Inc. without such prior
written consent if any transferee or assignee subsidiary shall expressly
assume the rights so transferred or assigned and MOXY shall be provided with
an original of such instrument of assumption; provided that such transfer or
assignment shall not release FRP from its obligations hereunder without MOXY's
prior written consent. Neither this letter agreement nor any provision hereof
is intended to confer upon any person or entity other than the parties hereto
any rights or remedies hereunder. This letter agreement shall be governed by
and construed with in accordance with the laws of the State of Delaware,
without regard to the conflict of law rules of such state. This letter
agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.
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Very truly yours,
FREEPORT-McMoRan RESOURCE
PARTNERS, LIMITED PARTNERSHIP
By: FREEPORT-McMoRan INC.,
its Administrative Managing
General Partner
By: /s/ Rene L. Latiolais
----------------------------------
Name: Rene L. Latiolais
Title: President and Chief
Executive Officer
Agreed and accepted
as of the date first
above written:
McMoRan OIL & GAS CO.
By: /s/ Richard C. Adkerson
- ----------------------------------
Name: Richard C. Adkerson
Title: Co-Chairman of the Board
and Chief Executive Officer
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ANNEX III
STOCKHOLDER AGREEMENT
This Stockholder Agreement (this "Agreement") is entered into this _____
day of ____________, 1997, by and between McMoRan Oil & Gas Co., a Delaware
corporation ("MOXY"), and Freeport-McMoRan Resource Partners, Limited
Partnership, a Delaware limited partnership ("FRP").
R E C I T A L S
WHEREAS, MOXY has filed a Registration Statement with the SEC relating
to the Rights Offering;
WHEREAS, pursuant to the Standby Purchase Agreement, FRP has agreed to
purchase at the Rights Offering subscription price all shares of Common Stock
offered in the Rights Offering that are not purchased by holders of the
Rights, and MOXY has agreed that if, pursuant to its subscription rights and
its standby commitment, FRP has not acquired 30% of the Common Stock
outstanding upon completion of the Rights Offering, FRP will have the option
to acquire at the subscription price such additional shares of Common Stock in
an amount not in excess of the number of shares as would be necessary to
provide it with up to 30% of MOXY's outstanding Common Stock after giving
effect to such acquisition;
WHEREAS, MOXY and FRP are entering into this Agreement to establish
certain corporate governance arrangements to take effect after the date hereof
as well as certain matters relating to FRP's registration rights with respect
to the Registrable Securities; and
WHEREAS, MOXY and FRP believe that these arrangements will be in the
best interests of MOXY and all of its stockholders.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, the parties hereto agree as follows:
1. Defined Terms. The following capitalized terms when used in this
Agreement shall have the following meanings:
"Affiliate" or "Associate" shall have the respective meanings assigned
thereto in Rule 405 as presently promulgated under the Securities Act of 1933.
"Beneficial Owner" means beneficial ownership calculated in accordance
with Rules 13d-3 and 13d-5 under the Exchange Act.
"Board of Directors" means the board of directors of MOXY.
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"By-laws" means the By-laws of MOXY.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of MOXY.
"Common Stock" means the shares of common stock, $.01 par value per
share, of MOXY.
"Demand Registration" means a Demand Registration as defined in
Section 4(a) hereof.
"Director" means any member of the Board of Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FRP Designee" has the meaning set forth in Section 2(b) hereof.
"FRP Percentage" means, at any time, a fraction, expressed as a
percentage, (a) the numerator of which is the number of outstanding shares of
Common Stock owned by FRP at such time, and (b) the denominator of which is
the total number of outstanding shares of Common Stock at such time.
"Independent Committee" has the meaning set forth in Section 2(i)
hereof.
"Independent Director" means, at any time, any member of the Board
of Directors who both (a) would qualify as an "independent director" within
the meaning given to such term under the rules of the New York Stock Exchange
and (b) is not an Affiliate or Associate of FRP, other than solely as a result
of being a director of MOXY.
"Master Agreement" means the Master Agreement dated as of July 14,
1997 between MOXY and FRP.
"Material Transaction" means (a) any sale, lease, transfer or
other disposition by MOXY of any of its properties or assets to, (b) any
purchase of property or assets by MOXY from, (c) any investment by MOXY in,
(d) any agreement by MOXY with or for the benefit of, or (e) any other
transaction between MOXY and one or more of its Affiliates (other than a
wholly-owned subsidiary of MOXY) that involves aggregate payments in excess of
$5 million and is not in effect on the date hereof or contemplated by the
Master Agreement.
"Participation Agreement" means the Participation Agreement,
including all exhibits thereto, substantially in the form of Exhibit "B" to
the Master Agreement.
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<PAGE>
"Person" means any person, firm, corporation, partnership, limited
liability partnership or company, trust or other association or organization
of any kind.
"Piggyback Registration" means a Piggyback Registration as defined
in Section 4(b) hereof.
"Registrable Securities" means all shares of Common Stock owned by
FRP.
"Registration Statement" means the registration statement on Form
S-3, including any amendments or supplements thereto, to be filed by MOXY with
the SEC relating to the Rights Offering.
"Rights" means transferable subscription rights to purchase shares
of Common Stock that will be distributed by MOXY in the Rights Offering to the
holders of the Common Stock pursuant to the terms set forth in the
Registration Statement.
"Rights Offering" means the distribution to the holders of the
Common Stock of the Rights pursuant to the terms set forth in the Registration
Statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Standby Purchase Agreement" means the Standby Purchase Agreement
dated as of July 14, 1997 between MOXY and FRP.
"Stockholder Rights Plan" means the Rights Agreement dated as of
May 19, 1994, as amended to the date hereof, between MOXY and Mellon
Securities Trust Company, as Rights Agent.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
2. Composition of Board of Directors
(a) Number of Directors. Subject to the terms of this Agreement
and the Certificate of Incorporation and the By-laws, MOXY and FRP agree that
the Board of Directors shall consist of such number of Directors as may be
fixed from time to time by a majority of the Directors then in office, giving
effect to the provisions of this Agreement.
(b) Number of FRP Designees. As long as FRP shall be the
Beneficial Owner of at least 10% but less than a majority of the outstanding
Common Stock, FRP shall be entitled
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<PAGE>
to designate by written notice to MOXY from time to time that number of
Directors (each an "FRP Designee") equal to the nearest whole number obtained by
multiplying the FRP Percentage by the number of Directors that are to serve on
the Board of Directors after giving effect to the election of the FRP Designees
and the Independent Directors required pursuant to Section 2(i). Upon receipt of
a written request of FRP to exercise its rights under this Section 2(b), MOXY
shall create that number of vacancies on the Board of Directors as determined in
accordance with the preceding sentence either by (i) an increase in the number
of Directors in accordance with the terms of the Certificate of Incorporation
and the By-laws, (ii) Director resignations or (iii) a combination thereof.
(c) Election of FRP Designees. The Board of Directors shall
elect FRP Designees as soon as practicable following receipt of a notice from
FRP in accordance with Section 2(b) to fill the vacancies on the Board of
Directors created in accordance with the last sentence of Section 2(b), to
serve from the time when they are elected until their successors are elected
and qualified. Each of the FRP Designees shall be elected to a different
class of the Board of Directors as provided by the Certificate of
Incorporation and the By-laws, unless the Board of Directors elects more than
three FRP Designees, in which case the FRP Designees shall be elected to
different classes as proportionally as practicable.
(d) Nomination and Election of Subsequent FRP Designees. The
Board of Directors (or any committee of the Board of Directors that nominates
Directors) shall, in connection with each meeting of stockholders of MOXY at
which the term of any FRP Designee expires (if FRP shall then have the right
to designate Directors), nominate for election as a Director, in accordance
with MOXY's procedures for nomination of Directors as provided for in its By-
laws, one or more FRP Designees designated in accordance with Section 2(b) to
stand for election for the next succeeding term, and shall vote all management
proxies in favor of such nominees, except for such proxies that specifically
indicate to the contrary. MOXY shall recommend that its stockholders vote in
favor of such nominees, and shall use reasonable efforts to solicit from its
stockholders proxies voted in favor of such nominees.
(e) FRP Designee Replacements. If any FRP Designee shall
decline or be unable to serve for any reason, or if such FRP Designee resigns
or is removed (other than in the case of a resignation pursuant to Section
2(d) hereof), the Board of Directors shall promptly upon the request of FRP
nominate or elect, as the case may be, a new FRP Designee to replace such
resigned or removed FRP Designee.
(f) Voting. As long as FRP shall be the Beneficial Owner of at
least 10% of the Common Stock, at each meeting of stockholders of MOXY, FRP
shall vote the shares of Common Stock held by FRP for the nominees recommended
by the Board of Directors.
(g) Resignation of FRP Designees. At such time as FRP shall
become the Beneficial Owner of less than 10% of the outstanding Common Stock,
FRP shall, at the request
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<PAGE>
of MOXY, use its best efforts to cause any FRP Designees then serving as
Directors to resign from the Board of Directors.
(h) Information Regarding FRP Designees. FRP shall use its best
efforts to cause each FRP Designee to promptly provide to MOXY, as MOXY may
from time to time reasonably request, information regarding such FRP Designee
for inclusion in any form, report, schedules, registration statement,
definitive proxy statement or other documents required to be filed by MOXY
with the SEC.
(i) Independent Committee. Within six months after the date
hereof, MOXY shall create two vacancies on the Board of Directors either by
(i) an increase in the number of Directors in accordance with the terms of the
Certificate of Incorporation and the By-laws, (ii) Director resignations or
(iii) a combination thereof and shall designate, and the Board of Directors
shall elect at least two Independent Directors to the Board of Directors. The
Board of Directors shall, in connection with each meeting of stockholders of
MOXY at which the term of any Independent Director expires, select one or more
individuals who would qualify for membership on the Independent Committee to
stand for election for the next succeeding term. If any Independent Director
shall decline or be unable to serve for any reason, or if such Independent
Director resigns, the Board of Directors shall promptly nominate or elect, as
the case may be, a new Independent Director to replace such resigned
Independent Director. The Independent Directors shall constitute the
Independent Committee of the Board of Directors (the "Independent Committee").
The affirmative vote of a majority of the Independent Directors shall be the
act of the Independent Committee.
3. Approval by Independent Committee.
(a) Actions by MOXY. After the Independent Committee has been
elected in accordance with Section 2(i), for as long as FRP shall be the
Beneficial Owner of 10% or more of the outstanding Common Stock, subject to
the Certificate of Incorporation and applicable law, MOXY shall not take any
of the following actions without the approval of the Independent Committee:
(i) repurchase any outstanding shares of Common Stock;
(ii) enter into any Material Transaction;
(iii) enter into any "Rule 13e-3 transaction" within the
meaning of Rule 13e-3 under the Exchange Act;
(iv) amend, modify or grant any waiver under the
Stockholder Rights Plan, the Participation Agreement or this
Agreement; or
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<PAGE>
(v) in connection with any merger or business combination
involving MOXY and a third party, treat FRP and the other holders
of Common Stock on other than equivalent terms.
(b) Actions by FRP. For as long as FRP shall be the Beneficial
Owner of more than 10% of the outstanding Common Stock, except as specifically
approved by the Independent Committee, neither FRP nor any of FRP's Affiliates
shall, directly or indirectly, (i) by purchase or otherwise, acquire, agree to
acquire or offer to acquire beneficial ownership of any additional shares of
Common Stock (other than through open-market purchases that do not constitute
a "Rule 13e-3 transaction" within the meaning of Rule 13e-3 under the Exchange
Act), or (ii) enter into, propose to enter into, solicit or support any merger
or business combination or similar transaction involving FRP or any of its
Affiliates and MOXY. In considering whether any of the foregoing transactions
would be in the best interests of and fair to the holders of Common Stock
other than FRP and its Affiliates, the Independent Committee shall consider
the value of MOXY as a whole without any reduction related to the size of
FRP's ownership interest in MOXY.
4. Registration Rights.
(a) Demand Registration. (i) FRP may at any time and from time
to time make a written request for registration under the Securities Act of
not less than 10% of the outstanding Common Stock (a "Demand Registration");
provided that MOXY shall not be obligated to effect more than one Demand
Registration in any 12-month period or more than an aggregate of three Demand
Registrations pursuant to this Section 4(a). Such request will specify the
number of shares of Registrable Securities proposed to be sold and will also
specify the intended method of disposition thereof. A registration will not
count as a Demand Registration until it has become effective; provided,
however, that a Demand Registration that is either withdrawn or not declared
effective at FRP's request shall count as a Demand Registration unless FRP
also bears all of the expenses specified in Section 4(e) hereof (as being
payable by MOXY) with respect to such Demand Registration.
(ii) If FRP so elects, the offering of such Registrable
Securities pursuant to such Demand Registration shall be in the form of an
underwritten offering. FRP shall select the managing Underwriters and any
additional investment bankers and managers to be used in connection with the
offering; provided that such managing Underwriters and additional investment
bankers must be reasonably satisfactory to MOXY.
(b) Piggyback Registration. If MOXY proposes to file a registration
statement under the Securities Act with respect to an offering of Common Stock
(i) for MOXY's own account (other than a registration statement on Form S-4 or
S-8 (or any substitute form that may be adopted by the SEC)) or (ii) for the
account of any of its holders of Common Stock (other than FRP), then MOXY shall
give written notice of such proposed filing to FRP as soon as
III-6
<PAGE>
practicable (but in no event less than 10 days before the anticipated filing
date), and such notice shall offer FRP the opportunity to register such number
of shares of Registrable Securities as FRP may request on the same terms and
conditions as MOXY's or such holder's Common Stock (a "Piggyback Registration").
(c) Reduction of Offering. Notwithstanding anything contained
herein, if the managing Underwriter of an offering described in Section 4(b)
delivers a written opinion to MOXY that the size of the offering that FRP,
MOXY and any other Persons whose securities are included in such offering
intend to make are such that the success of the offering would be materially
and adversely affected, then the amount of Registrable Securities to be
offered for the account of FRP and any other Person shall be reduced to the
extent necessary to reduce the total amount of common stock to be included in
such offering to the amount recommended by such managing Underwriter; provided
that if Common Stock is being offered for the account of Persons other than
MOXY, then the proportion by which the amount of such Registrable Securities
intended to be offered for the account of FRP is reduced shall not exceed the
proportion by which the amount of such securities intended to be offered for
the account of such other Persons is reduced.
(d) Filings; Information. Whenever FRP requests that any
Registrable Securities be registered pursuant to Section 4(a) hereof, MOXY
will use its reasonable efforts to effect the registration of such Registrable
Securities as promptly as is practicable, and in connection with any such
request:
(i) MOXY will as expeditiously as possible prepare and file with
the SEC a registration statement on any form for which MOXY then
qualifies and which counsel for MOXY shall deem appropriate and
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution
thereof, and use its reasonable efforts to cause such filed registration
statement to become and remain effective for a period of not less than
120 days (or such shorter period which will terminate when all
Registrable Securities covered by such registration statement have been
sold); provided that if MOXY shall furnish to FRP a certificate signed
by MOXY's Chief Executive Officer stating that in his good faith
judgment it would be detrimental or otherwise disadvantageous to MOXY or
its shareholders for such a registration statement to be filed as
expeditiously as possible, MOXY shall have a period of not more than 120
days within which to file such registration statement measured from the
date of MOXY's receipt of FRP's request for registration in accordance
with Section 4(a) hereof.
(ii) MOXY will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to FRP and
each applicable managing Underwriter, if any, copies thereof, and
thereafter furnish to FRP and
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<PAGE>
each such Underwriter, if any, such number of copies of such
registration statement, amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference
therein) and the prospectus included in such registration statement
(including each preliminary prospectus) as FRP or each such Underwriter
may reasonably request in order to facilitate the sale of the
Registrable Securities.
(iii) After the filing of the registration statement, MOXY will
promptly notify FRP of any stop order issued or, to MOXY's knowledge,
threatened to be issued by the SEC and take all reasonable actions
required to prevent the entry of such stop order or to remove it if
entered.
(iv) MOXY will endeavor to qualify the Registrable Securities for
offer and sale under such other securities or blue sky laws of such
jurisdictions in the United States as FRP reasonably requests; provided
that MOXY will not be required to (A) qualify generally to do business
in any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph 4(d)(iv), (B) subject itself to taxation in
any such jurisdiction or (C) consent to general service of process in
any such jurisdiction.
(v) MOXY will as promptly as is practicable notify FRP, at any
time when a prospectus relating to the sale of the Registrable
Securities is required by law to be delivered in connection with sales
by an Underwriter or dealer, of the occurrence of any event requiring
the preparation of a supplement or amendment to such prospectus so that,
as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading and promptly
make available to FRP and to the Underwriters any such supplement or
amendment. FRP agrees that, upon receipt of any notice from MOXY of the
occurrence of any event of the kind described in the preceding sentence,
FRP will forthwith discontinue the offer and sale of Registrable
Securities pursuant to the registration statement covering such
Registrable Securities until receipt by FRP and the Underwriters of the
copies of such supplemented or amended prospectus and, if so directed by
MOXY, FRP will deliver to MOXY all copies, other than permanent file
copies then in FRP's possession, of the most recent prospectus covering
such Registrable Securities at the time of receipt of such notice. In
the event MOXY shall give such notice, MOXY shall extend the period
during which such registration statement shall be maintained effective
as provided in Section 4(d)(i) by the number of days during the period
from and including the date of the giving of such notice to the date
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<PAGE>
when MOXY shall make available to FRP such supplemented or amended
prospectus.
(vi) MOXY will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the sale of
such Registrable Securities.
(vii) MOXY will furnish to FRP and to each Underwriter a signed
counterpart, addressed to FRP or such Underwriter, of an opinion or
opinions of counsel to MOXY and a comfort letter or comfort letters from
MOXY's independent public accountants, each in customary form and
covering such matters of the type customarily covered by opinions or
comfort letters, as the case may be, as FRP or the managing Underwriter
reasonably requests.
(viii) MOXY will make generally available to its security holders,
as soon as reasonably practicable, an earnings statement covering a
period of 12 months, beginning within three months after the effective
date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and the
rules and regulations of the SEC thereunder.
(ix) MOXY will use its reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange or over-
the-counter market on which the Common Stock is then listed.
MOXY may require FRP promptly to furnish in writing to MOXY such
information regarding FRP, the plan of distribution of the Registrable
Securities and other information as MOXY may from time to time reasonably
request or as may be legally required in connection with such registration.
(e) Registration Expenses. In connection with any Demand
Registration or any Piggyback Registration, MOXY shall pay the following
expenses incurred in connection with such registration: (i) filing fees with the
SEC, (ii) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualifications of the Registrable Securities), (iii) printing expenses, (iv)
fees and expenses incurred in connection with the listing of the Registrable
Securities, (v) fees and expenses of counsel and independent certified public
accountants for MOXY and (vi) the reasonable fees and expenses of any additional
experts retained by MOXY in connection with such registration. FRP shall pay any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities and any out-of-pocket expenses of FRP.
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<PAGE>
(f) Indemnification by MOXY. MOXY agrees to indemnify and hold
harmless FRP, its officers and directors, and each Person, if any, who
controls FRP within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities (as amended or supplemented
if MOXY shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information, relating to FRP
or the plan of distribution furnished in writing to MOXY by or on behalf of
FRP expressly for use therein; provided that the foregoing indemnity agreement
with respect to any preliminary prospectus shall not inure to the benefit of
FRP if a copy of the most current prospectus at the time of the delivery of
the Registrable Securities was not provided to purchaser and such current
prospectus would have cured the defect giving rise to such loss, claim, damage
or liability. MOXY also agrees to indemnify any Underwriters of the
Registrable Securities, their officers and directors and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of FRP provided in this subparagraph.
(g) Indemnification by FRP. FRP agrees to indemnify and hold
harmless MOXY, its officers and directors, and each Person, if any, who
controls MOXY within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from MOXY to FRP, but only with reference to information relating to FRP or
the plan of distribution furnished in writing by or on behalf of FRP expressly
for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. FRP also agrees to indemnify and hold harmless any
Underwriters of the Registrable Securities, their officers and directors and
each person who controls such Underwriters on substantially the same basis as
that of the indemnification of MOXY provided in this subparagraph.
(h) Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 4(f) or Section 4(g), such Person (the "Indemnified Party") shall
promptly notify the Person against whom such indemnity may be sought (the
"Indemnifying Party") in writing and the Indemnifying Party shall have the
right to assume the defense of such proceeding and retain counsel reasonably
satisfactory to such Indemnified Party to represent such Indemnified Party and
any others the Indemnifying Party may designate in such proceeding and shall
pay the fees and disbursements of such counsel related to such proceeding. In
any such proceeding, any Indemnified Party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have
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mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
Indemnified Party and the Indemnifying Party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the Indemnified
Parties, such firm shall be designated in writing by the Indemnified Parties.
The Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment.
(i) Contribution. If the indemnification provided for in this
Agreement is unavailable to an Indemnified Party in respect of any losses,
claims, damages or liabilities referred to herein, then each such Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by MOXY, FRP and the Underwriters from
the offering of the securities, or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) but also the relative fault of MOXY, FRP and the Underwriters in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by MOXY, FRP and the
Underwriters shall be deemed to be in the same respective proportions as the
total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by each of MOXY and FRP
and the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
prospectus, bear to the aggregate public offering price of the securities.
The relative fault of MOXY, FRP and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.
MOXY and FRP agree that it would not be just and equitable if
contribution pursuant to this Section 4(i) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include,
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<PAGE>
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 4(i), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and FRP shall not be required to contribute any amount in
excess of the amount by which the net proceeds of the offering (before deducting
expenses) received by FRP exceeds the amount of any damages which FRP has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(j) Participation in Underwritten Registrations. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and these
Registration Rights.
(k) Rule 144. MOXY covenants that it will file any reports required
to be filed by it under the Securities Act and the Exchange Act and that it will
take such further action as FRP may reasonably request to the extent required
from time to time to enable FRP to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the SEC.
Upon the request of FRP, MOXY will deliver to FRP a written statement as to
whether it has complied with such reporting requirements.
(l) Holdback Agreements. FRP agrees not to offer, sell, contract to
sell or otherwise dispose of any Registrable Securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
14 days prior to, and during the 180-day period beginning on, the effective date
of such registration statement other than (i) the Registrable Securities to be
sold pursuant to such registration statement, and (ii) any shares of Common
Stock sold upon the exercise of an option or warrant or the conversion of a
security outstanding at such date.
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<PAGE>
5. Miscellaneous.
(a) Notices. Any notice or communication required or
permitted hereunder shall be in writing and either delivered personally or
sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received when so delivered personally or, if mailed, three
business days after the date of mailing to the following address or to such
other address or addresses as such person may subsequently designate by notice
given hereunder.
If to MOXY, to:
McMoRan Oil & Gas Co.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Richard C. Adkerson, Co-Chairman of the Board
and Chief Executive Officer
If to FRP, to
Freeport-McMoRan Resource Partners, Limited Partnership
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Rene L. Latiolais, President and Chief
Executive Officer
Any party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto.
(b) Termination. The respective covenants and agreements of MOXY and
FRP contained in this Agreement will continue in full force and effect until the
earliest to occur of any of the following: (i) the mutual written agreement of
MOXY and FRP or (ii) at such time as FRP shall no longer be the Beneficial Owner
of 10% or more of the outstanding Common Stock. Notwithstanding the termination
of this Agreement, nothing contained herein shall relieve any party hereto from
liability for breach of any of its covenants or agreements contained in this
Agreement.
(c) Waivers and Amendments; Noncontractual Remedies; Specific
Performance. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by or on behalf of each party hereto or, in the case of a
waiver, by the party waiving compliance. No delay on the part of any party in
exercising a right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any such right,
power or privilege, nor any single or partial exercise of any such right,
power or privilege, preclude a further exercise thereof or
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<PAGE>
the exercise of any other such right, power or privilege. MOXY and FRP agree
that any breach by either of them of any provision of this Agreement would
irreparably injure the other party and that money damages would be an inadequate
remedy therefor. Accordingly, each of MOXY and FRP agrees that the other party
shall be entitled to one or more injunctions enjoining any such breach and
requiring specific performance of this Agreement and consents to the entry
thereof.
(d) Severability. If any provision of this Agreement or the
applicability of any such provision to a person or circumstances shall be
determined by any court of competent jurisdiction to be invalid or unenforceable
to any extent, the remainder of this Agreement or the application of such
provision to persons or circumstances other than those for which it is so
determined to be invalid and unenforceable, shall not be affected thereby, and
each provision of this Agreement shall be valid and shall be enforced to the
fullest extent permitted by law. To the extent permitted by applicable law, each
party hereto hereby waives any provision or provisions of law which would
otherwise render any provision of this Agreement invalid, illegal or
unenforceable in any respect.
(e) Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts and when so executed shall constitute one
Agreement, notwithstanding that all parties are not signatories to the same
counterpart.
(f) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such state, without regard to the conflict
of law rules of such state.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto; provided that the registration rights granted by MOXY in Section
4 may only be transferred to transferees who are the holder of 5% or more of the
Registrable Securities.
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<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be signed
by its respective officers thereunto duly authorized, all as of the first date
written above.
McMoRan OIL & GAS CO.
By: ___________________________________
Richard C. Adkerson
Co-Chairman of the Board
and Chief Executive Officer
FREEPORT-McMoRan RESOURCE PARTNERS,
LIMITED PARTNERSHIP
By: Freeport-McMoRan Inc., as
Administrative Managing General
Partner
By: ___________________________________
Rene L. Latiolais
President and Chief Executive
Officer
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ANNEX IV
PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
PAGE
----
I. DEFINITIONS
II. PURPOSE; OPERATIONS
2.1 Purpose
2.2 McMoRan's Efforts
2.3 Operator
III. INTERESTS OF THE PARTIES
3.1 Sharing of Exploration Expenditures
3.2 Ownership Interests
IV. EXPLORATION EXPENDITURES
4.1 Exploration Expenditures
V. ACQUISITION OF LEASEHOLD INTERESTS
5.1 Acquisition of Additional Leasehold Interest
5.2 Excluded Areas
VI. EXPLORATION FUND
6.1 General
6.2 Limitations on McMoRan's Authority to Commit Exploration Fund
6.3 Budget Meetings and Reports
VII. SCIENTIFIC STUDIES AND INFORMATION
VIII. PROSPECTS
Prospects
Designation of Prospects After Program Term
IX. DRILLING OF EXPLORATORY WELLS
During Program Term
After Program Term
X. FARMOUT OR PARTICIPATION AGREEMENTS
10.1 Participation Agreements
10.2 Farmout Agreements
10.3 Trade Agreements
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XI. BURDENS
XII. OPERATING AGREEMENT
XIII. AREA OF MUTUAL INTEREST
13.1 Third Party Area of Mutual Interest Agreements
13.2 Program Area of Mutual Interest Agreement
XIV. OWNERSHIP OF PRODUCTION; GAS BALANCING AGREEMENT
14.1 Ownership of Production
XV. RELATIONSHIP OF THE PARTIES
15.1 No Partnership
15.2 Tax Partnerships for Certain Activities
XVI. BILLINGS; NOTICES
XVII. SPECIAL NON-CONSENT ELECTIONS
17.1 Casing Point Election - Onshore Prospects
17.2 Elections Prior to Platform Installation - Offshore
Prospects
Time Period
Completion Attempt by Participant - Onshore
XVIII. PROGRAM TERM
Program Term
Unfunded Prospects
XIV. OPERATIONS AFTER PROGRAM TERM
General
Exploratory Wells
138 Development Expenditures
139 Provisions Which Do Not Survive the End of the Program Term
XX. CONFIDENTIALITY
XXI. INSURANCE
21.1 Insurance for Program
21.2 Contractor's Insurance
21.3 Well Control Insurance
21.4 General
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XXII. RECORD TITLE, ASSIGNMENT
22.1 Record Tittle
22.2 Assignment
XXIII. SUBSEQUENT INTERESTS
XXIV. GENERAL
24.1 Records
24.2 Access
24.3 Claims & Litigation
24.4 Good Faith
24.5 Governing Law
24.6 Failure to Respond
24.7 Conflicts
Binding Effect
EXHIBITS
I) PROGRAM OPERATING AGREEMENT (OFFSHORE)
II) PROGRAM OPERATING AGREEMENT (ONSHORE)
III) CERTAIN EXCLUDED AREAS
IV) PROVISIONS CONCERNING TAXATION
IV-iii
<PAGE>
PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
This Participant Agreement ("the Agreement") is made as of the 1st day
of April, 1997 between McMoRan Oil & Gas Co. ("McMoRan") and Freeport-McMoRan
Resources Partners, Limited Partnership ("Participant").
WITNESSETH:
I.
Definitions
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 Affiliate means, with respect to any person, a person that directly or
indirectly through one or more intermediaries, controls or is controlled
by, or is under common control with the person specified.
1.2 Area of Mutual Interest or AMI means, with respect to any Prospect, the
geographic area more particularly described in Article XIII.
1.3 Casing Point means the point at which determination is made either to
run production string of casing and attempt a completion, or to abandon
the well.
1.4 Committed List means the list described in Paragraph 18.1 hereof.
1.5 Development Expenditures means those charges applicable to each
Prospect which are not Exploration Expenditures.
1.6 Development Well means any well which is not an Exploratory Well.
1.7 Excluded Area means any of the areas described in Paragraph 5.2 hereof.
1.8 Exploration Expenditures means those charges described in Article IV.
1.9 Exploration Fund means the fund created by McMoRan and Participant for
the acquisition and exploration of Leasehold Interests and the other
purposes of the Exploration Program as more fully described in Article
VI, together with any cash contributions received by the Program from
third parties.
1.10 Exploration Program or Program means the McMoRan operated program
pursuant to which McMoRan and Participant have or will acquire and
explore Prospects in the Exploration Program Area during the Program
Term pursuant to this Agreement.
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1.11 Exploratory Well means any well drilled by the Program on an Onshore
Prospect prior to the completion thereon by the Exploration Program of a
well capable of production in Paying Quantities or, as to an Offshore
Prospect, means the first and/or second well drilled on a Prospect by
the Program prior to the first installation thereon by the Program of a
drilling and/or production platform.
1.12 Initial Leasehold Inventory means those Leasehhold Interests described
in Paragraph 2.1 hereof.
1.13 Leasehold Interest means any right, title or interest acquired in, to
and under any oil or gas lease or any other interest in oil or gas,
including, without limitation, contractual rights, which confer on the
holder thereof the right to share, or acquire the right to share, in the
production or the proceeds of production of oil or gas.
1.14 Leasehold Interest Costs means, with respect to a particular Leasehold
interest, the actual cost incurred by the Program for acquisition
thereof, in each case including, without limitation, all bonuses, delay
rentals, brokerage fees, and outside attorney's fees.
1.15 Non-Operator means, as to any Leasehold Interest or Prospect, a working
interest owner therein who is not designated to act as Operator.
1.16 OCS means the outer continental shelf of the Gulf of Mexico under
Federal leasing jurisdiction.
1.17 Offshore Prospect means any Prospect located in the OCS, and/or in that
portion of the Gulf of Mexico under the leasing jurisdiction of the
adjacent states.
1.18 Onshore Prospect means a Prospect located in the Program Area which is
not an Offshore Prospect.
1.19 Operator means, as to any Leasehold Interest or Prospect, the party
hereto designated to manage and supervise the drilling and/or completion
and operation of oil or gas wells thereon.
1.20 Participant means Freeport-McMoRan Resources Partners, Limited
Partnership.
1.21 Paying Quantities means production of oil and/or gas in quantities
sufficient to yield a return in excess of operating cost.
1.22 Program Area means the OCS, and that portion of the Gulf of Mexico under
the leasing jurisdiction of the adjacent states and the balance of the
lower 48 states of the continental United States, except the Excluded
Areas.
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1.23 Program Operating Agreement means the Joint Operating Agreement
(Offshore) or the Joint Operating Agreement (Onshore) attached hereto as
Exhibits I and II respectively, depending upon whether the relevant
operation is with respect to an Offshore Prospect or an Onshore
Prospect.
1.24 Program Term means the period beginning on the date hereof and ending
at the end of the Program Term as set forth in Article XVIII.
1.25 Prospect means an area designated as such pursuant to Paragraph 8.1.
1.26 Technical Consultants means those geologists and geophysicists and
related personnel working therewith who are hired or retained by McMoRan
as independent consultants some portion of whose efforts are to develop
or evaluate Prospects hereunder.
II.
Purpose; Operations
2.1 Purpose. This Agreement has been entered into to provide
Participant a means of acquiring, exploring and developing oil and gas
Prospects in the Program Area, including but not limited to the acquisition of
the Initial Leasehold Inventory, during the Program Term.
On _____________, Participant acquired all of the interests of MCNIC Oil
& Gas Properties, Inc. and affiliates ("MCN") in the McMoRan Participation &
Exploration Program Agreement and McMoRan and Participant entered into an
amendment thereto dated the same date (as amended, the "Prior Program"). McMoRan
and Participant thereafter continued the Prior Program on an interim basis until
the date hereof.
The parties hereto hereby contribute to the Program all of their rights
respecting each of the properties and assets of the Prior Program excluding
only those properties and assets associated with the properties which are
located in an Excluded Area ("Excluded Properties") and the loan (the "Loan")
paid the date hereof due Participant by McMoRan under said Prior Program. The
Leasehold Interests owned by McMoRan and Participant under the Prior Program,
excluding those which are Excluded Properties, shall be the Initial Leasehold
Inventory hereunder. The costs incurred by McMoRan and Participant with
respect to those Leasehold Interests which are included in the Initial
Leasehold Inventory and as to which Participant acquired its interest from MCN
shall be deemed to have an initial cost as of April 1, 1997 of $8,333,333,
$5,000,000 of which was paid by Participant and $3,333,333 of which was paid
by McMoRan, which amount shall be deemed to have been expended from the
Exploration Fund. All other expenditures under the Prior Program by McMoRan
and Participant together, other than with respect to the Excluded Areas and
the Loan, shall likewise be treated as having been expended from the
Exploration Fund.
2.2 McMoRan Efforts. McMoRan agrees to devote a substantial portion of
its oil and gas exploration effort to the operation and management of the
Program, which shall include all
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prospects, except those in the Excluded Areas, acquired and to be acquired by
McMoRan during the Program Term within the Program Area, including but not
limited to the Initial Leasehold Inventory. McMoRan will at all times have a
staff adequate in number, experience and competence to perform its obligations
hereunder and accomplish the purposes of the Exploration Program.
Operator. McMoRan shall be the overall manager of the Program.
III.
Sharing of Exploration Expenditures
and Interest of the Parties
3.1 Sharing of Exploration Expenditures. Except as otherwise provided
in this Agreement, Exploration Expenditures shall be shared as follows:
ParticipantMcMoRan
60%40%
If more than one Exploratory Well is drilled on a particular Onshore
Prospect, Exploration Expenditures in connection with the drilling of any second
and subsequent Exploratory Well on such particular onshore Prospect shall not be
shared in the percentages set forth in this Paragraph 3.1 but shall be shared in
the percentages set forth in Paragraph 3.2 hereof; provided, however, if the
first Exploratory Well in such particular Onshore Prospect fails to reach
objective depth because it encounters impenetrable substances, heaving shale,
domal material, salt, excessive salt water flow or other formation or conditions
or develops mechanical difficulty which would render further drilling
impractical and McMoRan elects to drill a substitute for such well, the cost
involved in the drilling of such substitute well shall be shared in the
percentages set forth in this Paragraph 3.1 in the same manner as if such
substitute well were the first Exploratory Well on the particular Onshore
Prospect involved.
3.2 Ownership Interests. Except as otherwise provided in this Agreement,
the ownership of all Leasehold Interest and other properties and production
acquired by the Program shall be shared as follows:
ParticipantMcMoRan
50%50%
IV.
Exploration Expenditures
4.1 Exploration Expenditures. Subject to the limitations provided in
this Agreement, McMoRan shall be entitled to expend monies for Exploration
Expenditures of the Program on behalf
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of itself and Participant without the prior approval of Participant. The term
"Exploration Expenditures" means all actual charges allocable to each Prospect
in accordance with generally accepted industry standards, which charges are
incurred by the Program prior to (i) the completion of the first Exploratory
Well drilled by the Program on an Onshore Prospect that is completed as a well
capable of production in Paying Quantities or (ii) the plugging, or the
temporary abandonment if not plugged, of the first two Exploratory Wells drilled
by the Program on an Offshore Prospect, as applicable, and such other costs
applicable to exploration activities in the Program Area as are otherwise
provided for in this Agreement, which charges, among others, shall include the
following:
(a) The cost of acquisition of all Leasehold Interests in the Program
Area, including but not limited to the Initial Leasehold Inventory and any
Leasehold Interest Costs paid by McMoRan to third party program operators in
connection therewith;
(b) The cost of any geological, geophysical or other scientific,
exploration or engineering work, services or data on the Prospect;
(c) The cost of copies of all seismic records, geological and
geophysical maps and other exploration data and information furnished to
Participant;
(d) Rental and other lease maintenance payments on the Leasehold
Interests;
(e) All necessary independent legal expenses and costs of title
searches and title investigation whether or not Leasehold Interests are
acquired, together with the costs of copies of title opinions and other title
reports furnished to Participant;
(f) The cost of drilling Exploratory Wells in a Prospect, including
the cost of plugging and abandoning or capping same, if no completion attempt
is made;
(g) Any other expenditures properly chargeable as Exploration
Expenditures under this Agreement, or as may be specified in the accounting
procedure attached to the applicable Program Operating Agreement and which are
attributable to exploration activities, but excluding all overhead provided
for in such Program Operating Agreement until such time as the Exploration
Fund has been fully committed;
(h) Notwithstanding the foregoing, the cost of completing an
Exploratory Well shall not be considered an Exploration Expenditure; and
(i) In addition to the foregoing, McMoRan shall be entitled to charge
as Exploration Expenditures those expenditures that McMoRan incurs annually
for salaries of employees, including but not limited to costs of benefits
programs related thereto, cost of retained consultants, including but not
limited to its Technical Consultants, office rent, office supplies, insurance
and other general and administrative costs that McMoRan incurs in the conduct
of its activities, including but not limited to costs allocated to MOXY from
FM Services Company or its Affiliates, less a reasonable
IV-5
<PAGE>
portion of such costs that McMoRan allocates to the Excluded Areas. Prior to
committing to a material increase in the aggregate costs contemplated by this
subparagraph (i) McMoRan shall confer with Participant and in good faith
consider any comments or suggestions that Participant may offer in regard to
such contemplated material change.
The term Exploration Expenditures shall also include any of the
foregoing costs incurred by the Program in attempting to locate or acquire
Leasehold Interests in Prospects for the Program in the Program Area whether
or not the Program owns or acquires Leasehold Interest in such area or
subsequently designates a Prospect under Paragraph 8.1 for such area.
Except as may be expressly provided to the contrary in this Agreement,
all Exploration Expenditures shall be invoiced and accounted for in accordance
with the accounting procedure attached to the Program Operating Agreement,
including the period of time set forth for joint interest auditing and
adjustment.
McMoRan shall further be entitled to reimbursement as an Exploration
Expenditure or as a proper expenditure under the applicable Program Operating
Agreement, as appropriate, from Participant for its share of reasonable
inventories of pipe and equipment (it being the intention of the parties to
keep such inventories at a minimum level consistent with the needs of the
Program).
McMoRan shall not have an obligation to spend a particular portion of
the Program Fund during any Program Year but rather McMoRan shall commit
Exploration Expenditures as the occasion arises to secure Prospects which
McMoRan deems would be appropriate for the Exploration Program, subject to the
provisions of Paragraph 6.1 hereof.
McMoRan agrees to make available its entire geological and geophysical
data base for use in operations under the Program at no cost to the
Participant, except to the extent setforth in the immediately following
sentence. The amounts expended in acquiring seismic data from Western
Geophysical pursuant to the Licensing Agreement between McMoRan and Western
Geophysical dated November 20, 1996 shall constitute proper charges to
Exploration Expenditures, notwithstanding the fact that some of the costs
incurred pursuant to such agreement were incurred prior to the beginning of
the Program Term, except to the extent that any of such seismic data so
acquired relates to Excluded Areas.
Participant agrees to bear its proportionate part of all Exploration
Expenditures of the Program, subject to the limitations hereinafter set forth
under Article VI.
V.
Acquisition of Leasehold Interests
5.1 Acquisition of Leasehold Interest. On behalf of the Program and
subject to the limitations and guidelines herein set forth, McMoRan shall
evaluate and acquire Leasehold Interests in the Program Area during the
Program Term which it believes to be potentially productive of oil or gas.
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5.2 Excluded Areas. McMoRan and Participant agree that the following
areas ("Excluded Areas") shall not be subject to the terms of this Agreement
unless any such area, or portion thereof, has been recommended for inclusion
herein by McMoRan in writing and Participant has concurred in writing in that
recommendation:
(a) Any Leasehold Interest or prospect lying outside the Program Area;
(b) Any Leasehold Interest or Prospect which at the time of acquisition
contains proven reserves unless (i) the then proven reserves do not constitute a
material consideration in the acquisition, and (ii) the primary objective of the
acquisition is to explore for oil and gas other than the then proven reserves;
(c) Those areas identified on attached Exhibit III; and
(d) Any Leasehold Interest or prospect acquired through merger,
acquisition, corporate reorganization or consolidation with or purchase of
substantially all of the assets of an individual, a corporation or a
partnership, provided that the primary purpose of such merger, acquisition,
reorganization, consolidation or purchase is not to acquire a specific
Prospect or Leasehold Interest which otherwise would be subject to this
Agreement; provided, however, if in such an acquisition McMoRan acquires an
inventory of exploratory prospects not associated with any proven production
acquired in such acquisition, McMoRan shall meet with Participant and, in good
faith, attempt to have the exploratory prospects transferred to the
Exploration Program
5.3 Obligation. Subject to the limitations otherwise provided in this
Agreement, Participant agrees to participate for its proportionate share of
Exploration Expenditures as to all Leasehold Interest acquired or committed to
by McMoRan in the Program Area during the Program Term. Without limiting or
altering the effect of the AMI provisions of Article XIII hereof, from and
after the end of the Program Term, McMoRan shall not be obligated to search
for and offer to Participant any interest in Leasehold Interests within the
Program Area.
VI.
Exploration Fund
6.1 General. The Program shall have a budget of $200,000,000 for
Exploration Expenditures to be incurred or committed during the Program Term
(the "Exploration Fund"). Notwithstanding that the Exploration Fund is for
the entire Program Term, unless McMoRan and Participant agree otherwise in
writing, McMoRan will schedule its activities so that Exploration Expenditures
are not likely to exceed on a cumulative basis one hundred fifty percent
(150%) of $40,000,000 per twelve months period times the number of twelve
months periods that have elapsed since the Program Term commenced.
6.2 Limitations on McMoRan's Authority to Commit Exploration Fund. In
addition to the other limitations imposed upon McMoRan's authority to commit
Participant hereunder, once the actual and committed Exploration Expenditures
reach the budgeted total, it is understood and agreed
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that McMoRan (i) will not undertake any additional drilling commitments on
behalf of the Exploration Program, and (ii) will not acquire any additional
Leasehold Interests on behalf of the Exploration Program. Additionally, McMoRan
shall not make any commitment on behalf of the Program for the drilling of any
well which is anticipated to commence more than six (6) months after the end of
the Program Term.
6.3 Budget Meetings and Reports.
(a) On a quarterly basis, McMoRan shall hold a meeting in McMoRan's
offices with Participant to discuss the contemplated activities of the Program
for the following period. In such meetings, McMoRan shall advise Participant
of the amounts of the Exploration Fund which have been committed to Prospects
on which an Exploratory Well has not yet commenced. Such advise shall include
the name of the Prospect, the amount of the Exploration Fund anticipated to be
spent thereon and the anticipated commencement date of the Exploratory Well to
be drilled thereon. On a monthly basis, McMoRan shall provide Participant
with an accounting of the Exploration Expenditures of the prior month and
Program Term to date reconciling prior billings and advance billings with
expenditures. McMoRan will promptly advise Participant in writing when
McMoRan reasonably believes that actual and committed Exploration Expenditures
of the Program equal the Exploration Fund and will furnish reasonable data
supporting such conclusion. In addition to the foregoing, McMoRan will
furnish Participant on request and at Participant's expense any other data or
information needed by Participant to comply with any governmental laws, rules
and regulations, including those promulgated by the Securities and Exchange
Commission.
VII.
Scientific Studies and Information
7.1 Scientific Studies and Information. During the Program Term,
McMoRan shall conduct geological, geophysical, engineering and other
scientific studies with respect to the acquisition and/or exploration of
Leasehold Interest ("Scientific Studies") in the Program Area and the cost
thereof shall be Exploration Expenditures.
It is agreed that any seismic records, and other exploration data (not
including any interpretation thereof by McMoRan or its Technical Consultants)
that may be acquired by McMoRan under the terms of this Agreement shall become
and remain the joint property of McMoRan and Participant. If McMoRan
designates a Prospect under Paragraph 8.1 hereof affecting such acquired data,
McMoRan shall at such time furnish copies of all such data, upon written
request of Participant, including geological and geophysical maps, to
Participant unless McMoRan is prohibited from furnishing a copy or disclosing
it to Participant under the agreement by which McMoRan acquired such data.
Except as otherwise provided in this Agreement, Participant shall be permitted
full access to such data in McMoRan's offices unless prohibited from doing so
under the agreement by which McMoRan acquires such data. McMoRan shall not be
precluded from
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entering into data exchange agreements which McMoRan in good faith believes will
benefit the Program and all data acquired pursuant to any such exchange
agreement shall be the joint property of McMoRan and Participant. During and
after the Program Term, McMoRan shall have the exclusive right to sell any such
data which McMoRan in good faith believes no longer must be kept confidential
for the purposes of the Program and the proceeds of such sale shall be shared by
the Participant and McMoRan on the same basis as the said parties own such data.
At the end of the Program Term, McMoRan shall identify seismic records and other
pertinent acquired data (not including any interpretation thereof by McMoRan or
its Technical Consultants) as to which Prospects have not been designated during
the Program Term and McMoRan shall, upon written request by Participant, provide
it copies of all or any part of such data, unless prohibited from doing so under
the agreement by which McMoRan acquired such data. Notwithstanding anything
herein to the contrary, Participant shall not have or acquire any property
interest in any interpretations by McMoRan or its Technical Consultants of any
seismic or other exploration data unless and until a Prospect based thereon has
been designated by McMoRan hereunder.
VIII.
Prospects
8.1 Prospects. From time to time McMoRan will obtain information upon
which it can determine and define a particular portion of the Program Area
with sufficient specificity as to be identified as a Prospect. The term
"Prospect" means a contiguous area which can reasonably be interpreted from
geological and/or geophysical data as encompassing a geological structure,
stratigraphic trap or other common geologic feature which makes its treatment
as a single Prospect for oil and gas production purposes reasonable and some
portion of which is considered prospective for commercial oil or gas
production and is designated as such pursuant to this Article VIII. Based on
such information, McMoRan shall from time to time designate an area as a
Prospect of the Program. The size and configuration of a Prospect, as well as
all details incident thereto, shall be determined by McMoRan. During the
Program Term, McMoRan alone shall determine the time when an area is
designated as a Prospect, whether or not Leasehold Interests have previously
been acquired therein. After the Program Term and in accordance with
Paragraph 8.2 hereof, McMoRan or Participant shall have the right to designate
a Prospect which includes Leasehold Interests theretofore acquired through the
Program. Without the prior consent of Participant, McMoRan shall not commit
to the Program any Prospects which (1) McMoRan's economic analysis indicates
will not have at least a before taxes rate of return of twenty-five (25)
percent, or (2) the water depth for the first expected platform location is
greater than 1,000 feet.
At the time that McMoRan designates a Prospect it shall furnish to
Participant a land plat showing the approximate outline of the Prospect and
the proposed AMI therefor. Subject to Paragraph 5.2, McMoRan shall as soon as
possible thereafter, upon written request of Participant, furnish Participant
(to the extent not previously furnished) with all pertinent data then
available with respect to the evaluation of such Prospect for oil or gas
development excluding only such data as McMoRan is prohibited from disclosing
by reason of confidentiality agreements with third parties respecting such
data. Such data shall include a land and geophysical or geological report on
such Prospect, including with respect to the drillsite for the first
Exploratory Well proposed to be drilled
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thereon, a land plat, farmin, farmout and other trade agreements, copies of
leases, drilling title opinions, assignments, unit designation agreements,
operating agreements and other documents necessary for Participant to maintain
adequate records relative to such Prospect and operations thereon, together with
such of the following, as and when available, which are applicable to each such
Prospect:
(a) An itemized list of all Exploration Expenditures charged to such
Prospect;
(b) An itemized estimate of probable additional costs which may have
to be incurred in connection with such Prospect;
(c) Any other information in McMoRan's possession relevant to an
evaluation of such Prospect, including geological data, including but not
limited to cross-sections, maps, key logs, and geophysical data, including
copies of proprietary reprocessed data, sepias of lines; and
(d) A description of the primary geologic objective and prospective
zone(s) for which the Prospect was acquired.
At the time each such Prospect is designated, McMoRan will separately
allocate to it all Exploration Expenditures theretofore incurred and properly
attributable to such Prospect, including but not limited to those expenditures
made pursuant to Paragraph 4.1 above.
8.2 Designation of Prospects After Program Term. To the extent any
Leasehold Interests acquired by the Program are not included in Prospects
designated by McMoRan on or prior to the end of the Program Term, then after
such date McMoRan or Participant or their respective successors in interest
shall have the right to propose a Prospect at the time that it proposes an
Exploratory Well thereon. The geographic limits of such Prospect so
designated shall meet the criteria set forth in Paragraph 8.1 and the AMI
therefor shall be subject to the provisions of Article XIII hereof.
IX.
Drilling of Exploratory Wells
9.1 During Program Term. During the Program Term, at the same time as
McMoRan designates a Prospect under Paragraph 8.1 above or thereafter when it
commits the Exploration Fund to the drilling of an Exploratory Well thereon or
as soon as possible after McMoRan has received notice from a third party joint
interest owner that it proposes the drilling of a well thereon, McMoRan shall
provide to Participant (if not previously furnished and requested in writing
by Participant) the following information:
(a) An AFE for such well both as a dry hole and as a completed well;
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(b) A land plat depicting the Prospect, the proposed AMI for such
Prospect and the Program's Leasehold Interests within the AMI for such
prospect;
(c) A schedule of the Program's Leasehold Interests in the Prospect
AMI;
(d) Maps depicting McMoRan's geological and geophysical interpretations
of the Prospect;
(e) McMoRan's economic analysis of the Prospect's potential and timing
and estimated costs to develop, including description of facilities to be
used, if then known;
(f) Information as to whether any other third party joint interest
owner has elected to join or not to join in the drilling of such well;
(g) The surface location, proposed bottom hole location, proposed
depth and well prognosis including casing program, mud program and logging
program for such well (to the extent available in those cases where a third
party is the operator of the well) and any other information in McMoRan's
possession relevant to an evaluation of such well; and
(h) Any acreage or cash contribution pledged in support of the
proposed operation.
Beginning with the permitting process for any Exploratory Well drilled
hereunder, and continuing through the drilling and completion, temporary
abandonment or plugging and abandonment for such well, McMoRan shall provide
the following information if requested in writing by Participant (to the
extent available to McMoRan and not previously furnished):
(a) name of well, name of Prospect, and identification number;
(b) drilling permits, plugging and abandonment permits and permission
to produce;
(c) all daily drilling reports, State completion reports, well
completion schematic diagram, stimulation reports and workover reports;
(d) all core analyses, fluid analyses, PVT. analyses, water sample
analyses;
(e) all pressure survey, DST reports, and pressure buildup or drawdown
data;
all well logs.
9.2 After Program Term. After the Program Term, McMoRan or Participant
shall have the right to propose the drilling of an Exploratory Well on any
Prospect within which an Exploratory Well could be drilled consistent with the
definition of "Exploratory Well" set out herein. The terms and provisions of
the applicable Program Operating Agreement shall govern any such proposal.
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X.
Farmout or Participation Agreements
10.1 Participation Agreements. During the Program Term, if in the
process of evaluation of a Prospect the data and information lead McMoRan to
the good faith determination that because of the large expenditures required,
the extraordinary risk involved or other facts deemed relevant by McMoRan, an
outside venturer should be obtained in such Prospect, McMoRan shall have the
right to undertake to negotiate an agreement with a third party to join in the
drilling of the Exploratory Well on the Prospect and thereby acquire a portion
of the Exploration Program's interest in such Prospect; provided, however,
that if any such agreement would reduce the interest of the Exploration
Program by more than fifty percent (50%), McMoRan must obtain the prior
approval of Participant. McMoRan shall give notice to Participant of its
intention to negotiate an agreement with an outside venturer which would
reduce the interest of the Exploration Program by more than fifty percent
(50%), stating the time within which the circumstances require an expression
of approval or disapproval by the Participant. Failure of Participant to
disapprove the proposed negotiation within the stated period of time may be
deemed by McMoRan to be approval by Participant. Any agreement with an
outside venturer shall be on the basis of the outside venturer paying and
bearing not less than the proportionate part of all drilling costs and
expenses of the Exploratory Well attributable to the undivided interest
transferred to such outside venturer, and the interest in the Prospect
transferred to or earned by such outside venturer shall reduce the respective
interests of McMoRan and Participant proportionately. Any promotion or other
consideration received by McMoRan incident to such agreement with an outside
venturer shall be held for the benefit of the Exploration Program and the
Participant shall be entitled to participate therein in proportion to its
interest in the Prospect.
10.2 Farmout Agreements. During the Program Term McMoRan shall have the
right to enter into farmout agreements with unrelated third parties on such
terms as it deems appropriate respecting Leasehold Interests or portions thereof
which are not anticipated to be drilled or committed to be drilled by the
Exploration Program during the Program Term; provided, however, McMoRan shall
keep Participant advised as to any such farmout proposals or plans and shall
honor the request of Participant that its interest in such Leasehold Interest or
Prospect not be farmed out if Participant advises McMoRan within ten (10) days,
or forty-eight (48) hours if a drilling rig is on location with stand-by rig
charges accumulating, of McMoRan's notice of intention to farmout that it will
participate as to its ownership interest in the drilling of the anticipated
farmout well.
McMoRan shall not farmout any of Participant's Interest in a Prospect on
which the Program has a producing well without the prior consent of Participant.
10.3 Trade Agreements. During the Program Term, in connection with the
drilling of an Exploratory Well on a Prospect, McMoRan shall have complete
authority to enter into unit agreements, acreage swap agreements, bottom hole
and dry hole contribution agreements and any similar agreements with unrelated
third parties. The cost or proceeds of any of the forgoing agreements shall
be credited or charged to the Participants (1) in the proportion that it
participated in the drilling of the affected Exploratory Well, or (2) if the
costs relate to the payment by the
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Exploratory Program of a dry hole or bottom hole contribution to a third party,
in the proportion that Participant bears Exploration Expenditures hereunder, and
any interest in leases or oil or gas thus acquired by exchange shall constitute
Leasehold Interests subject hereto and be owned by McMoRan and Participant in
proportion to their ownership interest in such Prospect.
XI.
Burdens
11.1 Burdens. The Leasehold Interests to be acquired by the Program
shall be subject to and McMoRan and Participant each shall bear its
proportionate part of all third party overriding royalties and other burdens
on Leasehold Interest (including subsequently acquired Leasehold Interests in
the Prospect AMI) which McMoRan contracts for incidental to the acquisition or
evaluation of such Leasehold Interests. Participant acknowledges that McMoRan
has heretofore entered into a retainer agreement with a Technical Consultant
and may enter into similar agreements with others during the Program Term.
Without the consent of Participant, McMoRan agrees not to subject any
Leasehold Interest to overriding royalty burdens to its Technical Consultants
which exceed the amounts deliverable to its current Technical Consultant, CLK
Company, L.L.C.(CLK),under their existing agreement as described in the letter
to Participant dated the date hereof. McMoRan has provided Participant with a
copy of its current consulting agreement with CLK and Participant agrees that
it will bear its proportionate part of the overriding royalties to which CLK
is entitled pursuant to the terms of said consulting agreement as to any
Leasehold Interest acquired hereunder as well as to any Leasehold Interest
that Participant may acquire pursuant to an AMI agreement subject hereto.
XII.
Operating Agreement
12.1 Operating Agreement. Except as otherwise provided in this
Agreement, all operations on each Prospect will be carried out in accordance
with the provisions of the Program Operating Agreement, Offshore or Onshore as
applicable, with charges and credits to the join account to be made in
accordance therewith, including all overhead as to the drilling of Development
Wells. In the event of conflict between the terms of the Program Operating
Agreement and the terms of this Agreement, this Agreement shall control. A
particular Leasehold Interest or Prospect may be subject to a different form
of operating agreement (third party) with one or more third parties not
related to McMoRan, which operating agreement (third party) shall apply and
control at the time it becomes effective in the event of conflict therewith
and the Program Operating Agreement. In the event of conflict between such
operating agreement (third party) and this Agreement (other than the Program
Operating Agreement), this Agreement shall control as between McMoRan and
Participant.
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XIII.
Area of Mutual Interest
13.1 Third Party Area of Mutual Interest Agreements. McMoRan may be
obligated to enter into third party AMI agreements in connection with the
acquisition of additional Prospects for the Program. Participant agrees to be
bound by the provisions of such AMI agreements.
13.2 Program Area of Mutual Interest Agreement. At the time a Prospect
is identified by McMoRan pursuant to Paragraph 8.1 hereof, there shall be
created an Area of Mutual Interest among McMoRan and Participant. The lands
within such Area of Mutual Interest shall include the involved Prospect and
shall be fixed and determined in the following manner:
(a) McMoRan shall submit to Participant a plat delineating the area
which it determines on a sound geological basis should be considered as the
area which, even though outside the boundaries of the Prospect, should be
considered an area of mutual interest in connection with the Prospect.
(b) In the event that Participant does not accept the proposed area of
mutual interest, consultation shall be had between McMoRan and Participant in an
effort to fix and determine the area to constitute the area of mutual interest.
(c) If McMoRan and Participant are able to agree on such area, the
area agreed upon shall constitute the Area of Mutual Interest, or if agreement
cannot be reached, the area of the Leasehold Interests as to a Prospect all of
which is under Federal leasing jurisdiction, or as to any other Prospect the
area within one-half (1/2) mile surrounding the outer perimeter of the
Prospect, shall constitute the Area of Mutual Interest; provided however, any
such AMI shall not include any portion of an Excluded Area.
The AMI shall be effective so long as any Leasehold Interest in such AMI
is owned by any of the parties or is subject to this Agreement, but in no event
longer than the earlier of (i) December 31, 2006 or (ii) one (1) year after the
plugging and abandoning of an Exploratory Well thereon unless another
Exploratory Well has been commenced thereon or McMoRan and Participant have
agreed to install a drilling and production platform on such Prospect within
such one (1) year period.
Any acquisition of Leasehold Interests within such AMI after the
establishment thereof by McMoRan or Participant shall be made available to be
shared by McMoRan and Participant. Subject to the rights of any third party
under third party AMI agreements as described in Paragraph 13.1, the other
party shall have the option to participate in any such acquisition in the same
proportion as such party's then interest in such Prospect, which option is to
be exercised in the following manner: the acquiring party shall notify each of
the other parties of such acquisition, furnish a copy thereof and such title
information as the acquiring party has, stating the cost of such acquisition
and/or obligations that must be assumed in connection therewith. The other
parties shall have a period of fifteen (15) days with respect to the interests
not related to a drilling well, and forty-eight (48) hours (or such lesser
period as required by the circumstances and stated in the notice) with respect
to interests related to a drilling well after receipt of such notice within
which to elect and notify the acquiring party whether or not such party
desires to participate in such acquisition. Failure to respond shall be
deemed an election on the part of such party not to participate in such
acquisition.
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Upon election and payment to the acquiring party of such other party's share of
the cost of such acquisition and assumption of its share of such obligations,
such other party shall be entitled to an assignment of such party's interest in
such acquisition. The foregoing provision of this paragraph shall not apply nor
shall they alter Participant's obligation to purchase its proportionate part of
any Leasehold Interests acquired by McMoRan hereunder in those cases where the
costs of acquiring such interests are Exploration Expenditures.
In the event any party does not elect to participate in an interest
tendered to it under this Paragraph 13.2 the participating parties may, within
twenty-four (24) hours after notice thereof, elect to take their proportionate
shares of the non-participating party's interest. Time periods expressed in
this Paragraph 13.2 are inclusive of Saturdays, Sundays and legal holidays.
The provisions of this Paragraph 13.2 shall not be applicable to
acquisitions by any party hereto of an interest acquired through merger,
corporate reorganization or consolidation with or purchase of all or
substantially all of the assets of a corporation, an individual or a
partnership; provided, however, that the primary purpose of such merger,
corporate reorganization, consolidation or purchase is not to acquire Leasehold
Interests in a specific Prospect which otherwise would be subject to this
Agreement.
XIV.
Ownership of Production
14.1 Ownership of Production. All the oil, gas and casinghead gas
produced for the account of the Leasehold Interests from any well shall be
owned by McMoRan and Participant severally, in proportion to the respective
interests of each therein as set forth in Paragraph 3.2. above, except as
otherwise provided in this Agreement, and subject to the right, if any, that
others may have under the terms of this Agreement or any operating agreement
relating to such well. Anything to the contrary herein notwithstanding, each
party shall at all times have the right to take in kind or separately dispose
of such party's share of the production from any such well, subject to the
provisions of the applicable Program Operating Agreement. McMoRan shall,
however, attempt to give Participant at least seven (7) days advance written
notice of the anticipated date of first deliveries of any production from a
Prospect.
XV.
Relationship of the Parties
15.1 Tax Partnership. This Agreement is not intended and shall not be
considered to create a partnership within the meaning of the federal common
law or under the applicable laws of any state or under the laws of the state
in which any party hereto is incorporated, organized or conducting business or
to create a relationship whereby any of the parties shall be held liable for
the acts, either of omission or commission, of any other party thereto;
provided, however, that in the event a party
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should suffer a loss by reason of an unauthorized act of the other party hereto,
the latter shall indemnify and save harmless the former.
The parties expressly agree that no party hereto shall be responsible
for the obligations of any other party, each party being severally responsible
only for its obligations arising hereunder and liable only for its allocated
share of the costs and expenses incurred hereunder. It is not the purpose or
intention of this Agreement to create, and this Agreement should never be
construed as creating, a relationship whereby any of the parties shall be held
liable for acts, either of omission or commission, of any other party hereto.
Notwithstanding the foregoing, each party hereto agrees that this Agreement
creates a partnership for Federal and State income tax reporting purposes
only, which tax partnership shall function and exist in accordance with the
terms and provisions of Exhibit IV attached hereto. McMoRan agrees to provide
to the Participant on a best efforts basis, by April 30th of each year, any
information available to it relating to operations conducted pursuant to the
Program that is necessary for Participant to prepare Schedule K-1 of its
federal income tax return.
XVI.
Billings; Notices
16.1 Billings; Notices. All billings and notices shall be as provided
in the applicable Program Operating Agreement.
XVII.
Special Non-Consent Elections
17.1 Casing Point Election - Onshore Prospects. At such time as an
Exploratory Well has been drilled to the final total depth on an Onshore
Prospect, McMoRan shall notify Participant that the Casing Point has been
reached on such well, and whether or not McMoRan recommends that an attempt be
made to complete such well. McMoRan shall also furnish, if requested in
writing by Participant, the estimated costs of completing and equipping the
well and plugging and abandoning same if the completion is unsuccessful, and
all well logs, core analyses and other information in its possession not
theretofore furnished relevant to evaluation of a completion attempt. Within
forty-eight (48) hours (inclusive of Saturday, Sunday and legal holidays) of
receipt of such recommendation, Participant shall advise McMoRan whether or
not it desires to participate in the recommended completion attempt. If
McMoRan and Participant agree to attempt completion, McMoRan shall thereupon
be authorized to proceed with the completion attempt and to charge the cost
thereof as a Development Expenditure; provided, however, the cost of plugging
and abandoning the well shall be charged as an Exploration Expenditure if the
completion attempt is unsuccessful. If Participant does not elect to
participate in such completion attempt, it shall have no further rights
hereunder as to the Prospect involved. If McMoRan recommends abandonment
without a completion attempt, McMoRan shall have the well plugged and
abandoned, charging the cost thereof
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as an Exploration Expenditure. Additionally, if Participant does not elect to
participate in a second or subsequent Exploratory Well in a particular Prospect,
Participant shall have no further rights hereunder as to the Prospect involved.
17.2 Elections Prior to Platform Installation - Offshore Prospects. If
Participant does not elect to participate in (a) the drilling of any well on
an Offshore Prospect proposed by McMoRan to be drilled after the drilling of
the first two (2) Exploratory Wells thereon and prior to the installation of
the first drilling and/or production platform on such Prospect or (b)
Participant does not elect to participate in the installation of the first
drilling and/or production platform on such Prospect, the Participant shall
have no further rights hereunder as to the Prospect involved.
Time Periods. Whenever an election right is provided in the body of this
Agreement and no time period for response is stipulated then the applicable time
periods provided in the applicable Program Operating Agreement shall apply.
Completion Attempt by Participant - Onshore. If McMoRan does not
recommend the completion of an Onshore Exploratory Well and Participant
advises McMoRan within forty-eight (48) hours (inclusive of Saturday, Sunday
and legal holidays) of the receipt by Participant of such recommendation from
McMoRan that Participant elects to attempt to complete such well, McMoRan
shall undertake the completion thereof, and any subsequent plugging and
abandoning thereof, for the account of Participant and Participant shall bear
all costs, risks and expenses of such completion attempt and abandonment
thereof and Participant agrees to indemnify and hold McMoRan harmless
therefrom. If such completion attempt is successful McMoRan will assign
Participant all of its interest in the borehole of such well and any
production therefrom, but such assignment shall not confer any additional
interest to the Participant in the balance of the particular Prospect
involved.
XVIII.
Program Term
Program Term. The Program Term shall commence on ____________ and shall
terminate, except for completion of operations which were theretofore
commenced or committed, on the earlier of five (5) years from the date hereof,
or the date that all of the Exploration Fund has been spent or committed. At
the end of the Program Term, McMoRan shall provide Participant with a list
(the "Committed List") of the undrilled wells, Prospects and farmout
agreements as to which it has committed the Exploration Fund. Once such
Committed List has been provided to Participant, no substitution shall be made
by McMoRan without the consent of Participant.
Unfunded Prospects. At the same time as McMoRan submits the Committed
List, McMoRan shall also submit a listing of all Prospects which would have
been committed to the Exploration Program except for the fact that the
Exploration Fund had been fully expended and/or committed. Within fifteen
(15) days of receipt of such listing from McMoRan, Participant will have the
option
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to commit additional funds to the Exploration Fund for the drilling of the first
Exploratory Well on any such Prospect or Prospects or to advise MOXY that it
does not elect to so commit any such additional funds. If the Participant does
so commit, the drilling of such first Exploratory Well on a Prospect where
Participant commits such additional funds shall be charged as Exploration
Expenditures and shall be deemed included in the Committed List. If the
Participant does not commit such addi-tional funds for a Prospect on such
listing, MOXY shall have the right to acquire Participant's interest in such
Prospect, free of any liens, burdens, or overriding royalties not provided for
by Article XI hereof, by reimbursing Participant for any direct costs incurred
by Participant in acquiring Leasehold Interests in such Prospect; if MOXY so
reimburses Participant, such Prospect shall be excluded from this Agreement and
Participant shall have no further right hereunder as to such Prospect.
XIX.
Operations After Program Term
19.1 General. After the Program Term, all Leasehold Interests of the
Program will be subject to the provisions of the applicable Program Operating
Agreement and the provisions of this Agreement except as set forth in
Paragraph 18.2 and this Article XIX. Any Leasehold Interest which is included
in a Prospect on which an Exploratory Well has been committed as shown on the
Committed List shall become subject to this Article XIX after the drilling of
such committed well.
19.2 Exploratory Wells. After the Program Term, McMoRan and/or
Participant shall have the right to propose the drilling of an Exploratory
Well on a Prospect in accordance with Paragraph 9.2 hereof.
19.3 Development Expenditures. All Development Expenditures shall be
borne by the parties according to their interest and subject to the provisions
of the applicable Program Operating Agreement, whether incurred before or
after the Program Term.
19.4 Provisions Which Do Not Survive the End of the Program Term. From
and after the end of the Program Term, McMoRan shall have no right to commit
Participant to any expenditures except in accordance with the applicable
Program Operating Agreement and with respect to the conclusion of then
drilling or committed operations. McMoRan shall have no obligation thereafter
to offer Participant the right to acquire any Leasehold Interest unless such
acquisition is subject to an AMI agreement with Participant. Further, McMoRan
shall have no further right to bind Participant's interest to any trade
agreement except as may be expressly authorized by Participant.
XX.
Confidentiality.
20.1 Confidentiality. Except to the extent provided to the contrary
hereunder and subject to any agreements with third parties entered into
pursuant to the Program, each party agrees that at
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all times prior to, but not after, December 31, 2007, it will take all
reasonable steps to keep secret and confidential and not disclose to any third
party, geological or geophysical data, progress reports or other information
which it may receive as a result of operations carried out under this Agreement;
provided, however, that these restrictions shall not apply to information which
(i) is in, or has entered into, the public domain without breach of the
provisions of this Paragraph 20.1; (ii) is in the possession of a party
receiving same as a result of prior receipt thereof from another party (not a
party to this Agreement) prior to the time of such receipt under this Agreement,
(iii) may lawfully be obtained as a matter of right by the party receiving same
from another source, (iv) is required to be disclosed by law or the rules of any
governmental agency or an applicable stock exchange, by McMoRan or Participant,
or (v) is furnished to Affiliates, or to bona fide prospective purchasers,
mortgagees, prospective mortgagees, lenders, prospective lenders, prospective
joint program participants and consultants for evaluation purposes provided that
any person furnished information pursuant to this clause (v) agrees not to
communicate such information to any other party or to use it for their own
benefit in a manner adverse to the interests of McMoRan and/or Participant.
Notwithstanding the foregoing, the parties recognize that from time to time
information (such as logs) may be acquired by the Program which should not be
disclosed to anyone other than those persons who must have such information.
Each party shall take all reasonable steps to require its employees and
consultants to be bound by the provisions of this paragraph in the same manner
as it is bound hereunder. News releases concerning discoveries or operations of
the Program shall only be made in accordance with guidelines attached to the
applicable Program Operating Agreement, subject to the requirements of
applicable laws and regulations and requirements of applicable stock exchanges.
XXI.
Insurance
21.1 Insurance for Program. McMoRan shall, at the expense of the
Exploration Program, procure and maintain with responsible companies insurance
in the amounts and covering the risks set forth below:
(a) Worker's Compensation:
Such insurance shall be in full compliance with the law in the
state where the work is to take place and shall contain a
voluntary compensation endorsement and a waiver of subrogation as
to Participant. Where applicable, coverage shall also be provided
to comply with the:
(i) U.S. Longshoremen's and Harbor Worker's
Compensation Act, and the
(ii) Outer Continental Shelf Lands Act.
(b) Employer's Liability:
Such insurance shall have a limit of liability of $500,000 per
accident and shall be endorsed, where applicable, to provide:
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<PAGE>
(i) Maritime (Amendment to Coverage B), to include
transportation, wages, maintenance and cure.
(ii) A claim "in rem" will be treated as a claim "in personam".
(iii) A waiver of subrogation as to Participant.
(c) All vessels owned or chartered by McMoRan shall be adequately
covered by Hull and Protection and Indemnity Insurance.
(d) No insurance other than as specified above shall be provided by
McMoRan.
(e) McMoRan shall require contractors and subcontractors performing
work for the Program to provide such insurance as deemed reasonable by McMoRan
in relation to the work to be performed by said contractors or subcontractors.
(f) Upon request, certificates of insurance evidencing the insurance
obtained by McMoRan hereunder shall be furnished to Participant.
(g) Unless otherwise agreed in writing, McMoRan and Participant
shall separately carry their own policies of the following insurance:
(i) Control of Well Insurance in the minimum amount of
$50,000,000 for the total loss.
(ii) Where applicable, Blanket Charters' Legal Liability and
Cargo Legal Liability with a limit of liability of $500,000.
(iii) Umbrella liability Insurance in the amount of $25,000,000
excess of all primary limits.
(iv) Above insurance coverages including, but not limited to, any
and all deductibles, self-insured retentions or primary layers, shall contain
waivers of subrogation as to McMoRan and Participant.
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XXII.
Record Title, Assignment
22.1 Record Title. For convenience, McMoRan shall initially hold record
title to the Leasehold Interests acquired hereunder; provided however, upon
written request by Participant, McMoRan will, within 120 days following the
completion by the Program on an Onshore Prospect of a well capable of producing
in paying quantities, or within 120 days following the installation of the first
drilling and/or production platform on an Offshore Prospect by the Program, as
applicable, execute and deliver to Participant a recordable assignment of
Participant's interest in all Leasehold Interests in such Prospect, unless
Participant has no further rights hereunder as to a particular Prospect as the
result of a decision not to participate pursuant to Paragraph 17.1, Paragraph
17.2 or Paragraph 18.2, as applicable. In addition, at the end of Program Term
McMoRan shall execute and deliver to Participant a recordable assignment of
Participant's interest in any Leasehold Interest not included in a Prospect
during the Program Term pursuant to any provision of this Agreement. Such
assignment shall warrant title against all parties claiming by, through or under
McMoRan, but not otherwise; but McMoRan shall assign to Participant, with full
right of subrogation, to the extent so transferable, the benefit of and the
right to enforce the covenants and warranties, if any, which McMoRan is entitled
to enforce with respect to the interest assigned or any part thereof. Each
assignment shall be subject to this Agreement and shall be charged with and
burdened by the proportionate part of the royalties provided for in each lease
covered thereby, any overriding royalty or similar interest with which such
Leasehold Interests are burdened as authorized by Paragraph 11.1 hereof and any
other contracts or agreements with which such Leasehold Interests are burdened
by McMoRan as expressly authorized by other provisions of this Agreement and
which continue to burden such Leasehold Interests at the time of such
assignment. If, however, there are restrictions on assignability with respect to
a Prospect or Leasehold Interest prohibiting McMoRan as nominee for the Program
from transferring interests in such Prospect or Leasehold Interest, McMoRan
shall continue to hold record title in its name on behalf of the parties owning
interests therein rather than for the Program, and at the request of such
parties will execute a mutually acceptable nominee agreement.
Assignment. Except as permitted below, without the prior written consent
of the other party, neither McMoRan nor Participant shall assign any rights in
this Agreement. Until the Program has completed a well capable of production in
Paying Quantities on an Onshore Prospect or prior to the election provided in
Paragraph XVII hereof as to an Offshore Prospect, or the end of the Program
Term, whichever first occurs, no party hereto may assign its interest in the
Leasehold Interests within said Prospect acquired pursuant to the Program
without first obtaining the consent of the other party hereto (which approval
will not be unreasonable withheld); provided that granting of a lien or security
interest by any party shall not require such consent. The assignees of any
Leasehold Interest acquired pursuant to the Program shall be bound by all of the
assignor's obligations with respect to such Leasehold Interest as to the
interest assigned. Notwithstanding the foregoing, either Participant or McMoRan
without the necessity of obtaining consent may transfer all or any part of its
interests and rights in this Agreement or in any Prospect to any Affiliate
provided that the assigning party shall remain liable hereunder. Notwithstanding
the foregoing, if a Prospect involves the acquisition of a Leasehold interest
from a third party, the period hereinabove provided for the delivery of
assignments shall be extended, if required, until 60 days following the receipt
of an assignment of interest by McMoRan from such third party; provided however,
in the event that such an assignment requires the approval of a governmental
authority then such period will be extended for 60 days
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following the receipt by McMoRan of the required approval from the governmental
authority.
XXIII.
Subsequent Interests
23.1 Subsequent Interest. Except with respect to burdens described in
Paragraph 11.1, or as otherwise provided in this Agreement, a party who
creates any burden against such party's interest in any Leasehold Interest
shall be solely responsible for such burden; and in the event such party is
required, pursuant to other provisions of this Agreement including the
applicable Program Operating Agreement or a third party operating agreement,
to assign its interest in any Leasehold Interest to any other party, such
assignment shall convey and vest title to such interest in such assignee free
and clear of any such burden.
XXIV.
General
24.1 Records. McMoRan shall maintain complete and accurate records of
all Leasehold Interests acquired and held hereunder, the acquisition and
disposition of all equipment hereunder, and of all expenditures made hereunder
in accordance with generally accepted industry standards. McMoRan will
maintain complete and accurate records of all correspondence with any operator
who may be operating properties in which the parties hereto have an interest
under this Agreement, and will retain a copy of all statements, bills and
other instruments furnished by any such operator in accordance with generally
accepted industry standards. Such records, together with receipts, vouchers
and other supporting evidence thereof in McMoRan's possession and control,
will be available for inspection, copying and audit by Participant or its duly
authorized representatives on reasonable notice at McMoRan's office during
regular business hours then in effect. Participant's right to audit McMoRan's
records for the purpose of challenging the correctness of any charge made by
McMoRan hereunder shall terminate as provided in the accounting procedure
attached to the Program Operating Agreement. Participant shall be entitled to
join McMoRan in any audit made by McMoRan of the records of third party
operators of properties in which Participant acquired an interest under this
Agreement. At the request of Participant, McMoRan shall conduct or cause to
be conducted an audit of the records of any such third party operator
hereunder, said audit right to be as specified in such third party agreement
including the polling of other non-operators to determine if they desire to
participate, at which time McMoRan may decline to participate and therefore
not bear any cost related to such audit. In addition, Participant shall have
the same audit rights as held by McMoRan under third party agreements
including the right to elect participation in any audit performed by another
non-operator if McMoRan elects not to participate in such audit and
Participant shall receive copies of all reports of joint venture audits which
are conducted.
24.2 Access. Participant or its duly authorized representative shall
have access at all reasonable times, at its expense and risk, to the derrick
floor of any well being drilled hereunder in
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which Participant is participating; and Participant shall have the right to
inspect all materials on hand for the account of the Program and to observe any
such operations conducted hereunder.
24.3 Claims and Litigation. Except as to matters arising with respect
to a particular Prospect after the Program Operating Agreement has become
applicable as to all further operations thereon under the provisions of this
Agreement (as to which the provisions of such Program Operating Agreement will
govern), all investigation, litigation and settlements in connection with
titles, claims and causes of action of every kind and joint rights and
interests of McMoRan and Participant in the Program Area in connection with
the Program shall be carried on, conducted and defended for and on behalf of
McMoRan and Participant. Each party shall notify the other of any process
served upon it in any such suit or claim. Where a claim has been made or a
suit has been filed against McMoRan or Participant for damages caused by or
arising out of operations the expense of which is charged to the Exploration
Fund as authorized herein, McMoRan shall retain legal counsel to handle the
defense of such suit or claim and notify Participant of the retention of such
legal counsel. The cost of such legal services shall be charged in the same
manner as Exploration Expenditures are charged. Participant may, if it so
chooses, elect to retain its own legal counsel (at Participant's expense) to
defend its interests in any such suit or claim; and in such event the claim or
suit shall be defended by a committee of attorneys selected by and
representing the separate interests of McMoRan and Participant (with such
party being responsible for the fees and expenses of its own counsel), with
McMoRan's counsel as chairperson. All settlements of suits and claims shall
be subject to the approval of Participant; except that McMoRan may settle any
claim under $100,000 without first receiving Participant's approval, provided
the payment is in complete settlement. The costs and expenses involved in
those matters which are subject to the provisions of this Paragraph 24.3 shall
be shared and borne solely by the parties who participated in such operation
or Leasehold Interest in proportion to their respective participation in the
applicable operation or Leasehold Interest. McMoRan agrees to keep
Participant advised as to claims for which Participant may be partly
responsible hereunder.
24.4 Good Faith. McMoRan and Participant agree to act in good faith
with respect to their respective activities under this Agreement.
24.5 Governing Law. This Agreement and the documents provided for
herein shall be deemed to be governed by, and construed in accordance with,
the laws of the State of Louisiana.
24.6 Failure to Respond. Except as provided in Paragraph 10.1 hereof,
whenever under this Agreement (exclusive of the applicable Program Operating
Agreement) Participant is given the right to approve or disapprove or
participate or decline to participate in a proposed operation or acquisition;
failure to respond shall be deemed a response to disapprove or decline to
participate in the proposed operation or acquisition unless McMoRan is
recommending and electing to plug and abandon a well, in which event failure to
respond shall be an election to plug and abandon.
24.7 Conflicts. Should there be any conflict between the body of this
Agreement and any Exhibit hereto, the provisions contained in the body of this
Agreement shall control.
IV-23
<PAGE>
24.8 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns;
provided, however, nothing herein contained shall be construed as permitting
an assignment contrary to the terms and provisions of this Agreement.
IV-24
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed in multiple copies each
of which shall be deemed to be an original on ___________, 1997 but effective
as of the date first above written.
McMoRan Oil & Gas Co.
By:_______________________________
Freeport-McMoRan Resource Partners,
Limited Partnership
By:_______________________________
IV-25
<PAGE>
All exhibits to the Participation Agreement have been intentionally
omitted. Any stockholder who wishes to view any of such exhibits may request a
copy from the Company in writing at 1615 Poydras Street, New Orleans, Louisiana,
70112 or by telephone request by calling (504) 582-4000.
IV-26
<PAGE>
ANNEX V
July 14, 1997
Board of Directors
McMoRan Oil & Gas Co.
1615 Poydras Street
New Orleans, LA 70112
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point
of view to the stockholders of McMoRan Oil & Gas Co. ("MOXY" or the "Company")
of the financial terms of the Transactions (as defined below) contemplated by
the Master Agreement, dated as of July 14, 1997 (the "Master Agreement"), by and
between Freeport-McMoRan Resource Partners, Limited Partnership ("FRP") and the
Company pursuant to which, among other things, (i) FRP will purchase MCN Corp.'s
("MCN") interest in the MOXY/MCN Program, (ii) MOXY and MCN will amend the
MOXY/MCN Program Agreement, (iii) MOXY will conduct the Rights Offering, (iv)
FRP will provide the Standby Commitment and receive the FRP Purchase Option and
the fees provided for in the Standby Purchase Agreement, (v) MOXY and FRP will
enter into the Stockholder Agreement, (vi) MOXY will purchase the MCN producing
properties from FRP and (vii) MOXY and FRP will convey certain properties to the
MOXY/FRP Exploration Program and commence operations thereunder pursuant to the
Participation Agreement. Such transactions to be effected pursuant to the terms
of the Master Agreement are hereinafter referred to collectively as the
"Transactions," and all other capitalized terms used herein and not defined
shall have the meaning ascribed to such terms in the Master Agreement or the
exhibits thereto.
In arriving at our opinion, we have reviewed (i) the draft dated July
14, 1997 of the Master Agreement and the exhibits thereto, including the MCN
Purchase Agreement, the MOXY/MCN Program Amendment, the Stockholder Agreement
and the Participation Agreement, (ii) drafts, dated July 14, 1997, of MOXY's
proxy statement and MOXY's registration statement on Form S-3 and (iii) such
other financial and other information as was publicly available or furnished to
us by the Company, including
V-1
<PAGE>
information provided during discussions with management of the Company. Included
in the information provided during discussions with management were certain
financial projections of the Company for the period beginning January 1, 1997
and ending December 31, 1998 prepared by the management of the Company. In
addition, we have compared certain financial and securities data of the Company
with various other companies whose securities are traded in public markets,
reviewed the historical stock prices and trading volumes of the common stock,
par value $.01 per share ("Common Stock"), of the Company, reviewed prices and
premiums paid in comparable transactions and in certain business combinations
and conducted such other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion. We were not requested to, nor
did we, solicit the interest of any other party in acquiring the Company. We
have also considered the Company's immediate need for additional cash to fund
its capital, operating and growth requirements, and the alternatives available
to the Company to obtain additional debt or equity financing.
In rendering our opinion, we have relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company or
its representatives, or that was otherwise reviewed by us. With respect to any
financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation of the Company's assets or
liabilities or for making any independent verification of any of the information
reviewed by us. We also understand that the Standby Commitment may result in a
change of control of MOXY. We have relied as to certain legal matters on advice
of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to the price at which the Common Stock will actually trade at any time. Our
opinion does not address the relative merits of the Transactions and the other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Transactions.
Furthermore, our opinion does not constitute a recommendation
V-2
<PAGE>
to any stockholder as to how such stockholder should vote on the proposed
Transactions.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of
its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. DLJ
has performed investment banking and other services for the Company, FRP and its
affiliates in the past and has received customary compensation for such
services.
Based upon the foregoing and such other factors as we deem relevant, we
are of the opinion that the financial terms of the Transactions are, in the
aggregate, fair to the Company and its stockholders from a financial point of
view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ Ralph Eads
By:______________________________
Ralph Eads
Managing Director
V-3
<PAGE>
ANNEX VI
SET FORTH BELOW IS THE TEXT OF THE McMoRan OIL & GAS CO. 1994 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS, AS PROPOSED TO BE AMENDED. MATERIAL TO BE ADDED AS
A RESULT OF THE AMENDMENTS IS SHOWN IN BOLDFACE TYPE, AND MATERIAL TO BE DELETED
IS SHOWN IN BRACKETS.
McMoRan OIL & GAS CO.
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSE OF THE PLAN
The purpose of the 1994 Stock Option Plan for Non-Employee Directors
(the "Plan") is to align more closely the interests of the non-employee
directors of McMoRan Oil & Gas Co. (the "Company") with that of the Company's
stockholders by providing for the automatic grant to such directors of stock
options ("Options") to purchase Shares (as hereinafter defined), in accordance
with the terms of the Plan.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following terms shall have the
meanings indicated:
Board: The Board of Directors of the Company.
Change in Control: A Change in Control shall be deemed to have
occurred if either (a) any person, or any two or more persons acting as a group,
and all affiliates of such person or persons, shall own beneficially more than
20% of the Common Stock outstanding (exclusive of shares held in the Company's
treasury or by the Company's Subsidiaries) pursuant to a tender offer, exchange
offer or series of purchases or other acquisitions, or any combination of those
transactions, or (b) there shall be a change in the composition of the Board at
any time within two years after any tender offer, exchange offer, merger,
consolidation, sale of assets or contested election, or any combination of those
transactions (a "Transaction"), so that (i) the persons who were directors of
the Company immediately before the first such Transaction cease to constitute a
majority of the Board of Directors of the corporation which shall thereafter be
in control of the companies that were parties to or otherwise involved in such
Transaction, or (ii) the number of persons who shall thereafter be directors of
such corporation shall be fewer than two-thirds of the number of directors of
the Company immediately prior to such first Transaction. A Change in Control
shall be deemed to take place upon the first to occur of the events specified in
the foregoing clauses (a) and (b).
Code: The Internal Revenue Code of 1986, as amended from time to time.
Committee: A committee of the Board designated by the Board to
administer the Plan and composed of not fewer than two directors, each of whom,
to the extent necessary to comply with Rule 16b-3 only, is a "non-employee
director" within the meaning of Rule 16b-3 and, to the extent necessary to
comply with Section 162(m) only, is an "outside director" under Section 162(m).
Until otherwise determined by the Board, the Committee shall be the Corporate
Personnel Committee of the Board.
VI-1
<PAGE>
Election Period: The period beginning on the third business day
following a date on which the Company releases for publication its quarterly or
annual summary statements of sales and earnings, and ending on the twelfth
business day following such date.
Eligible Director: A director of the Company who is not, and within
the preceding one year has not been, an officer or an employee of the Company or
a Subsidiary, an officer or an employee of an entity with which the Company has
contracted to receive Management Services, or otherwise eligible for selection
to participate in any plan of the Company or any Subsidiary that entitles the
participants therein to acquire stock, stock options or stock appreciation
rights of the Company or its Subsidiaries.
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
Fair Market Value: The average of the per Share high and low quoted
sale prices on the date in question (or, if there is no reported sale on such
date, on the last preceding date on which any reported sale occurred) on the
principal exchange or market on which such Shares are quoted.
Option Cancellation Gain: With respect to the cancellation of an
Option pursuant to Section 3 of Article IV hereof, the excess of the Fair Market
Value as of the Option Cancellation Date (as that term is defined in Section 3
of Article IV hereof) of all the outstanding Shares covered by such Option,
whether or not then exercisable, over the purchase price of such Shares under
such Option.
Rule 16b-3: Rule 16b-3 promulgated by the SEC under the Exchange Act,
or any successor rule or regulation thereto as in effect from time to time.
SEC: The Securities and Exchange Commission, including the staff
thereof, or any successor thereto.
Section 162(m): Section 162(m) of the Code and all regulations
promulgated thereunder as in effect from time to time.
Shares: Shares of common stock, par value $0.01 per share, of the
Company (including any attached Preferred Stock Purchase Rights).
Subsidiary: Any corporation of which stock representing at least 50%
of the ordinary voting power is owned, directly or indirectly, by the Company;
and any other entity of which equity securities or interests representing at
least 50% of the ordinary voting power or 50% of the total value of all classes
of equity securities or interests of such entity are owned, directly or
indirectly, by the Company.
ARTICLE III
ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Board. The Board will
interpret this Plan and may from time to time adopt such rules and regulations
for carrying out the terms and provisions of this Plan as it may deem best;
however, the Board shall have no discretion with respect to the selection of
directors who receive Options, the timing of the grant of Options, the number of
Shares subject to any Options or the purchase price thereof. Notwithstanding
the foregoing, the Committee shall have the authority to make all determinations
with respect to the transferability of Options in accordance with Article VIII
hereof. All determinations by the Board or the Committee shall be made by the
affirmative vote of a majority of its respective members, but any determination
reduced to writing and signed by a majority of its respective members shall be
fully as effective as if it had been made by a majority vote at a meeting duly
called and held. Subject to any applicable
VI-2
<PAGE>
provisions of the Company's By-Laws or of this Plan, all determinations by the
Board and the Committee pursuant to the provisions of this Plan, and all related
orders or resolutions of the Board and the Committee, shall be final, conclusive
and binding on all persons, including the Company and its stockholders,
employees, directors and optionees. In the event of any conflict or
inconsistency between determinations, orders, resolutions, or other actions of
the Committee and the Board taken in connection with this Plan, the action of
the Board shall control.
ARTICLE IV
STOCK SUBJECT TO THE PLAN
SECTION 1. The Shares to be issued or delivered upon exercise of
Options shall be made available, at the discretion of the Board, either from the
authorized but unissued Shares of the Company or from Shares reacquired by the
Company, including Shares purchased by the Company in the open market or
otherwise obtained; provided, however, that the Company, at the discretion of
the Board, may, upon exercise of Options granted under this Plan, cause a
Subsidiary to deliver Shares held by such Subsidiary.
SECTION 2. Subject to the provisions of Section 3 of this Article IV,
the aggregate number of Shares which may be purchased pursuant to Options shall
not exceed [250,000] 410,000.
SECTION 3. In the event of the payment of any dividends payable in
Shares, or in the event of any subdivision or combination of the Shares, the
number of Shares which may be purchased under this Plan, and the number of
Shares subject to each Option granted in accordance with SectionS 2, 3, AND 4 of
Article VII, shall be increased or decreased proportionately, as the case may
be, and the number of Shares deliverable upon the exercise thereafter of any
Option theretofore granted (whether or not then exercisable) shall be increased
or decreased proportionately, as the case may be, without change in the
aggregate purchase price. In the event the Company is merged or consolidated
into or with another corporation in a transaction in which the Company is not
the survivor, or in the event that substantially all of the Company's assets are
sold to another entity not affiliated with the Company, any holder of an Option,
whether or not then exercisable, shall be entitled to receive (unless the
Company shall take such alternative action as may be necessary to preserve the
economic benefit of the Option for the optionee) on the effective date of any
such transaction (the "Option Cancellation Date"), in cancellation of such
Option, an amount in cash equal to the Option Cancellation Gain relating
thereto, determined as of the Option Cancellation Date.
ARTICLE V
PURCHASE PRICE OF OPTIONED SHARES
The purchase price per Share under each Option shall be 100% of the
Fair Market Value of a Share at the time such Option is granted, but in no case
shall such price be less than the par value of the Shares subject to such
Option.
ARTICLE VI
ELIGIBILITY OF RECIPIENTS
Options will be granted only to individuals who are Eligible Directors
at the time of such grant.
VI-3
<PAGE>
ARTICLE VII
GRANT OF OPTIONS
SECTION 1. Each Option shall constitute a nonqualified stock option
which is not intended to qualify under Section 422 of the Code.
SECTION 2. On June 1, 1994 and June 1 of each subsequent year through
and including [2003] 1997, each Eligible Director, as of each such date, shall
be granted an Option to purchase 1,656 Shares. Each SUCH Option shall become
exercisable with respect to 414 Shares on each of the first, second, third and
fourth anniversaries of the date of grant and may be exercised by the holder
thereof with respect to all or any part of the Shares comprising each
installment as such holder may elect at any time after such installment becomes
exercisable but no later than the termination date of such Option; provided that
each SUCH Option shall become exercisable in full upon a Change in Control.
SECTION 3. ON JULY 14, 1997, EACH ELIGIBLE DIRECTOR, AS OF SUCH DATE,
SHALL BE GRANTED AN OPTION TO PURCHASE 13,248 SHARES. EACH SUCH OPTION SHALL
BECOME EXERCISABLE WITH RESPECT TO 3,312 SHARES ON EACH OF THE FIRST, SECOND,
THIRD AND FOURTH ANNIVERSARIES OF THE DATE OF GRANT AND MAY BE EXERCISED BY THE
HOLDER THEREOF WITH RESPECT TO ALL OR ANY PART OF THE SHARES COMPRISING EACH
INSTALLMENT AS SUCH HOLDER MAY ELECT AT ANY TIME AFTER SUCH INSTALLMENT BECOMES
EXERCISABLE BUT NO LATER THAN THE TERMINATION DATE OF SUCH OPTION; PROVIDED THAT
EACH SUCH OPTION SHALL BECOME EXERCISABLE IN FULL UPON A CHANGE IN CONTROL.
SECTION 4. ON JUNE 1, 1998 AND JUNE 1 OF EACH SUBSEQUENT YEAR THROUGH
AND INCLUDING 2003, EACH ELIGIBLE DIRECTOR, AS OF EACH SUCH DATE, SHALL BE
GRANTED AN OPTION TO PURCHASE 4,968 SHARES. EACH SUCH OPTION SHALL BECOME
EXERCISABLE WITH RESPECT TO 1,242 SHARES ON EACH OF THE FIRST, SECOND, THIRD AND
FOURTH ANNIVERSARIES OF THE DATE OF GRANT AND MAY BE EXERCISED BY THE HOLDER
THEREOF WITH RESPECT TO ALL OR ANY PART OF THE SHARES COMPRISING EACH
INSTALLMENT AS SUCH HOLDER MAY ELECT AT ANY TIME AFTER SUCH INSTALLMENT BECOMES
EXERCISABLE BUT NO LATER THAN THE TERMINATION DATE OF SUCH OPTION; PROVIDED THAT
EACH SUCH OPTION SHALL BECOME EXERCISABLE IN FULL UPON A CHANGE IN CONTROL.
SECTION [3] 5. The purchase price of Shares subject to any Option
shall be the Fair Market Value thereof on the respective date of grant.
ARTICLE VIII
TRANSFERABILITY OF OPTIONS
No Options granted hereunder may be transferred, pledged, assigned or
otherwise encumbered by an optionee except:
(a) by will;
(b) by the laws of descent and distribution; or
(c) if permitted by the Committee and so provided in the Option or an
amendment thereto, (i) pursuant to a domestic relations order, as defined
in the Code, (ii) to Immediate Family Members, (iii) to a partnership in
which Immediate Family Members, or entities in which Immediate Family
Members are the owners, members or beneficiaries, as appropriate, are the
partners, (iv) to a limited liability company in which Immediate Family
Members, or entities in which Immediate Family
VI-4
<PAGE>
Members are the owners, members or beneficiaries, as appropriate, are the
members, or (v) to a trust for the benefit of Immediate Family Members;
provided, however, that no more than a de minimus beneficial interest in a
partnership, limited liability company or trust described in (iii), (iv) or
(v) above may be owned by a person who is not an Immediate Family Member or
by an entity that is not beneficially owned solely by Immediate Family
Members. "Immediate Family Members" shall be defined as the spouse and
natural or adopted children or grandchildren of the optionee and their
spouses.
Any attempted assignment, transfer, pledge, hypothecation or other disposition
of Options, or levy of attachment or similar process upon Options not
specifically permitted herein, shall be null and void and without effect.
ARTICLE IX
EXERCISE OF OPTIONS
SECTION 1. Each Option shall terminate 10 years after the date on
which it was granted.
SECTION 2. Except in cases provided for in Article X hereof, each
Option may be exercised by the holder thereof only while the optionee to whom
such Option was granted is an Eligible Director.
SECTION 3. Each Option shall provide that the Option or any portion
thereof may be exercised only during an Election Period. Each Option shall
provide, however, that in the event of a Change in Control, the Election Period
exercise requirement is waived.
SECTION 4. A person electing to exercise an Option or any portion
thereof then exercisable shall give written notice to the Company of such
election and of the number of Shares such person has elected to purchase, and
shall at the time of purchase tender the full purchase price of such Shares,
which tender shall be made in cash or cash equivalent (which may be such
person's personal check) or in Shares already owned by such person (which Shares
shall be valued for such purpose on the basis of their Fair Market Value on the
date of exercise), or in any combination thereof. The Company shall have no
obligation to deliver Shares pursuant to the exercise of any Option, in whole or
in part, until such payment in full of the purchase price of such Shares is
received by the Company. No optionee, or legal representative, legatee,
distributee, or assignee of such optionee shall be or be deemed to be a holder
of any Shares subject to such Option or entitled to any rights of a stockholder
of the Company in respect of any Shares covered by such Option distributable in
connection therewith until such Shares have been paid for in full and
certificates for such Shares have been issued or delivered by the Company.
SECTION 5. Each Option shall be subject to the requirement that if at
any time the Board shall be advised by counsel that the listing, registration or
qualification of the Shares subject to such Option upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such Option or the issue or purchase of Shares
thereunder, such Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free from any conditions not reasonably acceptable to such
counsel for the Board.
SECTION 6. The Company may establish appropriate procedures to
provide for payment or withholding of such income or other taxes as may be
required by law to be paid or withheld in connection with the exercise of
Options, and to ensure that the Company receives prompt advice concerning the
occurrence of any event which may create, or affect the timing or amount of, any
obligation to pay or withhold
VI-5
<PAGE>
any such taxes or which may make available to the Company any tax deduction
resulting from the occurrence of such event.
ARTICLE X
TERMINATION OF SERVICE
AS AN ELIGIBLE DIRECTOR
SECTION 1. If and when an optionee shall cease to be an Eligible
Director for any reason other than death or retirement from the Board, all of
the Options granted to such optionee shall be terminated except that any
Option, to the extent then exercisable, may be exercised by the holder thereof
within three months after such optionee ceases to be an Eligible Director, but
not later than the termination date of the Option.
SECTION 2. If and when an optionee shall cease to be an Eligible
Director by reason of the optionee's retirement from the Board, all of the
Options granted to such optionee shall be terminated except that any Option, to
the extent then exercisable or exercisable within one year thereafter, may be
exercised by the holder thereof within three years after such retirement, but
not later than the termination date of the Option.
SECTION 3. Should an optionee die while serving as an Eligible
Director, all the Options granted to such optionee shall be terminated, except
that any Option to the extent exercisable by the holder thereof at the time of
such death, together with the unmatured installment (if any) of such Option
which at that time is next scheduled to become exercisable, may be exercised
within one year after the date of such death, but not later than the termination
date of the Option, by the holder thereof, the optionee's estate, or the person
designated in the optionee's last will and testament, as appropriate.
SECTION 4. Should an optionee die after ceasing to be an Eligible
Director, all of the Options granted to such optionee shall be terminated,
except that any Option, to the extent exercisable by the holder thereof at the
time of such death, may be exercised within one year after the date of such
death, but not later than the termination date of the Option, by the holder
thereof, the optionee's estate, or the person designated in the optionee's last
will and testament, as appropriate.
ARTICLE XI
AMENDMENTS TO PLAN AND OPTIONS
The Board may at any time terminate or from time to time amend, modify
or suspend this Plan; provided, however, that no such amendment or modification
without the approval of the stockholders shall:
(a) except pursuant to Section 3 of Article IV, increase the maximum
number (determined as provided in this Plan) of Shares which may be
purchased pursuant to Options, either individually or in aggregate;
(b) permit the granting of any Option at a purchase price other than
100% of the Fair Market Value of the Shares at the time such Option is
granted, subject to adjustment pursuant to Section 3 of Article IV;
VI-6
<PAGE>
(c) permit the exercise of an Option unless the full purchase price
of the Shares as to which the Option is exercised is paid at the time of
exercise;
(d) extend beyond June 1, 2003 the period during which Options may be
granted;
(e) modify in any respect the class of individuals who constitute
Eligible Directors; or
(f) materially increase the benefits accruing to participants
hereunder.
VI-7
<PAGE>
ANNEX VII
SET FORTH BELOW IS THE TEXT OF THE McMoRan OIL & GAS CO. 1994 STOCK OPTION PLAN,
AS PROPOSED TO BE AMENDED. MATERIAL TO BE ADDED AS A RESULT OF THE AMENDMENTS
IS SHOWN IN BOLDFACE TYPE, AND MATERIAL TO BE DELETED IS SHOWN IN BRACKETS.
McMoRan OIL & GAS CO.
1994 STOCK OPTION PLAN
SECTION 1
Purpose. The purpose of the McMoRan Oil & Gas Co. 1994 Stock Option
Plan (the "Plan") is to motivate and reward key personnel by giving them a
proprietary interest in the Company's continued success.
SECTION 2
Definitions. As used in the Plan, the following terms shall have the
meanings set forth below:
"Award" shall mean any Option, Stock Appreciation Right, Limited Right
or Other Stock-Based Award.
"Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of McMoRan Oil & Gas Co.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean a committee of the Board designated by the
Board to administer the Plan and composed of not fewer than two directors, each
of whom, to the extent necessary to comply with Rule 16b-3 only, is a "non-
employee director" within the meaning of Rule 16b-3 and, to the extent necessary
to comply with Section 162(m) only, is an "outside director" under Section
162(m). Until otherwise determined by the Board, the Committee shall be the
Corporate Personnel Committee of the Board.
"Company" shall mean McMoRan Oil & Gas Co.
"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive the benefits
due the Participant under the Plan in the event of the Participant's death. In
the absence of an effective designation by the Participant, Designated
Beneficiary shall mean the Participant's estate.
"Employee" shall mean (i) any person providing services as an officer
of the Company or a Subsidiary, whether or not employed by such entity, (ii) any
employee of the Company or a Subsidiary, including any director who is also an
employee of the Company or a Subsidiary, (iii) any officer or employee of an
entity with which the Company has contracted to receive management services who
provides services to the Company or a Subsidiary through such arrangement and
(iv) any person who has agreed in writing to become a person described in
clauses (i), (ii) or (iii) within not more than 30 days following the date of
grant of such person's first Award under the Plan.
VII-1
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Incentive Stock Option" shall mean an option granted under Section 6
of the Plan that is intended to meet the requirements of Section 422 of the Code
or any successor provision thereto.
"Limited Right" shall mean any right granted under Section 8 of the
Plan.
"Nonqualified Stock Option" shall mean an option granted under Section
6 of the Plan that is not intended to be an Incentive Stock Option.
"Offer" shall mean any tender offer, exchange offer or series of
purchases or other acquisitions, or any combination of those transactions, as a
result of which any person, or any two or more persons acting as a group, and
all affiliates of such person or persons, shall own beneficially more than 40%
of the Shares outstanding (exclusive of Shares held in the Company's treasury or
by the Company's Subsidiaries).
"Offer Price" shall mean the highest price per Share paid in any Offer
that is in effect at any time during the period beginning on the ninetieth day
prior to the date on which a Limited Right is exercised and ending on and
including the date of exercise of such Limited Right. Any securities or
property that comprise all or a portion of the consideration paid for Shares in
the Offer shall be valued in determining the Offer Price at the higher of (i)
the valuation placed on such securities or property by the person or persons
making such Offer, or (ii) the valuation, if any, placed on such securities or
property by the Committee or the Board.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
"Other Stock-Based Award" shall mean any right or award granted under
Section 9 of the Plan.
"Participant" shall mean any Employee granted an Award under the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect from time
to time.
"SAR" shall mean any Stock Appreciation Right.
"SEC" shall mean the Securities and Exchange Commission, including the
staff thereof, or any successor thereto.
"Section 162(m)" shall mean Section 162(m) of the Code and all
regulations promulgated thereunder as in effect from time to time.
"Shares" shall mean the shares of common stock, par value $0.01 per
share, of McMoRan Oil & Gas Co. (including any attached Preferred Stock Purchase
Rights), and such other securities of the Company or a Subsidiary as the
Committee may from time to time designate.
"Stock Appreciation Right" shall mean any right granted under Section
7 of the Plan.
VII-2
<PAGE>
"Subsidiary" shall mean (i) any corporation or other entity in which
the Company possesses directly or indirectly equity interests representing at
least 50% of the total ordinary voting power or at least 50% of the total value
of all classes of equity interests of such corporation or other entity and (ii)
any other entity in which the Company has a direct or indirect economic interest
that is designated as a Subsidiary by the Committee.
SECTION 3
Administration. The Plan shall be administered by the Committee.
Subject to the terms of the Plan and applicable law, and in addition to other
express powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to an eligible
Employee; (iii) determine the number of Shares to be covered by, or with respect
to which payments, rights or other matters are to be calculated in connection
with, Awards; (iv) determine the terms and conditions of any Award; (v)
determine whether, to what extent, and under what circumstances Awards may be
settled or exercised in cash, whole Shares, other whole securities, other
Awards, other property or other cash amounts payable by the Company upon the
exercise of that or other Awards, or cancelled, forfeited or suspended and the
method or methods by which Awards may be settled, exercised, cancelled,
forfeited or suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other property, and
other amounts payable by the Company with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or of the
Committee; (vii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (viii) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (ix) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon all Persons, including the Company, any
Subsidiary, any Participant, any holder or beneficiary of any Award, any
stockholder of the Company and any Employee.
SECTION 4
Eligibility. Any Employee who is not a member of the Committee shall
be eligible to be granted an Award.
SECTION 5
(a) Shares Available for Awards. Subject to adjustment as provided in
Section 5(b):
(i) Calculation of Number of Shares Available. The number of Shares
with respect to which Awards may be granted under the Plan shall be [1,000,000]
3,000,000. If, after the effective date of the Plan, an Award granted under the
Plan expires or is exercised, forfeited, cancelled or terminated without the
delivery of Shares, then the Shares covered by such Award or to which such Award
relates, or the number of Shares otherwise counted against the aggregate number
of Shares with respect to which Awards may be granted, to the extent of any such
expiration, exercise, forfeiture, cancellation or termination without the
delivery of Shares, shall again be, or shall become, Shares with respect to
which Awards may be granted.
(ii) Substitute Awards. Any Shares delivered by the Company, any
Shares with respect to which Awards are made by the Company, or any Shares with
respect to which the Company becomes
VII-3
<PAGE>
obligated to make Awards, through the assumption of, or in substitution for,
outstanding awards previously granted by an acquired company or a company with
which the Company combines, shall not be counted against the Shares available
for Awards under the Plan.
(iii) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist of authorized and unissued Shares or
of treasury Shares, including Shares held by the Company or a Subsidiary and
acquired in the open market or otherwise obtained by the Company or a
Subsidiary.
(iv) Individual Limit. Any provision of the Plan to the contrary
notwithstanding, no individual may receive in any year Awards under the Plan
that relate to more than [200,000] 600,000 Shares.
(b) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, Subsidiary
securities, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the Committee may,
in its sole discretion and in such manner as it may deem equitable, adjust any
or all of (i) the number and type of Shares (or other securities or property)
with respect to which Awards may be granted, (ii) the number and type of Shares
(or other securities or property) subject to outstanding Awards, and (iii) the
grant or exercise price with respect to any Award or, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding Award or, if
deemed appropriate, adjust outstanding Awards to provide the rights contemplated
by Section 9(b) hereof; provided, in each case, that with respect to Awards of
Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422(b)(1) of the
Code or any successor provision thereto and, with respect to all Awards under
the Plan, no such adjustment shall be authorized to the extent that such
authority would be inconsistent with the requirements for full deductibility
under Section 162(m) of the Code and the regulations thereunder; and provided
further, that the number of Shares subject to any Award denominated in Shares
shall always be a whole number.
SECTION 6
(a) Stock Options. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Employees to
whom Options shall be granted, the number of Shares to be covered by each
Option, the option price therefor and the conditions and limitations applicable
to the exercise of the Option. The Committee shall have the authority to grant
Incentive Stock Options, Nonqualified Stock Options or both. In the case of
Incentive Stock Options, the terms and conditions of such grants shall be
subject to and comply with such rules as may be required by Section 422 of the
Code, as from time to time amended, and any implementing regulations. Except in
the case of an Option granted in assumption of or substitution for an
outstanding award of a company acquired by the Company or with which the Company
combines, the exercise price of any Option granted under this Plan shall not be
less than 100% of the fair market value of the underlying Shares on the date of
grant.
(b) Exercise. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter, provided,
however, that in no event may any Option granted hereunder be exercisable after
the expiration of 10 years after the date of such grant. The Committee may
impose such conditions with respect to the exercise of Options, including
without limitation, any condition relating to the application of Federal or
state securities laws, as it may deem necessary or advisable.
VII-4
<PAGE>
(c) Payment. No Shares shall be delivered pursuant to any exercise
of an Option until payment in full of the option price therefor is received by
the Company. Such payment may be made in cash, or its equivalent, or, if and to
the extent permitted by the Committee, by applying cash amounts payable by the
Company upon the exercise of such Option or other Awards by the holder thereof
or by exchanging whole Shares owned by such holder (which are not the subject of
any pledge or other security interest), or by a combination of the foregoing,
provided that the combined value of all cash, cash equivalents, cash amounts so
payable by the Company upon exercises of Awards and the fair market value of any
such whole Shares so tendered to the Company, valued (in accordance with
procedures established by the Committee) as of the effective date of such
exercise, is at least equal to such option price.
SECTION 7
(a) Stock Appreciation Rights. Subject to the provisions of the
Plan, the Committee shall have sole and complete authority to determine the
Employees to whom Stock Appreciation Rights shall be granted, the number of
Shares to be covered by each Stock Appreciation Right, the grant price thereof
and the conditions and limitations applicable to the exercise thereof. Stock
Appreciation Rights may be granted in tandem with another Award, in addition to
another Award, or freestanding and unrelated to any other Award. Stock
Appreciation Rights granted in tandem with or in addition to an Option or other
Award may be granted either at the same time as the Option or other Award or at
a later time. Stock Appreciation Rights shall not be exercisable after the
expiration of 10 years after the date of grant. Except in the case of a Stock
Appreciation Right granted in assumption of or substitution for an outstanding
award of a company acquired by the Company or with which the Company combines,
the grant price of any Stock Appreciation Right granted under this Plan shall
not be less than 100% of the fair market value of the Shares covered by such
Stock Appreciation Right on the date of grant or, in the case of a Stock
Appreciation Right granted in tandem with a then outstanding Option or other
Award, on the date of grant of such related Option or Award.
(b) A Stock Appreciation Right shall entitle the holder thereof to
receive an amount equal to the excess, if any, of the fair market value of a
Share on the date of exercise of the Stock Appreciation Right over the grant
price. Any Stock Appreciation Right shall be settled in cash, unless the
Committee shall determine at the time of grant of a Stock Appreciation Right
that it shall or may be settled in cash, Shares or a combination of cash and
Shares.
SECTION 8
(a) Limited Rights. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Employees to
whom Limited Rights shall be granted, the number of Shares to be covered by each
Limited Right, the grant price thereof and the conditions and limitations
applicable to the exercise thereof. Limited Rights may be granted in tandem with
another Award, in addition to another Award, or freestanding and unrelated to
any Award. Limited Rights granted in tandem with or in addition to an Award may
be granted either at the same time as the Award or at a later time. Limited
Rights shall not be exercisable after the expiration of 10 years after the date
of grant and shall only be exercisable during a period determined at the time of
grant by the Committee beginning not earlier than one day and ending not more
than ninety days after the expiration date of an Offer. Except in the case of a
Limited Right granted in assumption of or substitution for an outstanding award
of a company acquired by the Company or with which the Company combines, the
grant price of any Limited Right granted under this Plan shall not be less than
100% of the fair market value of the Shares covered by such Limited Right on the
date of grant or, in the case of a Limited Right granted in tandem with a then
outstanding Option or other Award, on the date of grant of such related Option
or Award.
VII-5
<PAGE>
(b) A Limited Right shall entitle the holder thereof to receive an
amount equal to the excess, if any, of the Offer Price on the date of exercise
of the Limited Right over the grant price. Any Limited Right shall be settled
in cash, unless the Committee shall determine at the time of grant of a Limited
Right that it shall or may be settled in cash, Shares or a combination of cash
and Shares.
SECTION 9
(a) Other Stock-Based Awards. The Committee is hereby authorized to
grant to eligible Employees an "Other Stock-Based Award", which shall consist of
an Award, the value of which is based in whole or in part on the value of
Shares, that is not an instrument or Award specified in Sections 6 through 8 of
this Plan. Other Stock-Based Awards may be awards of Shares or may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without limitation,
securities convertible or exchangeable into or exercisable for Shares), as
deemed by the Committee consistent with the purposes of the Plan. The Committee
shall determine the terms and conditions of any such Other Stock-Based Award.
Except in the case of an Other Stock-Based Award granted in assumption of or in
substitution for an outstanding award of a company acquired by the Company or
with which the Company combines, the price at which securities may be purchased
pursuant to any Other Stock-Based Award granted under this Plan, or the
provision, if any, of any such Award that is analogous to the purchase or
exercise price, shall not be less than 100% of the fair market value of the
securities to which such Award relates on the date of grant.
(b) Dividend Equivalents. In the sole and complete discretion of the
Committee, an Award, whether made as an Other Stock-Based Award under this
Section 9 or as an Award granted pursuant to Sections 6 through 8 hereof, may
provide the holder thereof with dividends or dividend equivalents, payable in
cash, Shares, Subsidiary securities, other securities or other property on a
current or deferred basis.
SECTION 10
(a) Amendments to the Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement. Notwithstanding
anything to the contrary contained herein, the Committee may amend the Plan in
such manner as may be necessary for the Plan to conform with local rules and
regulations in any jurisdiction outside the United States.
(b) Amendments to Awards. The Committee may amend, modify or
terminate any outstanding Award with the holder's consent at any time prior to
payment or exercise in any manner not inconsistent with the terms of the Plan,
including without limitation, (i) to change the date or dates as of which an
Award becomes exercisable, or (ii) to cancel an Award and grant a new Award in
substitution therefor under such different terms and conditions as it determines
in its sole and complete discretion to be appropriate.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 5(b) hereof) affecting the Company, or the financial
statements of the Company or any Subsidiary, or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan.
VII-6
<PAGE>
(d) Cancellation. Any provision of this Plan or any Award Agreement
to the contrary notwithstanding, the Committee may cause any Award granted
hereunder to be cancelled in consideration of a cash payment or alternative
Award made to the holder of such cancelled Award equal in value to such
cancelled Award. The determinations of value under this subparagraph shall be
made by the Committee in its sole discretion.
SECTION 11
(a) Delegation. Subject to the terms of the Plan and applicable law,
the Committee may delegate to one or more officers of the Company the authority,
subject to such terms and limitations as the Committee shall determine, to grant
Awards to, or to cancel, modify or waive rights with respect to, or to alter,
discontinue, suspend, or terminate Awards held by, Employees who are not
officers or directors of the Company for purposes of Section 16 of the Exchange
Act, or any successor section thereto, or who are otherwise not subject to such
Section.
(b) Award Agreements. Each Award hereunder shall be evidenced by a
writing delivered to the Participant that shall specify the terms and conditions
thereof and any rules applicable thereto, including but not limited to the
effect on such Award of the death, retirement or other termination of employment
of the Participant and the effect thereon, if any, of a change in control of the
Company.
(c) Withholding. A Participant may be required to pay to the
Company, and the Company shall have the right to deduct from all amounts paid to
a Participant (whether under the Plan or otherwise), any taxes required by law
to be paid or withheld in respect of Awards hereunder to such Participant. The
Committee may provide for additional cash payments to holders of Awards to
defray or offset any tax arising from the grant, vesting, exercise or payment of
any Award.
(d) Transferability. No Awards granted hereunder may be transferred,
pledged, assigned or otherwise encumbered by a Participant except: (i) by will;
(ii) by the laws of descent and distribution; (iii) pursuant to a domestic
relations order, as defined in the Code, if permitted by the Committee and so
provided in the Award Agreement or an amendment thereto; or (iv) if permitted by
the Committee and so provided in the Award Agreement or an amendment thereto,
Options and Limited Rights granted in tandem therewith may be transferred or
assigned (a) to Immediate Family Members, (b) to a partnership in which
Immediate Family Members, or entities in which Immediate Family Members are the
owners, members or beneficiaries, as appropriate, are the partners, (c) to a
limited liability company in which Immediate Family Members, or entities in
which Immediate Family Members are the owners, members or beneficiaries, as
appropriate, are the members, or (d) to a trust for the benefit of Immediate
Family Members; provided, however, that no more than a de minimus beneficial
interest in a partnership, limited liability company or trust described in (b),
(c) or (d) above may be owned by a person who is not an Immediate Family Member
or by an entity that is not beneficially owned solely by Immediate Family
Members. "Immediate Family Members" shall be defined as the spouse and natural
or adopted children or grandchildren of the Participant and their spouses. To
the extent that an Incentive Stock Option is permitted to be transferred during
the lifetime of the Participant, it shall be treated thereafter as a
Nonqualified Stock Option. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of Awards, or levy of attachment or similar
process upon Awards not specifically permitted herein, shall be null and void
and without effect. The designation of a Designated Beneficiary shall not be a
violation of this Section 11(d).
(e) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the Plan or the rules, regulations, and
other requirements of the SEC, any stock exchange upon which such Shares or
other securities are then listed, and
VII-7
<PAGE>
any applicable federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
(f) No Limit on Other Compensation Arrangements. Nothing contained
in the Plan shall prevent the Company from adopting or continuing in effect
other compensation arrangements, which may, but need not, provide for the grant
of options, stock appreciation rights and other types of Awards provided for
hereunder (subject to stockholder approval of any such arrangement if approval
is required), and such arrangements may be either generally applicable or
applicable only in specific cases.
(g) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Subsidiary or in the employ of any other entity providing
services to the Company. The Company or any Subsidiary or any such entity may
at any time dismiss a Participant from employment, free from any liability or
any claim under the Plan, unless otherwise expressly provided in the Plan or in
any Award Agreement. No Employee, Participant or other person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Employees, Participants or holders or beneficiaries of Awards.
(h) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan and any Award Agreement
shall be determined in accordance with the laws of the State of Delaware.
(i) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.
(j) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company pursuant to an Award, such right shall be no greater than the right
of any unsecured general creditor of the Company.
(k) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities or other property shall be paid or transferred in
lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be cancelled, terminated, or otherwise eliminated.
(l) Headings. Headings are given to the subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 12
Effective Date of the Plan. The Plan shall be effective as of the date
of its approval by the stockholder of the Company.
VII-8
<PAGE>
SECTION 13
Term of the Plan. No Award shall be granted under the Plan after the
tenth anniversary of the effective date of the Plan; however, unless otherwise
expressly provided in the Plan or in an applicable Award Agreement, any Award
theretofore granted may, and the authority of the Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such Award or to waive any
conditions or rights under any such Award shall, extend beyond such date.
VII-9
<PAGE>
FRONT OF CARD
- --------------------------------------------------------------------------------
MCMORAN OIL & GAS CO.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR SPECIAL MEETING OF
STOCKHOLDERS, ___________ __, 1997
The undersigned hereby appoints James R. Moffett, Richard C. Adkerson and C.
Howard Murrish as proxies, with full power of substitution, to vote the shares
of the undersigned in McMoRan Oil & Gas Co. at the Special Meeting of
Stockholders to be held on ____________, _____________ ___, 1997, at 9:00 a.m.,
and at any adjournment thereof, on all matters coming before the meeting. THE
PROXIES WILL VOTE: (1) AS YOU SPECIFY ON THE BACK OF THIS CARD, (2) AS THE BOARD
OF DIRECTORS RECOMMENDS WHERE YOU DO NOT SPECIFY YOUR VOTE ON THE MATTERS LISTED
ON THE BACK OF THIS CARD AND (3) AS THE PROXIES DECIDE ON ANY OTHER MATTER.
If you wish to vote on the matters as the Board of Directors recommends, please
sign, date and return this card.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
(continued on reverse side)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BACK OF CARD
Please mark [x]
your votes as
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
FOR AGAINST ABSTAIN
ITEM 1 - Approval of the Recapitalization [ ] [ ] [ ]
Proposal as described in the
Proxy Statement
ITEM 2 - Approval of the proposal to [ ] [ ] [ ]
amend the 1994 Stock Option Plan
for Non-Employee Directors
ITEM 3 - Approval of the proposal to [ ] [ ] [ ]
amend the 1994 Stock Option Plan
SIGNATURE(S) DATED: , 1997
------------------------------------ -----------------
YOU MAY SPECIFY YOUR VOTE BY MARKING THE APPROPRIATE BOX ON THIS SIDE. YOU NEED
NOT MARK ANY BOX, HOWEVER, IF YOU WISH TO VOTE THE ITEM IN ACCORDANCE WITH THE
BOARD OF DIRECTORS' RECOMMENDATION. IF YOUR VOTE IS NOT SPECIFIED, THIS PROXY
WILL BE VOTED FOR ITEMS 1, 2 AND 3.
- --------------------------------------------------------------------------------
